KION Group Annual Report 2018

Plain-text annual report

A N N U A L R E P O R T KION Group Key figures for 2018 KION Group overview in € million Order intake Revenue Order book 1, 2 Financial performance EBITDA Adjusted EBITDA ³ Adjusted EBITDA margin ³ EBIT Adjusted EBIT ³ Adjusted EBIT margin ³ 2018 8,656.7 7,995.7 3,300.8 1,540.6 1,555.1 19.4% 642.8 789.9 9.9% 2017 * 7,979.1 7,598.1 2,614.6 1,457.6 1,495.8 19.7% 561.0 777.3 10.2% 2017 7,979.1 7,653.6 2,614.6 1,185.7 1,223.9 16.0% 549.4 765.6 10.0% 2016 5.833,1 5.587,2 2.396,6 889,5 931,6 16.7% 434,8 537,3 9.6% Change 2018 / 2017 * 8.5% 5.2% 26.2% 5.7% 4.0% – 14.6% 1.6% – Net income 401.6 422.5 426.4 246,1 – 4.9% Financial position ¹ Total assets Equity Net financial debt ROCE 4 Cash flow Free cash flow 5 Capital expenditure 6 12,968.8 12,337.7 11,228.4 11.297,0 3,305.1 1,869.9 9.3% 519.9 258.5 2,992.3 2,095.5 9.3% 474.3 218.3 3,148.8 2,095.5 9.9% 2.495,7 2.903,4 6.9% 378.3 218.3 – 1,850.0 166.7 5.1% 10.5% – 10.8% – 9.6% 18.4% Employees 7 33,128 31,608 31,608 30,544 4.8% 1 Figures as at balance sheet date 31/12/ (adjusted due to the final purchase price allocation Dematic) 2 Order backlog 2016 adjusted to reflect specific customer orders from long-term construction contracts in the segment SCS 3 Adjusted for PPA items and non-recurring items 4 ROCE is defined as the proportion of EBIT adjusted to capital employed 5 Free cash flow is defined as cash flow from operating activities plus cash flow from investing activities 6 Capital expenditure including capitalised development costs, excluding right-of-use assets 7 Number of employees (full-time equivalents) as at balance sheet date 31/12/ * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 All amounts in this annual report are disclosed in millions of euros (€ million) unless stated otherwise. Due to rounding effects, addition of the individual amounts shown may result in minor rounding differences to the totals. The percentages shown are calculated on the basis of the respective amounts, rounded to the nearest thousand euros (€ thousand). DIGITAL AND BE YOND Digitalisation is not simply a buzzword in the KION Group. In fact, it has been a firm part of our DNA for years. Our digital strategy sets a course for the Group’s profitable growth in the digital age. We are pressing ahead with our digital transformation, and digital innovation is opening up unimaginable opportunities for our customers. Contents 2 4 A 8 14 16 28 32 B 36 C 48 49 63 96 109 113 D 136 137 138 140 142 144 256 264 E 268 269 270 271 271 Company Digital and beyond TO OUR SHAREHOLDERS Letter to shareholders Executive Board Report of the Supervisory Board KION shares Services for shareholders CORPORATE GOVERNANCE Corporate governance report COMBINED MANAGEMENT REPORT Preliminary remarks Fundamentals of the KION Group Report on the economic position Outlook, risk report and opportunity report Disclosures relevant to acquisitions Remuneration report CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements Independent auditors’ report Responsibility statement ADDITIONAL INFORMATION Quarterly information Multi-year overview Disclaimer Financial calendar Contact Company profile The KION Group is a global leader in industrial trucks, warehouse technology, related services and supply chain solutions. Across more than 100 countries worldwide, the KION Group’s logistics solutions opti- mise the flow of material and information within facto- ries, warehouses and distribution centres. The Group is the largest manufacturer of industrial trucks in Europe, the second-largest producer of forklifts globally and a leading provider of automation technology and software solutions. The KION Group’s world-renowned brands are among the best in the industry. Dematic is a global leader in automated material handling, providing a comprehen- sive range of intelligent supply chain and automation solutions. The Linde and STILL brands serve the pre- mium industrial truck segment. Baoli focuses on indus- trial trucks in the economy segment. Among the regio- nal KION brands, Fenwick is the largest supplier of material handling products in France. OM Voltas is a leading provider of industrial trucks in India. More than 1.4 million industrial trucks and over 6,000 installed systems from the KION Group are deployed by customers in all industries and of all sizes on six continents. We keep the world moving. COMPANY Industry 4.0 The KION Group adds value in production and logistics I N T E L L I G E N T T R U C K S Smart trucks with electronic control units Driver assistance systems for greater efficiency C L O U D - B A S E D D A T A M A N A G E M E N T Fleet data services for centralised control and tracking Fleet optimisation provides finan- cial benefits and improved safety A U T O M A T E D G U I D E D V E H I C L E S ( A G V s ) Full range of automated trucks Enables automation of material handling processes A U T O M A T I O N S Y S T E M S Customised and integrated hardware and software solutions Robotics solutions for order picking Annual Report 2018 KION GROUP AG COMPANY Segments I N D U S T R I A L T R U C K S & S E R V I C E S S U P P L Y C H A I N S O L U T I O N S The Industrial Trucks & Services segment encompasses forklift The Supply Chain Solutions segment encompasses integrated trucks, warehouse technology and related services, including technology and software solutions that are used to optimise complementary financial services. It pursues a multi-brand supply chains. Manual and automated solutions are provided for strategy involving the three international brands Linde, STILL all functions along customers’ supply chains, from goods inward and Baoli plus the regional brands Fenwick and OM Voltas. and multishuttle warehouse systems to picking and value-added packing. The Supply Chain Solutions segment comprises the Industrial Trucks & Services is made up of four Operating Dematic brand. Units: Linde Material Handling EMEA and STILL EMEA, which each concentrate on Europe, the Middle East and Africa, plus KION APAC and KION Americas, which hold cross-brand responsibility for the Asia-Pacific region and for North and South America respectively. G N I T A R E P O S T I N U S D N A R B S T C U D O R P L I N D E M H E M E A S T I L L E M E A K I O N A M E R I C A S K I O N A P A C Counterbalance trucks with electric drive Counterbalance trucks with IC engine Warehouse technology: ride-on industrial trucks Warehouse technology: hand-operated industrial trucks Towing vehicles Automated trucks and autonomous trucks G N I T A R E P O S T I N U S D N A R B S T C U D O R P D E M A T I C Conveyors Sorters Storage and retrieval systems Picking equipment Palletisers Robotics solutions C O R P O R A T E S E R V I C E S The Corporate Services segment comprises holding companies and other service companies that provide services such as IT and logistics across all segments. I N T E R N A L S E R V I C E S H O L D I N G C O M P A N Y F U N C T I O N S Annual Report 2018 KION GROUP AG DIGITAL AND BE YOND Digitalisation is a key field of action of our KION 2027 strategy, and we are transforming the Company in order to remain the market leader in a digital world. We are developing digital solutions that improve the efficiency of our customers’ intralogistics and digitalising our internal pro- cesses to increase our performance. The grow- ing use of digital technologies is also the focus of our research and development activities, K I O N D I G I TA L CA M P U S through which we are defining and shaping the future of intralogistics – from conventional to digital and beyond. The innovation lab for the digital revolution. More information on these topics is available here: kiongroup.com Patrick Tomczak and his team are working on the future of intralo- gistics I N D U ST R I A L I N D O O R LO CA L I S AT I O N A M A P FO R TRUCKS . Digital maps that simplify processes and allow trucks to find their routes KION GROUP AGAnnual Report 2018 5 R O B OT I C S Software that speeds up processes. Machine learning that enables sophisticated product recognition and high throughput of goods Data analysis, cloud architecture and networked machines represent a paradigm shift I N T E R N E T O F T H I N G S Progress through networking. V I R T UA L WA R E H O U S E O P T I M I S AT I O N Simulations provide planning certainty. Proactive warehouse management using innovative software solutions KION GROUP AGAnnual Report 2018TO OUR SHAREHOLDERS Contents 7 TO OUR SHAREHOLDERS 8 14 16 28 32 LETTER TO SHAREHOLDERS EXECUTIVE BOARD REPORT OF THE SUPERVISORY BOARD KION SHARES SERVICES FOR SHAREHOLDERS KION GROUP AGAnnual Report 2018TO OUR SHAREHOLDERS Letter to Shareholders 8 Letter to Shareholders Dear shareholders, customers, partners, employees and friends of the KION Group, We all experience on a daily basis how rapidly the world around us is changing. The rate of progress is accelerating; product and innovation cycles are getting shorter. In the Information Age, connectivity and the sharing of data are the new success factors. The Internet of Things, which links the physical with the virtual, is opening up unimagin able opportunities. One megatrend in particular – digitalisation – has emerged as an important driver that will also have a lasting influence on intralogistics. Digitalisation is transforming our world, and the way in which we live and work. For us, this change is an opportunity to help shape the future of Industry 4.0 on behalf of our customers and to define the key intralogistics technologies of tomorrow. The challenge is great, but it is one that we are fully motivated and fully committed to meeting. Our mission is to remain the vanguard of our industry Last year, we demonstrated yet again that we are the vanguard of our industry. Our unique range of products and services enabled us to consolidate our position as the global number two for forklift trucks and warehouse technology and a leading supplier of supply chain solutions. Automation and digitalisation are part of our DNA. Our automated systems serve as a benchmark in the intralogistics sector. But we are not content to rest on our laurels and have created a dedicated Executive Board role for digitalisation in order to maintain and build on our technological leadership. The appointment of Susanna Schneeberger as Chief Digital Officer (CDO) highlights the importance that we are attaching to digitalisation and automation under our KION 2027 strategy. Back in January, we launched the Digital Campus, an innovation laboratory that gives strategists, user experience designers and developers a forum for collabo rating on quickturnaround digital projects. Annual Report 2018 KION GROUP AG 8 TO OUR SHAREHOLDERS Letter to Shareholders 9 GORDON RISKE CEO Digital solutions have been an important part of our product range for a number of years. Beyond these recent initiatives, digital solutions have been an important and growing part of our product range for a number of years and are strengthening our position as an industry leader. Linde Safety Pilot and other intelligent assistance systems are enhancing warehouse safety, dynamic mast control is counteracting mast oscillation in reach trucks and autonomous picking trucks such as STILL’s iGo neo are easing the workload of operatives. The collection, smoothing and analysis of data are presenting opportunities for intralogistics that we are creating for our customers through the medium of warehouse management software and digital fleet management. Solutions such as Linde connect and STILL neXXt fleet can optimise capacity utilisation and raise productivity. Many other applications, including special servicing apps and pre dictive maintenance for industrial trucks, are facilitating the work of our customers and their employees. Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Letter to Shareholders 10 Many of our solutions facilitate the work of our customers and their employees. Market leader in mobile automation Automation is also a top priority for us. In the area of automated order pickers and storage and retrieval systems, we are the global market leader. We can meet our customers’ growing demand for speed and precision in logistics. Our automated guided vehicles (AGVs) deliver huge benefits wherever applications require continuous throughput or recurring processes can be automated. Guided by a laser scanner, for example, they are able to move on their own and transport, store and retrieve goods. We have established ourselves as a leading supplier of automated systems thanks to Dematic’s broadranging portfolio. Every Dematic system uses the Dematic iQ software platform, which consolidates all key data related to warehouse operations and delivers significant efficiency gains. It allows us to greatly improve our customers’ warehouse processes – whether the workflows are manual, semiautomated or fully automated. Our robotic picking system is a softwarecontrolled robot arm that is equipped with sensors and visual processing capabilities and has the ability to grip objects. Because the system is more efficient at completing repetitive tasks, it can accelerate ware house processes. The next steps in our innovation drive As proud as we are of these achievements, we are not content to let them be our only successes as we continue on our path towards the future of intralogistics. With every innovation, we create important new benefits that give our customers a com petitive edge. This is what drives us. Annual Report 2018 KION GROUP AG 10 TO OUR SHAREHOLDERS Letter to Shareholders 11 Our developers and IT specialists are working on many other highpotential projects. One of these is our virtual facility software, an online tool that will enable customers to simulate their plans for warehouse expansion. It will make planning much easier and dramatically reduce the number of problems that occur when the new facilities are brought on stream. The KION cloud is the latest and perhaps most comprehensive pro ject in our innovation drive. It is a virtual service centre that gives customers wanting to record and analyse their intralogistics data unlimited capacity and flexibility. We can use this data to develop solutions tailored to their specific challenges in fields ranging from the Internet of Things to artificial intelligence. The KION cloud is the common link between all our activities, which are not only supporting the transformation of intralo gistics, but actively shaping it. We are taking digitalisation and automation to their logical conclusion. Many of our customers are waiting for the fully automated warehouse, which will no longer need to be lit. It requires humans to only be available to monitor the systems. In many of the world’s metropolitan regions, warehouse operatives are becoming as scarce a resource as space to locate the warehouses. Thus our customers are sure to be pleased that our automated solutions are helping them inch closer towards the goal of a ‘lightsout’ warehouse. The forklift truck business and related services, including financial services, continue to play a key role alongside the development of future technologies. Our Operating Units again launched a variety of important product innovations last year. STILL brought the awardwinning RX20 electric forklift truck to the market and reached a milestone in the use of trucks powered by fuel cells. Linde Material Handling rounded out its lithiumion product range and is now offering customers a choice between leadacid and lithiumion batteries in nearly all its warehouse trucks. This has taken us beyond intralogistics to become a leading innovator in drive systems. Intralogistics has become the key competitive factor in today´s web economy. Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Letter to Shareholders 12 With important capital expenditure we are laying the foundations for success in the years ahead. Upward trend despite unexpected challenges In 2018, our marketleading products and solutions enabled us to build on the upward trend of recent years. Order intake rose by 8.5 per cent yearonyear to reach a record €8.7 billion, which gives us a healthy basis for 2019 and beyond. We also achieved our outlook for all other key performance indicators, despite the major challenges that faced us during the year related to currency effects, the higher cost of materials, increased personnel expenses and inefficiencies in production caused by bottlenecks at individual suppliers. Revenue increased by 5.2 per cent to almost €8 billion. At €643 million, EBIT was 14.6 per cent higher than the figure for the previous year, while net income amounted to €402 million. Ecommerce, retail, wholesale and production supply chains, and a global economy based on the division of labour – our products and solutions help all of them to function smoothly. Our connected forklift trucks, our automated warehouse systems and, not least, our software are making the logistics chains that form the backbone of the world’s economy increasingly efficient. Intralogistics has become the key competitive factor in today’s web economy. Our industry’s exceptional growth rates are a reflection of this. The intralogistics market has consistently been expanding at a faster rate than the global economy in recent decades. And the prospects for further growth in the coming years look attractive as well. Worldwide demand for industrial trucks is pro jected to increase by around four per cent a year and demand for supply chain solutions is expected to see a high single digit percentage increase over the medium term. We will be looking to benefit from these growth markets by offering many new products, services and software solutions as well as a sales and service network that is unparalleled in our industry. Annual Report 2018 KION GROUP AG 12 TO OUR SHAREHOLDERS Letter to Shareholders 13 Key investments in the future In the year ahead, in order to fully exploit this growth potential, we will be continuing to invest in innovative products and solutions and in expanding our capacities. To help achieve the latter, we are building an additional plant in Poland that is scheduled to come on stream in 2020. In our longterm planning for production and plant structure, we specified which sites will be manufacturing which products going forward. The main plants of Linde Material Handling in Aschaffenburg and STILL in Hamburg will focus on highermargin, premium products. At these locations too, we will continue investing in expanding capacities and in new production technologies. This capital expenditure is important and essential and with it we are laying the foundations for success and growth in the years ahead. On behalf of my colleagues on the Executive Board, I would like to personally thank our employees for the excellent results we achieved in 2018. It was a real team effort. Your unfailing dedication to our customers, your creativity and your commitment to our shared values make us the successful company that we are today. The KION Group is entering 2019 in very good shape. The order books are well filled and, in the coming year alone, we will bring around 50 new products and solutions to market. In 2019, as a leading innovator in our industry, we will be looking to again capitalise on the huge opportunities presented to us by digitalisation, automation and the other factors driving the growth of logistics. With best wishes, Gordon Riske Chief Executive Officer KION GROUP AG Annual Report 2018 KION GROUP AG 14 TO OUR SHAREHOLDERS Executive Board Executive Board of KION GROUP AG GORDON RISKE Chief Executive Officer (CEO) born in 1957 in Detroit (USA) DR EIKE BÖHM ANKE GROTH Chief Technology Officer (CTO) born in 1962 in Pforzheim (Germany) Chief Financial Officer (CFO) and Labour Relations Director born in 1970 in Gelsenkirchen (Germany) CHING PONG QUEK SUSANNA SCHNEEBERGER Chief Asia Pacific Officer born in 1967 in Batu Pahat /Johor (Malaysia) Chief Digital Officer (CDO) born in 1973 in Uppsala (Sweden) Annual Report 2018 KION GROUP AG 14 Susanna Schneeberger Gordon Riske Dr Eike Böhm Ching Pong Quek Anke Groth TO OUR SHAREHOLDERS Report of the Supervisory Board 16 Report of the Supervisory Board of KION GROUP AG Dear shareholders, The developments of 2018 fully vindicated the basic assumptions and projected trends that underpin the KION 2027 strategy. In all key regions of our global business, demand for industrial trucks is expanding at around twice the rate of gross national product. The growth in demand is even stronger for the kind of integrated, connected and increasingly automated intralogistics systems that are being employed in the factories and warehouses of industry, retail and wholesale. The KION Group, as a leading global supplier of supply chain solutions and the world’s second-largest manufacturer of industrial trucks, is playing an active role in shaping this trend. 2018 was another highly successful year for the Company. As part of their general dialogue on strategy during the reporting period, the Executive Board and Supervisory Board endorsed the agreed KION 2027 strategy and discussed its ongoing implementation. Following the acquisition of Dematic, the Company is systematically building on the capabilities and solutions that will allow it to bring digitalisation, connectivity and automation to bear in intralogistics. Strengthening of the Executive Board: focus on digitalisation, automation and innovation The creation of the role of Chief Digital Officer (CDO) has combined responsibility for digitalisation and mobile automation at the Executive Board level. Susanna Schneeberger, KION Group’s first CDO, brings years of international leadership experience in intralo- gistics with particular expertise in digitalisation, connectivity and automation. We extended Dr Eike Böhm’s contract as Chief Technology Officer by three years. We are thus ensuring continuity in the ongoing advancement of the Company’s core technologies, in product development and in the production system. Reaping synergies, continually improving efficiency and effectiveness in production and presenting truck solutions that meet fast-changing customer requirements in the various markets will remain the focus in the coming years. Our objective is clear: for KION to continue to be a leading supplier, offering an extensive portfolio of industrial trucks that meet the very wide-ranging needs of customers around the world. Annual Report 2018 KION GROUP AG 16 TO OUR SHAREHOLDERS Report of the Supervisory Board 17 DR JOHN FELDMANN Chairman In Anke Groth, we have recruited an excellent and experienced Chief Financial Officer. She is sharpening the tools that KION uses for analysis and for managing the Company with a view to increasing shareholder value. As Labour Relations Director, she influences the corporate culture and the development of our employees in an increasingly digital working world. Ching Pong Quek is responsible for developing our strategy in the Asian markets, which are exceptionally important to our industry and so also to KION. We will be using a series of initiatives to build on our position in China in particular but also in the region’s other fast-growing economies. Under the experienced and proven leadership of our Chief Executive Officer, Gordon Riske, the Executive Board team of KION GROUP AG is now in an excellent position to meet its current and future challenges. Strategy and changes to the composition of the Executive Board to bring it in line with future needs were key themes in our work on the Supervisory Board last year. In a spirit of collaboration for the benefit of the Company as well as its customers, employees and owners, the Executive Board team will be focused on working with courage and integrity to ensure the long-term success of the KION Group. It has at its disposal a broad range of expertise and experience in engineering, truck manufacturing and intralogistics, in digitalisation, connectivity and automation, and also in corporate management and the establishment of strong corporate cultures. Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Report of the Supervisory Board 18 As would be expected, implementation of the KION 2027 strategy in the reporting year and the tasks and challenges facing the operational business were the subject of discussion at every meeting of the Supervisory Board and its committees. Servicing and aftersales will continue to play a key role in delivering consistent profitable growth for the Company alongside the development and delivery of intralogistics solutions and the manufacture of trucks and equipment. Targets achieved despite difficult conditions The KION Group proved to be a reliable performer yet again in 2018. Every aspect of the outlook for the reporting year was borne out by the actual results. Achieving this was not always easy in 2018. Like many other companies, the KION Group is reliant on suppliers of key components. And it became clear that these suppliers were not always able to cope with the increasing volumes that were required. Delivery delays, rising inventories, costs and an impact on revenue were the result. Thanks to the hard work of all employees, however, the Company was able to largely contain the effects. The growing number of global trade disputes and their often severe after-effects left their mark on the Company’s operating profit, as did exchange rate fluctuations that were partly caused by the trade disputes. But because of the hard work of all employees, the clear strategy and the systematic implementation of its measures, the targets formulated in the outlook were achieved and the faith that our partners put in us was repaid. The Supervisory Board had, as in previous years, agreed very ambitious targets with the members of the Executive Board which are aligned to the upper end of the ranges in the outlook. These targets were exceeded with regard to order intake. How- ever, they were not fully achieved when it comes to revenue, earnings and cash flow. This will affect the Executive Board’s variable remuneration. In addition, neither we nor the shareholders of KION GROUP AG were satisfied with the share’s performance. Against the backdrop of trade disputes and concerns in the markets about a slowdown in global economic growth, our share price fell signifi- cantly – in line with the general trend. This and the question of what would constitute an appropriate response were the subject of intense discussion by the Supervisory Board. In the second and third quarter, the effects of the delivery delays raised con- cerns and doubts in the capital markets; there was speculation about profit warnings. However, the Company’s results were in line with its outlook and thus proved the robustness of its forecasting, its strategy and its efficiency. Annual Report 2018 KION GROUP AG 18 TO OUR SHAREHOLDERS Report of the Supervisory Board 19 Collaboration between the Supervisory Board and Executive Board Last year, the Supervisory Board continued to fulfil the tasks and responsibilities imposed on it by the law, the Company’s articles of association and the German Corporate Governance Code with dedication and diligence. As in previous years, the Supervisory Board discussed numerous other issues and transactions requiring consent, made necessary decisions, regularly advised the Executive Board on all significant matters relating to managing the Company and monitored the Executive Board’s running of the Company’s business. The Supervisory Board was always fully involved in major decisions affecting the Company from an early stage. The Executive Board always notified the Supervisory Board of every significant aspect of the decisions to be made promptly and in detail, providing both written and oral reports. Between meetings of the Supervisory Board and between those of its committees, the chairman of the Supervisory Board, who is also chairman of its Executive Committee, remained in close contact at all times with the Executive Board, particularly the Chief Executive Officer and the Chief Financial Officer. There was also regular contact between the chairman of the Audit Committee and both the Chief Financial Officer and those responsible for internal audit and compliance in the Company. The Supervisory Board satisfied itself at all times that the Company was being managed lawfully and diligently by the Executive Board. Giving the specified period of notice, the Executive Board presented to the Supervisory Board transactions that, according to the law, the Company’s articles of association or the rules of procedure for the Executive Board of KION GROUP AG, require the Supervisory Board’s consent so that it could adopt resolutions. The Supervisory Board examined closely the resolutions proposed by the Executive Board and deliberated on them before adopting them. Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Report of the Supervisory Board 20 Sustainability report The Supervisory Board discussed in detail the report on non-financial key performance indicators for the financial year 2017 (sustainability report), which was produced for the first time after having been piloted for the financial year 2016. In the opinion of the Supervisory Board, business management focused on sustainability provides the Company with a ‘licence to operate’, i.e. a basis for society’s acceptance of the Com- pany and its business model. The report documents the Company’s existing sustaina- bility management processes and those that are being implemented. Taking its cue from the initial voluntary sustainability report presented in 2017, the Supervisory Board discussed the topic with the Executive Board and the relevant managers in the Company. The Supervisory Board engaged the auditors to review the content of the non-financial Group report for 2018 pursuant to section 315b of the German Com- mercial Code (HGB). It will take account of the auditors’ assessment in its own review of the non-financial Group report and in the resolution to be adopted. The sustainability report, including the non-financial Group report, will be published on the Company’s website by 30 April 2019. Corporate governance Data protection and data security are integral elements of our business processes. Greater digitalisation requires personal integrity, particularly when working with IT systems. At the end of May 2018, the largely harmonised new regulations pertaining to data protection at European Union level came into force. The Supervisory Board discussed at great length the consequences of this and the Company’s preparations to implement the new requirements and received reports on the matter from the Executive Board. In the second half of the year, another review was carried out of the efficiency of the Supervisory Board’s work. External consultants were engaged, as they were for the previous efficiency review, in 2015. The findings of the review were presented and discussed at the December meeting of the Supervisory Board. As was the case in 2015, the reviewers gave a very good assessment of the work of the Company’s Supervisory Board. The members of the Supervisory Board saw it as a particular positive that suggestions for improvements to the Supervisory Board’s processes resulting from the previous efficiency review had been taken up and implemented. Annual Report 2018 KION GROUP AG 20 TO OUR SHAREHOLDERS Report of the Supervisory Board 21 No amendments were made to the German Corporate Governance Code in 2018. At its meeting on 12 December 2018, the Supervisory Board held its final discussion on the KION Group’s compliance with the unchanged recommendations and suggestions of the German Corporate Governance Code and issued an unchanged comply-or- explain statement pursuant to section 161 of the German Stock Corporation Act (AktG). This has been made permanently available to the public on the KION GROUP AG website. KION GROUP AG complies with all but one of the recommendations in the German Corporate Governance Code (version dated 7 February 2017) and intends to continue to do so in future. As in previous years, the only recommendation of the Code with which KION GROUP AG does not comply is the recommendation in sec- tion 3.8 (3) of the Code for an excess in the D&O insurance policies for members of the Supervisory Board. KION GROUP AG’s articles of association do not provide for this type of excess. The Company believes that such an excess is not typical at international level and would therefore make it considerably more difficult to find inde- pendent candidates, in particular candidates from outside Germany. The Supervisory Board acknowledged the new version of the Code announced in October 2018. The chairman of the Supervisory Board actively participated in the consultation process for the new version of the Code. The Supervisory Board generally welcomes the attempts made to focus and streamline the Code’s content. However, certain recommendations that were still under discussion at the time this report was completed, are viewed critically. Once the new version of the Code comes into force, the Company will complete its review of the recommendations contained with the Code and how they compare with the processes in place at the Company. The annual comply-or-explain statement for 2019 is scheduled to be discussed at the December meeting, after which the findings of this review will be published. The Supervisory Board has decided to review the remuneration system and level of remuneration for the members of the Executive Board of KION GROUP AG in 2019, once ARUG (the German law implementing the European Shareholders’ Rights Direc- tive) has come into force and the updated German Corporate Governance Code, which we believe should make reference to ARUG, has taken effect. The Supervisory Board has already entered into consultancy agreements concerning this matter with an independent and specialized board compensation advisory firm. In accordance with section 3.10 of the German Corporate Governance Code, the Executive Board and the Supervisory Board provide a detailed report on corporate governance at KION GROUP AG in the corporate governance report. This is combined with the declaration on corporate governance pursuant to section 289f and 315d HGB and can be found on pages 36 to 45 of this annual report and on the KION GROUP AG website at kiongroup.com/GovernanceReport. Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Report of the Supervisory Board 22 Work of the committees KION GROUP AG’s Supervisory Board had four standing committees last year: the Mediation Committee pursuant to section 27 (3) of the German Codetermination Act (MitbestG), the Executive Committee, the Audit Committee and the Nomination Committee. These committees, but primarily the Executive Committee, prepare the matters to be discussed at the meetings of the full Supervisory Board. The chairman of the Supervisory Board is also chairman of all committees except the Audit Com- mittee. The chairmen of the committees each report regularly to the full Supervisory Board on their committee’s deliberations. In addition, the minutes of the committee meetings are distributed to the other members of the Supervisory Board for information purposes once the committee members have approved them. In 2018, the Supervisory Board and its committees dealt with the matters at hand and made the necessary decisions at a total of 16 meetings. These consisted of six meetings of the full Supervisory Board, four of the Executive Committee, five of the Audit Committee and one of the Nomination Committee. The Mediation Committee did not meet in the reporting period. There were also several conference calls for the purpose of providing the members of the Supervisory Board or the relevant commit- tees with advance information. In 2018, all members of the Supervisory Board attended all Supervisory Board meetings and the meetings of the respective com- mittees of which they were members apart from in the following cases: There were four (of the six) Supervisory Board meetings at each of which one member sent apologies and two committee meetings at each of which one member sent apologies. Two Supervisory Board meetings took place in the period from 1 January to 9 May 2018 when Denis Heljic was a member of the Supervisory Board. Denis Heljic attended only one of these two meetings. Annual Report 2018 KION GROUP AG 22 TO OUR SHAREHOLDERS Report of the Supervisory Board 23 Engagement of the auditors; audit of the separate and consolidated financial statements The Company’s independent auditors, Deloitte GmbH Wirtschaftsprüfungsgesellschaft (Deloitte), Munich, Frankfurt am Main branch office, audited the separate financial statements, the consolidated financial statements and the combined management report for KION GROUP AG and the Group for the year ended 31 December 2018 following their engagement by the Annual General Meeting on 9 May 2018. The corres ponding proposal to the Annual General Meeting had been prepared in meetings held between the chairman of the Audit Committee and the auditors. The proposal was discussed at the Audit Committee’s meeting on 21 February 2018 and committee members were given the opportunity to speak to the auditors in person. The key audit matters were discussed and set out accordingly at the Audit Committee’s meeting on 25 July 2018. The auditors were appointed by the chairman of the Supervisory Board on 24 October 2018. The auditors submitted their report and the documents relating to the 2018 financial statements to the members of the Audit Committee on 12 February 2019 and to the members of the Supervisory Board on 20 February 2019. The report was discussed in depth at the Audit Committee meeting on 20 February 2019 and at the full Supervisory Board meeting on 27 February 2019, both of which were attended by the auditors. At both of those meetings, the auditors reported in detail on the main findings of the audit and discussed these with the members of the Audit Committee and the full Supervisory Board respectively. The auditors issued an unqualified opinion for the separate financial statements for the year ended 31 December 2018, the consolidated financial statements and the group management report, which was combined with the Company’s management report, for the year ended 31 December 2018 on 20 February 2019. Having itself scrutinised the Company’s separate financial statements, consolidated financial statements and combined management report for the year ended 31 December 2018, the Audit Committee then made a recommendation to the full Supervisory Board, which the chairman of the Audit Committee explained in more detail in his report to the meeting of the full Supervisory Board. On this basis and taking the auditors’ opinion into consideration, the Supervisory Board held a further discussion of its own and then approved the results of the Audit Committee’s review at its meeting on 27 February 2019. Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Report of the Supervisory Board 24 Based on the final outcome of its own review, the Supervisory Board did not raise any objections. The Supervisory Board approved the Company’s separate financial state- ments and consolidated financial statements for the year ended 31 December 2018 prepared by the Executive Board, thereby adopting the annual financial statements. At its meeting on 27 February 2019, the Supervisory Board also discussed and approved the proposal made by the Executive Board that the distributable profit of KION GROUP AG be appropriated for the payment of a dividend of €1.20 per no-par- value share. In doing so, the Supervisory Board took account of the Company’s finan- cial situation and performance, its medium-term financial and capital-expenditure planning and the interests of the shareholders. The Supervisory Board believes the proposed dividend is appropriate. Relationships with affiliated entities (dependency) The Supervisory Board also examined the report concerning relationships with affiliated entities (dependency report), which the Executive Board signed off on 20 February 2019. The auditors reviewed this report and issued an auditors’ report. Based on their audit, which they completed without identifying any deficiencies on 20 February 2019, the auditors issued the following opinion: Based on our audit and assessment in accordance with professional standards, we confirm that – 1. the facts in the report are stated accurately, – 2. the consideration given by the entity for the transactions specified in the report – 3. there are no circumstances in respect of the measures specified in the report that was not unreasonably high, would justify an opinion materially different from the opinion of the Executive Board. The dependency report and the auditors’ report about it were submitted to all the members of the Supervisory Board in good time. Both reports were discussed in detail in the presence of the auditors at the Supervisory Board meeting on 27 Febru- ary 2019 after the auditors had presented their report in person. The Supervisory Board agreed with the findings of the audit. Based on the final outcome of its own review, the Supervisory Board did not raise any objections to the Executive Board’s declaration at the end of the report concerning relationships with affiliated entities. Annual Report 2018 KION GROUP AG 24 TO OUR SHAREHOLDERS Report of the Supervisory Board 25 Personnel changes on the Supervisory Board There were several changes on the Supervisory Board in 2018: By an order issued by the competent local court on 9 October 2018, Dr Michael Macht was appointed to the Company’s Supervisory Board as a shareholder representative. He succeeded Tan Xuguang, who had stepped down on 30 September. In Dr Michael Macht, the Supervisory Board has found a proven production specialist who has a long track record in management in the automotive industry. The experience and skills that he possesses round off those that are already represented on the Supervisory Board. His appointment is fully aligned with the objectives for the composition of the Supervisory Board and the Supervisory Board’s profile of skills and expertise adopted in 2017, with its 17 fields of competence. The Supervisory Board would like to thank Mr Tan, who provided invaluable input for the strategic positioning of the Com- pany and the development of its operations, particularly in the key markets in Asia. Denis Heljic, who stepped down from the Supervisory Board after taking a new role in the Company, was succeeded as an employee representative on the Supervisory Board by Martin Fahrendorf with effect from 10 May 2018. The Supervisory Board would like to thank Mr Heljic for the great dedication with which he always carried out his work as an employee representative in the interests of the Company. The following changes will be taking place in 2019: On 5 February 2019, I informed the Company that, following consultation with repre- sentatives of the main shareholder, Weichai Power, I will be stepping down as chairman of the Supervisory Board and as a member of the Supervisory Board at the end of the upcoming Annual General Meeting. The Nomination Committee proposed that Dr Michael Macht and Mr Tan Xuguang be elected as new shareholder representa- tives. Dr Michael Macht was appointed by the court to the Supervisory Board as a shareholder representative for the period until the next Annual General Meeting. The Supervisory Board plans to elect Dr Michael Macht as chairman of the Supervisory Board in the constitutive meeting of the Supervisory Board that follows the Annual General Meeting. Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Report of the Supervisory Board 26 I would like to thank you, our shareholders, for placing your trust in me since 2013 and electing me as a member of the Supervisory Board of KION GROUP AG. I would also like to thank the members of the Supervisory Board for our constructive working relationship, which has focused on building a successful and sustainable company. And my special thanks go to the Executive Board members and the Company’s employees. Under the strategically shrewd and far-sighted leadership of the Chief Executive Officer Gordon Riske, who has been steering KION since 2007 with his clear view of what is necessary and possible, KION has evolved into a global leader within intralogistics. Today, KION GROUP AG is extremely well positioned within the global market with expertise, efficiency and a successful business model, and has a solid basis on which to not only meet the future challenges of the markets but also proactively shape them. This will of course require the Company to review its position in the market on an ongoing basis and to continually refine its business models, expertise and processes. Going forward, the task of the Supervisory Board will be to support this process, ensuring that it has the necessary capabilities to do so. I am confident that the Company can continue to justify the faith placed in it by its share- holders, and I wish the Supervisory Board, Executive Board and employees every success in shaping a lasting and successful future based on the Company’s core values: integrity, collaboration, courage and excellence. Annual Report 2018 KION GROUP AG 26 TO OUR SHAREHOLDERS Report of the Supervisory Board 27 The details of this report were discussed thoroughly at the Supervisory Board meeting on 27 February 2019 when it was adopted. My colleagues on the Supervisory Board and I would like to thank the members of the Executive Board and the employees of KION GROUP AG and its Group companies in Germany and abroad for their commitment and outstanding achievements in 2018. Dr John Feldmann Chairman Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS KION shares KION shares 28 Growing uncertainty impacts on equity markets KION shares affected by price losses The trends in the global equity markets were primarily negative in KION shares started 2018 with gains and achieved their highest 2018. After the markets were volatile in the first few months of the price of the year of €78.88 on 20 April 2018. The volatile environment year, growing economic uncertainty took its toll on the stock in the equity markets meant that it was not possible to maintain exchanges mainly in the second half of the year, which resulted in this upward trend in the subsequent months, and the price of the a significant correction in global growth forecasts. Geopolitical shares ended the year at €44.33, which was 38.4 per cent lower tensions also had an impact. The ongoing trade dispute between than their price at the close of 2017. At the end of 2018, market the US and China and the prospect of the US government imposing capitalisation stood at €5.2 billion, of which €2.9 billion was further protectionist measures must also be mentioned in this attributable to shares in free float. The average daily Xetra trading context, as must the potential consequences of a hard Brexit, volume in 2018 was 295.7 thousand shares or €18.7 million, and which became much more likely as the year progressed. Investor thus below the prior year level (332.0 thousand shares or caution also rose on the back of growing concerns about the €22.0 million). > DIAGRAM 001 stability of the euro in the context of Italy’s expansionary fiscal policy. Further downward pressure resulted from the anticipated inversion of the yield curve in the bond markets, triggered by the US central bank’s interest-rate hikes. Over the year as a whole, the DAX fell by 18.3 per cent and the MDAX was down by 17.6 per cent. Share price performance between 29 December 2017 and 28 December 2018 DIAGRAM 001 €80 71.98€ * KION GROUP AG DAX MDAX €70 €60 €50 €40 €30 €20 €10 €0 44.33€ * 44,33 € * * Closing price 01 / 2018 02 / 2018 03 / 2018 04 / 2018 05 / 2018 06 / 2018 07 / 2018 08 / 2018 09 / 2018 10 / 2018 11 / 2018 12 / 2018 Annual Report 2018 KION GROUP AG 28 TO OUR SHAREHOLDERS KION shares 29 Record dividend agreed at the Annual General Meeting Reliable anchor shareholder, high free float At the beginning of July 2018, Weichai Power Co., Ltd. announced The Annual General Meeting on 9 May 2018, at which around that it was increasing its shareholding in KION GROUP AG from 80 per cent of the share capital was represented, approved the 43.3 per cent to 45.0 per cent. As at 31 December 2018, the free Supervisory Board and Executive Board’s proposals with a large float accounted for around 54.9 per cent of the shares, while majority. This included a 23.8 per cent increase in the dividend to 0.1 per cent were treasury shares. Between 10 and 27 Septem- €0.99 per share (2017: €0.80 per share). The total dividend payout ber 2018, KION GROUP AG repurchased a total of 66,000 shares was therefore up by more than a third at €116.8 million compared (around 0.06 per cent of the share capital) for use in the KION to the previous year (2017: €86.9 million). This equated to around Employee Equity Programme (KEEP). By 31 December 2018, a 35 per cent of the net income for 2017 adjusted for the non-cash total of 38,691 shares had been purchased by staff (31 Decem- remeasurement of (net) deferred tax liabilities in connection ber 2017: 36,294 shares). The number of shares held in treasury with the lowering of the corporate income tax rate in the US. stood at 165,558 as at the reporting date. > DIAGRAM 002 > TABLE 001 Basic information on KION shares TABLE 001 Shareholder structure as at 31 December 2018 DIAGRAM 002 ISIN WKN DE000KGX8881 KGX888 Bloomberg KGX:GR Reuters KGX.DE Share type No-par-value shares Index MDAX, MSCI World, STOXX Europe 600, FTSE EuroMid 0.1% KION GROUP AG 45.0% WEICHAI POWER 54.9% FREE FLOAT Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS KION shares 30 KION shares mainly recommended as a buy Stable credit ratings As at 31 December 2018, 21 brokerage houses were following The KION Group is assigned credit ratings by two of the world’s and reporting on the KION Group (31 December 2017: 21). Fifteen leading independent rating agencies. Since January 2017, the analysts recommended KION shares as a buy and six rated them Group has had an investment-grade long-term issuer rating from as neutral. The median target price specified for the shares was Fitch Ratings of BBB– with a stable outlook, while Standard & €64.00 (31 December 2017: €75.00). Poor’s has classified the Group as BB+ with a positive outlook since September 2017. Dividend of €1.20 per share planned The Executive Board and Supervisory Board of KION GROUP AG will propose a dividend of €1.20 per share (2017: €0.99) to the Annual General Meeting on 9 May 2019. Thus the total dividend payout amounts to €141.5 million, up by 21.3 per cent on the prior year. With earnings per share for 2018 of €3.39, this equates to a dividend payout rate of around 35 per cent. The prior year’s earnings per share, which is based on net income, was adjusted for the non-cash remeasurement of (net) deferred tax liabilities in connection with the lowering of the corporate income tax rate in the US. > TABLE 002 Annual Report 2018 KION GROUP AG 30 TO OUR SHAREHOLDERS KION shares 31 Share data TABLE 002 Closing price at the end of 2017 High for 2017 Low for 2017 Closing price at the end of 2018 Market capitalisation at the end of 2018 Performance in 2018 €71.98 €78.88 €41.03 €44.33 €5,234.9 million – 38.4% Average daily XETRA-trading volume in 2018 (no. of shares) 295.7 thousand Average daily XETRA-trading volume in 2018 (€) Share capital Number of shares Earnings per share for 2018 Dividend per share for 2018 * Dividend payout rate * Total dividend payout * Equity ratio as at 31/12/2018 * Proposed dividend for the fiscal year 2018 €18.7 million €118,090,000 118,090,000 €3.39 €1.20 35% €141.5 million 25.5% Annual Report 2018 KION GROUP AG TO OUR SHAREHOLDERS Services for shareholders 32 Services for shareholders Active investor relations work results. Recordings from the financial statements press conference and the transcripts from the annual and quarterly conference The objective of investor relations is to ensure, through continuous calls, along with the associated presentations, form part of dialogue, that the capital markets value the Company appropriately. the extensive information for investors that is available on the The Executive Board and the KION Group’s investor relations Company’s website. team continued their active dialogue with investors and analysts last year. The KION Group participated in many investor confer- ences in Germany and abroad and held numerous roadshows Information on the website and one-on-one meetings. The Annual General Meeting of KION GROUP AG on 9 May Detailed information on KION shares as well as press releases, 2018, at which around 80 per cent of the share capital was repre- reports, presentations and information about the Annual General sented, approved the Supervisory Board and Executive Board’s Meeting and corporate governance in the Group can be found at proposals with a large majority. kiongroup.com/ir. The KION Group’s annual report is also available The speeches of the Chief Executive Officer and the chairman here, both as a PDF file and as an interactive online version. The of the Supervisory Board were broadcast live at kiongroup.com/ contact details of the investor relations team can be found under agm. A webcast of the Chief Executive Officer’s speech is also IR Contact & Services. available on the Company’s website. When the 2017 annual report was published on 1 March 2018, the Executive Board of KION GROUP AG held a financial statements press conference and conference call. It also held a Capital Markets Day at which it presented the updated KION 2027 strategy. At the heart of the strategy are innovation, digi- talisation, automation, efficient energy use, and even better products and processes – everything the KION Group needs to continue delivering profitable growth. In addition, the Executive Board held conference calls to report on each set of quarterly kiongroup.com/ ir Annual Report 2018 KION GROUP AG 32 CORPORATE GOVERNANCE Contents 35 CORPORATE GOVERNANCE 36 36 36 39 43 CORPORATE GOVERNANCE REPORT Comply-or-explain statement pursuant to section 161 (1) AktG Corporate governance practices Working methods of the Executive Board and Supervisory Board and composition of the committees of the Supervisory Board Diversity KION GROUP AGAnnual Report 2018CORPORATE GOVERNANCE Corporate governance report 36 Corporate governance report Also constitutes the declaration on corporate governance pursuant to section 289f and section 315d HGB The Executive Board and Supervisory Board submitted the Company’s previous comply-or-explain statement on 13 / 18 December 2017. Both decision-making bodies again considered the recom- Corporate governance covers the whole system of managing and mendations of the amended Code in detail and, on 3 / 12 Decem- monitoring an enterprise, the principles and guidelines that shape ber 2018, issued the following comply-or-explain statement of its business policy and the system of internal and external control KION GROUP AG as required by section 161 (1) AktG: and monitoring mechanisms. The Executive Board and Supervisory Since issuing the last declaration of conformity in December Board of KION GROUP AG believe that a commitment, born from 2017, KION GROUP AG has complied with all but one of the responsibility for the Company, to rigorous corporate governance recommendations of the German Corporate Governance Code in accordance with the accepted standards is essential to the (the ‘Code’) as amended on 7 February 2017 and intends to do so Company’s long-term success. Compliance with these principles in the future. also promotes the trust that our investors, employees, business In derogation of section 3.8 (3) of the Code, the articles of partners and the public have in the management and monitoring association of KION GROUP AG do not provide for a deductible of the Company. for members of the Supervisory Board under D&O insurance. The There is a close correlation between the corporate governance Company believes that such a deductible is not customary on an report required by the German Corporate Governance Code (the international level and would therefore make it considerably more ‘Code’) as amended on 7 February 2017 and the content of the difficult to find independent candidates for the Supervisory declaration on corporate governance required by section 289f Board, in particular candidates from outside Germany. and section 315d of the German Commercial Code (HGB). For this reason, the Executive Board and the Supervisory Board of Frankfurt am Main, 3 / 12 December 2018 KION GROUP AG have combined the two statements below in accordance with section 3.10 of the Code. The declaration on For the Executive Board: corporate governance pursuant to section 289f and section 315d HGB is part of the combined management report. According to Gordon Riske Anke Groth section 317 (2) sentence 6 HGB, the information provided in accordance with section 289f and section 315d HGB does not have to be reviewed by the auditor. For the Supervisory Board: 1. Comply-or-explain statement pursuant to section 161 (1) AktG Dr John Feldmann The comply-or-explain statement is permanently available to the public on the website of KION GROUP AG at kiongroup.com/ Section 161 (1) of the German Stock Corporation Act (AktG) comply_statement. requires the management board and supervisory board of a publicly listed company to issue an annual declaration stating that the company has complied with, and intends to comply with, the 2. Corporate governance practices recommendations of the Code or stating the recommendations with which it has not complied or does not intend to comply, and The corporate governance of KION GROUP AG is essentially, but the reasons why. not exclusively, determined by the provisions of the German Stock Corporation Act and the German Codetermination Act (MitbestG) and also follows the recommendations of the German KION GROUP AGAnnual Report 2018 36 CORPORATE GOVERNANCE Corporate governance report 37 Corporate Governance Code. KION GROUP AG complies with all report to be fully compliant with the relevant statutory and the Code’s recommendations, with one exception. These fun- regulatory requirements and, in particular, the applicable financial damental principles are combined with a commitment to sustain- reporting standards. Changes to these requirements and able business, taking account of society’s expectations in the standards are analysed on an ongoing basis and taken into markets in which the Company operates. account as appropriate. Details can be found in the risk report, In 2018, the Executive Board and the Supervisory Board (or which is part of the combined management report. its committees) regularly discussed corporate governance issues in accordance with a rolling schedule of topics. This ensured that 2.3 Risk management system the key elements of corporate governance within the KION Group were always on the agenda at meetings of the Company’s main For the Company to be managed professionally and responsibly, decision-making bodies. The Supervisory Board in particular the Executive Board must use the risk management system complied with the supervisory duties incumbent upon it under the established in the Company to regularly gather information about German Stock Corporation Act. The Supervisory Board’s Audit current risks and how they are evolving, and then report on this to Committee, which was set up to support this task, received the Supervisory Board’s Audit Committee. The KION Group’s risk regular reports on the standard accounting processes, on management system is documented in a Group risk policy that changes to the regulatory environment and the internal control defines tasks, processes and responsibilities and sets out the and risk management systems, and on the audit of financial rules for identifying, assessing, reporting and managing risk. statements and the effectiveness of this, and then reported back Specific individual risks are then reported by each Group entity to the full Supervisory Board on these matters. using an online reporting tool. Reporting on cross-segment risks 2.1 Internal control system and groupwide risks is carried out by Controlling and the relevant departments. The risks that have been reported are reviewed on a quarterly basis and re-assessed until the reason for reporting a KION GROUP AG has an internal control system designed to risk no longer exists. meet the specific needs of the Company. Its processes are intended to ensure the correctness of the internal and external 2.4 Compliance management system accounting processes, the efficiency of the Company’s business operations and compliance with key legal provisions and internal The Executive Board and Supervisory Board of KION GROUP AG policies. These control processes also include the Company’s consider that adhering rigorously to broad-ranging compliance strategic planning, where the underlying assumptions and plans standards is essential to sustained financial success. That is why are reviewed on an ongoing basis and refined as necessary. a detailed compliance programme, centring around the KION Group Code of Compliance, has been set up for KION GROUP AG 2.2 Accounting-related internal control system and its Group companies worldwide. The KION Group Code of Compliance, which is available in all For its accounting process, the KION Group has defined suitable of the main languages relevant to the Group companies of KION structures and processes as part of its internal control and risk GROUP AG, provides all employees with clear guidance on how management system and implemented them throughout the to conduct their business in accordance with sound values and Group. Besides defined control mechanisms, it includes, for ethics and in compliance with the law. The aim is that all employees example, system-based and manual reconciliation processes, should receive regular training on the most important compliance clear separation of functions, strict compliance with the subjects, in particular anti-corruption, liability of senior manage- double-checking principle and written policies and procedures. ment / directors’ and officers’ liability, data protection and IT secu- The overarching aim is for the separate financial statements, rity, communications, competition law, and foreign trade / export consolidated financial statements and combined management controls. Compliance activities are also focused on these areas. KION GROUP AGAnnual Report 2018CORPORATE GOVERNANCE Corporate governance report 38 The Executive Board of KION GROUP AG bears collective management report are discussed by the Audit Committee and responsibility for the functioning of compliance management then reviewed and approved by the Supervisory Board. within the Group; the compliance department reports to the Chief The independent auditors review the condensed consoli- Executive Officer of KION GROUP AG. He has delegated the dated interim financial statements, the condensed interim group performance of compliance duties to the Chief Compliance management report for the first half of the year and the Officer. The presidents of the Operating Units are responsible for non- financial report. The Executive Board discusses the two compliance within the operating business, while the functional quarterly statements and the half-year interim report with the managers are responsible for core administrative processes in Audit Committee before they are published. the departments at the Group’s headquarters. Ultimate responsi- bility for the compliance management system of course remains 2.6 Avoiding conflicts of interest with the Chief Executive Officer of the Group. The KION com- pliance department, the KION compliance team and the KION Conflicts of interest between the governing bodies and other compliance committee provide operational support to the decision-makers in the Company or significant shareholders go aforementioned functions. The KION compliance department against the principles of good corporate governance and may be focuses mainly on preventing compliance violations by providing harmful to the Company. KION GROUP AG and its governing guidance, information, advice and training. It manages the bodies therefore adhere strictly to the recommendations of the KION compliance team, in which local and regional compliance German Corporate Governance Code on this subject. The officers of the Group are represented. employees of KION GROUP AG and its investees are made aware Actual or suspected incidents of non-compliance can be of the problem of conflicts of interest as part of compliance reported anonymously or otherwise by calling a 24-hour compli- training and are bound by rules on how to behave in the event of ance hotline or by email, post or fax. actual or potential conflicts of interest. Every Executive Board As part of its work, the compliance department at KION member must disclose potential conflicts of interest to the GROUP AG cooperates closely with the legal, internal audit and Supervisory Board immediately and must also inform the other human resources departments. The KION compliance commit- Executive Board members. All transactions between KION tee, which is staffed by the heads of these departments and GROUP AG and Executive Board members or related parties chaired by the Chief Compliance Officer, operates as a cross- must be concluded on an arm’s-length basis. functional committee that primarily advises on, examines and, if The Company attaches high priority to preventing possible appropriate, punishes incidents of non-compliance that are conflicts of interest from occurring in the first place. This is reported. especially important given the involvement of Weichai Power, whose stake has risen to 45 per cent. The Company achieves 2.5 Audit of the financial statements these aims by avoiding business scenarios or personnel struc- tures that could give the impression of a conflict of interest and by The Company’s independent auditors, which are appointed by taking transparent steps and issuing clear communications. means of a resolution of the Annual General Meeting, audit the The Company’s Chief Executive Officer, Mr Gordon Riske, separate financial statements prepared by the Executive Board of was appointed a non-executive director of Weichai Power Co., KION GROUP AG, the consolidated financial statements and the Ltd., with effect from 24 June 2013. On 14 June 2018, the term of combined management report. Since the audit of the 2014 his appointment was extended to 31 December 2020, for which separate and consolidated financial statements, Ms Kirsten the Supervisory Board had previously given its consent. Appro- Gräbner-Vogel has been the global lead service partner at the priate precautions have been taken to ensure that this role at a appointed independent auditors, Deloitte GmbH Wirtschafts- parent company of the Company does not create a conflict of prüfungsgesellschaft (Deloitte). The separate financial state- interest relating personally to Mr Riske. Formal processes ments, the consolidated financial statements and the combined have been put in place to ensure that Mr Riske, in his role as a KION GROUP AGAnnual Report 201838 CORPORATE GOVERNANCE Corporate governance report 39 non- executive director of Weichai Power Co., Ltd., is not involved in transactions that could give rise to a conflict with the interests of the KION Group. Nor is Mr Riske involved in transactions relat- ing to the exercise of voting rights by Weichai Power or its subsid- iaries at the Annual General Meeting of KION GROUP AG. It has been ensured that Mr Riske maintains a strict separation between his duties as a non-executive director of Weichai Power Co., Ltd., and his duties as Chief Executive Officer of KION GROUP AG and that he fulfils all of his legal obligations in the interests of the Company. Responsibilities of Executive Board members as at 31 December 2018 TABLE 003 Member Responsibilities Gordon Riske CEO of KION GROUP AG LMH EMEA STILL EMEA KION Americas Corporate Office Corporate Communications Corporate Strategy Internal Audit Corporate Compliance KION Invest CTO of KION GROUP AG Product & Technology Strategy Product Development Industrial Trucks Product Development Supply Chain Solutions Module & Component Development Procurement Quality Production System KPDO Initiative CFO of KION GROUP AG Corporate Accounting / Tax Corporate Controlling Corporate Finance / M&A Investor Relations Financial Services Corporate HR / Labour Relations Director Legal Health, Safety & Environment Logistics / Urban Chief Asia Pacific Officer of KION GROUP AG KION APAC 3. Working methods of the Executive Board and Supervisory Board and composition of the committees of the Supervisory Board Dr Eike Böhm The Executive Board and Supervisory Board of KION GROUP AG have a close and trusting working relationship focused on ensuring the sustained success of the Company. The members of the Executive Board regularly attend Supervisory Board meetings, unless the Supervisory Board decides to meet without the Executive Board. The Executive Board promptly, comprehensively and regularly reports to the Supervisory Board on the performance of the KION Group. Besides the reporting obligations defined by law, the rules of procedure for the Executive Board of KION GROUP AG set out further reporting requirements and reser- vations of approval in favour of the Supervisory Board. Anke Groth 3.1 Working methods of the Executive Board Ching Pong Quek The Executive Board of KION GROUP AG now comprises five members, having been extended from four members with effect from 1 October 2018. It is responsible for managing the Company in the Company’s interest, i.e. taking account of shareholders, customers, employees and other stakeholders with the aim of creating sustainable added value. The Executive Board develops the Company’s strategy, discusses it with the Supervisory Board and ensures that it is implemented. Every Executive Board member is responsible for his or her own area of responsibility and keeps the other board members informed of developments on an ongoing basis. > TABLE 003 Susanna Schneeberger CDO of KION GROUP AG Dematic Software Development KION Group IT Data Protection Digital Campus Mobile Automation KION GROUP AGAnnual Report 2018CORPORATE GOVERNANCE Corporate governance report 40 Rules of procedure laid down by the Supervisory Board define The Supervisory Board has drawn up rules of procedure for the areas of responsibility of the Executive Board members and its work. These apply in addition to the requirements of the the way in which they work together. The full Executive Board articles of association and also define the Supervisory Board normally meets every 14 days and meetings are chaired by the committees. According to these rules, the chairman of the Super- Chief Executive Officer. Individual Executive Board members visory Board coordinates its work and the cooperation with the sometimes take part via video conference. At the meetings, the Executive Board, chairs the meetings of the Supervisory Board board members discuss measures and business that, under the and represents it externally. The Supervisory Board meets in Executive Board’s rules of procedure, require the approval of the person at least twice in each half of a calendar year, and adopts full Executive Board. Resolutions of the full Executive Board are its resolutions at these meetings. In 2018, there were six Supervi- passed by simple majority unless a greater majority is required by sory Board meetings in total. The focus of the Supervisory law. The Chief Executive Officer has a casting vote in the event of Board’s advisory activities is detailed in the Supervisory Board’s a tied vote. Resolutions of the Executive Board may also be report to the Annual General Meeting. Between these meetings, adopted between meetings. Taking account of the requirements resolutions may also be adopted in writing, by telephone or by of section 90 AktG, the Executive Board provides the Supervisory other similar forms of voting, provided that the chairman of the Board with regular, timely and comprehensive information on all Supervisory Board or, in his absence, his deputy, decides on this matters of relevance to the business as a whole relating to the procedure for the individual case concerned. The Supervisory intended operating policy, strategic planning, business perfor- Board adopts resolutions by a simple majority of the votes cast mance, financial position, financial performance and business unless a different procedure is prescribed by law. If a vote is tied, risks. The Chief Executive Officer discusses these matters regu- the matter will only be renegotiated if the majority of the Supervi- larly with the chairman of the Supervisory Board. sory Board vote in favour of this option. Otherwise the Board The Executive Board’s rules of procedure specify that impor- must vote again without delay. If this new vote on the same matter tant transactions are subject to approval by the Supervisory also results in an equal number of votes for and against, the chair- Board. Budget planning, major acquisitions or capital expenditure, man of the Supervisory Board has a casting vote. The Supervisory for example, require the consent of the Supervisory Board. Board has the efficiency of its work and processes reviewed by In accordance with its articles of association, the Company is an external party at regular intervals. represented by two members of the Executive Board or by one member of the Executive Board acting conjointly with a Prokurist (person with full commercial power of representation). 3.2 Working methods of the Supervisory Board The Supervisory Board of KION GROUP AG appoints the members of the Executive Board and advises and monitors the Executive Board in its management of the Company. The Supervisory Board is fully involved from an early stage in all decisions that are fundamental to KION GROUP AG. The Supervisory Board of KION GROUP AG consists of 16 members, eight of whom are employee representatives and eight are shareholder representatives. The shareholder repre- sentatives are elected by the Annual General Meeting by simple majority. KION GROUP AGAnnual Report 201840 CORPORATE GOVERNANCE Corporate governance report 41 3.3 Working methods and composition of the committees of Board – regularly deliberate on long-term succession planning for the Supervisory Board the Executive Board. The Executive Committee met four times in 2018. The main KION GROUP AG’s Supervisory Board had four standing topics discussed and deliberated upon by the Executive Commit- committees in the year under review. Their tasks, responsibilities tee in 2018 concerned the creation of a new, fifth Executive Board and work processes comply with the provisions of the German role and the associated appointment of Ms Susanna Schnee- Stock Corporation Act and the German Corporate Governance berger as Chief Digital Officer and the extension of the term of Code. The chairman of each committee reports regularly to the Dr Eike Böhm as Chief Technology Officer of KION GROUP AG. full Supervisory Board on the committee’s work. The minutes of Topics related to the Annual General Meeting, governance and the committee meetings are made available to all Supervisory the review of the efficiency of the Supervisory Board were also Board members. The standing committees have each drawn up addressed. rules of procedure that define their tasks and working methods. Members of the Executive Committee as at 31 December 2018: Executive Committee Dr John Feldmann (chairman) The Executive Committee consists of four shareholder represent- Özcan Pancarci (deputy chairman) atives and four employee representatives. Its chairman is always Dr Alexander Dibelius the chairman of the Supervisory Board. It prepares the meetings Jiang Kui of the Supervisory Board and is responsible for ongoing matters Olaf Kunz between Supervisory Board meetings. The Executive Committee Jörg Milla also prepares the Supervisory Board’s decisions relating to Hans Peter Ring corporate governance, particularly amendments to the comply- Claudia Wenzel or-explain statement pursuant to section 161 AktG reflecting changed circumstances and the checking of adherence to the Mediation Committee comply-or-explain statement. It also prepares documents for the The Mediation Committee comprises the chairman of the Super- Supervisory Board when Executive Board members are to be visory Board, his deputy, an employee representative and a appointed or removed and, if applicable, when a new Chief shareholder representative. It only convenes in exceptional cases. Executive Officer is to be appointed. Documents relating to any If the two-thirds-of-votes majority required by section 27 (3) and matters in connection with Executive Board remuneration are section 31 (3) MitbestG is not reached in a vote by the Super- also compiled by the Executive Committee. In addition, the visory Board on the appointment of an Executive Board member, Executive Committee is responsible for resolutions concerning the Mediation Committee must propose candidates for the post the conclusion, amendment and termination of Executive Board to the Supervisory Board within one month. The chairman of the employment contracts and agreements with Executive Board Supervisory Board does not have a casting vote on the candidates members governing pensions, severance packages, consultancy proposed. The Mediation Committee did not need to be convened and other matters and for resolutions on any matters arising as a in 2018. result of such contracts and agreements, unless they relate to remuneration. The responsibilities of the Executive Committee also include resolutions about the extension of loans to Executive Board members, Supervisory Board members and parties related to them within the meaning of sections 89 and 115 AktG, as well as resolutions to approve contracts with Supervisory Board members outside their Supervisory Board remit. The Executive Committee should – in consultation with the Executive KION GROUP AGAnnual Report 2018CORPORATE GOVERNANCE Corporate governance report 42 Members of the Mediation Committee as at 31 December 2018: Members of the Audit Committee as at 31 December 2018: Dr John Feldmann (chairman) Özcan Pancarci (deputy chairman) Jörg Milla Hans Peter Ring Audit Committee Hans Peter Ring (chairman) Alexandra Schädler (deputy chairwoman) Dr John Feldmann Jörg Milla The chairman of the Audit Committee, Hans Peter Ring, is an The Audit Committee comprises four members. Its primary independent member of the Supervisory Board and has the purpose is to monitor financial reporting (including non-financial required expertise in the areas of accountancy and auditing reporting), the accounting process, the effectiveness of the specified in sections 100 (5) and 107 (4) AktG. internal control system, the risk management system, the internal audit system, the auditing of the financial statements and Nomination Committee compliance, thereby supporting the Supervisory Board in its task The Nomination Committee has four members, all of whom are of monitoring the Company’s management. The Audit Committee shareholder representatives and are elected by the shareholder also reviews the work carried out by the independent auditors representatives on the Supervisory Board. The Nomination and checks that the independent auditors are qualified and Committee’s only task is to propose new candidates for the independent. It is also responsible for engaging the independent Supervisory Board to the Company’s Annual General Meeting. auditors, determining the focus of the audit and agreeing the fee. The Nomination Committee met once in 2018 to discuss the In addition, the Audit Committee exercises the rights in investee appointment of Dr Michael Macht to the Supervisory Board. companies set forth in section 32 (1) MitbestG. The Audit Committee met five times in 2018. The main topics Members of the Nomination Committee discussed by the Audit Committee in 2018 were the 2017 annual as at 31 December 2018: financial statements, the quarterly statements, the interim report, Dr John Feldmann (chairman) the budget, the Company’s sustainability report and the regular Dr Alexander Dibelius (deputy chairman) subject of the key elements of corporate governance and risk Birgit A. Behrendt control systems within the Company. Jiang Kui KION GROUP AGAnnual Report 201842 CORPORATE GOVERNANCE Corporate governance report 43 4. Diversity sory Board believes their role as representatives of the employees does not, per se, compromise their independence. One of the main concerns of good corporate governance is to The Supervisory Board is of the opinion that the priority in ensure that appointments to the Executive Board and Supervi- aiming for a board composition based on diversity is the expertise sory Board are appropriate to the specific needs of the business. of the individual members and a balanced mix of personal Key criteria in this regard include the professional and personal qualities, experience, skills, qualifications and knowledge in line skills and qualifications of the members of the Executive Board with the requirements of the business. This is the basis on which and Supervisory Board as well as diversity in the composition of the Supervisory Board has drawn up its profile of skills and both boards, an appropriate degree of female representation and expertise. The following profile of skills and expertise defines the the independence of the Supervisory Board. knowledge acquired through professional practice (experience) and theoretical / academic knowledge (expertise) that should be Composition of the Supervisory Board represented on the Supervisory Board: The Supervisory Board has laid down specific requirements and objectives for its composition in recognition of its responsibilities and obligations and taking into account the business needs of – Experience – Automotive industry, components and drive technologies KION GROUP AG. Besides having the minimum professional – Intralogistics skills required to be a Supervisory Board member, as specified by – Automation, particularly automation in intralogistics law and the highest courts, all members of the Supervisory Board – Service / aftersales business, particularly in intralogistics of KION GROUP AG should meet the following criteria: – Development of international marketing strategies and GROUP AG – Identification with the fundamental values and beliefs of KION – Positive attitude towards the basic principles of responsible – Personal integrity and a responsible approach to dealing with – Ability to devote the expected amount of time required and potential conflicts of interest corporate governance compliance with the limit on the number of mandates that may be held at any one time product portfolio strategies – Expertise – Development and assessment of technology – Service / aftersales business models and technological developments in this area – Digitalisation and automation – In-depth understanding of the markets in EMEA, the Americas – Experience and Asia – Management of companies with an international presence, Other targets set by the Supervisory Board with regard to its organisational structures composition are a standard age limit of no more than 70 at the – Supervisory board membership in companies with an time of appointment/election and a maximum limit for length of international presence membership of four terms of office. All of the current Supervisory – Acquisitions and strategic alliances including the development of corporate cultures and Board members meet these requirements. In addition, the Supervisory Board has defined what it considers to be an adequate number of independent Supervisory Board members. Accordingly, five shareholder representatives on the Supervisory Board should be independent within the meaning of section 5.4.2 of the Code. These five members are currently Ms Behrendt, Dr Reuter, Dr Dibelius, Dr Feldmann and Mr Ring. As regards the employee representatives, the Supervi- KION GROUP AGAnnual Report 2018CORPORATE GOVERNANCE Corporate governance report 44 – Experience and expertise – Corporate governance and compliance principles as well Composition of the Executive Board Against the background of the aforementioned diversity consid- as their implementation in at least two of the regions erations as well as demographic requirements and strategic relevant to the Company – Accounting and auditing operating challenges, the Supervisory Board strives for diversity at Executive Board level, not only in terms of appropriate female – Capital markets and international finance. representation but also in respect of experience, skills, expertise, cultural background and personality. Ultimately, however, the Each of these fields of competence is currently covered by at Supervisory Board is guided exclusively by the skills and qualifi- least six members of the Supervisory Board. cations of the persons concerned when making appointments to As 31.25 per cent of its members are female (five of 16), the the Executive Board. Supervisory Board meets the statutory requirements regarding When implementing these objectives during the process of gender representation on supervisory boards pursuant to section appointing successors or recruiting for a new position, the Super- 96 (2) AktG. The shareholder representatives and the employee visory Board draws up a shortlist of candidates who appear to be representatives are agreed that attaining the objectives in relation suitable for the Company as a result of their strategic manage- to diversity, in particular the objectives relating to the involvement ment experience, expertise, skills and qualifications. Demo- of women and people from different cultural backgrounds, is con- graphic criteria (including the standard retirement age of 65 for sidered to be in the interests of KION GROUP AG and a task that Executive Board members) and diversity criteria are then also forms part of the collective responsibility of the entire Supervisory taken into account, depending on the existing composition of the Board. The Supervisory Board therefore supports the inclusion of Executive Board. However, these criteria are of a subordinate additional female members and members from different cultural nature when making a final decision on the person to appoint. backgrounds who meet the above criteria insofar as the skills The Supervisory Board therefore set the target for the minimum requirements are met. proportion of women on the Executive Board of KION GROUP When proposing candidates to the Annual General Meeting AG at 0 per cent, to be achieved by 31 December 2021. The in future, the Nomination Committee and Supervisory Board will specification of this type of target is required by Germany’s ‘Act take all of the aforementioned targets into account and strive to for the equal participation of women and men in managerial ensure that the profile of skills and expertise is still achieved. The positions in the private and public sectors’. Nomination Committee and Supervisory Board have no influence Following the departure of Dr Thomas Toepfer, the Super- on the composition of the group of employee representatives on visory Board applied these principles when it appointed Ms Anke the Supervisory Board because the employees in Germany are Groth as a member of the Executive Board with effect from free to choose whom they elect. 1 June 2018. Furthermore, it created a new, fifth Executive Board role, reassigning responsibilities in the process, and appointed Ms Susanna Schneeberger as a member of the Executive Board with effect from 1 October 2018. The proportion of women on the Executive Board of KION GROUP AG was therefore 40 per cent as at 31 December 2018. KION GROUP AGAnnual Report 201844 CORPORATE GOVERNANCE Corporate governance report 45 Appointments to management positions below the level of the Executive Board of KION GROUP AG When selecting candidates for senior management levels, the Executive Board generally considers that it is under an obligation to make such selections on the basis of diversity, capability, character and experience. As regards the number of women appointed to senior management positions in the Company, the Executive Board is striving in its implementation of the new KION 2027 strategy to increase the current proportion of women in management positions. In this context, the Executive Board set the target at 10 per cent for the first management level below the Executive Board of KION GROUP AG and at 30 per cent for the second management level, to be achieved by 31 December 2021. The specification of this type of target is required by Germany’s ‘Act for the equal participation of women and men in managerial positions in the private and public sectors’. In 2018, as part of the HR initiative under the KION 2027 strategy, a dedicated diversity programme was launched whose initial areas of activity were defined in workshops involving participants drawn from various Operating Units and sites. The end of 2018, for example, saw the start of the Female Mentoring Programme, in which the Company’s high-potential female employees are systematically coached by managers from the highest management level in the Company. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Contents 47 COMBINED MANAGEMENT REPORT 48 49 49 58 60 63 63 66 82 88 96 96 98 PRELIMINARY REMARKS FUNDAMENTALS OF THE KION GROUP Profile of the KION Group Strategy of the KION Group Management system REPORT ON THE ECONOMIC POSITION Macroeconomic and sector-specific conditions Financial position and financial performance of the KION Group KION GROUP AG Non-financial performance indicators OUTLOOK, RISK REPORT AND OPPORTUNITY REPORT Outlook Risk report 106 Opportunity report 109 DISCLOSURES RELEVANT TO ACQUISITIONS 113 REMUNERATION REPORT 113 132 Executive Board remuneration Supervisory Board remuneration KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Preliminary remarks 48 Preliminary remarks COMBINED MANAGEMENT REPORT The combined management report published in the 2018 annual report combines the group management report and the manage- ment report of KION GROUP AG. Unless stated otherwise, the description of the course of business (including business performance), position and expected development refers both to the Group and to KION GROUP AG. Sections that only contain information on KION GROUP AG are indicated as such. The report on the economic position includes a separate section containing disclosures for KION GROUP AG in accordance with the German Commercial Code (HGB). KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 49 Fundamentals of the KION Group PROFILE OF THE KION GROUP Organisational structure Management and control Corporate governance The KION Group follows generally accepted standards of sound, responsible corporate governance. The German Corporate Governance Code (DCGK) provides the framework for manage- The KION Group is one of the world’s leading suppliers of ment and control. As required by section 289f and section 315d integrated supply chain solutions. Its portfolio encompasses of the German Commercial Code (HGB), the corporate governance forklift trucks, warehouse technology and supply chain solutions, standards that the Group applies are set out in the declaration including the related services. Across more than 100 countries on corporate governance. This declaration also contains the worldwide, the KION Group designs, builds and supports comply-or-explain statement pursuant to section 161 AktG, logistics solutions that optimise material and information flow which was issued by the Executive Board and Supervisory Board within factories, warehouses and distribution centres. The Group of KION GROUP AG on 3 / 12 December 2018, and the corporate is the largest manufacturer of industrial trucks in Europe, the governance report pursuant to section 3.10 of the German second-largest producer of industrial trucks globally and based Corporate Governance Code, which also provides information on revenue the leading provider of automation technology. about the compliance standards in the Group. The declaration on The Linde and STILL brands serve the premium industrial corporate governance can be viewed and downloaded on the truck segment. Baoli focuses on industrial trucks at the lower end Company’s website. It also forms part of this annual report and is of the volume segment and in the economy segment. Among a component of the combined management report. KION’s regional industrial truck brand companies, Fenwick is the The essential features of the remuneration system are biggest material-handling provider in France and OM Voltas is a described in the ‘Remuneration report’ section. The total amounts leading provider of industrial trucks in India. Dematic is a leading for Executive Board remuneration and Supervisory Board global supplier of integrated automation technology, software and remuneration are also reported in the notes to the consolidated services for optimising supply chains. Around 1.4 million industrial financial statements (note [46]). trucks and over 6,000 installed intralogistics systems are deployed by customers in all industries and of all sizes on six continents. Non-financial declaration The KION Group comprises the parent company KION GROUP AG, which is a public limited company under German A separately published sustainability report provides detailed law, and its subsidiaries. The KION Group’s strategic manage- information on the sustainable management of the KION Group. It ment holding company, KION GROUP AG, is listed on the Frank- contains the KION Group’s non-financial declaration as required furt Stock Exchange and is part of the MDAX, the STOXX Europe under the German law to implement the corporate social respon- 600 and the FTSE Euro Mid Cap. Details of treasury shares sibility (CSR) directive. The declaration focuses on targets, action (pursuant to section 160 (1) no. 2 of the German Stock Corporation steps and due diligence processes relating to the key environmental, Act (AktG)) are provided in note [27] ‘Equity’ in the notes to the social and employee-related aspects of the KION Group’s consolidated financial statements. business model, the observation of human rights and the fight The parent company of KION GROUP AG is Weichai Power against corruption and bribery. (Luxembourg) Holding S.à r.l., Luxembourg (‘Weichai Power’), a In accordance with the statutory disclosure deadlines defined subsidiary of Weichai Power Co., Ltd., Weifang, China, which held in section 325 HGB, the KION Group publishes its annual sustain- 45.0 per cent of the shares at the end of 2018 as far as the ability report (including the non-financial report) by no later than Company is aware. The free float accounted for 54.9 per cent of the end of April each year on its website (www.kiongroup.com), the shares, while the remaining 0.1 per cent were treasury shares. where it will remain available for at least ten years. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 50 Executive Board – Anke Groth, in her role as Chief Financial Officer (CFO), is in charge of corporate accounting & tax, corporate controlling, The Executive Board of KION GROUP AG is responsible for the corporate finance / M&A, investor relations, financial services, operational management of the KION Group. In the year under legal affairs and logistics / Urban. As Labour Relations review, the Executive Board was extended from four to five Director, she is further responsible for corporate HR and members and the following personnel changes were made: – Anke Groth was appointed as a member of the Group’s Executive Board and as Chief Financial Officer (CFO) for a term of five years beginning 1 June 2018. Ms Groth also assumed the role of Labour Relations Director. She replaced health, safety & environment. – Ching Pong Quek, Chief Asia Pacific Officer, heads up the KION APAC Operating Unit and thus the entire Asia business within the Industrial Trucks & Services segment. – Susanna Schneeberger is responsible for the Dematic Operating Unit in the Supply Chain Solutions segment and – Dr Thomas Toepfer, who had left the Company at his own in the role of Chief Digital Officer (CDO) – for the groupwide request on 31 March 2018. – Susanna Schneeberger was appointed as a member of the Group’s Executive Board for a term of five years beginning areas of software development, KION Group IT, data protection, mobile automation and the Digital Campus. 1 October 2018. She took on the newly created role of Chief The Group Executive Committee (GEC) advises the Executive Digital Officer (CDO), assuming strategic responsibility for Board of KION GROUP AG and provides input from the Operating groupwide activities aimed at digitalisation and networking Units. The committee comprises the Executive Board members products and processes as well as operational responsibility as well as the presidents of the five Operating Units. for the Supply Chains Solutions segment. – Dr Eike Böhm was reappointed for a further three years as an Executive Board member and Chief Technology Officer The Executive Board maintains a relationship of trust with, and is monitored by, the Company’s Supervisory Board. (CTO) of KION GROUP AG. His second term of appointment Supervisory Board will commence on 1 August 2019. The Supervisory Board, which was formed in accordance with the As at 31 December 2018, the responsibilities of the Executive German Codetermination Act (MitbestG), comprises 16 people. It Board members were as follows: advises the Executive Board in its handling of significant matters – Gordon Riske, Chief Executive Officer (CEO), is responsible for the LMH EMEA, STILL EMEA and KION Americas and business transactions. To increase the efficiency of its work, the Supervisory Board is supported by four standing committees: the Nomination Committee, the Executive Committee, the Audit Operating Units in the Industrial Trucks & Services segment. Committee and the Mediation Committee. He also remains in charge of the following group functions: The shareholder representatives’ term of office ends at the corporate office, corporate communications, corporate strat- Annual General Meeting in 2022. Dr Michael Macht was appointed egy, internal audit, corporate compliance and KION Invest. – Dr Eike Böhm, in his role as Chief Technology Officer (CTO), has groupwide responsibility for research and development to the Supervisory Board with effect from 9 October 2018. He succeeds Mr Tan Xuguang, Chairman of the Board of Directors of Weichai Power Co., Ltd., who stepped down on 30 September in both the Industrial Trucks & Services and the Supply 2018. Mr Martin Fahrendorf succeeded Mr Denis Heljic as an Chain Solutions segments, including modules & components, employee representative with effect from 10 May 2018. and for procurement, quality, the production system and the KION Product Development Optimisation (KPDO) initiative. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 51 Business model and organisational structure technology, efficiency, functionality and design. In France, Linde products are sold under the Fenwick brand. The KION Group’s business model is designed so that cus- STILL is predominantly an international premium provider of tomers of all sizes and from all kinds of industries can obtain trucks with electric and diesel-electric drives. It mainly focuses on the full spectrum of material handling products and services the European and Latin American markets. from a single source. Thanks to its broad technology base, Baoli is the international brand for the lower end of the volume diversified product portfolio and worldwide service network, segment and the economy segment. the KION Group has a comprehensive portfolio of such prod- OM Voltas is the local brand company for the Indian market, ucts and services in the market. through which the KION India Pvt. Ltd. subsidiary manufactures The KION Group’s market activities are divided into five and sells electric and IC forklift trucks and warehouse trucks. Operating Units: LMH EMEA, STILL EMEA, KION APAC, KION KION Financial Services (FS) is an internal funding partner for Americas and Dematic. LMH EMEA and STILL EMEA each the Industrial Trucks & Services segment, providing finance concentrate on Europe, the Middle East and Africa. KION APAC solutions to support sales. Its activities comprise the financing of and KION Americas hold cross-brand responsibility for industrial long-term leasing business for external customers, the internal truck business in the Asia-Pacific region and the Americas financing of the short-term rental business and the related risk respectively. Dematic is the global supply chain solutions management. In the large sales markets with a high volume of business. While the Operating Units have full operational and financing and leasing, legally independent FS companies handle commercial responsibility within their markets, KION GROUP AG this business. is the strategic management holding company and is responsible So that it can fully cater to the needs of material handling cus- for the groupwide strategy and groupwide business standards. tomers worldwide, the business model of the Industrial Trucks & For internal management purposes, the KION Group has Services segment covers the key steps of the value chain: prod- divided its operating business into two segments that correspond uct development, manufacturing, sales and service, truck rental to the segments as required by international financial reporting and used trucks, fleet management and financial services that standards (IFRS 8). The industrial truck business, including the support the core industrial truck business. supporting financial services, is shown in the Industrial Trucks & The segment earns just over half of its revenue by selling Services segment, while activities focusing on end-to-end industrial trucks. The product portfolio includes counterbalance solutions make up the Supply Chain Solutions segment. The two trucks powered by an electric drive or internal combustion engine, operating segments complement each other because they both warehouse trucks (ride-on and hand-operated) and towing have a strong market position and regional presence. The Corpo- vehicles for industrial applications covering all load ranges. rate Services segment comprises the other activities and holding Worldwide research and development activities enable the functions of the KION Group. These include service companies Industrial Trucks & Services segment to consolidate its technology that provide services such as IT and logistics across all segments. leadership, which it is extending in the areas of energy-efficient and low-emission drive technologies and automation solutions. In Industrial Trucks & Services segment this field, the KION Group operates 16 production facilities for industrial trucks and components in eight countries. So that it can The Industrial Trucks & Services segment encompasses the ensure security of supply and the availability of spare parts for activities of the international brand companies Linde, STILL and important components in order to meet customers’ specific Baoli, the local brand companies Fenwick and OM Voltas plus the requirements, the segment manufactures major components financial services business. itself – notably lift masts, axles, counterweights and safety Linde is an international premium brand and technology leader equipment. Other components – such as hydraulic components, that meets customers’ most sophisticated requirements regarding electronic components, rechargeable batteries, engine components KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 52 and industrial tyres – are purchased through the global procure- Supply Chain Solutions segment ment organisation. As a rule, industrial trucks are built according to the customer’s Through the Dematic brand, the Supply Chain Solutions segment is individual specifications. Networked fleet management solutions a leading global supplier of integrated automation technology, and the advantages for customers in terms of total cost of owner- software and services for optimising supply chains. ship (TCO) support the international Linde and STILL brands’ Manual and automated solutions are provided for all func- premium positioning. The segment is underpinned by an exten- tions along customers’ supply chains, from goods inward and sive sales and service network comprising more than 1,600 outlets multishuttle warehouse systems to picking, automated palletising in over 100 countries and staffed by more than 18,000 service and automated guided vehicle systems. Picking equipment employees. Almost half of them are employed by the KION Group. controlled by radio, voice or light is available for nearly all goods The worldwide vehicle fleet, which consisted of around and packaging types, whether it is used for case, individual item, 1.4 million industrial trucks at the end of 2018, provides a stable split-case or pallet picking. Automated storage and retrieval base for the service business. This business helps to smooth out systems (ASRS) and compact, powerful split-case and pallet fluctuations in the segment’s revenue, reduces dependency on picking stations can be used to achieve very fast throughput market cycles and supports new truck sales by maintaining times and picking rates. At the same time, cross-docking lasting customer relationships. The proportion of service business solutions increase the efficiency of the system as a whole by is continually increasing across all price segments. Extensive eliminating the unnecessary handling and storage of goods. services such as software-based fleet management are offered, Real-time management of the supply chain solutions is mainly for premium products. There are also individual orders based on the proprietary software platform Dematic iQ, which for repairs and maintenance work as well as for spare parts. The can be easily integrated into the customer’s existing application Operating Units also have extensive used truck and rental truck landscape. By providing real-time material flow data analyses, businesses, allowing peaks in capacity requirements to be met among other things, Dematic iQ can help with the data-based and customers to be supported after their leases have expired. optimisation of all processes to ensure seamless order processing. Financial services support new truck business in many It also supports performance management functions for measuring markets, forming another pillar of the service business. About and controlling performance. half of all new trucks are financed via the KION Group itself or The segment is primarily involved in customer-specific, via external banks and financing partners. Offering financial longer-term project business. With global resources, eleven services is therefore part of the truck sales process. A lease production facilities worldwide and regional teams of experts, contract is generally linked to a service contract throughout Dematic is able to plan and deliver logistics solutions with the term of the finance agreement. varying degrees of complexity anywhere in the world. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 53 The (new) project business (business solutions) covers every phase of a new installation: analysis of the customer’s needs and the general parameters, provision of appropriate advice, computer simulation of bespoke intralogistics solutions in the customer’s individual environment, technical planning and design of the system, implementation of the control technology and its integration into the customer’s existing IT infrastructure, site and project management, plant monitoring and support for the customer during implementation of the system, including training for the workforce. The system components, which are specified in detail for each customer project, such as automatic guided vehicles, palletisers, storage and picking equipment including automated storage and retrieval systems, sorters and conveyors, are manufactured inhouse or, in some cases, by quality-assured third parties. Modernisation work and services (customer services), which usually cover the entire lifetime of an installation, are provided to local customers by approximately 1,400 employees in over 20 countries. The service business benefits from a sizeable installed base of more than 6,000 systems. > DIAGRAM 003 KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 54 Production sites of the KION Group Production sites of the KION Group DIAGRAM 003 Dinklage Zwijndrecht Châtellerault Offenbach Reutlingen Milan Hamburg Bielefeld Geisa Kahl Aschaffenburg Luzzara Stříbro Český Krumlov Weilbach Industrial Trucks & Services Brazil Indaiatuba / São Paulo: Counterbalance trucks with electric drive or IC engine, warehouse technology People’s Republic of China Jingjiang: Counterbalance trucks with electric drive or IC engine, warehouse technology Xiamen: Counterbalance trucks with electric drive or IC engine, heavy trucks, warehouse technology France Châtellerault: Warehouse technology India Germany Aschaffenburg: Counterbalance trucks with electric drive or IC engine Dinklage: Component production Geisa: Component production Pune: Counterbalance trucks with electric drive or IC engine, warehouse technology Italy Luzzara: Warehouse technology Czech Republic Hamburg: Counterbalance trucks with electric drive or IC engine, warehouse technology, components Český Krumlov: Component production Stříbro: Warehouse technology Kahl: Spare parts center, component production Reutlingen: Very narrow aisle trucks Weilbach: Component production United States Summerville: Counterbalance trucks with electric drive or IC engine, warehouse technology KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 55 Supply Chain Solutions Australia Sydney: Conveyor and sortation systems, automated guided vehicle systems, system components, and racking Belgium Zwijndrecht: Automated guided vehicle systems People’s Republic of China Suzhou: Conveyor, sortation, storage and retrieval systems Germany Bielefeld: Sortation systems Offenbach: Conveyor, sortation, storage and retrieval systems Italy Milan: Sortation systems Czech Republic Stříbro: Conveyor systems Mexico Monterrey: Conveyor, sortation, storage and retrieval systems, system components United States Grand Rapids: Conveyor, sortation, storage and retrieval systems, system components Holland: Automated guided vehicle systems Salt Lake City: Conveyor, sortation, storage and retrieval systems, automated guided vehicle systems, system components Pune Holland Grand Rapids Salt Lake City Summerville Monterrey Indaiatuba Jingjiang Suzhou Xiamen Sydney KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 56 Market and influencing factors the Supply Chain Solutions segment. The products and services of companies in the KION Group have to comply with the specific According to the KION Group’s estimates, the material handling legal requirements in their respective markets. Compliance with market – comprising forklift trucks, warehouse technology and the different requirements has to be verified or certified. Many of supply chain solutions – has expanded at a faster rate than global the legal requirements are enshrined in product-specific standards economic growth over the past five years. The value of the market and other norms (e.g. EN, ISO and DIN). has increased at an average annual rate of around 6 per cent. Legal requirements also apply to the construction and Of the relevant market volume, almost 60 per cent is esti- operation of production facilities, including in relation to air pollu- mated to be attributable to industrial trucks and related services, tion avoidance, noise reduction, waste production & disposal and which are essential elements in the production and logistics health & safety. The KION Group fulfils all of these requirements processes of many manufacturers as well as in the wholesale as well as all the legal provisions pertaining to exports and and retail sectors. The remaining market volume is accounted for financing business. by supply chain solutions, the growth of which is fuelled in no small part by the increasing automation and digitalisation of Influencing factors in the Industrial production and logistics processes in various industries. The Trucks & Services segment main overarching growth drivers are the advancing intercon- nectivity of the global economy and additional transport services In recent years, the value of the global market for industrial trucks between ever-more fragmented value chains and supply chains, has increased by an average of 5 per cent per year. This is due in which necessitate decentralised warehouse and logistics capacity. equal measure to the growth in the volume of new truck business The strong growth of e-commerce and the increasing prevalence and the rise in the contribution from the service business com- of multichannel approaches in all kinds of industries are boosting pared to the past. Measured in terms of units ordered, 37 per cent capital expenditure on the reconfiguration of supply chains. of the global market was attributable to IC counterbalance trucks Economic conditions in the different regions and the rates of in 2018, while electric forklift trucks accounted for 17 per cent and growth in global trade have a major influence on customers’ warehouse technology for 46 per cent. It should be noted that the willingness to invest. Historically, new business in the Industrial per-unit price for warehouse technology is considerably lower Trucks & Services segment has shown a very strong correlation than for forklift trucks, which is why the breakdown by value with the performance of broad economic indicators, such as shows that trucks clearly dominate. IC trucks continue to make industrial output. By contrast, the Supply Chain Solutions seg- up a comparatively high proportion of the total unit volume in ment tends to be less cyclical owing to longer projects that often growth regions. However, the strongest growth in the new truck last several years and due to the stable growth of e-commerce. In business in recent years has been for forklift trucks and both segments, the service business is generally more stable warehouse trucks powered by an electric motor. Much of the than the product or project business as it is linked to the installed additional volume is attributable to the electrification of manual base of trucks and systems over their entire lifetime. The eco- hand pallet trucks, which have been replaced by entry-level nomic situation is also affected by competition levels, exchange trucks in the lower weight categories. Better drive technologies, rates and changes in commodity prices. Economic trends within in particular lithium-ion drives, are also contributing to the individual customer sectors are another important factor. above-average growth in electric trucks and equipment. Moreover, The most significant of these are manufacturing, the food driverless transport solutions developed by automating industry, general merchandise and grocery wholesale and retail, standard warehouse trucks are becoming more and more logistics services and pure e-commerce, which has the highest appealing to customers. growth rates. The upper price segment continues to benefit from customers’ Regulatory frameworks have a major impact on the business growing requirements regarding the quality, efficiency and eco- model, both in the Industrial Trucks & Services segment and in friendliness of industrial trucks and from higher expectations in KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 57 terms of service, availability of spare parts and flexible rental solu- Market position tions. In this segment, customers are much more focused than before on optimising total cost of ownership and, increasingly, on In 2018, the Industrial Trucks & Services segment achieved a the ability to integrate the trucks into fully automated intralogistics 14.1 per cent share of the global market based on unit sales (2017: solutions. At the same time, there is mounting competitive pres- 14.4 per cent) and is thus still the second-largest manufacturer of sure worldwide as some manufacturers in the economy segment industrial trucks. It remained the market leader in Europe. At the based in emerging markets are pursuing an international expan- same time, the KION Group is a leading global producer of elec- sion strategy. In mature markets and, increasingly, in growth tric forklift and warehouse trucks. In China, it is still the leading regions, the large number of trucks in use also provides a strong foreign manufacturer and number three overall. The KION Group base for replacement business and rising demand for services. is also among the leading providers in Brazil and India. Influencing factors in the Supply Chain Solutions segment manufacturer in the relevant market segment. This is also the case in the fast-growing AGV and AMR segment, where Dematic According to the KION Group’s estimates, the market for supply is the leading vendor, according to Interact Analysis (2017). The Supply Chain Solutions segment (Dematic) is the largest chain solutions has expanded much faster than the market for industrial trucks and services over the past five years owing to growing demand in the main customer industries. Both the project business (business solutions) and downstream services (customer services) contributed to this expansion. The service business benefits from the ever-larger installed base and the trend towards the outsourcing of logistics processes. The growth of e-commerce has a major influence on demand for supply chain solutions, including warehouse automation and solutions for sorting and for automated goods transport. According to market analysis by the Ecommerce Foundation, global online trading (B2C) expanded at an average rate of around 15 per cent between 2013 and 2017. Increasing complexity, cost pressures and shifting demand patterns require shorter lead times, a more efficient flow of goods, a wider product range and process relia- bility. This is pushing up demand for decentralised warehouse and logistics capacity that enables faster deliveries and, due to automated processes, keeps down personnel expenses and floor space requirements. The digitalisation and automation of industrial production and supply chains and the multichannel strategies being adopted in traditional industries – e.g. supermarket chains, grocery wholesale and retail, fashion, food and beverage manufacturing, and parcel and courier services – are also contributing to this. At the same time, the focus of technological progress is increasingly shifting towards software and robotics solutions. Interact Analysis forecasts strong growth in the market for automated guided vehicles (AGVs) and autonomous mobile robots (AMRs) over the next five years. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 58 STRATEGY OF THE KION GROUP Strategic fields of action and measures in 2018 Objectives of the KION 2027 strategy Five fields of action have been defined for the KION 2027 strategy – energy, digital, automation, innovation and perfor- mance – for which a wide range of strategic measures were In 2018, the KION Group began implementing its updated strat- implemented in 2018: egy, KION 2027. It provides guidance on the strategic direction to be taken over the next decade and is aligned with the KION Energy Group’s vision: “We are the best company in the world at understanding our customers’ material handling needs and In the material handling market, the KION Group wants to lead providing the right solutions.” the way in terms of efficient energy use by its products and Following the integration of Dematic, the KION 2027 strategy’s solutions. Thanks in no small part to the high energy-efficiency of aim is to unlock the potential of the entire Group and place an its premium brands’ products, the KION Group has become a even greater focus on a shared, customer-centric innovation, global market leader for electric forklift trucks and warehouse sales and brand strategy. The emphasis is on developing and trucks. A focus of the strategy is to develop and commercialise marketing integrated, automated supply chain solutions and new energy sources for industrial trucks and related services, mobile automation solutions for customers around the world. In such as the provision of advice on energy matters. the Industrial Trucks & Services segment, consultancy and pro- Several measures enabled the KION Group to move a step ject work are increasingly being added to the traditional portfolio closer to its objective in 2018. Energy-efficient lithium-ion batteries, of products and services. And in the Supply Chain Solutions seg- which offer a number of benefits including shorter charging times, ment, the range of solutions for customers is being expanded lower operating costs and greater range and availability, are now through partnerships, among other things. The KION 2027 an option for the entire Linde and STILL fleet. The RX 20 electric strategy provides the framework for profitable growth in the forklift truck made by STILL won the International Intralogistics Group and sets groupwide targets: and Forklift Truck of the Year award in the Counter Balanced – Growth: The KION Group aims to grow at a faster rate than the global material handling market by evolving into a solutions provider in both segments. – Profitability: The KION Group wants to retain its position as the most profitable supplier in the industry and improve its EBIT margin so that it is permanently in the double-digit range. – Efficient use of capital: The KION Group is working stead- fastly to optimise the return on capital employed (ROCE). Truck category (see ‘Research and development’). Furthermore, Linde’s new rental concept is encouraging the use of energy-saving drive technology in intralogistics. The benefits for customers are flexibility and financial security over the entire usage period. Through its strategic partnership with EP Equipment, Co., Ltd., Hangzhou, a leading Chinese manufacturer of warehouse trucks, the KION Group improved its market position in the entry-level segment for lightweight warehouse trucks. It will also drive for- ward electrification based on lithium-ion technology in this seg- Besides increasing earnings, the focus here is on asset ment. The KION Group is also a leader in fuel-cell technology, management and efficient use of capital. – Resilience: Profitability throughout the various market cycles is to be guaranteed by a robust business model. This will involve greater diversification in terms of regions and cus- tomer sectors alongside efforts to expand the service business and further optimise the production network. as evidenced by a rising number of customer orders. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 59 Digital Building on its leading position in the AGV and AMR segment, Dematic improved its range of automated guided vehicle systems The KION Group is aligning its business with an increasingly significantly last year. Dematic’s new robotics centre of excellence, digital world. The digitalisation of customer solutions, which will which focuses on developing and implementing robot-based even include fully automated warehouses incorporating robotics automation, delivered the first market-ready product in July. The solutions, will be accompanied by the digitalisation of internal new robotic piece picking module completes the automation of processes. Digital solutions will be developed for customers to order processing and increases throughput. improve the efficiency of their intralogistics. The KION Group will The Dematic iQ software, which enables real-time manage- digitalise its inhouse processes so that they are more effective. It ment of material flow solutions, was expanded with the cloud-based will not only integrate software into solutions but also increasingly asset performance management system Dematic iQ InSights. This market it to customers as a separate product. New internal new module increases warehouse efficiency through end-to-end organisational structures will enable the KION Group to cater to facilities management. Linde and STILL have also extended their the high expectations regarding the speed at which solutions are digital offerings, in particular for fleet management. created and adapted. This will pave the way for agile development and embed it across the KION Group. Innovation The important role that digitalisation plays was recognised with the creation of a fifth Executive Board role in 2018. Susanna The KION Group is driving innovation in the material handling Schneeberger has operational responsibility for the Supply Chain market with an effective innovation ecosystem and cutting-edge, Solutions segment (Dematic) and, as Chief Digital Officer (CDO), rapid development processes. It is developing new technologies coordinates the further development of the IT systems and into innovative products for use in both segments. To this end, it manages the groupwide activities aimed at digitalisation and enters into strategic partnerships with research institutes, univer- networking products and processes. The new KION Digital sities and innovative companies so that it can go to market quickly Campus, established in early 2018 as an agile innovation labo- with new products and solutions. ratory for new digital solutions and business models, is an In addition to the investment in the KION Digital Campus, a example of the speed of digital change within the KION Group. further example in 2018 was the integration and refinement of the The laboratory instructs teams in agile work methods and soft- offering of Comnovo, a start-up acquired in 2017. Comnovo has ware developers help them to rapidly create minimum viable developed Safety Guard, an assistance system that uses products for initial use in test phases. The first solutions devel- ultra-wideband technology to increase safety in Logistics 4.0. The oped in the Campus include a chatbot app for service technicians assistance system now plays an important role in delivering and an application for data-based fleet optimisation. Linde’s VISION ZERO, an advisory and training package designed Automation to increase productivity and prevent accidents at work. The KION Group also expanded its collaboration with external research institutes and scientists, for example as part of QBIIK, a joint The KION Group’s solutions will enable customers to use auto- research and development project between STILL and the mated technologies effectively and will help them to achieve a Federal Ministry for Economic Affairs and Energy aimed at ‘lights-out’ warehouse. Today, the KION Group and its two improving self-learning autonomous truck technology. KION segments cover the complete spectrum, from customers with Invest is a newly established unit that works with start-ups to just one forklift truck to those with fully automated large-scale drive forward new technologies and innovative business models warehouses. It will continue to develop different solutions so that that will benefit KION Group customers in the future. it can offer all customers a scalable automation solution that is suited to their particular requirements and to which extra compo- nents can be added. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 60 Performance MANAGEMENT SYSTEM The KION Group is continually improving internal efficiency, optimising the performance of its products from a customer per- spective and fully leveraging synergies. Core key performance indicators In 2018, the KION Group continued its efficiency drive at European production sites in the Industrial Trucks & Services The KION Group’s strategy, which centres on value and growth, segment. The new and largely automated powder painting plant is reflected in how the Company is managed. It uses five core key came online at the Linde site in Aschaffenburg during the first performance indicators (KPIs), which remained unchanged in the quarter of 2018. A new logistics centre at the STILL site in reporting year, to continuously monitor market success, profita- Hamburg serves as the hub for internal logistics, including the bility, financial strength and liquidity. The performance targets of storage and dispatch of large truck parts. Dematic is now able to the Group and the segments are based on selected financial serve customers in the European market even better thanks to its KPIs, as is the performance-based remuneration paid to manag- new factory in Stříbro in the Czech Republic, which commenced ers. The KPIs used to manage the segments are order intake, operations in the first quarter of 2018. It produces modules for revenue and adjusted EBIT. As a rule, the KPIs are measured and multishuttles and modular conveyor systems. made available to the Executive Board in a comprehensive report Efforts were also focused on even more efficient product each month. This enables the management team to take prompt development based on a global, modular platform strategy corrective action in the event of variances compared with target that allows for localisation with minimal effort. The diesel trucks figures. > TABLE 004 developed in the Chinese research and development centre, for example, are also available on the North American market through local supply chains. The offering for the US market comprises three warehouse trucks and a new diesel truck with a load capacity of four to five tonnes. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group Key performance indicators in € million Order intake Revenue Adjusted EBIT ** Free cash flow ROCE 61 TABLE 004 2017 * 7,979.1 7,598.1 777.3 474.3 9.3% 2018 8,656.7 7,995.7 789.9 519.9 9.3% * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 ** Adjusted for PPA items and non-recurring items KPIs related to business volume Liquidity-related KPI Order intake and revenue Free cash flow Order intake and revenue are broken down by segment, region Free cash flow is the main KPI for managing liquidity and financ- and product category in the KION Group’s management reporting ing activities. It is determined by the KION Group’s operating so that growth drivers and pertinent trends can be identified and activities and investing activities. Carefully targeted manage- analysed at an early stage. Order intake is a leading indicator for ment of working capital and the controlling of capital expenditure revenue. The length of time between receipt and invoicing of an are important tools in generating free cash flow. Free cash flow order varies between business units and product categories. does not include interest arising from financing activities. Earnings-related KPI Profitability-related KPI Adjusted EBIT ROCE The key figure used for operational management and analysis of Return on capital employed (ROCE) is another core KPI. It is the the KION Group’s financial performance is adjusted earnings ratio of adjusted EBIT to capital employed. ROCE is measured before interest and tax (EBIT). It is calculated in the same way as annually. > TABLE 005 EBIT, except that it does not take account of purchase price allocation effects or any non-recurring items. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Fundamentals of the KION Group Return on capital employed (ROCE) in € million Total assets - less selected assets ¹ - less selected liabilities ² Capital employed Adjusted EBIT ROCE 62 TABLE 005 2017 * 12,337.7 – 1,547.9 – 2,413.3 8,376.5 777.3 9.3% 2018 12,968.8 – 1,730.4 – 2,708.0 8,530.3 789.9 9.3% 1 Lease receivables, income tax receivables, cash and cash equivalents, PPA items and several items of other financial assets respectively other assets 2 Sundry other provisions, trade payables, a major part of other liabilities as well as several items of other financial liabilities * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 Other key performance indicators Besides the aforementioned core KPIs, the KION Group uses a wealth of additional financial KPIs. The main one is the adjusted EBIT margin, which is besides ROCE a relevant com- ponent of remuneration and is also a target in the KION 2027 strategy. There are also non-financial KPIs, which primarily relate to customers, employees, sustainability and technology. Some of them are used operationally as leading indicators for the financial KPIs. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 63 Report on the economic position MACROECONOMIC AND SECTOR- SPECIFIC CONDITIONS Macroeconomic conditions The pace of growth tailed off over the course of the year. One of the main reasons was an increasing reluctance to invest in view of growing geopolitical and trade-policy uncertainties. The escalating trade dispute between the US and China led to greater doubt about the stability of the upturn, as did the difficult negotiations on the United Kingdom’s departure from the EU and the diminishing budgetary discipline in Italy. Deteriorating financial Global economic growth continued at a robust pace in 2018. The conditions in the emerging markets against a backdrop of upturns in the United States and India made up for the moderate higher inflation (predominantly driven by the oil price), interest- decline in growth rates in the European Union, China and various rate hikes and the negative balances of payments resulting from emerging markets. Growth rates for global industrial output and the resurgent US dollar also played their part in the slowdown. the worldwide volume of trade were both down compared > DIAGRAM 004 with 2017, although they remained high thanks to capital expend- iture and strong domestic demand in many economies. Gross domestic product in 2018 – real year-on-year change DIAGRAM 004 INDIA CHINA WORLD USA EU RUSSIA GERMANY BRAZIL JAPAN 3.0% 2.9% 1.9% 1.6% 1.5% 1.2% 0.8% 7.4% 6.6% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Source: Oxford Economics (as at 16/01/2019) KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 64 Sectoral conditions In the EMEA region (western Europe, eastern Europe, Middle East and Africa), which is still the KION Group’s most important The global material handling market, which comprises industrial region, order numbers were up by 10.8 per cent. This was on a trucks and supply chain solutions, again grew at a much faster par with the growth rate in 2017, thanks to contributions from both rate than the global economy in 2018. Despite the spiralling trade western and eastern Europe. At 4.1 per cent, the rate of increase disputes, the high volume of goods traded worldwide led once in the Americas region (North, Central and South America) again to growing demand for industrial trucks in all of the KION was lower than in 2017. While the rate of growth was down Group’s sales regions. At the same time, demand rose sharply for significantly in Central and South America, the US also registered warehouse automation and for sorting and picking solutions, markedly slower growth. Despite a noticeable flattening, the partly in connection with the creation of extra warehouse capacity APAC region (Asia-Pacific) again generated the strongest for the expanding e-commerce market. rise, driven to a large extent by demand for electric-powered Industrial Trucks & Services trucks. > TABLE 006 Supply Chain Solutions Measured in terms of the number of trucks ordered, the global market for industrial trucks registered strong growth of The market for supply chain solutions again expanded rapidly in 10.3 per cent in 2018. Around 1.5 million industrial trucks 2018. Burgeoning e-commerce is continuing to have a significant were ordered in total worldwide, with significant increases in all impact, as is the related refocusing of supply chains on multi- product categories. Orders for new IC trucks were up by channel approaches. A steadily growing number of companies 6.4 per cent, although the rate of growth in China, the biggest are investing in the expansion and optimisation of their warehous- individual IC market, was a lot slower than in 2017. Unit sales of ing and logistics capacity in order to shorten lead times, improve electric forklift trucks rose by 9.3 per cent. For warehouse trucks, the efficiency of the flow of goods and widen their product range. the increase was 14.0 per cent. One of the main reasons for this Automated warehouse systems include not only solutions for growth was that manual equipment was replaced by entry-level individual processes, such as picking and packing, but also fully trucks in the lower price segment, particularly electric hand pallet integrated end-to-end solutions. trucks in the lower weight categories. Global industrial truck market (order intake) in thousand units Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific World Source: WITS/FEM 2018 435.0 94.1 36.2 288.8 39.5 647.3 2017 395.5 78.4 36.4 277.7 37.7 571.4 1,540.9 1,397.2 TABLE 006 Change 10.0% 20.0% – 0.6% 4.0% 5.0% 13.3% 10.3% KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 65 In the US market, the volume of e-commerce sales again rose it subsequently fell sharply. By contrast, rubber became cheaper sharply year on year and the proportion of retail business due to declining demand from the middle of the year onward, and transacted online increased from 8.7 per cent to 9.6 per cent. the average price in 2018 was lower than the average in 2017. This meant a greater flow of goods in warehousing and logistics, as shown by the Prologis Industrial Business Indicator. The resulting increase in logistics capacity utilisation is leading to Financial markets investment in distribution centres located close to consumers, and the trend for large building units accelerated sharply. At the In the reporting year, the KION Group billed 48.1 per cent of same time, there is growing demand for more efficient ware- revenue in foreign currencies, the most important of which were houses, especially as the majority are still managed manually. the US dollar, China’s renminbi and pound sterling. Capital expenditure on warehouse equipment and technology, Overall, currency effects had a slight negative impact on the including rising investment in warehouse management systems, KION Group’s business situation in 2018. Relative to the dollar, was therefore again at a high level in 2018. the euro was worth approximately 5 per cent less on average Procurement markets in 2018 compared with the average for 2017, as the US dollar appreciated significantly in the second half of the year. Against pound sterling and the Chinese renminbi, the euro made only On the whole, prices for the commodities used by the KION moderate gains. > TABLE 007 Group rose sharply over the course of 2018. Steel, the most important commodity, became more expensive during the year and was up by more than 5 per cent on the average price for 2017. The average price of copper (LME) also increased year on year, reaching its highest level since 2014. The average price of oil in 2018 was also well above the previous year’s average. The price of Brent crude maintained a clear uptrend until October and, for a time, exceeded the threshold of US$ 75 per barrel, but Currencies Average rate per Euro Australia (AUD) Brazil (BRL) China (CNY) United Kingdom (GBP) USA (USD) Source: Bloomberg TABLE 007 2017 1.4734 3.6090 7.6292 0.8764 1.1300 2018 1.5801 4.3073 7.8066 0.8848 1.1809 KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 66 Business performance in the Group In 2018, the KION Group focused on strengthening its position in emerging markets in line with its KION 2027 strategy. Back in January 2018, the KION Group entered into an exclusive and FINANCIAL POSITION AND FINANCIAL PERFORMANCE OF THE KION GROUP global strategic partnership with EP Equipment, Co., Ltd., Overall assessment of the economic situation Hangzhou, People’s Republic of China, a leading Chinese manu- facturer of warehouse trucks. In this context, the KION Group 2018 was another successful year for the KION Group. The also plans to acquire a non-controlling interest in EP Equipment, targets set for its monetary KPIs for 2018 were achieved both at Co., Ltd., thereby expanding its product offering in the entry-level Group level and in the two segments, despite a negative overall segment for lightweight warehouse trucks in the Chinese market currency effect over the course of the year. It should be empha- and improving on its worldwide position as the leading supplier of sised that the brief dip in EBIT and free cash flow in the first half electric-powered material handling equipment. of the year was largely reversed again as a result of the faster In the first quarter of 2018, the KION Group’s production revenue growth in the second half of the year. The corrective network was enlarged when the factory in Stříbro, Czech measures taken in the Industrial Trucks & Services segment Republic, commenced operations and began manufacturing had the desired effect on the temporary bottlenecks at individual multishuttles and modular conveyor systems. The factory suppliers. The Supply Chain Solutions segment’s strong finish to supports Dematic’s growth in the European market. 2018 more than made up for the shortfalls in project revenue Further steps were taken as part of ongoing improvements recognised in the first few months of the year. The KION Group to the KION Group’s funding. In January 2018, the KION Group was thus able to take full advantage of the generally favourable agreed an extension, until February 2023, to the term of the market conditions in both segments. revolving credit facility of €1,150.0 million arranged under the The KION Group’s total order intake rose by 8.5 per cent to senior facilities agreement (SFA), giving it another year of flexibility €8,656.7 million (2017: €7,979.1 million). The contribution from in its funding. The KION Group issued a further promissory note the Supply Chain Solutions segment, where order intake in June 2018. It has a volume of €200.0 million and will mature increased by 15.5 per cent, was exceptionally strong, but the in June 2025. In addition, the long-term tranche of the acqui- Industrial Trucks & Services segment also saw year-on-year sition facilities agreement (AFA) was reduced to €600.0 million order growth of 6.0 per cent. Consolidated revenue improved by (31 December 2017: €1,000.0 million). 5.2 per cent to €7,995.7 million (2017: €7,598.1 million). The At the start of the 2018 financial year, the KION Group Industrial Trucks & Services segments played a particularly adopted the new standards IFRS 9, IFRS 15 and IFRS 16 retro- strong part in this revenue growth, whereas revenue in the spectively. As a result, some of the prior-year figures, Group Supply Chain Solutions segment was only slightly higher than in KPIs and line items have been adjusted, particularly those 2017 due to the overall poor start to 2018. relating to the leasing business. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 67 The KION Group’s EBIT adjusted for non-recurring items and purchase price allocation effects came to €789.9 million (2017: €777.3 million). This year-on-year increase of €12.6 million was Comparison between actual and forecast growth achieved despite higher material prices, wage cost rises, negative The KION Group’s order intake of €8,656.7 million was above the currency effects and temporary bottlenecks at individual suppliers upper end of the target range (€8,050 million to €8,550 million), in the Industrial Trucks & Services segment. There was a moderate while the revenue of €7,995.7 million was in the middle (target reduction in the adjusted EBIT margin to 9.9 per cent (2017: range: €7,700 million to €8,200 million). The adjusted EBIT of 10.2 per cent). After taking into account diminishing purchase €789.9 million was also within the specified bounds (target range: price allocation (PPA) effects and non-recurring items, EBIT rose €770 million to €835 million). Higher advance payments from sharply to €642.8 million (2017: €561.0 million). As a result of customers in the project business meant that the free cash flow higher tax expenses, there was a moderate decrease in net of €519.9 million was significantly higher than anticipated (target income to €401.6 million (2017: €422.5 million). Non-recurring range: €410 million to €475 million). At 9.3 per cent, ROCE items in both 2018 (positive item of €29.4 million) and 2017 (posi- was as predicted (target range: 8.7 per cent to 9.7 per cent). In tive item of €92.2 million) had a positive impact on tax expenses the Industrial Trucks & Services segment, order intake and and thus on net income. Basic earnings per share attributable to revenue exceeded expectations, while adjusted EBIT was at the shareholders of the KION Group came to €3.39 in 2018 (2017: the lower end of the target range due to the temporary supply €3.68) based on a weighted average of 117.9 million no-par- bottlenecks during the year. The results achieved in the Supply value shares outstanding during the reporting year (2017: Chain Solutions segment for revenue and adjusted EBIT were 114.3 million). KION GROUP AG will propose a dividend of €1.20 also around the lower end of their respective target range. Order per share to the Annual General Meeting (2017: €0.99 per share). intake exceeded the top end of the target range because the Free cash flow increased to €519.9 million (2017: €474.3 mil- strong level of incoming orders for customer projects in recent lion), above all thanks to improved earnings and the lower quarters continued into the fourth quarter. > TABLES 008 – 009 growth in net working capital. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 68 Comparison between actual and forecast growth – KION Group TABLE 008 in € million Order intake Revenue Adjusted EBIT Free cash flow ROCE KION Group 2018 Outlook 8,050 – 8,550 7,700 – 8,200 770 – 835 410 – 475 8.7% – 9.7% 2018 Actual 8,656.7 7,995.7 789.9 519.9 9.3% Comparison between actual and forecast growth – segments TABLE 009 in € million Order intake * Revenue * Adjusted EBIT * Industrial Trucks & Services Supply Chain Solutions 2018 Outlook 5,950 – 6,150 5,700 – 5,900 2018 Actual 2018 Outlook 6,210.6 2,100 – 2,400 5,922.0 2,000 – 2,300 650 – 685 655.4 180 – 215 2018 Actual 2,425.2 2,055.2 180.2 * Disclosures for the Industrial Trucks & Services and Supply Chain Solutions segments also include intra-group cross-segment order intake, revenue and effects on EBIT Business situation and financial performance of the KION Group compared with the end of 2017 (31 December 2017: €2,614.6 mil- lion) and provides an excellent basis for the future. Level of orders Revenue Order intake in the KION Group rose by 8.5 per cent year on The negative currency effects on revenue were comfortably year to €8,656.7 million (2017: €7,979.1 million). This substantial outweighed by the growth in the volume of business. The consol- increase is attributable to new truck business in the Industrial idated revenue of the KION Group increased by 5.2 per cent to Trucks & Services segment, project business in the Supply Chain €7,995.7 million (2017: €7,598.1 million); if exchange rates had Solutions segment and growing service activities in both been the same as in 2017, the rise would have been 7.5 per cent. segments. Although negative currency effects dissipated slightly The rate of revenue growth picked up sharply in the second half in the fourth quarter owing to the weakness of the euro, their of the year, predominantly due to the increase in production overall impact in 2018 as a whole still reduced the value of order volume in the Industrial Trucks & Services segment once the intake by €186.5 million. Thanks to strong order intake, the KION bottlenecks at individual suppliers had largely been resolved. Group’s order book of €3,300.8 million was up by 26.2 per cent Overall, the Industrial Trucks & Services segment generated KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 69 total revenue of €5,922.0 million, which equated to an increase of primarily attributable to the increase in revenue from the service 6.3 per cent compared with 2017. In the Supply Chain Solutions business. Across the Group as a whole, the share of revenue segment, revenue amounted to €2,055.2 million following a attributable to the service business grew from 42.5 per cent to strong fourth quarter. This year-on-year rise of 2.3 per cent was 43.1 per cent. > TABLE 010 Revenue with third parties by product category in € million Industrial Trucks & Services New business Service business – Aftersales – Rental business – Used trucks – Other Supply Chain Solutions Business solutions Service business Corporate Services Total revenue * Revenue for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 2018 5,916.3 3,009.1 2,907.2 1,513.9 900.1 327.8 165.4 2,052.1 1,514.0 538.1 27.3 7,995.7 2017 * 5,568.2 2,828.8 2,739.5 1,429.5 855.2 306.6 148.3 2,005.1 1,512.4 492.7 24.8 7,598.1 TABLE 010 Change 6.3% 6.4% 6.1% 5.9% 5.3% 6.9% 11.6% 2.3% 0.1% 9.2% 10.0% 5.2% Revenue by sales region decline in revenue in Australia, resulting in an overall decrease of 2.2 per cent in spite of the ongoing momentum in the region. In the EMEA sales region (western Europe, eastern Europe, Emerging markets accounted for 20.3 per cent of the KION Middle East and Africa), revenue rose by 3.6 per cent year on Group’s revenue in the reporting year (2017: 20.9 per cent), while year. Revenue was up by 4.4 per cent in western Europe, thanks 80.8 per cent of consolidated revenue (2017: 81.6 per cent) was in no small part to the Industrial Trucks & Services segment’s generated outside Germany. > TABLE 011 higher unit sales in the German, Italian and French markets. In eastern Europe, revenue increased by 8.0 per cent compared with the previous year. This growth was mainly driven by brisk new truck business in Poland and Russia. In the Americas region (North, Central and South America), the KION Group posted a substantial rise in revenue of 16.1 per cent – despite significant negative currency effects – and thus boosted its strong market position in North America, especially in the Supply Chain Solu- tions segment. The APAC region (Asia-Pacific) was affected by a KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position Revenue with third parties by customer location in € million Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total revenue * Revenue for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 2018 4,769.9 592.3 94.5 1,486.3 173.5 879.3 7,995.7 2017 * 4,567.1 548.2 153.6 1,266.7 163.1 899.3 7,598.1 70 TABLE 011 Change 4.4% 8.0% – 38.5% 17.3% 6.4% – 2.2% 5.2% Earnings and profitability EBIT, EBITDA and ROCE Services segment, to the redirection of sales activities in South Africa. In 2017, non-recurring items (€40.1 million) had been incurred in connection with the fundamental integration of Despite negative currency effects, earnings before interest and Dematic and with the start-up costs for the new plant in Mon- tax (EBIT) went up by 14.6 per cent to €642.8 million in 2018 terrey, Mexico. (2017: €561.0 million). The main reason was the sharp reduction, EBIT adjusted for non-recurring items and purchase price from €176.2 million in 2017 to €126.2 million in the reporting year, allocation effects (adjusted EBIT) was above the figure for the in the negative purchase price allocation effects included in EBIT. previous year at €789.9 million (2017: €777.3 million). The adjusted The non-recurring items also decreased, to €21.0 million, and EBIT margin declined from 10.2 per cent to 9.9 per cent. mainly related to ongoing process standardisation in connection > TABLE 012 with the integration of Dematic and, in the Industrial Trucks & EBIT in € million EBIT + Non-recurring items + PPA items Adjusted EBIT * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 2018 642.8 21.0 126.2 789.9 2017 * 561.0 40.1 176.2 777.3 TABLE 012 Change 14.6% – 47.7% – 28.4% 1.6% KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 71 Earnings before interest, tax, depreciation and amortisation EBITDA for the long-term leasing business, which is derived (EBITDA) increased to €1,540.6 million (2017: €1,457.6 million). from internal reporting and assumes a minimum rate of return Adjusted EBITDA came to €1,555.1 million (2017: €1,495.8 mil- on the capital employed, amounted to €321.1 million (2017: lion). The adjusted EBITDA margin decreased from 19.7 per cent €320.9 million). > TABLE 013 in 2017 to 19.4 per cent in 2018. EBITDA in € million EBITDA + Non-recurring items + PPA items Adjusted EBITDA * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 2018 1,540.6 14.6 – 0.0 2017 * 1,457.6 36.4 1.8 1,555.1 1,495.8 TABLE 013 Change 5.7% – 59.9% <– 100% 4.0% Return on capital employed (ROCE) was at the same level as in Selling expenses and administrative expenses increased by 2017 at 9.3 per cent. 6.1 per cent – virtually the same rate as for revenue growth – to reach €1,352.6 million (2017: €1,275.1 million). This rise was due Key influencing factors for earnings to higher wage costs and, above all, the expansion of mar- Whereas revenue increased by 5.2 per cent, the cost of sales was ket-specific and customer-specific sales activities. The level of up by 4.5 per cent. Consequently, the gross margin improved groupwide research and development costs held steady at slightly to reach 26.2 per cent, compared with 25.7 per cent in €137.7 million (2017: €137.0 million), reflecting the ongoing 2017. Higher material prices and wage cost rises in the reporting innovation initiatives taking place in the KION Group in connection year partly negated the positive impact of reduced purchase with its growth strategy. The ‘other’ item included, among other price allocation effects. In addition, the bottlenecks at individual effects, the share of profit (loss) of equity-accounted invest- suppliers in the Industrial Trucks & Services segment resulted in ments, which amounted to a profit of €12.2 million (2017: profit production inefficiencies and thus an increase in the cost of sales. of €13.6 million). It also included impairment losses on non- Furthermore, delays in the awarding of projects by customers current assets of €6.4 million (2017: €14.8 million); the prior-year in previous quarters led to temporary underutilisation of project- figure had included impairment losses of €8.6 million relating related personnel capacity and, overall, squeezed earnings in the to the Egemin brand name, which has been integrated into Supply Chain Solutions segment. Despite a recovery in the fourth the Dematic brand presentation. > TABLE 014 quarter, currency effects, primarily from the US dollar, also had a negative impact on the key financials and therefore on the KION Group’s EBIT. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position (Condensed) income statement in € million Revenue Cost of sales Gross profit Selling expenses and administrative expenses Research and development costs Other Earnings before interest and taxes (EBIT) Net financial expenses Earnings before taxes Income taxes Net income 72 TABLE 014 Change 5.2% – 4.5% 7.3% – 6.1% – 0.5% 93.6% 14.6% – 1.2% 17.3% <– 100% – 4.9% 2018 7,995.7 – 5,898.1 2,097.6 – 1,352.6 – 137.7 35.4 642.8 – 97.4 545.3 – 143.7 401.6 2017 * 7,598.1 – 5,643.3 1,954.8 – 1,275.1 – 137.0 18.3 561.0 – 96.3 464.7 – 42.2 422.5 * (Condensed) income statement for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 Net financial expenses expenses of €42.2 million in 2017 had primarily been attributable The net financial expenses, representing the balance of financial to the remeasurement of deferred tax liabilities in light of the US income and financial expenses, were virtually unchanged year on tax reforms; the associated positive non-recurring tax effect had year at €97.4 million (2017: net financial expenses of €96.3 mil- amounted to €92.2 million in 2017. lion). Current interest expense on financial liabilities decreased in 2018 due to the corporate actions carried out in 2017, whereas Net income and appropriation of profit currency effects had improved the level of net financial expenses Net income amounted to €401.6 million (2017: €422.5 million). On in the previous year. The deferred borrowing costs of €4.5 million a like-for-like basis, i.e. excluding the non-recurring impact of the reported within financial expenses included, among other items, tax effects in both years, net income was significantly higher than expenses resulting from the early repayment of €400.0 million in the previous year. The net income attributable to the sharehold- under the acquisition facilities agreement (AFA); previously ers of KION GROUP AG was €399.9 million (2017: €420.9 million). deferred borrowing costs of €1.9 million were expensed. In Basic earnings per share came to €3.39 (2017: €3.68) based on 2017, borrowing costs totalling €8.8 million had been recognised 117.9 million (2017: 114.3 million) no-par-value shares; this was as an expense. Income taxes the weighted average number of shares outstanding during the reporting year. Diluted earnings per share, which is calculated by adding the potential dilutive no-par-value shares under the Income tax expenses amounted to €143.7 million, which equates employee share option programme, amounted to €3.39 (2017: to a tax rate of 26.3 per cent. This included a positive tax effect €3.68) based on a weighted average number of shares of stemming from the offsetting of losses of corporations in an 117.9 million (2017: 114.4 million). These calculations did not amount of €29.4 million in connection with an amendment to tax include 165.6 thousand (2017: 160.8 thousand) no-par-value law (section 8c of the German Corporation Tax Act (KStG)) at treasury shares that were repurchased by KION GROUP AG as the end of the financial year 2018. The far lower level of tax part of the employee equity programme. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 73 KION GROUP AG’s net profit for 2018 was €236.3 million, of Revenue which €94.8 million will be transferred to other revenue reserves. Total segment revenue went up by 6.3 per cent to €5,922.0 mil- The Executive Board and the Supervisory Board will propose to lion (2017: €5,572.2 million). Although deliveries were delayed the Annual General Meeting to be held on 9 May 2019 that an during the course of 2018 due to temporary bottlenecks at amount of €141.5 million be appropriated from the distributable individual suppliers, which adversely affected revenue, the level profit of €141.7 million for the payment of a dividend of €1.20 per of output improved markedly in the second half of the year. dividend-bearing share. It is also proposed that the remaining Excluding negative currency effects of €97.6 million, the increase sum of €0.2 million be carried forward to the next accounting in revenue was 8.0 per cent for 2018 as a whole. The growth of period. This equates to a dividend payout rate of 35 per cent of 6.4 per cent in the new truck business is due to scheduled price net income. Business situation and financial performance of the segments adjustments and, above all, increasing unit sales of electric forklift trucks and warehouse trucks. Unit sales of diesel trucks were lower than in 2017. Revenue from the service business was up by 6.1 per cent year on year, which was almost the same as the rate of revenue growth in the new truck business. Aftersales busi- ness accounted for the largest share, contributing 52.1 per cent Industrial Trucks & Services segment of service revenue. The rental and used truck business was also very encouraging, with revenue going up by 5.7 per cent. The Business performance and order intake proportion of the segment’s external revenue accounted for by The Industrial Trucks & Services segment registered a year-on- the service business was 49.1 per cent (2017: 49.2 per cent). year increase in orders for new trucks across all sales regions of 7.6 per cent to 216.7 thousand units. The Linde brand (including Earnings Fenwick) achieved strong growth and accounted for 62.1 per cent The segment’s adjusted EBIT increased at a slightly slower rate of new truck business. STILL generated 31.8 per cent of new than revenue to reach €655.4 million (2017: €642.7 million). The orders; the remaining 6.1 per cent was attributable to the Baoli related contraction of the adjusted EBIT margin to 11.1 per cent and OM Voltas brands. (2017: 11.5 per cent) essentially reflects the impact of the bottle- In line with the objectives of the KION 2027 strategy, there necks at suppliers, the effects of which included temporary was a particularly sharp increase in unit sales of electric-pow- inefficiencies in production. The adjusted EBIT margin continued ered trucks, which accounted for over 80 per cent of orders. to be squeezed by higher material prices and wage costs. After The total value of order intake rose by 6.0 per cent to taking into account non-recurring items and purchase price alloca- €6,210.6 million (2017: €5,859.5 million), despite negative cur- tion effects, EBIT amounted to €625.2 million (2017: €640.2 million). rency effects of €98.5 million. In addition to new truck orders, Adjusted EBITDA improved to €1,340.2 million (2017: the expanding service business also contributed to this increase. €1,288.7 million). This equated to an adjusted EBITDA margin of 22.6 per cent (2017: 23.1 per cent). > TABLE 015 KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position Key figures – Industrial Trucks & Services in € million Order intake Total revenue EBITDA Adjusted EBITDA EBIT Adjusted EBIT Adjusted EBITDA margin Adjusted EBIT margin * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 2018 6,210.6 5,922.0 1,332.3 1,340.2 625.2 655.4 22.6% 11.1% 2017 * 5,859.5 5,572.2 1,287.0 1,288.7 640.2 642.7 23.1% 11.5% 74 TABLE 015 Change 6.0% 6.3% 3.5% 4.0% – 2.3% 2.0% – – Supply Chain Solutions segment back to 2017 – took their toll on revenue in the first nine months of 2018. The fourth quarter rally was unable to fully make up for this, Business performance and order intake which meant that revenue was at the lower end of the target The Supply Chain Solutions segment saw a significant year- range. Excluding negative currency effects of €76.5 million, on-year improvement of 15.5 per cent in its order intake to the year-on-year increase was 6.1 per cent. Project business €2,425.2 million (2017: €2,099.2 million). Negative currency accounted for 73.8 per cent of external revenue and the service effects of €88.0 million, which were mainly due to the US dollar business for 26.2 per cent. The segment generated 65.7 per cent being weaker on average during the year, were easily offset. of its revenue in North America (2017: 56.8 per cent). Adjusted for currency effects, order intake was up by 19.7 per cent. Following a muted start to 2018, project business (business Earnings solutions) received major orders – especially in the second and The segment’s adjusted EBIT came to €180.2 million, which was third quarters – and thus registered strong year-on-year growth. below the figure for the previous year of €188.7 million. The Overall, project business generated 76.5 per cent of the seg- continued delays in the awarding of projects by customers led to ment’s order intake (2017: 75.4 per cent). The growing trend temporary underutilisation of project-related personnel capacity for the outsourcing of logistics processes and the related in 2018. Currency effects also had an adverse impact on EBIT. The downstream services provides good foundations for the rapidly adjusted EBIT margin fell to 8.8 per cent (2017: 9.4 per cent). expanding service business (customer services) in the Supply After taking into account non-recurring items and purchase Chain Solutions segment. Revenue price allocation effects, which were down year on year, EBIT improved significantly to €64.4 million (2017: minus 16.6 million). Adjusted EBITDA came to €231.5 million (2017: €235.7 million), The segment’s total revenue increased by a moderate 2.3 per cent with an adjusted EBITDA margin of 11.3 per cent (2017: to €2,055.2 million (2017: €2,009.5 million), following a strong 11.7 per cent). > TABLE 016 finish to the year in the fourth quarter. However, delays in the awarding of projects by customers – some of which stretched KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position Key figures – Supply Chain Solutions in € million Order intake Total revenue EBITDA Adjusted EBITDA EBIT Adjusted EBIT Adjusted EBITDA margin Adjusted EBIT margin 75 TABLE 016 Change 15.5% 2.3% 8.9% – 1.8% > 100% – 4.5% – – 2018 2,425.2 2,055.2 226.1 231.5 64.4 180.2 11.3% 8.8% 2017 * 2,099.2 2,009.5 207.7 235.7 – 16.6 188.7 11.7% 9.4% * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 Corporate Services segment The segment reported adjusted EBIT of €369.6 million, Business performance compared with €532.4 million in the previous year. This sharp fall was attributable to higher intra-group dividend income in The Corporate Services segment comprises holding companies 2017. Adjusted EBIT excluding intra-group dividend income and other service companies that provide services such as IT and amounted to minus €45.8 million (2017: minus €54.1 million). logistics across all segments. Adjusted EBITDA came to €398.8 million, or minus €16.6 million if intra-group dividend income is excluded. > TABLE 017 Revenue and earnings Total segment revenue, which came to €299.2 million (2017: €266.6 million), mainly resulted from internal IT and logistics services. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position Key figures – Corporate Services in € million Order intake Total revenue EBITDA Adjusted EBITDA EBIT Adjusted EBIT 76 TABLE 017 Change 12.2% 12.2% – 27.6% – 28.5% – 29.7% – 30.6% 2018 299.2 299.2 397.6 398.8 368.5 369.6 2017 * 266.6 266.6 549.4 557.9 523.9 532.4 * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 Net assets Non-current assets lion (31 December 2017: €608.4 million). At €826.2 million, long-term lease receivables arising from leases with end custom- ers that are classified as finance leases were considerably higher than at the end of 2017 (31 December 2017: €647.8 million). The Non-current assets rose by €300.0 million from their level at the amount of deferred tax assets recognised in the statement of end of 2017 to €10,150.6 million as at 31 December 2018. financial position was €421.7 million as at the reporting date Intangible assets accounted for €5,721.6 million of total non- (31 December 2017: €475.2 million). current assets (31 December 2017: €5,716.5 million). The goodwill included in this total was up slightly at €3,424.8 million (31 Decem- Current assets ber 2017: €3,382.5 million), mainly as a result of currency effects. However, these were partly offset by the effect of the Current assets rose by €331.1 million to €2,818.2 million (31 Decem- ongoing writedowns on the customer relationships acquired from ber 2017: €2,487.1 million). The temporary bottlenecks at individual Dematic as part of the purchase price allocation (PPA). The rise suppliers resulted in significant inventory growth in the Industrial in other property, plant and equipment to €1,077.8 million Trucks & Services segment that had not been completely elimi- (31 December 2017: €994.9 million) was largely attributable to nated by 31 December 2018. The increased volume of business higher capital expenditure on new production facilities and to also resulted in higher inventories in the KION Group, which stood additional right-of-use assets relating to new and extended at €994.8 million as at the reporting date (31 December 2017: procurement leases. Right-of-use assets increased to €390.7 mil- €768.6 million). > TABLE 018 lion (31 December 2017: €347.4 million). Within this total, the right-of-use assets for land and buildings stood at €276.4 million Trade receivables amounted to €1,036.4 million (31 December (31 December 2017: €247.6 million) and the right-of-use assets for 2017: €999.4 million). plant, machinery, and office furniture and equipment stood at The KION Group’s net working capital, which comprises €114.3 million (31 December 2017: €99.8 million). Leased assets inventories, trade receivables and contract assets less for direct and indirect leases with end customers that are classified trade payables and contract liabilities, rose to €676.1 million as operating leases increased slightly to reach €1,261.8 million (31 December 2017: €619.9 million). (31 December 2017: €1,246.3 million). Further expansion of the short-term rental fleet caused rental assets to rise to €670.5 mil- KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position Inventories in € million Materials and supplies Work in progress Finished goods and merchandise Advances paid Total inventories 77 TABLE 018 Change 53.5% 21.3% 19.9% 80.5% 29.4% 2018 284.2 132.3 550.6 27.8 994.8 2017 185.2 109.0 459.0 15.4 768.6 Cash and cash equivalents stood at €175.3 million on the Financial position reporting date, which was virtually unchanged on the previous year (31 December 2017: €173.2 million) and, in line with groupwide Principles and objectives of financial management liquidity management (cash pooling), was at the level required for operating activities. The KION Group pursues a conservative financial policy of Current lease receivables from end customers increased to maintaining a strong credit profile with reliable access to debt €271.2 million (31 December 2017: €228.0 million). capital markets. By pursuing an appropriate financial manage- The condensed consolidated statement of financial position ment strategy, the KION Group makes sufficient cash and cash as at 31 December 2018 showing current and non-current equivalents available at all times to meet the Group companies’ assets and liabilities together with equity is presented in operational and strategic funding requirements. In addition, the > TABLE 019. KION Group optimises its financial relationships with customers (Condensed) statement of financial position in € million Non-current assets Current assets Total assets Equity Non-current liabilities Current liabilities Total equity and liabilities 2018 10,150.6 2,818.2 12,968.8 3,305.1 5,999.1 3,664.6 12,968.8 in % 78.3% 21.7% – 25.5% 46.3% 28.3% – 2017 * 9,850.6 2,487.1 12,337.7 2,992.3 6,133.7 3,211.7 12,337.7 in % 79.8% 20.2% – 24.3% 49.7% 26.0% – * (Condensed) statement of financial position for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 TABLE 019 Change 3.0% 13.3% 5.1% 10.5% – 2.2% 14.1% 5.1% KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 78 and suppliers and mitigates the financial risk to its enterprise interest-rate swaps in order to hedge risks attaching to financial value and profitability, notably currency risk, interest-rate risk, liabilities. price risk, counterparty risk and country risk. In this way, the Among other stipulations, the contractual terms of the senior KION Group creates a stable funding position from which to facilities agreement (SFA), the acquisition facilities agreement maintain profitable growth. (AFA) and the promissory notes set out certain covenants. In The financial resources within the KION Group are provided addition, there is a financial covenant that involves ongoing on the basis of an internal funding approach. The KION Group testing of adherence to a defined maximum level of leverage. collects liquidity surpluses of the Group companies in central or Non-compliance with the covenants or with the defined maxi- regional cash pools and, where possible, covers subsidiaries’ mum level of leverage as at a particular reporting date may funding requirements with intercompany loans. This funding potentially give lenders a right of termination or lead to an enables the KION Group to present a united front in the capital increase in interest payments. markets and strengthens its hand in negotiations with banks All covenants were complied with in the past financial year, and other market participants. The Group occasionally arranges as had been the case in 2017. additional credit lines for KION Group companies with local banks or leasing companies in order to comply with legal, tax Main corporate actions in the reporting period and other regulations. The KION Group is a publicly listed corporate group and In January 2018, the term of the revolving credit facility of therefore ensures that its financial management takes into €1,150.0 million agreed under the SFA was extended by a year, account the interests of shareholders, promissory note inves- which means the KION Group can now utilise this credit facility tors and the banks providing its funding. For the sake of all until February 2023. The KION Group issued a further promissory stakeholders, the KION Group makes sure that it maintains an note in June 2018. Split into fixed-rate and variable-rate tranches, appropriate ratio of internal funding to borrowing. The it has a volume of €200.0 million and will mature in June 2025. KION Group’s borrowing is based on a long-term approach. The The risk of a change in fair value has been hedged using an inter- individual tranches of this borrowing will become due for repay- est-rate swap with matching maturity. The hedging transaction is ment in the years 2021 to 2027. recognised as a fair value hedge. The funds generated by this Depending on requirements and the market situation, the promissory note were used to repay part of the long-term tranche KION Group will also avail itself of the funding facilities offered by under the AFA. Following further repayments using funds from the public capital markets in future. The KION Group therefore operating activities, the only outstanding liability in connection seeks to implement proactive risk management by rigorously pur- with the AFA entered into in order to fund the acquisition of suing its corporate strategy and to maintain an investment-grade Dematic is the floating-rate long-term tranche in a residual amount credit rating in the capital and funding markets by ensuring a solid of €600.0 million (31 December 2017: €1,000.0 million), which is funding structure. Since September 2017, rating agency Stand- due to mature in October 2021. As a result of the early repayment, ard & Poor’s has classified the KION Group as BB+ with a positive deferred borrowing costs of €1.9 million had to be recognised outlook, while the rating from Fitch Ratings has been BBB– with under financial expenses. The KION Group has issued guaran- a stable outlook since January 2017. The KION Group thus has an tees to the banks for all of the payment obligations under the SFA investment-grade credit rating, helping it to secure more advanta- and AFA and it is the borrower in respect of all the payment obli- geous funding conditions in the capital markets. gations resulting from the promissory notes. The KION Group maintains a liquidity reserve in the form of In October 2018, the KION Group employees entitled to unrestricted, agreed and confirmed credit lines and cash in participate in KEEP were given the opportunity to buy more order to ensure long-term financial flexibility and solvency. In KION shares. By 31 December 2018, a total of 38,691 shares addition, it uses derivatives to hedge currency risk. It enters into had been purchased by staff (31 December 2017: 36,294 shares). KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 79 The number of shares held in treasury therefore stood at Over the course of 2018, current financial liabilities fell by 165,558 as at the reporting date (31 December 2017: 160,829). €17.4 million to €226.5 million (31 December 2017: €243.9 mil- lion). In the first six months of the year, higher drawdowns from Analysis of capital structure the revolving credit facility were needed to fund net working capital as a result of the temporary bottlenecks at individual At €9,663.7 million, current and non-current liabilities had risen by suppliers. These were repaid in the second half of 2018, taking €318.4 million as at the reporting date (31 December 2017: current financial liabilities to below the level as at 31 December €9,345.4 million). An increase in current financial liabilities during 2017. the year was more than offset by repayments in the second half Net financial debt (non-current and current financial liabilities of the year. Non-current liabilities included deferred tax liabilities less cash and cash equivalents) was therefore reduced to of €626.7 million (31 December 2017: €702.4 million). €1,869.9 million (31 December 2017: €2,095.5 million). This Financial debt equated to 1.2 times the adjusted EBITDA in the year under review. The unused, unrestricted loan facility under the SFA stood Non-current financial liabilities (net of borrowing costs) decreased at €1,048.2 million as at the reporting date (31 December 2017: to €1,818.7 million (31 December 2017: €2,024.8 million). This €965.3 million). > TABLE 020 figure can essentially be broken down into promissory notes with a total volume of €1,210.0 million and the remaining floating-rate long-term tranche of €600.0 million drawn down under the AFA. Industrial net operating debt in € million Liabilities to banks Promissory notes Other financial liabilities to non-banks Financial liabilities Less cash and cash equivalents Net financial debt Liabilities from financial services (short-term rental fleet) Other financial liabilities (short-term rental fleet) Liabilities from short-term rental fleet financing Liabilities from procurement leases Industrial net operating debt * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 TABLE 020 2017 * 1,253.7 1,007.3 7.7 2,268.7 – 173.2 2,095.5 – 515.7 515.7 369.1 2018 826.4 1,214.3 4.6 2,045.2 – 175.3 1,869.9 307.1 289.9 597.0 421.2 2,888.1 2,980.4 KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 80 Retirement benefit obligation Overall, liabilities from financial services increased to The KION Group supports pension plans in many countries. €1,472.4 million as at 31 December 2018 (31 December 2017: These plans comply with legal requirements, standard local €437.4 million). Of this total, €1,165.3 million was attributable to practice and thus the situation in the country in question. They financing of the direct and indirect long-term leasing business are either defined benefit pension plans, defined contribution (31 December 2017: €437.4 million). The total also includes pension plans or multi-employer benefit plans. As at 31 Decem- residual value obligations of €319.5 million (31 December 2017: ber 2018, the retirement benefit obligation under defined benefit €340.7 million) resulting from the indirect leasing business. pension plans amounted to a total of €1,043.0 million, which A sum of €307.1 million, representing some of the financing was only slightly higher than the figure at the end of 2017 of of the short-term rental fleet, is recognised under liabilities from €1,002.7 million. The net obligation under defined benefit financial services (31 December 2017: €0.0 million); the remain- pension plans increased year on year to reach €1,009.7 million ing financing of the short-term rental fleet, which amounts to (31 December 2017: €978.5 million). Changes in estimates €289.9 million (31 December 2017: €515.7 million), is recognised relating to defined benefit pension entitlements resulted in a under other financial liabilities. marginal decrease in equity. Contributions to pension plans that are entirely or partly Lease liabilities funded via funds are paid in as necessary to ensure sufficient Lease liabilities fell by €390.5 million to €740.6 million as at the assets are available and to be able to make future pension reporting date (31 December 2017: €1,131.1 million) because new payments to pension plan participants. These contributions are business has been included in liabilities from financial services determined by factors such as the funded status, legal and tax since 1 January 2018. considerations, and local practice. The payments made by the Overall, liabilities from financial services and lease liabilities KION Group in 2018 in connection with the main pension plans together totalling €1,906.0 million were attributable to financing totalled €37.3 million, comprising €17.5 million for direct pension of the direct and indirect long-term leasing business (31 Decem- payments and €19.7 million for employer contributions to plan ber 2017: €1,568.5 million). assets. The latter predominantly comprised a one-off payment of €17.8 million that was made in the United States in order to Other financial liabilities better meet statutory minimum funding provisions. As at the reporting date, other financial liabilities included liabili- ties of €289.9 million (31 December 2017: €515.7 million) arising Liabilities from financial services from sale and leaseback sub-lease transactions used to finance Further expansion of the long-term leasing business with end the short-term rental fleet. customers in 2018 again led to a higher total funding requirement This item also included liabilities from procurement leases in the form of liabilities from financial services and lease liabilities. amounting to €421.2 million (31 December 2017: €369.1 million), Liabilities from financial services comprise all liabilities from for which right-of-use assets were recorded. Overall, current financing the leasing business and the short-term rental fleet on and non-current other financial liabilities came to €813.2 million the basis of sale and leaseback sub-leases from 1 January 2018 (31 December 2017: €962.2 million). onwards, as well as the liabilities that arise from financing the leasing business by means of lease facilities and the use of securitisations. Furthermore, liabilities from financial services arising from the leasing business include residual value obliga- tions resulting from the indirect leasing business. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 81 Contract liabilities ber 2017: €173.2 million). Taking into account the credit facility Contract liabilities, of which a large proportion related to the that was still freely available, the unrestricted cash and cash long-term project business, increased to €570.1 million (31 Decem- equivalents available to the KION Group as at the reporting date ber 2017: €324.4 million) due to higher advance payments from amounted to €1,219.8 million (31 December 2017: €1,138.0 million). customers in connection with new orders. Net cash provided by operating activities totalled €765.5 mil- Equity lion, which was higher than the prior-year figure of €711.9 mil- lion. The year-on-year improvement in earnings played a signifi- Equity increased substantially to €3,305.1 million (31 Decem- cant part in this increase. The temporary rise in liquidity tied up ber 2017: €2,992.3 million). Net income of €401.6 million was in inventories was partly reversed in the fourth quarter once partly offset by the dividend of €116.8 million paid by KION most of the bottlenecks at individual suppliers had been GROUP AG in May 2018. Given the stable level of interest rates, resolved. Higher advance payments from customers in the actuarial effects on pensions had a negligible impact on equity. project business of the Supply Chain Solutions segment made Exchange differences at the reporting date boosted equity by up for the increase in inventories in the Industrial Trucks & €35.5 million. The total effects recognised directly in equity Services segment. Overall, the smaller increase in net working amounted to €16.8 million. The equity ratio increased to capital compared to the previous year made a positive contribu- 25.5 per cent (31 December 2017: 24.3 per cent). tion of €58.9 million to cash flow from operating activities. By con- trast, further expansion of the leasing and rental business and, Analysis of capital expenditure as budgeted, higher tax payments of €193.2 million (2017: €136.3 million) resulting from the positive earnings performance The KION Group’s total capital expenditure on property, plant of KION Group companies reduced the level of cash flow from and equipment and on intangible assets (excluding right-of-use operating activities. assets from procurement leases) totalled €258.5 million in the Net cash used for investing activities amounted to reporting year (2017: €218.3 million). This increase is primarily €245.6 million and was therefore higher than in the previous attributable to the rise in capitalised development costs (see year (2017: €237.6 million). Within this figure, cash payments for ‘Research and development’), which came to €84.0 million and capital expenditure on product development and on property, were thus up by 11.5 per cent on 2017. plant and equipment (excluding right-of-use assets related to Spending in the Industrial Trucks & Services segment con- procurement leases) rose to €258.5 million (2017: €218.3 million). tinued to be focused on capital expenditure on product develop- Free cash flow – the sum of cash flow from operating ment and on the expansion and modernisation of the Operating activities and investing activities – increased to €519.9 million Units’ production and technology facilities. Capital expenditure in (2017: €474.3 million). the Supply Chain Solutions segment mainly related to develop- Net cash used for financing activities came to €514.5 million ment costs as well as software and licences. (2017: €568.5 million). The net repayment of financial debt in Analysis of liquidity the period under review totalled €230.9 million. The gross repayment amount of €2,042.6 million consisted of the repay- ment of a further tranche of the long-term AFA in an amount of Liquidity management is an important aspect of central financial €400.0 million as well as the repayment of loan facilities drawn management in the KION Group. The sources of liquidity are cash down in order to fund the temporary increase in inventories. and cash equivalents, cash flow from operating activities and There was also new borrowing of €1,811.7 million that was amounts available under credit facilities. Using cash pools, liquidity largely attributable to utilisation of the revolving credit facilities is managed in such a way that the Group companies can always and to the issuance of a promissory note with a volume of access the cash that they need. At €175.3 million, cash and cash €200.0 million. Payments made for interest portions and equivalents were virtually unchanged year on year (31 Decem- principal portions under procurement leases amounted to KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 82 €114.0 million in the reporting year (2017: €109.0 million). The AG in the second quarter of €0.99 per share resulted in an net cash used for current interest payments decreased from outflow of funds of €116.8 million (2017: €86.9 million). The €58.1 million in 2017 to €42.9 million in 2018 due to lower aver- acquisition of employee shares caused a cash outflow of age net debt during the year. The dividend paid by KION GROUP €3.6 million (2017: €4.3 million). > TABLE 021 (Condensed) statement of cash flows in € million EBIT Cash flow from operating activities Cash flow from investing activities Free cash flow Cash flow from financing activities Effect of exchange rate changes on cash Change in cash and cash equivalents 2018 642.8 765.5 – 245.6 519.9 – 514.5 – 3.2 2.2 2017 * 561.0 711.9 – 237.6 474.3 – 568.5 – 12.2 – 106.4 TABLE 021 Change 14.6% 7.5% – 3.4% 9.6% 9.5% 73.4% > 100% * (Condensed) statement of cash flows for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AG Business activities ments have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the additional provi- sions in section 315e (1) 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. KION GROUP AG is the strategic management holding company in the KION Group. KION GROUP AG holds all the shares in Dematic Holdings GmbH, Frankfurt am Main (formerly DH Services Luxembourg Holding S.à r.l., Luxembourg) and thus all Management system, future development and risk position the shares in the subsidiaries in the Supply Chain Solutions segment. Furthermore, KION GROUP AG is the sole shareholder As a holding company without any operating activities of its own, of Linde Material Handling GmbH, Aschaffenburg, which holds KION GROUP AG is indirectly dependent on the earnings and almost all the shares of the companies in the Industrial Trucks & economic performance of its subsidiaries. The management Services segment. system, expected development and the opportunities and risks of The annual financial statements of KION GROUP AG have the KION Group are described in detail in the ‘Management been prepared in accordance with the provisions in the German system’ and ‘Outlook, risk report and opportunity report’ sections Commercial Code (HGB) and the German Stock Corporation Act of this combined management report. (AktG). The management report has been combined with the group management report. The consolidated financial state- KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 83 Business performance in 2018 The main changes in net financial income/expenses were as follows: 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. Financial performance KION GROUP AG does not have any operating activities itself. The reported revenue of €30.5 million (2017: €24.3 million) largely arose from the performance of services for affiliated companies. – Of the total income from profit-transfer agreements, €343.4 million related to Linde Material Handling GmbH (2017: €500.6 million). – Interest expense and similar charges, which amounted to €54.9 million (2017: €48.8 million), arose mainly from the external financing of the KION Group via the promissory notes and loan agreements as well as, to a smaller extent, from interest charged on intercompany liabilities and the unwinding of the discount on pension provisions. – Other interest and similar income in the amount of €61.6 mil- lion (2017: €28.6 million) for the most part consisted of interest Other operating income went up by €11.1 million to €33.5 mil- income on intercompany receivables. This rise is attributable lion and includes, in particular, gains on the measurement of bank to KION GROUP AG having taken over the management of accounts and cash pools in foreign currencies. the cash pool in 2017, resulting in a gradual increase in The cost of materials is related to the revenue from the intercompany receivables. provision of services and mostly consists of expenses for consul- tancy services. KION GROUP AG incurred tax expenses of €55.5 million as a Personnel expenses fell by €4.9 million to €37.5 million. This result of its role as the parent company of the tax group in 2018 year-on-year decrease was due to the smaller addition to provi- (2017: €79.4 million). This included a positive tax effect stemming sions for share-based remuneration. There was a countervailing largely from the offsetting of losses of corporations in an amount effect on personnel expenses from the increase in the number of of €29.4 million in connection with an amendment to tax law employees and from annual salary rises. (section 8c of the German Corporation Tax Act (KStG)). Other operating expenses rose by €11.9 million to €80.2 mil- A total net profit of €236.3 million was generated in the year lion owing to losses on the measurement of bank accounts and under review (2017: €335.5 million). > TABLE 022 cash pools in foreign currencies. Costs for external services and consultancy are another substantial component of other operating expenses. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position Financial performance in € million Revenue Other operating income Material expenses Personnel expenses Other operating expenses Depreciation expense Operating loss Net financial income Income taxes Net income Net assets 84 TABLE 022 Change 25.4% 49.6% – 40.5% 11.6% – 17.4% – 84.3% 15.3% – 27.7% 30.1% – 29.6% 2018 30.5 33.5 – 0.7 – 37.5 – 80.2 – 0.4 – 54.9 346.7 – 55.5 236.3 2017 24.3 22.4 – 0.5 – 42.4 – 68.3 – 0.2 – 64.8 479.7 – 79.4 335.5 Provisions contracted by €10.0 million to €85.4 million; this was mainly attributable to the reversal of the provisions for At the end of 2018, the total assets of KION GROUP AG had share-based remuneration and to the recognition of tax assets reduced, albeit insignificantly, by approximately 0.9 per cent year following the retrospective abolition of German tax rules on the on year to €7,574.5 million. lapse of some losses following a harmful share acquisition. There The financial assets largely comprise the carrying amounts of was a countervailing effect from the increase in pension pro- the equity investments in Dematic Holdings GmbH (formerly DH visions. Pension provisions include provisions of €5.5 million Services Luxembourg Holding S.à r.l.) (€2,862.2 million) and Linde (31 December 2017: €3.9 million) for former members of the Material Handling GmbH (€1,368.4 million). Executive Board. KION GROUP AG recognised tax provisions of The receivables mainly consist of loans and cash pool receiv- €22.0 million (31 December 2017: €27.6 million) including those in ables due from other Group companies and the Company’s connection with its role as the parent company of the tax group. entitlement to the transfer of profits from Linde Material Handling Liabilities mainly consist of liabilities to banks of €1,978.7 mil- GmbH of €343.4 million (2017: €500.6 million). There are lion (31 December 2017: €2,214.8 million) as well as loan liabilities long-term loans to Group companies of €216.0 million. and cash pool liabilities to other Group companies. The liabilities After taking into account the dividend payment of €116.8 mil- to banks comprise the financing via the promissory notes, the lion and the €0.9 million increase in the volume of treasury shares, bridge loan (AFA) and the syndicated loan agreement (SFA). the net profit of €236.3 million meant that equity rose to > TABLE 023 €3,811.6 million (31 December 2017: €3,692.9 million). Further disclosures on treasury shares can be found in the notes to the financial statements of KION GROUP AG. The equity ratio was 50.3 per cent as at the reporting date (31 December 2017: 48.3 per cent). KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 85 Net assets in € million Assets Property, plant and equipment Financial assets Receivables and other assets Cash and cash equivalents Total assets Equity and liabilities Equity Retirement benefit obligation Tax provisions Other provisions Liabilities Total equity and liabilities Financial position TABLE 023 2018 2017 Change 3.3 4,231.2 3,321.6 18.3 7,574.5 2.9 4,231.2 3,389.3 20.5 7,643.9 3,811.6 3,692.9 39.3 23.2 22.9 3,677.5 7,574.5 32.1 27.6 35.7 3,855.6 7,643.9 15.1% – – 2.0% – 10.7% – 0.9% 3.2% 22.4% – 15.8% – 35.9% – 4.6% – 0.9% On 4 July 2016, KION GROUP AG reached agreement on a bridge loan to finance the acquisition of Dematic, originally in an By pursuing an appropriate financial management strategy, the amount of €3.0 billion. As at 31 December 2018, it consisted KION Group – through KION GROUP AG – makes sufficient cash solely of a floating-rate loan in a nominal amount of €600.0 million and cash equivalents available at all times to meet the Group that is due to mature in October 2021. At the end of 2017, this loan companies’ operational and strategic funding requirements. had a nominal amount of €1,000.0 million. It was partly repaid in KION GROUP AG is a publicly listed company and therefore 2018 using the funds from the issuance of a further promissory ensures that its financial management takes into account note and using cash received from operating activities. the interests of shareholders and banks. For the sake of these In 2018, a promissory note was issued in a nominal amount stakeholders, KION GROUP AG makes sure that it maintains an of €200.0 million. It will mature in June 2025 and has both appropriate ratio of internal funding to borrowing. floating-rate and fixed coupons. The resulting funds were used to KION GROUP AG signed a syndicated loan agreement (SFA), repay part of the floating-rate loan under the AFA. KION GROUP originally for €1.5 billion, with a syndicate of international banks on AG has entered into an interest-rate derivative to hedge the risk of 28 October 2015. As at 31 December 2018, the SFA consisted a change in the fair value of the tranche with a fixed coupon. solely of a revolving credit facility of €1.2 billion. This has a variable The promissory note issued in 2017 in a nominal amount interest rate and, following the agreement in 2018 of an extension totalling €1,010.0 million is divided into several tranches that to its term, it can be drawn down until February 2023. As at mature between 2022 and 2027 and have floating-rate or fixed 31 December 2018, the amount drawn down was €101.8 million coupons. KION GROUP AG has entered into a number of (31 December 2017: €184.7 million). The drawdowns under the interest-rate derivatives in order to hedge the interest-rate risk revolving credit facility are classified as short term. resulting from the floating-rate tranches. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 86 The SFA, AFA and promissory notes are not collateralised. KION GROUP AG has issued guarantees to the banks for all of the payment obligations under the SFA and AFA and it is the borrower in respect of all the payment obligations resulting from the promissory notes. As at 31 December 2018, liabilities to banks amounted to €1,978.7 million (31 December 2017: €2,214.8 million). After deduction of cash and cash equivalents, net debt amounted to €1,960.4 million (31 December 2017: €2,194.3 million). Employees The average number of employees at KION GROUP AG was 217 in 2018 (2017: 190). KION GROUP AG employed 230 people as at 31 December 2018 (31 December 2017: 195). KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 87 Concluding declaration on the report on rela- tionships with affiliated entities (dependency report), section 312 (3) sentence 3 AktG With respect to the legal transactions and other measures mentioned in the report on relationships with affiliated entities, we hereby declare that in each case the Company received appropriate consideration in accordance with the circumstances of which we were aware at the time when the legal transactions were concluded or the measures were taken or omitted and that it did not suffer any disadvantages as a result of such measures having been taken or omitted. Frankfurt am Main, 20 February 2019 The Executive Board Gordon Riske Dr Eike Böhm Anke Groth Ching Pong Quek Susanna Schneeberger KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 88 NON-FINANCIAL PERFORMANCE INDICATORS The KION Group has maintained and continued to strengthen the high value of its employer brands, particularly those of Linde Material Handling, STILL and Dematic. In 2018, STILL was recognised as a top employer for the seventh year in succession by the Top Employers Institute, a certification organisation. The KION Group’s enterprise value is determined not only by financial KPIs but also by non-financial factors. They are based on Our shared KION Group values the Company’s relations with its customers and employees, on its technological position and on environmental considerations. The In 2017, we defined and introduced our shared corporate val- KION Group can only achieve the targets that it has formulated for ues as part of an international multi-stage process involving itself in the KION 2027 strategy if it is an attractive and responsible employees from across all units, countries and hierarchy levels. employer that can retain competent and committed employees at Eleven global workshops with a total of around 1,000 participants all sites, if it develops products and solutions that are closely were held on all continents, ensuring that the entire workforce tailored to customers’ needs and environmental requirements was represented. The values – integrity, collaboration, courage now and in future, if it continually increases the customer benefits and excellence – provide a common basis for our work together. provided by its products and services and if it designs production In order to further entrench the values in the Company, we processes in such a way that resources are conserved and implemented a number of measures in 2017 and 2018. Among emissions are avoided as far as possible. other things, we ran team workshops to ensure that all employees The KION Group firmly believes that these aspects are are aware of them, and provided regular updates on the intranet, important to its positioning as a pioneering company in a highly including features on employees who embody the values competitive environment. Employees HR strategy particularly well. Headcount The average number of employees (full-time equivalents (FTEs), including trainees and apprentices) in the KION Group was 32,524 in 2018 (2017: 31,064 FTEs). The KION Group’s success is founded on the capabilities and As at 31 December 2018, the KION Group companies commitment of its employees. The ultimate objective of the KION employed 33,128 FTEs, 1,520 more than a year earlier. > TABLE 024 Group’s HR strategy is to provide the best possible support for the targeted implementation of the KION 2027 strategy. To this end, the KION Group draws on a wide range of measures to ensure that there is always a sufficient number of highly qualified, hard-working employees at all levels of its operations. Attractive working conditions and the opportunities for career progression afforded by working for an international group of companies play an important role in this and provide a solid basis for meeting the manifold challenges presented by demographic change. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position Employees (full-time equivalents) * 31/12/2018 Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total 31/12/2017 Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total 89 TABLE 024 Total 20,647 2,773 210 2,977 1,225 5,296 Corporate Services 796 0 0 0 0 0 796 33,128 698 19,430 0 0 0 0 0 2,433 248 3,027 1,298 5,172 698 31,608 Industrial Trucks & Services Supply Chain Solutions 17,641 2,642 206 232 486 4,326 25,533 16,634 2,349 237 219 459 4,192 24,090 2,210 131 4 2,745 739 970 6,799 2,098 84 11 2,808 839 980 6,820 * Number of employees (full-time equivalents) as at balance sheet date; allocation according to the contractual relationship Personnel expenses amounted to €2,100.2 million. The main reason for this increase of 5.6 per cent compared with 2017 was the rise in average headcount for 2018 and changes to collective bargaining agreements. > TABLE 025 Personnel expenses in € million Wages and salaries Social security contributions Post-employment benefit costs and other benefits Total 2018 1,653.4 364.2 82.6 2,100.2 2017 1,567.8 343.5 78.5 1,989.7 TABLE 025 Change 5.5% 6.0% 5.3% 5.6% KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 90 Diversity positions is critically important to the KION Group. As a result, one of the focuses of HR work across the Group in 2018 was, as The KION Group sees itself as a global manufacturer with in the previous years, the recruitment and development of strong intercultural awareness: as at 31 December 2018, people suitable young talent. from around 90 different countries were employed across the The KION Group endeavours to offer its employees interesting KION Group. career opportunities and flexible, family-friendly working-time One of the ways in which the Company promotes interna- models. The Group companies also collaborate closely on areas tional collaboration between employees is the KION expat such as talent management and training & development pro- programme, which gives employees the opportunity to transfer to grammes. This helps to systematically identify and support different countries where the KION Group is represented. staff with potential, high performers and experts in key functions. The KION Group is tackling the challenges of demographic The STILL, Linde Material Handling and Dematic academies change in a variety of ways, for example by providing working offer subject-specific and interdisciplinary training courses that conditions that are suited to employees’ age-related requirements develop employees’ skills, particularly in sales and service. and organising healthy-living programmes so that it can continue to benefit from older employees’ experience. As at 31 Decem- Training and professional development ber 2018, 26.6 per cent of employees were over the age of 50 (31 December 2017: 27.0 per cent). The companies in the KION Group currently offer training for Compared with the previous year, the proportion of the 22 professions in Germany. Besides providing dual vocational KION Group’s total workforce made up of women was virtually training schemes, KION Group companies offer work placements unchanged in 2018, at 16.2 per cent (2017: 16.0 per cent). To help for students combining vocational training with a degree course increase the proportion of management positions occupied in cooperation with various universities. by women, the Executive Board set targets that are published in The total number of trainees and apprentices was 601 as at the corporate governance report. Going forward, the KION Group 31 December 2018 (31 December 2017: 579). intends to fill more management positions internationally in order to better fulfil the continually growing requirements placed Sharing in the Company’s success on the Company. The KION Group offers flexible working-time models that pro- The KION Group launched the KION Employee Equity Programme mote a good work-life balance. (KEEP) in 2014. Initially limited to Germany, the programme was In addition, various initiatives were launched in 2018 aimed at then rolled out to more countries. Around 1,450 employees increasing diversity in the Company. For our female managers, for participated in this share matching programme in 2018, roughly example, we launched the Female Mentoring Programme. 6 per cent of the total number who are eligible to do so. The programme was extended to the USA in 2018. Development of specialist workers and executives Since 2014, the remuneration of the approximately 460 top executives has included a remuneration component running The longer-term HR strategy focuses on an even better and over several years that is based on the long-term success of the more targeted development for employees with high potential. Company and is granted annually. In addition to the development activities geared specifically to high-potential employees, greater priority will be given to succession planning for key positions in the KION Group in future. To this end, we introduced a performance management process for succession planning in 2017/2018 that applies globally. Finding highly qualified people to fill specialist and executive KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 91 Employee commitment The KION Safety Championship provides additional motivation for employees to continually engage with HSE matters. Based on The KION Group’s products and services destined for its cus- regular reporting from the individual units and a set of four defined tomers are produced by committed employees. That is why all KION evaluation criteria, a panel of judges awards prizes to those units companies aim to ensure a high level of employee commitment. that have shown special dedication or have suggested the most Based on the manager survey conducted in 2015 and the improvements in an area of HSE. action plan derived from it, a package of measures was defined HSE managers at the KION Group’s production facilities and implemented in 2016 as part of the new ‘Lift up’ transforma- and in its sales and service units have the opportunity to meet tion initiative, in particular to ensure the new organisational and talk with one another at annual conferences. structure is firmly embedded and to communicate the KION Numerous activities aimed at improving health, such as Group’s strategy more widely. fitness programmes and advice on nutrition and healthcare – also A new manager survey was carried out in 2017 which have a positive effect on health and safety in the Group. The vast revealed that the action plan derived from the earlier survey had majority of employees have access to voluntary health-related been successfully implemented and we were therefore able to activities at their site. improve on the results of the 2015 survey. At 2.8 per cent on average, the illness rate for 2018 remained We continued to work on the action plan in team workshops at a satisfactory level (2017: 2.8 per cent). The illness rate is over the course of 2018. Another survey is planned for 2019. the figure for illness-related or accident-related absences from the workplace. The targets relating to HSE were examined in Health and safety in the workplace 2018 as part of a regular review. Further information, along with details of the other HSE key performance indicators and As an employer, the KION Group is responsible for the health of the measures initiated and implemented in 2018, will be and safety of its employees. The focus is always on avoiding all included in the KION Group’s separate sustainability report, accidents and work-related illness wherever possible, as well as which will be published in April 2019 on the following website: on maintaining each employee’s work capacity in the long term. https://reports.kiongroup.com/2018/sr. In 2017, the KION Group updated its corporate policy setting out its obligations in respect of health, safety and the environment (HSE). These include taking comprehensive precautions to create a safe working environment and ensuring employees know how to avoid risks and accidents. HSE activities centre on an internal audit programme, which covers all of the KION Group’s production facilities as well as sales and service. It systematically documents HSE measures and processes and provides specific ideas for how they can be developed further. In 2018, nine central HSE audits were carried out within the KION Group, including at the new plant in the Czech Republic and at other Dematic sites. Furthermore, comprehensive minimum HSE standards were implemented that are binding for all plants and the sales and service organisation. Every employee can access them via the intranet. To ensure rapid implementation, the main focus is on the 20 standards that are particularly relevant. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 92 Research and development develop customer-specific solutions. As a result, a consortium led by the Fraunhofer Institute for Production Technology IPT Strategic focus of research and development and RWTH Aachen ranked the KION Group among the top five ‘successful practice’ companies in a benchmark study on agile Under the KION 2027 strategy, research and development is invention. A total of 159 German and European companies took set up so as to provide the best possible support for the part in the benchmark study. KION Group’s objective of becoming the world’s leading supplier of integrated, automated supply chain solutions and mobile Key R&D figures automation solutions. The innovativeness of the portfolio is being significantly increased by concentrating heavily on automation Total spending on research and development came to €221.7 mil- and robotics solutions that are based on an overarching software lion in 2018 (2017: €212.4 million), which equates to 2.8 per cent platform. In 2018, the KION Group forged ahead with incor- of revenue (2017: 2.8 per cent). Total R&D expenditure included porating autonomous trucks and automated guided vehicle €84.0 million in capitalised development costs (2017: €75.4 mil- systems into end-to-end solutions for warehouses, among other lion). Alongside this addition to capitalised development costs, things. Another area of focus was the ongoing development of there were amortisation and impairment charges of €76.6 million the warehouse management system. Moreover, the KION Group (2017: €69.0 million) (see note [16] in the notes to the consolidated has driven forward the integration of research and development financial statements). A total of €137.7 million (2017: €137.0 million) into a groupwide digitalisation strategy. The Digital Campus, for was expensed. example, is helping to significantly accelerate projects to digitalise The number of full-time jobs in R&D teams remained more or the existing core business and ensure that they are fully aligned less constant compared to 31 December 2017. > TABLE 026 with the requirements of the Operating Units and their customers. At the same time, R&D will continue to be structured The KION Group takes comprehensive measures to protect the cost-effectively, including through the use of agile processes. products it develops against imitations and pursues a dedicated This will further reduce the complexity and diversity of products patent strategy. In 2018, the KION companies applied for a total and shorten development times for new products. R&D essentially of 105 new patents (2017: 101). As at 31 December 2018, the works on a cross-brand and cross-region basis, which ensures companies of the KION Group held a total of 2,923 patent that research findings and technological know-how are shared applications and issued patents (31 December 2017: 2,808 patent across the Group. Building on this, local product development applications and issued patents). teams working for the individual brand companies and regions Research and development (R&D) in € million Research and development costs (P&L) Capitalised development costs Total R&D spending R&D spending as percentage of revenue 2018 137.7 84.0 221.7 2.8% 2017 137.0 75.4 212.4 2.8% TABLE 026 Change 0.5% 11.5% 4.4% – KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 93 Focus of R&D in 2018 Energy uses acoustic and visual signals as well as vibrations to alert pedestrians and drivers in good time if they are approaching one another within warning zones that can be individually configured. Since 2018, lithium-ion technology has been available for virtually Zone Intelligence uses sensors to identify and avoid situations every intralogistics and warehouse management application. The that may cause an accident and therefore costs. The new advantages of energy-saving electric drives include faster charg- assistance systems use ultra-wideband technology to enable ing times, lower operating costs, higher safety standards and the communi cation between the truck’s sensors, static sensors ability to store considerably more energy. Linde extended the and sensors worn on the person. The highly responsive Active availability of lithium-ion batteries to the six to eight tonne load Stability Control (ASC) assistance system from Linde and the capacity range, closing the final gap in the electric forklift truck Active Floor Compensation (AFC) safety and assistance system segment in the process. A new rental concept is also encourag- from STILL make it possible to drive faster yet more safely in ing the use of energy-saving drive technology. The benefits for high-rack warehouses, even where the floor is uneven. Further- customers are flexibility and financial security over the entire more, the innovative Truck Mapping app improves communication usage period. between the fleet manager and drivers, thereby enabling orders A new battery concept was introduced for the new RX 20 to be managed even more efficiently. electric forklift truck from STILL in 2018. The truck was a winner Another new solution is the STILL neXXt fleet online portal, at this year’s International Intralogistics and Forklift Truck of the via which numerous processes involving inhouse material and Year (IFOY) awards, where it triumphed in the Counter Balanced data flows can be managed digitally – including from mobile Truck category thanks to its compactness, ergonomics, perfor- devices – in order to optimise industrial truck fleets. The user mance, precision and innovative assistance systems. is given a clear overview of all relevant fleet data and KPIs via a Through its strategic partnership with EP Equipment, the single application that can be accessed online from any device. KION Group is expanding its portfolio for the electrification of intralogistics to include entry-level warehouse technology. Automation Digitalisation Dematic’s robotics centre of excellence, established in 2018, brought the first robotic piece picking module to market that is Software-based supply chain solutions that use robotics applica- capable of independently selecting individual items and placing tions are at the heart of digitalisation. The Dematic iQ software, them in the right container at very high throughput rates. The which enables real-time management of material flow solutions, module has already proven itself in the field, and now all stages of was expanded with the cloud-based asset performance man- the order fulfilment process can be fully automated. Further agement system Dematic iQ InSights. This new module increases developments include a very narrow aisle AGV and robotics warehouse efficiency through end-to-end facilities management. solutions for use in cold stores. Using real-time data, Dematic iQ InSights helps to optimise Dematic also presented the second generation of its pouch capacity utilisation, reduce lead times and increase operational sorting system, which is particularly suitable for the handling of performance. returns and for picking, e.g. in e-commerce. Hanging and flat Supported by the Digital Campus, Linde and STILL have also goods as well as flat-packed items and boxes can be stored, extended their digital offerings, in particular for data-based fleet sorted and staged. An improved goods-to-person picking management. Linde’s ‘connect’ fleet management solution is solution was also launched. Combining the advantages of the now available for all industrial trucks – including those built by Dematic Multishuttle with patented inter-aisle transfer technology, other companies – and therefore provides a comprehensive the solution enables more intelligent, faster and ergonomic order system for capturing and evaluating data that is also suitable for processing for high volumes of goods. mixed fleets. Two new assistance systems have also been added The Industrial Trucks & Services and Supply Chain Solutions to ‘connect’. Linde Safety Guard is a new assistance system that segments particularly focused on product development aimed at KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 94 improving the automation and connectivity of warehouse At the World of Material Handling event in June, Linde and and logistics solutions. Linde entered the automated guided its partners – including Dematic for the first time – presented cart (AGC) segment with the new Linde C-MATIC, which solutions for efficient, affordable and safe intralogistics to more autonomously manoeuvres through the warehouse and plays a than 5,000 visitors. The topics in the spotlight were loading and key part in standardising production logistics processes. Another unloading, goods handling in high-rack warehouses and fully addition to the robotics portfolio was the R-MATIC autonomous and semi-automated solutions for picking and transport reach truck, which operates fully automatically to store and between individual production steps. There was a particular retrieve palletised goods weighing up to 1.6 tonnes on high-bay focus on specific sectors, for example through special formats racks. New rider trucks in the 1.2 to 2.5 tonne load capacity range for grocery wholesale and retail, transport logistics and the ensure even more comfortable and productive goods transport construction industry. and link to the ‘connect’ modular data system. For light transport STILL presented mainly compact trucks at the 2018 Logistics tasks, Linde also launched three new pallet stackers and a hand & Distribution fair in Brussels, where the new RX 20 electric forklift pallet truck on the market. Customers truck won the Best of Handling award. STILL also showcased its platform concept for digitalised intralogistics of the future at the Zukunftskongress Logistik trade show in Dortmund. Among the products unveiled at CeMAT 2018 were innovative fleet management solutions from STILL. Baoli participated in various The KION Group’s industrial trucks and supply chain solutions trade fairs, including an event in Dubai. are deployed in all kinds of industries. At LogiMAT in Stuttgart, Dematic presented industry-specific The Industrial Trucks & Services segment has a very broadly automation solutions and hosted a Logistics Supply Chain Day at diversified customer base, ranging from large key accounts with its site in Heusenstamm. Dematic also launched European Cus- global operations to small and medium-sized enterprises that tomer Days 2018, a series of events for customers from the textile typically order just a few trucks each year. and fashion wholesale/retail industries that was supported through The Supply Chain Solutions segment benefits from participation in the Fashion Supply Chain Summit. The autumn long-standing customer relationships with major players in the saw the launch of European Service Days, a platform where e-commerce and logistics sectors. They influence the success of service teams from across Europe can find out more about the segment’s new business and service business. Specific preventative measures for automation solutions. At MODEX 2018 product solutions and customer retention formats help Dematic in Atlanta, Dematic showcased its comprehensive range of prod- to further consolidate its position in major customer sectors, ucts and solutions, while at EXCHAINGE it presented sector- including general merchandise, grocery wholesale and retail, specific automation solutions and highlighted the digital trans- fashion, food and beverages, and parcel and courier services. formation’s potential benefits for the supply chain. Dematic also The KION Group already ranks among the global market leaders supported the Material Handling & Logistics Conference in in most of these sectors and enjoys excellent relationships with its Utah, where customers and industry experts engaged in dia- customers. It has been able to extend these relationships through logue in a wide range of workshops and lectures on new trends joint development projects and other initiatives. and applications. The KION brand companies again exhibited at the sector’s leading trade fairs in various regions in 2018 in order to intensify their collaboration with customers and partners. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Report on the economic position 95 Sustainability Acting sustainably and responsibly is one of the key principles by which the KION Group operates. The Group’s focus on sustainability is reflected in its safe and clean products, in its environmentally friendly manufacturing processes and in the safe and non-discriminatory working environment it provides. The KION Group and its Operating Units strive for a balance between environmental, economic and social considerations in their activities. This is the basis upon which sustainability is enshrined in the KION 2027 strategy. The KION Group’s values also have a clear link to sustainability. In 2018, the KION Group took part in CDP’s climate change survey for the first time. Once a year, the Company will voluntarily provide information regarding its climate protection activities to CDP. The KION Group was also awarded a sector-specific ‘prime status’ in a ranking by ISS-oekom, which specialises in identifying sustainability-related investment opportunities and risks. The objective is to be categorised as a sustainable investment for environmentally conscious investors. As well as comprehensive information on strategy, the man- agement approach and structures for sustainability, the groupwide 2018 sustainability report which will be published in April of 2019, contains data on relevant key performance indicators (see https://reports.kiongroup.com/2018/sr). It also contains the KION Group’s non-financial declaration as required under German law. For this reason, the KION Group has not provided detailed information in the 2018 combined management report. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 96 Outlook, risk report and opportunity report OUTLOOK Assumptions Forward-looking statements The forecasts in this section are derived from the KION Group’s multiple-year market, business and financial plan, which is based on certain assumptions. Market planning takes into account macroeconomic and industry-specific performance, which is The forward-looking statements and information given below are described below. Business planning and financial planning are based on the Company’s current expectations and assessments. based on expected market performance, but also draw on other Consequently, they involve a number of risks and uncertainties. assumptions, such as those relating to changes in the cost of Many factors, several of which are beyond the control of the KION materials, the KION Group’s ability to command higher prices Group, affect the Group’s business activities and profitability from customers and movements in exchange rates. as well as the earnings of KION GROUP AG. Any unexpected developments in the global economy would result in the Expected macroeconomic conditions KION Group’s and KION GROUP AG’s performance and profits differing significantly from those forecast below. In its outlook for 2019 published in January 2019, the International The KION Group does not undertake to update forward-looking Monetary Fund (IMF) predicts continued global economic growth, statements to reflect subsequently occurring events or circum- which is slightly lower than the rate for 2018. Although growth is stances. Furthermore, the KION Group cannot guarantee that expected to weaken in the developed economies, partly as a future performance and actual profits generated will be consistent result of the positive impact of the US tax reforms coming to an with the stated assumptions and estimates and can accept no end, expansion in the emerging markets is forecast to continue liability in this regard. almost unchanged. The IMF anticipates a slight dip in the euro- Actual business performance may deviate from our forecasts zone’s moderate growth that will be attributable, in particular, to due, among other factors, to the opportunities and risks described Germany, Italy and France. here. Performance particularly depends on macroeconomic According to the IMF’s prediction, the worldwide volume of and industry-specific conditions and may be negatively affected trade will continue to grow at a constant rate. by increasing uncertainty or a worsening of the economic and This outlook from the IMF is lower than its previous expec- political situation. Outlook for 2018 tations, which it primarily attributes to geopolitical risks. The IMF makes specific mention of the risks, for example in connec- tion with the US/Chinese trade dispute, the consequences of the Brexit outcome, diminishing budgetary discipline in some eurozone countries and the high level of government debt in The overall assessment of the financial situation of the KION emerging markets. Group compares the outlook included in the 2017 combined management report with actual performance in 2018. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 97 Expected sectoral conditions Expected business situation and financial performance of the KION Group The overall market for industrial trucks and warehouse systems will continue to expand in 2019. Going forward, growth at regional In 2019, the KION Group aims to build on its successful perfor- level will again depend heavily on the strength of the economy in mance in 2018 and, based on the forecasts for market growth, the main sales markets. In past years, the market’s growth – achieve further increases in revenue and adjusted EBIT. measured by the number of new trucks sold and the revenue of The order intake of the KION Group is expected to be the largest system manufacturers – has consistently exceeded between €8,250 million and €8,950 million. The target figure for the growth rates for global gross domestic product (GDP). The consolidated revenue is in the range of €8,150 million to KION Group believes that the fundamental drivers of growth are €8,650 million. The target range for adjusted EBIT is €805 million intact, particularly the global fragmentation of value chains and to €875 million. Free cash flow is expected to be in a range consumers’ increasing preference for e-commerce. In view of between €380 million and €480 million. The target figure for the largely stable macroeconomic prospects, the KION Group ROCE is in the range of 9.0 per cent to 10.0 per cent. anticipates that the worldwide market for industrial trucks and Order intake in the Industrial Trucks & Services segment is warehouse systems will continue to expand at an above-average expected to be between €6.250 million and €6,450 million. The rate in 2019. target figure for revenue is in the range of €6,050 million to However, the growth of new industrial truck business is likely €6,250 million. The target range for adjusted EBIT is €685 million to normalise compared with the exceptional rates of expansion to €720 million. seen in 2017 and 2018, returning closer to the long-term trend of Order intake in the Supply Chain Solutions segment is around 4 per cent. The EMEA and Americas regions are expected expected to be between €2,000 million and €2,500 million. The to register further moderate increases in orders. Sharper rises are target figure for revenue is in the range of €2,100 million to anticipated in the APAC region, although it remains to be seen €2,400 million. The target range for adjusted EBIT is €190 million what impact the trade disputes will have. The KION Group is in an to €225 million. > TABLE 027 excellent position from which to take advantage of the expected progress in the electrification of warehouses. The constantly increasing number of trucks in operation worldwide provides a sustainable customer base for the service business. Demand for supply chain solutions is likely to be underpinned by the strong inclination to invest seen in the main customer industries in connection with multichannel and e-commerce strategies. In the medium-term, market growth is expected to be in the high single digits. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report Outlook in € million Order intake * Revenue * Adjusted EBIT * Free cash flow ROCE 98 TABLE 027 KION Group Industrial Trucks & Services Supply Chain Solutions 2018 Actual 2019 Outlook 2018 Actual 2019 Outlook 2018 Actual 2019 Outlook 8,656.7 8,250 – 8,950 6,210.6 6,250 – 6,450 2,425.2 2,000 – 2,500 7,995.7 8,150 – 8,650 5,922.0 6,050 – 6,250 2,055.2 2,100 – 2,400 789.9 519.9 805 – 875 380 – 480 9.3% 9.0% – 10.0% 655.4 685 – 720 180.2 190 – 225 – – – – – – – – * Disclosures for the Industrial Trucks & Services and Supply Chain Solutions segments also include intra-group cross-segment order intake, revenue and effects on EBIT Expected financial position of the KION Group all identified risks by implementing suitable measures and takes appropriate precautions. Having significantly reduced its financial liabilities in the reporting This ensures that the losses expected if these risks arise will year, the KION Group intends to use free cash flow to achieve a be largely covered and therefore will not jeopardise the Company’s further moderate decrease in net debt. continuation as a going concern. Risk management is embedded Overall statement on expected performance controlling. The Operating Units’ business models, strategic perspectives and specific plans of action are examined system- The KION Group believes it will continue along its path of profit- atically. This ensures that risk management is fully integrated into able growth and aims to further improve its market position the KION Group’s overall planning and reporting process. in the corporate controlling function and plays an active and wide-ranging role due to the strategic focus of corporate worldwide in 2019. RISK REPORT Risk strategy Principles of risk management The procedures governing the KION Group’s risk management activities are laid down in internal risk guidelines. For certain types of risk, such as financial risk or risks arising from financial services, the relevant departments also have guidelines that are specifically geared to these matters and describe how to deal with inherent The business activities of the KION Group necessarily involve risk. risks. Risk management is organised in such a way that it directly Dealing responsibly with risk and managing it in a comprehensive reflects the structure of the Group itself. Consequently, risk manner is an important element of corporate management. The officers supported by risk managers have been appointed for overarching aim is to fully harness business opportunities while each company and each division. A central Group risk manager ensuring that risk always remains under control. Using its is responsible for the implementation of risk management pro- groupwide risk management system, the KION Group contains cesses in line with procedures throughout the Group. His or her KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 99 remit includes the definition and implementation of standards to reporting, to identify material mismeasurement and to ensure ensure that risks are captured and evaluated. compliance with the applicable regulations and internal instruc- The risk management process is organised on a decentral- tions. This includes verifying that the consolidated financial ised basis. Firstly, a groupwide risk catalogue is used to capture statements and combined management report comply with the the risks attaching to each company. Each risk must be captured relevant accounting standards. individually. If the losses caused by a specific risk or the likelihood of this risk occurring exceed a defined limit, the KION Group’s Material processes and controls in the Executive Board and its corporate controlling function are notified (Group) accounting process immediately. Each risk is documented in an internet-based reporting system designed specifically for the requirements For its (Group) accounting process, the KION Group has defined of risk management. Risks affecting more than one Group suitable structures and processes within its internal control company, such as market risks, competition risks, financial risks and risk management system and implemented them in the and risks arising from financial services, are not recorded organisation. individually but are instead evaluated at Group level. Conse- Changes to the law, accounting standards and other pro- quently, such risks are not quantified. nouncements are continually analysed with regard to their The scope of consolidation for risk management purposes is relevance and effect on the consolidated financial statements the same as the scope of consolidation for the consolidated and group management report; the relevant changes are then financial statements. The risks reported by the individual incorporated into the Group’s internal policies and systems. companies are combined to form divisional risk reports as part All consolidated entities must follow the KION GROUP IFRS of a rigorous reporting process. To this end, minuted risk Accounting Manual when preparing their IFRS reporting management meetings are held once a quarter. Moreover, packages. This manual contains the recognition, measurement material risks are discussed with the segments at the business and disclosure rules to be applied in the KION Group’s account- review meetings. The divisional risk reports are then used to ing in accordance with IFRS. The accounting guidelines primarily compile an aggregate risk portfolio for the KION Group as a explain the financial reporting principles specific to the KION whole. To support this, the relevant departments of the holding Group’s business. In addition, all companies must adhere to the company are consulted each quarter in order to identify and schedule defined by head office for preparing the consolidated assess risk – particularly Company- wide, cross-brand risk affect- financial statements and group management report. ing areas such as treasury, purchasing, tax, human resources The accounting-based internal control and risk management and financial services. The Executive Board of KION GROUP AG system encompasses defined control mechanisms, automated and the Supervisory Board’s Audit Committee are informed of the and manual reconciliation processes, separation of functions, Group’s risk position once a quarter. The Internal Audit department the double-checking principle and adherence to policies and audits the risk management system at regular intervals. instructions. Material features of the internal control and risk management system pertaining to the (Group) accounting process Principles The employees involved in the (Group) accounting process receive regular training in this field. Throughout the accounting process, the local companies are supported by central points of contact. The consolidated accounts are drawn up centrally using data from the consolidated subsidiaries. Specially trained KION Group employees carry out the consolidation activities, reconciliations and monitoring of the stipulated deadlines and processes. Monthly checklists have been drawn up for the The main objectives of the accounting-related internal control consolidation process and are worked through in a standardised system are to avoid the risk of material misstatements in financial manner. All postings are managed centrally and documented. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 100 A team is responsible for monitoring the system-based controls, things stand at present, there are no indications of any risks which it supplements with manual checks. The entire accounting that could jeopardise the Company’s continuation as a going process contains a number of specific approval stages, for which concern. > DIAGRAM 005 extensive plausibility checks have been set up. Employees with the relevant expertise provide support on specialist questions Risk matrix DIAGRAM 005 and complex issues. Internal control mechanisms and ongoing analysis of the regulatory framework enable any risks that might jeopardise the compliance of the consolidated financial statements and group management report with accounting standards to be identified as H G H I soon as possible so that appropriate countermeasures can be taken. Such risks form part of the KION Group’s aggregate risk profile and are classified as operational risk. The Internal Audit department evaluates governance, risk management and the control processes by following a systematic and structured process, thus helping to bring about improve- L E V E L K S I R I M U D E M ments. It focuses primarily on the following aspects: • Market risk • Production risk • Procurement risk systems for avoiding financial losses – appropriateness and effectiveness of the internal control – compliance with legal requirements, directives from the – correct performance of tasks and compliance with business Executive Board, other policies and internal instructions principles Risk Aggregate risk • Risks arising from customer project business W O L • Competition risk • R&D risk • IT risk • Financial risk • Risk arising from financial services • Human resources risk • Sales risk • Legal risk LOW MEDIUM HIGH PROBABILITY OF OCCURRENCE HIGH RISK MEDIUM RISK LOW RISK The aggregate risk position was largely unchanged compared The market risks and competition risks described, the risks along with the end of 2017. With regard to 2019, the risks in the risk the value chain, the human resources risks and the legal risks matrix below will be continually observed and evaluated in terms largely relate to the Industrial Trucks & Services and Supply Chain of their extent and probability of occurrence. For example, Solutions segments. Risks arising from financial services mainly the KION Group considers there to be a low probability of the affect the Industrial Trucks & Services segment, while financial materialisation of market risks that would lead to a negative risks would predominantly impact on the Corporate Services deviation from the assumptions underlying the forecast. How- segment. ever, the possible impact of market risk continues to be rated at a medium risk level because of the importance of the market for the KION Group’s business situation and financial performance. As KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 101 Market risks and competition risks market. The market risks referred to could be heightened by Market risks geopolitical risk, including the heightened protectionist tenden- cies seen last year, and possible currency crises. Market risk can arise when the economy as a whole or a par- However, it is not currently foreseeable whether these risks ticular sector does not perform as well as had been anticipated will become relevant and then have a material effect on the busi- in the outlook. Following two years of exceptionally strong growth ness situation and financial performance. in the Industrial Trucks & Services segment, the KION Group The geopolitical situation is monitored closely. Various meas- expects market growth to normalise at the multiple-year average. ures aimed at making cost structures more flexible – such as the This expectation has been factored into the outlook. consolidation of production facilities, leveraging of cost synergies Cyclical fluctuations in macroeconomic activity affect both and the platform strategy – help to contain the earnings risk arising the market for industrial trucks and the market for automated from reductions in revenue caused by economic conditions. supply chain solutions, although the latter has greater immunity Diversification of the customer base in terms of industry and to economic cycles. region as well as expansion of service activities also play a role Customers’ decisions on whether to invest depend to a large in mitigating risk. Moreover, the KION Group closely monitors the degree on the macroeconomic situation and conditions in their market and its competitors so that it can identify market risks at particular sector. During an economic downturn, or even just an early stage and adjust its production capacities in good time. periods of heightened economic uncertainty, customers tend to Besides global economic growth and other data, the KION postpone their capital expenditure plans. Although demand for Group also analyses exchange rates, price stability, the con- services is less cyclical, it correlates with the degree of utilisation sumer and investment climate, foreign trade activity and politi- of the trucks and systems – which usually declines during difficult cal stability in its key sales markets, constantly monitoring the economic periods. possible impact on its financial performance and financial posi- As the KION Group can only adjust its fixed costs to fluctua- tion. Other risks arise as a result of constant changes in the tions in demand to a limited extent, reductions in revenue impact Company’s political, legal and social environment. Because it on earnings. Despite the significant proportion of revenue operates in countries in which the political or legal situation is generated outside the eurozone (due in part to the strong North uncertain, the KION Group is exposed to the consequent risk of American business of the Supply Chain Solutions segment and government regulation, changes to customs rules, capital con- the expansion of business in China), the bulk of revenue contin- trols and expropriations. The KION Group mitigates such stra- ues to be billed in euros. As a result, the market conditions that tegic risks by, for example, carrying out in-depth market prevail in the eurozone impact significantly on the KION Group’s research, conducting thorough evaluation procedures to financial performance. Although the eurozone’s economic growth assess political and economic conditions and drafting contracts continued to stabilise in the year under review, there are still risks appropriately. resulting from Brexit-related uncertainties and diminishing budgetary discipline in Italy. Moreover, any weakening of Competition risks economic growth affecting major trading partners – e.g. China, Competition risk describes the risk that growing competitive where the punitive tariffs imposed by the US are taking their pressure will prevent the KION Group from achieving its predicted toll on the economy – might reduce eurozone customers’ margins and market share. The markets in which the KION Group willingness to invest and consequently the demand for the operates are characterised by strong competition, often KION Group’s products. price-driven. Price competition is compounded by some Any loss of momentum in the emerging markets, for example manufacturers having cost advantages in production, sometimes due to the adverse impact of changes in the interest-rate and due to the currency situation and sometimes because local currency environment – could also have a negative effect on labour costs are lower. This mainly affects the Industrial Trucks & global trade volumes and thus on growth in the material handling Services segment, where competition is fierce, particularly in KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 102 the economy and volume price segments, and the impact is changing regulatory and technological requirements. To this end, especially strong in emerging markets. Building on their local the KION Group must anticipate customers’ needs and changing competitive strength, manufacturers in emerging markets are market conditions – including the growing use of digital technolo- also looking for opportunities to expand. Although the high quality gies in value chains – and has to quickly bring new products expectations and service needs of customers in developed mar- to market. If the Company does not succeed in doing this, its kets present a barrier to growth for many of these manufacturers, technological and competitive position could be compromised in this situation is likely to intensify competitive pressures in future. the long term. It is also conceivable that competitors will join forces and The innovations developed by the KION Group are compre- their resulting stronger position will be detrimental to the KION hensively protected by intellectual property rights, in particular Group’s sales opportunities. Moreover, predictions of higher patents. Nevertheless, there is always the possibility that volumes and margins may lead to overcapacity, which would put products or product components will be imitated. There is also a increased pressure on prices. Although the excellent customer risk that patent applications will not be successful. The KION benefits provided by its products have enabled the KION Group Group mitigates research and development risk by focusing firmly to charge appropriate prices until now, it is taking a variety of on customer benefit in its development of products and solutions. steps to contain competition risk. Alliances, partnerships, Customer needs are incorporated into the development process acquisitions and other measures are increasingly playing a role on an ongoing basis by ensuring close collaboration between in improving the KION Group’s competitiveness in terms of sales and development units and taking account of all resources, market access, product range and digitalisation region-specific requirements. expertise. The steps that the KION Group is taking to mitigate its competition risk also include making its plants more efficient and Procurement risks securing low-cost sources of supply. Procurement activities constitute a potential risk for the KION The KION Group also continually evaluates its options for Group in terms of the general availability of parts and compo- strengthening and consolidating its position in emerging markets, nents and the rising cost of raw materials, energy, inputs and in particular through proactive cross-selling by the two operating intermediate products. In particular, restricted capacity in a tight segments, strategic partnerships, the creation of joint ventures supplier market could result in the KION Group facing backlogs or acquisition of local manufacturers. One of the risks of such in the supply of individual raw materials and components. As alliances and acquisitions is that the expected benefits will seen in 2018, these backlogs can lead to temporary decreases in materialise only partly or not at all. For example, the organisa- revenue and cash flow as well as to inefficiencies in production. tional integration of new units can harm financial performance for The KION Group obtains some of its key components from a lim- a variety of reasons. It is also possible that a partner will collabo- ited number of core suppliers. Key components in the Industrial rate with competitors if exclusivity agreements are not in place. Trucks & Services segment include internal combustion engines, Risks along the value chain tyres and high-performance forged and electronic parts. The risk of supply bottlenecks – for example in the event of a shortage of raw materials or financial difficulties at core Research and development risks suppliers – cannot be ruled out in future. The KION Group The KION Group’s market position and business performance mitigates this risk by further diversifying its supplier structure in depend to a large extent on its ability to build on its leading the context of a global procurement organisation. technological position in respect of individual products and In addition, the supplier development department, which system solutions in order to become the leading supplier of focuses on improving suppliers’ production processes, helps automated supply chain solutions and mobile automation suppliers to ensure that their processes are cost-efficient and solutions. This requires the Group to continually develop offer excellent quality. products that meet customer expectations and comply with KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 103 Price changes present another procurement-related risk. In 2018, increases over the term of the project that were not anticipated in around 25.5 per cent (2017: around 25 per cent) of the cost the project costing and cannot be passed onto the customer. of materials for new trucks was directly influenced by changes To mitigate these risks in the Supply Chain Solutions segment, in commodity prices. Moreover, conditions in the commodity project management includes a comprehensive process of risk markets typically affect component prices after a delay of three to management. This involves detailed evaluation of the risks when six months. The KION Group endeavours to pass on price defining the technical aspects of quotations plus financial risk increases to customers but cannot always do so entirely due to provisioning based on the individual project specifications when market pressures. Production risks preparing quotations. A multistage approval process based on an extensive list of criteria ensures that financial, country-specific, currency-specific and contractual risks are largely avoided. Production risks are largely caused by quality problems, possible The potential risks that may arise in the project realisation disruptions to operational procedures or production downtime at phase are analysed in every individual project using detailed con- individual sites. They can also materialise as secondary risks tinuous reviews based on the individual items of work that make resulting from the aforementioned procurement risks. In such up the project. This keeps potential risks to a minimum. cases, the KION Group’s closely integrated manufacturing network presents a heightened risk to its ability to deliver goods Sales risks on time. There is also a risk that structural measures and reorgan- The main sales risks – besides a drop in revenue caused by market isation projects will not be implemented owing to disruption of conditions – result from dependence on individual customers and production or strikes. Delays in delivery or a rise in the number of sectors. For example, it is possible that customers would post- complaints could harm the KION Group’s positioning in the price pone or cancel orders during a period of economic difficulty. segments and sales markets that it serves and, as a result, could There have not been any significant cancellations in previous harm its financial situation. years, however. It is also conceivable that customers would face To mitigate these risks, the KION Group carries out preven- a liquidity shortfall and therefore be unable to fulfil their payment tive maintenance, implements fire protection measures, trains its obligations immediately or even at all. Because of its customer staff and builds a pool of external suppliers. The Company has project business, the Supply Chain Solutions segment generally taken out a commercially appropriate level of insurance cover has a greater dependence on individual sectors and individual against loss. Quality assurance is a high priority throughout the customers than the Industrial Trucks & Services segment. Never- value chain and reduces possible quality-related risks arising theless, the concentration risk for the KION Group overall is still from the products and services provided. The KION Group considered to be low. The business is highly diversified from a mitigates its quality-related risks significantly by applying rigorous regional perspective. In addition, the KION Group supplies com- quality standards to its development activities, conducting panies of all sizes. Experience has shown that the KION Group’s stringent controls throughout the process chain and maintaining exposure to the risk of possible payment defaults is low, but this close contact with customers and suppliers. risk can be further mitigated by recovering any collateral. Risks arising from customer project business IT risks In the customer project business, risks can arise from deviations A high degree of interconnectedness between sites and with from the schedule originally agreed with the customer, potentially customers and other companies means that the KION Group leading to revenue and profit being recognised in subsequent also relies on its IT systems working flawlessly. The KION Group years or, in isolated cases, contractual penalties having to be paid. undertakes ongoing further development of a reliable, extendable Another possible risk is that the technology deviates from the and flexible IT system environment with the aim of countering promised specifications, which may result in additional completion any IT-related risks that may arise from the failure of IT systems costs. The long-term nature of individual projects can lead to cost and IT infrastructure. Internal IT resources are pooled in the KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 104 cross-segment KION Group IT function, which has well-estab- Risk arising out of the lending and promissory note condi- lished processes for portfolio management and project planning tions that have been agreed was not regarded as material as at and control. Independent external audits are conducted to 31 December 2018. It relates in particular to the restrictions in provide additional quality assurance. Various technical and respect of compliance with financial covenants and upper limits organisational measures protect the data of the KION Group and for certain transactions and in respect of the obligation to submit the Group companies against unauthorised access, misuse and special regular reports. The KION Group complied with all the loss. These measures include procedures to validate and log obligations in this regard in the reporting year. access to the Group’s infrastructure. Some of the Group’s financing takes the form of floating-rate There are further IT risks in connection with the European or fixed-rate financial liabilities. Interest-rate swaps are used to General Data Protection Regulation (GDPR), which came into hedge the resultant interest-rate risk and the risk of a change in effect on 25 May 2018. It contains a host of new data protection the liabilities’ fair value. provisions that were not included in the previous legislation, for The Company generally refers to credit ratings to manage example rules on the processing of personal data and require- counterparty risk when depositing funds with a financial insti- ments relating to full documentation of such processing. Major tution. The KION Group only uses derivatives to hedge under- breaches of the GDPR can lead to fines of up to 4 per cent of the lying operational and financial transactions; they are not used previous year’s revenue. In 2018, the KION Group launched a for speculative purposes. It is exposed to currency risk groupwide project in order to fully implement the data protection because of the high proportion of its business conducted in and documentation requirements. Furthermore, employees are currencies other than the euro. In the Industrial Trucks & Ser- being reminded that all of the Group’s stakeholders have privacy vices segment, at least 75 per cent of the currency risk related rights that must be upheld. Given that the KION Group maintains to the planned operating cash flows based on liquidity plan- very high compliance standards, the probability of the GDPR ning is normally hedged by currency forwards in accordance being breached is regarded as very low. with the relevant guideline. The Supply Chain Solutions seg- Financial risks ment hedges itself against currency risk on a project-related basis. Corporate Treasury rigorously complies with and moni- tors the strict separation of functions between the front, middle Corporate Treasury is responsible for ensuring that sufficient and back offices. financial resources are always available for the KION Group’s Each Group company’s liquidity planning is broken down by international growth. The main types of financial risk managed by currency and incorporated into the KION Group’s financial Corporate Treasury, including risks arising from funding instru- planning and reporting process. Corporate Treasury checks the ments, are liquidity risk, currency risk, interest-rate risk and coun- liquidity planning and uses it to determine the funding require- terparty risk. Counterparty risk consists solely of credit risks ments of each company. The funding terms and conditions faced attaching to financial institutions. by the lenders themselves (manifested, for example, in the pay- Risk management procedures issued by Corporate Treasury ment of liquidity premiums on interbank lending) may result in a stipulate how to deal with the aforementioned risks. Non-current future shortage of lines of credit and / or increased financing costs financial liabilities fell by €206.1 million from their level at for companies. However, the Group currently does not expect 31 December 2017 to reach €1,818.7 million at the end of 2018. any further changes in its lines of credit or any excessive increases As at 31 December 2018, the main financial liabilities classified in margins. as non-current were a promissory note with a nominal amount Goodwill and brand names represented 33.7 per cent of total totalling €1,210.0 million plus the nominal amount of €600.0 mil- assets as at 31 December 2018 (31 December 2017: 35.1 per cent). lion still outstanding under the bridge loan (AFA) following sub- Pursuant to IFRS, these assets are not amortised and their meas- stantial repayments. The unused, unrestricted SFA loan facility urement depends, above all, on future expectations. If these future stood at €1,048.2 million as at 31 December 2018. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 105 expectations are not fulfilled, there is a risk that impairment losses The counterparty risk inherent in the leasing business contin- will have to be recognised on these assets. ues to be insignificant. The Group also mitigates any losses from The individual Group companies directly manage counter- defaults by its receipt of the proceeds from the sale of repos- party risks involving customers. These counterparty risks did not sessed trucks. Furthermore, receivables management and credit change significantly in 2018. Each individual Group company has risk management are refined on an ongoing basis. Besides the established a credit management system for identifying customer- design of the business processes, it also encompasses the risk related counterparty risks at an early stage and initiating the management and control processes. necessary countermeasures. Analysis of the maturity structure of receivables is an integral element of monthly reporting. Risks arising from financial services Human resources risks and legal risks The KION Group relies on having highly qualified managers and The leasing activities of the Industrial Trucks & Services segment experts in key roles. If they left, it could have a long-term adverse mean that the KION Group may be exposed to residual value impact on the Group’s prospects. That is why the KION Group risks from the marketing of trucks that are returned by the lessee actively engages in HR work aimed at identifying and developing at the end of a long-term lease and subsequently sold or young professionals with high potential who already work for the re-rented. Residual values in the markets for used trucks are Company and retaining them over the long term, thereby enabling therefore constantly monitored and forecast. The KION Group succession planning for key roles across the Group. The KION regularly assesses its aggregate risk position arising from Group also positions itself in the external market as an employer financial services. of choice. This will enable it to make strategic additions to its The risks identified are immediately taken into account by the portfolio of existing staff and, in this way, avert the risk of possibly Company by recognising write-downs or provisions and in the losing expertise and thereby becoming less competitive. costing of new lease contracts by adjusting the residual values. Any restructuring measures may result in a risk of strikes and Risk-mitigating factors include the demand for used trucks, which reactions of other kinds by the workforce. As demonstrated stabilises the residual values of the KION Group’s industrial several times in the past, this risk is contained by collaborating trucks. In many cases, the residual values have underlying remar- closely with employee representatives and, if job losses are keting agreements that transfer any residual-value risk to the leas- necessary, taking comprehensive steps to ensure they are ing company. This had a positive impact on the financial results in achieved with the minimum possible social impact. 2018. Groupwide standards to ensure that residual values The legal risks arising from the KION Group’s business are are calculated conservatively, combined with an IT system for typical of those faced by any company operating in this sector. residual- value risk management, reduce risk and provide the The Group companies are a party in a number of pending basis on which to create the transparency required. lawsuits in various countries. The individual companies cannot The KION Group mitigates its liquidity risk and interest-rate assume with any degree of certainty that they will win any of the risk attaching to financial services by ensuring that most of its lawsuits or that the existing risk provision in the form of insurance transactions and funding loans have matching maturities and by or provisions will be sufficient in each individual case. However, constantly updating its liquidity planning. Long-term leases are the KION Group is not expecting any of these existing legal primarily based on fixed-interest agreements. The credit facilities proceedings to have a material impact on its financial position or provided by various banks and an effective dunning process financial performance. These lawsuits relate, among other things, ensure that the Group has sufficient liquidity. to liability risks, especially as a result of legal action brought by In order to exclude currency risks, the KION Group generally third parties because, for example, the Company’s products were finances its leasing business in the local currency used in each allegedly faulty or the Company allegedly failed to comply with market. contractual obligations. Further legal risk may arise as a result of KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 106 the environmental restoration of sites that have been shut down in require individual areas of opportunity to be re-evaluated. This recent years, for example work required due to contamination. may lead to reallocation of the budgets earmarked for the realisation Any damage to the environment may lead to legal disputes and of opportunities. Such decisions are made on the basis of the give rise to reputational risk. potential of the opportunity, drawing on empirical values. There is The Company has taken measures to prevent it from no management system for the evaluation of opportunities com- incurring financial losses as a result of these risks. Although legal parable to the system for risk management. disputes with third parties have been insignificant both currently and in the past, the Company has a centralised reporting system to record and assist pending lawsuits. In addition to the high Categorisation of opportunities quality and safety standards applicable to all users of the Company’s products, with which it complies when it develops ‘Opportunities’ are understood as positive deviations from the and manufactures the products, it has also taken out the usual expectations set out in the outlook relating to the economic types of insurance to cover any third-party claims. In addition, situation and the KION Group’s position. Opportunities are interdisciplinary teams work on the avoidance of risks arising from divided into three categories: inadequate contractual arrangements. A further objective of this cooperation across functions is to ensure compliance with man- datory laws, regulations and contractual arrangements at all times. Owing to the KION Group’s export focus, legal risk and reputational risk arise due to the numerous international and local export controls that apply. The Company mitigates these risks with a variety of measures. Consequently, export controls are an important part of the compliance activities carried out by the Group companies. OPPORTUNITY REPORT – Market opportunities describe the potential resulting from trends in the market and competitive environment and from the regulatory situation. – Strategic opportunities are based on implementation of the Group’s strategy. They may lead to positive effects that exceed planning assumptions. – Business-performance opportunities arise in connection with operational activities along the value chain, such as restructuring or cost-cutting measures. Opportunity situation Market opportunities Principles of opportunity management The economy as a whole may perform better than expected in Opportunity management, like risk management, forms a central 2019. In addition, circumstances may occur in the wider market part of the Company’s day-to-day management. In 2018, the at any time – such as quality problems at competitors or the aggregate opportunity position was largely unchanged com- effects of consolidation – that increase demand for products from pared with the previous year. Individual areas of opportunity the KION Group brands. New, unforeseen regulatory initiatives are identified within the framework of the strategy process. could be launched, for example the tightening of health and safety Opportunities are determined and managed on a decentralised regulations or emissions standards, that would push up demand basis in line with the Group strategy. for products offered by the KION Group brands. Average There are monthly reports on the opportunity situation as prices for procuring commodities over the year may be cheaper part of the regular Group reporting process. As a result, the than anticipated. Moreover, a weakening of the euro could KION Group is in a position to ascertain at an early stage whether bring positive currency effects that have not been factored market trends, competitive trends or events within the Group into the planning. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 107 Medium- to long-term market opportunities are presented, in particular, by: – a greater presence in the economy and volume price segments, particularly as a result of the systematic imple- – growing demand for intralogistics products, solutions and services as a consequence of globalisation, industrialisation mentation of the segment-wide platform strategy – stronger involvement in the electrification of warehousing and logistics processes, including by ensuring availability of and fragmentation of supply chains as well as efficiency lithium-ion technology across the entire product range increases that are needed due to limited warehouse space and expanding market share in the lightweight warehouse and changing consumer requirements – high demand for replacement investments, especially in – the trend towards outsourcing of service functions for indus- developed markets trial trucks, outsourcing of entire logistics processes in the supply chain solutions business and growth in demand for finance solutions – increased use of industrial and warehouse trucks powered by electric motors – one of the KION Group’s particular strengths – growing demand for automation solutions and fleet manage- ment solutions in connection with the rapidly expanding truck sector – further strengthening of its market-leading position in the EMEA region and achievement of a significant position in the Americas region, in particular by boosting its technological expertise, making greater use of shared modules and harnessing potential for cross-selling – expansion of the service portfolio, including financial services, at every stage of the product lifecycle, taking advantage of the high number of trucks in use and the installed base of supply chain solutions The KION Group’s medium- to long-term strategic opportunities e-commerce sector and the implementation of Industry in the Supply Chain Solutions segment arise, in particular, from: 4.0 projects Strategic opportunities – further expansion of its position in the market for intralogistics solutions based on the growing acceptance of automation The positive impact of the strategic activities under the KION 2027 strategy is already appropriately reflected in the expecta- tions regarding the KION Group’s financial performance in 2019. Nevertheless, the individual activities could create positive effects that exceed expectations. There is also a possibility that new strategic opportunities that were not part of the planning may arise over the course of the year, for example in the form of concepts – the advancing digitalisation and automation of production – the growing trend in numerous sectors for the integration of and supply chains through the use of robotics solutions supply chain solutions into the respective software applica- tion environment – strengthening of the market position in the EMEA region – above all, central and eastern Europe – by using the sales acquisitions and strategic partnerships. structures of Industrial Trucks & Services The KION Group’s medium- to long-term strategic oppor- tunities in the Industrial Trucks & Services segment arise, in particular, from: – achievement of a leading global market and technology position with regard to truck automation and innovative drive technologies as an integral element of automated warehouse solutions KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 108 Business-performance opportunities Business-performance opportunities arise firstly from ongoing activities to modernise and streamline the KION Group’s production facilities and from the worldwide integration of the production network. By investing in new locations and expanding existing ones, products can be assembled nearer to the markets in which they are to be sold, economies of scale can be achieved across the Group and synergies can be leveraged. Secondly, activities are carried out under the KION strategy aimed at improving operational excellence in logistics, technology & product devel- opment and production and at lowering material and quality costs, for example by reducing the complexity of the product range. The following may lead to an increase in profitability in the medium term: sales and improve the gross margin. – Ongoing efficiency increases at production sites may boost – Effective use of global development capacities may create – Activities to improve operational excellence and lower costs synergies and economies of scale. may help the KION Group to achieve future growth with a disproportionately small rise in costs. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 109 Disclosures relevant to acquisitions, section 315a and 289a HGB 1. Composition of subscribed capital – According to the disclosures pursuant to the German Secu- rities Trading Act (WpHG), the shareholding held by Weichai The subscribed capital (share capital) of KION GROUP AG Power is deemed to belong to the following other companies: amounted to €118.09 million as at 31 December 2018. It is divided > TABLE 028 into 118.09 million no-par-value bearer shares. The share capital is fully paid up. All of the shares in the Company give rise to the same rights and obligations. Each share confers one vote and Companies and countries to which Weichai Power is deemed to belong TABLE 028 entitlement to an equal share of the profits. The rights and obliga- tions arising out of the shares are defined by legal provisions. As Company at 31 December 2018, the Company held 165,558 shares in treasury. The primary intention is to offer these treasury shares to Shandong Heavy Industry Group Co., Ltd. staff as part of the KION Employee Equity Programme (KEEP). Weichai Group Holdings Limited Weichai Power Co., Ltd. Registered office Jinan, People’s Republic of China Weifang, People’s Republic of China Weifang, People’s Republic of China 2. Restrictions on voting rights or the transfer of shares Weichai Power Hong Kong Inter- national Development Co., Ltd. Hong Kong, People’s Republic of China The Company is not aware of any agreements entered into by shareholders of KION GROUP AG that restrict voting rights or the Other transfer of shares. People’s Republic of China KION GROUP AG has no rights arising from the treasury shares that it holds (section 71b AktG). Registered office Beijing, People’s Republic of China 3. Direct or indirect shareholdings in the Company that represent more than 10 per cent of the voting rights Since the reporting date, there may have been further changes to the aforementioned shareholdings of which the Company is unaware. As the shares in the Company are bearer shares, the Company only learns about changes to the size of shareholdings if these changes are notifiable pursuant to the WpHG or other As far as the Company is aware, only Weichai Power (Luxem- regulations. bourg) Holding S.à r.l., Luxembourg (‘Weichai Power’) directly or indirectly held more than 10 per cent of the voting rights in KION GROUP AG as at 31 December 2018 and its shareholding 4. Shares with special rights that confer was 45 per cent. authority to exert control over the Company There are no shares with special rights that confer the authority to exert control over the Company. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 110 5. Type of voting right controls in cases where employees hold some of the Company’s capital and do not exercise their control rights directly 7. Authority of the Executive Board to issue or buy back shares The Annual General Meeting on 12 May 2016 authorised the Company, in the period up to 11 May 2021, to acquire for treasury There are no cases where employees hold some of the Company’s up to 10 per cent of all the shares in issue at the time of the capital and do not exercise their control rights directly themselves. resolution or in issue on the date the authorisation is exercised, 6. Appointment and removal of members of the Executive Board; amendments to the articles of association whichever is the lower. Together with other treasury shares in possession of the Company or deemed to be in its possession pursuant to section 71a et seq. AktG, the treasury shares bought as a result of this authorisation must not exceed 10 per cent of the Company’s share capital at any time. The Company may sell the purchased treasury shares through a stock exchange or by Members of the Company’s Executive Board are appointed and means of an offer to all shareholders. It may also sell the shares in removed in accordance with the provisions of sections 84 and return for a non-cash consideration, in particular in connection 85 AktG and section 31 MitbestG. Pursuant to article 6 (1) of the with the acquisition of a business, parts of a business or equity articles of association of the Company, the Executive Board investments. In addition, the treasury shares may be offered to must have a minimum of two members. The Supervisory Board employees of the Company or of an affiliated company as part of determines the number of Executive Board members. Pursuant an employee share ownership programme. The treasury shares to section 84 AktG and section 6 (3) of the Company’s articles of can also be retired. Share buyback for trading purposes is association, the Supervisory Board may appoint a Chief Executive prohibited. The authorisation may be exercised on one or more Officer and a deputy. occasions, for the entire amount or for partial amounts, in pursuit Section 179 (1) sentence 1 AktG requires that amendments of one or more aims, by the Company, by a Group company or by to the articles of association be passed by resolution of the third parties for the account of the Company or the account of a Annual General Meeting. In accordance with article 23 of the Group company. At the discretion of the Executive Board, the articles of association in conjunction with section 179 (2) sentence shares may be purchased through the stock exchange, by way of 2 AktG, resolutions at the Annual General Meeting on amend- a public purchase offer made to all shareholders or by way of a ments to the articles of association are passed by simple majority public invitation to shareholders to tender their shares. of the votes cast and by simple majority of the share capital In 2018, the Company again made use of this authorisation, represented in the voting unless a greater majority is specified as purchasing 66,000 shares in the period 10 to 27 September a mandatory requirement under statutory provisions. The option 2018. During the reporting year, 61,271 of the shares acquired to stipulate a larger majority than a simple majority in any other that were still in treasury were used as part of the KEEP Employee cases has not been exercised in the articles of association. Equity Programme for the employees of the Company and certain The Supervisory Board is authorised in article 10 (3) of the Group companies. In addition, 13,674 of the shares in treasury articles of association to amend the articles of association will be used in February of 2019 for the participants’ own invest- provided that such amendments relate solely to the wording. ments under the KEEP 2018 programme. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 111 – On the basis of a resolution of the Company’s Annual Gen- eral Meeting on 11 May 2017, the Executive Board was to €10.88 million (‘2017 Authorisation’). The 2017 Conditional Capital of €10.88 million was created to service the debt instru- authorised, subject to the consent of the Supervisory Board, ments. The 2017 Authorisation has not been used so far. to increase the Company’s share capital by up to €10.88 mil- lion by issuing up to 10.88 million new no-par-value ordinary The 2017 Conditional Capital will be reduced by, among other bearer shares for cash and / or non-cash contributions up to things, the portion of the share capital attributable to shares and including 10 May 2022 (2017 Authorised Capital). The issued on the basis of the 2017 Authorised Capital. As part of the 2017 Authorised Capital became effective when the corre- capital increase in May 2017, 9.3 million new shares were issued sponding change to the articles of association was on the basis of the 2017 Authorised Capital. Consequently, con- entered in the commercial register at the Wiesbaden local ditional capital of up to €1.579 million is available on the basis of court (HRB 27060) on 12 May 2017. which the Executive Board would be able to issue shares. With the consent of the Supervisory Board’s ad-hoc transaction committee set up for this purpose, the Executive Board resolved on 22 May 2017 to use part of the 2017 Authorised Capital and, disapplying shareholders’ pre-emption rights, to increase the Company’s share capital by a nominal €9.3 million to €118.090 million by issuing 9.3 million new no-par-value bearer 8. Material agreements that the Company has signed and that are conditional upon a change of control resulting from a takeover bid, and the consequent effects shares in the Company. This equates to an 8.55 per cent rise in In the event of a change of control resulting from a takeover bid, the Company’s share capital in existence on the effective date certain consequences are set out in the following significant and at the time of use of the 2017 Authorised Capital. The capital contracts (still in force on 31 December 2018) concluded between increase took effect when its implementation was entered in the Group companies of KION GROUP AG and third parties: commercial register at the Wiesbaden local court under HRB 27060 on 23 May 2017. Consequently, the Executive Board is currently authorised by the Annual General Meeting to increase – Senior facilities agreement dated 28 October 2015, con- cluded between KION GROUP AG and, among others, the the Company’s share capital by up to €1.579 million by issuing up London branch of UniCredit Bank AG to 1.579 million new no-par-value bearer shares for cash and / or non-cash contributions. – On the basis of a resolution of the Annual General Meeting on 11 May 2017, the Executive Board was also authorised, in the In the event that a person, companies affiliated with this person, or persons acting in concert within the meaning of section 2 (5) of the German Securities Acquisition and Takeover Act (WpÜG) acquire(s) control over more than 50 per cent of the Company’s period up to and including 10 May 2022, to issue convertible voting shares, the lenders may demand that the loans drawn bonds, warrant-linked bonds, profit-sharing rights and / or down be repaid and may cancel the loan facilities under the senior income bonds with or without conversion rights, warrants, facilities agreement. mandatory conversion requirements or option obligations, or any combinations of these instruments (referred to jointly as ‘debt instruments’) for a total par value of up to €1 billion, and – Acquisition facilities agreement dated 4 July 2016, concluded between KION GROUP AG and, among others, the London to grant conversion rights and / or warrants to – and / or to branch of UniCredit Bank AG impose mandatory conversion requirements or option obli- gations on – the holders / beneficial owners of debt instru- The provisions in this agreement that apply in the event of a ments to acquire up to 10.88 million new shares of KION change of control are identical to those in the senior facilities GROUP AG with a pro-rata amount of the share capital of up agreement dated 28 October 2015. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 112 – Promissory note agreements (seven tranches with different coupons and different maturities) dated 13 February 2017 / 29 March 2017, concluded between KION GROUP AG and Landesbank Baden-Württemberg; the latter subsequently 9. Compensation agreements that the Company has signed with the Executive Board members or employees and that will be triggered in the event of a takeover bid passed them on to its investors The provisions in these agreements that apply in the event of a and its current Executive Board members or employees. No such agreements have been concluded between the Company change of control are largely identical to those in the senior facilities agreement dated 28 October 2015. – Promissory note agreements (two tranches with different coupons) dated 26 June 2018, concluded between KION GROUP AG and Landesbank Hessen-Thüringen; the latter subsequently passed them on to its investors The provisions in these agreements that apply in the event of a change of control are largely identical to those in the senior facilities agreement dated 28 October 2015. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 113 Remuneration report In accordance with statutory requirements and the recommenda- The European Shareholder Rights’ Directive is to be imple- tions of the German Corporate Governance Code (DCGK) as mented into German law in 2019, and we believe it will affect the amended on 7 February 2017, this remuneration report explains changes being made to the German Corporate Governance the main features and structure of the remuneration system used Code. The Supervisory Board has therefore decided to review the for the Executive Board and Supervisory Board of KION GROUP remuneration system and level of remuneration for the members AG and also discloses the remuneration of the individual of the Executive Board of KION GROUP AG in 2019. To help with members of the Executive Board and Supervisory Board for the this review, KION will draw on the services of a remuneration con- work that they carried out on behalf of the Company and its sultancy that is independent of KION. subsidiaries in 2018. The report also reflects the requirements of German accounting standard (GAS) 17 and the HGB. 1) Essential features of the Executive Board KION GROUP AG considers that transparency and clarity remuneration system surrounding both the remuneration system itself and the remuneration of the individual members of the Executive Board The Supervisory Board based the level of remuneration for the and Supervisory Board are fundamental to good corporate members of our Executive Board on benchmark analyses of governance. EXECUTIVE BOARD REMUNERATION I. Remuneration system executive board pay in the MDAX. These analyses were conducted on behalf of the Supervisory Board by a consultancy that is independent of KION. The Supervisory Board’s decision on changing the remuner- ation system was guided by KION GROUP AG’s positioning in the top quartile of the MDAX on the basis of its size, market position and total assets. The remuneration of the Executive Board of KION GROUP AG is determined in accordance with the requirements of the The Supervisory Board of KION GROUP AG is responsible for German Stock Corporation Act and the DCGK and is focused on setting and regularly reviewing the total pay of the individual the Company’s long-term growth. It is determined so as to reflect members of the Executive Board. According to the rules of the size and complexity of the KION Group, its business and procedure for the Supervisory Board, the Executive Committee financial situation, its performance and future prospects, the prepares all Supervisory Board resolutions pertaining to normal amount and structure of executive board remuneration in remuneration. comparable companies and the internal salary structure. The As recommended by the Executive Committee, the Supervi- Supervisory Board also takes into account the relationship sory Board approved the remuneration system by adopting between the Executive Board remuneration and the remuneration resolutions at its meetings on 29 June 2016 and 28 Septem- paid to senior managers and the German workforce of the ber 2016, taking account of the requirements of stock company Company as a whole, including changes over the course of time. law and the DCGK. To this end, the Supervisory Board has decided how the relevant The remuneration system described below for the members benchmarks are to be defined. Other criteria used to determine of the Executive Board of KION GROUP AG has applied since remuneration are the individual responsibilities and personal 1 January 2017 and was approved by the Annual General performance of each member of the Executive Board. The Meeting of KION GROUP AG on 11 May 2017 with a majority of financial and individual targets used in the Executive Board 71.68 per cent. The Supervisory Board acknowledged these remuneration system are in line with the business strategy. The voting results from the 2017 Annual General Meeting and Supervisory Board regularly reviews the structure and appro- believes that it therefore has an ongoing duty to review the priateness of Executive Board remuneration. remuneration system. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 114 In doing so, the Supervisory Board focuses on the sustainability 2) Upper limits on total remuneration of the Company’s long-term performance and has therefore given a high weighting to the multiple-year variable remuneration com- In accordance with the DCGK, remuneration is subject to upper ponents. The granting of a long-term incentive in the form of limits on the amounts payable, both overall and also in terms of performance shares with a three-year term means that this com- the variable components. The upper limit on the total cash ponent is linked to the share price and incentivises Executive remuneration to be paid, consisting of the fixed annual salary plus Board members to ensure the Company performs well over the one-year and multiple-year variable remuneration, equals the long term. roughly 1.7 times the target remuneration (2017: 1.7 times) – The total remuneration of the Executive Board comprises a excluding the non-performance-related non-cash remuneration non-performance-related salary, non-performance-related non- and other benefits paid in that financial year. Both the one-year cash benefits, non-performance-related pension entitlements and the multiple-year variable remuneration are capped at and performance-related (variable) remuneration. The system 200 per cent of the target value. The specific figures are shown in specifically allows for both positive and negative developments. > TABLE 033. 3) Overview of the structure and parameters of Executive Board remuneration Structure and parameters of Executive Board remuneration TABLE 029 Component Proportion of target value Measurement basis Basic remuneration 32% – 37% One-year variable remuneration (STI) 20% – 22% Multiple-year variable remuneration (LTI) 42% – 49% Pension plan Non-cash remuneration and additional benefits Range Fixed Basis and criteria Specified in service contract Payment Monthly instalments Function, remit, responsibility KION Group’s overall success/results, Group targets, individual targets, overall performance 0% – 200% (full achievement = 100%) KION Group’s overall success/results, Group targets, individual targets, overall performance 0% – 200% (full achievement = 100%) + share price per- formance Achievement of financial targets for year (adjusted EBIT and free cash flow) and assessment of individual performance Achievement of ROCE target and relative total shareholder return com- pared with the MDAX and assessment of individual performance After adoption of annual financial statements After expiry of three-year period and adoption of annual financial statements Defined contribution pension entitlements and defined benefit entitlement Annual pension contribution / annual service cost Pension entitlement for retirement, insured event, early termination Capital / annuity Specified in service contract KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 115 The regular cash remuneration for a particular year, consisting of Both the one-year and the multiple-year components are a non-performance-related fixed annual salary and perfor- linked to key performance indicators used by the KION Group to mance-related (variable) remuneration, has a heavy emphasis on measure its success. The KPIs relevant to one-year variable performance. If the targets set by the Supervisory Board are remuneration are adjusted earnings before interest and tax (EBIT) completely missed, only the fixed salary is paid. The cash and free cash flow. The relevant KPIs for multiple-year variable remuneration is structured as follows in the event that the target remuneration are return on capital employed (ROCE) and relative value / maximum value is reached: total shareholder return (TSR). Target value: The remuneration system is thus closely tied to the success of the Company and, with a high proportion of multiple-year 32 to 37 per cent fixed annual salary variable remuneration, has a long-term focus aimed at promoting 20 to 22 per cent one-year variable remuneration the KION Group’s growth. 42 to 49 per cent multiple-year variable remuneration Maximum value: 19 to 23 per cent fixed annual salary 23 to 26 per cent one-year variable remuneration II. The components of Executive Board remuneration in detail 52 to 58 per cent multiple-year variable remuneration A. Non-performance-related remuneration The variable components of the cash remuneration make up 1) Fixed salary and additional benefits between 63 and 68 per cent of the target value and between The Executive Board members of KION GROUP AG receive 77 and 81 per cent of the maximum remuneration. In each case, non-performance-related remuneration in the form of a fixed multiple-year components account for two-thirds of the total. annual salary (basic remuneration) and additional benefits. The Ratio of fixed to variable pay on average DIAGRAM 006 equal instalments, the last payment being made for the full fixed annual salary is paid at the end of each month in twelve month in which the Executive Board service contract ends. The Supervisory Board reviews the basic remuneration at regular intervals and makes adjustments if appropriate. The additional benefits essentially comprise use of a com- pany car and the payment of premiums for accident insurance 80% with benefits at a typical market level. 2) Additional special benefits Additional special benefits have been agreed for Mr Quek because he has been sent from Singapore to China on foreign 20% assignment. 66% 34% TARGET REMUNERATION MAXIMUM REMUNERATION FIXED SALARY VARIABLE (STI + LTI) Under this arrangement, Mr Quek’s remuneration is structured as if he were liable for taxes and social security contributions in Singapore. KION GROUP AG pays the taxes and social security contributions that Mr Quek incurs in China and Germany over and above the taxes that would theoretically apply in Singapore. In 2018, this additional amount totalled €615 thou- sand (2017: €1,253 thousand). The additional benefits also agreed KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Remuneration report 116 with Mr Quek include the cost of trips home to Singapore for him The present value of the previous defined benefit plan for the and his family, a company car, rental payments in Xiamen, China, ordinary members of the Executive Board was transferred as a and private health insurance. In 2018, the additional benefits for starting contribution for a new defined contribution pension plan Mr Quek amounted to a total of €136 thousand (2017: €118 thou- when the Company changed its legal form. The new plan is sand). These additional benefits will be granted for as long as structured as a cash balance plan and is also applied to new Mr Quek’s designated place of work is Xiamen or until his service Executive Board members. contract with KION GROUP AG ends. Fixed annual contributions of €250 thousand for Dr Toepfer When Ms Groth entered into her KION Executive Board (pro rata for 2018: €62.5 thousand) and Ms Groth (pro rata for service contract, her existing employment contract with her 2018: €145.8 thousand), €150 thousand for Ms Schneeberger previous employer ended and her entitlement to payment of (pro rata for 2018: €37.5 thousand) and Dr Böhm and €124.5 thou- long-term variable remuneration from her previous employer sand for Mr Quek are paid into their pension accounts for the therefore expired without compensation. To compensate for the duration of the member’s period of service on the Executive loss of this entitlement when she left her previous employer, Board. Interest is paid on the pension account at the prevailing Ms Groth was paid a sum of €314 thousand after suitable docu- statutory guaranteed return rate for the life insurance industry mentary evidence had been provided. (applicable maximum interest rate for the calculation of the When Ms Schneeberger’s contract was being drawn up, a actuarial reserves of life insurers pursuant to section 2 (1) of the commitment was made to pay her compensation to the extent German Regulation on the Principles Underlying the Calculation that her entitlement to shares that she had been allocated by her of the Premium Reserve (DeckRV)) until an insured event occurs. previous employer expired without compensation owing to her If higher interest is generated by investing the pension account, it departure. Ms Schneeberger was paid a sum of €328 thousand will be credited to the pension account when an insured event in October after suitable documentary evidence had been pro- occurs (surplus). The standard retirement age for the statutory vided. This sum was calculated on the basis of the average price pension applies. Executive Board members are entitled to early of those shares in June 2018. payment of the pension no earlier than their 62nd birthday. In the 3) Pension entitlements event of invalidity or death while the Executive Board member has an active service contract, the contributions that would have been KION GROUP AG grants its Executive Board members direct made until the age of 60 are added to the pension account, entitlement to a company pension plan consisting of retirement, although only a maximum of ten annual contributions will be added. invalidity and surviving dependants’ benefits. When an insured event occurs, the pension is paid as a lump The Chief Executive Officer has a defined benefit entitlement sum or, following a written request, in ten annual instalments. that was granted in his original service contract and was trans- ferred to his Executive Board service contract when the Company B. Performance-related remuneration changed its legal form. The amount of the entitlement is dependent on the number of years of service and amounts to a 1) One-year variable remuneration (short-term incentive) maximum of 50 per cent of the most recent fixed annual salary The one-year variable remuneration is a remuneration compo- awarded in the original service contract after the end of the nent linked to the profitability and productivity of the KION Group tenth year of service. in the relevant financial year. This is the same as the arrangement in our remuneration system for senior managers. Its amount is determined by the achievement of the following targets: – Adjusted earnings before interest and taxes (EBIT), weighting – Free cash flow, weighting of 50 per cent of 50 per cent KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 117 The target values for the financial components are derived from 1 a) Bonus curve for the short-term incentive the annual budget and specified in target agreements between the Supervisory Board and Executive Board. STI bonus entitlement DIAGRAM 007 Upper target limit Target value Lower target limit 0 20 30 40 50 60 70 80 90 100 110 120 130 140 KPI results No bonus is paid if target achievement is 70 per cent or less (lower target limit). In cases where the targets are significantly exceeded (upper target limit of 130 per cent), the bonus can be doubled at most (payment cap of 200 per cent). > DIAGRAM 007 If the targets derived from the annual budget are achieved in full, target achievement is 100 per cent. The target achievement levels for the weighted targets (adjusted EBIT and free cash flow) are added together to give the total target achievement. The individual performance of the Executive Board members is assessed by the Supervisory Board, which applies a discre- tionary performance multiple with a factor of between 0.7 and 1.3. The main criteria used for this performance-based adjustment are growth of market share, successful innovations and the Organizational Health Index (OHI), which measures the improve- t n e m e l t i t n e s u n o B 0 2 2 0 0 2 0 8 1 0 6 1 0 4 1 0 2 1 0 0 1 0 8 0 6 0 4 0 2 0 ment in the Company’s management culture. There are also agreements relating to special operational and, in particular, stra- tegic projects that are very important to the Company’s long-term development. The discretionary performance multiple enables % the Supervisory Board to increase or reduce the bonus, calcu- lated on the basis of the total target achievement for the financial targets derived from the budget, by a maximum of 30 per cent depending on the assessment of individual performance. The one-year variable remuneration is capped at 200 per cent of the contractual target bonus and is paid after the annual financial statements for the year in question have been adopted. > DIAGRAM 008 In the event that an Executive Board member is not entitled to remuneration for the entire year on which the calculation is based, the remuneration is reduced pro rata. KION GROUP AGAnnual Report 2018 118 DIAGRAM 008 COMBINED MANAGEMENT REPORT Remuneration report 1 b) Diagram showing the calculation of one-year variable remuneration (short-term incentive) STI Target achievement for adjusted EBIT (weighting of 50%) + Target achievement for free cash flow (weighting of 50%) = Averaged target achievement for adjusted EBIT and FCF x Target value (€) according to service contract Preliminary payout = Individual performance multiple x = Final payout (gross) Target range = plus or minus 30% of target value (= 100%) Between 0% and 200% target achievement rate Between 0.7 and 1.3 Criteria: market share, successful innovations, OHI and special projects Cap of 200% of target value 2) Multiple-year variable remuneration (long-term incentive) Xetra closing price of KION shares (closing auction prices) on For the members of the Executive Board, multiple-year variable the Frankfurt Stock Exchange (or a successor system that remuneration has been agreed in the form of a performance replaces it) over the last 60 trading days prior to the start of the share plan. A very similar plan is in place for the Group’s senior performance period. managers. The basis of measurement has been defined as the At the end of the performance period, the preliminary number total shareholder return (TSR) for KION shares compared with the of performance shares is adjusted depending on achievement of MDAX and return on capital employed (ROCE). Each has a the two targets (relative TSR and ROCE) to give the final number weighting of 50 per cent. The annual tranches promised under of performance shares. the plan have a term (performance period) of three years and are In respect of the ROCE target, there is no entitlement if target paid at the end of the term, provided the defined targets have achievement is 70 per cent or less. If the target is significantly been achieved. exceeded (target achievement of 130 per cent or more), the At the start of a performance period, a conditional entitlement entitlement is capped at 200 per cent. Regarding the relative TSR to a certain target number of performance shares is granted. target, there is no entitlement if KION shares underperform the This preliminary number is calculated by dividing the allocation MDAX. If the KION shares outperform this index by 20 per cent or value set out (in euros) in the service contract for the particular more, the entitlement is capped at 200 per cent. If KION shares Executive Board member by the share price on the relevant date outperform the MDAX by 6.67 per cent and the ROCE targets at the start of the performance period. This share price, which is defined each year on the basis of the budget are achieved, total calculated to two decimal places, is determined from the average target achievement will be 100 per cent. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 119 The amount paid for each tranche is determined by the final Health Index (OHI), which measures the improvement in the number of performance shares multiplied by the price of KION Company’s management culture. For the LTI too, there are also shares (average price over the preceding 60 trading days) at the agreements relating to special operational and, in particular, end of the performance period. strategic projects that are very important to the Company’s Executive Board members’ individual performance is also long-term development. Depending on achievement of these taken into account in the multiple-year variable remuneration. At targets, the Supervisory Board can apply a discretionary factor to the start of the performance period, the Supervisory Board make a final adjustment to the calculation of the amount to be defines targets for the three-year period. For the performance paid out at the end of the performance period by plus or minus share plan, the criteria used to assess individual performance 30 per cent, although the maximum payment may not exceed are – as for the one-year variable remuneration – growth of 200 per cent of the allocation value. > DIAGRAMS 009 – 010 market share, successful innovations and the Organizational 2 a) Diagram showing the calculation of multiple-year variable remuneration (long-term incentive) LTI DIAGRAM 009 Averaged target achievement of: Number of performance shares at allocation date x ROCE Relative TSR (weighting of 50% each) = Final number of performance shares x Average share price at end of performance period = Preliminary payout Individual performance multiple x = Final payout (gross) Between 0% and 200% target achievement rate Contractual allocation value divided by average share price for the 60 trading days before start of performance period Average share price for the 60 trading days before end of performance period Cap of 200% of target value Between 0.7 and 1.3 Criteria: market share, successful innovations, OHI and special projects KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 120 2 b) Target ranges for relative TSR and ROCE The plan is a cash-settled long-term incentive plan that does LTI not include the right to receive any actual shares. Under the DIAGRAM 010 requirements of GAS 17, IFRS 2 and the HGB, the total expense Target achievement External measurement basis: relative TSR (weighting of 50%) Internal measurement basis: ROCE (weighting of 50%) arising from share-based payments and the fair value of the per- formance share plan on the date of granting must be disclosed. > TABLES 030 – 032 0% Underperformance 70% of budgeted figure The income in 2018 amounted to €1,763 thousand (total expense 2017: €7,476 thousand). 50% Outperformance of 0% 85% of budgeted figure 100% Outperformance of 6.67% Budgeted figure 200% Outperformance of 20% 130% of budgeted figure 2016 performance share plan Fair value of the performance share plan on the date of grant €1,500 thousand €1,000 thousand Gordon Riske Dr Eike Böhm Ching Pong Quek €830 thousand Dr Thomas Toepfer 4 €1,000 thousand Number of performance shares granted 1 Fair value per performance share on date of grant 2 Expense for share-based remuneration in 2017 3 TABLE 030 Expense for share-based remuneration in 2018 3 36,179 24,120 20,019 24,120 €41.46 €41.46 €41.46 €41.46 €1,062 thousand – €736 thousand €708 thousand – €491 thousand €905 thousand – €641 thousand – €339 thousand €0 thousand Total €4,330 thousand 104,438 €2,336 thousand – 1,867 thousand 1 The target number of performance shares is calculated by dividing the allocation value by the fair value of one performance share. In this calculation, the number of performance shares is rounded to the nearest whole number where necessary 2 The fair value was calculated using the Monte Carlo method 3 The amount shown for Mr Quek includes a flat-rate allowance of 53 per cent in 2018 (2017: 55 per cent) as part of a tax equalisation agreement 4 All of Dr Toepfer’s entitlements under the performance share plan have expired because he left the Company on 31 March 2018 KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 2017 performance share plan Fair value of the performance share plan on the date of grant €1,600 thousand €1,000 thousand Gordon Riske Dr Eike Böhm Ching Pong Quek €830 thousand Dr Thomas Toepfer 3 €1,000 thousand Total €4,430 thousand 121 TABLE 031 Expense for share-based remuneration in 2018 2 Number of performance shares granted 1 Fair value per performance share on date of grant Expense for share-based remuneration in 2017 2 29,712 18,570 15,413 18,570 82,265 €53.85 €53.85 €53.85 €53.85 €650 thousand – €179 thousand €406 thousand – €112 thousand €522 thousand – €149 thousand €0 thousand €0 thousand €1,578 thousand – €440 thousand 1 The target number of performance shares is calculated by dividing the allocation value by the fair value of one performance share. In this calculation, the number of performance shares is rounded to the nearest whole number where necessary 2 The amount shown for Mr Quek includes a flat-rate allowance of 53 per cent in 2018 (2017: 55 per cent) as part of a tax equalisation agreement 3 All of Dr Toepfer’s entitlements under the performance share plan have expired because he left the Company on 31 March 2018 2018 performance share plan Gordon Riske Dr Eike Böhm Anke Groth 3 Ching Pong Quek Susanna Schneeberger 4 Total Fair value of the performance share plan on the date of grant €1,600 thousand €1,000 thousand €861 thousand €830 thousand €750 thousand €5,041 thousand Number of performance shares granted 1 Fair value per performance share on date of grant 22,906 14,316 12,328 11,883 10,737 72,170 €69.85 €69.85 €69.85 €69.85 €69.85 TABLE 032 Expense for share-based remuneration in 2018 2 €185 thousand €116 thousand €68 thousand €147 thousand €29 thousand €544 thousand 1 The target number of performance shares is calculated by dividing the allocation value by the fair value of one performance share. In this calculation, the number of performance shares is rounded to the nearest whole number where necessary 2 The amount shown for Mr Quek includes a flat-rate allowance of 53 per cent as part of a tax equalisation agreement 3 The fair value of the performance share plan on the date of grant was recognised pro rata from the date of appointment to the Executive Board (1 June 2018) 4 The fair value of the performance share plan on the date of grant was recognised pro rata from the date of appointment to the Executive Board (1 October 2018) KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 122 3) Termination benefits temporary incapacity for a further six months, the Executive In line with the DCGK, all Executive Board service contracts Board member will receive 80 per cent of his fixed salary, but only provide for a severance payment equivalent to no more than up to a point at which the service contract is terminated. two years’ annual remuneration payable in the event of the If an Executive Board member ceases to be employed by the contract being terminated prematurely without good cause. The Company as a result of death, the Executive Board member’s amount of annual remuneration is defined as fixed salary plus the family will be entitled to the fixed monthly remuneration for the variable remuneration elements, assuming 100 per cent target month in which the service contract ends and for the three achievement and excluding non-cash benefits and other subsequent months, but only up to the point at which the service additional benefits, for the last full financial year before the end of contract would otherwise have come to an end. the Executive Board service contract. If the Executive Board service contract was due to end within two years, the severance 4) Share ownership guidelines payment is calculated pro rata. If a service contract is terminated In connection with the updated remuneration system for Executive for good cause for which the Executive Board member con- Board members that has been in force since 1 January 2017, the cerned is responsible, no payments are made to the Executive Supervisory Board decided to introduce share ownership guide- Board member in question. The Company does not have any lines, under which all Executive Board members are required to commitments for the payment of benefits in the event of a prema- hold shares worth 100 per cent of their basic remuneration. They ture termination of Executive Board contracts following a change have to build up their shareholding to this percentage and hold the of control. shares for as long as they remain on the Executive Board. The Executive Board members are subject to a post-contractual obligation to hold the full number of shares begins no later than non-compete agreement of one year. In return, the Company four years after the start of the obligation to hold shares. In the first pays the Executive Board member compensation for the duration four years, they are permitted to increase their shareholding incre- of the non-compete agreement amounting to 100 per cent of his mentally: they must hold 25 per cent of the full number of shares final fixed salary. Other income of the Executive Board member is no later than twelve months after the start of the obligation, offset against the compensation. 50 per cent by the end of the second year and 75 per cent by the In the event that Mr Riske’s appointment is not extended for end of the third year. The Executive Board members to whom a reason for which he is not responsible and he has not reached these guidelines apply held the required number of shares as at the standard retirement age for the statutory pension or in the 31 December 2018 and thus fulfilled this obligation. event that Mr Riske resigns for good cause before the end of his The relevant number of shares is determined on the basis of appointment or suffers permanent incapacity after his period of the arithmetic mean (rounded to two decimal places) of the Xetra service as a result of sickness, he will receive transitional benefits closing prices (closing auction prices) of the Company’s shares of €300 thousand per annum on the basis of previous contracts. on the Frankfurt Stock Exchange (or a successor system that Severance payments in the event of early termination of his replaces it) over the last 60 trading days prior to the start of the appointment without good cause, compensation for the obligation to hold the shares and then rounded to the nearest post-contractual non-compete agreement, pension benefits that whole number. Mr Riske receives due to his previous work for other employers It is not necessary to acquire further shares once the full and income from other use of his working capacity (with the number of shares has been reached, nor will there be an obliga- exception of remuneration for work as a member of a supervisory tion to purchase additional shares if the share price falls. There is or advisory board or a board of directors) will be offset against only an obligation to purchase additional shares if there is a these transitional benefits. change to the fixed annual remuneration in the member’s Executive If an Executive Board member suffers temporary incapacity, Board service contract or if a capital reduction, capital increase or he will receive his full fixed salary for a maximum period of six stock split takes place. months plus the one-year variable remuneration. In the event of KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 123 III. Remuneration for members of the Executive Board in 2018 In accordance with the recommendations of the DCGK, as amended on 7 February 2017, the remuneration of Executive Board members is presented in two separate tables. Firstly, the benefits granted for the year under review, including the additional benefits and – in the case of variable remuneration components – the maximum and minimum remuneration achievable are shown. > TABLE 033 Secondly, > TABLE 034 shows the total remuneration allocated / earned, comprising fixed remuneration, short-term variable remuneration and long-term variable remuneration, broken down by reference year. 1) Benefits granted pursuant to the DCGK The total remuneration granted to Executive Board members for 2018 was €13,148 thousand (minimum: €5,426 thousand, maximum: €20,871 thousand) (2017: €10,279 thousand). Of this amount, €3,628 thousand (2017: €2,958 thousand) was attributable to fixed non-performance-related remuneration components, €7,722 thousand (minimum: €0 thousand, maxi- mum: €15,444 thousand) (2017: €6,051 thousand) to variable one-year and multiple-year performance-related remuneration components, €841 thousand (2017: €186 thousand) to non-performance-related non-cash remuneration and other non-performance-related benefits and €957 thousand (2017: €1,084 thousand) to the pension expense in accordance with IFRS. The figure shown for one-year variable remuneration is based on a target achievement rate of 100 per cent (minimum: 0 per cent for target achievement of 70 per cent or less, maxi- mum: 200 per cent for target achievement of 130 per cent or more). The figure shown for multiple-year variable remuneration is the fair value of the performance share plan at the date of grant, representing full target achievement (minimum: zero payment, maximum: 200 per cent of the contractual allocation value). The additional benefits were measured at the value calcu- lated for tax purposes. > TABLE 033 KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 124 Benefits granted in 2018 TABLE 033 Gordon Riske Dr Eike Böhm CEO of KION GROUP AG CTO of KION GROUP AG 2017 2018 2018 (min.) 2018 (max.) 2017 2018 2018 (min.) 2018 (max.) Fixed remuneration 1,100 1,400 1,400 1,400 575 650 650 650 € thousand Non-perfor- mance- related components Non-cash remuneration and other benefits 1 Total Short-term incentive One-year variable remuneration 2 , 3 Performance- related components Share-based long-term incentive Multiple-year variable remuneration 4, 5, 6 Performance share plan (1 Jan 2017 – 31 Dec 2019) Performance share plan (1 Jan 2018 – 31 Dec 2020) 21 34 34 34 1,121 1,434 1,434 1,434 20 595 15 665 15 665 800 800 1,600 1,600 0 0 1,600 400 400 3,200 1,000 1,000 0 0 15 665 800 2,000 1,600 1,000 1,600 0 3,200 1,000 0 2,000 Total 3,521 3,834 1,434 6,234 1,995 2,065 Pension expense 7 664 631 631 631 152 147 Total remuneration 4,185 4,464 2,064 6,864 2,147 2,212 665 147 812 3,465 147 3,612 Reconciliation to total remuneration as defined by section 285 no. 9a, section 314 (1) no. 6a HGB in conjunction with GAS 17 Minus the one-year variable remuneration granted – 800 – 800 – 400 – 400 Plus the expected one-year variable remuneration (allocation) 664 663 Minus the pension expense – 664 – 631 332 331 – 152 – 147 Plus the adjustment of the one-year variable remuneration for the previous year Total remuneration as defined by section 285 no. 9a, section 314 (1) no. 6a HGB in conjunction with GAS 17 77 170 1 1 3,462 3,866 1,928 1,997 1 Non-performance related, non-cash remuneration and other benefits include expenses and / or benefits in kind, such as the use of a company car and housing costs. The amounts for Ms Groth and Ms Schneeberger also contain a one-off compensation payment in 2018 (€314 thousand for Ms Groth, €328 thousand for Ms Schneeberger) 2 The amount shown for Mr Quek includes a flat-rate allowance of 58 per cent (2017: 55 per cent) as part of a tax equalisation agreement 3 The figure shown for one-year variable remuneration is based on a target achievement rate of 100 per cent (minimum: 0 per cent for target achievement of 70 per cent or less, maximum: 200 per cent for target achievement of 130 per cent or more) 4 Fair value on the date of grant 5 The amount shown for Mr Quek includes a flat-rate allowance of 53 per cent (2017: 55 per cent) as part of a tax equalisation agreement 6 All of Dr Toepfer’s entitlements under the performance share plan have expired because he left the Company on 31 March 2018 7 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 036) KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Remuneration report 125 Benefits granted in 2018 TABLE 033 € thousand Non-perfor- mance- related components Fixed remuneration Non-cash remuneration and other benefits 1 Total Short-term incentive One-year variable remuneration 2 , 3 Performance- related components Share-based long-term incentive Multiple-year variable remuneration 4, 5, 6 Performance share plan (1 Jan 2017 – 31 Dec 2019) Performance share plan (1 Jan 2018 – 31 Dec 2020) Total Pension expense 7 Total remuneration Anke Groth Ching Pong Quek CFO of KION GROUP AG from 1 June 2018 Chief Asia Pacific Officer of KION GROUP AG 2017 2018 2018 (min.) 2018 (max.) 2017 2018 2018 (min.) 2018 (max.) – – – – – – – – – – 467 467 467 633 749 749 749 320 787 292 861 320 787 320 787 118 751 136 885 136 885 136 885 0 0 583 515 525 1,722 1,287 1,270 0 0 1,049 2,540 1,287 861 0 1,722 1,270 0 2,540 1,939 787 3,092 2,552 2,679 124 120 885 120 4,474 120 1,939 787 3,092 2,675 2,800 1,005 4,594 Reconciliation to total remuneration as defined by section 285 no. 9a, section 314 (1) no. 6a HGB in conjunction with GAS 17 Minus the one-year variable remuneration granted Plus the expected one-year variable remuneration (allocation) Minus the pension expense Plus the adjustment of the one-year variable remuneration for the previous year Total remuneration as defined by section 285 no. 9a, section 314 (1) no. 6a HGB in conjunction with GAS 17 – 292 242 – – – – – 515 – 525 427 435 – 124 – 120 – 9 40 – 1,889 2,456 2,630 1 Non-performance related, non-cash remuneration and other benefits include expenses and / or benefits in kind, such as the use of a company car and housing costs. The amounts for Ms Groth and Ms Schneeberger also contain a one-off compensation payment in 2018 (€314 thousand for Ms Groth, €328 thousand for Ms Schneeberger) 2 The amount shown for Mr Quek includes a flat-rate allowance of 58 per cent (2017: 55 per cent) as part of a tax equalisation agreement 3 The figure shown for one-year variable remuneration is based on a target achievement rate of 100 per cent (minimum: 0 per cent for target achievement of 70 per cent or less, maximum: 200 per cent for target achievement of 130 per cent or more) 4 Fair value on the date of grant 5 The amount shown for Mr Quek includes a flat-rate allowance of 53 per cent (2017: 55 per cent) as part of a tax equalisation agreement 6 All of Dr Toepfer’s entitlements under the performance share plan have expired because he left the Company on 31 March 2018 7 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 036) KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Remuneration report 126 Benefits granted in 2018 TABLE 033 € thousand Non-perfor- mance- related components Fixed remuneration Non-cash remuneration and other benefits 1 Total Short-term incentive One-year variable remuneration 2 , 3 Performance- related components Share-based long-term incentive Multiple-year variable remuneration 4, 5, 6 Performance share plan (1 Jan 2017 – 31 Dec 2019) Performance share plan (1 Jan 2018 – 31 Dec 2020) Total Pension expense 7 Total remuneration Susanna Schneeberger Dr Thomas Toepfer CDO of KION GROUP AG from 1 October 2018 CFO of KION GROUP AG until 31 March 2018 2017 2018 2018 (min.) 2018 (max.) 2017 2018 2018 (min.) 2018 (max.) – – – – – – – – – – 163 163 163 650 200 200 200 332 494 100 750 332 494 332 494 27 677 5 5 205 205 0 0 200 450 125 1,500 0 0 0 0 5 205 250 0 750 0 1,500 1,344 494 2,194 1,127 145 1,344 494 2,194 1,272 330 59 389 205 59 264 455 59 514 Reconciliation to total remuneration as defined by section 285 no. 9a, section 314 (1) no. 6a HGB in conjunction with GAS 17 Minus the one-year variable remuneration granted Plus the expected one-year variable remuneration (allocation) Minus the pension expense Plus the adjustment of the one-year variable remuneration for the previous year Total remuneration as defined by section 285 no. 9a, section 314 (1) no. 6a HGB in conjunction with GAS 17 – 100 83 – – – – – 450 – 125 374 – 145 104 – 59 44 2 – 1,327 1,095 311 1 Non-performance related, non-cash remuneration and other benefits include expenses and / or benefits in kind, such as the use of a company car and housing costs. The amounts for Ms Groth and Ms Schneeberger also contain a one-off compensation payment in 2018 (€314 thousand for Ms Groth, €328 thousand for Ms Schneeberger) 2 The amount shown for Mr Quek includes a flat-rate allowance of 58 per cent (2017: 55 per cent) as part of a tax equalisation agreement 3 The figure shown for one-year variable remuneration is based on a target achievement rate of 100 per cent (minimum: 0 per cent for target achievement of 70 per cent or less, maximum: 200 per cent for target achievement of 130 per cent or more) 4 Fair value on the date of grant 5 The amount shown for Mr Quek includes a flat-rate allowance of 53 per cent (2017: 55 per cent) as part of a tax equalisation agreement 6 All of Dr Toepfer’s entitlements under the performance share plan have expired because he left the Company on 31 March 2018 7 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 036) KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Remuneration report 127 2) Allocation pursuant to the DCGK minus 30 per cent of the variable remuneration. Because The total remuneration allocated to / earned by Executive Board Ms Groth and Ms Schneeberger were appointed to the Executive members for 2018 was €9,381 thousand (2017: €15,426 thou- Board part way through the year, their performance multiples sand). Of this amount, €3,628 thousand (2017: €2,958 thousand) were set at 1.0 for 2018, i.e. there was no individual adjustment. was attributable to fixed non-performance-related remuneration The same applies to Dr Toepfer’s pro-rata entitlement for 2018; a components, €3,955 thousand (2017: €11,197 thousand) to var- performance multiple of 1.0 was also set for him because he left iable one-year and multiple-year performance-related remu- the Company during the year. neration components, €841 thousand (2017: €186 thousand) to For the multiple-year variable remuneration, a payment from non-performance-related non-cash remuneration and other the 2016 tranche of the performance share plan will be made in non-performance-related benefits and €957 thousand (2017: spring 2019 on the basis of the achievement of the long-term €1,084 thousand) to the pension expense in accordance with targets that were defined in 2016 at the start of the performance IFRS. The figure shown for one-year variable remuneration is period. The value shown for 2018 is also calculated on the basis derived from a preliminary total target achievement rate of of a preliminary total target achievement rate of about 47 per cent about 95 per cent based on the budgeted figure. This target and is subject to the performance-based adjustment made achievement rate was calculated using preliminary earnings by the Supervisory Board (using a discretionary performance figures at the beginning of 2019 and equates to a payout of multiple) for individual Executive Board members. Under the around 83 per cent of the target value for one-year variable terms of the plan at the grant date, this performance-based remuneration. This preliminary variable remuneration for each adjustment may vary by plus or minus 20 per cent. Executive Board member is also subject to adjustment by the The additional benefits were measured at the value calcu- Supervisory Board in line with the individual performance of the lated for tax purposes. > TABLE 034 Executive Board member. This adjustment may vary by plus or KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 128 Allocation in 2018 TABLE 034 € thousand Non-perfor- mance- related components Fixed remuneration Non-cash remuneration and other benefits 1 Total Short-term incentive One-year variable remuneration 2 Performance- related components Share-based long-term incentive Multiple-year variable remuneration Performance share plan 3 (1 Jan 2015 – 31 Dec 2017) Performance share plan (1 Jan 2016 – 31 Dec 2018) Total Pension expense 4 Total remuneration Gordon Riske Dr Eike Böhm CEO of KION GROUP AG CTO of KION GROUP AG 2017 1,100 21 1,121 834 3,000 3,000 4,955 664 5,618 2018 1,400 34 1,434 663 835 835 2,931 631 3,562 2017 575 20 595 333 1,611 1,611 2,539 152 2,692 2018 650 15 665 331 557 557 1,553 147 1,700 1 Non-performance related, non-cash remuneration and other benefits include expenses and / or benefits in kind, such as the use of a company car and housing costs. The amounts for Ms Groth and Ms Schneeberger also contain a one-off compensation payment in 2018 (€314 thousand for Ms Groth, €328 thousand for Ms Schneeberger) 2 The figure shown for one-year variable remuneration for 2017 is the actual amount paid out, which differs from the estimated value listed in the 2017 consolidated financial statements. The discretionary performance multiple for Ms Groth, Ms Schneeberger and Dr Toepfer has already been set at 1.0 for 2018 3 The figure shown for multiple-year variable remuneration is the actual amount paid out, which, in Mr Quek’s case, differs from the estimated value listed in the 2017 consolidated financial statements 4 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 036) KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Remuneration report 129 Allocation in 2018 TABLE 034 € thousand Non-perfor- mance- related components Fixed remuneration Non-cash remuneration and other benefits 1 Total Short-term incentive One-year variable remuneration 2 Performance- related components Share-based long-term incentive Multiple-year variable remuneration Performance share plan 3 (1 Jan 2015 – 31 Dec 2017) Performance share plan (1 Jan 2016 – 31 Dec 2018) Total Pension expense 4 Total remuneration Anke Groth Ching Pong Quek CFO of KION GROUP AG from 1 June 2018 Chief Asia Pacific Officer of KION GROUP AG 2017 – – – – – – – – – – 2018 467 320 787 242 0 1,028 1,028 2017 633 118 751 467 2,577 2,577 3,795 124 3,918 2018 749 136 885 435 707 707 2,026 120 2,147 1 Non-performance related, non-cash remuneration and other benefits include expenses and / or benefits in kind, such as the use of a company car and housing costs. The amounts for Ms Groth and Ms Schneeberger also contain a one-off compensation payment in 2018 (€314 thousand for Ms Groth, €328 thousand for Ms Schneeberger) 2 The figure shown for one-year variable remuneration for 2017 is the actual amount paid out, which differs from the estimated value listed in the 2017 consolidated financial statements. The discretionary performance multiple for Ms Groth, Ms Schneeberger and Dr Toepfer has already been set at 1.0 for 2018 3 The figure shown for multiple-year variable remuneration is the actual amount paid out, which, in Mr Quek’s case, differs from the estimated value listed in the 2017 consolidated financial statements 4 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 036) KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Remuneration report 130 Allocation in 2018 TABLE 034 € thousand Non-perfor- mance- related components Fixed remuneration Non-cash remuneration and other benefits 1 Total Short-term incentive One-year variable remuneration 2 Performance- related components Share-based long-term incentive Multiple-year variable remuneration Performance share plan 3 (1 Jan 2015 – 31 Dec 2017) Performance share plan (1 Jan 2016 – 31 Dec 2018) Total Pension expense 4 Total remuneration Susanna Schneeberger Dr Thomas Toepfer CDO of KION GROUP AG from 1 October 2018 CFO of KION GROUP AG until 31 March 2018 2017 – – – – – – – – – – 2018 163 332 494 83 0 577 577 2017 650 27 677 375 2,000 2,000 3,053 145 3,197 2018 200 5 205 104 0 309 59 368 1 Non-performance related, non-cash remuneration and other benefits include expenses and / or benefits in kind, such as the use of a company car and housing costs. The amounts for Ms Groth and Ms Schneeberger also contain a one-off compensation payment in 2018 (€314 thousand for Ms Groth, €328 thousand for Ms Schneeberger) 2 The figure shown for one-year variable remuneration for 2017 is the actual amount paid out, which differs from the estimated value listed in the 2017 consolidated financial statements. The discretionary performance multiple for Ms Groth, Ms Schneeberger and Dr Toepfer has already been set at 1.0 for 2018 3 The figure shown for multiple-year variable remuneration is the actual amount paid out, which, in Mr Quek’s case, differs from the estimated value listed in the 2017 consolidated financial statements 4 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 036) KION GROUP AGAnnual Report 2018 COMBINED MANAGEMENT REPORT Remuneration report 131 The table below shows the pension contributions (additions to the plan) attributable to each individual Executive Board member and their separate present values in accordance with IFRS and HGB > TABLES 035 – 036. Pension entitlements under IFRS TABLE 035 € thousand Gordon Riske Dr Eike Böhm Anke Groth Ching Pong Quek Susanna Schneeberger Dr Thomas Toepfer 1 Service cost 2018 Service cost 2017 Present value (DBO) 31 Dec 2018 Present value (DBO) 31 Dec 2017 631 147 120 59 664 152 124 145 6,897 502 148 670 38 6,491 364 557 864 1 Left the Company on 31 March 2018; the present value (DBO) as at 31 December 2018 was recognised under provisions for defined benefit obligations to former members of the Executive Board or their surviving dependants in accordance with IAS 19 Pension entitlements under HGB TABLE 036 € thousand Gordon Riske Dr Eike Böhm Anke Groth Ching Pong Quek Susanna Schneeberger Dr Thomas Toepfer 1 Service cost 2018 Service cost 2017 Present value (DBO) 31 Dec 2018 Present value (DBO) 31 Dec 2017 482 134 129 65 460 133 98 156 5,714 469 129 615 32 4,872 326 505 738 1 Left the Company on 31 March 2018; the present value (DBO) as at 31 December 2018 was recognised under provisions for defined benefit obligations to former members of the Executive Board or their surviving dependants in accordance with IAS 19 The total remuneration paid to former members of the Executive In the year under review, no advances were made to mem- Board in 2018 amounted to €258 thousand (2017: €254 thou- bers of the Executive Board, and there were no loans. sand). Provisions for defined benefit obligations to former mem- bers of the Executive Board or their surviving dependants amounting to €10,463 thousand (2017: €9,765 thousand) were recognised in accordance with IAS 19. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 132 SUPERVISORY BOARD REMUNERATION Remuneration system The members of the Supervisory Board receive an attend- ance fee of €1,500 per day for meetings of the Supervisory Board and its committees, although they only receive this amount once if they attend more than one meeting on the same day. The Company reimburses each member for any VAT incurred in connection with his or her remuneration. A D&O insurance policy without an excess has been taken The Supervisory Board’s remuneration is defined in article 18 of out for the members of the Supervisory Board. KION GROUP AG’s articles of association. Members of the Supervisory Board receive fixed remuneration plus reimburse- ment of out-of-pocket expenses. The fixed annual remuneration of an ordinary member amounts to €55,000. The chairman of the Remuneration paid to members of the Supervisory Board in 2018 Supervisory Board receives three times the amount of an ordi- nary member, i.e. €165,000, and his deputy receives two times The total remuneration paid to the Supervisory Board in 2018 the amount of an ordinary member, i.e. €110,000. was €1,455 thousand (2017: €1,386 thousand). Of this amount, Additional remuneration is paid for being a member or chair- €1,050 thousand (2017: €955 thousand) was attributable to man of a committee, although this does not apply in the case of remuneration for activities carried out by the Supervisory Board. the Nomination Committee or the Mediation Committee pursuant The remuneration paid for committee work (including attendance to section 27 (3) of the German Codetermination Act (MitbestG). fees) totalled €406 thousand (2017: €432 thousand). The follow- The annual remuneration for members of a committee is usually ing table shows the breakdown of remuneration paid to each €8,000, while the chairman of a committee receives double this Supervisory Board member for 2018: > TABLE 037 amount. However, ordinary members of the Audit Committee receive €15,000, the chairman of the Audit Committee €45,000 and his deputy €30,000 in view of their greater responsibilities and thus the greater amount of their time taken up. If a member of the Supervisory Board or one of its commit- tees does not hold their position for a full financial year, remuner- ation is reduced pro rata. KION GROUP AGAnnual Report 2018COMBINED MANAGEMENT REPORT Remuneration report 133 Remuneration of the Supervisory Board of KION GROUP AG in 2018 (net) TABLE 037 Dr Feldmann, John Behrendt, Birgit Dr Dibelius, Alexander Jiang, Kui * Dr Reuter, Christina Ring, Hans Peter Tan, Xuguang * (until 30 Sep 2018) Dr Macht, Michael (from 9 Oct 2018) Xu, Ping * Pancarci, Özcan Casper, Stefan Kunz, Olaf Heljic, Denis (until 9 May 2018) Fahrendorf, Martin (from 10 May 2018) Schädler, Alexandra Wenzel, Claudia Dr Schepp, Frank Milla, Jörg Total Fixed remuneration Committee remu- neration (fixed) Attendance fee Total €165,000.00 €31,000.00 €21,000.00 €217,000.00 €55,000.00 €55,000.00 €55,000.00 €55,000.00 €9,000.00 €64,000.00 €8,000.00 €8,000.00 €13,500.00 €76,500.00 €13,500.00 €76,500.00 €7,500.00 €62,500.00 €55,000.00 €53,000.00 €19,500.00 €127,500.00 €41,250.00 €13,750.00 €55,000.00 €6,000.00 €1,500.00 €7,500.00 €47,250.00 €15,250.00 €62,500.00 €110,000.00 €8,000.00 €18,000.00 €136,000.00 €55,000.00 €55,000.00 €22,916.67 €36,666.67 €8,000.00 €3,333.33 €10,500.00 €65,500.00 €16,500.00 €79,500.00 €3,000.00 €9,000.00 €29,250.00 €45,666.67 €55,000.00 €30,000.00 €19,500.00 €104,500.00 €55,000.00 €55,000.00 €8,000.00 €18,000.00 €81,000.00 €12,000.00 €67,000.00 €55,000.00 €20,333.33 €22,500.00 €97,833.33 €1,049,583.33 €177,666.67 €228,000.00 €1,455,250.00 * Withholding tax (pursuant to section 50a of the German Income Tax Act (EStG)) incl. the reunification surcharge was also paid over in the following amounts: €70,037.47 €3,704.46 €12,502.62 €86,244.55 In 2018, no company in the KION Group paid or granted any remuneration or other benefits to members of the Supervisory Board for services provided as individuals, such as consulting or brokerage activities. Nor were any advances or loans granted to members of the Supervisory Board. KION GROUP AGAnnual Report 2018CONSOLIDATED FINANCIAL STATEMENTS Contents 135 CONSOLIDATED FINANCIAL STATEMENTS 136 CONSOLIDATED INCOME STATEMENT 137 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 138 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 140 CONSOLIDATED STATEMENT OF CASH FLOWS 142 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 144 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 144 170 182 217 Basis of presentation Notes to the consolidated income statement Notes to the consolidated statement of financial position Other disclosures 256 INDEPENDENT AUDITORS’ REPORT 264 RESPONSIBILITY STATEMENT KION GROUP AGAnnual Report 2018CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement Consolidated income statement Consolidated income statement in € million Revenue Cost of sales Gross profit Selling expenses Research and development costs Administrative expenses Other income Other expenses Profit (loss) from equity-accounted investments Earnings before interest and taxes Financial income Financial expenses Net financial expenses Earnings before taxes Income taxes Current taxes Deferred taxes Net income Attributable to shareholders of KION GROUP AG Attributable to non-controlling interests Earnings per share (in €) Basic earnings per share Diluted earnings per share * Consolidated income statement for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 Note [7] 2018 7,995.7 – 5,898.1 2,097.6 [8] [9] [10] [11] [12] [13] [15] – 885.5 – 137.7 – 467.1 86.5 – 63.3 12.2 642.8 99.9 – 197.3 – 97.4 545.3 – 143.7 – 166.5 22.9 401.6 399.9 1.8 3.39 3.39 136 TABLE 038 2017 * 7,598.1 – 5,643.3 1,954.8 – 827.5 – 137.0 – 447.6 75.8 – 71.1 13.6 561.0 132.8 – 229.2 – 96.3 464.7 – 42.2 – 184.9 142.7 422.5 420.9 1.6 3.68 3.68 KION GROUP AGAnnual Report 2018136 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of comprehensive income Consolidated statement of comprehensive income Consolidated statement of comprehensive income in € million Net income Items that will not be reclassified subsequently to profit or loss Gains / losses on defined benefit obligation thereof changes in unrealised gains and losses thereof tax effect Changes in unrealised gains / losses on financial investments Changes in unrealised gains and losses from equity-accounted investments Items that may be reclassified subsequently to profit or loss Impact of exchange differences thereof changes in unrealised gains and losses thereof realised gains (–) and losses (+) Gains / losses on hedge reserves thereof changes in unrealised gains and losses thereof realised gains (–) and losses (+) thereof tax effect Gains / losses on available-for-sale financial instruments thereof changes in unrealised gains and losses thereof tax effect Note [28] [22] [41] [22] Changes in unrealised gains / losses from equity-accounted investments Other comprehensive income (loss) Total comprehensive income Attributable to shareholders of KION GROUP AG Attributable to non-controlling interests * Consolidated statement of comprehensive income for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 137 TABLE 039 2017 * 422.5 19.7 18.7 26.7 – 8.0 0.0 1.0 – 302.2 – 314.9 – 314.9 0.0 3.7 11.6 – 5.5 – 2.4 8.4 8.5 – 0.1 0.6 2018 401.6 – 6.8 – 0.2 – 3.9 3.7 – 6.4 – 0.1 23.6 35.5 35.9 – 0.3 – 12.2 – 16.0 – 1.3 5.1 0.0 0.0 0.0 0.3 16.8 – 282.5 418.4 416.9 1.5 140.0 138.9 1.1 KION GROUP AGAnnual Report 2018CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position 138 Consolidated statement of financial position Consolidated statement of financial position – Assets TABLE 040 in € million Goodwill Other intangible assets Leased assets Rental assets Other property, plant and equipment Equity-accounted investments Lease receivables Other financial assets Other assets Deferred taxes Non-current assets Inventories Lease receivables Contract assets Trade receivables Income tax receivables Other financial assets Other assets Cash and cash equivalents Current assets Note 31/12/2018 31/12/2017 * 01/01/2017 * [16] [16] [17] [18] [19] [20] [21] [22] [23] [13] [24] [21] [33] [25] [13] [22] [23] [26] 3,424.8 2,296.8 1,261.8 670.5 1,077.8 82.3 826.2 29.8 58.9 421.7 10,150.6 994.8 271.2 119.3 1,036.4 31.5 83.4 106.2 175.3 3,382.5 2,333.9 1,246.3 608.4 994.9 80.3 647.8 57.1 24.2 475.2 9,850.6 768.6 228.0 100.3 999.4 14.4 119.0 84.3 173.2 2,818.2 2,487.1 3,572.9 2,602.7 1,143.9 543.0 919.1 72.7 531.3 47.5 12.3 514.8 9,960.1 672.4 200.3 117.4 895.9 35.2 82.0 86.2 279.6 2,368.9 Total assets 12,968.8 12,337.7 12,329.0 * Consolidated statement of financial position for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018138 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position 139 Consolidated statement of financial position – Equity and liabilities TABLE 041 in € million Subscribed capital Capital reserve Retained earnings Accumulated other comprehensive loss * Non-controlling interests Equity Retirement benefit obligation Non-current financial liabilities Liabilities from financial services Lease liabilities Other non-current provisions Other financial liabilities Other liabilities Deferred taxes Non-current liabilities Current financial liabilities Liabilities from financial services Lease liabilities Contract liabilities Trade payables Income tax liabilities Other current provisions Other financial liabilities Other liabilities Current liabilities Note 31/12/2018 31/12/2017 * 01/01/2017 * 117.9 3,033.1 662.1 – 511.4 3.3 3,305.1 1,043.0 1,818.7 924.4 489.3 98.9 524.6 473.5 626.7 117.9 3,034.0 364.4 – 528.4 4.4 2,992.3 1,002.7 2,024.8 261.0 798.2 95.6 663.6 585.4 702.4 108.6 2,444.4 30.5 – 246.4 5.7 2,342.8 991.0 2,889.1 258.3 722.0 92.3 549.8 551.2 909.6 5,999.1 6,133.7 6,963.2 226.5 548.0 251.3 570.1 904.2 74.4 127.2 288.6 674.2 243.9 176.4 332.9 324.4 923.9 82.6 149.0 298.6 679.9 293.9 91.4 285.2 376.4 802.2 63.0 163.4 287.6 659.9 3,664.6 3,211.7 3,023.0 [27] [28] [29] [30] [31] [32] [35] [36] [13] [29] [30] [31] [33] [34] [13] [32] [35] [36] Total equity and liabilities 12,968.8 12,337.7 12,329.0 * Consolidated statement of financial position for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flows Consolidated statement of cash flows Consolidated statement of cash flows in € million Earnings before interest and taxes Note Amortisation, depreciation and impairment charges of non-current assets [14] Non-cash reversals of deferred revenues from leases Other non-cash income (–) / expenses (+) Gains (–) / losses (+) on disposal of non-current assets [8], [9] 2018 642.8 897.9 – 238.7 29.2 – 1.2 140 TABLE 042 2017 * 561.0 896.6 – 256.0 24.6 – 0.2 Change in net working capital ** [24], [25], [33], [34] Change in leased assets (excluding depreciation) and receivables / liabilities from leasing business Change in rental assets (excluding depreciation) and liabilities from rental business Cash payments for defined benefit obligations Change in other provisions Change in other operating assets / liabilities Taxes paid Cash flow from operating activities Cash payments for purchase of non-current assets Cash receipts from disposal of non-current assets Dividends received Acquisition of subsidiaries / other businesses (net of cash acquired) Cash receipts / payments for sundry assets Cash flow from investing activities [17], [21], [31] – 137.5 – 74.7 [18], [35] – 188.5 [28] [32] [38] [38] [38] – 54.3 – 37.3 – 19.0 65.4 – 193.2 765.5 5.1 14.2 – 1.6 – 4.7 [38] – 245.6 – 196.3 – 113.2 – 28.2 – 4.0 38.5 – 136.3 711.9 4.0 9.3 – 13.3 – 19.3 – 237.6 – 258.5 – 218.3 KION GROUP AGAnnual Report 2018140 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flows Consolidated statement of cash flows (continued) in € million Capital contribution from shareholders for the carried out capital increase Capital increase from issuing of employee shares Acquisition of treasury shares Dividend of KION GROUP AG Dividends paid to non-controlling interests Cash receipts / payments for changes in ownership interests in subsidiaries without change of control Financing costs paid Proceeds from borrowings Repayment of borrowings Interest received Interest paid Interest and principal portion from procurement leases Cash receipts / payments from other financing activities Cash flow from financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year * Consolidated statement of cash flows for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 ** Net Working Capital comprises inventories, contract assets, trade receivables less contract liabilities and trade payables 141 TABLE 042 2017 * 598.6 2.3 – 4.3 – 86.9 – 2.7 0.5 – 7.4 2,425.3 – 3,340.0 7.5 – 58.1 – 109.0 5.7 – 568.5 2018 0.0 1.7 – 3.6 – 116.8 – 2.8 0.6 – 5.0 1,811.7 – 2,042.6 2.5 – 42.9 – 114.0 – 3.4 – 514.5 – 3.2 – 12.2 2.2 – 106.4 173.2 175.3 279.6 173.2 Note [38] [27] [38] [38] [38] [38] [38] [38] [38] KION GROUP AGAnnual Report 2018CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity 142 Consolidated statement of changes in equity Consolidated statement of changes in equity * in € million Balance as at 01/01/2017 Effects from the initial application of IFRS 15 and IFRS 16 Balance as at 01/01/2017 (restated) Net income for the year Other comprehensive income (loss) Comprehensive income (loss) Dividend of KION GROUP AG Capital increase Transaction costs Dividends paid to non-controlling interests Acquisition of treasury shares Changes from employee share option programme Effects from the acquisition / disposal of non-controlling interests Balance as at 31/12/2017 Balance as at 01/01/2018 Effects from the initial application of IFRS 9, IFRS 15 and IFRS 16 Net income (loss) for the period Other comprehensive income (loss) Balance as at 01/01/2018 (restated) Net income for the year Other comprehensive income (loss) Comprehensive income (loss) Dividend of KION GROUP AG Dividends paid to non-controlling interests Acquisition of treasury shares Changes from employee share option programme Effects from the acquisition / disposal of non-controlling interests Balance as at 31/12/2018 Note Subscribed capital 108.6 Capital reserves 2,444.4 108.6 2,444.4 [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] 0.0 9.3 – 0.1 0.1 117.9 117.9 0.0 593.6 – 3.0 – 4.3 3.2 3,034.0 3,034.0 117.9 3,034.0 0.0 0.0 – 0.1 0.1 – 3.5 2.6 Retained earnings 183.4 – 152.9 30.5 420.9 420.9 – 86.9 364.4 521.3 – 138.3 – 3.9 379.0 399.9 399.9 – 116.8 117.9 3,033.1 662.1 – 218.9 – 283.5 – 10.4 1.9 – 0.4 3,301.7 Accumulated other comprehensive income (loss) Gains / losses Gains / losses attributable to Equity Cumulative on defined Gains / losses Gains / losses from equity- shareholders Non- translation adjustment benefit on hedge on financial accounted of KION controlling obligation reserves investments investments GROUP AG interests 59.7 – 302.0 59.7 – 302.0 – 314.4 – 314.4 18.7 18.7 – 2.2 – 2.2 1.6 1.6 – 1.9 – 1.9 3.7 3.7 1.8 1.8 – 0.0 – 0.0 8.4 8.4 8.4 8.4 8.4 – 6.4 – 6.4 – 254.7 – 283.3 – 0.6 2,987.9 – 255.1 – 283.3 – 0.6 3,144.4 0.4 – 254.7 35.8 35.8 – 283.3 1.8 – 0.6 3,002.5 – 0.2 – 0.2 – 12.2 – 12.2 0.2 0.2 TABLE 043 Total 2,495.7 – 152.9 2,342.8 422.5 – 282.5 140.0 – 86.9 602.9 – 3.0 – 2.7 – 4.3 3.3 0.2 2,992.3 3,148.8 – 138.3 – 3.9 0.4 3,006.9 401.6 16.8 418.4 – 116.8 – 2.8 – 3.6 2.7 0.2 3,305.1 – 0.5 – 2.7 5.7 0.0 5.7 1.6 1.1 0.0 0.0 0.0 0.0 0.0 0.2 4.4 4.4 0.0 0.0 0.0 4.4 1.8 – 0.3 1.5 0.0 – 2.8 0.0 0.0 0.2 3.3 2,490.0 – 152.9 2,337.1 420.9 – 282.0 138.9 – 86.9 602.9 – 3.0 0.0 – 4.3 3.3 0.0 – 138.3 – 3.9 0.4 399.9 17.0 416.9 – 116.8 0.0 – 3.6 2.7 0.0 * Consolidated statement of changes in equity was restated due to the initial application of IFRS 9, IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018142 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity Accumulated other comprehensive income (loss) Gains / losses on hedge reserves Gains / losses on financial investments Gains / losses from equity- accounted investments Equity attributable to shareholders of KION GROUP AG Non- controlling interests Cumulative translation adjustment Gains / losses on defined benefit obligation 59.7 – 302.0 59.7 – 302.0 – 314.4 – 314.4 18.7 18.7 – 1.9 – 1.9 3.7 3.7 – 0.0 – 0.0 8.4 8.4 8.4 8.4 8.4 – 6.4 – 6.4 – 2.2 – 2.2 1.6 1.6 2,490.0 – 152.9 2,337.1 420.9 – 282.0 138.9 – 86.9 602.9 – 3.0 0.0 – 4.3 3.3 0.0 – 0.6 2,987.9 – 0.6 3,144.4 – 138.3 – 3.9 0.4 – 0.6 3,002.5 0.2 0.2 399.9 17.0 416.9 – 116.8 0.0 – 3.6 2.7 0.0 5.7 0.0 5.7 1.6 – 0.5 1.1 0.0 0.0 0.0 – 2.7 0.0 0.0 0.2 4.4 4.4 0.0 0.0 0.0 4.4 1.8 – 0.3 1.5 0.0 – 2.8 0.0 0.0 0.2 3.3 – 254.7 – 283.3 – 255.1 – 283.3 1.8 1.8 0.4 – 254.7 35.8 35.8 – 283.3 1.8 – 0.2 – 0.2 – 12.2 – 12.2 * Consolidated statement of changes in equity was restated due to the initial application of IFRS 9, IFRS 15 and IFRS 16 117.9 3,033.1 662.1 – 218.9 – 283.5 – 10.4 1.9 – 0.4 3,301.7 Consolidated statement of changes in equity * in € million Balance as at 01/01/2017 Effects from the initial application of IFRS 15 and IFRS 16 Balance as at 01/01/2017 (restated) Net income for the year Other comprehensive income (loss) Comprehensive income (loss) Dividend of KION GROUP AG Capital increase Transaction costs Dividends paid to non-controlling interests Acquisition of treasury shares Changes from employee share option programme Effects from the acquisition / disposal of non-controlling interests Balance as at 31/12/2017 Balance as at 01/01/2018 Effects from the initial application of IFRS 9, IFRS 15 and IFRS 16 Net income (loss) for the period Other comprehensive income (loss) Balance as at 01/01/2018 (restated) Net income for the year Other comprehensive income (loss) Comprehensive income (loss) Dividend of KION GROUP AG Dividends paid to non-controlling interests Acquisition of treasury shares Changes from employee share option programme Effects from the acquisition / disposal of non-controlling interests Balance as at 31/12/2018 Note Subscribed capital 108.6 Capital reserves 2,444.4 108.6 2,444.4 [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] 0.0 9.3 – 0.1 0.1 117.9 117.9 0.0 593.6 – 3.0 – 4.3 3.2 3,034.0 3,034.0 117.9 3,034.0 0.0 0.0 – 0.1 0.1 – 3.5 2.6 Retained earnings 183.4 – 152.9 30.5 420.9 420.9 – 86.9 364.4 521.3 – 138.3 – 3.9 379.0 399.9 399.9 – 116.8 143 TABLE 043 Total 2,495.7 – 152.9 2,342.8 422.5 – 282.5 140.0 – 86.9 602.9 – 3.0 – 2.7 – 4.3 3.3 0.2 2,992.3 3,148.8 – 138.3 – 3.9 0.4 3,006.9 401.6 16.8 418.4 – 116.8 – 2.8 – 3.6 2.7 0.2 3,305.1 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 144 Notes to the consolidated financial statements Basis of presentation [1] GENERAL INFORMATION ON [2] BASIS OF PREPARATION THE COMPANY The consolidated financial statements of the KION Group for the By resolution of the Annual General Meeting dated 9 May 2018, financial year ended 31 December 2018 have been prepared in KION GROUP AG’s registered office was moved to Thea-Rasche- accordance with section 315e of the German Commercial Code Strasse 8, 60549 Frankfurt am Main, Germany. The relocation (HGB) in conjunction with the International Financial Reporting became legally effective when it was entered in the commercial Standards (IFRSs) of the International Accounting Standards Board register at the Frankfurt am Main local court under reference HRB (IASB) applicable as at the reporting date as well as the associated 112163 on 20 June 2018. interpretations (IFRICs) of the IFRS Interpretations Committee (IFRS Shandong Heavy Industry Group Co., Ltd., Jinan, People’s IC) as adopted by the European Union in accordance with Regula- Republic of China, is the company that prepares the global tion (EC) No. 1606/2002 of the European Parliament and of the consolidated financial statements for the largest number of Council concerning the application of international accounting affiliated companies. These consolidated financial statements standards. All of the IFRSs and IFRICs that had been enacted by the are not publicly available. reporting date and that were required to be applied in the 2018 finan- Weichai Power Co., Ltd., Weifang, People’s Republic of cial year have been applied in preparing the consolidated financial China, is the company that prepares the global consolidated statements. Furthermore, IFRS 16 ‘Leases’, which is required to be financial statements for the smallest number of affiliated com- applied for financial years commencing on or after 1 January 2019, panies. These are available in English on the websites of the Hong was adopted early with effect from 1 January 2018 because of its Kong Stock Exchange (www.hkexnews.hk) and the company interactions with IFRS 15 ‘Revenue from Contracts with Customers’. (www.weichaipower.com). In order to improve the clarity of presentation, certain items The KION Group is one of the world’s leading suppliers of are aggregated in the statement of financial position and the integrated supply chain solutions. In 2018, the Group and its income statement. The items concerned are disclosed and highly skilled employees generated revenue of €7,995.7 million explained separately in the notes. Assets and liabilities are broken (2017: €7,598.1 million). down into current and non-current items in accordance with IAS The consolidated financial statements and the combined 1.60. The consolidated income statement is prepared in accord- group management report and management report of the Com- ance with the cost of sales (function-of-expense) method. pany were prepared by the Executive Board of KION GROUP AG The consolidated financial statements are prepared in euros, on 20 February 2019. which is the Group’s presentation currency. All amounts are dis- closed in millions of euros (€ million) unless stated otherwise. Due to rounding effects, addition of the individual amounts shown may result in minor rounding differences to the totals. The percent- ages shown are calculated on the basis of the respective amounts, rounded to the nearest thousand euros. All of the sep- arate financial statements of the subsidiaries included in the con- solidation were prepared as at the same reporting date as the annual financial statements of KION GROUP AG. KION GROUP AGAnnual Report 2018144 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 145 Financial reporting standards to be adopted for the first time in the current financial year Financial reporting standards released but not yet adopted The following financial reporting standards were adopted for the In its consolidated financial statements for the year ended first time in 2018: – Amendments to IFRS 2 ‘Share-based Payment’: amend- ments relating to the classification and measurement of share-based payment transactions – Amendments to IFRS 4 ‘Insurance Contracts’: exempting provisions relating to the adoption of IFRS 9 ‘Financial Instru- ments’ before the effective date of the new version of IFRS 4 – IFRS 9 ‘Financial Instruments’ – IFRS 15 ‘Revenue from Contracts with Customers’ and the clarifications to IFRS 15 ‘Revenue from Contracts with Customers’: amendments relating to the identification of performance obligations, classification as principal or agent, revenue from licences and transition relief relation to transfers of property to, or from, investment property – IFRS 16 ‘Leases’ – Amendments to IAS 40 ‘Investment Property’: clarification in – IFRIC 22 ‘Foreign Currency Transactions and Advance – Amendments to IAS 28 ‘Investments in Associates and Consideration’ Joint Ventures’: amendments in connection with the annual improvements to IFRSs (2014 – 2016). The initial application of IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’ resulted in changes to the presentation of the financial perfor- mance and financial position and the notes to the financial 31 December 2018, the KION Group has not applied the following standards and interpretations, which have been issued by the IASB but were not yet required to be adopted in 2018: – Amendments to IFRS 3 ‘Business Combinations’: amend- ments relating to the definition of a business in order to distinguish it from a group of assets when applying IFRS 3 – Amendments to IFRS 9 ‘Financial Instruments’: amendments relating to the classification of particular prepayable financial assets – IFRS 17 ‘Insurance Contracts’ – Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in Accounting Esti- mates and Errors’: clarification of the definition of materiality – Amendments to IAS 19 ‘Employee Benefits’: amendments in connection with the remeasurement of net defined benefit liabilities resulting from plan amendments, curtailments or settlements – Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’: clarification relating to the accounting treatment of long-term interests that form part of the net investment in an entity accounted for under the equity method – IFRIC 23 ‘Uncertainty over Income Tax Treatments’ – Amendments to the Conceptual Framework: amendments to – Annual Improvements to IFRSs (2015 – 2017). how the Conceptual Framework is referenced in IFRSs statements of the KION Group. These changes are described in These standards and interpretations are expected to be applied detail in note [6]. The initial application of the other standards and by the entities included in the KION Group only from the date on interpretations has had no significant effects. which they must be adopted for the first time. The effects of the initial application of these financial reporting standards on the presentation of the financial position and financial performance of the KION Group are expected to be insignificant. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 146 [3] PRINCIPLES OF CONSOLIDATION Transactions with non-controlling interests are treated as transactions with the Group’s equity providers. Differences between the consideration paid for the acquisition of a non- controlling interest and the relevant proportion of the carrying Acquisitions are accounted for using the acquisition method. In amount of the subsidiary’s net assets are recognised in equity. accordance with IFRS 3, the identifiable assets and the liabilities Gains and losses arising from the disposal of interests are also assumed on the acquisition date are recognised separately recognised in equity, provided there is no change in control. from goodwill, irrespective of the extent of any non-controlling Associates and joint ventures that are of material impor- interests. The identifiable assets acquired and the liabilities tance to the presentation of the financial position and financial assumed are measured at their fair value. performance of the KION Group are accounted for using the The amount recognised as goodwill is calculated as the equity method. amount by which the acquisition cost, the amount of non-con- trolling interests in the acquiree and the fair value of all previously held equity interest at the acquisition date exceeds the fair value of the acquiree’s net assets. If the cost of acquisition is lower than the fair value of the acquiree’s net assets, the difference is recognised in profit or loss. [4] BASIS OF CONSOLIDATION For each acquisition, the Group decides on a case-by-case KION GROUP AG’s equity investments include subsidiaries, basis whether the non-controlling interest in the acquiree is joint ventures, associates and financial investments. recognised at fair value or as a proportion of the net assets of the In addition to KION GROUP AG, the consolidated financial acquiree. KION GROUP AG recognises non-controlling interests statements of the KION Group include, using the acquisition at the proportionate value of the net assets attributable to them method, all material subsidiaries over which KION GROUP AG excluding goodwill. exercises control. KION GROUP AG controls a subsidiary if it has In the case of business combinations in stages, previously decision-making power over the main activities of the entity and held equity interests are recognised at their fair value at the can use this power to affect the amount of the variable returns to acquisition date. The difference between their carrying amount which it is exposed as a result of the equity investment. Subsidi- and fair value is recognised in the consolidated income statement. aries acquired in the course of the financial year are consolidated For the purpose of impairment testing, goodwill is allocated from the date on which control is obtained. Companies sold in the to cash-generating units that are likely to benefit from the busi- course of the financial year are deconsolidated from the date on ness combination. which control is lost. Contingent consideration elements are included at fair value A joint venture is an equity interest in which the entity is jointly at the date of acquisition when determining the purchase consid- managed by companies in the KION Group and one or more eration. Contingent consideration elements may consist of equity partners on the basis of a contractual agreement, and these instruments or financial liabilities, depending on the structure. parties have rights to the net assets of the joint venture. The consolidated financial statements include all of the parent company’s material subsidiaries. Intragroup balances, transactions, income and expenses, and gains and losses on intercompany transactions are eliminated in full. Deferred taxes are recognised on temporary differences arising from consolidation transactions. KION GROUP AGAnnual Report 2018146 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 147 Associates are entities in which companies in the KION Group In addition, two joint ventures and seven associates were are able to exercise significant influence, either directly or indi- consolidated and accounted for using the equity method as at rectly, over the financial and operating policies of the entity con- 31 December 2018, which was the same number as at 31 Decem- cerned. Significant influence is assumed when KION GROUP AG ber 2017. In each case, the last available annual financial state- holds between 20 per cent and 50 per cent of the voting rights. ments were used as the basis for measurement. Equity interests over which KION GROUP companies are In 2018, 58 (2017: 56) companies of minor importance were unable to exercise control or a significant influence, or that are not recognised at amortised cost or at fair value through other com- jointly controlled by them, are classified as financial investments. prehensive income. The non-consolidated subsidiaries and other The number of equity investments broken down by category equity investments (joint ventures and associates that are not is shown in > TABLE 044. accounted for using the equity method, plus financial invest- A total of 26 (2017: 24) German and 108 (2017: 114) foreign ments) are of minor importance to the presentation of the financial subsidiaries were fully consolidated in addition to KION GROUP AG position and financial performance of the KION Group, both as at 31 December 2018. individually and as a whole. Shareholdings by categories TABLE 044 Consolidated subsidiaries Domestic Foreign Equity-accounted associates and joint ventures Domestic Foreign Non-consolidated subsidiaries and other investments Domestic Foreign * Including two cross-border changes of legal form 01/01/2018 Additions * Disposals * 31/12/2018 138 24 114 9 5 4 56 15 41 3 2 1 – – – 5 – 5 7 – 7 – – – 3 – 3 134 26 108 9 5 4 58 15 43 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 148 Where other requirements are met, the fully consolidated companies listed in > TABLE 045 are exempt from the obligation to disclose annual financial statements and to prepare notes to the financial statements and management reports in accordance [5] CURRENCY TRANSLATION with sections 264 (3) and 264b HGB on account of their inclusion Financial statements in foreign currencies are translated in in the consolidated financial statements. In the case of STILL accordance with the functional currency concept. The functional Financial Services GmbH, it has been decided solely not to currency is the currency of the primary economic environment in disclose the annual financial statements. which an entity operates. The modified closing-rate method is For the period ended 31 December 2018, the UK subsidiaries used for currency translation. listed in > TABLE 046 exercised the exemption in section 479A The assets and liabilities of foreign subsidiaries, including of the UK Companies Act 2006 that releases them from the goodwill, are translated at the middle spot exchange rate, i.e. at obligation to have their annual financial statements audited. the average of the bid or offer rates on the reporting date. Income These subsidiaries are all held indirectly by KION GROUP AG. and expenses are translated at the average rate. With the A detailed overview of all the direct and indirect sharehold- exception of income and expenses recognised as other compre- ings of KION GROUP AG is shown in the list of shareholdings hensive income (loss), equity is recognised at historical rates. The (note [48]). resulting translation differences are not taken to income and are German subsidiaries exempt from disclosure requirements Subsidiary BlackForxx GmbH Eisengießerei Dinklage GmbH Eisenwerk Weilbach GmbH Fahrzeugbau GmbH Geisa KION Financial Services GmbH KION Information Management Services GmbH KION Warehouse Systems GmbH Klaus Pahlke GmbH & Co. Fördertechnik KG Linde Material Handling GmbH LMH Immobilien GmbH & Co. KG LMH Immobilien Holding GmbH & Co. KG LR Intralogistik GmbH Schrader Industriefahrzeuge GmbH & Co. KG STILL Financial Services GmbH STILL Gesellschaft mit beschränkter Haftung Urban-Transporte Gesellschaft mit beschränkter Haftung TABLE 045 Head office Stuhr Dinklage Frankfurt am Main Geisa Frankfurt am Main Frankfurt am Main Reutlingen Haan Aschaffenburg Aschaffenburg Aschaffenburg Wörth an der Isar Essen Hamburg Hamburg Unterschleißheim KION GROUP AGAnnual Report 2018148 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation UK subsidiaries exempt from local audit Subsidiary Dematic (Services) Ltd. Linde Castle Ltd. Linde Holdings Ltd. Linde Jewsbury’s Ltd. Linde Material Handling East Ltd. Linde Material Handling Scotland Ltd. Linde Material Handling South East Ltd. Linde Severnside Ltd. STILL Materials Handling Ltd. Superlift UK Ltd. 149 TABLE 046 Head office Banbury Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Exeter Basingstoke recognised in other comprehensive income (loss) until sub- date, monetary items are translated at the closing rate and sidiaries are disposed of. non-monetary items at the rate prevailing on the transaction The financial statements of foreign equity-accounted invest- date. Currency translation differences are taken to income ments are also translated using the method described above. and recognised in other income / expenses or in net financial Transactions of the consolidated entities in foreign currencies income / expenses. are translated into the relevant company’s functional currency The translation rates used for currencies that are material at the rate prevailing on the transaction date. On the reporting to the financial statements are listed in > TABLE 047. Major foreign currency rates in € Australia (AUD) Brazil (BRL) China (CNY) United Kingdom (GBP) USA (USD) Source: Bloomberg Average rate Closing rate 2018 1.5801 4.3073 7.8066 0.8848 1.1809 2017 1.4734 3.6090 7.6292 0.8764 1.1300 2018 1.6268 4.4465 7.8669 0.8990 1.1467 TABLE 047 2017 1.5372 3.9785 7.8024 0.8881 1.2005 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 150 [6] ACCOUNTING POLICIES Initial application of IFRS 9, IFRS 15 and IFRS 16 or loss upon disposal of these financial assets (FVOCI). Assign- ment to a particular measurement category depends on the type of financial instrument, the resulting cash flows and the busi- ness model used to manage the financial instruments. For the majority of the KION Group’s financial instruments, the classification rules in IFRS 9 did not lead to any change to the respective measurement model. The KION Group assigns The KION Group adopted IFRS 9 ‘Financial Instruments’, IFRS 15 financial investments previously designated as available for ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’ sale (AfS) under IAS 39 on an instrument-by-instrument basis to in full and retrospectively for the first time with effect from 1 Jan- either the FVPL category or the FVOCI category. Financial invest- uary 2018. Only the amended rules on hedge accounting in ments held as at 1 January 2018 are recognised at fair value accordance with IFRS 9 are being applied prospectively. The through other comprehensive income without recycling to profit prior-year figures have not been restated for IFRS 9, whereas or loss upon disposal (FVOCI category). By contrast, equity for IFRS 15 and IFRS 16 the prior-year figures have been restated investments in non-consolidated subsidiaries or companies not in accordance with the transitional provisions applicable in accounted for under the equity method are now reported under each case. other non- current assets. As the cash flows of financial instru- The disclosures relating to the financial performance and ments in the other financial investments class that were previ- financial position of the KION Group, the consolidated income ously classified in accordance with IAS 39 as available for sale statement, the consolidated statement of comprehensive (AfS) or loans and receivables (LaR) do not solely consist of inter- income, the consolidated statement of financial position, the est and principal payments, these debt instruments are recog- consolidated statement of cash flows, the consolidated state- nised at fair value through profit or loss (FVPL) on the basis of the ment of changes in equity and the segment report take into cash flow characteristics test in IFRS 9. As at 1 January 2018, account the following effects and changes in presentation trade receivables of €18.6 million were recognised at fair value resulting from the initial application of new financial reporting through profit or loss (FVPL) on the basis of the business standards. With the exception of the aforementioned standards model test. applied for the first time, the accounting policies applied in these > TABLE 048 contains a reconciliation of the financial assets consolidated financial statements are fundamentally the same as from the categories in IAS 39 to the categories in IFRS 9 as at those used for the year ended 31 December 2017. The consoli- 1 January 2018. dated financial statements are based on the separate financial statements of the parent and the consolidated subsidiaries, which are prepared in accordance with uniform groupwide accounting policies. IFRS 9 ‘Financial Instruments’ In accordance with the new classification rules in IFRS 9, the KION Group assigns financial assets to one of three measure- ment categories: debt instruments measured at fair value through profit or loss (FVPL), debt instruments measured at amortised cost (AC) or equity instruments measured at fair value through other comprehensive income, without reclassification of gains and losses accumulated in other comprehensive income to profit KION GROUP AGAnnual Report 2018150 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation Reconciliation of financial assets from IAS 39 to IFRS 9 31/12/2017 Adjustments due to IFRS 9 01/01/2018 Classes and measurement categories according to IAS 39 in € million Investments in non- consolidated subsidiaries and other investments AfS Loans receivable LaR Financial receivables LaR Other financial investments AfS LaR Lease receivables in scope of IFRS 16 Trade receivables LaR Other financial receivables thereof non-derivative receivables LaR thereof derivative financial instruments FAHfT Hedge Accounting Cash and cash equivalents LaR Carrying amount according to IAS 39 Reclassi- fications Remeasure- ments Classes and measurement categories according to IFRS 9 36.0 – 24.3 FVOCI Financial investments 2.2 30.3 0.5 18.4 875.8 Financial receivables AC Financial receivables – 0.1 AC Other financial investments 2.4 FVPL Lease receivables in scope of IFRS 16 Trade receivables 999.4 – 18.6 14.8 AC FVPL Other financial receivables thereof non-derivative receivables 58.7 – 0.7 AC 22.2 7.8 173.2 thereof derivative financial instruments FVPL Hedge Accounting Cash and cash equivalents AC 151 TABLE 048 Carrying amount according to IFRS 9 11.8 2.2 30.3 21.3 875.8 995.6 18.6 58.0 22.2 7.8 173.2 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 152 Initial application of IFRS 9 also results in changes to the subse- For the vast majority of new business contracts, service quent measurement of financial assets. The KION Group applies business contracts and project business contracts, there has the simplified impairment model of IFRS 9 to all trade receivables, been no change in the point in time at which or the period of lease receivables and contract assets and thus recognises losses time over which the revenue is recognised. A shift in the timing expected over the entire term. As a consequence of applying the of revenue recognition was identified only for a small number of simplified impairment model of IFRS 9, valuation allowances for contracts and led to an overall increase in equity, after taking trade receivables fell by €14.8 million. > TABLE 049 deferred taxes into account, of €7.9 million as at 1 January 2017. Overall, the initial application of IFRS 9 resulted in an increase in IFRS 16 ‘Leases’ equity, after taking deferred taxes into account, of €14.6 million as at 1 January 2018. This transition effect was primarily due to the Indirect leasing business transactions, which were previously new impairment model based on expected losses. recognised as sales transactions, are now recognised as leases Initial application of IFRS 9 has no impact on the classifica- in accordance with IFRS 15 and IFRS 16. As a result, leased tion and measurement of KION Group’s financial liabilities. assets as at 31 December 2017 increased by €724.0 million All of the KION Group’s hedges in existence as at 1 Janu- (1 January 2017: €714.2 million). On the other side of the consoli- ary 2018 satisfy the hedge accounting requirements in IFRS 9 dated statement of financial position, there was a €541.5 million and continue to be highly effective. rise in deferred revenue (1 January 2017: €532.7 million), of which €349.7 million was classified as other non-current liabilities IFRS 15 ‘Revenue from Contracts with Customers’ (1 January 2017: €341.7 million) and €191.8 million as other current liabilities (1 January 2017: €191.1 million). Furthermore, the Following the adoption of IFRS 15, the contract assets previously change in the reporting of indirect leasing business resulted in recognised in trade receivables are for the first time reported additional residual value obligations of €340.7 million as at separately in the consolidated statement of financial position 31 December 2017 being recognised under liabilities from and amounted to €100.3 million as at 31 December 2017 financial services (1 January 2017: €335.9 million). As a result, (1 January 2017: €117.4 million). Contract liabilities, which were non-current liabilities from financial services went up by previously reported under other liabilities, also form a separate €262.4 million (1 January 2017: €258.8 million) and current liabili- line item; they amounted to €324.4 million as at 31 December ties from financial services by €78.3 million (1 January 2017: 2017 (1 January 2017: €376.4 million). The KION Group has €77.2 million). Liabilities from financial services have been used the exemption under which contracts fulfilled before reported as a separate line item for the first time and include 1 January 2017 do not have to be reassessed in accordance liabilities from financial services used to fund the long-term with IFRS 15. There were no further changes to the presenta- leasing business, which had previously been reported under tion of KION Group’s primary financial statements. Reconciliation of valuation allowances for trade receivables from IAS 39 to IFRS 9 TABLE 049 in € million Valuation allowances for trade receivables as at 31/12/2017 Remeasurement to equity for the initial application of IFRS 9 Valuation allowances for trade receivables as at 01/01/2018 51.1 – 14.8 36.3 KION GROUP AGAnnual Report 2018152 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 153 other current financial liabilities, of €85.7 million as at 31 Decem- months. Other property, plant and equipment rose by €318.0 mil- ber 2017 (1 January 2017: €8.3 million). lion as at 31 December 2017 (1 January 2017: €240.8 million). In accordance with IFRS 16, procurement leases that were Accordingly, other non-current financial liabilities increased by previously recognised as operating leases but not shown in the €267.8 million (1 January 2017: €207.0 million) and other current statement of financial position are recognised as right-of-use financial liabilities by €72.0 million (1 January 2017: €55.6 mil- assets under other property, plant and equipment; correspond- lion). Overall, the initial application of IFRS 16 to the KION Group’s ing liabilities from procurement leases are reported under leasing arrangements – which are the same as they were under other financial liabilities. The KION Group exercises the option to IAS 17 – led to a reduction in equity, after taking deferred taxes recognise as an expense right-of-use assets and liabilities from into account, of €160.8 million as at 1 January 2017. procurement leases for low-value procurement leases and for The quantitative effects are summarised in > TABLES 050 – 053. procurement leases that have a lease term of less than twelve Effects on the consolidated income statement 2017 in € million Revenue Cost of sales Gross profit Selling expenses Research and development costs Administrative expenses Other income Other expenses Profit from equity-accounted investments Earnings before interest and taxes Financial income Financial expenses Net financial expenses Earnings before taxes Income taxes Net income for the period Annual report 2017 Adjustments new IFRS 7,653.6 – 5,699.1 1,954.5 – 829.6 – 137.0 – 456.8 75.7 – 71.1 13.6 549.4 132.2 – 213.3 – 81.1 468.3 – 41.9 426.4 – 55.4 55.8 0.4 2.0 – 0.0 9.2 0.1 0.0 – 11.7 0.6 – 15.9 – 15.2 – 3.6 – 0.3 – 3.9 TABLE 050 2017 restated 7,598.1 – 5,643.3 1,954.8 – 827.5 – 137.0 – 447.5 75.7 – 71.1 13.6 561.0 132.8 – 229.2 – 96.3 464.7 – 42.2 422.5 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation Effects on the consolidated statement of financial position as at 01/01/2017 in € million Leased assets Rental assets Other property, plant and equipment Deferred taxes Other non-current assets Non-current assets Contract assets Trade receivables Other current assets Current assets Total assets Retained earnings Other equity Equity Liabilities from financial services Other financial liabilities Other liabilities Deferred taxes Other non-current liabilities Non-current liabilities Liabilities from financial services Contract liabilities Other financial liabilities Other liabilities Other current liabilities Current liabilities 154 TABLE 051 01/01/2017 restated 1,143.9 543.0 919.1 514.8 6,839.3 9,960.1 117.4 895.9 1,355.7 2,368.9 Annual report 2016 Adjustments new IFRS 429.7 575.3 678.3 419.8 6,839.3 8,942.4 – 998.9 1,355.7 2,354.6 714.2 – 32.3 240.8 95.0 – 0.0 1,017.7 117.4 – 103.1 – 14.3 11,297.0 1,032.0 12,329.0 183.4 2,312.3 2,495.7 – 349.3 202.8 882.5 4,694.4 6,128.9 – – 222.6 842.1 1,607.8 2,672.5 – 152.9 0.0 – 152.9 258.3 200.5 348.4 27.2 – 834.4 91.4 376.4 65.0 – 182.2 – 350.6 30.5 2,312.3 2,342.8 258.3 549.8 551.2 909.6 4,694.4 6,963.2 91.4 376.4 287.6 659.9 1,607.8 3,023.0 Total equity and liabilities 11,297.0 1,032.0 12,329.0 KION GROUP AGAnnual Report 2018154 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation Effects on the consolidated statement of financial position as at 31/12/2017 in € million Leased assets Rental assets Other property, plant and equipment Deferred taxes Other non-current assets Non-current assets Contract assets Trade receivables Other current assets Current assets Total assets Retained earnings Accumulated other comprehensive loss Other equity Equity Liabilities from financial services Other financial liabilities Other liabilities Deferred taxes Other non-current liabilities Non-current liabilities Liabilities from financial services Contract liabilities Other financial liabilities Other liabilities Other current liabilities Current liabilities 155 TABLE 052 31/12/2017 restated 1,246.3 608.4 994.9 475.2 6,525.8 9,850.6 100.3 999.4 1,387.4 2,487.1 Annual report 2017 Adjustments new IFRS 522.3 651.4 676.9 370.5 6,525.8 8,746.9 – 1,094.1 1,387.4 2,481.5 724.0 – 43.0 318.0 104.7 0.0 1,103.7 100.3 – 94.7 – 5.6 11,228.4 1,109.3 12,337.7 521.3 – 528.8 3,156.3 3,148.8 – 407.8 235.7 665.2 3,921.4 5,230.0 – – 296.7 820.7 1,732.2 2,849.6 – 156.9 0.4 0.0 – 156.5 261.0 255.8 349.7 37.2 – 903.7 176.4 324.4 1.9 – 140.7 – 362.1 364.4 – 528.4 3,156.3 2,992.3 261.0 663.6 585.4 702.4 3,921.4 6,133.7 176.4 324.4 298.6 679.9 1,732.2 3,211.7 Total equity and liabilities 11,228.4 1,109.3 12,337.7 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation Effects on the consolidated statement of cash flows 2017 in € million Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Annual report 2017 Adjustments new IFRS 615.8 – 237.6 – 472.5 – 12.2 – 106.4 279.6 173.2 96.0 0.0 – 96.0 0.0 0.0 0.0 0.0 156 TABLE 053 2017 restated 711.9 – 237.6 – 568.5 – 12.2 – 106.4 279.6 173.2 As a result of initial application of the new standards, EBIT and Due to the recognition of right-of-use assets, other property, adjusted EBIT (EBIT adjusted for non-recurring items and plant and equipment went up by €352.0 million to €390.7 million purchase price allocation effects) for 2017 both rose by €11.7 mil- as at 31 December 2018 and, as a result of the recognition of lion to reach €561.0 million and €777.3 million respectively. Of the liabilities from procurement leases, other financial liabilities net income of €422.5 million, a share of €420.9 million was increased by €382.5 million to €421.3 million. Furthermore, initial attributable to the shareholders of KION GROUP AG. As a result application of IFRS 16 caused cash flow from operating activities of applying the new standards for the first time, basic earnings to rise by €111.2 million to €765.5 million and thus free cash per share went down by €0.04 to €3.68 and diluted earnings per flow to rise by €111.2 million to €519.9 million in the consolidated share by €0.03 to €3.68. Furthermore, the retrospective adjust- statement of cash flows for 2018. ment of cash flow from operating activities shown in > TABLE 053 caused free cash flow to increase by €96.0 million to €474.3 mil- lion in the consolidated statement of cash flows for 2017. Revenue recognition Due to the initial application of IFRS 16, in 2018 rental and lease payments (€111.2 million) for procurement leases previously Revenue is the fair value of the consideration received for the sale accounted for off-balance as operating leases under IAS 17 were of goods and services and rental and lease income (excluding no longer recognised as expenses in the consolidated income VAT) after deduction of trade discounts and rebates. In addition to statement. Instead, depreciation on the recognised right-of-use the contractually agreed consideration, the transaction price assets (€97.0 million) and interest expense arising on the may also include variable elements such as rebates, volume recognition of liabilities from procurement leases (€14.5 million) discounts, trade discounts, bonuses and penalties. Revenue is were reported. As a result of this effect, EBIT and adjusted EBIT recognised when control over the goods or services passes to (EBIT adjusted for non-recurring items and purchase price the customer. Payment terms vary in accordance with the cus- allocation effects) for 2018 both rose by €14.5 million to reach tomary conditions in the respective countries; they are not stand- €642.8 million and €789.9 million respectively. ardised across the Group. Other criteria may arise, depending on each individual transaction, as described below: KION GROUP AGAnnual Report 2018156 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 157 Sale of goods entities in the KION Group immediately recognise the portion of the consideration received that exceeds the residual value obliga- Revenue from the sale of goods is recognised at the point in time tion as revenue. when the KION Group delivers goods to a customer, the risks and rewards incidental to the ownership of the goods sold are sub- Project business contracts stantially transferred to the customer and the flow of benefits to the Group is considered to be sufficiently probable. If a customer Receivables and revenue from the project business are rec- is expected to accept goods but has yet to do so, the corre- ognised over a particular period according to the stage of sponding revenue is only recognised when the goods are completion (percentage-of-completion method). The percentage accepted. In addition to the contractually agreed consideration, in of completion is the proportion of contract costs incurred up to the case of key-account customers the transaction price may the reporting date compared to the total estimated contract costs also include variable elements such as rebates, volume dis- as at the reporting date (cost-to-cost method). Under the counts, trade discounts, bonuses and penalties. The revenue percentage-of-completion method, project business contracts from these sales is recognised in the amount of the price speci- are measured at the amount of the contract costs incurred to fied in the contract less the estimated price reductions. date plus the pro rata profit earned according to the percentage Rendering of services of completion. If it is probable that the total contract costs will exceed the contract revenue, the expected loss is immediately recognised as an expense in the financial year in which the loss Revenue from the rendering of services is recognised on a straight- emerges. If the contract costs incurred and the profit and loss line basis over the period of performance or in accordance with the recognised exceed the progress billings, the excess is recog- proportion of the overall service rendered by the reporting date. By nised as an asset under contract assets. If the progress billings contrast, revenue from long-term service agreements is recognised exceed the capitalised costs and recognised profit and loss, the on the basis of the average term of the service agreements and in excess is recognised as a liability under contract liabilities (see line with progressive costs (constant margin). note [33] for details of the amounts recognised in the statement of Leases / short-term rentals financial position). If the outcome of a project business contract cannot be reliably estimated, the likely achievable revenue is recognised up Revenue from direct leasing business is recognised in the amount to the amount of the costs incurred. Contract costs are rec- of the sale value of the leased asset if classified as a finance lease ognised as an expense in the period in which they are incurred. and in the amount of the lease payments if classified as an oper- Variations in the contract work, claims and incentive payments ating lease. If industrial trucks are first sold to and then leased are recognised if they are likely to result in revenue and their back from a financing partner to finance leases, no selling margin amount can be reliably estimated. in connection with the financing is recognised as the financing partner usually does not obtain control over the industrial truck. In the indirect leasing business, industrial trucks are sold to vendor partners that enter into long-term leases with end cus- tomers. As the vendor partner usually does not obtain control over the industrial truck, entities in the KION Group initially treat the portion of the consideration received that exceeds the resid- ual value obligation as deferred income and subsequently recog- nise the revenue in instalments over the term of the lease. If risks and rewards are substantially transferred to the vendor partner, KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 158 Cost of sales The cash-generating units (CGUs) identified for the purposes of testing goodwill and brand names for impairment equate to the The cost of sales comprises the cost of goods and services sold LMH EMEA, STILL EMEA, KION APAC and KION Americas Oper- and includes directly attributable material and labour costs ating Units in the Industrial Trucks & Services segment and to the as well as directly attributable overheads, including depreciation Dematic Operating Unit in the Supply Chain Solutions segment. of production equipment, amortisation expense on capitalised The recoverable amount of a CGU is determined by calcu- development costs and certain intangible assets, and write-downs lating its value in use on the basis of the discounted cash flow of inventories. Cost of sales also includes additions to warranty method. The cash flows forecast for the next five years are provisions, which are recognised in the amount of the estimated included in the calculation for the impairment test. The financial cost at the date on which the related product is sold. forecasts are based on assumptions relating to the development Financial income and expenses of the global economy, commodity prices and exchange rates. Cash flows beyond the five-year planning horizon were extrapolated for the LMH EMEA, STILL EMEA, KION APAC and KION Americas CGUs using a growth rate of 0.8 per cent Financial income and expenses mainly consist of interest (2017: 0.5 per cent). The growth rate used for Dematic was expense on financial liabilities, interest income from financial 1.3 per cent (2017: 0.5 per cent). The higher growth rates reflect receivables, interest income from leases and the interest cost long-term inflation trends (especially in Germany and the United on leases, interest expense from financial services, the interest States) and the expected medium-term performance of the ITS cost on procurement leases, exchange rate gains and losses and SCS segments. on financial activities and the net interest cost of the defined CGU cash flows are discounted using a weighted average benefit obligation. cost of capital (WACC) that reflects current market assessments Interest income and expenses are recognised in profit and of the specific risks to individual CGUs. loss in accordance with the effective interest method. The > TABLE 054 shows the significant parameters for impairment effective interest method is used for calculating the amortised testing broken down by Operating Unit. cost of a financial asset or financial liability and the allocation of interest income and interest expenses over the relevant periods. Dividends are recognised in income when a resolution on distribution has been passed. They are reported in the consoli- dated income statement under other income, provided they are dividends from non-consolidated subsidiaries. Goodwill Goodwill has an indefinite useful life and is therefore not amor- tised. Instead, it is tested for impairment in accordance with IAS 36 at least once a year, and more frequently if there are indications that the asset might be impaired. For the purposes of internal and external reporting, the activities of the KION Group are broken down into the Industrial Trucks & Services, Supply Chain Solutions and Corporate Services segments. KION GROUP AGAnnual Report 2018158 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 159 Significant parameters for impairment testing TABLE 054 in % Industrial Trucks & Services LMH EMEA STILL EMEA KION Americas KION APAC Supply Chain Solutions Dematic Long-term growth rate WACC after tax 2018 0.8% 0.8% 0.8% 0.8% 1.3% 2017 0.5% 0.5% 0.5% 0.5% 0.5% 2018 7.3% 7.4% 8.2% 7.7% 8.6% 2017 6.6% 6.7% 7.8% 7.6% 7.6% The impairment test carried out in the fourth quarter of 2018 did Other intangible assets with an indefinite useful life are not reveal any need to recognise impairment losses for intangible carried at cost and are capitalised brand names. Brand names assets with an indefinite useful life or for the existing goodwill are not amortised because they have been established in the recognised for the LMH EMEA, STILL EMEA, KION APAC, market for a number of years and there is no foreseeable end to KION Americas and Dematic CGUs. Using sensitivity analysis, it their useful life. In accordance with IAS 36, they are tested for was determined that no impairment losses need to be recognised impairment at least once a year or whenever there are indications for goodwill, even if key assumptions vary within realistic limits, in that the asset might be impaired. particular variations in WACC of plus or minus 100 basis points. The impairment test applies an income-oriented method in which fundamentally the same assumptions are used as in the impairment test for goodwill. Assessments of indefinite useful life Other intangible assets are carried out in every period. Development costs are capitalised if the capitalisation criteria Other purchased intangible assets with a finite useful life are in IAS 38 are met. Capitalised development costs include all costs carried at historical cost less all accumulated amortisation and all and overheads directly attributable to the development process. accumulated impairment losses. If events or market develop- Once they have been initially capitalised, these costs and ments suggest impairment has occurred, impairment tests are internally generated intangible assets – particularly internally carried out on the carrying amount of items classified as other generated software – are carried at cost less accumulated intangible assets with a finite useful life. The carrying amount of amortisation and accumulated impairment losses. All non-quali- an asset is compared with its recoverable amount, which is fying development costs are expensed as incurred and reported defined as the higher of its value in use and its fair value less costs in the consolidated income statement under research and to sell. If the reasons for recognising impairment losses in the past development costs together with research costs. no longer apply, the relevant impairment losses are reversed, but subject to a limit such that the carrying amount of the asset is no higher than its amortised cost. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 160 Amortisation of intangible assets with a finite useful life is Leased assets recognised on a straight-line basis and, with the exception of the amortisation expense on capitalised development costs, is If the beneficial ownership of leased assets remains with a reported under cost of sales. The impairment losses on intangible KION Group entity as the lessor under an operating lease, the assets are reported under other expenses. assets are reported as leased assets in the statement of financial The useful lives shown in > TABLE 055 are applied in determin- position. The leased assets are carried at cost and depreciated ing the carrying amounts of other intangible assets. on a straight-line basis over the term of the underlying leases. Leases / short-term rentals To finance lease contracts, industrial trucks are generally sold to leasing companies (financing partners) and immediately leased back (head lease) before being sub-leased to external end customers (described below as ‘sale and leaseback sub-leases’). KION Group entities in the Industrial Trucks & Services segment In accordance with the transitional provisions of IFRS 16, it conduct leasing and short-term rental business in which they was not necessary to reassess the sale and leaseback sub-lease lease or rent industrial trucks and related items of equipment to portfolio in existence as at 31 December 2017 with regard to the their customers in order to promote sales. transfer of control to the financing partner in the head lease. In all Entities in the KION Group enter into leases as lessors and as sale and leaseback sub-leases, risks and rewards incidental to lessees. In line with IFRS 16, these leases are classified as finance the head lease are, in general, substantially borne by entities in leases if substantially all of the risks and rewards incidental to the KION Group. The corresponding assets are therefore ownership of the leased asset are transferred to the lessee. All reported as leased assets within non-current assets at the lower other leases and short-term rentals are classified as operating of the present value of the lease payments and fair value. leases, again in accordance with IFRS 16. However, if risks and rewards incidental to the head lease are If an entity in the Industrial Trucks & Services segment enters substantially transferred to the end customer in the sub-lease, a into a finance lease as the lessor, the future lease payments to be corresponding lease receivable is recognised. In both cases, the made by the customer are recognised as lease receivables at an funding items for these long-term customer leases, which are amount equal to the net investment in the lease. These are meas- funded for terms that match those of the leases, are recognised ured using the simplified impairment approach in accordance as lease liabilities. with IFRS 9. Interest income is spread over the term of the lease in order to ensure a constant return on the outstanding net invest- ment in the lease. Useful life of other intangible assets Customer relationships / client base Technology Development costs Patents and licences Software TABLE 055 Years 4 – 15 10 – 15 5 – 7 3 – 15 2 – 10 KION GROUP AGAnnual Report 2018160 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 161 The accounting for contracts concluded from 1 January 2018 In accordance with the transitional provisions of IFRS 16, it onwards is also determined by whether the financing partner was not necessary to reassess the sale and leaseback sub-lease gains control over the industrial truck. As the financing partner portfolio in existence as at 31 December 2017 with regard to the usually does not obtain control over the industrial truck, it is rec- transfer of control to the financing partner in the head lease. If, in ognised as a leased asset in the statement of financial position or, the case of sale and leaseback sub-leases, the risks and rewards if the risks and rewards have been transferred to the end cus- incidental to the head lease are substantially borne by entities in tomer, as a lease receivable. The industrial truck recognised as a the KION Group, these industrial trucks are reported as rental leased asset is carried at cost, while the lease receivable is rec- assets within non-current assets. The liabilities for financing ognised at an amount equal to the net investment in the lease. this part of the short-term rental fleet are reported under other The liabilities for financing the leased assets are recognised under financial liabilities. liabilities from financial services. The accounting for contracts concluded from 1 January 2018 In the indirect leasing business, industrial trucks are sold to onwards is also determined by whether the financing partner leasing companies that enter into long-term leases with end gains control over the industrial truck. As the financing partner customers (vendor partners). As the vendor partner ususally does usually does not obtain control over the industrial truck, it is rec- not obtain control over the industrial truck, it is recognised as a ognised as a rental asset in the statement of financial position and leased asset in the statement of financial position and carried at carried at cost. The liabilities for financing this part of the cost. If the KION Group provides a residual value guarantee, an short-term rental fleet are reported under liabilities from amount equivalent to the residual value obligation is recognised financial services. under liabilities from financial services. Accordingly, entities in the KION Group immediately recognise the portion of the con- sideration received that exceeds the residual value obligation as Other property, plant and equipment revenue or they initially treat that portion of the consideration received as deferred income and subsequently recognise the Property, plant and equipment is carried at cost less depreciation revenue on a pro-rata basis over the term of the lease. and impairment losses. The cost of internally generated machinery Rental assets and equipment includes all costs directly attributable to the production process and an appropriate portion of production overheads. This includes production-related depreciation and proportionate costs for administration and social insurance / Under short-term rental agreements, entities in the KION Group employee benefits. rent industrial trucks directly to end customers. Short-term rental agreements usually have a term ranging from a few hours to a year. The industrial trucks are carried at cost and depreciated on a straight-line basis over the normal useful life of between five and eight years, depending on the product group. If a sale and leaseback sub-lease arrangement is in place for financing purposes, the assets are reported in the statement of financial position either at the lower of the present value of the rental payments and fair value or at cost, depending on the portfolio to which they belong. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 162 Depreciation of property, plant and equipment is recognised on a If an impairment test for an item of property, plant and straight-line basis and reported under functional costs. The equipment is performed at the level of a cash-generating unit to useful lives and depreciation methods are reviewed annually and which goodwill is allocated and results in the recognition of an adjusted to reflect changes in conditions. impairment loss, first the goodwill and, subsequently, the assets The ranges of useful life below are applied in determining the must be written down in proportion to their relative carrying carrying amounts of items of property, plant and equipment. amounts. If the reason for an impairment loss recognised in prior > TABLE 056 years no longer applies, the relevant pro-rata impairment losses are reversed, but subject to a limit such that the carrying amount KION Group companies also lease property, plant and equip- of the asset is no higher than its amortised cost. This does not ment for their own use through leases, which are recognised as apply to goodwill. right-of-use assets under other property, plant and equipment. As a rule, the leases are entered into for defined periods, although they may contain extension and/or termination options. Equity-accounted investments The right-of-use assets are depreciated over the shorter of their useful life or the term of the lease, unless title to the leased In accordance with the equity method, associates and joint assets passes to the lessee when the lease expires, in which case ventures are measured as the proportion of the interest in the the right-of-use asset is depreciated and the other financial equity of the investee. They are initially carried at cost. Subse- liabilities are reversed over the useful life of the leased assets. quently, the carrying amount of the equity investment is adjusted Lease instalments for procurement leases with a term of no in line with any changes to the KION Group’s interest in the net more than twelve months and for procurement leases relating to assets of the investee. The KION Group’s interest in the profit or low-value assets are expensed on a straight-line basis and loss generated after acquisition is recognised in income. Other reported under functional costs. changes in the equity of associates and joint ventures are recog- At the end of the lease term, the leased assets are returned nised in other comprehensive income (loss) in the consolidated or purchased, or the contract is extended. financial statements in proportion to the Group’s interest in the If there are certain indications of impairment of the property, associate or joint venture. plant and equipment, the assets are tested for impairment by If the Group’s interest in the losses made by an associate comparing the residual carrying amount of the assets with their or joint venture exceeds the carrying amount of the proportionate recoverable amount, which is defined as the higher of value in use equity attributable to the Group, no additional losses are rec- and fair value less costs to sell. If the residual carrying amount ognised. Any goodwill arising from the acquisition of an associate is greater than the recoverable amount, an impairment loss is or joint venture is included in the carrying amount of the invest- recognised for an asset. The impairment losses on property, ment in the associate or joint venture. plant and equipment are reported under other expenses. Useful life of other property, plant and equipment Buildings Plant and machinery Office furniture and equipment TABLE 056 Years 10 – 50 3 – 15 2 – 15 KION GROUP AGAnnual Report 2018162 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 163 If there is evidence that an associate or joint venture may be The expected losses are calculated using the probability of impaired, the carrying amount of the investment in question default, the exposure at default and, taking into account any col- is tested for impairment. The carrying amount of the asset is lateral, the estimated loss given default. The calculation draws on compared with its recoverable amount. If the carrying amount observable historical loss data, information on current conditions is greater than the recoverable amount, an impairment loss is and the economic outlook. recognised for the equity investment. A default is defined as the occurrence of a loss event, such Other financial assets as a borrower being in considerable financial difficulties or a contract being breached. Financial assets are written off if there are no reasonable prospects of recovering the underlying cash flows in full or partly. The recoverability is assessed on the basis Primary financial assets are initially recognised and derecognised of different indicators (for example, the opening of insolvency in the financial statements on their settlement dates. proceedings over the borrower’s assets) that take the relevant In accordance with IFRS 9, the KION Group categorises country-specific factors into account. financial assets as debt instruments recognised at fair value Equity instruments in the FVOCI category are recognised at through profit or loss (FVPL), debt instruments measured at fair value through other comprehensive income. Upon initial amortised cost (AC) or equity instruments recognised at fair value recognition at fair value, directly attributable transaction costs are through other comprehensive income (FVOCI). included. Gains and losses accumulated in other comprehensive Debt instruments are measured at amortised cost (AC) if they income are not reclassified to profit or loss upon disposal of these are held as part of a business model whose objective is to collect financial assets. Dividends are recognised in income. the contractual cash flows, and these cash flows consist solely of The KION Group assigns the remaining financial assets to the payments of principal and interest on the principal amount FVPL category. They are initially recognised at fair value; directly outstanding. Upon initial recognition, these assets are carried at attributable transaction costs have to be taken directly to profit or fair value including directly attributable transaction costs. In loss. In subsequent periods, financial assets in the FVPL category subsequent periods they are measured at amortised cost using are recognised at fair value through profit or loss. the effective interest method. Low-interest or non-interest-bear- In 2017, in accordance with IAS 39, the KION Group differ- ing receivables due in more than one year are carried at their entiated between financial assets held for trading at fair value present value. through profit or loss (FAHfT), available for sale financial assets In line with the general impairment approach for debt instru- (AfS) and loans and receivables (LaR). ments in the AC category, both upon initial recognition and in subsequent periods the KION Group recognises expected credit losses in profit or loss by recognising valuation allowances. The valuation allowances amount to the twelve-month expected losses, provided no significant increase in credit risk (for example as a result of material changes to external or internal credit rat- ings) is observable at the reporting date. Otherwise, lifetime expected losses are recognised. The simplified impairment approach is applied to all trade receivables, lease receivables and contract assets and always covers the lifetime expected losses. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 164 Hedge accounting Income taxes Currently, derivative financial instruments in the KION Group In the consolidated financial statements, current and deferred comprise currency forwards and interest-rate swaps that are taxes are recognised on the basis of the tax laws of the jurisdictions used for hedging purposes to mitigate currency risk and involved. Deferred taxes are recognised in other comprehensive interest-rate risk. They are initially recognised and derecognised income (loss) if they relate to transactions also recognised in other in the financial statements on their settlement dates. comprehensive income (loss). Derivative financial instruments are measured at their fair Deferred tax assets and liabilities are recognised in accord- value and are reported as other financial assets or other financial ance with the liability method for all temporary differences liabilities as at the reporting date. If they are not part of a formally between the IFRS carrying amounts and the tax base, as well documented hedge, derivatives are classified as held for trading as for temporary consolidation measures. and assigned to the FVPL category. Derivative financial Deferred tax assets also include tax refund claims that arise instruments forming part of a documented hedge are not from the expected utilisation of existing tax loss carryforwards assigned to any of the IFRS 9 measurement categories and are and interest carryforwards in subsequent years and whose therefore recognised in accordance with the hedge accounting utilisation is reasonably certain according to current forecasts. rules described below. On the basis of this estimate, deferred tax assets have been rec- The KION Group currently uses cash flow hedges for cur- ognised on some loss carryforwards and interest carryforwards. rency risk and interest-rate risk. Deferred taxes are determined on the basis of the tax rates In the case of cash flow hedges, derivatives are used to that will apply at the recovery date, or have been announced, in hedge future cash flow risks from existing hedged items, planned accordance with the current legal situation in each country transactions and firm obligations not reported in the statement of concerned. In accordance with the provisions in IAS 12, deferred financial position. The effective portion of changes in the fair tax assets and liabilities are not discounted. Deferred tax assets value of derivatives is initially recognised in other comprehensive are offset against deferred tax liabilities to the extent that they income (loss) and is subsequently reclassified to the income have the same maturity and relate to the same taxation authority. statement when the corresponding hedged item is also rec- ognised. The ineffective portion of the changes in fair value is recognised immediately in the income statement. Inventories In addition, the KION Group uses an interest-rate swap to hedge the fair value of a fixed-rate financial liability. The effective Inventories are carried at the lower of cost and net realisable portion of changes in the fair value of the interest-rate swap is value. The acquisition costs of raw materials and merchandise recognised in the income statement. They are offset by gains and are calculated on the basis of an average. The cost of finished losses on the change in the fair value of the hedged financial lia- goods and work in progress includes direct costs and an bility, which result in an adjustment in profit or loss of the carrying appropriate portion of the material and production overheads amount of the hedged item. The ineffective portion of the hedge and production-related depreciation directly attributable to the is recognised immediately in the income statement. production process. Administrative costs and social insurance / Further information on risk management and accounting employee benefits are included to the extent that they are for derivative financial instruments can be found in notes [40] attributable to the production process. The amount recognised is and [41]. an average value or a value determined in accordance with the FIFO method (FIFO = "first in first out"). KION GROUP AGAnnual Report 2018164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 165 Net realisable value is the selling price that can be realised The reversal of an impairment loss must not result in a carry- less the estimated costs of completion and the estimated costs ing amount greater than the amortised cost that would have necessary to make the sale. arisen if the impairment loss had not been recognised. Write-downs are recognised for inventory risks resulting from Trade receivables that are assigned to the FVPL category on duration of storage, impaired recoverability, etc. If the reasons for the basis of the business model test in IFRS 9 are recognised at the recognition of the write-downs no longer apply, they are fair value through profit or loss. reversed, but subject to a limit such that the carrying amount of the asset is no higher than its cost. Contract balances Cash and cash equivalents Cash and cash equivalents comprise cash, credit balances with banks and current financial assets that can be transformed into Contract assets mainly relate to work performed in the project cash at any time and are only subject to a minor level of volatility. business that has not yet been billed. Contract assets are meas- ured using the simplified impairment approach in accordance with IFRS 9. The average loss rates calculated for trade receiva- bles are used as an approximation of the expected losses from contract assets. A contract liability is a company’s obligation to transfer goods or services to a customer for which the company has received (or will receive) consideration. Project business contracts with a net debit balance due to customers are reported under contract liabilities, as are prepayments received from customers. Trade receivables Trade receivables that are held in order to collect the contractual cash flows are assigned to the AC category. Upon measurement subsequent to initial recognition, the KION Group applies the simplified impairment approach of IFRS 9 and thus recognises lifetime expected losses. To determine lifetime expected losses, for purposes of the valuation allowance average loss rates are calculated on a collective basis in accordance with the past due status of the receivables. The loss rates are calculated on the basis of observable historical loss data, taking into account current conditions and the economic outlook (for example on the basis of expected probability of default for significant countries). The amount of the valuation allowance recognised is adjusted in profit or loss if there is a change in the estimate for the under- lying inputs and thus in the losses to be recognised. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 166 Retirement benefit obligation Liabilities from financial services The retirement benefit obligation is calculated in accordance with Liabilities from financial services comprise all liabilities from the projected unit credit method. Future pension obligations are financing the leasing business and the short-term rental fleet on measured on the basis of the pro rata vested benefit entitlements the basis of sale and leaseback sub-leases from 1 January 2018 as at the reporting date and discounted to their present value. onwards, as well as the liabilities that arise from financing the The calculations include assumptions about future changes in leasing business by means of lease facilities and the use of certain parameters, such as expected salary and pension securitisations. Furthermore, liabilities from financial services increases and biometric factors affecting the amount of future arising from the leasing business include residual value obliga- benefits. Pension provisions are reduced by the fair value of the tions resulting from the indirect leasing business. plan assets used to cover the Group’s benefit obligations. Plan Upon initial recognition, they are recognised at fair value assets are measured at fair value. including directly attributable transaction costs. Subsequently, Remeasurements, including deferred taxes, are recognised liabilities from financial services are recognised at amortised cost in other comprehensive income (loss). It is not permitted to using the effective interest method (AC). reclassify remeasurements recognised in other comprehensive income (loss) to profit or loss in future periods. The cost of addi- tions to pension provisions is allocated to functional costs. The Other provisions interest cost on pension obligations and the interest income from plan assets are netted and reported in net financial income / Other provisions are recognised when the Group has a legal or expenses. Further details can be found in note [28]. constructive obligation to a third party as the result of a past event Financial liabilities that is likely to lead to a future outflow of resources and that can be reliably estimated. Where there is a range of possible outcomes and each individual point within the range has an equal probability of occurring, a provision is recognised in the amount The financial liabilities reported by the KION Group essentially of the mean of the individual points. Measurement is at full cost. comprise liabilities to banks and liabilities in connection with the Provisions for identifiable risks and contingent liabilities are promissory notes that have been issued. Upon initial recognition, recognised in the amount that represents the best estimate of the they are recognised at fair value including directly attributable cost required to settle the obligations. Recourse claims are not transaction costs. Subsequently, financial liabilities are recog- taken into account. The settlement amount also includes cost nised at amortised cost using the effective interest method (AC). increases identifiable as at the reporting date. Provisions with a maturity of more than twelve months are discounted using the standard market interest rate. The discount rate is a before-tax rate that reflects current market expectations for the time value of money and the specific risks inherent in the liability. The interest cost from unwinding the discount is recognised in interest expenses. KION GROUP AGAnnual Report 2018166 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 167 Warranty provisions are recognised on the basis of past or Other financial liabilities estimated future claim statistics. The corresponding expense is recognised in cost of sales at the date on which the revenue is The KION Group differentiates between financial liabilities held for recognised. Individual provisions are recognised for claims that trading and recognised at fair value through profit or loss (FVPL) are known to the Group. and financial liabilities that are recognised at amortised cost using Provisions for expected losses from onerous contracts and the effective interest method (AC). other business obligations are measured on the basis of the work The FVPL category contains derivative financial instruments yet to be performed. that are not part of a formally documented hedge. These are A restructuring provision is recognised when a KION Group reported under other financial liabilities and must be carried at entity has prepared a detailed, formal restructuring plan and this fair value through profit or loss. Derivative financial instruments plan has raised the valid expectation in those affected that the forming part of a documented hedge are not assigned to any of entity will carry out the restructuring by starting to implement that the IFRS 9 measurement categories. plan or announcing its main features to those affected by it. The All other financial liabilities of the KION Group must be measurement of a restructuring provision only includes the direct assigned to the AC category. These liabilities are initially rec- expenditures arising from the restructuring and not associated ognised at fair value at the time they are entered into. Directly with the ongoing activities of the entity concerned. attributable transaction costs are deducted. These liabilities are Share-based payments then measured at amortised cost. Any differences between historical cost and the settlement amount are recognised in accordance with the effective interest method. In 2017, the KION Group differentiated between financial lia- IFRS 2 distinguishes between equity-settled and cash-settled bilities held for trading and recognised at fair value through profit share-based payment transactions. or loss (FLHfT) and financial liabilities that are recognised at Equity-settled share-based payment transactions are rec- amortised cost using the effective interest method (FLaC). ognised at their fair value at the date of grant. The fair value of the obligation is recognised as an expense under functional costs over the vesting period and offset against capital reserves. Trade payables The portion of the fair value of cash-settled share-based payments that is attributable to service provided up to the Trade payables are recognised at amortised cost using the effec- valuation date is recognised as an expense under functional tive interest method (AC). Low-interest or non-interest-bearing lia- costs and is also reported as a liability. The fair value is recalcu- bilities due in more than one year are carried at their present value. lated on each reporting date until the end of the performance period. Any change in the fair value of the obligation must be recognised (pro rata) under expenses. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 168 Assumptions and estimates The classification of leases requires estimates to be made regarding the transferred and retained risks and rewards in The preparation of the IFRS consolidated financial statements connection with ownership of the industrial truck. When defining requires the use of assumptions and estimates for certain line the lease term, senior management also takes into consideration items that affect recognition and measurement in the statement all facts and circumstances that offer an economic incentive to of financial position and the income statement. The actual exercise extension options or to not exercise cancellation options. amounts realised may differ from estimates. Assumptions and Further information on leases can be found in the sections on estimates are applied in particular: leases / short-term rentals, leased assets, rental assets and other – in assessing the need for and the amount of impairment losses on intangible assets, property, plant and equipment, and inventories lease term – in determining the useful life of non-current assets – in classifying and measuring leases and in determining the – in recognising and measuring defined benefit pension – in recognising and measuring current and deferred taxes – in recognising and measuring assets acquired and liabilities – in evaluating the stage of completion of contracts where the assumed in connection with business combinations, and obligations and other provisions revenue is recognised over a period of time. property, plant and equipment in the relevant notes. Defined benefit pension obligations are calculated on the basis of actuarial parameters, although the value for certain plan assets is derived from inputs that are not observable in the mar- ket. As differences due to remeasurements are taken to other comprehensive income (loss), any change in these parameters would not affect the net profit for the current period. For further details about sensitivity analysis in relation to the impact of all significant assumptions, please refer to the information about the retirement benefit obligation in note [28]. The recognition and measurement of other provisions is based on an estimate of the probability of the future outflow of resources, supplemented by past experience and the circum- stances known to the Group at the reporting date. Accordingly, the actual outflow of resources for a given event may be different Goodwill is tested for impairment annually at the level of the from the amount recognised in other provisions. Further details cash-generating units to which goodwill is allocated, assuming can be found in note [32]. division-specific growth rates for the subsequent period. Any material changes to these and other factors might result in the recognition of impairment losses. Further information on goodwill can be found earlier in this note and in note [16]. KION GROUP AGAnnual Report 2018168 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 169 Significant estimates are involved in calculating income taxes. These estimates may change on the basis of new information and experience (see also note [13]). Deferred tax assets on tax loss carryforwards and interest carryforwards are recognised on the basis of an estimate of the future recoverability of the tax benefit, i.e. an assumption as to whether sufficient taxable income or tax relief will be available against which the carryforwards can be utilised. The actual amount of taxable income in future periods, and hence the actual utilisation of tax loss carryforwards and interest carryforwards, may be different from the estimates made when the corresponding deferred tax assets were recognised. On first-time consolidation of an acquisition, all identifiable assets and liabilities are recognised at their fair value at the acquisition date. The fair values of identifiable assets are determined using appropriate valuation techniques. These measurements are based, for example, on estimates of future cash flows, expected growth rates, exchange rates, discount rates and useful lives. In the event of material changes to assumptions or circumstances, estimates must be reassessed and this can lead to the recognition of an impairment loss for the asset concerned. Project business contracts are accounted for using the percentage-of-completion method based on management estimates of the contract costs incurred. If estimates change, or if there are differences between planned and actual costs, this is directly reflected in the profit or loss from project business contracts. The Operating Units continually review the cost estimates and adjust them as appropriate. Further information on project business contracts can be found earlier in this note and in note [33]. The impact of a change to an estimate is recognised pro- spectively when it becomes known and assumptions are adjusted accordingly. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 170 Notes to the consolidated income statement [7] REVENUE > TABLE 057 contains the product categories identified as material to the KION Group’s financial performance and the timing of revenue recognition for each of these categories. Timing of revenue recognition with third parties TABLE 057 Timing of revenue recognition At a point in time At a point in time At a point in time At a point in time Over a period of time Over a period of time Over a period of time Over a period of time At a point in time Product category Business model Industrial Trucks & Services New business Sale of industrial trucks Direct and indirect leasing business (in both cases where classified as finance leases) Aftersales Supply of spare parts Individual orders for repairs and maintenance work (Full) service contracts Rental business Direct long-term rental business and indirect leasing business (in both cases where classified as operating leases) Short-term rental business Fleet management Sale of used industrial trucks Used trucks Other Various business models, currently categorised as not material to the financial performance of the KION Group in the IT&S segment Mainly at a point in time Supply Chain Solutions Business solutions Project business Service business Modernisations and upgrades Spare parts business Over a period of time Over a period of time At a point in time Various business models, currently categorised as not material to the financial performance of the KION Group in the SCS segment Mainly over a period of time Corporate Services Services Mainly at a point in time KION GROUP AGAnnual Report 2018170 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 171 > TABLES 058 – 059 show revenue from contracts with customers, broken down by sales region, product category, timing of revenue recognition and segment. Disaggregation of revenues with third parties TABLE 058 in € million Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total revenue New business Service business – Aftersales – Rental business – Used trucks – Other Business solutions Service business Corporate Services Total revenue 2018 Industrial Trucks & Services Supply Chain Solutions Corporate Services 4,287.5 561.9 80.0 138.6 164.8 683.6 5,916.3 3,009.1 2,907.2 1,513.9 900.1 327.8 165.4 459.2 27.1 14.4 1,347.7 8.7 195.1 2,052.1 1,514.0 538.1 5,916.3 2,052.1 23.2 3.4 0.1 0.0 0.0 0.6 27.3 27.3 27.3 20.9 6.4 Total 4,769.9 592.3 94.5 1,486.3 173.5 879.3 7,995.7 3,009.1 2,907.2 1,513.9 900.1 327.8 165.4 1,514.0 538.1 27.3 7,995.7 4,783.0 3,212.7 Timing of revenue recognition Products and services transferred at a point in time Products and services transferred over a period of time 4,524.8 1,391.5 237.3 1,814.8 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 172 Disaggregation of revenue with third parties TABLE 059 2017 * Industrial Trucks & Services Supply Chain Solutions Corporate Services in € million Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total revenue New business Service business – Aftersales – Rental business – Used trucks – Other Business solutions Service business Corporate Services Total revenue 4,013.5 536.6 89.7 127.0 157.9 643.5 5,568.2 2,828.8 2,739.5 1,429.5 855.2 306.6 148.3 532.6 8.0 63.9 1,139.6 5.1 255.8 2,005.1 1,512.4 492.7 5,568.2 2,005.1 21.0 3.6 0.1 0.0 0.0 0.1 24.8 24.8 24.8 19.3 5.6 Total 4,567.1 548.2 153.6 1,266.7 163.1 899.3 7,598.1 2,828.8 2,739.5 1,429.5 855.2 306.6 148.3 1,512.4 492.7 24.8 7,598.1 4,495.2 3,102.9 Timing of revenue recognition Products and services transferred at a point in time Products and services transferred over a period of time 4,241.0 1,327.2 234.9 1,770.1 * Revenue for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018172 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 173 > TABLE 060 shows the revenue that is expected as a result of performance obligations in existence at the reporting date. This consists only of revenue from contracts with customers as defined by IFRS 15. In the Supply Chain Solutions segment, this revenue is generated by the project and service business. In the Industrial Trucks & Services segment, it is generated through aftersales (full-)service contracts with an expected origi- nal term of more than one year. Expected future revenue from existing performance obligations in € million Total of expected future revenue from existing performance obligations due within one year due in one to two years due in two to three years due in three to four years due in four to five years due in more than five years TABLE 060 2017 2,342.8 1,523.6 366.2 255.4 104.4 58.6 34.6 2018 2,728.9 1,837.9 506.8 179.6 113.1 54.7 36.9 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 174 [8] OTHER INCOME The breakdown of other income is as follows: > TABLE 061 Other income in € million Foreign currency exchange rate gains Income from reversal of provisions Gains on disposal of non-current assets Rental income Sundry income Total other income * Other income for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 The rise in foreign currency exchange rate gains was largely attributable to exchange rate gains arising in the course of the Group companies’ operating activities. This line item also contains gains on hedges that were entered into in order to hedge currency risk arising from the operating business but do not form part of a documented hedge. These gains were offset by corresponding exchange rate losses (see note [9]). Sundry income also included income from non-consolidated subsidiaries and other equity investments amounting to €2.3 million (2017: €2.1 million). TABLE 061 2017 * 34.5 2.5 3.3 1.2 34.4 75.8 2018 44.2 2.4 2.3 1.2 36.4 86.5 KION GROUP AGAnnual Report 2018174 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 175 [9] OTHER EXPENSES The breakdown of other expenses is as follows: > TABLE 062 Other expenses in € million Foreign currency exchange rate losses Losses on disposal of non-current assets Impairment of non-current assets Sundry expenses Total other expenses The foreign currency exchange rate losses were attributable to exchange rate losses arising in the course of the Group compa- nies’ operating activities and to hedges that were entered into in order to hedge currency risk arising from the operating business and do not form part of a documented hedge (see note [8] for details of the countervailing gains). Impairment of non-current assets related to buildings, plant and machinery, office furniture and equipment, and other property, plant and equipment. Of the total amount recognised as impairment of non-current assets in 2017, €8.6 million had resulted from giving up the Egemin brand after it was integrated within the Dematic brand presentation. TABLE 062 2017 40.1 3.3 14.8 12.8 71.1 2018 50.0 1.1 6.4 5.7 63.3 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 176 [10] SHARE OF PROFIT (LOSS) OF EQUITY-ACCOUNTED INVEST- MENTS The share of profit (loss) of equity-accounted investments in the reporting year amounted to a profit of €12.2 million (2017: €13.6 million). Further details on equity-accounted investments can be found in note [20]. [11] FINANCIAL INCOME Financial income breaks down as shown in > TABLE 063. Financial income in € million Interest income from leases Foreign currency exchange rate gains (financing) Other interest and similar income Total financial income * Financial income for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 TABLE 063 2017 * 36.8 87.5 8.5 132.8 2018 43.8 48.9 7.1 99.9 The decrease in financial income in 2018 mainly resulted The interest income from leases relates to the interest portion from lower foreign currency exchange rate gains (financing) in of lease payments in financial services transactions in which connection with foreign currency positions in internal financing KION Group entities operate as lessors (finance leases). and the related hedging transactions. These gains were offset by corresponding exchange rate losses (see note [12]). KION GROUP AGAnnual Report 2018176 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 177 [12] FINANCIAL EXPENSES Financial expenses break down as follows: > TABLE 064 Financial expenses in € million Interest expense from loans Interest expense from promissory notes Interest expense from leases Interest expense from procurement leases Net interest expense from defined benefit plans Amortisation of finance costs Foreign currency exchange rate losses (financing) Other interest expenses and similar charges Total financial expenses * Financial expenses for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 TABLE 064 2017 * 29.6 12.2 48.1 16.3 19.3 8.8 66.6 28.3 229.2 2018 22.9 16.3 51.3 16.9 19.4 4.5 55.2 10.7 197.3 In 2018, financial expenses fell by €31.9 million year on year. payments received and is therefore reported within revenue Interest expense from loans decreased due to the corporate rather than as interest income. actions carried out in 2017, whereas the interest expense from The interest expenses from leases also contains further inter- promissory notes increased. At the time of the early repayment of est expense attributable to liabilities from financial services in certain financial liabilities (see also note [29]), deferred borrowing an amount of €13.0 million (2017: €0.3 million). This includes inter- costs of €1.9 million (2017: €3.5 million) were reclassified as est expense on sale and leaseback sub-lease transactions of financial expenses and thus taken to profit or loss. €4.2 million (2017: €0.0 million). The income from corresponding The exchange rate losses included in foreign currency customer agreements is a component of the rental and lease exchange rate losses (financing) decreased, as was the case for payments received and is therefore reported within revenue exchange rate gains included in foreign currency exchange rate rather than as interest income. gains (financing) (see note [11]). Net interest expense from defined benefit plans relates to The interest expenses from leases predominantly relates to the net interest cost on the net defined benefit liability applying liabilities under sale and leaseback sub-lease transactions for the discount rate for plans in which pension obligations exceed the leasing business and for financing the short-term rental fleet. plan assets. Sale and leaseback sub-lease transactions entered into in con- nection with the leasing business incurred interest expenses of €14.1 million (2017: €27.3 million). The income from corresponding customer agreements is a component of the rental and lease KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 178 [13] INCOME TAXES are determined on the basis of the tax rates that will apply at the recovery date, or have been announced, in accordance with the current legal situation in each country concerned. The current corporate income tax rate in Germany is 15.0 per cent plus a The income tax expense of €143.7 million (2017: €42.2 million) solidarity surcharge (5.5 per cent of corporate income tax). consisted of €166.5 million in current tax expense (2017: Taking into account the average trade tax rate of 14.94 per cent €184.9 million) and €22.9 million in deferred tax income (2017: (2017: 15.00 per cent), the combined nominal tax rate for entities €142.7 million). In the reporting year, the current tax expense in Germany was 30.77 per cent (2017: 30.82 per cent). The included income of €32.1 million (2017: €16.2 million) relating to income tax rates for foreign companies used in the calculation of previous financial years that was in an amount of €29.4 million deferred taxes were between 9.0 per cent and 34.0 per cent, as predominantly due to the offsetting of losses of corporations in had also been the case in 2017. connection with an amendment to tax law (section 8c of the No deferred taxes have been recognised on temporary dif- German Corporation Tax Act (KStG)). The deferred tax income ferences of €235.5 million (2017: €231.4 million) between the net recognised in 2017 had included income of €92.2 million that was assets reported in the consolidated financial statements for the due, in particular, to the remeasurement of deferred tax liabilities Group companies and the tax base for the shares in these Group in light of the US tax reforms. companies (outside basis differences) because the KION Group At the reporting date, there were income tax assets of is in a position to manage the timing of the reversal of temporary €31.5 million receivable from tax authorities (2017: €14.4 million) differences and there are no plans to dispose of investments in and income tax liabilities of €74.4 million (2017: €82.6 million). the foreseeable future. Deferred taxes are recognised for temporary differences Deferred tax assets are allocated to the following items in the between the tax base and IFRS carrying amounts. Deferred taxes statement of financial position: > TABLE 065 Deferred tax assets in € million Intangible assets and property, plant and equipment Other assets Provisions Liabilities Deferred income Tax loss carry forwards, interest carry forwards and tax credits Offsetting Total deferred tax assets * Deferred tax assets for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 TABLE 065 2017 * 105.3 71.0 229.8 610.2 222.6 38.7 – 802.4 475.2 2018 137.7 141.8 238.7 609.6 186.9 21.4 – 914.4 421.7 KION GROUP AGAnnual Report 2018178 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement Deferred tax liabilities are allocated to the following items in the statement of financial position: > TABLE 066 Deferred tax liabilities in € million Intangible assets and property, plant and equipment Other assets Provisions Liabilities Deferred income Offsetting Total deferred tax liabilities * Deferred tax liabilities for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 179 TABLE 066 2017 * 1,118.5 304.2 16.6 60.1 5.5 – 802.4 702.4 2018 1,071.0 326.1 19.4 110.7 13.9 – 914.4 626.7 The deferred tax liabilities essentially related to the purchase price be unimpaired because these companies are expected to allocation in the acquisition of the KION Group and Dematic, par- generate taxable income in future. ticularly for intangible assets and property, plant and equipment. No deferred tax assets have been recognised on tax loss In 2018, deferred taxes of €8.8 million were recognised in other carryforwards of €580.7 million (2017: €526.0 million) – of which comprehensive income (loss), resulting in an increase in equity €103.1 million (2017: €13.0 million) can only be carried forward on (2017: minus €10.5 million, resulting in a decrease in equity). Of this a restricted basis – or on interest carryforwards of €283.9 million amount, deferred taxes of €3.7 million (2017: minus €8.0 million) (2017: €185.0 million). No deferred tax assets have been rec- arose from the remeasurement of the defined benefit obligation. ognised on other temporary differences of €7.8 million (2017: Furthermore, deferred taxes of €5.1 million (2017: minus €2.4 mil- €5.2 million). lion) were recognised in connection with realised and unrealised Deferred taxes are recognised on tax loss carryforwards and changes in the fair value of derivatives in documented hedges. In interest carryforwards to the extent that sufficient future taxable 2017, deferred taxes of minus €0.1 million had been recognised income is expected to be generated against which the losses can on the remeasurement of available-for-sale financial instruments, be utilised. The total amount of unrecognised deferred tax assets resulting in a decrease in equity. relating to loss carryforwards is therefore €137.4 million (2017: The change in deferred taxes included currency effects of €124.5 million), of which €111.2 million (2017: €120.9 million) €7.0 million that were recognised in other comprehensive concerns tax losses that can be carried forward indefinitely. income (loss) under cumulative translation adjustment, resulting The KION Group’s corporation-tax loss carryforwards in in a decrease in equity (2017: €33.9 million, resulting in an Germany as at 31 December 2018 amounted to €115.2 million increase in equity). (31 December 2017: €109.1 million), while trade-tax loss In 2018, the parent company and subsidiaries that reported carryforwards stood at €95.9 million (31 December 2017: losses for 2018 or 2017 recognised net deferred tax assets on €88.6 million). There were also foreign tax loss carryforwards temporary differences and on loss carryforwards totalling totalling €454.4 million (31 December 2017: €481.1 million). €21.1 million (2017: €24.2 million). The assets were considered to KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 180 The interest that can be carried forward indefinitely in Ger- reconciliation is an aggregation of the individual company-specific many as at 31 December 2018 amounted to €283.9 million reconciliations prepared in accordance with relevant local tax (31 December 2017: €185.0 million). This increase stemmed rates, taking into account consolidation effects recognised in largely from the offsetting of losses of corporations in Germany in income. The expected tax rate applied in the reconciliation is connection with an amendment to tax law (section 8c KStG). 30.77 per cent (2017: 30.82 per cent). > TABLE 067 The table below shows the reconciliation of expected income tax expenses to effective income tax expenses. The Group Income taxes in € million Earnings before taxes Anticipated income taxes Deviations due to the trade tax base Deviations from the anticipated tax rate Losses for which deferred taxes have not been recognised Change in tax rates and tax legislation Non-deductible expenses Non-taxable income / tax-exempt income Taxes relating to other periods Deferred taxes relating to prior periods Non-creditable withholding tax on dividends Other TABLE 067 2017 * 464.7 – 143.2 – 2.6 3.2 – 27.9 92.2 – 5.8 34.7 16.2 3.4 – 9.8 – 2.5 2018 545.3 – 167.8 – 2.4 6.5 – 14.8 1.9 – 6.6 11.0 32.1 – 0.8 – 2.3 – 0.5 Effective income taxes (current and deferred taxes) – 143.7 – 42.2 * Income taxes for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018180 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 181 [14] OTHER INCOME STATEMENT [15] EARNINGS PER SHARE DISCLOSURES Basic earnings per share is calculated by dividing the net income The cost of materials rose by €117.7 million in the reporting year accruing to the KION GROUP AG shareholders by the weighted to €3,691.4 million (2017: €3,573.7 million). average number of shares outstanding during the reporting Personnel expenses went up by €110.5 million to €2,100.2 mil- period (2018: 117,917,578 no-par-value shares; 2017: 114,328,999 lion in 2018 (2017: €1,989.7 million). These personnel expenses no-par-value shares). The net income accruing to the sharehold- included wages and salaries of €1,653.4 million (2017: ers of KION GROUP AG was €399.9 million (2017: €420.9 million); €1,567.8 million), social security contributions of €364.2 million information about determining the net income (loss) accruing to (2017: €343.5 million) and expenses for pensions of €82.6 million the KION GROUP AG shareholders can be found in the consoli- (2017: €78.5 million). The interest cost from the unwinding of the dated income statement. Basic earnings per share for the discount on estimated pension obligations is not recognised reporting period came to €3.39 (2017: €3.68). The 165,558 under personnel expenses and is instead reported under financial no-par-value treasury shares repurchased by KION GROUP AG expenses as a component of interest cost of the defined benefit were not included in this figure as at 31 December 2018 (31 obligation. Pension expenses essentially comprised the pension December 2017: 160,829). entitlements of €41.4 million vested in 2018 (2017: €40.6 million) Diluted earnings per share is calculated by adding the potential and unrecognised past service cost of €1.4 million (2017: income dilutive no-par-value shares that employees can obtain for free of €0.1 million) arising from plan amendments and curtailments. under the employee share option programme (KEEP) to the Impairment losses and depreciation expenses on property, weighted average number of shares outstanding during the plant and equipment together with impairment losses and amor- reporting period. The calculation of diluted earnings per share was tisation expenses on intangible assets amounted to €897.9 mil- based on a weighted average of 117,935,296 no-par-value shares lion in the reporting year (2017: €896.6 million). Inventories were issued (2017: 114,356,934 no-par-value shares). Diluted earnings written down by €25.3 million (2017: €18.0 million). per share for the reporting period came to €3.39 (2017: €3.68). KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 182 Notes to the consolidated statement of financial position [16] GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is broken down by segment as follows: > TABLE 068 Goodwill broken down by segment in € million Industrial Trucks & Services LMH EMEA STILL EMEA KION Americas KION APAC Supply Chain Solutions Dematic Total goodwill TABLE 068 2017 1,511.0 817.7 549.7 23.5 120.1 1,871.5 1,871.5 3,382.5 2018 1,500.7 817.2 549.2 21.3 112.9 1,924.2 1,924.2 3,424.8 The change in goodwill in 2018 mainly resulted from currency indefinite useful life. As at 31 December 2018, the brand names effects. allocated to the KION APAC CGU had a carrying amount of The Group intends to retain and further strengthen the Linde, €7.8 million (31 December 2017: €7.8 million) and had an indefinite STILL, OM and KION brand names on a long-term basis. Brand useful life. The brand names allocated to the Supply Chain names worth €466.2 million are assigned to the LMH EMEA CGU Solutions segment were worth €350.6 million as at 31 Decem- (31 December 2017: €466.2 million) and brand names worth ber 2018 (31 December 2017: €350.6 million) and essentially had €114.6 million to the STILL EMEA CGU (31 December 2017: an indefinite useful life. > TABLE 069 €114.8 million). These assets are not amortised as they have an KION GROUP AGAnnual Report 2018182 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position Intangible assets in € million Goodwill Brand names Technology and development Sundry intangible assets 183 TABLE 069 Total 6,175.6 9.6 – 346.5 104.2 – 0.3 – 217.5 – 8.6 Balance as at 01/01/2017 Group changes Currency translation adjustments Additions Disposals Amortisation Impairment Balance as at 31/12/2017 Gross carrying amount as at 31/12/2017 Accumulated amortisation Balance as at 01/01/2018 Group changes Currency translation adjustments Additions Disposals Amortisation Impairment Reclassification Balance as at 31/12/2018 Gross carrying amount as at 31/12/2018 Accumulated amortisation 3,572.9 9.5 – 199.8 – – – – 3,382.5 3,382.5 – 3,382.5 0.2 42.1 – – – – – 3,424.8 3,424.8 – 954.3 – – 0.9 – – – 0.2 – 8.6 944.6 955.2 – 10.6 944.6 – – 0.2 – – – 0.1 – – 944.3 954.9 – 10.6 723.7 – – 59.8 75.4 – – 69.0 – 924.6 0.1 – 86.0 28.8 – 0.3 – 148.2 – 670.3 719.0 5,716.5 917.2 – 246.9 670.3 – 16.1 84.0 – 0.2 – 76.6 – – 4.0 1,049.5 – 330.5 719.0 0.1 21.0 26.7 – 0.0 – 106.1 – 1.7 4.0 6,304.4 – 588.0 5,716.5 0.3 78.9 110.7 – 0.2 – 182.8 – 1.7 – 689.7 662.9 5,721.6 992.4 – 302.7 1,000.1 – 337.3 6,372.2 – 650.6 The total carrying amount for technology and development assets lion); these expenses are reported under cost of sales. Research as at 31 December 2018 was €689.7 million (31 December 2017: and development costs totalling €137.7 million (2017: €137.0 mil- €670.3 million). Development costs of €84.0 million were capital- lion) were expensed. ised in the reporting year (2017: €75.4 million). Amortisation Other intangible assets relate in particular to licences, patents, expenses of €76.6 million were also recognised (2017: €69.0 mil- software and customer relationships. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position [17] LEASED ASSETS The changes in leased assets in 2018 and 2017 were as follows: > TABLE 070 Leased assets in € million Balance as at 01/01/ Group changes Currency translation adjustments Additions Disposals Depreciation Impairment Reclassification Balance as at 31/12/ Gross carrying amount as at 31/12/ Accumulated depreciation 184 TABLE 070 2017 * 1,143.9 0.5 – 12.0 588.5 – 169.1 – 305.6 – 0.1 1,246.3 2,056.0 – 809.7 2018 1,246.3 – – 9.7 514.9 – 189.4 – 306.3 – 0.4 6.4 1,261.8 1,978.2 – 716.4 * Leased assets for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 Leased assets are attributable to the Industrial Trucks & Services Leased assets resulted in future lease payments expected to segment and relate to industrial trucks in the amount of be paid by customers under operating leases amounting to €1,261.8 million (31 December 2017: €1,246.3 million) that are pro- €599.3 million (31 December 2017: €516.7 million). vided for use to external customers under operating leases in the The maturity structure of these expected future payments in direct leasing business or as part of the indirect leasing business. the leasing business is shown in > TABLE 071. Leased assets include assets provided to customers with a residual book value of €405.4 million (31 December 2017: €419.7 million) that are financed by means of sale and leaseback sub-lease transactions with leasing companies. Leased assets in connection with indirect leasing business are worth €639.5 mil- lion (31 December 2017: €724.4 million); the corresponding resid- ual value obligations stood at €319.5 million (31 December 2017: €340.7 million). KION GROUP AGAnnual Report 2018184 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position Expected future payments from leasing business in € million Payments from leasing business due within one year due in one to two years due in two to three years due in three to four years due in four to five years due in more than five years * Leased assets for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 [18] RENTAL ASSETS The changes in rental assets in 2018 and 2017 were as follows: > TABLE 072 Rental assets in € million Balance as at 01/01/ Group changes Currency translation adjustments Additions Disposals Depreciation Impairment Reclassification Balance as at 31/12/ Gross carrying amount as at 31/12/ Accumulated depreciation * Rental assets for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 185 TABLE 071 2017 * 516.7 186.2 126.3 94.9 62.8 34.8 11.8 TABLE 072 2017 * 543.0 0.5 – 9.4 343.7 – 93.7 – 175.8 – – 608.4 933.2 – 324.8 2018 599.3 200.5 153.5 115.6 76.8 42.6 10.3 2018 608.4 – – 8.6 572.8 – 296.7 – 196.0 – 2.9 – 6.5 670.5 1,081.6 – 411.1 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 186 Rental assets are allocated solely to the Industrial Trucks & Services segment and comprise assets in the short-term rental fleet. On the opposite side of the statement of financial position to the rental assets are liabilities from financial services of €307.1 mil- lion (31 December 2017: €0.0 million) arising from the financing of [19] OTHER PROPERTY, PLANT AND EQUIPMENT the short-term rental fleet by means of sale and leaseback The changes in the carrying amounts of other property, plant and sub-lease transactions and liabilities of €289.9 million recognised equipment are shown in > TABLE 073. in other financial liabilities (31 December 2017: €515.7 million) arising on contracts entered into up to 31 December 2017. Other property, plant and equipment in € million Land and buildings Plant & machinery and office furniture & equipment Advances paid and assets under construction Balance as at 01/01/2017 * Group changes Currency translation adjustments Additions Disposals Depreciation Impairment Reclassification Balance as at 31/12/2017 * Gross carrying amount as at 31/12/2017 Accumulated depreciation Balance as at 01/01/2018 Group changes Currency translation adjustments Additions Disposals Depreciation Impairment Reclassification Balance as at 31/12/2018 Gross carrying amount as at 31/12/2018 Accumulated depreciation 557.1 1.4 – 13.1 109.6 – 2.0 – 53.8 – 0.5 3.0 601.7 1,113.6 – 511.9 601.7 – – 3.8 96.0 – 1.3 – 80.4 – 0.7 14.1 625.5 1,224.2 – 598.7 324.8 2.0 – 11.0 152.3 – 2.7 – 129.0 – 5.8 15.8 346.5 1,201.4 – 854.9 346.5 0.0 – 0.5 149.1 – 2.6 – 125.9 – 0.6 16.0 382.0 1,225.2 – 843.2 37.3 0.3 – 1.1 37.2 – 6.0 – – – 20.9 46.7 46.7 – 46.7 – 0.1 54.2 – 0.7 – – – 30.0 70.3 70.3 – * Other property, plant and equipment for 2017 were restated due to the initial application of IFRS 16 TABLE 073 Total 919.1 3.7 – 25.1 299.1 – 10.8 – 182.8 – 6.2 – 2.0 994.9 2,361.7 – 1,366.8 994.9 0.0 – 4.2 299.3 – 4.6 – 206.4 – 1.3 0.0 1,077.8 2,519.7 – 1,441.9 KION GROUP AGAnnual Report 2018186 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 187 Land and buildings in the amount of €18.3 million (31 Decem- leases (31 December 2017: €347.4 million). Of this figure, ber 2017: €18.3 million) were largely pledged as collateral for €276.4 million was attributable to land and buildings (31 Decem- accrued retirement benefits under partial retirement agreements. ber 2017: €247.6 million) and €114.3 million to plant & machinery Other property, plant and equipment included a figure of and office furniture & equipment (31 December 2017: €99.8 mil- €390.7 million for right-of-use assets related to procurement lion). > TABLE 074 Right-of-use assets in other property, plant and equipment TABLE 074 in € million Balance as at 01/01/2017 * Currency translation adjustments Additions Disposals Depreciation Other Balance as at 31/12/2017 * Gross carrying amount as at 31/12/2017 Accumulated depreciation Balance as at 01/01/2018 Currency translation adjustments Additions Disposals Depreciation Other Balance as at 31/12/2018 Gross carrying amount as at 31/12/2018 Accumulated depreciation Land and buildings Plant & machinery and office furniture & equipment 185.0 – 0.9 100.1 – 0.5 – 36.0 – 247.6 403.5 – 155.9 247.6 – 0.6 81.5 – 0.4 – 51.0 – 0.7 276.4 483.6 – 207.2 75.1 – 1.1 80.8 – 0.7 – 54.7 0.4 99.8 147.6 – 47.8 99.8 – 0.8 69.6 – 0.3 – 53.8 – 0.2 114.3 214.6 – 100.2 Total 260.1 – 2.0 180.9 – 1.2 – 90.8 0.4 347.4 551.1 – 203.7 347.4 – 1.4 151.1 – 0.7 – 104.9 – 0.9 390.7 698.2 – 307.5 * Other property, plant and equipment for 2017 were restated due to the initial application of IFRS 16 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 188 The expense recognised in 2018 for procurement leases with a The carrying amount of the equity-accounted investments term of up to twelve months came to €13.0 million (2017: €14.6 mil- mainly resulted from the shares (10.0 per cent) in Linde Hydraulics lion); the expense for procurement leases that relate to low-value GmbH & Co. KG, Aschaffenburg (‘Linde Hydraulics’), the shares assets was €5.1 million (2017: €3.2 million). (45.0 per cent) in Linde Leasing GmbH, Wiesbaden, the shares There were also obligations arising from short-term procure- (45.0 per cent) in Linde High Lift Chile S.A., Santiago de Chile, ment leases that already existed as at 31 December 2018 but will Chile, and the shares (50.0 per cent) in JULI Motorenwerk s.r.o, be expensed in 2019 in an amount of €3.2 million (31 Decem- Moravany, Czech Republic. The associates and joint ventures ber 2017: €2.4 million). [20] EQUITY-ACCOUNTED INVESTMENTS can be seen in the list of shareholdings (see note [48]). Their financial information is summarised below. > TABLES 075 – 076 The amounts in the tables are based on the share held by the KION Group in the relevant associate or joint venture. The KION Group reported equity-accounted investments with a total carrying amount of €82.3 million as at 31 December 2018 (31 December 2017: €80.3 million). Summarised financial information associates in € million Total carrying amount Profit (+) / loss (–) from continuing operations Other comprehensive income Total comprehensive income Summarised financial information joint ventures in € million Total carrying amount Profit (+) / loss (–) from continuing operations Other comprehensive income Total comprehensive income TABLE 075 2017 43.8 5.2 – 0.7 4.5 TABLE 076 2017 36.4 8.5 1.3 9.7 2018 46.6 6.6 1.0 7.6 2018 35.7 5.6 0.1 5.7 KION GROUP AGAnnual Report 2018188 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 189 [21] LEASE RECEIVABLES In the case of leases under which KION Group entities lease assets directly to end customers, the Group’s net investment in the lease is reported as a lease receivable. The amounts recognised as lease receivables are based on the following data: > TABLE 077 Maturity analysis of lease receivables in € million Nominal value of outstanding lease payments due within one year due in one to two years due in two to three years due in three to four years due in four to five years due in more than five years Plus unguaranteed residual values Less unearned financial income TABLE 077 2017 854.9 222.6 209.4 165.0 129.9 86.7 41.4 2018 1,069.5 311.5 256.9 208.2 152.2 89.5 51.2 135.7 107.3 107.8 86.5 Present value of outstanding lease payments 1,097.3 875.8 Outstanding lease payments include payments from non-cancel- lable leases amounting to €732.8 million (31 December 2017: €715.2 million). KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position [22] OTHER FINANCIAL ASSETS The breakdown of other financial assets of €113.2 million (31 December 2017: €176.1 million) is shown in > TABLE 078. Other financial assets in € million Investments in non-consolidated subsidiaries and other investments Financial investments Loans receivable Financial receivables Other financial investments Derivative financial instruments Sundry other financial assets Other non-current financial assets Derivative financial instruments Financial receivables Sundry other financial assets Other current financial assets 190 TABLE 078 2017 36.0 – 2.2 – 18.9 – – 57.1 30.0 30.3 58.7 119.0 2018 – 5.2 – 1.1 21.0 1.0 1.4 29.8 8.9 34.7 39.8 83.4 Total other financial assets 113.2 176.1 The financial investments essentially comprise the equity invest- As of 1 January 2018, the non-consolidated equity invest- ment in Balyo SA of €5.2 million. This equity investment, which ments and the other equity investments not accounted for under has been assigned to the FVOCI category under IFRS 9 owing to the equity method are reported as other non-current assets (see the strategic partnership with the company, is now recognised at note [23]). fair value through other comprehensive income without recycling Other financial investments comprise long-term investments to profit or loss upon disposal. As at 31 December 2017, this that are held in order to cover the defined benefit obligation and financial investment had been included under non-consolidated do not qualify as plan assets. subsidiaries and other equity investments in an amount of €11.7 million. KION GROUP AGAnnual Report 2018190 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 191 [23] OTHER ASSETS [24] INVENTORIES Other assets of €165.1 million (31 December 2017: €108.5 million) The reported inventories break down as follows: > TABLE 080 comprise the following: > TABLE 079 The year-on-year expansion in inventories was largely attributable As at 31 December 2017, shares in non-consolidated equity to increases in materials and supplies (53.5 per cent), work in investments and other equity investments not accounted for progress (21.3 per cent) and finished goods (19.9 per cent). This under the equity method had been reported as other non-current overall expansion was due to short-term supply bottlenecks at financial assets (see note [22]). suppliers in the Industrial Trucks & Services segment that mainly Pension assets relate to asset surpluses from two (31 Decem- occurred in the first half of 2018 but had not been completely ber 2017: two) defined benefit plans in the United Kingdom, in eliminated by 31 December 2018. which plan assets exceed the present value of the defined benefit obligation (see note [28]). Other assets in € million Investments in non-consolidated subsidiaries and other investments Pension assets Other non-current assets Deferred charges and prepaid expenses Sundry tax receivables Other current assets Total other assets Inventories in € million Materials and supplies Work in progress Finished goods and merchandise Advances paid Total inventories TABLE 079 2017 – 24.2 24.2 40.2 44.0 84.3 2018 25.6 33.3 58.9 49.0 57.2 106.2 165.1 108.5 TABLE 080 2017 185.2 109.0 459.0 15.4 768.6 2018 284.2 132.3 550.6 27.8 994.8 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 192 In 2018, write-downs of €25.3 million were recognised on inven- tories (2017: €18.0 million). Reversals of write-downs had to be recognised in the amount of €6.5 million (2017: €7.5 million) because the reasons for the write-downs no longer existed. [25] TRADE RECEIVABLES The trade receivables break down as follows: > TABLE 081 Trade receivables in € million Receivables from third parties thereof receivables not due and overdue ≤ 90 days thereof receivables overdue > 90 days ≤ 180 days thereof receivables overdue > 180 days thereof receivables adjusted for individual valuation allowances Receivables from third parties measured at fair value through profit or loss (FVPL) Trade receivables from non-consolidated subsidiaries, equity-accounted investments and other investments Valuation allowances for trade receivables thereof valuation allowances for receivables not due and overdue ≤ 90 days thereof valuation allowances for receivables overdue > 90 days ≤ 180 days thereof valuation allowances for receivables overdue > 180 days thereof individual valuation allowances Total trade receivables in € million Receivables from third parties thereof receivables from third parties before valuation allowances thereof valuation allowances for receivables overdue > 90 days ≤ 180 days thereof valuation allowances for receivables overdue > 180 days thereof other valuation allowances Trade receivables from non-consolidated subsidiaries, equity-accounted investments and other investments Total trade receivables * Trade receivables for 2017 were restated due to the initial application of IFRS 15 TABLE 081 2018 1,005.5 917.6 28.6 23.4 35.9 15.6 53.2 – 37.8 – 1.5 – 1.9 – 3.2 – 31.1 1,036.4 2017 * 958.5 1,009.6 – 10.0 – 25.8 – 15.3 40.9 999.4 KION GROUP AGAnnual Report 2018192 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 193 Change in valuation allowances for trade receivables TABLE 082 in € million Valuation allowances as at 31/12/ Remeasurement to equity for the initial application of IFRS 9 Valuation allowances as at 01/01/ Additions Reversals Utilisations Currency translation adjustments Valuation allowances as at 31/12/ 2018 51.1 – 14.8 36.3 10.4 – 3.3 – 5.1 – 0.5 37.8 2017 40.4 – 40.4 20.6 – 6.3 – 2.4 – 1.2 51.1 The change in valuation allowances for trade receivables is presented in > TABLE 082. The average loss rates used for the rec- ognition of valuation allowances for expected losses vary depend- ing on the Operating Unit and the period by which the receivable [27] EQUITY is past due. They currently range from 0.0 per cent to 4.0 per cent. Subscribed capital and capital reserves [26] CASH AND CASH EQUIVALENTS As at 31 December 2018, the Company’s share capital amounted to €118.1 million, which was unchanged on 31 December 2017, and was fully paid up. It was divided into 118.1 million no-par- value shares. The Annual General Meeting on 11 May 2017 voted to create The change in cash and cash equivalents is shown in the consol- new authorised capital that will enable the KION Group to idated statement of cash flows. For more detailed information, continue to meet its funding needs quickly and flexibly. Subject to please also refer to note [38]. > TABLE 083 the consent of the Supervisory Board, the Executive Board is authorised until 10 May 2022 to increase the Company’s share Cash and cash equivalents in € million Balances with banks, cash and cheques Pledged cash Total cash and cash equivalents TABLE 083 2017 172.8 0.4 173.2 2018 171.6 3.7 175.3 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 194 capital by up to €10.879 million by way of an issue of up to past contributions to earnings by the consolidated entities, 10,879,000 new no-par-value bearer shares (2017 Authorised provided they have not been distributed. Capital). The figure for retained earnings in 2017 decreased owing to With the consent of the Supervisory Board, the Executive the effects of the transition to IFRS 9, IFRS 15 and IFRS 16, which Board of KION GROUP AG decided on 22 May 2017 to utilise are described in note [6]. some of the authorised capital created by the 2017 Annual The distribution of a dividend of €0.99 per share (2017: General Meeting. The share capital was increased against cash €0.80 per share) to the shareholders of KION GROUP AG resulted contributions by issuing 9.3 million new no-par-value bearer in an outflow of funds of €116.8 million in May 2018 (2017: shares. The gross proceeds from the capital increase came to €86.9 million). €602.9 million. An amount of €593.6 million was paid into the capital reserves. The total number of shares outstanding as at 31 Decem- Appropriation of profit ber 2018 was 117,924,442 no-par-value shares (31 Decem- ber 2017: 117,929,171 no-par-value shares). Between 10 Septem- KION GROUP AG’s net profit for 2018 was €236.3 million, of ber 2018 and 27 September 2018, a further 66,000 treasury which €94.8 million will be transferred to other revenue reserves. shares (KEEP 2017: 60,000 treasury shares) were repurchased The Executive Board and the Supervisory Board will propose to via the stock exchange at an average price of €54.17 (2017: the Annual General Meeting to be held on 9 May 2019 that an €72.15) in order to provide the shares for employees’ own invest- amount of €141.5 million be appropriated from the distributable ments and the free shares under the KEEP 2018 employee share profit of €141.7 million for the payment of a dividend of €1.20 per option programme. The total cost was €3.6 million ((2017: dividend-bearing share. It is also proposed that the remaining €4.3 million). Due to the issue of 22,580 bonus shares under sum of €0.2 million be carried forward to the next accounting KEEP 2015 (KEEP 2014: 27,363 bonus shares) and 38,691 period. This equates to a dividend payout rate of 35 per cent of no-par-value shares (2017: 36,294 no-par-value shares) under net income. KEEP 2018, KION GROUP AG held 165,558 treasury shares at the reporting date (31 December 2017: 160,829). These treasury shares are not dividend-bearing and do not confer any voting rights. Further details on the KEEP employee share option programme can be found in note [45]. In February 2019, a further Accumulated other comprehensive income (loss) 13,674 no-par-value shares were issued for participants’ own The breakdown of accumulated other comprehensive income investments under KEEP 2018. (loss) is shown in > TABLE 043. As at 31 December 2018, KION Group employees held The currency translation adjustment contains the exchange options on a total of 43,655 no-par-value shares (31 Decem- differences arising from the financial statements prepared in a ber 2017: 50,166 no-par-value shares). The share options granted foreign currency of foreign subsidiaries, associates and joint under the employee share option programme are not dividend- ventures. bearing and do not confer any voting rights. The gains / losses on the defined benefit obligation are the Retained earnings result of remeasuring defined benefit pension obligations (see also note [28]). The gains / losses on hedge reserves are the effective portion of the changes in the fair value of hedging instruments in The changes in retained earnings are shown in the consolidated documented hedges. The gains / losses on financial investments statement of changes in equity in > TABLE 043. The retained relate to the remeasurement of the equity investment in Balyo SA earnings comprise the net income (loss) for the financial year and KION GROUP AGAnnual Report 2018194 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 195 at fair value (FVOCI category under IFRS 9; 2017: AfS category Defined benefit plans under IAS 39). The gains / losses from equity-accounted investments contain In the case of defined benefit plans, the beneficiaries are granted the share of other comprehensive income (loss) from associates a specific benefit by the Group or an external pension fund. Due and joint ventures accounted for under the equity method. to future salary increases, the benefit entitlement at the retirement Non-controlling interests age of the beneficiary is likely to be higher than the amount granted as at the reporting date. Pensions are often adjusted after an employee reaches retirement age. The amount of the Group’s obligation, which is defined as the actuarial present value Non-controlling interests in companies in the KION Group of the obligation to provide the level of benefits currently earned amounted to €3.3 million (31 December 2017: €4.4 million). by each beneficiary, is expressed as the present value of the [28] RETIREMENT BENEFIT OBLIGATION defined benefit obligation (DBO) including adjustments for future salary and pension increases. The KION Group currently grants pensions to almost all employees in Germany and a number of foreign employees. These pensions consist of fixed benefit entitlements and are therefore reported as defined benefit plans in accordance with IFRS. As at 31 December 2018, the KION Group had set up The retirement benefit obligation is recognised for obligations to defined benefit plans in 13 countries. For all of the significant provide current and future post-employment benefits. Post- defined benefit plans within the Group, the benefits granted to employment benefit plans are classified as either defined benefit employees are determined on the basis of their individual income, plans or defined contribution plans, depending on the substance i.e. either directly or by way of intermediate benefit arrangements. of the plan as derived from its principal terms and conditions. The largest of the KION Group’s defined benefit plans – together accounting for 92.7 per cent of the global defined benefit obligation (31 December 2017: 93.0 per cent) – are in Germany, Defined contribution plans the United Kingdom and the US. In the case of defined contribution pension plans, the Group pays contributions to government or private pension insurance providers based on statutory or contractual provisions, or on a voluntary basis. The Group does not enter into any obligations above and beyond the payment of contributions to an external pension fund. The amount of future pension benefits is based solely on the amount of the contributions paid by the employer (and in some cases the beneficiaries themselves) to the external pension fund, including income from the investment of these contributions. The total expense arising from defined contribution plans amounted to €93.3 million in 2018 (2017: €92.9 million). Of this total, contri- butions paid by employers into government-run schemes came to €76.7 million (2017: €72.8 million). The defined contribution plan expense is reported within the functional costs. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 196 Germany United Kingdom In Germany, the pension benefits granted comprise Compa- In the United Kingdom, defined benefit pension obligations ny-funded pension entitlements and employees’ payment of part predominantly relate to two plans. The defined benefits include of their salary into the pension scheme. The existing pension not only a life-long retirement pension but also surviving depend- plans were closed to new entrants with effect from 1 January ants’ benefits. The amount of the pension depends on employ- 2018. As part of the restructuring of the pension plans, the ees’ length of service and final salary. guaranteed rate of return on contributions and the pension factors The two plans were closed to new employees more than ten used for the annuitisation of capital commitments were adjusted years ago. Each plan is monitored by its own board of trustees, to reflect conditions in financial markets. which oversees the running of the plan as well as its funded The contributions to the new pension plans will be invested in status and the investment strategy. The members of the board of investment funds under contractual trust arrangements; returns trustees comprise people appointed by the company involved on plan assets will be passed on to the pension beneficiaries and selected plan beneficiaries. when an insured event occurs. Members of the Executive Board Under UK law, the board of trustees is obliged to have a and other executives are predominantly covered by individual valuation of the plan carried out at least every three years. The pension plans. For details of the pension entitlements of trustees and the Company are currently assessing the valuation KION GROUP AG Executive Board members, please refer to the of the pension plans as at 1 January 2018. A new agreement with information in note [46]. The amount of the benefits paid to exec- the trustees is expected to be reached in 2019. utives depends on the type of entitlement. A very small proportion In addition, collateral in rem in the form of charges on the real of pension benefits are granted in the form of final-salary-linked estate of Group companies in the UK and flexible collateral in benefit obligations. The overwhelming majority of the existing respect of the rental fleets of UK dealers within a maximum over- pension entitlements are a combination of a defined benefit all limit of approximately €20.0 million were extended for the obligation and a defined contribution component. The pension benefit of the pension funds. The term of this collateral is limited plan for senior managers was closed to new entrants with effect to 1 July 2021, and the overall limit will not be reduced by pay- from 1 January 2018. The revised pension plan is structured in ments made by the KION Group. The likelihood of the guarantee the same way as the aforementioned plan for employees covered being used is deemed low in view of the position of the individual by collective pay agreements and those not subject to such companies with regard to their current and future financial and agreements. Different contributions are granted to senior manag- earnings situations. ers depending on their role. Beside the securities-linked pension entitlements, some of United States the KION Group’s pension obligations in Germany under the Following the acquisition of Dematic, the KION Group maintains closed plans are financed by way of contractual trust arrange- three main defined benefit pension plans in the US. The defined ments (CTAs). The assets transferred to the trustee qualify as plan benefits include not only a life-long retirement pension but also assets within the meaning of IAS 19. The trustees are required to surviving dependants’ benefits. follow a defined investment strategy and guidelines. There are no Unionised employees receive pension entitlements on the statutory minimum funding requirements. In the event of the basis of fixed amounts for each month of service. Salaried Company’s insolvency, the company pension scheme in Germany employees receive benefits that generally depend on their period is to a large extent protected by law by the insolvency protection of service and on their average final salary fixed on the date the scheme (Pensions-Sicherungs-Verein Versicherungsverein auf plan concerned was frozen. These defined benefit plans have been Gegenseitigkeit, PSVaG). frozen for some time now in relation to future periods of service. KION GROUP AGAnnual Report 2018196 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 197 Two of the plans are subject to statutory minimum funding vary depending on the economic conditions affecting the provisions that each specify a certain coverage ratio and provide currency in which benefit obligations are denominated and in for annual payments to maintain the required ratio. In 2018, a which fund assets are invested, as well as capital market one-off sum of €17.8 million was paid. expectations. Other countries Benefit obligations are calculated on the basis of current biometric probabilities as determined in accordance with actuarial Furthermore, significant asset volumes are invested in external principles. The calculations also include assumptions about pension funds with restricted access in Switzerland and the future employee turnover based on employee age and years of Netherlands. Decisions on additions to plan assets take into service and about the probability of retirement. The defined benefit account the change in plan assets and pension obligations. They obligation is calculated on the basis of the significant weighted- also take into account the statutory minimum coverage require- average assumptions as at the reporting date shown in > TABLE 084. ments and the amounts deductible under local tax rules. The assumed discount rate is determined on the basis of the Measurement assumptions yield as at the reporting date on AA-rated, fixed-interest senior corporate bonds with maturities that match the expected maturi- ties of the pension obligations. Pension obligations in foreign companies are calculated on a comparable basis taking into In accordance with IAS 19 ‘Employee Benefits’, pension provi- account any country-specific requirements. sions are recognised to cover obligations arising from the current Future increases in salaries are estimated on an annual basis and future pension entitlements of active and (after the vesting taking into account factors such as inflation and the overall period has expired) former employees of the KION Group and economic situation. their surviving dependants. The discount rate used to calculate The biometric mortality rates used in the calculation are the defined benefit obligation at each reporting date is deter- based on published country-specific statistics and empirical mined on the basis of current capital market data and long-term values. Since 2018, the Heubeck ‘Richttafeln 2018 G’ mortality assumptions about future salary and pension increases in tables have been used as the biometric basis in Germany. The accordance with the best estimate principle. These assumptions S2PA tables (standard mortality tables for self-administered Assumptions underlying provisions for pensions and other post-employment benefits TABLE 084 Germany UK USA Other Discount rate Salary increase rate Pension increase rate 2018 1.90% 2.75% 1.75% 2017 1.95% 2.75% 1.75% 2018 2.65% 4.12% 3.37% 2017 2.35% 4.12% 3.37% 2018 4.25% 2017 3.60% – – – – 2018 1.43% 1.74% 0.26% 2017 1.41% 1.49% 0.27% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 198 pension schemes (SAPS) based on normal health) are applied to In the case of externally funded pension plans, this present the two defined benefit plans in the United Kingdom. In the US, value of the defined benefit obligation is reduced by the fair value calculations use the modified RP-2014 mortality tables with of the assets of the external pension fund (plan assets). If the plan the generational projection from the Mortality Improvement assets exceed the present value of the defined benefit obligation Scale MP-2016. (net assets), a corresponding asset is recognised in accordance The actuarial assumptions not listed in > TABLE 084, such as with IAS 19. IAS 19.64 in conjunction with the supplementary employee turnover, invalidity, etc., are determined in accordance explanatory information in IFRIC 14 states that the recognition of with recognised forecasts in each country, taking into account an asset for an excess of plan assets is only permitted if the the circumstances and forecasts in the companies concerned. company concerned, in its function as the employer, gains The significant weighted-average assumptions shown in economic benefits in the form of reductions in future contribu- > TABLE 085 were applied to the calculation of the net interest tions to the plan or in the form of refunds from the plan (this is the cost and the cost of benefits earned in the current year (current case for the defined benefit plans in the United Kingdom). If the service cost). present value of the defined benefit obligation is not covered by Differences between the forecast and actual change in the the plan assets, the net obligation is reported under the retirement defined benefit obligation and changes in related assets (known benefit obligation. as remeasurements) are recognised immediately in other com- In two defined benefit plans in the United Kingdom, plan prehensive income (loss) in accordance with IAS 19. This serves assets exceed the present value of the defined benefit obligation. to ensure that the pension liability in the statement of financial Stipulations limiting the asset to be recognised in the statement of position is the present value of the defined benefit obligation. financial position do not apply. Assumptions underlying pensions expenses TABLE 085 Germany UK USA Other Discount rate Salary increase rate Pension increase rate 2018 1.95% 2.75% 1.75% 2017 1.90% 2.75% 1.75% 2018 2.35% 4.12% 3.37% 2017 2.55% 4.12% 3.47% 2018 3.60% 2017 4.05% – – – – 2018 1.41% 1.49% 0.27% 2017 1.35% 2.51% 0.28% KION GROUP AGAnnual Report 2018198 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 199 Statement of financial position The change in the present value of the defined benefit obligation (DBO) is shown in > TABLE 086. Changes in defined benefit obligation TABLE 086 Germany UK USA Other Total in € million 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 1,001.4 974.7 428.9 448.5 210.0 218.1 124.2 127.8 1,764.4 1,769.1 Present value of defined benefit obligation as at 01/01/ Group changes Exchange differences Current service cost Past service cost (+) and income (–) Interest expense Employee contributions Pension benefits directly paid by company – – 0.5 – – – – 4.6 – 17.4 36.7 35.5 – 18.8 3.7 – 18.0 3.5 – 15.9 – 15.6 0.9 1.4 9.9 – – 1.0 – 10.9 – – – 9.3 0.2 – 7.6 – – Pension benefits paid by funds Liability transfer out to third parties – 1.6 – 0.2 – 1.2 – 19.9 – 16.6 – 7.6 – 0.5 – – – Actuarial gains (–) and losses (+) arising from changes in demographic assumptions 0.5 – – 10.6 – 0.4 – 0.6 changes in financial assumptions 15.1 – 11.8 – 18.7 experience adjustments 2.9 – 1.7 1.9 2.8 0.1 – 17.2 1.0 – – 28.2 0.1 – 7.7 – – 0.4 – 7.7 – 5.0 14.2 1.2 – 2.0 3.6 – 1.7 1.0 – – 4.6 4.0 – 0.1 1.4 1.0 – 0.5 6.7 – 50.2 41.4 1.4 38.0 4.7 40.6 – 0.1 38.1 4.5 – 1.5 – 2.7 1.9 – 1.9 – 17.5 – 17.9 – 2.7 – 31.9 – 28.3 0.1 1.7 – 0.4 0.0 – 0.0 – 10.7 – 0.7 – 0.7 – 21.4 4.6 4.5 0.7 0.0 6.6 – 0.5 Present value of defined benefit obligation as at 31/12/ 1,061.2 1,001.4 389.1 428.9 202.7 210.0 130.2 124.2 1,783.3 1,764.4 thereof unfunded thereof funded 459.5 436.9 0.0 0.0 7.2 7.3 601.7 564.5 389.1 428.9 195.5 202.6 39.0 91.3 37.6 505.7 481.8 86.6 1,277.6 1,282.6 The DBO in the other countries was predominantly attributable to subsidiaries in Switzerland (2018: €54.7 million; 2017: €50.2 million) and the Netherlands (2018: €35.9 million; 2017: €35.7 million). KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 200 The change in the fair value of plan assets is shown in > TABLE 087. The changes in the retirement benefit obligations reported in Employees in Germany paid a total of €3.7 million (2017: the statement of financial position are shown in > TABLE 089. €3.5 million) into the KION pension plan in 2018. The payments expected for 2019 amount to €22.2 million (in 2017: €26.1 million for 2018), which includes direct payments of Statement of cash flows pension benefits amounting to €19.8 million (in 2017: €19.3 million for 2018) that are not covered by corresponding reimbursements In the case of obligations not covered by external assets, from plan assets. payments to beneficiaries are made directly by the Company and The reconciliation of funded status and net defined benefit therefore have an impact on cash flow from operating activities. If obligation to the amounts reported in the consolidated statement the benefit obligations are backed by external assets, the of financial position as at 31 December is shown in > TABLE 088. payments are made from existing plan assets and have no effect Overall, the funding ratio (ratio of plan assets to the present on the Company’s cash flow. Instead, any contributions made to value of the defined benefit obligation) in the KION Group was the external pension fund by the Company result in a cash outflow 43.4 per cent (2017: 44.5 per cent). for operating activities. Changes in plan assets TABLE 087 Germany UK USA Other Total in € million 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Fair value of plan assets as at 01/01/ 93.8 86.3 448.7 455.7 165.0 167.0 78.4 81.4 785.9 790.4 Group changes Exchange differences Interest income on plan assets Employee contributions Employer contributions Pension benefits paid by funds Liability transfer out to third parties Remeasurements – – 1.8 3.7 0.8 – 1.6 – 0.0 2.3 – – 1.6 3.5 0.9 – – – 5.0 – 17.9 10.4 11.1 – 0.3 – 3.9 – 1.2 – 19.9 – 16.6 – 0.1 – – – 7.7 6.1 – 17.6 – 7.6 – 2.9 – 15.2 12.4 – 17.0 18.0 – – 21.9 5.6 – 3.9 – 1.7 0.9 1.0 1.1 – – – – 3.9 4.4 – 43.6 0.8 1.0 1.3 19.2 4.7 19.7 19.1 4.5 10.0 – 7.7 – 2.7 – 2.7 – 31.9 – 28.3 – 1.8 – 0.4 82.0 – 1.8 0.6 – 30.4 – 0.1 33.9 78.4 773.5 785.9 Fair value of plan assets as at 31/12/ 100.7 93.8 419.1 448.7 171.7 165.0 KION GROUP AGAnnual Report 2018200 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 201 Funded status and net defined benefit obligation TABLE 088 in € million 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Germany UK USA Other Total Present value of the funded defined benefit obligation Fair value of plan assets Surplus (+) / deficit (–) Present value of the unfunded defined benefit obligation Net liability (–) / net asset (+) as at 31/12/ Reported as – 601.7 – 564.5 – 389.1 – 428.9 – 195.5 – 202.6 – 91.3 – 86.6 – 1,277.6 – 1,282.6 100.7 93.8 419.1 448.7 171.7 165.0 – 501.1 – 470.7 30.0 19.8 – 23.7 – 37.6 82.0 – 9.3 78.4 773.5 785.9 – 8.1 – 504.1 – 496.7 – 459.5 – 436.9 – 0.0 – 0.0 – 7.2 – 7.3 – 39.0 – 37.6 – 505.7 – 481.8 – 960.5 – 907.5 30.0 19.8 – 30.9 – 45.0 – 48.2 – 45.8 – 1,009.7 – 978.5 “retirement benefit obligation“ – 960.5 – 907.5 Reported as “Other non-current assets“ – 0.0 – – 3.3 33.3 – 4.4 – 30.9 – 45.0 – 48.2 – 45.8 – 1,043.0 – 1,002.7 24.2 – – – – 33.3 24.2 Changes in retirement benefit obligation TABLE 089 in € million Balance as at 01/01/ Group changes Exchange differences Total service cost Net interest expense Pension benefits directly paid by company Remeasurements Balance as at 31/12/ Germany UK USA Other Total 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 907.5 888.3 4.4 – 5.0 – 0.5 – – 36.7 17.0 – – 0.0 – 0.2 35.5 16.5 0.1 0.1 0.0 0.1 45.0 51.2 45.8 46.4 1,002.7 991.0 – 1.6 0.2 1.5 – 0.2 – – 6.3 0.1 2.1 – 0.4 – 3.9 – 2.4 – 0.3 3.6 0.7 – 1.5 – 1.1 0.1 0.5 – – 0.8 3.9 0.6 – 1.9 40.6 19.3 0.5 – 7.3 39.5 19.3 – 1.9 – 17.5 – 17.9 – 1.3 – 19.8 0.1 – 0.2 – 6.4 – 0.3 – 1.3 15.9 – 15.6 16.2 – 16.4 – 1.0 – 0.3 960.5 907.5 3.3 4.4 30.9 45.0 48.2 45.8 1,043.0 1,002.7 Employer contributions to plan assets Liability transfer out to third parties – 0.8 – 0.2 – 0.9 – 0.4 – 0.3 – 0.3 – 17.6 – – – 15.9 – 15.6 – – – KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 202 For the main pension entitlements in the KION Group, a sum of the year under review on the basis of the maximum length of €17.5 million (2017: €17.9 million) was paid directly by the Company service achievable by each employee. and a sum of €31.9 million (2017: €28.3 million) was paid from plan Past service cost arises if there is a change to the pension assets in the reporting year. Cash contributions to plan assets in entitlement and it is recognised immediately in full. 2018 amounted to €19.7 million (2017: €10.0 million). The net interest cost / income, which is calculated by Income statement multiplying the net liability (present value of the defined benefit obligation minus plan assets) or the net assets (if the plan assets exceed the present value of the defined benefit obligation) at the start of the year by the discount rate, is also recognised in the In accordance with IAS 19, actuarial computations are performed income statement. for benefit obligations in order to determine the amount to be The breakdown of the net cost of the defined benefit obliga- expensed in each period in accordance with fixed rules. The tion (expenses less income) recognised in the income statement expenses recognised in the income statement for pensions and for 2018 is shown in > TABLE 090. similar obligations consist of a number of components that must The KION Group’s net financial expenses include a net be calculated and disclosed separately. interest cost of €18.8 million (2017: €18.9 million). All other The service cost is the new pension entitlement arising in the components of pension expenses are recognised under financial year and is recognised in the income statement. It is functional costs. calculated as the present value of that proportion of the expected The actual total return on plan assets in 2018 was minus defined benefit obligation when the pension is paid attributable to €11.2 million (2017: plus €53.1 million). Cost of defined benefit obligation TABLE 090 in € million Current service cost Past service cost (+) and income (–) Total service cost Interest expense Interest income on plan assets Net interest expense (+) / income (–) Total cost of defined benefit obligation Germany UK USA Other Total 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 36.7 35.5 0.9 1.4 2.3 9.9 1.0 – 1.0 10.9 0.2 – 0.2 7.6 0.1 – 0.1 7.7 3.6 4.0 41.4 – – 0.1 3.6 1.7 3.9 1.4 1.4 42.8 38.0 40.6 – 0.1 40.5 38.1 – 35.5 18.0 – 1.6 – 10.4 – 11.1 – 6.1 – 5.6 – 0.9 – 0.8 – 19.2 – 19.1 16.5 52.0 – 0.5 – 0.2 1.8 0.8 1.5 1.7 2.1 2.2 0.7 4.4 0.6 4.5 18.8 61.5 18.9 59.5 – 36.7 18.8 – 1.8 17.0 53.7 KION GROUP AGAnnual Report 2018202 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 203 Accumulated other comprehensive income (loss) TABLE 091 Germany UK USA Other Total in € million 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Accumulated other comprehensive income / loss as at 01/01/ – 334.0 – 350.4 – 45.1 – 57.1 Exchange differences – – 0.4 2.1 7.9 0.4 11.6 – 24.0 – 26.0 – 395.1 – 421.9 – 1.3 – 0.3 0.7 0.4 1.5 Gains (+) and losses (–) arising from remeasurements of defined benefit obligation Gains (+) and losses (–) arising from remeasurements of plan assets Accumulated other comprehensive income / loss as at 31/12/ – 18.5 13.5 27.4 – 2.5 16.8 – 20.4 – 0.1 0.8 25.6 – 8.7 2.3 2.9 – 15.2 12.4 – 17.0 18.0 – 0.4 0.6 – 30.4 33.9 – 350.2 – 334.0 – 32.6 – 45.1 8.1 7.9 – 24.8 – 24.0 – 399.4 – 395.1 Other comprehensive income (loss) Composition of plan assets The breakdown of the remeasurement of the defined benefit The plan assets of the main pension plans consist of the following obligation recognised in the statement of comprehensive income components: > TABLE 092 in 2018 is presented in > TABLE 091. The components of the remeasurements of the defined ben- efit obligations are listed in > TABLE 086. The gains and losses on the remeasurement of plan assets are attributable entirely to experience adjustments. The changes in estimates relating to defined benefit pension entitlements resulted in a €0.2 million decrease in equity as at 31 Decem- ber 2018 after deduction of deferred taxes (31 December 2017: increase of €18.7 million). KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 204 Fair value of plan assets TABLE 092 in € million Shares Fixed-income securities Real estate Insurance policies Other Total plan assets thereof total assets that do not have a quoted price in active markets Insurance policies Other Germany UK USA Other Total 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 27.0 27.9 7.2 – 38.6 100.7 14.3 – 14.3 26.7 28.8 6.7 – 31.6 93.8 9.0 – 9.0 34.8 53.8 332.0 362.9 – – – – 76.9 80.8 – – 72.6 78.9 – – 52.3 32.0 14.1 13.5 419.1 448.7 171.7 165.0 15.8 – 15.8 7.9 – 7.9 – – – – – – 10.3 12.6 7.8 35.9 15.4 82.0 48.0 35.9 12.1 10.1 12.1 5.4 46.3 149.0 163.1 453.3 482.7 15.0 35.9 12.1 46.3 81.6 4.5 120.4 78.4 773.5 785.9 47.8 46.3 1.5 78.0 35.9 42.1 64.7 46.3 18.4 Sensitivity analysis Future pension benefit payments The present value of the defined benefit obligation is based on The pension benefit payments shown in > TABLE 094 are forecast the significant assumptions detailed in > TABLE 084 above. If one for the next ten years for the defined benefit pension entitlements assumption were to vary and the other assumptions remained in existence as at 31 December 2018. The expected pension unchanged, the impact on the present value of the defined benefit benefits break down into future benefits to be paid directly by the obligation would be as shown in > TABLE 093. employer (for 2019: €19.8 million) and future benefits to be paid The sensitivity analysis shown in > TABLE 093 is not represent- from existing plan assets (for 2019: €36.3 million). ative of an actual change in the present value of the defined ben- As at the reporting date, the average duration of the defined efit obligation because variations in the significant assumptions benefit obligation, weighted on the basis of the present value of are unlikely to occur in isolation as, to some extent, the assump- the defined benefit obligation, was 21.5 years in Germany (2017: tions are interrelated. Sensitivity is determined using the same 22.2 years), 14.3 years in the United Kingdom (2017: 15.5 years), methods (projected unit credit method) as for the measurement 12.9 years in the US (2017: 14.1 years) and 15.7 years in the other of the obligation recognised in the consolidated statement of countries (2017: 16.0 years). financial position as at 31 December 2018. KION GROUP AGAnnual Report 2018204 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position Sensitivity defined benefit obligation in € million Discount rate Salary increase rate Pension increase rate Increase by 1.0 percentage point Reduction by 1.0 percentage point Increase by 0.5 percentage point Reduction by 0.5 percentage point Increase by 0.25 percentage point Reduction by 0.25 percentage point Life expectancy Increase by 1 year Expected payments for pension benefits in € million Germany 24.2 22.0 23.2 25.8 29.1 163.8 2019 2020 2021 2022 2023 2024 to 2028 Risks 205 TABLE 093 2017 – 279.7 373.1 18.7 – 18.7 42.2 – 40.2 61.7 TABLE 094 Total 56.2 54.7 56.8 59.2 63.4 341.2 2018 – 280.2 377.0 17.7 – 17.9 39.5 – 37.9 63.7 Other 4.1 4.4 4.9 4.4 4.9 26.8 UK 18.6 18.5 18.4 18.5 18.5 93.0 USA 9.2 9.7 10.2 10.6 10.9 57.5 The plan assets are predominantly invested in corporate bonds and inflation-linked UK government bonds, particularly in The funding ratio, the defined benefit obligation and the associ- the United Kingdom. The market risk attaching to plan assets – ated costs depend on the performance of financial markets. The above all in the case of equities – is mitigated by defining an return on plan assets is assumed to equal the discount rate, investment strategy and investment guidelines and constantly which is determined on the basis of the yield earned on AA-rated, monitoring the assets’ performance. Moreover, a downward fixed-interest senior corporate bonds. If the actual return on plan trend in financial markets could have a significant effect on assets falls below the discount rates applied, the net obligation minimum funding requirements, some of which apply outside arising out of the pension plans increases. The amount of the net Germany. obligation is also particularly affected by the discount rates, and The KION Group also bears the full risk of possible future the current low level of interest rates – especially in the eurozone – pension adjustments resulting from changes in longevity and is resulting in a comparatively large net obligation. inflation. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 206 Payroll-based contributions to the KION pension plan made by > TABLE 095 shows the contractual maturity structure of the employees in Germany are invested in fund units. If the actual financial liabilities. returns on these fund units fall below the minimum rate of return that has been guaranteed to participating employees, the KION Group’s personnel expenses rise. Liabilities to banks [29] FINANCIAL LIABILITIES Senior facilities agreement KION GROUP AG signed a syndicated loan agreement (senior facilities agreement, SFA), originally for €1,500.0 million, with a syndicate of international banks on 28 October 2015. As at 31 December 2018, the SFA consisted solely of a revolving credit The financial liabilities reported by the KION Group as at facility of €1,150.0 million. This has a variable interest rate and, 31 December 2018 essentially comprised interest-bearing liabili- following the agreement in 2018 of an extension to its term, it can ties to banks and the promissory notes. The liabilities to banks be drawn down until February 2023. As at 31 December 2018, were predominantly attributable to the loan for the financing of the amount drawn down was €101.8 million (31 December 2017: the Dematic acquisition and liabilities under the syndicated €184.7 million, which included other loan liabilities and contingent loan agreement. Maturity structure of financial liabilities in € million Liabilities to banks due within one year due in one to five years due in more than five years Promissory notes due within one year due in one to five years due in more than five years Other financial liabilities to non-banks due within one year due in one to five years due in more than five years Total current financial liabilities Total non-current financial liabilities TABLE 095 2017 1,253.7 236.5 1,017.2 – 2018 826.4 221.9 604.5 – 1,214.3 1,007.3 – 744.5 469.8 4.6 4.6 – – – 744.0 263.3 7.7 7.4 0.3 – 226.5 1,818.7 243.9 2,024.8 KION GROUP AGAnnual Report 2018206 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 207 liabilities). The drawdowns under the revolving credit facility are were deducted from the fair value on initial recognition and will be classified as short term. expensed over subsequent periods. The KION Group has entered into an interest-rate derivative to hedge the risk of a change in the Acquisition facilities agreement fair value of the tranche with a fixed coupon. This is accounted for On 4 July 2016, KION GROUP AG reached agreement with a as a fair value hedge (see note [41]). group of banks on a bridge loan to finance the acquisition of The promissory note issued in 2017 in a nominal amount Dematic (acquisition facilities agreement, AFA), originally in an totalling €1,010.0 million is divided into three tranches with varying amount of €3,000.0 million. As at 31 December 2018, it consisted maturities and floating-rate or fixed coupons: a tranche of solely of a floating-rate loan in a nominal amount of €600.0 million €746.0 million maturing in May 2022, a tranche of €236.5 million that is due to mature in October 2021. maturing in April 2024 and a tranche of €27.5 million maturing in At the end of 2017, this loan had a nominal amount of April 2027. Issuance of this promissory note resulted in directly €1,000.0 million. It was partly repaid in 2018 using the funds from attributable transaction costs of €3.2 million. These were the issuance of a further promissory note of €200.0 million and deducted from the fair value of each tranche on initial recognition using cash received from operating activities. As a result of the and will be expensed over subsequent periods. The KION Group early repayment, previously deferred borrowing costs of €1.9 mil- has entered into a number of interest-rate derivatives in order to lion were recognised under financial expenses. hedge the interest-rate risk resulting from the floating-rate Promissory notes tranches of this promissory note. The interest-rate derivatives are accounted for as cash flow hedges (see note [41]). The SFA, AFA and promissory notes are not collateralised. KION GROUP AG has issued guarantees to the banks for all of In 2018, a promissory note was issued in a nominal amount of the payment obligations under the SFA and AFA and it is the €200.0 million. It will mature in June 2025 and has both float- borrower in respect of all the payment obligations resulting from ing-rate and fixed coupons. The resulting funds were used to the promissory notes. repay part of the floating-rate loan under the AFA. Directly > TABLE 096 gives details of the changes in financial liabilities attributable transaction costs of €0.5 million were incurred in and lists the applicable terms and conditions. connection with the issuance of the promissory note. These KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 208 Credit terms TABLE 096 Interest rate Carrying amount Maturity in € million Multicurrency Revolving Credit Facility (SFA) Term Loan Facility (AFA) Promissory note (5 years term) Promissory note (7 years term) Promissory note (7 years term) Promissory note (10 years term) Other liabilities to banks Other financial liabilities to non-banks Total financial liabilities EURIBOR + Margin EURIBOR + Margin EURIBOR + Margin / fixed rate EURIBOR + Margin / fixed rate EURIBOR + Margin / fixed rate EURIBOR + Margin / fixed rate Various currencies and interest terms 2018 101.8 597.3 744.5 235.9 206.4 27.4 127.2 4.6 2017 178.0 994.1 744.0 235.8 – 27.4 81.6 7.7 2,045.2 2,268.7 2023 2021 2022 2024 2025 2027 Covenants Among other stipulations, the contractual terms of the SFA, AFA and promissory notes set out certain covenants. In addition, there is a financial covenant that involves ongoing testing of [30] LIABILITIES FROM FINANCIAL SERVICES adherence to a defined maximum level of leverage. Non-compli- The liabilities from financial services relate to the financing of ance with the covenants or with the defined maximum level of the long-term leasing business and residual value obligations leverage as at a particular reporting date may potentially give arising from the indirect leasing business in an amount of lenders a right of termination or lead to an increase in interest €1,165.3 million (31 December 2017: €437.4 million) and to the payments. financing of industrial trucks for the short-term rental fleet in All covenants were complied with in the past financial year, as an amount of €307.1 million (31 December 2017: €0.0 million). was the case in 2017. > TABLE 097 KION GROUP AGAnnual Report 2018208 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 209 Liabilities from financial services TABLE 097 in € million Non-current liabilities from financial services thereof from leasing business thereof from short-term rental fleet financing thereof from asset-backed securities thereof other Current liabilities from financial services thereof from leasing business thereof from short-term rental fleet financing thereof from leasing credit facilities thereof from asset-backed securities thereof other 2018 924.4 601.9 244.6 77.9 – 548.0 157.7 62.5 307.3 20.4 – 2017 261.0 261.0 – – – 176.4 79.7 – 85.7 – 11.0 Liabilities from financial services arising from the leasing busi- Furthermore, liabilities from financial services include lia- ness encompass liabilities from financing by means of sale and bilities from lease facilities in an amount of €307.3 million leaseback sub-lease transactions with leasing companies in an (31 December 2017: €85.7 million) and liabilities from the issuance amount of €440.2 million (31 December 2017: €0.0 million). They of notes (securitisation) through K-Lift S.A., Luxembourg, in an also include residual value obligations of €319.5 million amount of €98.3 million (31 December 2017: €0.0 million). On the (31 December 2017: €340.7 million) resulting from the indirect opposite side of the statement of financial position, there are leasing business. lease receivables funded from these resources worth €580.0 mil- lion (31 December 2017: €58.3 million) and leased assets of €212.5 million (31 December 2017: €27.4 million). KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 210 The maturities of the liabilities from financial services are shown in Whereas lease liabilities stood at €740.6 million (31 Decem- > TABLE 098. [31] LEASE LIABILITIES ber 2017: €1,131.1 million), lease receivables arising from sale and leaseback sub-lease transactions entered into up to 31 Decem- ber 2017 amounted to €514.3 million (31 December 2017: €739.2 million) and leased assets under sale and leaseback sub- lease transactions totalled €268.6 million (31 December 2017: €419.7 million). The amounts recognised as lease liabilities (the present value Lease liabilities relate solely to finance lease obligations arising of future lease payments) are based on the maturities shown in from sale and leaseback sub-lease transactions entered into up > TABLE 099. to 31 December 2017 for the financing of long-term leases with end customers. Maturity analysis of liabilities from financial services TABLE 098 in € million Total future payments from financial services (gross) due within one year due in one to two years due in two to three years due in three to four years due in four to five years due in more than five years Maturity analysis of lease liabilities in € million Total future lease payments (gross) due within one year due in one to two years due in two to three years due in three to four years due in four to five years due in more than five years 2018 1,539.9 589.7 244.8 240.9 209.2 172.7 82.5 2018 801.6 291.5 217.5 158.9 94.4 30.0 9.4 2017 456.1 187.2 69.6 68.2 59.2 48.8 23.2 TABLE 099 2017 1,203.9 363.1 359.4 255.3 148.5 42.9 34.7 KION GROUP AGAnnual Report 2018210 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 211 [32] OTHER PROVISIONS Other provisions relate to the following items: > TABLE 100 Other provisions TABLE 100 in € million Balance as at 01/01/2018 thereof non-current thereof current Group changes Additions Utilisations Reversals Additions to accrued interest Currency translation adjustments Other adjustments Balance as at 31/12/2018 thereof non-current thereof current Provisions for product warranties Provisions for personnel Other obligations Total other provisions 81.6 21.8 59.8 0.1 39.2 – 25.8 – 15.0 0.0 0.3 0.6 81.0 23.5 57.5 95.8 53.8 42.1 – 31.7 – 40.4 – 13.3 0.2 0.1 5.8 80.0 52.5 27.5 67.2 20.1 47.2 0.0 30.1 – 17.0 – 13.7 0.0 – 0.3 – 1.1 65.2 22.9 42.2 244.6 95.6 149.0 0.1 101.0 – 83.3 – 42.0 0.2 0.2 5.3 226.2 98.9 127.2 The provisions for product warranties include contractual and relating to variable remuneration. The provisions for partial statutory obligations arising from the sale of industrial trucks, retirement obligations are recognised on the basis of individual spare parts and automation solutions. It is expected that the bulk contractual arrangements and agreements under collective of the cash payments will be incurred within the next two years bargaining law. after the reporting date. Other obligations comprise, among others, provisions for The provisions for personnel comprise provisions for partial restructuring, litigation and expected losses from onerous retirement obligations, long-service awards, annual bonuses, contracts. severance pay, obligations under social plans and obligations KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 212 [33] CONTRACT BALANCES [34] TRADE PAYABLES Of the contract assets of €119.3 million (31 December 2017: As at 31 December 2018, trade payables of €904.2 million €100.3 million), €114.7 million was attributable to project business (31 December 2017: €923.9 million) included liabilities to non- contracts with a net credit balance due from customers consolidated subsidiaries, equity-accounted investments and (31 December 2017: €100.3 million) and €4.5 million to other other equity investments of €23.7 million (31 December 2017: contract assets (31 December 2017: €0.0 million). Of the contract €23.7 million). assets recognised as at 1 January 2018, €88.1 million was billed in 2018 (2017: €61.3 million). By contrast, contract assets rose year on year because the goods and services provided by the KION Group before the agreed payment deadlines increased by €213.8 million in the reporting year (2017: €177.7 million). As had been the case in the previous year, no write-downs were recognised on contract assets. Of the contract liabilities, €498.7 million was attributable to project business contracts with a net debit balance due to customers (31 December 2017: €255.9 million) and €71.4 million to prepayments received from customers (31 December 2017: €68.5 million). Contract liabilities are recognised as revenue as soon as the contractual goods and services have been provided. The revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period amounted to €292.6 million (2017: €265.7 million). Contract liabilities rose year on year, in particular because the prepayments received from customers increased by €221.8 mil- lion to €558.3 million in the reporting year (2017: €336.5 million). KION GROUP AGAnnual Report 2018212 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 213 [35] OTHER FINANCIAL LIABILITIES Other financial liabilities comprise the following items: > TABLE 101 Other financial liabilities TABLE 101 in € million Liabilities from short-term rental fleet financing Liabilities from procurement leases Derivative financial instruments Sundry other financial liabilities Other non-current financial liabilities Liabilities from short-term rental fleet financing Liabilities from procurement leases Derivative financial instruments Liabilities from accrued interest Sundry other financial liabilities Other current financial liabilities 2018 185.0 327.1 7.9 4.7 524.6 104.9 94.2 6.4 15.2 67.9 288.6 2017* 350.6 287.5 1.9 23.6 663.6 165.1 81.7 3.3 14.5 34.1 298.6 Total other financial liabilities 813.2 962.2 * Other financial liabilities for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 The non-current derivative financial instruments consist of a leaseback sub-lease transactions entered into up to 31 Decem- number of interest-rate derivatives that were entered into in order ber 2017 in the amount of €289.9 million (31 December 2017: to hedge the interest-rate risk resulting from the floating-rate €515.7 million). tranches of the promissory note. The amounts recognised as liabilities from short-term rental Liabilities from short-term rental fleet financing relate to the fleet financing and from procurement leases are based on the financing of the short-term rental fleet by means of sale-and- maturities shown in > TABLE 102. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 214 Maturity analysis of other financial liabilities TABLE 102 Procurement leases Financing short-term rental fleet in € million Total future payments (gross) due within one year due in one to two years due in two to three years due in three to four years due in four to five years due in more than five years 2018 464.1 105.8 79.7 57.5 45.7 34.0 141.3 2017 * 402.0 90.6 70.0 50.1 39.5 29.4 122.3 * Other financial liabilities for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 [36] OTHER LIABILITIES Other liabilities comprise the following items: > TABLE 103 Other liabilities in € million Deferred income Other non-current liabilities Deferred income Personnel liabilities Social security liabilities Tax liabilities Other current liabilities Total other liabilities * Other liabilities for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 2018 315.0 122.8 86.6 53.8 34.4 12.2 5.2 2018 473.5 473.5 250.0 266.8 51.6 105.8 674.2 2017 * 552.0 189.1 163.6 102.0 65.2 23.1 9.1 TABLE 103 2017 * 585.4 585.4 267.9 253.0 48.2 110.8 679.9 1,147.6 1,265.3 KION GROUP AGAnnual Report 2018214 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 215 [37] CONTINGENT LIABILITIES AND OTHER FINANCIAL COMMITMENTS Contingent liabilities The contingent liabilities include guarantees to external parties. In addition, guarantees of €2.3 million related to contingent liabilities assumed jointly with another shareholder of a joint venture (31 December 2017: €1.6 million). > TABLE 104 Contingent liabilities in € million Liabilities on guarantees Litigation The legal risks arising from the KION Group’s business are typical of those faced by any company operating in this sector. The Group companies are a party in a number of pending lawsuits in various countries. The individual companies cannot assume with any degree of certainty that they will win any of the lawsuits or that the existing risk provision in the form of insurance or provisions will be sufficient in each individual case. However, the KION Group believes it is unlikely that these ongoing lawsuits will require funds to be utilised that exceed the provisions recognised. TABLE 104 2017 48.2 2018 89.5 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 216 Other financial commitments Sundry other financial commitments included future payment obligations to an associate amounting to €1.3 million (31 Decem- ber 2017: €1.3 million). > TABLE 105 Other financial commitments in € million Commitments under licence and support agreements Capital expenditure commitments in property, plant and equipment Other financial commitments Total other financial commitments * Other financial commitments for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 TABLE 105 2017 * 56.1 51.6 1.3 109.0 2018 99.7 59.0 1.3 160.0 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 217 Other disclosures [38] CONSOLIDATED STATEMENT OF CASH FLOWS Net cash used for financing activities came to €514.5 million (2017: €568.5 million). While financial debt taken on during the year came to €1,811.7 million (2017: €2,425.3 million), repayments were higher at €2,042.6 million (2017: €3,340.0 million). Net cash of €40.4 million was also used for interest payments (2017: net The consolidated statement of cash flows shows the changes in cash used of €50.6 million). The costs of obtaining financing in the cash and cash equivalents in the KION Group resulting from cash year under review amounted to €5.0 million (2017: €7.4 million). inflows and outflows in the year under review, broken down into Payments made for interest portions and principal portions under cash flow from operating, investing and financing activities. The procurement leases amounted to €114.0 million in the reporting effects on cash from changes in exchange rates are shown year (2017: €109.0 million). The distribution of a dividend of €0.99 separately. Cash flow from operating activities is presented using per share (2017: €0.80 per share) resulted in a cash outflow of the indirect method in which the profit or loss for the year is €116.8 million (2017: €86.9 million), while the acquisition of 66,000 adjusted for non-cash operating items. treasury shares (2017: 60,000 treasury shares) required an out- The KION Group’s net cash provided by operating activities flow of €3.6 million (2017: €4.3 million). Additional information for totalled €765.5 million, which was significantly higher than the 2018 on the changes to liabilities arising from financing activities prior-year figure (2017: €711.9 million). This increase made up for can be found in > TABLES 106 – 107. the higher net working capital, the rise in the volume of rentals Negative currency effects reduced cash and cash equiva- and leasing, and higher tax payments. lents by €3.2 million (2017: €12.2 million). Overall, cash and cash Net cash used for investing activities amounted to €245.6 mil- equivalents increased only slightly year on year, from €173.2 million lion (2017: net cash used of €237.6 million). Cash payments for as at 31 December 2017 to €175.3 million as at 31 Decem- development (R&D) and for property, plant and equipment ber 2018. (excluding right-of-use assets related to procurement leases) amounted to €258.5 million (2017: €218.3 million). Free cash flow – the sum of cash flow from operating activi- ties and investing activities – improved to €519.9 million in the reporting period (2017: €474.3 million). Reconciliation of liabilities arising from financing activities 2018 TABLE 106 in € million Non-current financial liabilities Current financial liabilities Liabilities from accrued interest Liabilities from procurement leases Total liabilities financial activities 01/01/2018 Cash flows 2,024.8 – 200.0 243.9 14.5 369.1 2,652.3 – 30.9 – 42.9 – 114.0 – 387.8 Non-cash changes Foreign exchange movement Other changes 8.0 – 7.9 – 0.0 – 1.6 – 1.5 – 14.1 21.5 43.7 167.7 218.7 31/12/2018 1,818.7 226.5 15.2 421.2 2,481.7 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 218 Reconciliation of liabilities arising from financing activities 2017 TABLE 107 in € million Non-current financial liabilities Current financial liabilities Liabilities from accrued interest Liabilities from procurement leases * 01/01/2017 Cash flows 2,889.1 – 860.5 293.9 12.4 283.6 – 54.2 – 58.1 – 109.0 Total liabilities financial activities 3,478.9 – 1,081.8 * Liabilities from procurement leases for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 Non-cash changes Foreign exchange movement Other changes – 0.5 – 4.4 – 0.0 – 0.4 – 5.3 – 3.2 8.5 60.3 194.9 260.5 31/12/2017 2,024.8 243.9 14.5 369.1 2,652.3 [39] INFORMATION ON FINANCIAL INSTRUMENTS line with IFRS 7, the tables show the carrying amounts and fair values of financial assets and liabilities. Derivative financial instru- ments forming part of a documented hedge are not assigned to any of the IFRS 9 or IAS 39 measurement categories and are therefore not included in > TABLES 108 – 109. The lease receivables, The KION Group uses both primary and derivative financial instru- lease liabilities, liabilities from procurement leases and liabilities ments. The following section summarises the relevance of these from short-term rental fleet financing shown in these tables fall financial instruments for the KION Group. within the scope of IFRS 16 and are therefore not assigned to any The following tables show the measurement categories used of the IFRS 9 and IAS 39 measurement categories. in accordance with IFRS 9 (2017: in accordance with IAS 39). In KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 219 Carrying amounts and fair values broken down by class 2018 TABLE 108 Classes in € million Financial assets Financial investments Financial receivables Other financial investments Lease receivables ¹ Trade receivables Other financial receivables thereof non-derivative receivables thereof derivative financial instruments Cash and cash equivalents Financial liabilities Liabilities to banks Promissory notes Other financial liabilities to non-banks Liabilities from financial services Lease liabilities ¹ Trade payables Other financial liabilities thereof liabilities from procurement leases ¹ thereof liabilities from short-term rental fleet financing ¹ thereof non-derivative liabilities thereof derivative financial instruments 1 as defined by IFRS 16 Categories Carrying amount FVPL AC FVOCI Fair value 5.2 35.9 21.0 1,097.3 1,036.4 51.2 41.2 9.9 175.3 826.4 1,214.3 4.6 1,472.4 740.6 904.2 813.2 421.2 289.9 87.8 14.3 5.2 35.9 21.0 15.6 1,020.9 6.5 41.2 175.3 826.4 1,214.3 4.6 1,472.4 904.2 87.8 2.5 5.2 35.9 21.0 1,102.0 1,036.4 51.2 41.2 9.9 175.3 829.1 1,222.0 4.6 1,477.0 743.0 904.2 822.1 429.2 290.8 87.8 14.3 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 220 Carrying amounts and fair values broken down by class 2017 * TABLE 109 Classes in € million Financial assets Investments in non-consolidated subsidiaries and other investments Loans receivable Financial receivables Other financial investments Lease receivables ¹ Trade receivables Other financial receivables thereof non-derivative receivables thereof derivative financial instruments Cash and cash equivalents Financial liabilities Liabilities to banks Promissory note Other financial liabilities to non-banks Liabilities from financial services Lease liabilities ¹ Trade payables Other financial liabilities thereof liabilities from procurement leases¹ thereof liabilities from short-term rental fleet financing¹ thereof non-derivative liabilities thereof derivative financial instruments Carrying amount FAHfT AfS LaR FLaC FLHfT Fair value Categories 36.0 2.2 30.3 18.9 875.8 999.4 88.7 58.7 30.0 173.2 1,253.7 1,007.3 7.7 437.4 1,131.1 923.9 962.2 369.1 515.7 72.1 5.2 36.0 0.5 2.2 30.3 18.4 999.4 58.7 173.2 22.2 36.0 2.2 30.3 18.9 878.2 999.4 88.7 58.7 30.0 173.2 1,259.6 1,021.0 7.7 439.7 1,138.1 923.9 963.8 367.7 518.8 72.1 5.2 1,253.7 1,007.3 7.7 437.4 923.9 72.1 1.0 1 as defined by IFRS 16 * Financial liabilities for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 221 The net gains and losses on financial instruments in 2018 are trade payables of the same amount. In addition, there was a broken down by IFRS 9 categories as shown in > TABLE 110. The potential offsetting volume of €4.6 million in connection with measurement categories shown for 2017 are based on the derivative financial instruments as at 31 December 2018 categorisation rules in IAS 39. Gains and losses on financial (31 December 2017: €3.1 million). The potential offsetting volume instruments do not include gains / losses arising on hedging essentially arose from netting arrangements in framework transactions that are part of a documented hedge (see also agreements governing derivatives trading that the KION Group note [41]). had entered into with commercial banks. In 2018, the measurement at fair value of the equity instru- ments in the FVOCI category led to a loss of €6.4 million that was recognised in other comprehensive income; accumulated gains Fair value measurement and losses from these financial instruments will not be reclassi- fied to profit or loss upon disposal. The majority of the cash and cash equivalents, financial receiva- The net gains and losses include interest income of €6.2 mil- bles, other non-derivative receivables and liabilities, and trade lion (2017: €7.8 million) and interest expenses of €57.7 million receivables and trade payables recognised at amortised cost (2017: €72.9 million) that result from financial instruments meas- have short remaining terms to maturity. The carrying amounts of ured at amortised cost (AC category) and are recognised within these financial instruments are roughly equal to their fair values. net financial income / expenses. Currency translation gains and The fair value of liabilities to banks, of promissory notes losses, dividends, valuation allowances for expected and incurred and of liabilities from financial services corresponds to the present losses, the marking-to-market of derivatives that are not part of a value of the outstanding payments, taking account of the current documented hedge and other measurement effects are also interest-rate curve and the Group’s own default risk. This fair included in the net gains and losses. value, calculated for the purposes of disclosure in the notes to the As at the reporting date, the KION Group’s trade receivables financial statements, is classified as Level 2 of the fair value of €1.3 million (31 December 2017: €0.4 million) were offset by hierarchy. Net gains and losses on financial instruments broken down by category TABLE 110 in € million Financial assets measured at amortised cost (AC) Equity instruments measured at fair value through other comprehensive income (FVOCI) Financial instruments measured at fair value through profit or loss (FVPL) Financial liabilities measured at amortised cost (AC) in € million Loans and receivables (LaR) Available-for-sale investments (AfS) Financial instruments held for trading (FAHfT, FLHfT) Financial liabilities carried at amortised cost (FLaC) 2018 – 1.9 – 6.4 – 16.9 – 58.1 2017 – 7.3 15.1 35.8 – 94.6 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 222 The fair value of lease receivables, lease liabilities, liabilities from The following tables show the assignment of fair values to the short-term rental fleet financing and liabilities from procurement individual classification levels as defined by IFRS 7 for financial leases corresponds to the present value of the net lease payments, instruments measured at fair value. > TABLES 111 – 112 taking account of the current market interest rate for similar leases. Financial instruments measured at fair value TABLE 111 in € million Financial assets thereof financial investments thereof other financial investments thereof trade receivables thereof derivative financial instruments Financial liabilities thereof derivative financial instruments Fair Value Hierarchy Level 1 Level 2 5.2 21.0 15.6 9.9 14.3 2018 51.7 5.2 21.0 15.6 9.9 14.3 14.3 Financial instruments measured at fair value TABLE 112 in € million Financial assets thereof investments in non-consolidated subsidiaries and other investments thereof other financial investments thereof derivative financial instruments Financial liabilities thereof derivative financial instruments Fair Value Hierarchy Level 1 Level 2 11.7 0.5 30.0 5.2 2017 42.1 11.7 0.5 30.0 5.2 5.2 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 223 Level 1 essentially comprises the financial investment in Balyo SA, for which the fair value is calculated using prices quoted in an [40] FINANCIAL RISK REPORTING active market. The fair value of other financial investments is determined using prices quoted in an active market and other observable Capital management inputs. They are assigned to Level 2. Trade receivables that are recognised at fair value through One of the prime objectives of capital management is to ensure profit or loss are assigned to Level 2. Their fair value is calculated liquidity at all times. Measures aimed at achieving these objectives using the transaction price achievable in an active market. The include the optimisation of the capital structure, the reduction of transaction price is largely influenced by the default risk of the liabilities and ongoing Group cash flow planning and manage- counterparty. ment. Close cooperation between local units and the Group head Interest-rate swaps and currency forwards are also classified office ensures that the local legal and regulatory requirements as Level 2. The fair value of derivative financial instruments is faced by foreign Group companies are taken into account in determined by the system using appropriate valuation methods capital management. on the basis of the observable market information at the reporting Net financial debt – defined as the difference between financial date. The default risk for the Group and for the counterparty is liabilities and cash and cash equivalents – is the key performance taken into account on the basis of gross figures. The fair value of measure used in liquidity planning at Group level and amounted interest-rate swaps is calculated as the present value of the future to €1,869.9 million as at 31 December 2018 (31 December 2017: cash flows. Both contractually agreed payments and forward €2,095.5 million). interest rates are used to calculate the cash flows, which are then The financial liabilities reported by the KION Group as at discounted on the basis of a yield curve that is observable in the 31 December 2018 consisted of liabilities under the syndicated market. The fair value of the currency forwards is calculated by loan agreement (SFA), liabilities under the loan for the financing of the system using the discounting method based on forward rates the Dematic acquisition (AFA) and promissory notes (see also on the reporting date. note [29]). The SFA comprises a floating-rate revolving credit In order to eliminate default risk to the greatest possible facility of €1,150.0 million maturing in February 2023, of which extent, the KION Group only enters into derivatives with invest- €101.8 million was drawn down as at 31 December 2018 ment-grade counterparties. (31 December 2017: €184.7 million). As at 31 December 2018, the If events or changes in circumstances make it necessary to drawdown under the AFA consisted of a floating-rate bullet loan reclassify financial instruments to a different level, they are reclas- in a nominal amount of €600.0 million (31 December 2017: sified at the end of a reporting period. As had also been the case €1,000.0 million) maturing in October 2021. The nominal amount in 2017, no financial instruments were transferred between the of the promissory notes issued totalled €1,210.0 million as at levels of the fair value hierarchy in 2018. 31 December 2018 (31 December 2017: €1,010.0 million). Taking into account credit facilities that had not yet been utilised, the unrestricted cash and cash equivalents available to the KION Group as at 31 December 2018 amounted to €1,219.8 million (31 December 2017: €1,138.0 million). KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 224 Default risk Liquidity risk In certain finance and operating activities, the KION Group is Based on the definitions in IFRS 7, a liquidity risk arises if an entity subject to credit risk, i.e. the risk that partners will fail to meet their is unable to meet its financial liabilities. In order to ensure financial contractual obligations. This risk is defined as the risk that a flexibility and solvency, the KION Group maintains a liquidity counterparty will default, and hence is limited to a maximum of reserve in the form of cash and a revolving credit facility agreed the carrying amount of the assets relating to the counterparty with a syndicate of international banks under the SFA. The age involved. Default risk is limited by diversifying business partners structure of financial liabilities is reviewed and optimised continually. based on certain credit ratings. The Group only enters into trans- The KION Group is assigned credit ratings by Fitch Ratings actions with business partners and banks holding a good credit and Standard & Poor’s. These credit ratings have not changed rating and subject to fixed limits. The potential default risk since 2017. In January 2017, Fitch Ratings gave the Group an attaching to financial assets is also mitigated by secured forms of investment-grade long-term issuer rating of BBB– with a stable lending such as reservation of title, credit insurance and outlook. The rating awarded by the rating agency Standard & guarantees, and potential netting agreements. Apart from this, Poor’s for the KION Group has been BB+ with a positive outlook the Group does not hold any significant collateral. since September 2017. Counterparty risks involving our customers are managed by The following tables show all of the contractually agreed the individual Group companies. To reflect the default risk, undiscounted payments under recognised financial liabilities as valuation allowances are recognised for defaults that have at 31 December 2018 and 2017, including derivative financial occurred and for expected defaults (see note [25]). Valuation instruments with negative fair values. > TABLES 113 – 114 allowances are based on the credit risk associated with the receivables, the level of loss in the event of a default and, taking account of any collateral, the estimated loss given default. This risk is assessed mainly using factors such as customer credit rating and failure to adhere to payment terms. Financial transactions are only entered into with selected partners that have an investment-grade credit rating. The underlying default risk remains insignificant. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 225 Liquidity analysis of financial liabilities and derivatives 2018 TABLE 113 in € million Primary financial liabilities Liabilities to banks Promissory notes Other financial liabilities to non-banks Liabilities from financial services Lease liabilities Trade payables Other financial liabilities Derivative financial liabilities Derivatives with negative fair value + Cash in – Cash out Carrying amount 2018 Cash flow 2019 Cash flow 2020 – 2023 Cash flow from 2024 826.4 1,214.3 4.6 1,472.4 740.6 904.2 798.9 14.3 – 233.3 – 14.5 – 4.6 – 589.7 – 291.5 – 904.2 – 316.4 – 646.0 – 798.8 – – 867.7 – 500.7 – – 403.9 – – 476.4 – – 82.5 – 9.4 – – 146.6 310.2 – 324.5 13.4 – 21.7 0.2 – KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 226 Liquidity analysis of financial liabilities and derivatives 2017 * TABLE 114 in € million Primary financial liabilities Liabilities to banks Promissory note Other financial liabilities to non-banks Liabilities from financial services Lease liabilities Trade payables Other financial liabilities Derivative financial liabilities Derivatives with negative fair value + Cash in – Cash out Carrying amount 2017 Cash flow 2018 Cash flow 2019 – 2022 Cash flow from 2023 1,253.7 1,007.3 7.7 437.4 1,131.1 923.9 957.0 5.2 – 267.1 – 1,083.2 – – 7.4 – 187.2 – 363.1 – 923.9 – 351.9 – 788.8 – 0.3 – 245.7 – 806.1 – – 542.8 – – 295.5 – – 23.2 – 34.7 – – 131.4 182.5 – 189.9 16.2 – 18.9 2.6 – 1.6 * Financial liabilities for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 The calculation of future cash flows for derivative financial liabili- Risks arising from financial services ties includes all transactions that have negative fair values as at the reporting date. The leasing activities of the Industrial Trucks & Services segment In 2018, the KION Group sold financial assets with a total mean that the KION Group may be exposed to residual value value of €152.3 million (2017: €132.0 million) in factoring transac- risks from the marketing of trucks that are returned by the lessee tions. In some cases, the KION Group retains insignificant rights at the end of a long-term lease and subsequently sold or and obligations in connection with fully derecognised financial re-rented. Residual values in the markets for used trucks are assets, primarily the provision of limited reserves for defaults. The therefore constantly monitored and forecast. The KION Group recognised assets that serve as reserves for defaults and are regularly assesses its aggregate risk position arising from reported under other current financial assets stood at €3.1 million financial services. as at 31 December 2018 (31 December 2017: €2.6 million). The The risks identified are immediately taken into account by the short remaining term of these financial assets means their carry- Company by recognising impairments or provisions and in the ing amount was almost the same as their fair value. The maxi- costing of new lease contracts by adjusting the residual values. mum downside risk arising on the transferred financial assets that Risk-mitigating factors include the demand for used trucks, which are to be fully derecognised amounted to €19.9 million as at stabilises the residual values of the KION Group’s industrial 31 December 2018 (31 December 2017: €16.2 million). trucks. The majority of the residual values have underlying KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 227 remarketing agreements that transfer any residual-value risk to Currency risk the leasing company. This had a positive impact on the financial results in 2018. Groupwide standards to ensure that residual In accordance with its treasury risk policy, the KION Group values are calculated conservatively, combined with an IT system hedges exchange rate risks both locally at the level of the individ- for residual-value risk management, reduce risk and provide the ual companies and centrally via KION GROUP AG using basis on which to create the transparency required. prescribed hedging ratios. The KION Group mitigates its liquidity risk and interest-rate The main hedging instruments employed are foreign- risk attaching to financial services by ensuring that most of its currency forwards, provided that there are no country-specific transactions and funding loans have matching maturities and by restrictions on their use. constantly updating its liquidity planning. Long-term leases are In the Industrial Trucks & Services segment, hedges are primarily based on fixed-interest agreements. The credit facilities entered into at company level for highly probable future provided by various banks and an effective dunning process transactions on the basis of rolling 15-month forecasts, as well as ensure that the Group has sufficient liquidity. for firm obligations not reported in the statement of financial In order to exclude currency risk, the KION Group generally position. Currency risk arising from customer-specific project finances its leasing business in the local currency used in each business contracts in the Supply Chain Solutions segment is market. hedged on a project-specific basis at individual company level. The counterparty risk inherent in the leasing business contin- Some of these hedges are classified as cash flow hedges for ues to be insignificant. The Group also mitigates any losses from accounting purposes in accordance with IFRS 9 (see note [41]). defaults by its receipt of the proceeds from the sale of repos- In addition, foreign-currency forwards are employed to hedge sessed trucks. Furthermore, receivables management and credit the currency risks arising in the course of internal financing. risk management are refined on an ongoing basis. Besides the > TABLE 115 shows an overview of the foreign-currency forwards design of the business processes, it also encompasses the risk entered into by the KION Group. management and control processes. Foreign-currency forwards Fair value Notional amount in € million Foreign-currency forwards (assets) Foreign-currency forwards (liabilities) Cash flow hedge Held for trading Cash flow hedge Held for trading 2018 2.4 6.5 4.6 1.9 2017 7.8 22.1 2.3 1.0 2018 180.4 332.1 211.8 112.8 TABLE 115 2017 224.8 502.1 100.3 95.3 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 228 Significant currency risk arising from financial instruments is Interest-rate risk measured using a currency sensitivity method. Currency risks from financial instruments as defined by IFRS 7 are only included Interest-rate risk within the KION Group is managed centrally. The in calculating currency sensitivity if the financial instruments are basis for decision-making includes sensitivity analyses of denominated in a currency other than the functional currency of interest-rate risk positions in key currencies. the reporting entity concerned. This means that currency risks The Group’s financing takes the form of floating-rate and resulting from the translation of the separate financial statements fixed-rate financial liabilities. It has entered into interest-rate of subsidiaries into the Group reporting currency, i.e. currency swaps in order to hedge interest-rate risk arising on the translation risks, are not included. floating-rate financial liabilities. The majority of these hedges are Currency risk relevant to currency sensitivity in the KION accounted for as cash flow hedges for accounting purposes in Group arises mainly in connection with derivative financial accordance with IFRS 9. An interest-rate swap has also been instruments, trade receivables and trade payables. It is assumed entered into to hedge the risk of a change in the fair value of a that the portfolio of financial instruments as at the reporting date fixed-rate financial liability. This is accounted for as a fair value is representative of the portfolio over the whole of the year. The hedge (see note [41]). > TABLE 117 provides an overview of the sensitivity analysis for the relevant currencies is shown in interest-rate derivatives used by the KION Group. > TABLE 116. The table shows the after-tax impact from changes in A shift in the relevant yield curve of + / – 50 basis points (bps) exchange rates considered to be possible (+ 10.0 per cent: (2017: + / – 50 bps) was simulated to assess interest-rate risk. The increase in the value of the euro against the other currencies of cumulative effect after tax resulted from variable-rate exposures 10.0 per cent; – 10.0 per cent: fall in the value of the euro against and is shown in > TABLE 118. the other currencies of 10.0 per cent). Foreign-currency sensitivity TABLE 116 Impact on net income Impact on other comprehensive income (loss) Increase in the value of the euro of + 10.0% Fall in the value of the euro of – 10.0% Increase in the value of the euro of + 10.0% Fall in the value of the euro of – 10.0% 2018 2017 0.2 20.5 0.2 11.4 – 0.3 – 9.4 – 0.3 – 13.9 7.6 6.3 9.2 5.1 – 11.9 – 2.9 – 11.2 – 6.3 in € million GBP USD in € million GBP USD KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures Interest-rate swaps Fair value Notional amount in € million 2018 2017 Interest-rate swaps (assets) Interest-rate swaps (liabilities) Fair value hedge Held for trading Cash flow hedge Held for trading 1.0 – 7.3 0.6 – 0.1 1.9 – 2018 100.0 – 760.0 90.0 229 TABLE 117 2017 – 50.0 760.0 – TABLE 118 Interest-rate sensitivity in € million Net income Other comprehensive income (loss) + 50 bps – 50 bps + 50 bps – 50 bps 2018 – 0.6 7.3 2018 – 0.4 – 2.5 2017 * – 0.1 9.9 2017 * – 1.2 – 4.9 * Financial liabilities for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 [41] HEDGE ACCOUNTING Hedging currency risk ber 2018 were entered into at average hedging rates of £0.8984 to €1 (2017: £0.8962 to €1) and US$1.2077 to €1 (2017: US$1.1675 to €1). The critical-terms-match method is used to measure the prospective effectiveness of the hedges. Ineffective portions can arise if the critical terms of the hedged item and hedge no longer In accordance with its treasury risk policy, the KION Group match; this is determined using the dollar-offset method. applies cash flow hedge accounting in hedging the currency risks On account of the short-term nature of the Group’s payment arising from highly probable future transactions and firm obliga- terms, reclassifications to the income statement and the recog- tions not reported in the statement of financial position in various nition of the corresponding cash flows generally take place in the currencies. Foreign-currency forwards with settlement dates in same reporting period. A foreign-currency receivable or liability is the same month as the expected cash flows from the Group’s recognised when goods are despatched or received. Until the operating activities are used as hedges. The critical terms of the corresponding payment is received, changes in the fair value of hedging instruments and the hedged items are therefore the derivative are recognised in the income statement such that matched. The hedge ratio for these hedges is 1:1. The currency they largely offset the effect of the measurement of the forwards used as hedges will mature in 2020 at the latest. foreign-currency receivable or liability at the reporting date. The main currency hedges relate to pound sterling and the In total, foreign-currency cash flows of €392.1 million (2017: US dollar. The currency forwards in existence as at 31 Decem- €325.2 million) were hedged and designated as hedged items, of KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 230 which €372.4 million is expected by 31 December 2019 (2017: The critical-terms-match method is used to measure the €306.7 million expected by 31 December 2018). The remaining prospective effectiveness of the hedges. Ineffective portions can cash flows designated as hedged items fall due in the period up arise if the critical terms of the hedged item and hedge no longer to 31 December 2020 (2017: 31 December 2019). match; this is determined using the dollar-offset method. Hedging of interest-rate risk Change in the hedge reserve The KION Group uses cash flow hedge accounting in connection The change in the hedge reserves within other comprehensive with the hedging of interest-rate risk. It also uses a fair value income (loss) is presented in > TABLE 119. Because the cash flow hedge to hedge the risk of a change in the fair value of fixed-rate hedges are highly effective, the change in the fair value of the financial liabilities. The hedge ratio used in both cases is 1:1. The hedged items corresponds to the change in the fair value of the critical terms of the hedging instruments and the hedged items hedging instruments. These changes in fair value can be seen are matched. The interest-rate swaps used as hedges reflect the from the unrealised gains and losses in other comprehensive maturity profile of the hedged items and will mature in 2025. income (loss). The KION Group has issued floating-rate and fixed-rate promissory notes as part of its financing (see also note [29]). It has hedged the interest-rate risk arising on the variable-rate tranches of the promissory note by entering into a number of interest-rate swaps, thereby transforming the variable interest-rate exposure into fixed-rate obligations. In 2018, the weighted, hedged risk-free [42] SEGMENT REPORT fixed interest rate remained unchanged year on year at The Executive Board, as the chief operating decision-maker 0.5 per cent. In total, variable cash flows of €4.1 million (2017: (CODM), manages the KION Group on the basis of the following €12.9 million) were hedged and designated as hedged items, of segments: Industrial Trucks & Services, Supply Chain Solutions which €3.4 million relates to cash flows that are expected in and Corporate Services. Segment reporting therefore takes into 2020 to 2023 (2017: €10.2 million expected in 2019 to 2022). account the organisational and strategic focus of the KION Group. The remaining cash flows of €0.7 million (2017: €2.6 million expected as from 2023) are likely to materialise in 2024. Because the hedge is highly effective, the change in the fair value of the hedged item corresponds to the change in the fair value of the hedging instrument. Moreover, the risk of a change in the fair value of a fixed-rate tranche of the promissory note that was issued in 2018 and will mature in 2025 is hedged using an interest-rate swap, thereby creating a EURIBOR-based variable-rate obligation. The carrying amount of the hedged promissory note tranche (€100.0 million), which is recognised under financial liabilities, included an adjust- ment of €6.8 million as at 31 December 2018 that was attributable to the change in fair value resulting from the hedged risk. Because the hedge is highly effective, this change in fair value corresponds to the change in the fair value of the hedging instrument. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 231 Reconciliation of hedge reserves resulting from hedges of currency and interest rate risks TABLE 119 in € million Balance as at 01/01/2017 Changes in unrealised gains and losses Changes in gains (–) and losses (+) to revenue Changes in gains (–) and losses (+) to cost of sales Tax effect of changes in reserves Balance as at 31/12/2017 in € million Balance as at 01/01/2018 Changes in unrealised gains and losses Changes in gains (–) and losses (+) to revenue Changes in gains (–) and losses (+) to cost of sales Tax effect of changes in reserves Balance as at 31/12/2018 Currency risk Interest-rate risk – 2.2 12.9 – 1.5 – 4.0 – 2.8 2.4 0.3 – 1.3 – – 0.4 – 0.6 Currency risk Interest-rate risk 2.4 – 4.9 – 0.2 – 1.1 1.7 – 2.2 – 0.6 – 11.1 – – 3.4 – 8.3 Description of the segments Industrial Trucks & Services to picking and value-added packing. This segment is primarily involved in customer-specific, longer-term project business operated under the leadership of the Dematic brand. With So that it can fully cater to the needs of material handling customers global resources, eleven production facilities worldwide and worldwide, the business model of the Industrial Trucks & Services regional teams of experts, Dematic is able to plan and deliver segment covers key steps of the value chain: product develop- logistics solutions with varying degrees of complexity anywhere ment, manufacturing, sales and service, truck rental and used in the world. trucks, fleet management and financial services that support the core industrial truck business. The segment operates a multi- Corporate Services brand strategy involving the three international brands Linde, The Corporate Services segment comprises the other activities of STILL and Baoli plus the two local brands Fenwick and OM Voltas. the holding and service companies in the KION Group. The Supply Chain Solutions service companies provide services for all segments in the KION Group. The bulk of the total revenue in this segment is generated The Supply Chain Solutions segment, with its Dematic Operating by internal IT and logistics services. Unit, is a strategic partner to customers in a variety of industries, supplying them with integrated technology and software solutions with which to optimise their supply chains. Manual and automated solutions are provided for all functions along customers’ supply chains, from goods inward and multishuttle warehouse systems KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 232 Segment management segments (‘adjusted EBIT’). Intra-group transactions are generally conducted on an arm’s-length basis. Segment reports are The KPIs used to manage the segments are order intake, revenue prepared in accordance with the same accounting policies as the and adjusted EBIT. Segment reporting therefore includes a consolidated financial statements, as described in note [6]. reconciliation of externally reported consolidated earnings before > TABLES 120 – 121 show information on the KION Group’s interest and tax (EBIT) – including effects from purchase price operating segments for 2018 and 2017. allocations and non-recurring items – to the adjusted EBIT for the Segment report 2018 in € million Revenue from external customers Intersegment revenue Total revenue Earnings before taxes Net financial expenses / income EBIT + Non-recurring items + PPA items = Adjusted EBIT Segment assets Segment liabilities Capital expenditure ¹ Amortisation and depreciation ² Order intake Number of employees ³ Industrial Trucks & Services Supply Chain Solutions Corporate Services Consolidation / Reconciliation 5,916.3 5.7 5,922.0 569.6 – 55.6 625.2 12.6 17.6 655.4 9,645.6 6,881.0 195.4 113.2 6,210.6 25,533 2,052.1 3.1 2,055.2 47.5 – 16.9 64.4 7.2 108.6 180.2 4,909.6 2,084.2 47.8 29.2 2,425.2 6,799 27.3 271.9 299.2 343.6 – 24.9 368.5 1.1 – 369.6 1,784.8 4,080.3 15.4 15.7 299.2 796 – – 280.7 – 280.7 – 415.3 – – 415.3 – – – 415.3 – 3,371.2 – 3,381.8 – – – 278.3 − 1 Capital expenditure including capitalised development costs, excluding right-of-use assets 2 On intangible assets and property, plant and equipment (excluding right-of-use assets and PPA items) 3 Number of employees (full-time equivalents) as at balance sheet date 31/12/; allocation according to the contractual relationship TABLE 120 Total 7,995.7 – 7,995.7 545.3 – 97.4 642.8 21.0 126.2 789.9 12,968.8 9,663.7 258.5 158.1 8,656.7 33,128 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures Segment report 2017 * in € million Revenue from external customers Intersegment revenue Total revenue Earnings before taxes Net financial expenses / income EBIT + Non-recurring items + PPA items = Adjusted EBIT Segment assets Segment liabilities Capital expenditure ¹ Amortisation and depreciation ² Order intake Number of employees ³ Industrial Trucks & Services Supply Chain Solutions Corporate Services Consolidation / Reconciliation 5,568.2 4.0 5,572.2 584.0 – 56.2 640.2 1.7 0.9 642.7 9,031.3 6,342.7 153.7 104.7 5,859.5 24,090 2,005.1 4.5 2,009.5 – 18.1 – 1.5 – 16.6 29.9 175.3 188.7 4,770.0 2,040.6 47.0 26.7 2,099.2 6,820 24.8 241.8 266.6 486.5 – 37.5 523.9 8.5 – 532.4 1,894.6 4,328.7 17.5 14.9 266.6 698 − – 250.3 – 250.3 – 587.7 – 1.1 – 586.5 0.0 – – 586.5 – 3,358.2 – 3,366.5 – – – 246.2 – 1 Capital expenditure including capitalised development costs, excluding right-of-use assets 2 On intangible assets and property, plant and equipment (excluding right-of-use assets and PPA items) 3 Number of employees (full-time equivalents) as at balance sheet date 31/12/; allocation according to the contractual relationship * Segment report for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 233 TABLE 121 Total 7,598.1 − 7,598.1 464.7 – 96.3 561.0 40.1 176.2 777.3 12,337.7 9,345.4 218.3 146.3 7,979.1 31,608 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 234 External revenue by region is presented in > TABLE 122. Capital expenditure includes additions to intangible assets Revenue in Germany came to €1,533.2 million in 2018 (2017: and property, plant and equipment. Leased assets are described €1,400.5 million). There are no relationships with individual in note [17]. > TABLE 123 customers that generate revenue deemed to be significant as a proportion of total consolidated revenue. Capital expenditure in Germany came to €156.3 million in 2018 Financial income and expenses including all interest income (2017: €122.6 million). and expenses are described in notes [11] and [12]. Depreciation / amortisation relates to intangible assets with The non-recurring items mainly comprised consultancy finite useful lives and property, plant and equipment. costs totalling €21.0 million in 2018 (2017: €40.1 million). They The regional breakdown of non-current assets excluding are now attributable to process standardisation as part of the financial assets, financial instruments, deferred tax assets and integration of Dematic and to the redirection of sales activities in post-employment benefits is shown in > TABLE 124. South Africa. Non-current assets attributable to Germany amounted to The effects from purchase price allocations comprised net €3,395.7 million as at 31 December 2018 (31 December 2017: write-downs and other expenses in relation to the hidden reserves €3,399.4 million). and charges identified as part of the acquisition processes. Revenue with third parties broken down by customer location in € million Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total revenue * Revenue for 2017 was restated due to the initial application of IFRS 15 and IFRS 16 TABLE 122 2017 * 4,567.1 548.2 153.6 1,266.7 163.1 899.3 7,598.1 2018 4,769.9 592.3 94.5 1,486.3 173.5 879.3 7,995.7 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 235 Capital expenditure broken down by company location * TABLE 123 in € million Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total capital expenditure * Capital expenditure including capitalised development costs, excluding right-of-use assets Non-current assets broken down by company location in € million Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total non-current assets (IFRS 8) * Non-current assets for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 2018 190.2 14.6 0.1 34.6 1.6 17.3 2017 162.8 6.6 0.6 31.6 3.5 13.3 258.5 218.3 TABLE 124 2017 * 5,174.0 273.5 20.3 2,395.0 99.4 603.9 8,566.0 2018 5,295.7 344.1 5.0 2,422.4 98.7 565.8 8,731.8 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 236 [43] EMPLOYEES The related parties that are solely or jointly controlled by the KION Group or over which significant influence can be exercised are included in the list of shareholdings as at 31 December 2018 (see note [48]). The KION Group employed an average of 32,524 full-time In July 2018, Weichai Power (Luxembourg) Holding S.à r.l., equivalents (including trainees and apprentices) in the reporting Luxembourg (‘Weichai Power’), increased its stake in KION year (2017: 31,064). The number of employees (with part-time GROUP AG from 43.3 per cent to 45.0 per cent. Weichai Power staff included on a pro rata basis) is shown by region in > TABLE 125. Co. Ltd., Weifang, People’s Republic of China, therefore indirectly The KION Group employed an average of 547 trainees and holds a 45.0 per cent stake in KION GROUP AG. The distribution apprentices in 2018 (2017: 541). of a dividend of €0.99 per share (2017: €0.80 per share) to Weichai [44] RELATED PARTY DISCLOSURES Power resulted in an outflow of funds from KION GROUP AG of €50.6 million (2017: €37.7 million). The revenue that the KION Group generated in 2018 and 2017 from selling goods and services to related parties, and vice versa, is shown in > TABLES 126 – 127 along with the associated receivables and liabilities as at the reporting date. The receivables In addition to the subsidiaries included in the consolidated finan- include a loan that the KION Group has granted to Linde Hydrau- cial statements, the KION Group has direct or indirect business lics GmbH & Co. KG, Aschaffenburg. This involved a commitment relationships with a number of non-consolidated subsidiaries, of €9.3 million (31 December 2017: €9.3 million), from which the joint ventures and associates in the course of its ordinary busi- KION Group had a loan receivable of €8.0 million as at 31 Decem- ness activities. ber 2018 (31 December 2017: €8.0 million) with a variable interest rate. Employees (average) Germany France United Kingdom Italy Rest of Europe USA Asia Rest of world Total employees TABLE 125 2017 9,127 3,508 2,396 1,094 5,100 3,038 4,267 2,534 2018 9,887 3,619 2,383 1,212 5,673 2,938 4,402 2,410 32,524 31,064 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures Related party disclosures 2018 in € million Non-consolidated subsidiaries Associates (equity-accounted) Joint ventures (equity-accounted) Other related parties * Total Receivables Liabilities Sales of goods and services 29.3 36.0 3.0 15.3 83.6 12.9 10.8 92.8 5.0 121.5 30.9 179.6 63.1 38.8 312.3 * ‘Other related parties’ include, among others, transactions with Weichai Power and its affiliated companies Related party disclosures 2017 * in € million Non-consolidated subsidiaries Associates (equity-accounted) Joint ventures (equity-accounted) Other related parties ** Total Receivables Liabilities Sales of goods and services 28.7 25.1 1.5 10.9 66.2 15.8 11.2 56.0 2.7 85.7 31.1 158.1 56.8 23.5 269.4 * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 ** ‘Other related parties’ include, among others, transactions with Weichai Power and its affiliated companies 237 TABLE 126 Purchases of goods and services 22.1 133.1 78.6 11.5 245.3 TABLE 127 Purchases of goods and services 21.7 126.4 83.2 7.7 239.0 The members of the Executive Board and Supervisory Board of Assets Supervision and Administration Commission of Shandong KION GROUP AG are also related parties. Details of the remuner- People’s Government of the People’s Republic of China, Jinan, ation of the Executive Board and Supervisory Board can be found People’s Republic of China. This Commission acts on behalf of in note [46]. the People’s Republic of China. The exemption for govern- In its consolidated financial statements, which are published ment-related entities was applied. There were no transactions on the website of the Hong Kong Stock Exchange, Weichai that were significant, either individually or taken together, between Power Co. Ltd. states that its highest-level parent company is the KION Group and companies with which the KION Group is Shandong Heavy Industry Group Co., Ltd., Jinan, People’s closely associated solely because of its relationship with Republic of China, which itself is owned by the State-owned Shandong Heavy Industry Group Co., Ltd. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 238 [45] VARIABLE REMUNERATION KEEP employee equity programme However, KION GROUP AG has the right to satisfy each pro- gramme participant’s entitlement by paying a cash settlement instead of granting a bonus share. For employees taking part for the first time, the KION Group offers a special incentive in the form of starter packages. Under KEEP 2018, the KION Group will bear the cost of one KION share (free share) in each of the first On 1 October 2018, the Executive Board of KION GROUP AG seven share packages that an employee takes up. decided to launch a further share option programme for employ- The right to obtain a bonus share lapses if participants sell ees (KEEP 2018). In addition to the employees in the countries their own investment in KION shares or cease to work for the that had been included in the previous year, employees in the KION Group. The change in the number of bonus shares to be United States were permitted to participate for the first time. The granted is shown in > TABLE 128. period during which eligible employees could take up this offer by In 2018, 4,225 free shares were issued to employees as part making a declaration of acceptance ran from 2 to 19 Octo- of their starter packages (2017: 2,545 free shares). ber 2018. To be eligible to participate in KEEP 2018, employees The free shares to be issued are measured at their fair value needed, at the start of the offer phase, to have had a permanent, on the day on which employees obtain the right to acquire shares uninterrupted employment contract with a participating KION as their own investment. The fair value on the grant date is deter- Group company for at least one year. Currently, KION GROUP AG mined on the basis of Monte Carlo simulation. The measurement plus 19 German (2017: 17) and 62 foreign (2017: 60) subsidiaries parameters used are shown in > TABLE 129. are eligible to take part in KEEP. The Company is considering For KEEP 2018, the fair value of a bonus share was €42.03 whether to extend the employee share option programme to (KEEP 2017: €62.02; KEEP 2016: €52.51). other countries over the coming years. The fair value of the bonus shares to be granted is recognised KEEP is a share matching plan. Participating employees as an expense and paid into capital reserves over the three-year acquire KION shares for their own investment purposes. Each set holding period. The holding period for KEEP 2015 ended on of three KION shares represents a share package. Once the 1 October 2018 and the bonus shares were issued to the eligible three-year holding period has expired, employees are entitled to employees at no cost. one free matching share (bonus share) for each share package. Development of the granted bonus shares in units Balance as at 01/01/ Granted bonus shares Exercised bonus shares Forfeited bonus shares Balance as at 31/12/ TABLE 128 2017 67,106 12,098 – 27,363 – 1,675 50,166 2018 50,166 17,455 – 22,580 – 1,386 43,655 KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 239 Significant measurement parameters for the KION GROUP AG Share Matching Programme TABLE 129 Measurement parameters Expected dividend Price of the KION share as at grant date KEEP 2018 KEEP 2017 KEEP 2016 €0.99 €44.59 €0.88 €64.62 €0.88 €55.02 In 2018, an expense totalling €1.0 million was recognised under At the beginning of the performance period on 1 January functional costs for free shares and bonus shares in connection 2018 (2017 tranche: 1 January 2017; 2016 tranche: 1 January with the employee share option programme (2017: €0.9 million). 2016), the managers were allocated a total of 188,531 phantom Of this amount, €0.3 million related to KEEP 2018, €0.2 million to shares for this tranche (2017 tranche: 171,573 phantom shares; KEEP 2017 (2017: €0.2 million), €0.2 million to KEEP 2016 (2017: 2016 tranche: 180,963 phantom shares). The allocation was €0.2 million) and €0.2 million to KEEP 2015 (2017: €0.3 million). based on a particular percentage of each manager’s individual In 2017, there had also been an amount of €0.2 million relating gross annual remuneration at the time of grant. At the end of the to KEEP 2014. performance period, the number of the phantom shares is Each year, the Executive Board of KION GROUP AG amended depending on the degree to which the relevant targets decides whether there will be an offer made under the employee are achieved. The resulting final number of phantom shares share option programme that year and which companies multiplied by the smoothed price of KION GROUP AG shares at will participate. KION performance share plan (PSP) for managers the end of the performance period determines the amount of cash actually paid. The KION Group has the right to adjust the amount payable at the end of the performance period in the event of exceptional occurrences or developments. The maximum amount payable is limited to 200.0 per cent of the value of the shares allotted to an individual at the grant date. The 2018 tranche of the long-term, variable remuneration compo- The pro-rata expense calculation based on the fair value of nent for the managers in the KION Group (LTI 2018) with a defined the phantom shares on each valuation date is carried out using period (three years) was granted with effect from 1 January 2018. Monte Carlo simulation. The measurement parameters shown in The remuneration component measured over the long term is > TABLE 130 were used to value the phantom shares on the based in equal parts on the total shareholder return (TSR) of KION reporting date. GROUP AG shares compared with the performance of the MDAX index as a measure of market performance, and with return on capital employed (ROCE) as an internal measure. It also depends on the performance of KION GROUP AG shares during the relevant period. The performance period for the 2018 tranche ends on 31 December 2020 (2017 tranche: 31 December 2019). The 2016 tranche expired on 31 December 2018 and will be paid out in the first quarter of 2019. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 240 Significant measurement parameters of the KION Performance Share Plans TABLE 130 Measurement parameters Expected volatility of the KION share Expected volatility of the MDAX Index Risk-free interest rate Expected dividend Price of the KION share at valuation date Price of the MDAX Index at valuation date Initial value of the KION share (60-days average) Initial value of the MDAX Index (60-days average) Valuation date 31/12/2018 Tranche 2018 Tranche 2017 25.0% 10.0% – 0.63% €0.99 €41.41 30.0% 15.0% – 0.69% €0.99 €41.41 €21,523.65 €21,523.65 €69.85 €53.85 €26,396.86 €21,178.13 Taking account of the remaining term of two years (2018 tranche) the 2017 tranche (2017: expense of €3.9 million) and a pro-rata and one year (2017 tranche), the historic volatility of KION shares expense for twelve months of €1.4 million for the 2018 tranche was used to determine the volatility on which the valuation is were recognised under functional costs. Furthermore, an expense based. As at 31 December 2018, the fair value of one phantom of €4.3 million for the 2015 tranche had been recognised under share was €23.76 for the 2017 tranche (31 December 2017: functional costs in 2017. €65.60) and €24.25 for the 2018 tranche. On that date, the total fair value based on 153,909 phantom shares was €3.7 million (2017 tranche; 31 December 2017: €11.6 million) and €4.3 million (2018 tranche based on 176,360 phantom shares). The amount of €3.8 million that is expected to be paid out for the 2016 tranche KION performance share plan (PSP) for the Executive Board (2017: €11.4 million for the 2015 tranche) is calculated on the basis The members of the Executive Board have been promised a mul- of a preliminary total target achievement rate. In March 2018, a tiple-year variable remuneration component in the form of a per- payment from the 2015 tranche was made on the basis of the formance share plan with a three-year term in each case. The achievement of the long-term targets that were defined in 2015 at remuneration component measured over the long term is based the start of the performance period. in equal parts on the total shareholder return (TSR) of KION The total carrying amount for liabilities in connection with GROUP AG shares compared with the performance of the MDAX share-based remuneration was €7.7 million as at 31 Decem- index as a measure of market performance, and with return on ber 2018 (31 December 2017: €23.0 million). Of this amount, capital employed (ROCE) as an internal measure. It also depends €3.8 million related to the 2016 tranche (31 December 2017: on the performance of KION GROUP AG shares during the €7.8 million), €2.4 million to the 2017 tranche (31 December 2017: relevant period. €3.9 million) and €1.4 million to the 2018 tranche. In 2017, there The performance period for the 2018 tranche ends on had also been an amount of €11.4 million relating to the 2015 31 December 2020 (2017 tranche: 31 December 2019). The 2016 tranche. In 2018, income of €4.0 million in respect of the 2016 tranche expired on 31 December 2018 and will be paid out in the tranche (2017: expense of €5.2 million), income of €1.4 million for first quarter of 2019. At the beginning of the performance period KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 241 on 1 January 2018 (2017 tranche: 1 January 2017; 2016 tranche: €4.0 million), €1.1 million to the 2017 tranche (31 December 2017: 1 January 2016), the Executive Board members were allocated a €1.6 million) and €0.5 million to the 2018 tranche. In 2017, there total of 72,170 phantom shares for this tranche (2017 tranche: had also been an amount of €9.5 million relating to the 2015 82,265 phantom shares; 2016 tranche: 104,438 phantom shares) tranche. In 2018, income of €1.9 million in respect of the 2016 on the basis of the starting price of KION shares (60-day average). tranche (2017: expense of €2.3 million), income of €0.4 million for The shares were allocated on the basis of an allocation value in euros the 2017 tranche (2017: expense of €1.6 million) and a pro-rata specified in each Executive Board member’s service contract. expense for twelve months of €0.5 million for the 2018 tranche At the end of the performance period, the number of the were recognised under functional costs. Furthermore, an expense phantom shares is amended depending on the degree to which of €3.6 million for the 2015 tranche had been recognised under the relevant targets are achieved. The resulting final number of functional costs in 2017. phantom shares multiplied by the smoothed price of KION GROUP AG shares at the end of the performance period determines the amount of cash actually paid. The Supervisory Board can also use a discretionary personal performance multiplier to adjust the final payment at the end of the perfor- mance period by + / – 30.0 per cent. The maximum amount paya- ble is limited to 200.0 per cent of the value of the shares allotted to an individual at the grant date. [46] REMUNERATION OF THE EXECU- TIVE BOARD AND SUPERVISORY BOARD The pro-rata expense calculation based on the fair value of Executive Board the phantom shares on each valuation date is carried out using Monte Carlo simulation. The measurement parameters shown in Responsibilities > TABLE 130 were used to value the phantom shares on the Gordon Riske, Chief Executive Officer (CEO), is responsible for reporting date. the LMH EMEA, STILL EMEA and KION Americas Operating Taking account of the remaining term of two years (2018 Units in the Industrial Trucks & Services segment. He also remains tranche) and one year (2017 tranche), the historic volatility of KION in charge of the following group functions: corporate office, shares was used to determine the volatility on which the valuation corporate communications, corporate strategy, internal audit, is based. As at 31 December 2018, the fair value of one phantom corporate compliance and KION Invest. share was €23.76 for the 2017 tranche (31 December 2017: Dr Eike Böhm, in his role as Chief Technology Officer (CTO), €65.60) and €24.25 for the 2018 tranche. On that date, the total has groupwide responsibility for research and development in fair value based on 63,695 phantom shares was €1.5 million (2017 both the Industrial Trucks & Services and the Supply Chain tranche; 31 December 2017: €4.2 million) and €1.8 million (2018 Solutions segments, including modules & components, and for tranche based on 72,170 phantom shares). The amount of procurement, quality, the production system and the KION €2.1 million that is expected to be paid out for the 2016 tranche Product Development Optimisation (KPDO) initiative. (2017: €9.5 million for the 2015 tranche) is calculated on the basis Anke Groth, in her role as Chief Financial Officer (CFO), is in of a preliminary total target achievement rate. In March 2018, a charge of corporate accounting & tax, corporate controlling, payment from the 2015 tranche was made on the basis of the corporate finance / M&A, investor relations, financial services, achievement of the long-term targets that were defined in 2015 legal affairs and logistics / Urban. As Labour Relations Director, at the start of the performance period. she is further responsible for corporate HR and health, safety & The total carrying amount for liabilities in connection with environment. share-based remuneration was €3.8 million as at 31 Decem- Ching Pong Quek, Chief Asia Pacific Officer, heads up the ber 2018 (31 December 2017: €15.1 million). Of this amount, KION APAC Operating Unit and thus the entire Asia business €2.1 million related to the 2016 tranche (31 December 2017: within the Industrial Trucks & Services segment. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 242 Susanna Schneeberger, in the newly created role of Chief Digital As in the previous year, no loans or advances were made to Officer (CDO), is responsible for the Dematic Operating Unit in the members of the Executive Board in 2018. The present value of Supply Chain Solutions segment and for the groupwide areas of the defined benefit obligation in respect of Executive Board software development, KION Group IT, data protection, mobile members as at 31 December 2018 was €8.3 million (31 Decem- automation and the Digital Campus. ber 2017: €8.3 million). Remuneration The total remuneration paid to former members of the Exec- utive Board in 2018 amounted to €0.3 million (2017: €0.3 million). The remuneration paid to the Executive Board comprises a fixed Defined benefit obligations to former members of the Executive salary and non-cash benefits, pension entitlements and perfor- Board or their surviving dependants amounting to €10.5 million mance-related components. The variable performance-related (31 December 2017: €9.8 million) were recognised in accordance components comprise an annually recurring component linked to with IAS 19. business performance and a multi-year performance-related Further details of Executive Board remuneration, including component in the form of the KION performance share plan for all the individual amounts for each member, can be found in the members of the Executive Board. The pension entitlements remuneration report within the combined management report consist of retirement, invalidity and surviving dependants’ benefits. (see pages 113 to 131). An expense of €5.7 million was recognised for the total remu- neration for members of the Executive Board in 2018 (2017: €13.6 million). This consisted of short-term remuneration amount- Supervisory Board ing to €6.5 million (2017: €5.0 million), post-employment benefits totalling €1.0 million (2017: €1.1 million) and share-based payments The total remuneration paid to the members of the Supervisory of minus €1.8 million (2017: €7.5 million). The short-term remuner- Board for the performance of their tasks at the parent company ation comprised non-performance-related components amount- and subsidiaries in 2018 amounted to €1.5 million (2017: €1.4 mil- ing to €4.5 million (2017: €3.1 million) and performance-related lion). There were no loans or advances to members of the Super- components amounting to €2.1 million (2017: €1.9 million). The visory Board in 2018. Furthermore, the members of the Supervi- current service cost resulting from pension provisions for the sory Board did not receive any remuneration or benefits for Executive Board is reported under post-employment benefits. services provided as individuals, such as consulting or brokerage The long-term incentive components take the form of a perfor- activities. mance share plan (see also note [45]). Members of the Supervisory Board also received short-term Under section 314 HGB, disclosure of the expense for employee benefits of €0.7 million for employee services (2017: share-based payments is not required. Rather, the payments €0.8 million). must be included in the Executive Board members’ remuneration Further details of Supervisory Board remuneration, including for the year in which they are paid on the basis of the fair value at the individual amounts for each member, can be found in the the individual grant dates. The fair value of the share-based remuneration report within the combined management report payments at their individual grant dates, including tax equalisa- (see pages 132 to 133). tion, amounted to €5.5 million (2017: €3.9 million). Furthermore, disclosure of post-employment benefits (expense of €1.0 million; 2017: expense of €1.1 million) is not required. On this basis, the total remuneration of the members of the Executive Board pursu- ant to section 314 HGB came to €12.0 million (2017: €8.9 million). KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 243 [47] MEMBERS OF THE EXECUTIVE BOARD AND SUPERVISORY BOARD Executive Board Gordon Riske Chief Executive Officer (CEO) Member of the Board of Directors of Linde Material Handling Asia Pacific Pte., Ltd., Singapore, Singapore Chairman of the Board of Directors of Linde Material Handling Hong Kong Ltd., Hong Kong, People’s Republic of China Member of the Advisory Board of Fujian JULI Motor Co., Ltd., Putian, People’s Republic of China Chairman of the APAC Advisory Board of Euro Asia Consulting Co., Ltd. Shanghai, People’s Republic of China (since 1 Novem- ber 2018) Susanna Schneeberger Chairman of the Board of Directors of Linde (China) Forklift Truck Member of the Executive Board / CDO (since 1 October 2018) Co., Ltd., Xiamen, People’s Republic of China Non-Executive Director of Weichai Power Co., Ltd., Weifang, Member of the Supervisory Board of Concentric AB, Linköping, People’s Republic of China Sweden Member of the Executive Board of the non-profit Hertie Foundation, Member of the Supervisory Board of Hempel A/S, Kongens Frankfurt am Main Dr Eike Böhm Lyngby, Denmark Dr Thomas Toepfer Member of the Executive Board / CTO Member of the Executive Board / CFO (until 31 March 2018) Member of the Advisory Board of JULI Motorenwerke s.r.o., Chairman of the Supervisory Board of STILL GmbH, Hamburg Moravany, Czech Republic (since 29 August 2018) (until 31 March 2018) Member of the Board of Directors of Linde (China) Forklift Truck Chairman of the Supervisory Board of Linde Material Handling Co., Ltd., Xiamen, People’s Republic of China (since 8 Novem- GmbH, Aschaffenburg (until 31 March 2018) ber 2018) Chairman of the Board of Directors of KION North America Member of the Supervisory Board of e.GO Mobile AG, Aachen Corp., Summerville, USA (until 8 March 2018) Anke Groth Member of the Executive Board / CFO (since 1 June 2018) Supervisory Board Ching Pong Quek Dr John Feldmann Member of the Executive Board / Chief Asia Pacific Officer Chairman of the Supervisory Board Member of the Board of KION South Asia Pte Ltd., Singapore, Former member of the Board of Executive Directors of BASF SE, Singapore Ludwigshafen President and CEO of KION Asia Ltd., Hong Kong, People’s Member of the Supervisory Board of HORNBACH Baumarkt Republic of China AG, Bornheim Chairman of KION Baoli Forklift Co., Ltd., Jiangsu, People’s Chairman of the Supervisory Board of HORNBACH Holding AG Republic of China & Co. KGaA, Neustadt an der Weinstrasse (since 6 July 2018) Member of the Board of Directors of KION India Pvte. Ltd., Member of the Supervisory Board of HORNBACH Management Pune, India AG, Annweiler am Trifels KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 244 Özcan Pancarci 1 Member of the Board of Directors of Diebold Nixdorf Inc., Ohio, Deputy Chairman of the Supervisory Board USA Member of the Supervisory Board of Douglas GmbH, Düsseldorf Chairman of the Plants I and II Works Council, Linde Material Member of the Supervisory Board of Douglas Holding AG, Handling GmbH, Aschaffenburg Düsseldorf Chairman of the Group Works Council of the KION Group Member of the Supervisory Board of Kirk Beauty Investments Deputy Chairman of the Supervisory Board of Linde Material SA, Luxembourg Handling GmbH, Aschaffenburg Member of the Shareholders’ Committee of Tipico Group Ltd., Birgit A. Behrendt Malta Vice President of Joint Ventures, Alliances and Commercial Martin Fahrendorf 1 (since 10 May 2018) Affairs at Ford of Europe GmbH, Cologne Chairman of the Works Council of Dematic GmbH and Dematic Member of the Executive Board of Ford of Europe GmbH, Services GmbH, Heusenstamm Cologne Member of the Supervisory Board of Ford Werke GmbH, Denis Heljic 1 (until 9 May 2018) Cologne Head of Service at the Dortmund / Krefeld main branch of STILL Member of the Supervisory Board of Ford Deutschland Holding GmbH, Hamburg GmbH, Cologne Member of the Board of Directors of Ford Sollers Holding LLC, Jiang Kui Chelny, Russia President of Shandong Heavy Industry Group Co., Ltd., Jinan, Member of the Audit Committee of Ford Sollers Holding LLC, People’s Republic of China Chelny, Russia Member of the Board of Directors of Ferretti International Hold- Member of the Board of Directors of Ford Otosan (Ford Otomotiv ing S.p.A., Milan, Italy Sanayi A.S.), Istanbul, Turkey (since 19 March 2018) Member of the Board of Directors of Ferretti S.p.A., Milan, Italy Member of the Advisory Board of Getrag Ford Transmission Member of the Executive Board of Hydraulics Drive Technology GmbH, Cologne (since 1 January 2018) Beteiligungs GmbH, Aschaffenburg Stefan Casper 1 Verwaltungs GmbH, Aschaffenburg Chairman of the Works Council of KION Warehouse Systems Member of the Board of Directors of PSI, Delaware, USA GmbH, Reutlingen Member of the Board of Directors of Shandong Heavy Industry Member of the Supervisory Board of Linde Hydraulics India Private Ltd., Pune, India Dr Alexander Dibelius Member of the Board of Directors of Shantui Construction Managing Partner at CVC Capital Partners (Deutschland) Machinery Co. Ltd. Jining, People’s Republic of China GmbH, Frankfurt am Main Member of the Board of Directors of Sinotruk (BVI) Limited, Brit- Deputy Chairman of the Board of Directors of Breitling S.A., ish Virgin Islands (since 23 November 2018) Grenchen, Switzerland Member of the Board of Directors of Sinotruk (Hong Kong) Member of the Board of Directors of CVC Capital Partners Limited, Hong Kong, People’s Republic of China (since (Luxembourg) SARL, Luxembourg 23 November 2018) Chairman of the Supervisory Board of Diebold Nixdorf AG, Member of the Board of Directors of Sinotruck Jinan Power Co. Paderborn Ltd, Jinan, People’s Republic of China (since 23 November 2018) Chairman of the Supervisory Board of Diebold Nixdorf Interna- Member of the Board of Directors of Ballard Power Systems tional GmbH, Paderborn Inc., Burnaby, Canada (since 23 November 2018) KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 245 Chairman of the Board of Directors of Weichai Ballard Hy-Energy Alexandra Schädler 1 Technologies Co. Ltd., Weifang, People’s Republic of China Trade Union Secretary on the National Executive of IG Metall, (since 26 November 2018) Frankfurt am Main Member of the Board of Directors of Weichai Power Co., Ltd., Member of the Supervisory Board of Linde Material Handling Weifang, People’s Republic of China GmbH, Aschaffenburg Member of the Supervisory Board of Opel Automobile GmbH, Olaf Kunz 1 Rüsselsheim (since 1 June 2018) Head of Collective Bargaining at IG Metall District Office for the Coast, Hamburg Dr Frank Schepp 2 Member of the Supervisory Board of STILL GmbH, Hamburg Vice President of Quality at KION GROUP AG, Frankfurt am Main (based in Aschaffenburg) Dr Michael Macht (since 9 October 2018) Shareholder and member of the Supervisory Board of Endur- Tan Xuguang (until 30 September 2018) ance Capital Aktiengesellschaft, Munich Chairman of the Board of Directors and President of Shandong Member of the Supervisory Board of Ferretti S.p.A., Milan, Italy Heavy Industry Group Co., Ltd., Jinan, People’s Republic of Member of the Supervisory Board of Linde & Wiemann SE&Co. China KG, Dillenburg Chairman of the Board of Directors of China National Heavy Chairman of the Advisory Board of Schweizer Group GmbH & Duty Truck Group Co., Ltd., Jinan, People’s Republic of China Co. KG, Hattenhofen (since 1 September 2018) Member of the Supervisory Board of Weichai Power Co. Ltd., Chairman of the Board of Directors of Ferretti International Weifang, People’s Republic of China Holding S.p.A., Milan, Italy Jörg Milla 1 Chairman of the Board of Directors of Ferretti S.p.A., Milan, Italy Chairman of the Board of Directors of Weichai Holding Group Chairman of the Works Council of STILL GmbH, Hamburg Co., Ltd., Weifang, People’s Republic of China Deputy Chairman of the Supervisory Board of STILL GmbH, Chairman of the Board of Directors and Chief Executive Officer Hamburg of Weichai Power Co., Ltd., Weifang, People’s Republic of China Dr Christina Reuter Claudia Wenzel 1 Head of Central Manufacturing Engineering & Operational Full-time works council member, HQ and plant 2 at Linde Mate- Excellence for Space Equipment Operations at Airbus Defence rial Handling GmbH, Aschaffenburg and Space GmbH, Taufkirchen Xu Ping Hans Peter Ring Partner and Member of the Management Committee at King & Management Consultant, Munich Wood Mallesons, Beijing, People’s Republic of China Member of the Supervisory Board of Airbus Defence and Space Member of the Board of Directors of Ferretti International GmbH, Taufkirchen Holding S.p.A., Milan, Italy Member of the Supervisory Board of Fokker Technologies Holding B.V., Papendrecht, Netherlands 1 Employee representatives 2 Executive representatives KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 246 [48] LIST OF THE SHAREHOLDINGS OF KION GROUP AG, FRANKFURT AM MAIN The shareholdings of the KION Group as at 31 December 2018 are listed below. > TABLE 131 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country 1 KION GROUP AG Frankfurt am Main Germany Parent company Share- holding 2018 Share- holding 2017 Note Consolidated subsidiaries Domestic 2 BlackForxx GmbH 3 Dematic GmbH 4 Dematic Holdings GmbH 5 Dematic Logistics GmbH 6 Dematic Services GmbH 7 DH Services GmbH Stuhr Germany Heusenstamm Germany 23 100.00% 100.00% 56 100.00% 100.00% Frankfurt am Main Germany 1 100.00% 100.00% [1] Bielefeld Germany 56 100.00% 100.00% Heusenstamm Germany 3 100.00% 100.00% Frankfurt am Main Germany 53 100.00% 100.00% [2] 8 Eisengießerei Dinklage GmbH 9 Eisenwerk Weilbach GmbH 10 Fahrzeugbau GmbH Geisa Dinklage Germany Frankfurt am Main Germany Geisa Germany 11 KION Financial Services GmbH Frankfurt am Main Germany 12 KION Information Management Services GmbH Frankfurt am Main Germany 13 KION Warehouse Systems GmbH Reutlingen 14 Klaus Pahlke GmbH & Co. Fördertechnik KG Haan Germany Germany 15 Linde Material Handling GmbH Aschaffenburg Germany 23 100.00% 100.00% 15 100.00% 100.00% 23 100.00% 100.00% 15 100.00% 100.00% 1 100.00% 100.00% 23 100.00% 100.00% 15 100.00% 100.00% 1 100.00% 100.00% 16 LMH Immobilien GmbH & Co. KG Aschaffenburg Germany 15 & 17 99.64% 99.64% 17 LMH Immobilien Holding GmbH & Co. KG Aschaffenburg Germany 18 LMH Immobilien Holding Verwaltungs-GmbH Aschaffenburg Germany 15 94.00% 94.00% 15 100.00% 100.00% 19 LMH Immobilien Verwaltungs-GmbH Aschaffenburg Germany 15 100.00% 100.00% 20 LR Intralogistik GmbH Wörth a. d. Isar Germany 23 100.00% 100.00% 21 Schrader Industriefahrzeuge GmbH & Co. KG Essen 22 STILL Financial Services GmbH Hamburg 23 STILL Gesellschaft mit beschränkter Haftung Hamburg Germany Germany Germany 15 100.00% 100.00% 11 100.00% 100.00% 15 100.00% 100.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 247 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country Parent company Share- holding 2018 Share- holding 2017 Note 24 Urban-Transporte Gesellschaft Unterschleißheim Germany 15 100.00% 100.00% mit beschränkter Haftung 25 Willenbrock Fördertechnik GmbH & Co. KG Bremen 26 Willenbrock Fördertechnik GmbH & Co. KG Hannover 27 Willenbrock Fördertechnik Holding GmbH Bremen Foreign 28 Dematic Holdings Pty. Ltd. 29 Dematic Pty. Ltd. 30 Linde Material Handling Pty. Ltd. 31 Dematic NV 32 STILL NV 33 Dematic Sistemas e Equipamentos de Movimentação de Materiais Ltda. 34 KION South America Fabricação de Equipamentos para Armazenagem Ltda. Belrose Belrose Huntingwood Zwijndrecht Wijnegem Indaiatuba / São Paulo Indaiatuba / São Paulo Germany Germany Germany Australia Australia Australia Belgium Belgium Brazil Brazil 27 27 15 74.00% 74.00% 74.00% 74.00% 74.00% 74.00% 56 100.00% 100.00% 28 100.00% 100.00% 15 100.00% 100.00% 56 & 3 100.00% 100.00% 23 & 87 100.00% 100.00% 81 & 3 100.00% 100.00% 23 100.00% 100.00% 35 Dematic Logistics de Chile Ltda. Santiago de Chile Chile 54 & 111 100.00% 100.00% 36 STILL DANMARK A/S 37 BARTHELEMY MANUTENTION SAS 38 Bastide Manutention SAS 39 Bretagne Manutention SAS 40 Dematic SAS Kolding Vitrolles Bruguières Pacé Bussy-Saint- Georges Denmark France France France France 41 FENWICK FINANCIAL SERVICES SAS Elancourt France 42 FENWICK-LINDE OPERATIONS SAS Cenon-sur-Vienne France 43 FENWICK-LINDE SAS 44 KION France SERVICES SAS Elancourt Elancourt 45 LOIRE OCEAN MANUTENTION SAS Saint-Herblain France France France 46 Manuchar SAS 47 MANUSOM SAS 48 Société Angoumoisine de Manutention (SAMA) SAS 49 SM Rental SAS 50 STILL Location Services SAS 51 STILL SAS 52 URBAN LOGISTIQUE SAS Gond-Pontouvre France Rivery Champniers Roissy-Charles- de-Gaulle France France France Marne-la-Vallée France Marne-la-Vallée France Elancourt France 23 100.00% 100.00% 43 80.00% 82.00% 43 100.00% 100.00% 43 100.00% 100.00% 56 100.00% 100.00% 44 100.00% 100.00% 43 100.00% 100.00% 44 100.00% 100.00% 15 100.00% 100.00% 43 71.18% 74.04% 43 100.00% 100.00% 51 100.00% 100.00% 51 100.00% 100.00% 43 100.00% 100.00% 44 100.00% 100.00% 44 100.00% 100.00% 24 100.00% 100.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 248 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country Parent company Share- holding 2018 Share- holding 2017 Note 53 Dematic (Services) Ltd. 54 Dematic Ltd. 55 Dematic Group Ltd. 56 Dematic Holdings UK Ltd. 57 KION FINANCIAL SERVICES Ltd. 58 Linde Castle Ltd. 59 Linde Creighton Ltd. 60 Linde Holdings Ltd. 61 Linde Jewsbury’s Ltd. 62 Linde Material Handling (UK) Ltd. 63 Linde Material Handling East Ltd. 64 Linde Material Handling Scotland Ltd. 65 Linde Material Handling South East Ltd. 66 Linde Severnside Ltd. 67 Linde Sterling Ltd. 68 Mirror Bidco Ltd. 69 STILL Materials Handling Ltd. 70 Superlift UK Ltd. 71 KION India Pvt. Ltd. 72 Linde Material Handling (Ireland) Ltd. 73 Baoli EMEA S.p.A. 74 Dematic S.r.l. 75 Emhilia Material Handling S.p.A. 76 KION Rental Services S.p.A. 77 Linde Material Handling Italia S.p.A. 78 STILL S.p.A. (until 2018: OM Carrelli Elevatori S.p.A.) Banbury Banbury Banbury Banbury Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Banbury Exeter Basingstoke Pune Walkinstown Lainate Cernusco sul Naviglio Modena Milan Buguggiate Lainate UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK India Ireland Italy Italy Italy Italy Italy Italy 4 100.00% 100.00% 56 100.00% 100.00% 7 100.00% 100.00% 81 100.00% 100.00% 70 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 70 100.00% 100.00% 62 100.00% 100.00% 60 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 7 100.00% 100.00% 70 100.00% 100.00% 15 100.00% 100.00% 107 100.00% 100.00% 60 100.00% 100.00% 23 100.00% 100.00% 56 100.00% 100.00% 77 100.00% 100.00% 73 & 77 & 78 100.00% 100.00% 15 100.00% 100.00% 15 & 73 100.00% 100.00% 79 Dematic Ltd. 80 K-LIFT S.A. Mississauga Canada 81 100.00% 100.00% Luxembourg Luxembourg – – – [3], [4] 81 Dematic Group S.à r.l. Senningerberg Luxembourg 7 100.00% 100.00% 82 Dematic (Malaysia) Sdn. Bhd. Petaling Jaya Malaysia 105 100.00% 100.00% 83 Dematic Logistics de Mexico S. de R.L. de C.V. Monterrey 84 DMTC Technology Services, S. de. R.L. de C.V. Monterrey 85 Dematic Trading de Mexico S. de. R.L. de C.V. Monterrey Mexico Mexico Mexico 54 & 111 100.00% 100.00% 54 & 111 100.00% 100.00% 54 & 111 100.00% 100.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 249 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name 86 Dematic B.V. 87 STILL Intern Transport B.V. 88 STILL Norge AS 89 AUSTRO OM PIMESPO Fördertechnik GmbH 90 Linde Material Handling Austria GmbH 91 STILL Gesellschaft m.b.H. 92 Dematic Poland Sp. z o.o. 93 Linde Material Handling Polska Sp. z o.o. 94 STILL POLSKA Sp. z o.o. Registered office Country Parent company Share- holding 2018 Share- holding 2017 Note s’Hertogenbosch Netherlands 6 100.00% 100.00% Hendrik- Ido-Ambacht Heimdal Linz Linz Netherlands 23 100.00% 100.00% Norway Austria Austria 23 100.00% 100.00% 78 100.00% 100.00% 15 & 89 100.00% 100.00% Wiener Neudorf Austria 23 100.00% 100.00% Poznań Warsaw Gadki Poland Poland Poland 3 100.00% 100.00% 15 100.00% 100.00% 23 100.00% 100.00% 95 STILL MATERIAL HANDLING ROMANIA SRL Giurgiu Romania 15 & 23 100.00% 100.00% 96 OOO “Linde Material Handling Rus” 97 OOO “STILL Forklifttrucks” 98 Linde Material Handling AB 99 Linde Material Handling Financial Services AB 100 Nordtruck AB 101 STILL Sverige AB 102 Dematic Suisse Sagl 103 Linde Material Handling Schweiz AG 104 STILL AG 105 Dematic S.E.A. Pte. Ltd. 106 KION South Asia Pte. Ltd. Moscow Moscow Örebro Örebro Örnsköldsvik Malmö Lugano Dietlikon Otelfingen Singapore Singapore 107 Linde Material Handling Asia Pacific Pte. Ltd. Singapore 108 Linde Material Handling Slovenská republika s.r.o. Trenčin 109 STILL SR, spol. s.r.o. 110 Linde Viličar d.o.o. 111 Dematic Logistic Systems S.A.U. 112 Islavista Spain S.A.U. 113 KION Rental Services S.A.U. 114 Linde Material Handling Ibérica, S.A.U. 115 STILL, S.A.U. Nitra Celje Coslada L’Hospitalet de Llobregat Barcelona Pallejá L’Hospitalet de Llobregat Russia Russia Sweden Sweden Sweden Sweden Switzerland Switzerland Switzerland Singapore Singapore Singapore Slovakia Slovakia Slovenia Spain Spain Spain Spain Spain 15 & 9 100.00% 100.00% 15 & 23 100.00% 100.00% 15 100.00% 100.00% 98 100.00% 100.00% 98 100.00% 100.00% 23 100.00% 100.00% 56 100.00% 100.00% 15 100.00% 100.00% 23 100.00% 100.00% 56 100.00% 100.00% 15 100.00% 100.00% 15 100.00% 100.00% 15 & 118 100.00% 100.00% 23 & 121 100.00% 100.00% 15 100.00% 100.00% 56 100.00% 100.00% 15 100.00% 100.00% 112 100.00% 100.00% 112 100.00% 100.00% 112 100.00% 100.00% 116 Linde Material Handling (Pty) Ltd. Linbro Park South Africa 15 100.00% 100.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 250 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country Parent company Share- holding 2018 Share- holding 2017 Note 117 KION Supply Chain Solutions Czech, s.r.o. Český Krumlov Czech Republic 55 100.00% 100.00% 118 Linde Material Handling Česká republika s.r.o. Prague Czech Republic 15 & 23 100.00% 100.00% 119 Linde Material Handling Parts Český Krumlov Czech Republic 15 100.00% 100.00% Distribution CZ s.r.o. 120 Linde Pohony s.r.o. 121 STILL ČR spol. s.r.o. 122 STILL Regional Service Center, s.r.o. Český Krumlov Czech Republic 15 100.00% 100.00% Prague Prague Czech Republic 15 & 23 100.00% 100.00% Czech Republic 23 100.00% 100.00% 123 STILL ARSER Iş Makineleri Servis ve Ticaret A.Ş. Izmir Turkey 23 51.00% 51.00% 124 Linde Magyarország Anyagmozgatási Kft. Dunaharaszti Hungary 15 100.00% 100.00% 125 STILL Kft. 126 Dematic Corp. Környe Hungary 23 100.00% 100.00% Grand Rapids United States 68 100.00% 100.00% 127 KION North America Corp. Summerville United States 15 100.00% 100.00% 128 Dematic International Trading Ltd. Shanghai 129 Dematic Logistics Systems Ltd. Suzhou 130 Egemin Asia Pacific Automation Ltd. Causeway Bay – Hong Kong 131 Egemin (Shanghai) Trading Company Ltd. Shanghai 132 KION ASIA (HONG KONG) Ltd. Kwai Chung – Hong Kong 133 KION Baoli (Jiangsu) Forklift Co., Ltd. Jiangjiang 134 Linde Material Handling Hong Kong Ltd. Kwai Chung – Hong Kong 135 Linde (China) Forklift Truck Corporation Ltd. Xiamen People’s Republic of China People’s Republic of China People’s Republic of China People’s Republic of China People’s Republic of China People’s Republic of China People’s Republic of China People’s Republic of China 81 100.00% 100.00% 81 100.00% 100.00% 31 100.00% 100.00% 130 100.00% 100.00% 15 100.00% 100.00% 132 100.00% 100.00% 15 100.00% 100.00% 15 100.00% 100.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 251 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country Parent company Share- holding 2018 Share- holding 2017 Note Non-consolidated subsidiaries Domestic 136 Comnovo GmbH Dortmund Germany 15 100.00% 100.00% 137 KION IoT Systems GmbH Frankfurt am Main Germany 1 100.00% 100.00% 138 Klaus Pahlke Betriebsführungs-GmbH Haan Germany 15 100.00% 100.00% 139 Linde Material Handling Rental Services GmbH Aschaffenburg Germany 15 100.00% 100.00% 140 OM Deutschland GmbH Neuhausen a. d. Fildern Germany 78 100.00% 100.00% [R] 141 proplan Transport- und Lagersysteme GmbH Aschaffenburg Germany 1 100.00% 100.00% 142 Schrader Industriefahrzeuge Verwaltung GmbH Essen 143 Trainingscenter für Sicherheit und Bremen Transport GmbH 144 Willenbrock Fördertechnik Beteiligungs-GmbH Bremen 145 Willenbrock Fördertechnik Beteiligungs-GmbH Hannover Foreign 146 Lansing Bagnall (Aust.) Pty. Ltd. Huntingwood 147 NDC Automation Pty. Ltd. 148 NDC Manage Pty. Ltd. 149 Baoli France SAS 150 SCI Champ Lagarde 151 Castle Lift Trucks Ltd. 152 Creighton Materials Handling Ltd. 153 D.B.S. Brand Factors Ltd. 154 Fork Truck Rentals Ltd. 155 Fork Truck Training Ltd. 156 FSU Investments Ltd. 157 Lancashire (Fork Truck) Services Ltd. 158 Linde Heavy Truck Division Ltd. 159 McLEMAN FORK LIFT SERVICES LTD. 160 Regentruck Ltd. 161 SDI Group Ltd. 162 SDI Group UK Ltd. Belrose Belrose Elancourt Elancourt Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Banbury Basingstoke Basingstoke Basingstoke Basingstoke Banbury Banbury Germany Germany Germany Germany Australia Australia Australia France France UK UK UK UK UK UK UK UK UK UK UK UK 15 100.00% 100.00% 27 74.00% 74.00% 27 27 74.00% 74.00% 74.00% 74.00% 62 & 15 100.00% 100.00% 29 100.00% 100.00% 29 100.00% 100.00% 44 100.00% 100.00% 43 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 67 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 81 100.00% 100.00% [R] [R] [R] [R] [R] [R] [R] [R] 67 100.00% 100.00% [R] 62 100.00% 100.00% 59 100.00% 100.00% 62 100.00% 100.00% [R] 156 & 81 100.00% 100.00% 161 100.00% 100.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 252 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country 163 Stephensons Enterprise Fork Trucks Ltd. 164 Sterling Mechanical Handling Ltd. 165 Trifik Services Ltd. 166 Urban Logistics (UK) Ltd. Basingstoke Basingstoke Basingstoke Basingstoke UK UK UK UK 167 Handling & Storage Equipment (Ireland) Ltd. Walkinstown Ireland 168 Parmacarr Service Srl. 169 QUALIFT S.p.A. 170 URBAN LOGISTICA S.R.L. 171 WHO Real Estate UAB Torrile Verona Lainate Vilnius Italy Italy Italy Lithuania Parent company Share- holding 2018 Share- holding 2017 Note [R] [R] [R] [R] [3] 67 100.00% 100.00% 62 100.00% 100.00% 62 100.00% 100.00% 24 100.00% 100.00% 72 100.00% 100.00% 78 100.00% – 77 100.00% 100.00% 24 100.00% 100.00% 27 74.00% 74.00% 172 Linde Material Handling (Malaysia) Sdn. Bhd. Petaling Jaya Malaysia 107 100.00% 100.00% 173 Linde Viljuškari d.o.o. 174 IBER-MICAR S.L.U. Vrčin Gavà Serbia Spain 90 100.00% 100.00% 15 100.00% 100.00% 175 Dematic Thailand Co. Ltd. Bangkok Thailand 105 & 198 73.89% 73.89% 176 Linde Material Handling (Thailand) Co., Ltd. Pathum Thani Thailand 107 100.00% 100.00% 177 Baoli Material Handling Europe s.r.o. 178 Použitý Vozík CZ, s.r.o. Prague Prague Czech Republic 133 100.00% 100.00% Czech Republic 118 100.00% 100.00% 179 Urban Transporte spol. s.r.o. Moravany Czech Republic 24 100.00% 100.00% 180 TOV “Linde Material Handling Ukraine” Kiev Ukraine 15 & 9 100.00% 100.00% Associates (equity-accounted investments) Domestic 181 Carl Beutlhauser Kommunal- und Fördertechnik GmbH & Co. KG Hagelstadt Germany 15 25.00% 25.00% 182 Hans Joachim Jetschke Industriefahrzeuge Hamburg Germany 15 21.00% 21.00% (GmbH & Co.) KG 183 Linde Hydraulics GmbH & Co. KG Aschaffenburg Germany 184 Pelzer Fördertechnik GmbH Kerpen Germany Foreign 185 Linde High Lift Chile S.A. 186 Labrosse Equipement SAS 187 Normandie Manutention SAS Santiago de Chile Chile Saint-Péray Saint-Etienne-du- Rouvray France France 15 15 15 43 43 10.00% 10.00% 24.96% 24.96% 45.00% 45.00% 34.00% 34.00% 34.00% 34.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 253 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country Parent company Share- holding 2018 Share- holding 2017 Note Joint Ventures (equity-accounted investments) Domestic 188 Linde Leasing GmbH Wiesbaden Germany 15 45.00% 45.00% Foreign 189 JULI Motorenwerk s.r.o. Moravany Czech Republic 15 & 23 50.00% 50.00% Associates (at cost) Domestic 190 JETSCHKE GmbH Hamburg Germany 191 Linde Hydraulics Verwaltungs GmbH Aschaffenburg Germany 192 MV Fördertechnik GmbH 193 Supralift Beteiligungs- und Kommunikationsgesellschaft mbH 194 Supralift GmbH & Co. KG Foreign 195 Chadwick Materials Handling Ltd. 196 Bari Servizi Industriali S.c.a.r.l. 197 Carretillas Elevadoras Sudeste S.A. 198 Dematic Holding (Thailand) Co., Ltd. 199 Motorové závody JULI CZ s.r.o. 200 DEMATIC ELECTROMECHANICAL SYSTEMS MIDDLE EAST L.L.C. Blankenhain Hofheim am Taunus Hofheim am Taunus Corsham Modugno Murcia Bangkok Moravany Dubai Germany Germany 15 15 15 15 21.00% 21.00% 10.00% 10.00% 25.00% 25.00% 50.00% 50.00% Germany 15 50.00% 50.00% UK Italy Spain Thailand Czech Republic United Arab Emirates 62 78 114 105 15 3 48.00% 48.00% 25.00% 25.00% 38.54% 38.54% 48.90% 48.90% 50.00% 50.00% 49.00% 49.00% KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 254 List of shareholdings as at 31 December 2018 (continued) TABLE 131 No. Name Registered office Country Parent company Share- holding 2018 Share- holding 2017 Note Financial investments Foreign 201 Balyo SA 202 TPZ Linde Viličari Hrvatska d.o.o. Ivry-sur-Seine Zagreb France Croatia 15 15 6.48% 6.48% 20.00% 20.00% [5] [5] [1] Formerly ‘DH Services Luxembourg Holding S.à r.l’, change of registered office from Luxembourg to Germany [2] Formerly ‘DH Services Luxembourg S.à r.l’, change of registered office from Luxembourg to Germany [3] Addition during 2018 [4] Consolidated in accordance with IFRS 10 as structured entity [5] No material influence [R] Dormant company KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 255 [49] AUDITORS’ FEES [52] INFORMATION ON PREPARATION AND APPROVAL The fees recognised as an expense and paid to the auditors of the consolidated financial statements in 2018 amounted to The Executive Board of KION GROUP AG prepared the consoli- €2.3 million (2017: €2.1 million) for the audit of the financial dated financial statements on 20 February 2019 and approved statements, €0.1 million (2017: €0.1 million) for other attestation them for forwarding to the Supervisory Board. The Supervisory services, €0.0 million (2017: €0.0 million) for tax consultancy Board has the task of examining and deciding whether to approve services and €0.0 million (2017: €0.1 million) for other services. the consolidated financial statements. [50] COMPLY-OR-EXPLAIN STATEMENT REGARDING THE GERMAN CORPORATE GOVERNANCE CODE (DCGK) Frankfurt am Main, 20 February 2019 The Executive Board In December 2018, the Executive Board and Supervisory Board Gordon Riske of KION GROUP AG submitted their comply-or-explain statement for 2018 relating to the recommendations of the German Corpo- rate Governance Code government commission pursuant to section 161 AktG. The comply-or-explain statement has been made permanently available to shareholders on the website of KION GROUP AG at kiongroup.com/comply_statement. Dr Eike Böhm Anke Groth [51] EVENTS AFTER THE REPORTING DATE On 5 February 2019, Dr Feldmann informed KION GROUP AG that he will be stepping down as chairman of the Supervisory Board and as a member of the Supervisory Board at the end of the upcoming Annual General Meeting. Ching Pong Quek Susanna Schneeberger KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 256 Independent auditors’ report To KION GROUP AG, Frankfurt am Main / Germany Report on the audit of the consolidated financial statements and the combined management report Audit opinions – the accompanying combined management report as a whole provides an appropriate view of the Group’s position. In all material respects, this combined management report is con- sistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion on the combined management report does not cover the content of the statement on corporate governance pur- We have audited the consolidated financial statements of KION suant to Sections 289f (4) and 315d German Commercial GROUP AG, Frankfurt am Main/Germany, and its subsidiaries Code (HGB) included in the combined management report. (the Group) – which comprise the consolidated statement of financial position as at 31 December 2018, the consolidated Pursuant to Section 322 (3) Sentence 1 German Commercial statement of profit and loss, the consolidated statement of com- Code (HGB), we declare that our audit has not led to any reserva- prehensive income, the consolidated statement of cash flows and tions relating to the legal compliance of the consolidated financial the consolidated statement of changes in equity for the financial statements and of the combined management report. year from 1 January to 31 December 2018 and the notes to the consolidated financial statements including a summary of signifi- Basis for audit opinions cant accounting methods. In addition, we have audited the com- We conducted our audit of the consolidated financial statements bined management report on the Parent and the Group of KION and of the combined management report in accordance with GROUP AG, Frankfurt am Main/Germany, for the financial year Section 317 German Commercial Code (HGB) and the Regulation from 1 January to 31 December 2018. In accordance with the (EU) No. 537/2014 (referred to subsequently as “EU Audit Regula- German legal requirements, we have not audited the content of tion”) and in compliance with German Generally Accepted Stand- the statement on corporate governance pursuant to Sections ards for Financial Statement Audits promulgated by the Institut 289f (4) and 315d German Commercial Code (HGB) included in der Wirtschaftsprüfer [Institute of Public Auditors in Germany] the combined management report. (IDW). Our responsibilities under these requirements and princi- ples are further described in the section “Auditor’s responsibilities In our opinion, on the basis of the knowledge obtained in the audit, for the audit of the consolidated financial statements and the – the accompanying consolidated financial statements com- ply, in all material respects, with the IFRSs, as adopted by the combined management report” of our auditor’s report. We are independent of the group entities in accordance with the require- ments of European law and German commercial and professional EU, and the additional requirements of German commercial law, and we have fulfilled our other German professional respon- law pursuant to Section 315e (1) German Commercial Code sibilities in accordance with these requirements. In addition, pur- (HGB) and, in compliance with these requirements, give a suant to Article 10 (2f) of the EU Audit Regulation, we declare that true and fair view of the assets, liabilities, and financial we have not provided non-audit services prohibited under Article position of the Group as at 31 December 2018, and of its 5 (1) of the EU Audit Regulation. We believe that the audit evi- financial performance for the financial year from 1 January to dence we have obtained is sufficient and appropriate to provide a 31 December 2018, and basis for our audit opinions on the consolidated financial state- ments and the combined management report. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 257 Key audit matters in the audit of the consolidated ducted at the level of the operating entities, which represent financial statements the cash-generating units, by determining the corresponding Key audit matters are those matters that, in our professional realisable amount and comparing that realisable amount with judgement, were of most significance in our audit of the consoli- the corresponding carrying value. The realisable amount is dated financial statements for the financial year from 1 January to determined using the discounted cash flow method on the 31 December 2018. These matters were addressed in the con- basis of KION GROUP AG’s budget consisting of the operative text of our audit of the consolidated financial statements as a three-years plan (2019 budget and 2020 to 2021 medium-term whole and in forming our audit opinion thereon; we do not provide budget) as well as of a projection concerning two further a separate audit opinion on these matters. years, which is adjusted using assumptions about long-term growth rates. The result of this measurement highly depends In the following we present the key audit matters we have deter- on the legal representatives’ estimation of the anticipated cash mined in the course of our audit: flows of the corresponding operating entity as well as the dis- count rate used (weighted average cost of capital – WACC) 1. Recoverability of the goodwill and brand names with indefinite and, therefore, is subject to great uncertainty. Therefore and useful life as recognised in the consolidated statement of due to the underlying complexity of the valuation models financial position applied, this matter was of particular significance in the scope 2. Recognition of leases as regards sales of our audit. 3. Realisation of revenue regarding the project business in the Supply Chain Solutions segment For information provided by the Parent on the goodwill and brand names with indefinite useful life, please refer to notes [6] Our presentation of these key audit matters has been structured and [16] to the consolidated financial statements. as follows: a) description (including reference to corresponding information standing of the method applied in the impairment test, the in the consolidated financial statements) budget process of KION as well as the definition of the b. During our audit, we, among other things, obtained an under- b) auditor’s response cash-generating units and assessed the determination of the WACC. In this context, we considered the Group’s adherence 1. Recoverability of the goodwill and brand names with indefinite to the budget process over the past years. useful life as recognised in the consolidated statement of financial position Regarding the impairment test, we examined the appropriate- a. As at 31 December 2018, the carrying amount of the goodwill ness of the expected future cash flows mainly by comparing and brand names with indefinite useful life in the consolidated the information with the operative budget (2019) approved by financial statements is mEUR 3,424.8 (26.4 per cent of the the supervisory board and with the medium-term budget Group’s total assets) and mEUR 943.4 (7.3 per cent of the (2020 to 2021) approved by the legal representatives and by Group’s total assets), respectively. The goodwill and brand examining the key measurement assumptions and parame- names with indefinite useful lives are tested by the legal repre- ters for plausibility based on expectations about macroeco- sentatives for impairment each year. This impairment test is nomic and industry-specific trends. As a significant portion of conducted regardless of whether there are external or internal the value in use has been determined based on projected indicators for an impairment. The impairment test is con- cash flows for the period following the five-year budget (period KION GROUP AGAnnual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 258 of perpetuity), we also examined in particular the sustained services is recognised in addition to an asset. In compliance growth rate applied for the period of perpetuity based on with IFRS 15, the types of indirect consumer financing agree- industry-specific market expectations. With respect to the ments have now been uniformly classified as leases within the evaluation of the discount rate, we consulted internal valuation meaning of IFRS 16. specialists, who convinced themselves of the appropriateness of the discount rate used based on market comparisons. Due Groupwide, consistent lease applications shall ensure that the to the great significance of the goodwill and the brand names recognition, categorisation and classification of the various with indefinite useful life in the consolidated financial state- contract types according to the IFRSs are complete and cor- ments, we finally conducted sensitivity analyses with regard to rect. The determination of the criteria and parameters in these both the growth expectations of the future cash flows from the applications is subject to the legal representatives’ judgement. operating entities and the applied discount rate. The classification and entry routines of the lease applications are updated, programmed and managed centrally in Ger- 2. Recognition of leases as regards sales many, including necessary adjustments as part of the initial a. To a great extent, KION uses leases as a sales instrument in application of the new IFRS, while the contract input is per- the segment Industrial Trucks & Services. The corresponding formed locally in the operating entities or the Group’s own agreements comprise contracts, under which the KION enti- financial services entities. In this context, the new lease ties qualify as contract parties, and those, under which the application, which replaces the previous application, was lease object was sold to external finance partners. The follow- finally introduced in the operating group entities. ing three contract types are primarily used: – Single step lease: The lease object is directly leased to the – Sale and leaseback sublease: The lease object is sold to a consumer; financial partner and subsequently leased back. At the same time, the lease object is also rented out under a sublease contract to the consumer. – Indirect consumer financing: The (lease) object is sold to a finance partner, who rents it out to a consumer. Due to the high transaction volume in connection with the var- ious contract types, any errors in this area may considerably affect the consolidated financial statements. For this reason, the assessment of the accounting for leases was of particular significance in the scope of our audit. For information provided by the Parent on the accounting for leases, please refer to the notes [6], [17], [18], [21], [30], [31] and [35] to the consolidated financial statements. As at 31 December 2018, the carrying value of the receivables b. As part of our audit, we first updated our understanding of the and assets under the lease agreements is mEUR 1,097.3 process including our understanding of the existing contract (8.5 per cent of total assets) and mEUR 1,932.3 (14.9 per cent types as well as the company’s internal controls regarding of total assets), respectively. leases. Single-step leases are classified as finance leases or operat- In the light of our understanding of the organisational compo- ing leases within the meaning of IFRS 16. For sale and lease sition and the overall process, the audit on the one hand back sublease contracts concluded until and including focused on the lease applications used and on the other hand 31 December 2017, an asset and a lease liability is accounted on the completeness and accuracy of the data input in the for taking advantage of the right of continuance specified in individual component areas. IFRS 16. For sale and lease back sublease contracts con- cluded after 31 December 2017, the transaction is classified as a finance lease. Accordingly, a liability related to financial KION GROUP AGAnnual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 259 With respect to the lease applications used, we examined the 3. Realisation of revenue regarding the project business in the appropriateness, implementation and, where required, effec- Supply Chain Solutions segment tiveness of certain IT controls in line with our audit strategy. As a. The revenue in the Supply Chain Solutions segment amounts part of this examination, we consulted internal IT specialists. to mEUR 2,052.1 in the financial year 2018 (prior year: mEUR 2,005.1). This accounts for 25.7 per cent (prior year: 26.4 per In a next step, we obtained an understanding of whether the cent) of the Group’s total revenue. automated entry and classification routines used in the lease applications comply with the relevant IFRSs. To this end, we A significant portion of the revenue generated in the Supply first examined the KION IFRS Accounting Manual, which rep- Chain Solutions segment (mEUR 1,514.0; prior year: mEUR resents the basis for routine programming, for conformity with 1,512.4) relates to the project business (73.8 per cent of the the IFRSs. In addition, we assessed whether the entry and segment’s total revenue). Revenue for the project business-re- classification routines have been appropriate. Therefore, we lated customer contracts is recognised in line with the corre- examined the agreements on the basis of judgemental selec- sponding period unless there is an alternative possibility of use tions or by applying sampling methods. However, we made and right to the services already rendered. The revenue to be sure that all contract types were subject to our examination. realised is determined based on the percentage of completion Based on the data inputs, we assessed for each selected con- method. The percentage of completion is determined based tract whether the results of the lease applications comply with on the proportion of the contract costs that have already been the relevant IFRSs. incurred to the total contract costs estimated as at the report- We examined the data inputs made in the financial year in the ing date. individual component areas for accuracy directly in the oper- The revenue highly depends on estimations subject to the ating entities on a sample basis in the form of mathematical legal representatives’ judgement, in particular with regard to and statistical methods and extrapolated any identified devia- the total contract costs and the resulting percentage of com- tions to the corresponding basic population. In this context, pletion. Also taking into account the high amount of revenue apart from the accuracy, we audited the appropriate cut-off and related to the project business in the consolidated financial completeness of the data inputs on the basis of the original con- statements, we considered this matter to be of particular tracts. Where required, we received confirmations of third par- significance in the scope of our audit. ties to assess the completeness of the entered contracts. Due to the introduction of the new lease application, which business in the Supply Chain Solutions segment, please refer was concluded in the financial year in the operating group to the notes [6] and [7] to the consolidated financial statements. For information on revenue realisation related to the project entities, we also assessed whether the necessary migration of the historical contract data was complete and correct by com- paring – on the level of the contracts – the results of the new lease application with the results of the previous lease application. KION GROUP AGAnnual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 260 b. In the scope of our audit, we deepened our knowledge of the In addition, the other information comprises the separate non- processes concerning the project business including our financial group report, which is expected to be published subse- understanding of the corresponding internal controls of the quently on KION GROUP AG’s website by 30 April 2019. Group. We examined the appropriateness of the internal con- trols’ design and implementation regarding the estimation of Our audit opinions on the consolidated financial statements and the percentage of completion and continued review of con- on the combined management report do not cover the other tract costs. information, and consequently we do not express an audit opin- ion or any other form of assurance conclusion thereon. Considering this, we selected projects based on risk consid- erations. First, we assessed – based on the individual basis of In connection with our audit of the consolidated financial state- the contracts – whether the projects meet the requirements ments, our responsibility is to read the other information and, in for revenue recognition according to the percentage of com- doing so, to consider whether the other information pletion method. Subsequently, we assessed the estimation made for the individual contracts. To this end, we examined the current cost reports and project calculations taking into account the customer contracts with respect to the percent- age of completion of the selected projects. To this end, we additionally consulted the employees responsible for the rele- – is materially inconsistent with the consolidated financial statements, with the combined management report or our knowledge obtained in the audit, or – otherwise appears to be materially misstated. vant projects on matters such as the current project phase, Responsibilities of the legal representatives and the supervisory any risks including fines and changes to original assumptions board for the consolidated financial statements and the combined and requested explanations for unexpected project develop- management report ments, which were compared with supplementary evidence. The legal representatives are responsible for the preparation of In addition, we have convinced ourselves, where required, of the consolidated financial statements that comply, in all material the project progress on site and have taken into account the respects, with IFRSs, as adopted by the EU, and the additional adherence to the budget planning based on retrospective requirements of German commercial law pursuant to Section analyses of selected projects. 315e (1) German Commercial Code (HGB) and that the consoli- Other information dated financial statements, in compliance with these require- ments, give a true and fair view of the assets, liabilities, financial The legal representatives are responsible for the other informa- position, and financial performance of the Group. In addition, the tion. The other information comprises the following documents legal representatives are responsible for such internal control as received prior to the date of this auditors’ report: they have determined necessary to enable the preparation of – the statement on corporate governance included in the com- – the legal representatives’ confirmation relating to the consol- bined management report idated financial statements and to the combined manage- consolidated financial statements that are free from material mis- statement, whether due to fraud or error. In preparing the consolidated financial statements, the legal rep- resentatives are responsible for assessing the Group’s ability to ment report pursuant to Section 297 (2) Sentence 4 and Sec- continue as a going concern. They also have the responsibility for tion 315 (1) Sentence 5 German Commercial Code (HGB), disclosing, as applicable, matters related to going concern. In respectively – the remaining parts of the Annual Report, with the exception of the audited consolidated financial statements and com- addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic bined management report and our auditor’s report. alternative but to do so. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 261 Furthermore, the legal representatives are responsible for the users taken on the basis of these consolidated financial state- preparation of the combined management report that, as a ments and this combined management report. whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated finan- We exercise professional judgement and maintain professional cial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future devel- opment. In addition, the legal representatives are responsible for scepticism throughout the audit. We also – identify and assess the risks of material misstatement of the consolidated financial statements and of the combined man- such arrangements and measures (systems) as they have consid- agement report, whether due to fraud or error, design and ered necessary to enable the preparation of a combined man- perform audit procedures responsive to those risks, and agement report that is in accordance with the applicable German obtain audit evidence that is sufficient and appropriate to legal requirements, and to be able to provide sufficient appropri- provide a basis for our audit opinions. The risk of not detect- ate evidence for the assertions in the combined management ing a material misstatement resulting from fraud is higher report. than for one resulting from error, as fraud may involve collu- sion, forgery, intentional omissions, misrepresentations, or The supervisory board is responsible for overseeing the group’s financial reporting process for the preparation of the consolidated financial statements and of the combined management report. the override of internal control. – obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrange- Auditor’s responsibilities for the audit of the consolidated financial management report in order to design audit procedures that statements and the combined management report are appropriate in the circumstances, but not for the purpose Our objectives are to obtain reasonable assurance about whether of expressing an audit opinion on the effectiveness of these ments and measures relevant to the audit of the combined the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the combined management report as a whole provides an appro- systems. – evaluate the appropriateness of accounting policies used by the legal representatives and the reasonableness of esti- priate view of the Group’s position and, in all material respects, is mates made by the legal representatives and related disclo- consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and sures. – conclude on the appropriateness of the legal representa- tives’ use of the going concern basis of accounting and, risks of future development, as well as to issue an auditor’s report based on the audit evidence obtained, whether a material that includes our audit opinions on the consolidated financial uncertainty exists related to events or conditions that may statements and on the combined management report. cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty Reasonable assurance is a high level of assurance, but is not a exists, we are required to draw attention in the auditor’s guarantee that an audit conducted in accordance with Section report to the related disclosures in the consolidated financial 317 German Commercial Code (HGB) and the EU Audit Regula- statements and in the combined management report or, if tion and in compliance with German Generally Accepted Stand- such disclosures are inadequate, to modify our respective ards for Financial Statement Audits promulgated by the Institut audit opinions. Our conclusions are based on the audit evi- der Wirtschaftsprüfer (IDW) will always detect a material misstate- dence obtained up to the date of our auditor’s report. How- ment. Misstatements can arise from fraud or error and are con- ever, future events or conditions may cause the Group to sidered material if, individually or in the aggregate, they could rea- cease to be able to continue as a going concern. sonably be expected to influence the economic decisions of KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 262 – evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and whether the consolidated financial statements present and significant audit findings, including any significant deficien- the underlying transactions and events in a manner that the cies in internal control that we identify during our audit. consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial perfor- We also provide those charged with governance with a statement mance of the Group in compliance with IFRSs, as adopted by that we have complied with the relevant independence require- the EU, and with the additional requirements of German ments, and communicate with them all relationships and other commercial law pursuant to Section 315e (1) German Com- matters that may reasonably be thought to bear on our independ- mercial Code (HGB). – obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities ence, and where applicable, the related safeguards. From the matters communicated with those charged with within the Group to express audit opinions on the consoli- governance, we determine those matters that were of most dated financial statements and on the combined manage- significance in the audit of the consolidated financial statements ment report. We are responsible for the direction, supervision of the current period and are therefore the key audit matters. We and performance of the group audit. We remain solely describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. responsible for our audit opinions. – evaluate the consistency of the combined management report with the consolidated financial statements, its con- formity with German law, and the view of the Group’s position it provides. – perform audit procedures on the prospective information presented by the legal representatives in the group manage- ment report. On the basis of sufficient appropriate audit evi- dence we evaluate, in particular, the significant assumptions used by the legal representatives as a basis for the prospec- tive information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the prospective informa- tion and on the assumptions used as a basis. There is a sub- stantial unavoidable risk that future events will differ materi- ally from the prospective information. KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 263 Other legal and regulatory requirements Other information pursuant to Article 10 EU Audit Regulation We were elected as group auditor by the general meeting on 9 May 2018. We were engaged by the supervisory board on 25 May 2018 and 24 September/24 October 2018. We have been the group auditor of KION GROUP AG, Frankfurt am Main / Germany, which was named KION Holding 1 GmbH until 12 June 2013, without interruption since the financial year 2007. Since the financial year 2013, the company has been a public interest entity within the meaning of Section 319a (1) Sentence 1 German Commercial Code (HGB). We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit com- mittee pursuant to Article 11 of the EU Audit Regulation (long- form audit report). German public auditor responsible for the engagement The German Public Auditor responsible for the engagement is Kirsten Gräbner-Vogel.” Frankfurt am Main / Germany, 20 February 2019 Deloitte GmbH Wirtschaftsprüfungsgesellschaft Signed: Crampton Signed: Gräbner-Vogel Wirtschaftsprüfer Wirtschaftsprüferin [German Public Auditor] [German Public Auditor] KION GROUP AGAnnual Report 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Responsibility statement 264 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for consolidated financial report- ing, the consolidated financial statements give a true and fair view of the financial performance and financial position of the Group, and the group management report, which is combined with the Company’s management report, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected develop- ment of the Group. Frankfurt am Main, 20 February 2019 The Executive Board Gordon Riske Dr Eike Böhm Anke Groth Ching Pong Quek Susanna Schneeberger KION GROUP AGAnnual Report 2018265 KION GROUP AGAnnual Report 2018ADDITIONAL INFORMATION Contents 267 ADDITIONAL INFORMATION 268 QUARTERLY INFORMATION 269 MULTI-YEAR OVERVIEW 270 DISCLAIMER 271 FINANCIAL CALENDAR 271 CONTACT KION GROUP AGAnnual Report 2018ADDITIONAL INFORMATION Quarterly information 268 Quarterly information Quarterly information TABLE 132 in € million Order intake Q4 Q3 Q2 Q1 2018 2017 * 2018 2017 * 2018 2017 * 2018 2017 * 2,287.4 2,279.6 2,060.3 1,847.2 2,424.0 1,970.5 1,885.0 1,881.7 thereof Industrial Trucks & Services 1,724.2 1,579.6 1,454.8 1,351.6 1,546.5 1,513.7 1,485.2 1,414.6 thereof Supply Chain Solutions 556.3 692.9 598.5 492.7 874.2 452.3 396.3 461.3 Total revenue 2,225.5 1,963.4 1,895.9 1,832.4 2,031.1 2,001.3 1,843.3 1,801.0 thereof Industrial Trucks & Services 1,685.8 1,547.1 1,417.9 1,312.9 1,449.6 1,398.1 1,368.8 1,314.1 thereof Supply Chain Solutions Adjusted EBITDA thereof Industrial Trucks & Services thereof Supply Chain Solutions 533.0 457.2 395.2 65.4 412.0 404.9 371.7 41.6 472.7 380.1 326.0 56.1 516.1 381.1 318.3 73.1 578.8 377.0 318.0 64.0 599.8 387.7 323.1 71.3 470.7 340.9 301.0 46.1 481.6 322.0 275.6 49.7 Adjusted EBITDA margin 20.5% 20.6% 20.0% 20.8% 18.6% 19.4% 18.5% 17.9% thereof Industrial Trucks & Services 23.4% 24.0% 23.0% 24.2% 21.9% 23.1% 22.0% thereof Supply Chain Solutions 12.3% 10.1% 11.9% 14.2% 11.1% 11.9% EBIT thereof Industrial Trucks & Services thereof Supply Chain Solutions Adjusted EBIT thereof Industrial Trucks & Services thereof Supply Chain Solutions 206.2 195.7 22.2 252.3 213.8 49.9 169.7 204.9 – 20.4 219.7 206.1 28.9 168.6 156.2 20.9 192.7 157.4 43.8 136.1 149.4 4.9 195.5 150.3 61.2 142.1 136.1 19.4 187.0 148.2 51.5 159.8 159.7 16.2 210.4 159.4 64.1 Adjusted EBIT margin 11.3% 11.2% 10.2% 10.7% 9.2% 10.5% thereof Industrial Trucks & Services 12.7% 13.3% 11.1% 11.4% 10.2% 11.4% thereof Supply Chain Solutions 9.4% 7.0% 9.3% 11.9% 8.9% 10.7% 9.8% 125.8 137.1 1.9 157.9 135.9 35.0 8.6% 9.9% 7.4% 21.0% 10.3% 95.3 126.3 – 17.3 151.6 127.0 34.5 8.4% 9.7% 7.2% * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018268 ADDITIONAL INFORMATION Multi-year overview Multi-year overview KION Group multi-year overview in € million Order intake Revenue Order book ¹,² Financial performance EBITDA Adjusted EBITDA ³ Adjusted EBITDA margin ³ EBIT Adjusted EBIT ³ Adjusted EBIT margin ³ 2018 8,656.7 7,995.7 3,300.8 1,540.6 1,555.1 19.4% 642.8 789.9 9.9% 2017 * 7,979.1 7,598.1 2,614.6 1,457.6 1,495.8 19.7% 561.0 777.3 10.2% 2017 7,979.1 7,653.6 2,614.6 1,185.7 1,223.9 16.0% 549.4 765.6 10.0% 2016 5,833.1 5,587.2 2,396.6 889.5 931.6 16.7% 434.8 537.3 9.6% 2015 5,215.6 5,097.9 864.0 824.2 850.0 16.7% 422.8 482.9 9.5% 269 TABLE 133 2014 4,771.2 4,677.9 764.1 714.2 780.4 16.7% 347.0 442.9 9.5% Net income 401.6 422.5 426.4 246.1 221.1 178.2 Financial position ¹ Total assets Equity Net financial debt ROCE 4 Cash flow Free cash flow 5 Capital expenditure 6 12,968.8 12,337.7 11,228.4 11,297.0 3,305.1 1,869.9 9.3% 2,992.3 2,095.5 9.3% 3,148.8 2,095.5 9.9% 2,495.7 2,903.4 6.9% 6,440.2 1,848.7 573.5 11.9% 6,128.5 1,647.1 810.7 11.4% 519.9 258.5 474.3 218.3 378.3 218.3 – 1,850.0 166.7 332.7 142.6 305.9 133.1 Employees 7 33,128 31,608 31,608 30,544 23,506 22,669 1 Figures as at balance sheet date 31/12/ (adjusted due to the final purchase price allocation Dematic) 2 Order backlog 2016 adjusted to reflect specific customer orders from long-term construction contracts in the segment SCS 3 Adjusted for PPA items and non-recurring items 4 ROCE is defined as the proportion of EBIT adjusted to capital employed 5 Free cash flow is defined as cash flow from operating activities plus cash flow from investing activities 6 Capital expenditure including capitalised development costs, excluding right-of-use assets 7 Number of employees (full-time equivalents) as at balance sheet date 31/12/ * Key figures for 2017 were restated due to the initial application of IFRS 15 and IFRS 16 KION GROUP AGAnnual Report 2018ADDITIONAL INFORMATION Disclaimer 270 DISCLAIMER Forward-looking statements This annual report contains forward-looking statements that relate to the current plans, objectives, forecasts and estimates of the management of KION GROUP AG. These statements only take into account information that was available up to and including the date that this annual report was prepared. The management of KION GROUP AG makes no guarantee that these forward-looking statements will prove to be right. The future development of KION GROUP AG and its subsidiaries and the results that are actually achieved are subject to a variety of risks and uncertainties which could cause actual events or results to differ significantly from those reflected in the forward-looking statements. Many of these factors are beyond the control of KION GROUP AG and its subsidiaries and therefore cannot be precisely predicted. Such factors include, but are not limited to, changes in economic conditions and the competitive situation, changes in the law, interest rate or exchange rate fluctuations, legal disputes and investigations, and the availability of funds. These and other risks and uncertainties are set forth in the 2018 group management report, which has been combined with the Company’s management report. However, other factors could also have an adverse effect on our business performance and results. KION GROUP AG neither intends to nor assumes any separate obligation to update forward-looking statements or to change these to reflect events or developments that occur after the publication of this annual report. Rounding Certain numbers in this annual report have been rounded. There may therefore be discrepancies between the actual totals of the individual amounts in the tables and the totals shown as well as between the numbers in the tables and the numbers given in the corresponding analyses in the text of the annual report. All percentage changes and key figures were calculated using the underlying data in thousands of euros (€ thousand). KION GROUP AGAnnual Report 2018270 ADDITIONAL INFORMATION Financial calendar / Contact 271 FINANCIAL CALENDAR CONTACT 28 February 2019 Contacts for the media Contacts for investors Publication of 2018 annual report Financial statements press conference Michael Hauger Senior Vice President Dr Karoline Jung-Senssfelder Vice President Corporate Strategy 25 April 2019 Corporate Communications and Investor Relations Quarterly statement for the period Phone: +49 69 201 107 655 Phone: +49 69 201 107 450 ended 31 March 2019 (Q1 2019), michael.hauger@kiongroup.com karoline.jung-senssfelder@kiongroup.com Frank Grodzki Senior Director External Communications Phone: +49 69 201 107 496 frank.grodzki@kiongroup.com conference call for analysts 9 May 2019 Annual General Meeting 25 July 2019 Interim report for the period ended 30 June 2019 (Q2 2019), conference call for analysts 24 October 2019 Quarterly statement for the period ended 30 September 2019 (Q3 2019), conference call for analysts Subject to change without notice Securities identification numbers KION GROUP AG This annual report is available in German ISIN: DE000KGX8881 Thea-Rasche-Strasse 8 and English at kiongroup.com under WKN: KGX888 60549 Frankfurt am Main | Germany Investor Relations / Financial Reports. Phone: +49 69 201 100 Fax: +49 69 201 107 690 info@kiongroup.com www.kiongroup.com The content of the German version is authoritative. kiongroup.com/ ir KION GROUP AGAnnual Report 2018KION GROUP AG Corporate Communications Thea-Rasche-Strasse 8 60549 Frankfurt am Main | Germany Phone: +49 69 201 100 Fax: +49 69 201 107 690 info@kiongroup.com www.kiongroup.com

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