KION Group
Annual Report 2019

Plain-text annual report

D I G I T A L I S A T I O N E N E R G Y A U T O M A T I O N I N N O V A T I O N ANNUAL REPORT 2019 P E R F O R M A N C E KION Group Key figures for 2019 2 KION Group overview in € million Order intake Revenue Order book ¹ Financial performance EBITDA Adjusted EBITDA ² Adjusted EBITDA margin ² EBIT Adjusted EBIT ² Adjusted EBIT margin ² Net income Financial position ¹ Total assets Equity Net financial debt ROCE ³ Cash flow Free cash flow 4 Capital expenditure 5 Employees 6 2019 9,111.7 8,806.5 3,631.7 1,614.6 1,657.5 18.8% 716.6 850.5 9.7% 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% Change 2019 / 2018 5.3% 10.1% 10.0% 4.8% 6.6% – 11.5% 7.7% – 444.8 401.6 422.5 10.7% 13,765.2 12,968.8 12,337.7 3,558.4 1,609.3 9.7% 568.4 287.4 3,305.1 1,869.9 9.3% 519.9 258.5 2,992.3 2,095.5 9.3% 474.3 218.3 6.1% 7.7% – 13.9% – 9.3% 11.2% 34,604 33,128 31,608 4.5% 1 Figures as at balance sheet date 31/12/ 2 Adjusted for PPA items and non-recurring items 3 ROCE is defined as the proportion of adjusted EBIT to capital employed 4 Free cash flow is defined as cash flow from operating activities plus cash flow from investing activities 5 Capital expenditure including capitalised development costs, excluding right-of-use assets 6 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). FIRM FOCUS ON OUR CUSTOMERS When it comes to finding the right answers to our customers’ questions and requests, the KION Group is ahead of the pack. What drives us day after day is a desire to provide customers with bespoke, efficient and intelligent solutions for their intralogistics needs in con- junction with a full range of premium services and advice. With our KION 2027 strategy, we have put everything in place to ensure that we, and our customers, can continue to go from strength to strength. The five fields of action in KION 2027 – energy, digital, automation, innovation and performance – set out the path that we need to take in order to generate further profitable growth and meet the needs of our customers both now and in future. 3 Contents 4 Company A 8 14 16 24 28 B 32 C 44 45 62 94 107 111 D 134 135 136 138 140 142 242 250 E 254 255 256 257 257 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 4 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 world- wide, the KION Group’s logistics solutions optimise the flow of material and information within factories, ware- houses 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 comprehensive range of intelligent supply chain and automation solu- tions. The Linde and STILL brands serve the premium industrial truck segment. Baoli focuses on industrial trucks in the economy segment. Among the regional 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 Intralogistics 4.0 How the KION Group is adding value 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 2019 KION GROUP AG COMPANY Segments 5 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 2019 KION GROUP AG TO OUR SHAREHOLDERS Contents 7 TO OUR SHAREHOLDERS 8 14 16 24 28 LETTER TO SHAREHOLDERS EXECUTIVE BOARD REPORT OF THE SUPERVISORY BOARD KION SHARES SERVICES FOR SHAREHOLDERS KION GROUP AGAnnual Report 2019 8 Letter to Shareholders Dear shareholders, customers, partners and friends of the KION Group, Our employees made 2019 a year of impressive success for the KION Group, demonstrating their talent, experience, huge commitment and a great deal of passion in their efforts on behalf of our customers. We easily outperformed the market as a whole and strengthened our market position. Moreover, we not only achieved our ambitious business objectives but in some cases even exceeded them significantly, despite increasingly difficult conditions for the industry that were brought about by macroeconomic challenges, several delays to Brexit, trade disputes and bilateral protectionist tariffs. These pleasing results for 2019 are the work of our more than 34,000 highly skilled employees. Our success represents a fantastic team effort, and my Executive Board colleagues and I would like to say a big thank you. In 2019, the global market for industrial trucks contracted by 2.1 per cent compared with the prior year. Yet the value of the KION Group’s order intake increased by a total of 5.3 per cent on 2018, mainly because of the strong growth in the Supply Chain Solutions segment. The consolidated revenue generated in the period January to December 2019 rose by a robust 10.1 per cent year on year. Adjusted EBIT was also higher than in the previous year, increasing by 7.7 per cent to €850.5 million. At 444.8 mil- lion, our net income was also up significantly by 10.7 per cent. We hit our targets for all of the key performance indicators, partly thanks to the global boom in e-commerce. Once again, we have delivered proof of our leading role in the industry. The strong results illustrate how we have succeeded in making an enduring improvement to the Group’s resilience in recent years. They also show that we are able to maintain our course, even in choppy waters. And we have put everything in place to ensure that we can write further chapters in our story of success over the coming years. KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERSLetter to Shareholders9 GORDON RISKE CEO Paving the way for success: KION 2027 Our corporate strategy, KION 2027, provides the basis for our success, and we are now reaping the rewards of our rigorous implementation of the strategy. We are steadily strengthening our market-leading position through our efforts in five fields of action: energy, digital, automation, innovation and performance. We are already a leading player in every part of the material handling market. One such area is efficient energy use. The New Energy Systems department brings together the KION Group’s knowledge and skills relating to current and future drive technologies. Powerful lithium-ion batteries are a particular focus. The advantages of this technology for our customers are high energy efficiency, top-up charging to save time, zero-emission operation and user-friendly processes. Fuel cells are another important focus in the field of energy, because worldwide interest in hydrogen as an alternative energy source is increasing. Here too, our Linde and STILL brands are already taking the lead. KION GROUP AGTO OUR SHAREHOLDERSLetter to ShareholdersAnnual Report 201910 The digital transfor- mation will become the decisive distin- guishing factor for many industries. A crucial competitive edge In the years ahead, digital transformation and the increasing degree of automation will be the decisive distinguishing factor for many industries and businesses. These trends are also significantly shaping and changing the intralogistics sector, as rapid, reliable and efficient supply chains create a crucial competitive edge in the web economy. In modern warehouses, digitalisation and automation go hand in hand. A prime example is the latest innovation from our automation specialist Dematic. As well as large distribution centres, small decentralised warehouses are springing up in towns and cities in response to consumer demand for ever-shorter delivery times and to enable omnichannel fulfilment. These small storage areas, which can be found at the back of local supermarkets, for example, are known as micro-fulfilment solutions. We are one of the driving forces in this area of innovation. But digitalisation is not only making logistics execution easier, it is also improving the planning of end-to-end flows of goods. The Dematic iQ Virtual software provides customers with a ‘digital twin’ that simulates an entire warehouse. These days, more and more industrial trucks can move around the warehouse autonomously thanks to automation tech- nology. Driverless trucks are already used wherever there are recurring processes. The KION Group is the global market leader in this rapidly expanding market. This trend will continue to grow, leading to more accurate analysis and activity in real time once the 5G communications standard is introduced. As a result, our customers will be able to operate even more efficiently. KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERSLetter to Shareholders11 Innovation is in our DNA Dematic is not the only company that embodies the KION Group’s capacity to innovate. Two brand-new generations of Linde and STILL counterbalance trucks with a load capacity of 2.0 to 3.5 tonnes are bringing the future a step closer. Linde’s new forklift trucks are designed with the demands of Industry 4.0 firmly in mind. Thanks to connec- tivity as a standard feature, data from the trucks can be sent to the KION cloud. As a result, the new generation of trucks can be adapted throughout their lifecycle to changing customer requirements, including to ones that we do not even know about today. Connectivity, remote diagnostics and predictive maintenance increase the trucks’ uptime and help our customers to reduce their costs. We are ensuring that our customers have a crucial competitive edge. STILL, the KION Group’s other premium brand company, is particularly focused on fitting its industrial trucks with powerful electric drives. In a new model series, developers have managed to significantly increase handling capacity in the load category up to 3.5 tonnes and, at the same time, improve energy efficiency. The range is also out- standing: the trucks can easily complete a three-shift operation without needing to have their battery changed. All these – and many other exciting new products – show that around the world the KION Group is bringing together exceptional people with a truly innovative mindset. Our strength lies in listening to customers, understanding their problems and finding individually tailored solutions for their complex requirements. In different ways and in different fields, we are ensuring that our customers have a crucial competitive edge. We are using our strength in innovation to continually set new standards in the industry. KION GROUP AGTO OUR SHAREHOLDERSLetter to ShareholdersAnnual Report 201912 Investment for further growth To maintain our rate of innovation at a high level going forward, we are continuing to forge ahead with the optimisation of our manufacturing operations and investing in the expansion of our worldwide capacity. Fiscal year 2020 is expected to be charac- terised by strategic capital expenditure in medium- to long-term growth. Alongside the modernisation of existing plants in Aschaffenburg, Hamburg, Châtellerault and Luzzara, we are currently planning to build new factories in Poland and China. Two further plants – in Pune (India) and near the city of Xiamen in China – were completed just recently. And with KION Battery Systems GmbH, KION Group has established a new joint venture with BMZ Holding GmbH for the development and production of lithium-ion batteries. The planned expansion of our business in China is a key part of our growth strategy. By constructing another factory for counterbalance trucks in Jinan, eastern China, we are extending our product portfolio, seizing opportunities for growth in the value seg- ment and taking even greater advantage of the increasing electrification of industrial trucks in China, one of the fastest-growing and most important markets in the world. As well as capital expenditure of around €100 million, we will create more than 800 new jobs at our new site in the province of Shandong by 2025. Our new highly auto- mated plant, the adjoining KION Value Competence Center and the expansion of our sales and service network will enable us to harness further potential in this important market and significantly strengthen our position. In addition to expanding our product range and capacities, we will strengthen the software development for automation solutions and at the same time further develop our range of products with respect to energy systems. We will also press ahead with the ongoing expansion of our global sales and service network and the Group’s digital transformation. KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERSLetter to Shareholders13 Positive prospects despite growing challenges The KION Group is excellently placed to continue benefiting from global megatrends in the coming years. The main drivers here remain the growing tendency of consumers to buy online, increasingly fragmented supply chains in the global economy and the desire for new drive systems and energy sources. Although the economy is expected to weaken and the market for industrial trucks is losing momentum, we anticipate that we will continue to generate profitable growth and further improve our market position in 2020. In recent years, we have become industry leaders in terms of profitability and achieved a strong cash flow position. This will allow us to make substantial stra- tegic investments in 2020, creating an even stronger foundation for profitable growth in future. The KION Group has evolved a great deal over the past twelve months. Nonetheless, we remain true to the aspiration that is embodied by our name: In the east African Masai language, the word ‘Kion(gozi)’ means the one who leads. To be a leader, we need an edge. We work tirelessly for this every day on behalf of our customers, deploying the most effective technology, the best people and outstanding ideas. With best wishes, Gordon Riske Chief Executive Officer KION GROUP AG KION GROUP AGTO OUR SHAREHOLDERSLetter to ShareholdersAnnual Report 201914 TO OUR SHAREHOLDERS Executive Board Executive Board of KION GROUP AG GORDON RISKE Chief Executive Officer (CEO) born in 1957 in Detroit (USA) ANKE GROTH DR EIKE BÖHM CHING PONG QUEK Chief Financial Officer (CFO) and Labour Relations Director born in 1970 in Gelsenkirchen (Germany) Chief Technology Officer (CTO) born in 1962 in Pforzheim (Germany) Chief APAC & Americas Officer (CAPAO) born in 1967 in Batu Pahat / Johor (Malaysia) KION GROUP AGAnnual Report 2019 Ching Pong Quek Anke Groth Gordon Riske Dr. Eike Böhm 16 Report of the Supervisory Board of KION GROUP AG Dear shareholders, I am delighted to be reporting for the first time as chairman on the work of our Company’s Supervisory Board in 2019. Targets achieved despite difficult conditions The KION Group proved to be a reliable performer yet again in 2019. Every aspect of the outlook for the past reporting year was borne out by the results achieved and, in some cases, comfortably exceeded. The Company enjoyed a successful year, although 2019 was not always easy. Economic conditions proved challenging. Inter- national trade disputes and uncertainty surrounding other major issues, such as Brexit, took their toll on the investment climate in markets important to our Company. And yet the KION Group was able to keep the effects of these difficult conditions in check, outperform the market as a whole and strengthen its own market position thanks to the fantastic efforts of the entire workforce. Global demand for highly effi- cient industrial trucks remains firmly at unprecedented levels, although the individual regional markets present a distinctly mixed picture. There has been robust growth in demand for integrated, connected and increasingly automated intralogistics solutions for customers in industry, retail and wholesale. The steps taken by the Company after acquiring Dematic are having an effect, yielding measurable success that is clearly reflected in the Company’s overall results. This is confirmation of the disciplined operational management of the Company and of the focus on the fields of action defined in the KION 2027 strategy. KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERSReport of the Supervisory Board17 DR MICHAEL MACHT Chairman Against this backdrop, it was only logical to work with the Executive Board last year to tackle the next phase in the implementation of KION 2027. A clear sign of the Company’s commitment to taking the necessary steps is the earmarking of significant funds for capital expenditure on projects in the five fields of action (energy, digital, automation, innovation and performance). The Supervisory Board sees 2020 as a year of transition. Building on the very solid results for the financial years spanned by the first phase of the strategy, the Company now plans to invest at locations where products and services will bring lasting added value for its customers in future. One prominent example is the announcement that the Company will be pursuing a growth strategy in the Chinese market involving the local development of a brand-new line of modular material handling equipment for the mid-price product segment. These trucks are to be produced at a new factory in China. The Supervisory Board held extensive and in-depth discussions with the Executive Board on this willingness to invest while economic conditions are difficult to forecast. Although the volume of the capital expenditure programme means that the Company will have to take a short break from improving its profitability in 2020, the Supervisory Board agreed with the Executive Board that it was the right time to take action for the future. KION GROUP AGTO OUR SHAREHOLDERSReport of the Supervisory BoardAnnual Report 201918 Personnel matters relating to the Executive Board In view of the aforementioned new strategy for the Asia-Pacific region, it made sense to ensure that the Company had the right people in place to successfully implement the strategy. Consequently, Ching Pong Quek’s term of appointment as a member of the Executive Board and as Chief Asia Pacific Officer was extended for a further five years. Mr Quek will play an important role in the strategic realignment of the Company in the Chinese market over the coming years. To achieve its very ambitious goals, the Company needs an experienced and successful officer in the region who is familiar with its day-to-day business and its strengths and weaknesses and who is able to imple- ment the strategic path that has been laid out. Mr Quek meets this brief in all respects. The Supervisory Board and Ms Schneeberger, whose responsibilities on the Executive Board include the Supply Chain Solutions segment (Dematic) and digitalisation topics, reached agreement by amicable and mutual consent that she will leave the KION Group due to differing views on corporate strategy. Ms Schneeberger therefore stepped down as a member of the Executive Board of KION GROUP AG on 12 January 2020. The Supervisory Board would like to thank Ms Schneeberger for her contributions during her time at the Company. Strengthening of corporate governance in the Company Over the course of the year, the Supervisory Board scrutinised the initiatives announced by German lawmakers and the government commission responsible for the German Corporate Governance Code. Although the provisions of the law to implement the second Shareholder Rights’ Directive and the new German Corporate Governance Code did not come into effect in 2019, despite earlier announcements to the contrary, the Supervisory Board made significant preparations in the reporting year that will enable the KION Group to adequately apply these new rules for listed companies in Germany. The Supervisory Board of KION GROUP AG hopes that the lawmakers and government commission will now maintain a phase of stability for the legislation and Code and will refrain from introducing further new rules over the next few years. With regard to its own arrangements, the Supervisory Board has resolved to make changes so that the terms of office of shareholder representatives on the Supervisory Board end on different dates rather than on the same date. The aim of introducing a ‘staggered board’ is to ensure that not all shareholder representatives have to be elected by the Annual General Meeting at the same time. The main reason for switch- ing the end dates in this way is because holding elections for the full contingent of shareholder representatives can result in major changes and the loss of continuity of experience and expertise on the Supervisory Board. The elections may also come KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERSReport of the Supervisory Board19 at the same time as key Executive Board members have to be re-appointed. This can lead to the perception, particularly among investors, that the management of the Company is (temporarily) uncertain and unstable. 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. 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. Between meetings of the Supervisory Board and between those of its committees, the chairmen of the Supervisory Board and Audit Committee remained in close contact at all times with the Chief Executive Officer and Chief Financial Officer. There was also regular contact between the chairman of the Audit Committee and those responsible for internal audit and compliance in the Company. Corporate governance matters handled by the Supervisory Board The Supervisory Board and its committees held in-depth discussions on the Super- visory Board’s own obligations in relation to the Company’s corporate governance decisions and declarations before adopting unanimous resolutions. Contrary to expectations, no amendments were made to the German Corporate Governance Code in 2019. At its meeting on 19 December 2019, the Supervisory Board held its final discussion on the KION Group’s compliance with the unchanged recommendations and suggestions of the Code and issued an unchanged declaration of conformity 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 AGTO OUR SHAREHOLDERSReport of the Supervisory BoardAnnual Report 201920 The Supervisory Board must review the content of the non-financial Group report, which the Company is obliged to publish in accordance with section 315b of the German Commercial Code (HGB). The Supervisory Board engaged our Company’s auditors for the preparation of this review of the 2018 report, which was presented to the Supervisory Board for a decision in April 2019 and published on 30 April 2019, and of the upcoming report for 2019. No concerns were raised as a result of the Supervisory Board’s review of the report. As was the case in the previous year, the Supervisory Board will take account of the auditors’ assessment in its own review of the 2019 non-financial Group report, which will take place in April 2020, i.e. after this report of the Supervisory Board has been submitted. After carrying out detailed preparations, the Supervisory Board will make a decision promptly to ensure that the report can be published on time by the end of April. The Executive Board and Supervisory Board provide a detailed report on corporate governance at KION GROUP AG in the corporate governance report. This is com- bined with the declaration on corporate governance and can be found on pages 32 to 41 of this annual report and on the KION GROUP AG website at kiongroup.com/ GovernanceReport. 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 21 February 2020. The auditors reviewed this report and issued an auditors’ report. Based on their audit, which they completed on 21 February 2020 without having identified any deficiencies, 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. KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERSReport of the Supervisory Board 21 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 2 March 2020 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. 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 2019, the Supervisory Board and its committees dealt with the matters at hand and made the necessary decisions at a total of 17 meetings. These consisted of seven 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 committees with advance information. In 2019, all members of the Supervisory Board attended all Supervisory Board meetings and the meetings of the respective commit- tees of which they were members apart from in the following cases: There were five (of the seven) Supervisory Board meetings at each of which one member sent apologies and two committee meetings at each of which one member sent apologies. There was also one Supervisory Board meeting at which two members sent apologies. In the period since 9 May 2019, during which Mr Tan Xuguang has been a member of the Supervisory Board, he has attended one of the five meetings. KION GROUP AGTO OUR SHAREHOLDERSReport of the Supervisory BoardAnnual Report 201922 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, consolidated financial statements and combined management report for KION GROUP AG and the Group for the year ended 31 December 2019 following their engagement by the Annual General Meeting on 9 May 2019. The corresponding 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 20 February 2019, and committee members were given the opportunity to speak to the auditors in person. The auditors were appointed by the chairman of the Supervisory Board on 23 July 2019. The key audit matters were discussed and set out accordingly at the Audit Committee’s meeting on 23 October 2019. The auditors submitted their report and the documents relating to the 2019 financial statements to the members of the Audit Committee and the members of the Super- visory Board, in each case with the required lead time. The Audit Committee and Supervisory Board each discussed the report extensively, in both cases in the pres- ence of the auditors. The auditors reported in detail on the main findings of the audit on each occasion. The auditors issued an unqualified opinion for the separate financial statements, consolidated financial statements and group management report, which was combined with the Company’s management report, on 21 February 2020. Having itself scruti- nised the Company’s separate financial statements, consolidated financial statements and combined management report for the year ended 31 December 2019, the Super- visory Board – on the basis of a recommendation from the Audit Committee – agreed with the findings of the audit by the auditors after further discussing these findings at its meeting on 2 March 2020. 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 statements and consolidated financial statements for the year ended 31 December 2019 prepared by the Executive Board, thereby adopting the annual financial statements. KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERSReport of the Supervisory Board23 At its meeting on 2 March 2020, 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 €1.30 per no-par-value share. In doing so, the Supervisory Board took account of the Company’s financial 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. Personnel changes on the Supervisory Board On 9 May 2019, there was a change at the helm of the Supervisory Board. After Dr John Feldmann stepped down as a shareholder representative on the Supervisory Board and thus as its chairman, the Supervisory Board elected me as its new chair- man during its constitutive meeting on 9 May 2019. We owe a debt of gratitude to Dr Feldmann for his great dedication and significant contributions to the Company during his tenure as chairman of the Supervisory Board. He played a key role in the KION Group’s transformation from a European industrial truck manufacturer into one of the world’s leading providers of intralogistics and automation solutions. While Dr Feldmann was chairman of the Supervisory Board, the Company also put in place an Executive Board that is diverse, international and equipped with the necessary expertise for the future. As I was initially appointed as a member of the Supervisory Board by the court for a limited period, the Annual General Meeting elected me as a shareholder represent- ative on the Supervisory Board on 9 May 2019. The Annual General Meeting also elected Mr Tan Xuguang as a shareholder representative on the Company’s Super- visory Board on 9 May 2019. The details of this report were discussed thoroughly at the Supervisory Board meeting on 2 March 2020 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 2019. Dr Michael Macht Chairman KION GROUP AGTO OUR SHAREHOLDERSReport of the Supervisory BoardAnnual Report 2019 TO OUR SHAREHOLDERS KION shares KION shares 24 Significant rally in the equity markets despite concerns about the economy Sharp rises in the KION share price Over the course of 2019, KION shares recouped most of the Although the global economy was experiencing a period of losses that they had suffered in the previous year. The first four weakness and tensions surrounding trade and other geopolitical months of trading were characterised by a strong uptrend. The issues remained high, equity markets worldwide staged a marked shares then lost momentum on the back of a contracting indust- recovery over the course of 2019, with some reaching record rial truck market and fresh concerns about restrictions on global highs. This was influenced by improved expectations, which had trade. After reaching their low for the year in August, the share previously assumed a significant economic slowdown in places, price returned to a positive course that continued until the end of or even a recession. Moreover, various risk factors diminished the year. The shares ended 2019 at €61.56, which was an noticeably, including the threat of a hard Brexit, destabilisation of increase of 38.9 per cent compared with the close of 2018. At the the euro due to a lack of budgetary discipline and interest-rate end of 2019, market capitalisation stood at €7.3 billion, of which hikes in the US. Widespread falls in company profits had already €4.0 billion was attributable to shares in free float. The average been largely priced in and had triggered a major downturn in the daily Xetra trading volume in 2019 was 283.4 thousand shares or stock markets in 2018. Consequently, an upward trend emerged €14.8 million (2018: 295.7 thousand shares or €18.7 million). in 2019. The interest-rate environment provided a tailwind as, > DIAGRAM 001 apart from equities and products based on them, few invest- ments with good returns were available. Over the year as a whole, the DAX added 25.5 per cent while the MDAX gained 31.2 per cent. Share price performance in 2019 compared with the DAX and MDAX DIAGRAM 001 €80 €70 €60 €50 €40 44.33 € * KION GROUP AG DAX MDAX €30 €20 €10 €0 61.56 € * + 38.9% * * Closing price 01 / 2019 02 / 2019 03 / 2019 04 / 2019 05 / 2019 06 / 2019 07 / 2019 08 / 2019 09 / 2019 10 / 2019 11 / 2019 12 / 2019 KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERS KION shares 25 Further increase planned after record dividend in 2019 Stable shareholder structure The shareholder structure remained almost unchanged in the The Annual General Meeting on 9 May 2019, at which 87.4 per cent reporting year. Weichai Power Co., Ltd., Weifang, People’s Repu- of the voting share capital was represented, adopted the resolu- blic of China, KION GROUP AG’s anchor shareholder, has retai- tion on the appropriation of profit for 2018 with an overwhelming ned its 45.0  per  cent stake and thus is still the largest single majority. The payment of €1.20 per dividend-bearing share was shareholder, while KION GROUP AG continues to hold 0.1 per cent 21.2  per  cent higher than in the prior year. The total dividend of the shares. The free float therefore accounted for 54.9 per cent payout rose from approximately €116.8 million to €141.5 million, at the end of 2019. which equates to a dividend payout rate of around 35 per cent. Between 9 and 20 September 2019, KION GROUP AG repur- The Executive Board and Supervisory Board of KION chased a total of 60,000 shares (around 0.05  per  cent of the GROUP  AG will propose a dividend of €1.30 per share (2018: share capital) for use in the KION Employee Equity Programme €1.20) to the Annual General Meeting on 12 May 2020. This equa- (KEEP). By 31 December 2019, a total of 67,104 shares had tes to a total dividend payout of €153.4 million and thus a rise of been purchased by staff (2018: 38,691 shares). The number of 8.4 per cent compared with the prior year. With earnings per shares held in treasury stood at 130,644 as at the reporting date. share for 2019 of €3.86, this equates to a dividend payout rate of > DIAGRAM 002 around 34 per cent. > TABLE 001 Basic information on KION shares TABLE 001 Shareholder structure as at 31 December 2019 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, FTSE4Good 0.1% KION GROUP AG 45.0% WEICHAI POWER 54.9% FREE FLOAT KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERS KION shares 26 KION shares mainly recommended as a buy Stable credit ratings As at 31 December 2019, 22 brokerage houses were following The KION Group continues to have an investment-grade credit and reporting on the KION Group (2018: 21). Of this total, ten ana- rating. In October 2019, Fitch Ratings confirmed the Group’s lysts recommended KION shares as a buy, eight rated them as long-term issuer rating of BBB– with a stable outlook. Standard & neutral and four advised selling them. The median target price Poor’s has classified the KION Group as BB+ with a stable specified by the share analysts was €62.50 (31  December outlook since December 2019. 2018: €64.00). > TABLE 002 KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERS KION shares 27 Share data TABLE 002 Closing price at the end of 2018 High for 2019 Low for 2019 Closing price at the end of 2019 Market capitalisation at the end of 2019 Performance in 2019 €44.33 €66.64 €40.29 €61.56 €7,269.6 million 38.9% Average daily XETRA trading volume in 2019 (no. of shares) 283.4 thousand Average daily XETRA trading volume in 2019 (€) Share capital Number of shares Earnings per share for 2019 Dividend per share for 2019 * Dividend payout rate * Total dividend payout * Equity ratio as at 31/12/2019 * Proposed dividend for the fiscal year 2019 €14.8 million €118,090,000 118,090,000 €3.86 €1.30 33.7% €153.4 million 25.9% KION GROUP AGAnnual Report 2019TO OUR SHAREHOLDERS Services for shareholders 28 Services for shareholders Active investor relations work presentations, form part of the extensive information for investors that is available on the Company’s website. The objective of investor relations is to ensure, through conti- nuous dialogue, that the capital markets value the Company appropriately. The Executive Board and the KION Group’s Information on the website investor relations team continued their active dialogue with investors and analysts last year. The KION Group participated Detailed information on KION shares as well as press releases, in many investor conferences in Germany and abroad and reports, presentations and information about the Annual held numerous roadshows and one-on-one meetings. General Meeting can be found at kiongroup.com/ir. The KION The Annual General Meeting of KION GROUP  AG on Group’s annual report is also available here, both as a PDF file 9 May 2019, at which 87.4 per cent of the share capital was repre- and as an interactive online version. The contact details of the sented, approved the Supervisory Board and Executive Board’s investor relations team can be found under IR Contact. Infor- proposals with a large majority. mation on corporate governance in the Group is published at The speeches of the Chief Executive Officer and the chairman kiongroup.com/Governance. of the Supervisory Board were broadcast live at kiongroup. com / agm. A webcast of the Chief Executive Officer’s speech is also available on the Company’s website. When the 2018 annual report was published on 28 February 2019, the Executive Board of KION GROUP AG held a financial statements press conference and conference call. It also held an Analyst Day, at which it presented Dematic’s project business and provided insights into the KION Group’s digital activities. In addition, the Executive Board held conference calls to report on each set of quarterly results. Recordings from the financial statements press conference and the transcripts from the annual and quarterly conference calls, along with the associated kiongroup.com/ Ir KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Contents 31 CORPORATE GOVERNANCE 32 32 32 35 38 CORPORATE GOVERNANCE REPORT Declaration of conformity 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 2019CORPORATE GOVERNANCE Corporate governance report 32 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 declaration of conformity on 3 / 12 Decem­ ber 2018. Both decision­making bodies again considered the recom­ Corporate governance covers the whole system of managing and mendations of the Code in detail and, on 2 / 19 December 2019, monitoring an enterprise, the principles and guidelines that shape issued the following declaration of conformity for KION GROUP AG its business policy and the system of internal and external control as required by section 161 (1) AktG: and monitoring mechanisms. The Executive Board and Super­ Since issuing the last declaration of conformity in December visory Board of KION GROUP  AG believe that a commitment, 2018, KION GROUP  AG has complied with all but one of the born from responsibility for the Company, to rigorous corporate recommendations of the German Corporate Governance Code governance in accordance with the accepted standards is essen­ (the ‘Code’) as amended on 7 February 2017 and intends to do so tial to the Company’s long­term success. Compliance with these in the future. principles also promotes the trust that our investors, employees, In derogation of section 3.8 (3) of the Code, the articles of business partners and the public have in the management and association of KION GROUP AG do not provide for a deductible monitoring of the Company. for members of the Supervisory Board under D&O insurance. The There is a close correlation between the corporate govern­ Company believes that such a deductible is not customary on an ance report required by the German Corporate Governance international level and would therefore make it considerably more Code (the ‘Code’) as amended on 7 February 2017 and the difficult to find independent candidates for the Supervisory content of the declaration on corporate governance required by Board, in particular candidates from outside Germany. section 289f and section 315d of the German Commercial Code (HGB). For this reason, the Executive Board and the Supervisory Frankfurt am Main, 2 / 19 December 2019 Board of KION GROUP AG have combined the two statements below in accordance with section 3.10 of the Code. The declara­ tion on corporate governance pursuant to section 289f and For the Executive Board: section 315d HGB is part of the combined management report. According to section 317 (2) sentence 6 HGB, the information Gordon Riske Anke Groth provided in accordance with section 289f and section 315d HGB does not have to be reviewed by the auditor. 1. Declaration of conformity pursuant to section 161 (1) AktG For the Supervisory Board: Dr Michael Macht Section 161 (1) of the German Stock Corporation Act (AktG) public on the website of KION GROUP  AG at kiongroup.com/ The declaration of conformity is permanently available to the requires the management board and supervisory board of a conformity. publicly listed company to issue an annual declaration stating that the company has complied with, and intends to comply with, the recommendations of the Code or stating the recommendations 2. Corporate governance practices with which it has not complied or does not intend to comply, and the reasons why. The corporate governance of KION GROUP AG is essentially, but not exclusively, determined by the provisions of the German Stock Corporation Act and the German Codetermination Act KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 33 (MitbestG) and also follows the recommendations of the German financial statements and combined management report to be Corporate Governance Code. KION GROUP AG complies with all fully compliant with the relevant statutory and regulatory require­ the Code’s recommendations, with one exception. These funda­ ments and, in particular, the applicable financial reporting stand­ mental principles are combined with a commitment to sustaina­ ards. Changes to these requirements and standards are analysed ble business, taking account of society’s expectations in the on an ongoing basis and taken into account as appropriate. markets in which the Company operates. Details can be found in the risk report, which is part of the com­ In 2019, the Executive Board and the Supervisory Board (or bined 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, decision­making 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 reg­ the Supervisory Board’s Audit Committee. The KION Group’s risk ular reports on the standard accounting processes, on changes management system is documented in a Group risk policy that to the regulatory environment and the internal control and risk defines tasks, processes and responsibilities and sets out the management systems, and on the audit of financial statements rules for identifying, assessing, reporting and managing risk. and the effectiveness of this, and then reported back to the full Specific individual risks are then reported by each Group entity Supervisory Board on these matters. using an online reporting tool. Reporting on cross­segment 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 re­assessed 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 broad­ranging 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 employ­ example, system­based and manual reconciliation processes, ees should receive regular training on the most important compli­ clear separation of functions, strict compliance with the double ­ ance subjects, in particular anti­corruption, liability of senior checking principle and written policies and procedures. The over­ management / directors’ and officers’ liability, data protection and arching aim is for the separate financial statements, consolidated IT security, communications, competition law, and foreign KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 34 trade / export controls. Compliance activities are also focused on independent auditors, Deloitte GmbH Wirtschaftsprüfungs­ these areas. gesellschaft (Deloitte). The separate financial statements, consol­ The Executive Board of KION GROUP  AG bears collective idated financial statements, combined management report and responsibility for the functioning of compliance management non­financial report are discussed by the Audit Committee and within the Group; the compliance department reports to the Chief then reviewed and approved by the Supervisory Board. Executive Officer of KION GROUP  AG. He has delegated the The independent auditors review the condensed consoli­ performance of compliance duties to the Chief Compliance dated interim financial statements and condensed interim group Officer. The presidents of the Operating Units are responsible for management report in the half­year financial report. They also compliance within the operating business, while the functional review the non­financial report. The Executive Board discusses managers are responsible for core administrative processes in the two quarterly statements and the half­year financial report the departments at the Group’s headquarters. Ultimate responsi­ with the Audit Committee before they are published. bility for the compliance management system of course remains with the Chief Executive Officer of the Group. The KION compli­ 2.6 Avoiding conflicts of interest ance department, the KION compliance team and the KION compliance committee provide operational support to the afore­ Conflicts of interest between the governing bodies and other mentioned functions. The KION compliance department focuses decision­makers in the Company or significant shareholders go mainly on preventing compliance violations by providing guid­ against the principles of good corporate governance and may be ance, information, advice and training. It manages the KION harmful to the Company. KION GROUP  AG and its governing compliance team, in which local and regional compliance officers bodies therefore adhere strictly to the recommendations of the of the Group are represented. German Corporate Governance Code on this subject. The Actual or suspected incidents of non­compliance can be employees of KION GROUP  AG and its subsidiaries are made reported anonymously or otherwise by contacting an external aware of the problem of conflicts of interest as part of compliance 24­hour compliance hotline, by sending an email or letter, by training and are bound by rules on how to behave in the event of calling an internal KION Group hotline or by contacting a compli­ actual or potential conflicts of interest. Every Executive Board ance officer directly. member must disclose potential conflicts of interest to the As part of its work, the compliance department at KION Supervisory Board immediately and must also inform the other GROUP AG cooperates closely with the legal, internal audit and Executive Board members. All transactions between KION human resources departments. The KION compliance committee, GROUP  AG and Executive Board members or related parties which is staffed by the heads of these departments and chaired must be concluded on an arm’s­length basis. by the Chief Compliance Officer, operates as a cross­functional The Company attaches high priority to preventing possible committee that primarily advises on and examines reported inci­ conflicts of interest from occurring in the first place. This is espe­ dents of non­compliance and, if appropriate, issues a punishment. cially important given that Weichai Power has a stake of 45.0 per cent in KION GROUP AG. The Company achieves these 2.5 Audit of the financial statements aims by avoiding business scenarios or personnel structures that could give the impression of a conflict of interest and by taking The Company’s independent auditors, which are appointed by 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 non­executive 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 sepa­ his appointment was extended to 31 December 2020, for which rate and consolidated financial statements, Ms Kirsten Gräbner­ the Supervisory Board had previously given its consent. Appropri­ Vogel has been the global lead service partner at the appointed ate precautions have been taken to ensure that this role at a parent KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 35 company of the Company does not create a conflict of interest relating personally to Mr Riske. Formal processes have been put in place to ensure that Mr Riske, in his role as a non­executive director of Weichai Power Co., Ltd., is not involved in transactions Responsibilities of Executive Board members as at 31 December 2019 TABLE 003 Member Responsibilities that could give rise to a conflict with the interests of the KION Gordon Riske Group. Nor is Mr Riske involved in transactions relating to the exercise of voting rights by Weichai Power or its subsidiaries 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 non­executive 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. Dr Eike Böhm 3. Working methods of the Executive Board and Supervisory Board and composition of the committees of the Supervisory Board 3.1 Working methods of the Executive Board Anke Groth The Executive Board of KION GROUP AG comprises five members. It is responsible for managing the Company in the Company’s interest, i.e. taking account of shareholders, customers, employ­ ees 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 respon­ sible for his or her own area of responsibility and keeps the other board members informed of developments on an ongoing basis. > TABLE 003 Ching Pong Quek Susanna Schneeberger 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 Module & Component Development Procurement Quality Production System KION New Energy Systems 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 Performance Excellence Chief Asia Pacific Officer of KION GROUP AG KION APAC CDO of KION GROUP AG Dematic Software Development KION Group IT Data Protection Digital Campus Mobile Automation The distribution of responsibilities has been adjusted, after Susanna Schneeberger had stepped down from the Executive Board in January 2020. KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 36 The rules of procedure laid down by the Supervisory Board define The Supervisory Board of KION GROUP AG consists of 16 the areas of responsibility of the Executive Board members and members, eight of whom are employee representatives and eight the way in which they work together. The full Executive Board are shareholder representatives. The shareholder representatives normally meets every 14 days and meetings are chaired by the are elected by the Annual General Meeting by simple majority. Chief Executive Officer. Individual Executive Board members The Supervisory Board has drawn up rules of procedure for its sometimes take part via video conference. At the meetings, the work that apply in addition to the requirements of the articles of board members discuss measures and business that, under the association. According to these rules, the chairman of the Supervi­ Executive Board’s rules of procedure, must be approved by the sory Board coordinates its work and the cooperation with the full Executive Board. Resolutions of the full Executive Board are Executive Board, chairs the meetings of the Supervisory Board passed by simple majority unless a greater majority is required by and represents it externally. The Supervisory Board meets in per­ law. The Chief Executive Officer has a casting vote in the event of son at least twice in each half of a calendar year, and adopts its a tied vote. Resolutions of the Executive Board may also be resolutions at these meetings. In 2019, there were seven Supervi­ adopted between meetings. Taking account of the requirements sory Board meetings in total. The focus of the Super visory Board’s of section 90 AktG, the Executive Board provides the Supervisory advisory activities is detailed in the Supervisory Board’s report to Board with regular, timely and comprehensive information on all the Annual General Meeting. Between these meetings, resolutions matters of relevance to the business as a whole relating to the may also be adopted in writing, by telephone or by other similar intended operating policy, strategic planning, business perfor­ forms of voting, provided that the chairman of the Supervisory mance, financial position, financial performance and business Board or, in his absence, his deputy, decides on this procedure for risks. The Chief Executive Officer discusses these matters regu­ the individual case concerned. The Supervisory Board adopts res­ larly with the chairman of the Supervisory Board. olutions by a simple majority of the votes cast unless a different The Executive Board’s rules of procedure specify that impor­ procedure is prescribed by law. If a vote is tied, the matter will only tant transactions are subject to approval by the Supervisory be renegotiated if the majority of the Supervisory Board vote in Board. Budget planning, major acquisitions or capital expendi­ favour of this option. Otherwise the Board must vote again without ture, for example, require the consent of the Supervisory Board. delay. If this new vote on the same matter also results in an equal In accordance with its articles of association, the Company is number of votes for and against, the chairman of the Supervisory represented by two members of the Executive Board or by one Board has a casting vote. The Supervisory Board regularly reviews member of the Executive Board acting conjointly with a Prokurist the efficiency of its work with support from an external advisor. (person with full commercial power of representation). 3.3 Working methods and composition of the committees of 3.2 Working methods of the Supervisory Board the Supervisory Board The Supervisory Board of KION GROUP  AG appoints the KION GROUP  AG’s Supervisory Board had four standing members of the Executive Board and advises and monitors the committees in the year under review. These are defined in the Executive Board in its management of the Company. The Super­ Supervisory Board’s rules of procedure. Their tasks, responsibil­ visory Board is fully involved from an early stage in all decisions ities and work processes comply with the provisions of the that are fundamental to KION GROUP AG. The Executive Board German Stock Corporation Act and the German Corporate and Supervisory Board of KION GROUP  AG have a close and Governance Code. The chairman of each committee reports trusting working relationship focused on ensuring the sustained regularly to the full Supervisory Board on the committee’s work. success of the Company. The members of the Executive Board The minutes of the committee meetings are made available to all attend Supervisory Board meetings, although the Supervisory Supervisory Board members. The standing committees have Board also meets regularly without the Executive Board. each drawn up rules of procedure that define their tasks and working methods. KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 37 Executive Committee Members of the Executive Committee as at 31 December 2019: The Executive Committee consists of four shareholder represent­ Dr Michael Macht (chairman) atives and four employee representatives. Its chairman is always Özcan Pancarci (deputy chairman) the chairman of the Supervisory Board. It prepares the meetings Dr Alexander Dibelius of the Supervisory Board and is responsible for ongoing matters Jiang Kui between Supervisory Board meetings. The Executive Committee Olaf Kunz also prepares the Supervisory Board’s decisions relating to cor­ Jörg Milla porate governance, particularly amendments to the declaration of Hans Peter Ring conformity pursuant to section 161 AktG reflecting changed Claudia Wenzel circumstances and the checking of adherence to the declaration of conformity. It also prepares documents for the Supervisory Mediation Committee Board when Executive Board members are to be appointed or The Mediation Committee comprises the chairman of the Super­ removed and, if applicable, when a new Chief Executive Officer is visory Board, his deputy, an employee representative and a to be appointed. Documents relating to any matters in connection shareholder representative. It only convenes in exceptional cases. with Executive Board remuneration are also compiled by the If the two­thirds­of­votes majority required by section 27 (3) and Executive Committee. In addition, the Executive Committee is section 31 (3) MitbestG is not reached in a vote by the Super­ responsible for resolutions concerning the conclusion, amend­ visory Board on the appointment of an Executive Board member, ment and termination of Executive Board employment contracts the Mediation Committee must propose candidates for the post and agreements with Executive Board members governing to the Supervisory Board within one month. The chairman of the pensions, severance packages, consultancy and other matters Supervisory Board does not have a casting vote on the candi­ and for resolutions on any matters arising as a result of such dates proposed. contracts and agreements, unless they relate to remuneration. The responsibilities of the Executive Committee also include res­ Members of the Mediation Committee as at 31 December 2019: olutions about the extension of loans to Executive Board Dr Michael Macht (chairman) members, Supervisory Board members and parties related to Özcan Pancarci (deputy chairman) them within the meaning of sections 89 and 115 AktG, as well as Jörg Milla resolutions to approve contracts with Supervisory Board Hans Peter Ring members outside their Supervisory Board remit. In consultation with the Executive Board, the Executive Committee regularly discusses long­term succession planning for the Executive Board. KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 38 Audit Committee 4. Diversity The Audit Committee comprises four members. Its primary purpose is to monitor financial reporting (including non­financial One of the main concerns of good corporate governance is to reporting), the accounting process, the effectiveness of the ensure that appointments to the Executive Board and Super­ internal control system, the risk management system, the internal visory Board are appropriate to the specific needs of the busi­ audit system, the auditing of the financial statements and compli­ ness. Key criteria in this regard include the professional and ance, thereby supporting the Supervisory Board in its task of personal skills and qualifications of the members of the Executive monitoring the Company’s management. The Audit Committee Board and Supervisory Board as well as diversity in the composi­ also reviews the work carried out by the independent auditors tion of both boards – including an appropriate degree of female and checks that the independent auditors are qualified and representation – and the independence of the Supervisory Board. independent. It is also responsible for engaging the independent auditors, determining the focus of the audit and agreeing the fee. Composition of the Supervisory Board In addition, the Audit Committee exercises the rights in investee The Supervisory Board has laid down specific requirements and companies set forth in section 32 (1) MitbestG. objectives for its composition in recognition of its responsibilities Members of the Audit Committee as at 31 December 2019: KION GROUP  AG. Besides having the minimum professional Hans Peter Ring (chairman) skills required to be a Supervisory Board member, as specified by Alexandra Schädler (deputy chairwoman) law and the highest courts, all members of the Supervisory Board and obligations and taking into account the business needs of Dr Michael Macht Jörg Milla The chairman of the Audit Committee, Hans Peter Ring, is an independent member of the Supervisory Board and has the required expertise in the areas of accountancy and auditing specified in sections 100 (5) and 107 (4) AktG. Nomination Committee The Nomination Committee has four members, all of whom are of KION GROUP AG should meet the following criteria: 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 shareholder representatives and are elected by the shareholder may be held at any one time. representatives on the Supervisory Board. The Nomination Committee’s task is to propose new candidates for the Super­ Other targets set by the Supervisory Board with regard to its visory Board to the Company’s Annual General Meeting. composition are a standard age limit of no more than 70 at the Members of the Nomination Committee as at 31 December 2019: membership of four terms of office. All of the current Supervisory Dr Michael Macht (chairman) Board members meet these requirements. Dr Alexander Dibelius (deputy chairman) In addition, the Supervisory Board redefined in 2019 what it time of appointment / election and a maximum limit for length of Birgit A. Behrendt Jiang Kui considers to be an adequate number of independent Supervisory Board members. Accordingly, four shareholder representatives on the Supervisory Board should be independent within the meaning of section 5.4.2 of the Code. These four members are currently Ms Behrendt, Dr Reuter, Dr Dibelius and Mr Ring. KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 39 As regards the employee representatives, the Supervisory Each of these fields of competence is currently covered by at Board believes their role as representatives of the employees least six members of the Supervisory Board. does not, per se, compromise their independence. As 31.25 per cent of its members are female (five of 16), the The Supervisory Board is of the opinion that the priority in Supervisory Board meets the statutory requirements regarding aiming for a board composition based on diversity is the expertise gender representation on supervisory boards pursuant to section of the individual members and a balanced mix of personal quali­ 96 (2) AktG. The shareholder representatives and the employee ties, experience, skills, qualifications and knowledge in line with representatives are agreed that attaining the objectives in relation the requirements of the business. This is the basis on which the to diversity, in particular the objectives relating to the involvement Supervisory Board has drawn up its profile of skills and expertise. of women and people from different cultural backgrounds, is The following profile of skills and expertise defines the knowledge considered to be in the interests of KION GROUP AG and a task acquired through professional practice (experience) and theoreti­ that forms part of the collective responsibility of the entire Super­ cal / academic knowledge (expertise) that should be represented visory Board. The Supervisory Board therefore supports the on the Supervisory Board: – Experience – Automotive industry, components and drive technologies – Intralogistics inclusion of additional female members and members from differ­ ent cultural backgrounds who meet the above criteria insofar as the skills requirements are met. When proposing candidates to the Annual General Meeting in future, the Nomination Committee and Supervisory Board will – Automation, particularly automation in intralogistics take all of the aforementioned targets into account and strive to – Service / aftersales business, particularly in intralogistics ensure that the profile of skills and expertise is still achieved. The – Development of international marketing strategies and Nomination Committee and Supervisory Board have no influence product portfolio strategies – Expertise – Development and assessment of technology on the composition of the group of employee representatives on the Supervisory Board because the employees in Germany are free to choose whom they elect. – Service / aftersales business models and technological developments in this area – Digitalisation and automation – In­depth understanding of the markets in EMEA, the Americas and Asia – Experience – Management of companies with an international presence, including the development of corporate cultures and organi­ sational structures – Supervisory board membership in companies with an international presence – Acquisitions and strategic alliances – Experience and expertise – Corporate governance and compliance principles as well as their implementation in at least two of the regions relevant to the Company – Accounting and auditing – Capital markets and international finance. KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 40 Composition of the Executive Board Appointments to management positions below the level of the Against the background of the aforementioned diversity consid­ Executive Board of KION GROUP AG erations as well as demographic requirements and strategic When selecting candidates for senior management levels, the operating challenges, the Supervisory Board strives for diversity Executive Board generally considers that it is under an obligation at Executive Board level, not only in terms of appropriate female to make such selections on the basis of diversity, capability, representation but also in respect of experience, skills, expertise, character and experience. cultural background and personality. Ultimately, however, the As regards the number of women appointed to senior Supervisory Board is guided exclusively by the skills and qualifi­ management positions in the Company, the Executive Board is cations of the persons concerned when making appointments to striving in its implementation of the new KION 2027 strategy to the Executive Board. increase the current proportion of women in management When implementing these objectives during the process of positions. In this context, the Executive Board set the target at appointing successors or recruiting for a new position, the Super­ 10  per  cent for the first management level below the Executive visory Board draws up a shortlist of candidates who appear to be Board of KION GROUP  AG and at 30  per  cent for the second suitable for the Company as a result of their strategic manage­ management level, to be achieved by 31 December 2021. The ment experience, expertise, skills and qualifications. Demo­ specification of this type of target is required by Germany’s ‘Act graphic criteria (including the standard retirement age of 65 for for the equal participation of women and men in managerial Executive Board members) and diversity criteria are then also positions in the private and public sectors’. taken into account. However, these criteria are of a subordinate nature when making a final decision on the person to appoint. In 2017, the Supervisory Board therefore set the target for the minimum proportion of women on the Executive Board of KION GROUP AG at 0 per cent, 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 2019, two of the five Executive Board members were female: Ms Anke Groth and Ms Susanna Schneeberger. The proportion of women on the Executive Board of KION GROUP AG was therefore 40 per cent as at 31 December 2019. KION GROUP AGAnnual Report 2019CORPORATE GOVERNANCE Corporate governance report 41 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 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, was run successfully in 2019, for example. KION GROUP AG is also an active member of the initiative ‘Chefsache. Drive the Change – For Men and Women’. This network of companies and leaders from industry and science, the public sector and the media advocates equal opportunities for women and men. By participating in this initiative, KION GROUP  AG’s ambition and objective is to promote the change of mindset that is required throughout society by exploring new concepts and approaches. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Contents 43 COMBINED MANAGEMENT REPORT 44 45 45 54 57 62 62 65 81 86 94 94 96 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 104 Opportunity report 107 DISCLOSURES RELEVANT TO ACQUISITIONS 111 REMUNERATION REPORT 111 130 Executive Board remuneration Supervisory Board remuneration COMBINED MANAGEMENT REPORT Preliminary remarks 44 Preliminary remarks COMBINED MANAGEMENT REPORT The combined management report published in the 2019 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 perfor- mance), 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 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 45 Fundamentals of the KION Group PROFILE OF THE KION GROUP Organisational structure The parent company of KION GROUP AG is Weichai Power (Luxembourg) Holding S.à r.l., Luxembourg (‘Weichai Power’), a subsidiary of Weichai Power Co. Ltd., Weifang, People’s Republic of China, which, to the knowledge of the Company, held 45.0  per  cent of the shares at the end of 2019. The free float accounted for 54.9  per  cent of the shares, while the remaining 0.1 per cent were treasury shares. The KION Group is one of the world’s leading suppliers of integrated supply chain solutions. Its portfolio encompasses industrial trucks such as forklift trucks and warehouse trucks, as Management and control well as automation and software solutions and related services for the optimisation of supply chains. Across more than 100 coun- Corporate governance tries worldwide, the KION Group designs, builds and supports logistics solutions that optimise material and information flow The KION Group follows generally accepted standards of within factories, warehouses and distribution centres. sound, responsible corporate governance. The German Corporate In terms of unit sales, the KION Group is the largest manufac- Governance Code (DCGK) provides the framework for manage- turer of industrial trucks in Europe and second-largest worldwide. ment and control. As required by section 289f and section 315d The Linde and STILL brands serve the premium industrial truck of the German Commercial Code (HGB), the corporate govern- segment. Baoli focuses on industrial trucks at the lower end of the ance standards that the Group applies are set out in the decla- volume segment and in the economy segment. Among KION’s ration on corporate governance. This declaration also contains regional industrial truck brand companies, Fenwick is the top the declaration of conformity pursuant to section 161 AktG, which material-handling provider in France and OM Voltas is a leading was issued by the Executive Board and Supervisory Board of provider of industrial trucks in India. Dematic is a leading global KION GROUP  AG on 2 / 19 December 2019, and the corporate supplier of integrated automation technology, software and ser- governance report pursuant to section 3.10 of the German vices for the optimisation of supply chains. Around 1.5 million of Corporate Governance Code, which also provides information the Group’s industrial trucks and over 6,000 of its installed intral- about the compliance standards in the Group. The declaration on ogistics systems are deployed by customers in all industries and corporate governance can be viewed and downloaded on the of all sizes on six continents. Company’s website. It also forms part of this annual report and is The KION Group comprises the parent company KION a component of the combined management report. GROUP AG, which is a public limited company under German The essential features of the remuneration system are law, and its subsidiaries. The KION Group’s strategic management described in the ‘Remuneration report’ section. The total amounts holding company, KION GROUP AG, is listed on the Frankfurt for Executive Board remuneration and Supervisory Board Stock Exchange and is part of the MDAX, the STOXX Europe 600, remuneration are also reported in the notes to the consolidated the MSCI World and MSCI Germany Small Cap indices, and the financial statements (note [46]). FTSE Euro Mid Cap. Details of treasury shares (pursuant to sec- tion 160 (1) no. 2 of the German Stock Corporation Act (AktG)) are provided in note [27] ‘Equity’ in the notes to the consolidated financial statements. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 46 Non-financial declaration responsibilities of the Executive Board members as at 31 Decem- ber 2019 are listed in the declaration on corporate governance. A separately published sustainability report provides detailed information on the sustainable management of the KION Group. Supervisory Board It contains the KION Group’s report on non-financial matters as required under the German law to implement the corporate social The Supervisory Board, which was formed in accordance with responsibility (CSR) directive. The non-financial Group report the German Codetermination Act (MitbestG), comprises 16 people. focuses on targets, action steps and due diligence processes It advises the Executive Board in its handling of significant relating to the key environmental, social and employee-related matters and business transactions. To increase the efficiency of aspects of the KION Group’s business model, the observance of its work, the Supervisory Board is supported by four standing human rights and the fight against corruption and bribery. committees: the Nomination Committee, the Executive Committee, In accordance with the statutory disclosure deadlines defined the Audit Committee and the Mediation Committee. in section 325 of the German Commercial Code (HGB), the KION On 9 May 2019, the Annual General Meeting of KION GROUP Group publishes its annual sustainability report (including the AG elected Dr Michael Macht and Tan Xuguang, Chairman of non-financial report) by no later than the end of April each year on Weichai Power, to the Supervisory Board as shareholder repre- its website (www.kiongroup.com), where it will remain available sentatives for a term of three years. Dr Michael Macht, who has for at least ten years. Executive Board been a court-appointed member of the Supervisory Board since 9 October 2018, was then elected as chairman of the Supervisory Board. He succeeds Dr John Feldmann, whose resignation from the Supervisory Board took effect at the conclusion of the Annual The Executive Board of KION GROUP AG was responsible for the General Meeting. Tan Xuguang had previously been a member of operational management of the KION Group in 2019 and its five the Supervisory Board from 9 June 2013 until he stepped down members remained unchanged during the reporting period. The from his position on 30 September 2018. Executive Board maintains a relationship of trust with, and is monitored by, the Company’s Supervisory Board. The Supervisory Board and Ms Schneeberger, whose Business model and organisational structure responsibilities on the Executive Board include the Supply Chain Solutions segment (Dematic) and digitalisation topics, reached The KION Group’s business model is designed so that customers agreement by amicable and mutual consent that she will leave of all sizes and from all sectors can obtain the full spectrum of the KION Group due to differing views on corporate strategy. material handling products and services from a single source. Ms Schneeberger stepped down as a member of the Executive Thanks to its broad technology base, diversified product port- Board of KION GROUP AG on 12 January 2020. folio and worldwide service network, the KION Group is able to In September 2019, the Supervisory Board of KION GROUP bring a comprehensive portfolio of such products and services AG passed a resolution to reappoint Ching Pong Quek as a mem- to the market. ber of the Executive Board and Chief Asia Pacific Officer for a fur- The KION Group’s market activities are divided into five ther five years. His new term of office starts on 1 July 2020 and will operating units: LMH EMEA, STILL EMEA, KION APAC, KION continue until 30 June 2025. Responsibility for Logistics / Urban was Americas and Dematic. LMH EMEA and STILL EMEA each con- passed from Anke Groth, CFO, to Dr Eike Böhm, CTO, with effect centrate on Europe, the Middle East and Africa. KION APAC and from 1 April 2019. The new central Logistics System unit now brings KION Americas hold cross-brand responsibility for industrial together the internal logistics processes for the two segments truck business in the Asia-Pacific region and the Americas Industrial Trucks & Services and Supply Chain Solutions. The respectively. Dematic is the global supply chain solutions busi- ness. While the Operating Units have full operational and com- KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 47 mercial responsibility within their markets, KION GROUP  AG is the strategic management holding company and is responsible – KION Financial Services (FS) is an internal funding partner for the Industrial Trucks & Services segment, providing finance for the groupwide strategy and groupwide business standards. solutions to support sales. For internal management purposes, the KION Group has divided its operating business into two segments that corre- So that it can fully cater to the needs of material handling customers spond to the segments as required by international financial worldwide, the business model of the Industrial Trucks & Services reporting standards (IFRS 8). The industrial truck business, segment covers the key steps of the value chain: product develop- including the supporting financial services, is shown in the ment, manufacturing, sales and service, truck rental and used Industrial Trucks & Services segment, while activities focusing trucks, fleet management and financial services that support the on end-to-end supply chain solutions make up the Supply Chain core industrial truck business. Solutions segment. The two segments complement each other The segment earns just over half of its revenue from the sale in terms of their respective market position and regional pres- of industrial trucks. The product portfolio includes counterbal- ence. The Corporate Services segment comprises the other ance trucks powered by an electric drive or internal combustion activities and holding functions of the KION Group. These engine, warehouse trucks (ride-on and hand-operated) and include service companies that provide services such as IT and towing vehicles for industrial applications covering all load ranges. logistics across all segments. Worldwide research and development activities enable the Industrial Trucks & Services segment to consolidate its technol- Industrial Trucks & Services segment ogy leadership, which it is extending in the areas of energy- efficient and low-emission drive technologies and automation The Industrial Trucks & Services segment encompasses the solutions. In this field, the KION Group operates 16 production activities of the international brand companies Linde, STILL and facilities for industrial trucks and components in eight countries. Baoli, the local brand companies Fenwick and OM Voltas plus So that it can ensure security of supply and the availability of the financial services business. spare parts for important components in order to meet customers’ – Linde is an international premium brand and technology leader that manufactures forklift and warehouse trucks specific requirements, the segment manufactures major compo- nents itself – notably lift masts, axles, counterweights and safety equipment. Other components – such as hydraulic components, and provides accompanying fleet management solutions, electronic components, rechargeable batteries, engine compo- driver assistance systems and service options, meeting nents and industrial tyres – are purchased through the global even the most demanding customer requirements in terms of procurement organisation. technology, efficiency, functionality and design. In France, As a rule, industrial trucks are built according to the cus- Linde products are sold under the Fenwick brand. – STILL, a provider of forklift trucks, warehouse trucks and intralogistics systems, is a leading innovator in its field and tomer’s individual specifications. Networked fleet management solutions and the advantages for customers in terms of total cost of ownership (TCO) support the international Linde and STILL has a particular focus on the European and Latin American brands’ premium positioning. The segment is underpinned by markets. – Baoli is the international brand for the lower end of the – OM Voltas is the local brand company for the Indian market, volume segment and the economy segment. through which the KION India Pvt. Ltd. subsidiary manufac- tures and sells electric and IC forklift trucks and warehouse trucks. an extensive sales and service network comprising around 1,800  outlets in over 100 countries and staffed by more than 18,000 service employees, roughly half of whom are employed by the KION Group. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 48 The worldwide vehicle fleet, which consisted of around 1.5 million Supply Chain Solutions segment industrial trucks at the end of 2019, provides a broad base for the service business. This business helps to smooth out fluctuations Through the Dematic brand, the Supply Chain Solutions segment in the segment’s revenue, reduces dependency on market cycles is, in terms of revenue, the leading global supplier of state-of-the- and supports new truck sales by maintaining lasting customer art integrated automation technology, software and services for relationships. Extensive services such as software-based fleet the optimisation of supply chains. management are offered, mainly for premium products. There are Manual and automated solutions are provided for all functions also individual orders for repairs and maintenance work as well as along customers’ supply chains, from goods inward and multi- for spare parts. In addition, the Operating Units have extensive shuttle warehouse systems to picking, automated palletising and used truck and rental truck businesses, allowing peaks in capacity automated guided vehicle systems. Picking equipment con- requirements to be met and customers to be supported after their trolled by radio, voice or light is available for nearly all goods and leases have expired. packaging types. Automated storage and retrieval systems Financial services support new truck business in many mar- (ASRS), robotic picking systems and compact, powerful split- kets, forming another pillar of the service business. Its activities case and pallet picking stations can be used to achieve very fast comprise the financing of long-term lease business for external throughput times and picking rates. At the same time, cross- customers, the internal financing of the short-term rental busi- docking solutions increase the efficiency of the system as a whole ness and the related risk management. In the large sales markets by eliminating the unnecessary handling and storage of goods. with a high volume of financing and lease activities, legally inde- The micro-fulfilment system was developed to speed up the pendent FS companies handle this business. About half of all new processing of retailers’ online orders. trucks are financed via the KION Group itself or via external banks Real-time management of the supply chain solutions is based and financing partners. Offering financial services is therefore on the proprietary software platform Dematic iQ, which can be part of the truck sales process. Leases are generally linked to a easily integrated into the customer’s existing application land- service contract covering the term of the finance agreement. scape. By providing real-time material flow data analyses, among other things, Dematic iQ can help with the data-based optimisa- tion of all processes to ensure seamless order processing. It also supports performance management functions for measuring and controlling performance. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 49 The segment is primarily involved in customer-specific, longer-term project business. With nine production facilities in North America, Europe, China and Australia and regional teams of experts, Dematic is able to plan and deliver logistics solutions with varying degrees of complexity anywhere in the world. 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 auto- mated storage and retrieval systems, sorters and conveyors, are manufactured inhouse or, in some cases, by third parties. Modernisation work and services (customer services), which usually cover the entire lifetime of an installed system, are provided to local customers by approximately 1,500 employees in over 20 countries. The service business benefits from an installed base of more than 6,000 systems. > DIAGRAM 003 KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 50 Production sites of the KION Group Production sites of the KION Group DIAGRAM 003 Dinklage Zwijndrecht Châtellerault Offenbach Reutlingen Milan Hamburg 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 centre, 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 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 51 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 Offenbach: Conveyor, sortation, storage and retrieval systems Italy Milan: Sortation systems Czech Republic Stříbro: Conveyor systems Mexico Holland Salt Lake City Summerville Monterrey Monterrey: Conveyor, sortation, storage and retrieval systems, system components United States Holland: Automated guided vehicle systems Salt Lake City: Conveyor, sortation, storage and retrieval systems, automated guided vehicle systems, system components Indaiatuba Pune Jingjiang Suzhou Xiamen Sydney KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 52 Market and influencing factors Regulatory frameworks have a major impact on the business model, both in the Industrial Trucks & Services segment and in According to the KION Group’s estimates, the material handling the Supply Chain Solutions segment. The products and services market – comprising industrial trucks and supply chain solutions of companies in the KION Group have to comply with the specific and related services – has expanded at a faster rate than global legal requirements in their respective markets. Compliance economic growth over the past five years. The value of the market with the different requirements has to be verified or certified. has increased at an average annual rate of around 6 per cent in Many of the legal requirements are enshrined in product-specific that time. standards and other norms (e.g. EN, ISO and DIN). Of the relevant market volume, almost 60  per  cent is esti- Legal requirements also apply to the construction and mated to be attributable to industrial trucks and related services, operation of production facilities, including in relation to air pollu- which are essential elements in the production and logistics tion avoidance, noise reduction, waste production & disposal and processes of many manufacturers as well as in the wholesale health & safety. The KION Group fulfils all of these requirements and retail sectors. The remaining market volume is accounted for as well as all the legal provisions pertaining to exports and by supply chain solutions, the growth of which is fuelled in no financing business. small part by the increasing automation and digitalisation of production and logistics processes in various industries. The Influencing factors in the Industrial main overarching growth drivers are the advancing interconnec- Trucks & Services segment tivity of the global economy and the demand for decentralised warehouse and logistics capacity in response to value chains and Despite a decline in orders in 2019, the value of the global market supply chains that are becoming increasingly fragmented. The for industrial trucks has, according to the KION Group’s esti- strong growth of e-commerce and the increasing prevalence of mates, increased by an average of 4 per cent annually over the omnichannel approaches in all kinds of industries is boosting past five years. This is due in equal measure to the growth in the capital expenditure on the reconfiguration of supply chains. volume of new truck business and the rise in the contribution from Economic conditions in the different regions and the rates of the service business compared to the past. Measured in terms of growth in global trade have a major influence on customers’ units ordered, 36 per cent of the global market was attributable to willingness to invest. Historically, new business in the Industrial IC counterbalance trucks in 2019, while electric forklift trucks Trucks & Services segment has shown a very strong correlation accounted for 16 per cent and warehouse technology 48 per cent. with the performance of broad economic indicators, such as It should be noted that the per-unit price for warehouse technol- industrial output. By contrast, the Supply Chain Solutions ogy is considerably lower than for counterbalance trucks, which segment tends to be less cyclical owing to longer project cycles, is why the breakdown by value shows that counterbalance trucks often lasting for several years, and to the stable growth of e-com- clearly dominate. IC counterbalance trucks continue to make up merce. In both segments, the service business is generally a comparatively high proportion of the total unit volume in growth more stable than the product or project business as it is linked to regions. The strongest growth in the new truck business in recent the installed base of trucks and systems over their entire lifetime. years has been for forklift trucks and warehouse trucks powered The economic situation is also affected by competition levels, by an electric motor. Much of the additional volume is attributable exchange rates and changes in commodity prices. to the electrification of manual hand pallet trucks, which are being Economic trends within individual customer sectors are replaced by entry-level trucks in the lower weight categories. another important factor. The most significant of these sectors Better drive technologies, in particular lithium-ion drives, are also are manufacturing, the food industry, general merchandise contributing to the growth in electric trucks and equipment. and grocery wholesale and retail, logistics services and pure Moreover, driverless transport solutions developed by automat- e-commerce, which has the highest growth rates. ing standard warehouse trucks are becoming more and more appealing to customers. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 53 All price segments continue to benefit from customers’ courier services – are also contributing to this. At the same time, growing requirements regarding the quality, efficiency and eco- the focus of technological progress is increasingly shifting friendliness of industrial trucks and from higher expectations in towards software and robotics solutions. According to the market terms of service, availability of spare parts and flexible rental solu- research company Interact Analysis, there will be strong growth tions. In this segment, customers are much more focused than in the market for robotic sorting systems as key components of before on optimising total cost of ownership and, increasingly, on automated distribution centres, in automated guided vehicles the ability to integrate the trucks into fully automated intralogistics (AGVs) and in autonomous mobile robots (AMRs), and these solutions. At the same time, there is mounting competitive pressure solutions will become increasingly prevalent as a result. worldwide as some manufacturers in the economy segment based in emerging markets are pursuing an international expansion strategy. In mature markets and, increasingly, in growth regions, Market position the large number of trucks in use also provides a strong base for replacement business and rising demand for services. In 2019, the Industrial Trucks & Services segment achieved a 14.2  per  cent share of the global market based on unit sales Influencing factors in the Supply Chain Solutions segment (2018: 14.1 per cent) and is thus still the second-largest manufac- turer of industrial trucks. It significantly expanded its position as According to the KION Group’s estimates, the market for supply market leader in Europe thanks to a smaller decline in orders than chain solutions has expanded much faster than the market for the market as a whole. At the same time, the KION Group is a industrial trucks and services over the past five years owing to leading global producer of electric forklift and warehouse trucks. growing demand in the main customer industries. Both the In China, it is still the leading foreign manufacturer in terms of project business (business solutions) and downstream ser- revenue and number three overall. The KION Group is also vices (customer services) have contributed to this expansion. among the leading providers in Brazil and India. The service business benefits from the growing number of The Supply Chain Solutions segment (Dematic) is the biggest installed systems and the trend towards the outsourcing of provider in the global market for warehouse automation in terms logistics processes. of revenue. This is supported by data from 2018 gathered by The growth of e-commerce has a major influence on demand Interact Analysis, which also puts Dematic as the leading vendor for supply chain solutions, including warehouse automation and in the fast-growing AGV and AMR segment. solutions for sorting and for automated goods transport. Accord- ing to market analysis by the Ecommerce Foundation, global online trade (B2C) expanded at an average rate of around 14 per cent between 2014 and 2019. Increasing complexity, cost pressures and shifting customer expectations require shorter lead times, a more efficient flow of goods, a wider product range and process reliability. This is pushing up demand for decen- tralised warehouse and logistics capacity that enables faster deliveries and, due to automated processes, keeps down per- sonnel expenses and floor space costs. The digitalisation and automation of industrial production and supply chains and the omnichannel strategies being adopted in traditional industries – for example supermarket chains, grocery wholesale and retail, fashion, food and beverage manufacturing, and parcel and KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 54 STRATEGY OF THE KION GROUP Objectives of the KION 2027 strategy – Efficient use of capital: The KION Group continually strives to optimise the return on capital employed (ROCE). Besides increasing earnings, the focus here is on asset management and efficient use of capital. – Resilience: Profitability throughout the various market cycles is to be guaranteed by a robust business model. This will The KION Group forged ahead with the implementation of its involve greater diversification in terms of regions and cus- KION 2027 strategy during the reporting year. The KION 2027 tomer sectors alongside efforts to expand the service busi- strategy provides the framework for profitable growth in the ness and further optimise the production network. Group and specifies groupwide targets. The strategy is aligned with the KION Group’s vision: ‘We are the best company in the During the reporting year, the KION Group paved the way for world at understanding our customers’ material handling needs further expansion of the business in the key growth market of and providing the right solutions.’ China. For example, plans were finalised for an additional plant for The KION 2027 strategy is unlocking the potential of both counterbalance trucks in Jinan in Eastern China, which will form operating segments and placing an even greater focus on a an important base for the further successful implementation of shared, customer-centric innovation, sales and brand strategy. the KION Group’s growth strategy. Particular attention was also The emphasis is on developing and marketing integrated, auto- paid to increasing the Company’s resilience through even greater mated and sustainable supply chain solutions and mobile auto- international diversification of new business and through a strong mation solutions for customers around the world. In the Industrial service business. By expanding its production capacity in Trucks & Services segment, products and services are being southern China, Poland and India and by continuing to invest transitioned to sustainable energy concepts and being comple- significantly in the development of products and solutions, the mented with consultancy and project work. And in the Supply KION Group intends to become even more robust in the face of Chain Solutions segment, the range of options for customers is downturns in the market cycle and disruptions to global trade. being expanded through system solutions for special require- ments in the relevant customer segments. The KION 2027 strategy provides the framework in the Group and sets groupwide targets: – 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 adjusted EBIT margin so that it is permanently in double digits. KION GROUP AGAnnual Report 2019OUR STRATEGY VISION We are the best company in the world at understanding the customers’ material handling needs and providing the right solutions. ASPIRATION COMBINED MANAGEMENT REPORT ENABLERS Fundamentals of the KION Group CUSTOMER ORIENTATION Be the most customer- oriented player in the industry INNOVATION Lead the industry through new offerings DIGITALIZ ATION Create value through Strategic fields of action and measures digitalization in 2019 PEOPLE Be the most attractive employer in the industry Five fields of action have been defined for the KION 2027 strategy – energy, digital, automation, innovation and performance – for which a wide range of strategic measures were implemented in 2019: FIELDS OF ACTION CORE OBJECTIVES 55 GROW TH Grow above the material handling market growth PROFITABILIT Y Remain most profitable player in the industry RESILIENCE Maintain profitability across business cycle CAPITAL EFFICIENCY Provide return on capital for shareholders OVERALL OBJECTIVE PROFITABLE GROW TH Grow profit above revenue growth We are leading the material handling industry in the efficient use of energy through our products and solutions. We focus on new energy sources for industrial trucks and related services. We transform our business into the digital world. For customers we develop digital solutions to improve their intralogistics efficiency. Internally we digitalize our processes to improve our performance. Our solutions allow customers to benefit from automation effectively, supporting them on their journey to “lights-out” warehouses. We drive innovation in the material handling industry through an effective innovation ecosystem and a state-of-the-art development process & speed. We continuously improve the efficiency in our Group as well as the performance of our products. FOUNDATION Energy The joint venture KION Battery Systems GmbH, agreed with BMZ Holding GmbH in 2019, is an important part of this. Both The KION Group continually develops its products and solutions KION OPERATING MODEL so that its customers are able to use energy as efficiently and PEOPLE partners can draw on comprehensive expertise in the field of OUR SHARED KION GROUP VALUES lithium-ion technology. At the BMZ site in Karlstein am Main, sustainably as possible. Electric-powered forklift trucks and 20180212_Strategie_Poster_Summit_A3.indd 1 Germany, a  production facility is being created that is set to 12.02.18 16:02 warehouse trucks already make up 85.5  per  cent of the KION initially manufacture batteries for counterbalance trucks and then Group’s order intake in terms of units. A focus of the strategy is to at a later point in time also make batteries for warehouse develop and commercialise new energy sources for industrial trucks. The collaboration is strengthening the KION Group’s trucks and related services, such as the provision of advice on position in the energy-efficient drive technology segment and energy matters. creating capacity to equip everything from entire future truck fleets to heavy-duty trucks capable of handling large loads. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 56 In a parallel development, Linde and STILL have expanded their huge importance for the intralogistics of the future, mobile auto- lithium-ion battery portfolio and are now covering the main load mation activities have been coordinated on a cross-segment ranges in various capacity classes in response to customer basis by the Mobile Automation unit, which forms part of KION’s requirements. The new models that Linde and STILL have brought digital function. to the market are available with a lithium-ion battery, as is the N20 The mobile automation team has forged ahead with incorpo- low-lift order picker, now much improved in terms of ergonomics rating autonomous trucks and automated guided vehicle sys- and safety, and the RX series of electric forklift trucks from STILL, tems (AGVs) into end-to-end solutions for warehouses. Dematic including the new RX 60. Linde’s portfolio of fuel cell trucks was Compact, an automated system for the transport of pallets, is one also expanded (see ‘Research and development’). of the new solutions on offer in this segment. The IFOY Award Digital presented to STILL in the category AGV & Intralogistics Robot in 2019 (see ‘Customers’) provided further confirmation of the company’s prominent position in the market. The KION Group is gearing its business to customers’ increas- The piloting of Dematic’s PackMyRide, the first fully auto- ingly digitalised processes in order to improve their intralogistics mated parcel-loading solution for the ‘last mile’ stage of delivery, efficiency. The digitalisation of customer solutions – including was another step taken last year. PackMyRide integrates the through the use of the proprietary warehouse management sys- intralogistics systems with automated guided vehicle systems tem Dematic iQ – is being accompanied by the digitalisation of and thus uses the full breadth of the KION Group’s technology. internal processes and resulting improvements in performance. A further innovation is Dematic’s micro-fulfilment automation The KION Group is not only integrating software into its solutions system, which was introduced in the fourth quarter of 2019 and is but is also increasingly marketing software solutions as standalone tailored to the requirements of omnichannel retailers with high products. Internal organisational structures are also being mod- throughput rates. ernised in order to pave the way for agile development and embed it across the Group. Innovation Dematic launched iQ Virtual onto the market in the report- ing year, an emulation and simulation platform that enables The KION Group develops technologies on a cross-segment automated intralogistics systems to be visualised and validated. basis and in doing so drives forward innovation in the material The digital networking of industrial trucks is also playing an handling market. It is continuing to invest significantly in research ever greater role. The H20–H35 IC counterbalance trucks from and development at a rate of 2.7 per cent of revenue. the 1202 product line that Linde has recently introduced onto In addition to efficient development processes, the KION the market reflect this trend and offer digital networking capa- Group also works with an effective innovation ecosystem. It bility as standard. As part of the digitalisation of internal pro- partners with research institutes, universities and companies so cesses, fleet management solutions have been migrated to that it can go to market with new products and solutions within a KION’s corporate cloud so that they can be made available to short space of time. Support comes from KION Invest, which customers even more quickly than before. since early 2019 has been working with start-ups to drive forward new technologies and business models that will benefit KION Automation Group customers in the future. KION Digital Campus, the KION Group’s agile innovation In the field of automation, the KION Group offers specific and laboratory for new digital solutions and business models, scalable solutions for a wide range of customer requirements, continued to provide support last year in important product from single forklift trucks right up to fully automated large-scale developments, including digitally networked forklifts and ware- warehouses. These are helping customers move closer to the house trucks for Industry 4.0 applications. goal of a ‘lights-out’ warehouse. Since 2019, because of their KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 57 Performance MANAGEMENT SYSTEM The KION Group is continually improving internal efficiency, optimising the performance of its products from a customer perspective and fully leveraging synergies. Core key performance indicators The efficiency drive continued at European production sites in the Industrial Trucks & Services segment in 2019 and in some The KION Group’s strategy, which centres on value and growth, areas was completed. From early 2021, efficiency is set to be is reflected in how the Company is managed. The performance further enhanced by the relocation of a product series from targets of the Group and the segments are based on selected Aschaffenburg to the new Polish site in Kołbaskowo, near Szczecin. financial indicators, as is the performance-based remuneration In the past year, a group-wide programme (Performance paid to managers. It uses five core key performance indicators Excellence) was launched to optimise processes and increase (KPIs), which remained unchanged in the reporting year, to con- efficiency. The programme, which addresses various areas for tinuously monitor market success, profitability, financial strength increasing earnings and reducing costs, already showed first and liquidity. The KPIs used to manage the segments are order signs of success and led to cost savings in the fiscal year under intake, revenue and adjusted EBIT. The KPIs are measured and review. It is also expected to contribute to the Company’s suc- made available to the Executive Board on a monthly basis as part cess in the coming fiscal years. of the internal reporting process. > TABLE 004 Efforts also continued to be focused on making product development even more efficient, based on a global, modular platform strategy that allows for localisation with minimal effort. Key performance indicators in € million Order intake Revenue Adjusted EBIT * Free cash flow ROCE * Adjusted for PPA items and non-recurring items TABLE 004 2018 8,656.7 7,995.7 789.9 519.9 9.3% 2019 9,111.7 8,806.5 850.5 568.4 9.7% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 58 Alternative performance measures Order intake The KION Group’s financial reports are prepared in line with Order intake comprises all orders received from customers International Financial Reporting Standards (IFRS). As well as within a specific period minus any cancellations. Order intake is reporting on the financial key performance indicators defined broken down by segment, region and product category in the under IFRS, the KION Group also uses alternative performance KION Group’s management reporting so that growth drivers measures (APM). APMs are company-specific indicators that are and pertinent trends can be identified and analysed at an early not directly based on any laws or accounting standards. Some stage. Order intake is a leading indicator for future revenue. The are company-specific adjustments of certain financial KPIs, for length of time between receipt and invoicing of an order varies example the adjustment of these KPIs for non-recurring items depending on the segment, region and product category. Order (e.g. ‘adjusted EBIT’). APMs are used both internally for manage- intake is shown in > TABLE 004. ment purposes and externally for communicating and reporting to a range of stakeholders. EBIT (earnings before interest and tax) KPIs used by the KION Group Earnings before interest and tax (EBIT) is a measure of perfor- mance that is adjusted for company-specific financing activities and the effects of differing international tax regimes. EBIT is The following is an overview of the KPIs used by the KION Group shown in > TABLE 037 in the consolidated income statement. to comply with the reporting obligations prescribed by law. Adjusted EBIT Order book The order book provides a record of all customer orders on a the KION Group’s financial performance is adjusted EBIT. It is particular reporting date that are yet to be invoiced. In the Indus- EBIT adjusted for company-specific purchase price allocation trial Trucks & Services segment, this only includes orders for new effects and non-recurring items. A reconciliation of EBIT to trucks. For long-term construction contracts in the Supply Chain adjusted EBIT is presented in > TABLE 011. The key figure used for operational management and analysis of Solutions segment, services that have already been rendered are deducted from the total value of the contract with the customer. Adjusted EBIT margin The order book is shown in the section ‘Financial position and financial performance of the KION Group’. The adjusted EBIT margin is the ratio of adjusted EBIT to revenue. It is shown in the section ‘Financial position and financial perfor- mance of the KION Group’. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 59 EBITDA (earnings before interest, tax, Earnings before tax depreciation and amortisation) EBITDA is defined as earnings before interest and tax plus for company-specific the effects of differing international tax amortisation, depreciation and impairment minus reversals of regimes. Earnings before tax is shown in the consolidated income Earnings before tax is a measure of performance that is adjusted impairment on non-current assets. EBITDA is a measure of statement in > TABLE 037. performance that is adjusted for company-specific financing activities, the effects of differing international tax regimes and the Net financial debt effects of the company-specific application of amortisation and depreciation methods and margins of discretion in valuations. Net financial debt is an indicator of the Company’s liquidity Amortisation, depreciation, impairment and reversals of impair- situation and capital structure. It is the sum of long-term and ment on non-current assets are shown in the statement of cash short-term financial liabilities less cash and cash equivalents. Net flows in > TABLE 041. Adjusted EBITDA financial debt is shown in > TABLE 019. Industrial net operating debt Adjusted EBITDA is EBITDA adjusted for company-specific Industrial net operating debt is an indicator of the liquidity situa- purchase price allocation effects and non-recurring items. A tion and capital structure for the operating business excluding reconciliation of EBITDA to adjusted EBITDA is presented in lease activities of the lessor. It is therefore defined as net financial > TABLE 012. Adjusted EBITDA margin debt plus liabilities from short-term rental fleet financing and liabil- ities from procurement leases. A reconciliation of net financial debt to industrial net operating debt is presented in > TABLE 019. The adjusted EBITDA margin is the ratio of adjusted EBITDA to Leverage on net financial debt revenue. It is shown in the section ‘Financial position and financial performance of the KION Group’. Leverage on net financial debt is the ratio of net financial debt to EBITDA for the long-term lease business the section ‘Financial position and financial performance of the adjusted EBITDA for the previous twelve months and is shown in KION Group’. EBITDA for the long-term lease business comprises the earnings before interest, tax, depreciation and amortisation generated by long-term direct and indirect leases in the Industrial Trucks & Services segment (with the Company as lessor) and is used to measure the performance of the lease business. EBITDA for the long-term lease business is shown in the section ‘Financial posi- tion and financial performance of the KION Group’. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 60 Capital employed Free cash flow Capital employed is the working capital that is required to achieve Free cash flow is the main KPI for managing the KION Group’s the operational objectives. > TABLE 005 shows how the figure for liquidity and financing. It is determined by the KION Group’s oper- capital employed is arrived at. ating activities and investing activities. Carefully targeted man- agement of working capital and detailed planning of capital ROCE (return on capital employed) expenditure are thus important tools in the generation of free cash flow. Free cash flow describes the cash flow that is available ROCE is a measure of the profitability and efficiency of the capital to pay dividends and interest and to repay liabilities. It is the sum employed. It is the ratio of adjusted EBIT to capital employed as of cash flow from operating activities and cash flow from investing at the reporting date and is calculated annually. ROCE is shown activities. Free cash flow is shown in > TABLE 004. in > TABLE 005. Return on capital employed (ROCE) in € million Total assets – less selected assets ¹ – less selected liabilities ² Capital employed Adjusted EBIT ROCE 1 Lease receivables, income tax receivables, cash and cash equivalents, PPA items and several items of other financial assets / other assets 2 Sundry other provisions, trade payables, the majority of other liabilities as well as several items of other financial liabilities TABLE 005 2018 12,968.8 – 1,730.4 – 2,708.0 8,530.3 789.9 9.3% 2019 13,765.2 – 2,120.6 – 2,861.8 8,782.7 850.5 9.7% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Fundamentals of the KION Group 61 Capital expenditure Currency-adjusted changes For the KION Group, this item includes capitalised development Currency-adjusted changes shows the percentage change in a costs and spending on property, plant and equipment and KPI (e.g. order intake, revenue) during the reporting period excludes right-of-use assets. The KION Group’s capital expendi- excluding the effects of changes in exchange rates. ture is shown in the section ‘Financial position and financial performance of the KION Group’. Projected KPIs Net working capital The projected KPIs reflect the Company’s expectations regarding future developments and are therefore forward-looking. They Net working capital is defined as the sum of inventories, trade are calculated in the same way as the APMs that are described receivables and contract assets less trade payables and contract in this section. liabilities. It is shown in the section ‘Financial position and financial performance of the KION Group’. R&D spending as a percentage of revenue The item R&D spending as a percentage of revenue is the ratio of expenditure on research and development to revenue and is shown in > TABLE 025. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 62 Report on the economic position MACROECONOMIC AND SECTOR- SPECIFIC CONDITIONS Macroeconomic conditions particularly pronounced in the eurozone, which is heavily reliant on exports. In the US, impetus for growth declined over the course of the year as tax incentives expired. The downturn in growth in the emerging markets was mainly due to the economic slowdown in China and India. Both global industrial output and the volume of global trade were down significantly on the prior year. These trends were The rate at which the world’s economy is expanding slowed driven mainly by the fact that businesses were much less willing significantly in 2019. According to the International Monetary to invest in the face of heightened risks related to the geopolitical Fund, global economic growth for 2019 stood at only 2.9 per cent, situation and trade policy. The US dispute with China, the Euro- compared with 3.6  per  cent in the prior year. The developed pean Union and other key trading partners as well as the unpre- economies and the emerging markets both recorded falls in dictable impact of an imminent Brexit were particular sources of their growth rates. The decline in the pace of expansion was ongoing uncertainty. > DIAGRAM 004 Gross domestic product in 2019 – real year-on-year change DIAGRAM 004 CHINA INDIA WORLD USA EUROZONE BRAZIL RUSSIA JAPAN 2.9% 2.3% 1.2% 1.2% 1.1% 1.0% 6.1% 4.8% GERMANY 0.5% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Source: International Monetary Fund (as at 21/01/2020) KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 63 Sectoral conditions The Americas region (North, Central and South America) saw a year-on-year decline of 6.7 per cent. Whereas North America The global material handling market, which comprises industrial registered a significant contraction, the Central and South Amer- trucks and supply chain solutions, expanded in the reporting year ican market was close to its prior-year level. The APAC region according to the KION Group’s estimates. However, the global recorded moderate growth of 3.9 per cent, mainly because of a market for industrial trucks contracted slightly in 2019 in terms of rise in unit sales of warehouse trucks in China. unit sales after several consecutive years of growth. The escala- Across the regions, new orders of warehouse trucks were up tion of the trade dispute during the reporting period and the slightly on the prior-year level (+1.0  per  cent). One of the main resultant weakening of global trade depressed demand in key reasons for this growth was again that manual equipment was sales regions. At the same time, however, demand rose sharply being replaced by entry-level electric trucks in the lower price for warehouse automation and for sorting and picking solutions. segment. By contrast, order numbers for IC trucks were down Contributing factors here included the creation of additional by 5.2  per  cent and for electric forklift trucks by 3.6  per  cent. warehouse and sorting capacity for the growing e-commerce > TABLE 006 market and the implementation of omnichannel strategies. Supply Chain Solutions Industrial Trucks & Services In 2019, order numbers in the global market for industrial trucks 2019. According to market research company Interact Analysis, fell by 2.1 per cent year on year to around 1.5 million trucks. The the rate of expansion was more than 10  per  cent again. The market picked up slightly in the second half of the year, mainly increase was disproportionally high in the APAC region in com- due to an uptrend in the APAC (Asia-Pacific) region. In the EMEA parison to the US market, which is dominated by e-commerce, region (western Europe, eastern Europe, Middle East and Africa), and to the EMEA market. The market for supply chain solutions delivered strong growth in the KION Group’s main sales region, new orders were down by 6.2 per cent compared with the prior year. Both western Europe and eastern Europe also fell short of the level of new orders achieved in 2018. 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 2019 406.1 88.8 35.6 266.8 39.5 672.5 2018 435.0 94.1 36.2 288.8 39.5 647.3 1,509.2 1,540.9 TABLE 006 Change – 6.7% – 5.6% – 1.8% – 7.6% – 0.1% 3.9% – 2.1% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 64 E-commerce activities and the related realignment of supply Business performance in the Group chains towards an omnichannel approach remained the main growth drivers. In order to speed up processing times and make In 2019, the KION Group laid the foundations for expanding its the flow of goods more efficient, a growing number of companies market share in the growth regions of the material handling invested in the expansion and optimisation of their warehousing market by making significant investments in new production and logistics capacity. This included not only automated ware- facilities. It also entered into a strategic partnership that greatly house systems but also solutions for individual processes, such improved its positioning in the growing market of energy-efficient as picking and packing, plus fully integrated end-to-end solutions. drive technology. Procurement markets A new plant at the production site in Pune is contributing to the expansion of KION’s presence in the APAC region. In terms of unit sales, the KION Group is already a leading supplier of indus- Price trends for the commodities used by the KION Group were trial trucks in India. The additional capacity will help to consolidate mixed over the course of 2019. The price of steel, the most this leading position. The work on converting and modernising important commodity, fell steadily as the year progressed and at the plant, which was purchased in the first quarter of 2019, was the end of 2019 was well below its average price for 2018. The completed before the end of the year, meaning that production copper price was also down at year-end on the high average was able to commence. The new factory, in which capital of price of the prior year. The price of Brent crude did increase in the around €15  million is being invested, incorporates a research first months of the year but at the end of 2019 was lower than the and development centre, a training centre for service personnel average value for the previous year. The rubber price bounced and an additional space to support Dematic’s growth in India. back significantly after weakening for a period in 2018, but The KION Group is investing over €60 million in the con- then experienced a sharp correction in the middle of the year. struction of a new factory for industrial trucks in Kołbaskowo, However, the average price for the year as a whole was higher near Szczecin in Poland. The aim is to expand the Group’s pro- than for 2018. Financial markets duction facilities in Europe and unlock even more of the market potential in the EMEA region. In line with the groupwide growth strategy, the new plant will produce Linde electric and IC counterbalance trucks, including model series that are currently manufactured at the factories in Aschaffenburg and Xiamen. In the reporting year, the KION Group billed 48.2  per  cent of The cutting-edge production facility in Poland is due to go into revenue in foreign currencies, the most important of which in operation in early 2021. addition to the US dollar were the Chinese renminbi and pound In July 2019, KION GROUP AG and BMZ Holding GmbH sterling. The euro continued to record moderate falls against the signed an agreement to develop and manufacture lithium-ion US dollar over the course of 2019. Relative to the dollar, the euro batteries for industrial trucks in the EMEA region within the frame- was worth 5.2 per cent less on average in 2019 than in 2018. work of a joint venture. The objective is to meet the rapidly The weaker euro boosted the export business, but made growing demand for lithium-ion battery systems in the intralo- commodities more expensive, as they are mainly traded in US gistics market. The joint venture, which was launched in the dollars. Overall, however, the effects of exchange rate fluctuations beginning of 2020, underlines the KION Group’s unchanged on the business situation and financial performance in the strategic focus on the development of more energy-efficient drive reporting year were negligible. technologies for use in electric-powered intralogistics vehicles. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 65 In order to comprehensively exploit the potential of the North At €444.8  million, net income was up by 10.7  per  cent American market for warehouse automation, a complete product (2018: €401.6  million). This improvement can primarily be line of automated very narrow aisle trucks, including fleet explained by better operating profit and declining purchase price management software, was launched onto the market by Linde allocation effects. Basic earnings per share attributable to the and integrated with Dematic’s intralogistics systems. As a result shareholders of the KION Group came to €3.86 in 2019 (2018: of the synergy potential thereby created, Industrial Trucks & Ser- €3.39) based on a weighted average of 117.9 million no-par-value vices is now able to offer a full range of material handling solutions shares outstanding during the reporting year. KION GROUP AG specifically focussed on the North American market. And thus, a will propose a dividend of €1.30 per share to the 2020 Annual major order was already secured in the past financial year. General Meeting (2018: €1.20), which is a rise of 8.3 per cent. FINANCIAL POSITION AND FINANCIAL PERFORMANCE OF THE KION GROUP Free cash flow increased significantly year on year to reach €568.4 million (2018: €519.9 million), largely thanks to the higher level of earnings. Net financial debt equated to 1.0 times adjusted EBITDA, representing a further year-on-year improvement (2018: 1.2 times). In the Industrial Trucks & Services segment, the KION Group was able to stand up to fierce competition and again recorded Overall assessment of the economic situation increases in order intake and revenue compared with the previous year. Key factors in its competitiveness were a product portfolio The KION Group continued along its path of profitable growth in that is geared to customers’ needs and a broad range of services. 2019, successfully consolidating its position despite very chal- The growth in revenue enabled the segment to further improve its lenging market conditions. Order intake rose by 5.3 per cent from operating profit in 2019. Over the course of the year, the segment €8,656.7 million to €9,111.7 million and revenue by 10.1 per cent also overcame the negative effects of the bottlenecks that had from €7,995.7 million to €8,806.5 million. Both these KPIs were occurred at individual suppliers. therefore higher than in 2018. Adjusted EBIT also went up, The Supply Chain Solutions segment capitalised on the still increasing by 7.7 per cent to €850.5 million (2018: €789.9 million). favourable market conditions and, bolstered by the high level of Earnings in 2019 were helped not only by the healthy revenue orders received in 2018, notched up significant gains in revenue growth but also by the fact that material prices rose only moder- and earnings. Dematic secured major orders in important cus- ately. The adjusted EBIT margin contracted by 0.2  percentage tomer segments throughout the reporting year. This was partly points year on year, from 9.9 per cent to 9.7 per cent. This was thanks to the addition of new fully automated solutions and sys- because the two operating segments saw disproportionately tems to the product portfolio that enable even simpler and faster strong growth in their lower-margin businesses – new trucks and processes. Product innovation also helped the segment to further business solutions – compared with the growth of the service strengthen its position in the most promising functional areas of business. warehouse automation, for example micro-fulfilment solutions. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 66 Comparison between actual and forecast growth (€805  million to €875  million). Free cash flow amounted to €568.4 million and was therefore well above the 2019 target range (€380 million to €480 million). This made it possible to reduce the The KION Group achieved, and in some cases significantly liquidity tied up in net working capital to a greater extent by the exceeded, the targets that it had set itself for its core KPIs in 2019. end of the year than had been expected. At 9.7  per  cent, the The value of the KION Group’s order intake totalled KION Group’s ROCE was as predicted (target range: 9.0 per cent €9,111.7  million, which was higher than the target range to 10.0 per cent). (€8,250 million to €8,950 million) specified in the outlook for 2019. In the Industrial Trucks & Services segment, revenue exceeded This was due in no small part to the Group’s strong finish to the expectations, whereas order intake and adjusted EBIT were within year. The level of orders was actually very good throughout the the target ranges. year, which meant revenue at €8,806.5 million was also above the In the Supply Chain Solutions segment, order intake and expected range (€8,150 million to €8,650 million). At €850.5 mil- adjusted EBIT were above the target range, whereas revenue was lion, adjusted EBIT was in the top half of the target range at the upper end of the range. > TABLES 007 – 008 Comparison between actual and forecast growth – KION Group TABLE 007 in € million Order intake Revenue Adjusted EBIT Free cash flow ROCE KION Group 2019 Outlook 8,250 – 8,950 8,150 – 8,650 805 – 875 380 – 480 9.0% – 10.0% 2019 Actual 9,111.7 8,806.5 850.5 568.4 9.7% Comparison between actual and forecast growth – segments TABLE 008 in € million Order intake * Revenue * Adjusted EBIT * Industrial Trucks & Services Supply Chain Solutions 2019 Outlook 6,250 – 6,450 6,050 – 6,250 2019 Actual 2019 Outlook 6,330.5 2,000 – 2,500 6,410.2 2,100 – 2,400 685 – 720 695.1 190 – 225 2019 Actual 2,771.0 2,378.8 228.1 * Disclosures for the Industrial Trucks & Services and Supply Chain Solutions segments also include intra-group cross-segment order intake, revenue and effects on EBIT KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 67 Business situation and financial performance of the KION Group by 10.0 per cent to €3,631.7 million as at the reporting date (2018: €3,300.8 million). This provides a good starting point for 2020. Level of orders Revenue The KION Group’s order intake amounted to €9,111.7  million, Consolidated revenue also surged, increasing by 10.1 per cent to which was 5.3  per  cent higher than the figure for the previous €8,806.5 million (2018: €7,995.7 million). In the Industrial Trucks & year (2018: €8,656.7 million). The value of order intake improved Services segment, revenue generated from external customers by 1.9 per cent in the Industrial Trucks & Services segment, which went up by 8.2 per cent to €6,403.7 million (2018: €5,916.3 mil- bucked the downward trend in the wider market to some extent. lion), predominantly thanks to strong new truck business. The In the EMEA region, where the segment generates a lot of its revenue generated by the Supply Chain Solutions segment from orders, the market contracted significantly. However, the strength external customers jumped by 15.8 per cent year on year to reach of the service business meant that order intake increased none- €2,376.1 million (2018: €2,052.1 million). Double-digit growth rates theless. In the Supply Chain Solutions segment, the value of order in both the project business (business solutions) and the service intake went up by 14.3 per cent, primarily driven by a robust per- business contributed to this result. At Group level, the share of formance in the second half of the year. It was also helped by consolidated revenue attributable to the service business major customer orders that were secured before the end of the decreased to 41.5 per cent (2018: 43.1 per cent) owing to the dis- year. Currency effects had a positive impact on the value of the proportionately strong growth in new truck business and busi- KION Group’s overall order intake, raising it by €91.6  million. ness solutions. Currency effects – particularly the resurgent US These effects were predominantly due to the US dollar being dollar – had a positive impact on consolidated revenue, increas- stronger on average during the year. Partly due to the uptick in ing it by a total of €84.5 million. > TABLE 009 business at the end of the year, the Group’s order book rose 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 2019 6,403.7 3,345.6 3,058.2 1,600.9 926.2 361.1 169.9 2,376.1 1,780.2 595.9 26.7 8,806.5 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 TABLE 009 Change 8.2% 11.2% 5.2% 5.7% 2.9% 10.2% 2.7% 15.8% 17.6% 10.7% – 2.1% 10.1% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 68 Revenue by sales region Earnings and profitability The KION Group achieved significant revenue growth in each of EBIT, EBITDA and ROCE its main sales regions, despite the disparate performance of the Earnings before interest and tax (EBIT) totalled €716.6  million, different markets. One of the reasons for the increase of which was a substantial 11.5 per cent above the figure for the 10.1 per cent in the EMEA region was the growth of unit sales in previous year (2018: €642.8  million). Gross profit improved by the Industrial Trucks & Services segment. Much of the growth in 11.2 per cent thanks to the increase in revenue and, in compari- Western Europe (up by 9.7  per  cent) was generated in France, son, a smaller increase in the cost of sales. The total rise in selling Germany, Italy and the United Kingdom, while Eastern Europe (up expenses and administrative expenses was slightly less than the by 14.6 per cent) saw a sharp rise in Poland. Another reason was growth of revenue, whereas development costs went up at a the contribution to the overall growth in the European markets faster rate than revenue due to the continued strategic expansion from the Supply Chain Solutions segment, which registered of the KION Group’s product and solution portfolio. As expected, strong increases in both Western Europe (up by 21.8  per  cent) the negative purchase price allocation effects fell sharply to and Eastern Europe (up by 20.8 per cent). In the Americas region €91.0  million (2018: €126.2  million). By contrast, non-recurring (North, Central and South America), the KION Group posted a items increased from €21.0 million in 2018 to €42.9 million in the rise in revenue of 14.0 per cent – helped by currency effects – and reporting year due to restructuring and reorganisation-related thus boosted its strong market position in North America, espe- measures initiated in the fourth quarter of 2019 in connection with cially in the Supply Chain Solutions segment. Revenue rose by implementation of the KION 2027 strategy. 3.1 per cent in the Asia-Pacific region, largely thanks to the posi- EBIT adjusted for non-recurring items and purchase price tive business performance of the Supply Chain Solutions seg- allocation effects (adjusted EBIT) rose by 7.7  per  cent to ment. In the Industrial Trucks & Services segment, however, the €850.5  million (2018: €789.9  million). The adjusted EBIT margin revenue generated in the core Chinese market declined slightly stood at 9.7 per cent, which was slightly lower than the margin owing to a shift in the sales mix towards entry-level trucks in the of 9.9 per cent for 2018. This was because the two operating seg- lower weight categories. Emerging markets accounted for ments saw disproportionately strong growth in new truck busi- 19.8 per cent of the KION Group’s revenue in the reporting year ness and business solutions, which tend to have narrower mar- (2018: 20.3 per cent), while 80.7 per cent of consolidated revenue gins than the service business. > TABLE 011 (2018: 80.8 per cent) was generated outside Germany. > TABLE 010 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 2019 5,234.3 678.6 93.8 1,680.5 212.5 906.9 8,806.5 2018 4,769.9 592.3 94.5 1,486.3 173.5 879.3 7,995.7 TABLE 010 Change 9.7% 14.6% – 0.8% 13.1% 22.5% 3.1% 10.1% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position EBIT in € million EBIT + Non-recurring items + PPA items Adjusted EBIT Adjusted EBIT margin 69 TABLE 011 Change 11.5% > 100% – 27.9% 7.7% – 2019 716.6 42.9 91.0 850.5 9.7% 2018 642.8 21.0 126.2 789.9 9.9% Earnings before interest, tax, depreciation and amortisation Key influencing factors for earnings (EBITDA) increased to €1,614.6  million (2018: €1,540.6  million). The cost of sales increased by 9.8 per cent, which was a slightly Adjusted EBITDA came to €1,657.5 million (2018: €1,555.1 million). slower rate than the rise in revenue of 10.1 per cent. The fallout The adjusted EBITDA margin decreased from 19.4  per  cent in from the production inefficiencies that had arisen from bottle- 2018 to 18.8 per cent in 2019. > TABLE 012 necks at suppliers in the Industrial Trucks & Services segment in 2018 disappeared over the course of 2019. Furthermore, the EBITDA for the long-term lease business, which is derived from predicted decrease in purchase price allocation effects and, internal reporting and assumes a minimum rate of return on the overall, an only moderate increase in material prices meant that capital employed, amounted to €333.3 million (2018: €321.1 million). the gross margin improved to 26.5 per cent (2018: 26.2 per cent). Return on capital employed (ROCE), which is the ratio of In 2018, the gross margin had been squeezed by temporary adjusted EBIT to capital employed, was up year on year at underutilisation of project-related personnel capacity in the 9.7 per cent (2018: 9.3 per cent). The improvement in this KPI was Supply Chain Solutions segment resulting from delays in the partly due to the smaller rise in capital employed at the end of awarding of projects. 2019 relative to the increase in revenue. EBITDA in € million EBITDA + Non-recurring items + PPA items Adjusted EBITDA Adjusted EBITDA margin 2019 1,614.6 42.9 – 1,657.5 18.8% 2018 1,540.6 14.6 – 0.0 1,555.1 19.4% TABLE 012 Change 4.8% > 100% 100.0% 6.6% – KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 70 The 10.2  per  cent increase in selling expenses, development the optimisation of financing across the Group. As a result, costs and administrative expenses to a total of €1,642.4  million there was a further decrease in current interest expense on (2018: €1,490.3  million) was almost on a par with the revenue financial liabilities. growth rate. Within this total, selling expenses went up at a much slower rate in 2019 than in 2018, when there had been significant Income taxes expansion of market-specific and customer-specific activities. Income tax expenses amounted to €176.8  million (2018: Development costs rose to €155.3 million (2018: €137.7 million), €143.7 million), equating to an effective tax rate of 28.4 per cent reflecting the firm focus on implementing the innovation strategy (2018: 26.3 per cent). The main positive effects on the tax expense under KION 2027. Administrative expenses also jumped, by were reductions in local tax rates, tax breaks for R&D activities in 17.1 per cent, to reach €546.9 million (2018: €467.1 million). This the US and adjustments to tax provisions for prior years. The was also due to restructuring and reorganisation-related meas- lower effective tax rate in 2018 had primarily been due to the pos- ures initiated as part of this strategy. The change in the cost of itive impact of an amendment to tax law in Germany (section 8c sales and in other functional costs is shown in > TABLE 013. of the German Corporation Tax Act (KStG)). The ‘other’ item is a net figure and includes not only other operating income and expenses but also the share of profit (loss) Net income and appropriation of profit of equity-accounted investments, which amounted to a profit of Net income increased to €444.8  million (2018: €401.6  million). €12.1 million (2018: €12.2 million). This figure included a net loss attributable to non-controlling inter- Net financial expenses ests of €10.0  million (2018: net income of €1.8  million). The net income attributable to the shareholders of KION GROUP AG was The net financial expenses, representing the balance of financial €454.8  million (2018: €399.9  million). Basic earnings per share income and financial expenses, improved slightly to reach rose to €3.86 (2018: €3.39) based on 117.9 million (2018: 117.9 mil- €95.1 million (2018: €97.4 million). This positive trend was primarily lion) no-par-value shares; this was the weighted average number a reflection of the continual reduction of financial liabilities and of shares outstanding during the reporting year. Diluted earnings (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 tax (EBIT) Net financial expenses Earnings before tax Income taxes Net income 2019 8,806.5 – 6,474.6 2,331.9 – 1,487.1 – 155.3 27.2 716.6 – 95.1 621.6 – 176.8 444.8 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 TABLE 013 Change 10.1% – 9.8% 11.2% – 9.9% – 12.8% – 23.3% 11.5% 2.4% 14.0% – 23.0% 10.7% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 71 per share, which is calculated by adding the potential dilutive no-par-value shares under the employee share option pro- Business situation and financial performance of the segments gramme, amounted to €3.86 (2018: €3.39) based on a weighted average number of shares of 117.9 million (2018: 117.9 million). Industrial Trucks & Services segment KION GROUP AG’s net profit for 2019 was €156.9 million, of which €3.5 million will be transferred to other revenue reserves. Business performance and order intake The Executive Board and the Supervisory Board will propose to In terms of order numbers, new truck business in the Industrial the Annual General Meeting to be held on 12 May 2020 that an Trucks & Services segment outperformed the global market in all amount of €153.4 million be appropriated from the distributable key sales regions. Whereas the global market declined by profit of €153.5 million for the payment of a dividend of €1.30 per 2.1 per cent, unit sales in the segment, at 213.7 thousand, were dividend-bearing share. It is also proposed that the remaining almost level with the high figure reported for 2018 (down by sum of €0.2  million be carried forward to the next accounting 1.4 per cent). The fall in forklift truck orders was mitigated by a period. This equates to a proposed dividend payout rate of moderate rise in unit sales of warehouse trucks, including entry- around 34 per cent of the net income attributable to the share- level trucks in the lower weight categories. holders of KION GROUP AG. The value of order intake rose by 1.9 per cent to €6,330.5 million (2018: €6,210.6  million). Higher sales prices and the expanding service business contributed to this growth. > TABLE 014 Key figures – Industrial Trucks & Services in € million Order intake Total revenue EBITDA Adjusted EBITDA EBIT Adjusted EBIT Adjusted EBITDA margin Adjusted EBIT margin 2019 6,330.5 6,410.2 1,381.0 1,409.5 661.7 695.1 22.0% 10.8% 2018 6,210.6 5,922.0 1,332.3 1,340.2 625.2 655.4 22.6% 11.1% TABLE 014 Change 1.9% 8.2% 3.7% 5.2% 5.8% 6.1% – – KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 72 Revenue Supply Chain Solutions segment The total revenue of the Industrial Trucks & Services segment amounted to €6,410.2 million, an increase of 8.2 per cent com- Business performance and order intake pared with the previous year (2018: €5,922.0  million). Revenue Following a significant increase in the previous year, the Supply from new trucks jumped by 11.2  per  cent thanks to the strong Chain Solutions segment saw a further 14.3  per  cent rise in its order book at the end of 2018 and a small increase in sales prices. order intake to €2,771.0  million in 2019 (2018: €2,425.2  million). In the service business, revenue was up by 5.2 per cent year on The segment secured significant orders from new customers in year. The aftersales business, which accounted for 52.3 per cent EMEA and Asia over the course of 2019, and the strong finish to of service revenue (2018: 52.1 per cent), increased by 5.7 per cent. the year resulted in an even bigger order book. Currency effects, In the used truck business, the segment reported a rise of mainly from the resurgent US dollar, boosted the value of order 10.2 per cent. As a result of the disproportionately strong growth intake by €87.7 million. of revenue from new truck business, the share of external seg- ment revenue contributed by the service business fell to Revenue 47.8 per cent (2018: 49.1 per cent). The total revenue of the Supply Chain Solutions segment Earnings increased by a substantial 15.7  per  cent year on year to reach €2,378.8  million (2018: €2,055.2  million), thanks in large part to The sharp rise in revenue had a positive impact on the segment’s the strong order book at the end of 2018. The rise in segment rev- adjusted EBIT, which was up by 6.1  per  cent year on year at enue was driven both by the project business (business solutions) €695.1 million (2018: €655.4 million). The fallout from the bottle- and by the service business, which reported revenue growth of necks at suppliers that had continued to have an effect in 2018 no 17.6 per cent and 10.7 per cent respectively. The share of seg- longer had any significant impact on segment earnings. The ment revenue generated by the service business stood at adjusted EBIT margin fell from 11.1  per  cent in 2018 to 25.1 per cent (2018: 26.2 per cent). As a result of the growing vol- 10.8  per  cent in the year under review. This was due to higher ume of business in the European and Asian markets, the propor- development costs for work on innovation and to stronger growth tion of the segment’s external revenue generated by the North of new truck business relative to the higher-margin service busi- American business declined to 64.1 per cent (2018: 65.7 per cent). ness in the reporting year. Non-recurring items – particularly relating to restructuring and reorganisation measures initiated in Earnings 2019  – and purchase price allocation effects amounted to The segment’s adjusted EBIT jumped by 26.6  per  cent to €33.5 million (2018: €30.2 million). Including these effects, EBIT €228.1 million (2018: €180.2 million), mainly due to the increase in grew by 5.8 per cent to €661.7 million (2018: €625.2 million). revenue. More efficient project execution also helped to improve Adjusted EBITDA increased to €1,409.5  million (2018: profitability. In 2018, delays in the awarding of projects by cus- €1,340.2 million). The adjusted EBITDA margin fell to 22.0 per cent tomers had led to temporary underutilisation of project-related (2018: 22.6 per cent). > TABLE 014 personnel capacity. Overall, the adjusted EBIT margin improved KION GROUP AGAnnual Report 2019COMBINED 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 73 TABLE 015 Change 14.3% 15.7% 22.2% 24.8% > 100% 26.6% – – 2019 2,771.0 2,378.8 276.3 288.9 129.6 228.1 12.1% 9.6% 2018 2,425.2 2,055.2 226.1 231.5 64.4 180.2 11.3% 8.8% substantially from 8.8 per cent to 9.6 per cent. After taking into Revenue and earnings account non-recurring items and greatly reduced purchase price Total segment revenue, which came to €334.1  million (2018: allocation effects, the segment’s EBIT more than doubled to €299.2 million), mainly resulted from internal IT and logistics services. reach €129.6 million (2018: €64.4 million). The segment’s adjusted EBIT was down year on year at Adjusted EBITDA increased significantly to €288.9  million €315.1 million (2018: €369.6 million). This was a reflection of lower (2018: €231.5  million), giving an adjusted EBITDA margin of intra-group dividend income compared with 2018 and an increase 12.1 per cent (2018: 11.3 per cent). > TABLE 015 in administrative expenses resulting from implementation of the KION 2027 strategy. Adjusted EBIT excluding intra-group divi- Corporate Services segment dend income amounted to minus €72.9  million (2018: minus Business performance €45.8 million). Adjusted EBITDA stood at €347.0 million, or minus €41.1  million if intra-group dividend income is excluded (2018: The Corporate Services segment comprises holding companies €398.8 million, or minus €16.6 million). > TABLE 016 and other service companies that provide services such as IT and logistics across all segments. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position Key figures – Corporate Services in € million Order intake Total revenue EBITDA Adjusted EBITDA EBIT Adjusted EBIT Net assets 74 TABLE 016 Change 11.6% 11.6% – 13.2% – 13.0% – 15.0% – 14.7% 2019 334.1 334.1 345.1 347.0 313.2 315.1 2018 299.2 299.2 397.6 398.8 368.5 369.6 The short-term rental fleet was largely stable in 2019. Rental assets stood at €632.9 million at the end of the year, which was The condensed consolidated statement of financial position as at slightly less than at the end of the previous year (2018: €670.5 mil- 31 December 2019 showing current and non-current assets and lion). Leased assets for direct and indirect leases with end cus- liabilities together with equity is presented in > TABLE 017. tomers that are classified as operating leases increased to Non-current assets €1,361.2 million (2018: €1,261.8 million). Long-term lease receiva- bles arising from leases with end customers that are classified as finance leases also rose, amounting to €1,080.9  million as at Non-current assets increased to €10,696.4  million as at the 31 December 2019 (2018: €826.2 million). reporting date (2018: €10,150.6 million). The total carrying amount The amount of deferred tax assets recognised in the state- of intangible assets rose to €5,732.5 million (2018: €5,721.6 mil- ment of financial position was €449.7 million as at the reporting lion). The goodwill included in this figure was up slightly due to date (2018: €421.7 million). currency effects, reaching €3,475.8  million (2018: €3,424.8  mil- lion). There was an increase in other property, plant and equip- Current assets ment to €1,236.3 million (2018: €1,077.8 million). This was due not only to higher capital expenditure on modernisation and site Overall, there was a moderate increase in current assets to expansion but also to additional right-of-use assets related to €3,068.8 million (2018: €2,818.2 million). The growth of invento- procurement leases, which stood at €452.7 million at the end of ries during the year, predominantly in the Industrial Trucks & Ser- 2019 (2018: €390.7  million). Right-of-use assets amounted to vices segment, was mostly scaled back again in the fourth quarter. €325.9  million for land and buildings (2018: €276.4  million) – At the end of the year, the Group’s inventories amounted to including two major new leases for the rental of buildings – and €1,085.3 million (2018: €994.8 million). Within this figure, finished €126.8 million for plant & machinery and office furniture & equip- goods were up by 16.0 per cent year on year owing to the increase ment (2018: €114.3 million). in volume. > TABLE 018 KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position (Condensed) statement of financial position in € million Non-current assets Current assets Total assets Equity Non-current liabilities Current liabilities Total equity and liabilities 2019 10,696.4 3,068.8 13,765.2 3,558.4 6,277.8 3,929.0 13,765.2 in % 77.7% 22.3% – 25.9% 45.6% 28.5% – 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% – 75 TABLE 017 Change 5.4% 8.9% 6.1% 7.7% 4.6% 7.2% 6.1% Trade receivables were up slightly at €1,074.2  million (2018: ing date (2018: €676.1  million). This was due to the increase in €1,036.4 million). Contract assets mainly related to project busi- inventories and trade receivables on the back of the larger volume ness in the Supply Chain Solutions segment and, at €150.2 mil- of business and to the incremental fulfilment of customer orders lion, were also higher than at the end of the previous year (2018: in the project business over their scheduled period. Cash and €119.3 million). cash equivalents rose from €175.3 million as at 31 December The KION Group’s net working capital, which comprises 2018 to €211.2 million as at 31 December 2019. inventories, trade receivables and contract assets less trade pay- Current lease receivables from end customers increased to ables and contract liabilities, rose to €828.9 million at the report- €340.1 million (2018: €271.2 million). Inventories in € million Materials and supplies Work in progress Finished goods and merchandise Advances paid Total inventories 2019 276.6 143.3 638.5 26.9 1,085.3 2018 284.2 132.3 550.6 27.8 994.8 TABLE 018 Change – 2.7% 8.3% 16.0% – 3.3% 9.1% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 76 Financial position seeks to implement proactive risk management by rigorously pursuing its corporate strategy and to maintain an investment- Principles and objectives of financial management grade credit rating in the capital and funding markets by ensuring a solid funding structure. The KION Group pursues a conservative financial policy of main- The KION Group has an investment-grade credit rating that taining a strong credit profile with reliable access to debt capital helps it to secure more advantageous funding conditions in the markets. By pursuing an appropriate financial management strat- capital markets. Fitch Ratings, for example, awarded a rating of egy, the KION Group makes sufficient cash and cash equivalents BBB– with a stable outlook in January 2017 and reaffirmed it in available at all times to meet the Group companies’ operational October 2019. Furthermore, the rating agency Standard & Poor’s and strategic funding requirements. As part of its financial man- has rated KION GROUP AG at BB+ with a stable outlook since agement activities, the KION Group aims to continually reduce its December 2019. financial liabilities and, to an increasing extent, optimise the The KION Group has issued guarantees to the banks for all financing of the long-term lease business. In addition, the payment obligations and is the borrower in respect of all the pay- KION Group manages its financial relationships with customers ment obligations resulting from the promissory notes. and suppliers and mitigates the financial risk to its enterprise The KION Group maintains a liquidity reserve in the form of value and profitability, notably currency risk, interest-rate risk, agreed and confirmed credit lines and cash in order to ensure price risk, counterparty risk and country risk. In this way, the long-term financial flexibility and solvency. In addition, it uses KION  Group creates a stable funding position from which to derivatives to hedge currency risk. It enters into interest-rate maintain profitable growth. swaps in order to hedge interest-rate risk and the risk of changes The financial resources within the KION Group are provided in fair value. on the basis of an internal funding approach. The KION  Group Among other stipulations, the contractual terms of some collects liquidity surpluses of the Group companies in central or lending agreements and the promissory notes set out certain regional cash pools and, where possible, covers subsidiaries’ covenants. In addition, there is a financial covenant that involves funding requirements with intercompany loans. This funding ongoing testing of adherence to a defined maximum level of enables the KION Group to present a united front in the capital leverage. Non-compliance with the covenants or with the defined markets and strengthens its hand in negotiations with banks maximum level of leverage as at a particular reporting date may and other market participants. The Group occasionally arranges give lenders a right of termination or lead to an increase in interest additional credit lines for KION  Group companies with local payments. banks or leasing companies in order to comply with legal, tax All covenants were complied with in the past financial year, as and other regulations. had been the case in 2018. The KION Group is a publicly listed corporate group and therefore ensures that its financial management takes into Main corporate actions in the reporting period account the interests of shareholders, promissory note investors and the banks providing its funding. For the sake of all stakehold- In April 2019, KION GROUP AG issued a variable-rate promissory ers, the KION Group makes sure that it maintains an appropriate note in a nominal amount of €120.5 million. In return, €20.5 million ratio of internal funding to borrowing. The KION Group’s borrow- of the fixed-rate tranche of the promissory note from 2018 was ing is based on a generally long-term approach, with an age repaid ahead of schedule. The liabilities under the acquisition structure extending until 2027. facilities agreement (AFA) were reduced earlier than planned in Depending on requirements and the market situation, the 2019 by repaying a total of €400.0  million. As at 31 December KION Group will also avail itself of the funding facilities offered by 2019, the outstanding balance of the AFA, which has a variable the public capital markets in future. The KION  Group therefore interest rate and matures in October 2021, was thus €200.0 mil- KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 77 lion. The early repayment was funded with cash received from Financial debt operating activities, additional borrowing from banks and the Non-current financial liabilities were reduced to €1,716.8  million issuance of the aforementioned new promissory note. as at 31 December 2019 (2018: €1,818.7 million). This figure can As at the end of the year, KION GROUP AG had issued a total essentially be broken down into promissory notes with a carrying volume of €318.0 million under the commercial paper programme amount of €1,317.3 million (2018: €1,214.3 million) and liabilities to that it had launched in November 2019. This amount had been banks of €399.5 million (2018: €604.5 million). repaid in full by the reporting date. Over the course of 2019, net cash provided by operating Between 9 and 20 September 2019, KION GROUP AG repur- activities was used to lower current financial liabilities to chased a total of 60,000 shares for use in the KION Employee €103.7 million as at the reporting date (2018: €226.5 million). Equity Programme (KEEP). By 31 December 2019, a total of Net financial debt (non-current and current financial liabilities 67,104 shares had been purchased by staff under KEEP 2019 less cash and cash equivalents) thus amounted to €1,609.3 mil- (2018: 38,691 shares). The number of shares held in treasury lion (2018: €1,869.9  million). This equated to 1.0 times adjusted stood at 130,644 as at the reporting date. EBITDA in the year under review (2018: 1.2 times). As at 31 December 2019, the unused portion of the revolving Analysis of capital structure credit facility stood at €1,150.0  million (2018: €1,048.2  million). > TABLE 019 Current and non-current liabilities rose by €543.0  million to €10,206.8 million as at the reporting date (2018: €9,663.7 million). The larger volume of business led to a significant increase in lia- bilities attributable to financing of the long-term lease business. Non-current liabilities included deferred tax liabilities of €570.9 mil- lion (2018: €626.7 million). Industrial net operating debt in € million Promissory notes Liabilities to banks Other financial liabilities 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 TABLE 019 2018 1,214.3 826.4 4.6 2,045.2 – 175.3 1,869.9 307.1 289.9 597.0 421.2 2019 1,317.3 498.3 4.9 1,820.5 – 211.2 1,609.3 437.2 178.6 615.8 486.1 2,711.2 2,888.1 KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 78 Retirement benefit obligation Liabilities from financial services comprise all liabilities from The KION  Group maintains pension plans in many countries. financing the lease business and the short-term rental fleet on the These plans comply with legal requirements applicable to basis of sale and leaseback sub-leases, as well as the liabilities standard local practice and thus the situation in the country in that arise from financing the lease business by means of lease question. They are either defined benefit pension plans, defined facilities and the use of securitisations. Furthermore, liabilities contribution pension plans or multi-employer benefit plans. As at from financial services arising from the lease business include 31 December 2019, the retirement benefit obligation under defined residual value obligations resulting from the indirect lease busi- benefit pension plans amounted to a total of €1,263.4  million, ness. which was significantly higher than the figure of €1,043.0 million Overall, liabilities from financial services increased to at the end of 2018 largely owing to lower discount rates. The net €2,500.2 million as at 31 December 2019 (2018: €1,472.4 million). obligation under defined benefit pension plans increased year on Of this total, €2,062.9 million was attributable to financing of the year to reach €1,211.7 million (2018: €1,009.7 million). Changes in direct and indirect long-term lease business (2018: €1,165.3 mil- estimates relating to defined benefit pension entitlements resulted lion). The total also includes residual value obligations resulting in a substantial decrease in equity of €115.9  million (including from the indirect lease business. These obligations fell to deferred taxes). €297.2 million (2018: €319.5 million). Lease liabilities decreased by Contributions to pension plans that are entirely or partly €308.5  million to €432.1  million as at the reporting date (2018: funded via funds are paid in as necessary to ensure sufficient €740.6 million) because new business has been included in liabil- assets are available and to be able to make future pension ities from financial services since the start of 2018. Overall, liabili- payments to pension plan participants. These contributions are ties from financial services and lease liabilities together totalling determined by factors such as the funded status, legal and €2,495.0  million were attributable to financing of the direct and tax considerations, and local practice. The payments made by indirect long-term lease business (2018: €1,906.0 million). the KION  Group in 2019 in connection with the main pension A sum of €437.2 million, representing some of the financing of plans totalled €22.0  million, comprising €17.8  million for direct the short-term rental fleet, was recognised under liabilities from pension payments and €3.6 million for employer contributions financial services (2018: €307.1 million). The remaining amount of to plan assets. €178.6 million (2018: €289.9 million) relating to the financing of the short-term rental fleet was recognised under other financial Liabilities from financial services, leases, and rental business liabilities. Further expansion of the long-term lease business with end Other financial liabilities also included liabilities from procure- customers again led to a higher overall funding requirement ment leases amounting to €486.1 million (2018: €421.2 million), for in 2019. which right-of-use assets were recorded. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 79 Other financial liabilities Analysis of liquidity Current and non-current other financial liabilities totalled €784.9 million as at the reporting date (2018: €813.2 million). Liquidity management is an important aspect of central financial Contract liabilities management in the KION Group. The sources of liquidity are cash and cash equivalents, cash flow from operating activities and Contract liabilities, of which a large proportion related to the long- amounts available under credit facilities. Using cash pools, liquidity term project business, decreased to €504.9  million (2018: is managed in such a way that the Group companies can always €570.1 million). This was mainly due to the incremental fulfilment access the cash that they need. of customer orders in the long-term project business over their Cash and cash equivalents increased by €35.9 million during scheduled period. Equity the reporting year to reach €211.2 million (2018: €175.3 million). Taking into account the credit facility that was still freely available, the unrestricted cash and cash equivalents available to the Consolidated equity rose to €3,558.4 million as at 31 December KION Group as at the reporting date amounted to €1,357.4 million 2019 (2018: €3,305.1 million), driven in large part by the increase (2018: €1,219.8 million). in net income to €444.8 million. Currency translation effects had Net cash provided by operating activities totalled €846.3 mil- a positive impact of €76.1 million. Conversely, equity was reduced lion, which was much higher than the prior-year figure of by actuarial losses of €115.9 million (after deferred taxes) arising €765.5 million. This year-on-year improvement in cash flow from from the measurement of the defined benefit obligation due to the operating activities was due to the higher level of earnings and a far lower level of interest rates. KION GROUP AG’s dividend pay- reduction in spending on the ongoing renewal and expansion of out of €141.5 million also lowered the level of equity. The equity the short-term rental fleet. Conversely, the growth of net working ratio increased to 25.9  per  cent as at the reporting date (2018: capital lowered cash flow from operating activities by €146.8 mil- 25.5 per cent). lion (2018: by €54.3  million), primarily because of a decline in advance payments from customers in the project business. Analysis of capital expenditure Net cash used for investing activities amounted to €277.9 mil- lion and was therefore €32.3 million higher than in the previous The KION Group’s total capital expenditure on property, plant year (2018: €245.6 million). Within this figure, cash payments for and equipment and on intangible assets (excluding right-of-use capital expenditure on production facilities, product develop- assets from procurement leases) totalled €287.4  million in the ment and purchased property, plant and equipment rose to reporting year (2018: €258.5 million). €287.4 million (2018: €258.5 million). Spending in the Industrial Trucks & Services segment contin- ued to be focused on capital expenditure for product develop- ment and on the expansion and modernisation of production and technology facilities, including the purchase of a new plant in Pune, India and the start of construction of a new production site in Poland. Capital expenditure in the Supply Chain Solutions seg- ment primarily related to development costs. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 80 Free cash flow – the sum of cash flow from operating activities (2018: €2,042.6 million). Payments made for interest portions and and investing activities – increased to €568.4  million (2018: principal portions under procurement leases totalled €126.5 mil- €519.9 million). lion (2018: €114.0 million). Current interest payments decreased Net cash used for financing activities came to €534.9 million from €42.9 million in 2018 to €36.7 million in 2019 due to a year- (2018: €514.5  million), partly due to net repayments of financial on-year fall in average net debt. The payment of a dividend to the debt amounting to €226.0 million. One new promissory note was shareholders of KION GROUP AG in May 2019 resulted in an issued, whereas a further amount was repaid towards the remain- outflow of funds of €141.5  million (2018: €116.8  million). The ing long-term tranches under the AFA. Overall, financial debt acquisition of employee shares caused a cash outflow of €2.9 mil- taken on during the reporting period reached €2,940.1  million lion (2018: €3.6 million). > TABLE 020 (2018: €1,811.7 million); repayments amounted to €3,166.2 million (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 2019 716.6 846.3 – 277.9 568.4 – 534.9 2.4 35.9 2018 642.8 765.5 – 245.6 519.9 – 514.5 – 3.2 2.2 TABLE 020 Change 11.5% 10.6% – 13.1% 9.3% – 4.0% > 100% > 100% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 81 KION GROUP AG Business activities Business performance in 2019 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 KION GROUP AG is the strategic management holding company performance of the KION Group’ sections. in the KION Group. KION GROUP  AG holds all the shares in Dematic Holdings GmbH, Frankfurt am Main, and thus all the shares in the subsidiaries in the Supply Chain Solutions segment. Financial performance Furthermore, KION GROUP AG is the sole shareholder of Linde Material Handling GmbH, Aschaffenburg, which holds almost all KION GROUP  AG does not have any operating activities itself. the shares of the companies in the Industrial Trucks & Services The reported revenue of €47.2 million (2018: €30.5 million) largely segment. arose from the performance of services for affiliated companies. The annual financial statements of KION GROUP  AG have Other operating income fell by €5.0  million to €28.4  million been prepared in accordance with the provisions in the German and includes, in particular, gains on the measurement of bank Commercial Code (HGB) and the German Stock Corporation accounts and cash pools in foreign currencies. Act (AktG). The management report has been combined with The cost of materials is related to the revenue from the the group management report. The consolidated financial provision of services and mostly consists of expenses for consul- statements have been prepared in accordance with International tancy services. Financial Reporting Standards (IFRSs) and the additional provi- Personnel expenses went up by €16.4  million to €53.9  mil- sions in section 315e (1) HGB. Differences between the account- lion. This year-on-year increase was due to the higher addition to ing policies in accordance with HGB and those in accordance provisions for share-based remuneration and short-term incen- with IFRSs arise primarily in connection with the accounting tives, and to the growth in the number of employees and annual treatment of financial instruments, provisions and deferred taxes. salary rises. Other operating expenses rose by €27.6 million to €107.8 mil- lion, mainly because of higher costs for external services and consultancy. Other operating expenses also includes foreign currency exchange rate losses resulting from the measurement of bank accounts and cash pools in foreign currencies. Management system, future development and risk position As a holding company without any operating activities of its own, KION GROUP AG is indirectly dependent on the earnings and economic performance of its subsidiaries. The management system, expected development and the opportunities and risks of the KION Group are described in detail in the ‘Management system’ and ‘Outlook, risk report and opportunity report’ sec- tions of this combined management report. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 82 The main changes in net financial income/expenses were as A total net profit of €156.9 million was generated in the year follows: under review (2018: €236.3 million). > TABLE 021 – Of the total income from profit-transfer agreements, €332.1  million related to Linde Material Handling GmbH Net assets (2018: €343.4 million). – Interest expense and similar charges, which amounted to €52.9  million (2018: €54.9  million), arose mainly from the At the end of 2019, the total assets of KION GROUP AG had increased by approximately 1.4  per  cent year on year to external financing of the KION Group via the promissory €7,680.5 million. notes and loan agreements and, to a smaller extent, from The financial assets largely comprise the carrying amounts of interest charged on intercompany liabilities and the unwind- the equity investments in Dematic Holdings GmbH (€2,862.2 mil- ing of the discount on pension provisions. – Other interest and similar income amounting to €62.4 million (2018: €61.6  million) for the most part consisted of interest lion) and Linde Material Handling GmbH (€1,368.4 million). The receivables mainly consist of loans and cash pool receiv- ables due from other Group companies and the Company’s income on intercompany receivables. entitlement to the transfer of profits from Linde Material Handling GmbH of €332.1  million (2018: €343.4  million). There are long- KION GROUP AG incurred tax expenses of €94.6  million as a term loans to Group companies of €606.1 million. result of its role as the parent company of the tax group in 2019 After taking into account the dividend payment of €141.5 mil- (2018: €55.5 million). The tax expenses had been lower in 2018 lion and the €1.7  million decrease in the volume of treasury because of a positive tax effect of €29.4 million resulting from an shares, the net profit of €156.9 million meant that equity rose to amendment to tax law in Germany. €3,828.6  million (2018: €3,811.6  million). Further disclosures on 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 2019 47.2 28.4 – 0.6 – 53.9 – 107.8 – 0.5 – 87.2 338.7 – 94.6 156.9 2018 30.5 33.5 – 0.7 – 37.5 – 80.2 – 0.4 – 54.9 346.7 – 55.5 236.3 TABLE 021 Change 54.8% – 15.1% 20.1% – 43.7% – 34.5% – 17.3% – 58.8% – 2.3% – 70.5% – 33.6% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 83 Net assets in € million Assets Property, plant and equipment Financial assets Receivables and other assets Cash and cash equivalents Deferred income Total assets Equity and liabilities Equity Retirement benefit obligation Tax provisions Other provisions Liabilities Total equity and liabilities TABLE 022 2019 2018 Change 2.8 4,231.2 3,405.7 40.7 0.0 3.3 4,231.2 3,321.6 18.3 – 7,680.5 7,574.5 3,828.6 3,811.6 47.4 44.3 33.4 3,726.8 7,680.5 39.3 23.2 22.9 3,677.5 7,574.5 – 14.5% 0.0% 2.5% > 100% – 1.4% 0.4% 20.4% 90.9% 45.8% 1.3% 1.4% treasury shares can be found in the notes to the financial state- Liabilities mainly consist of liabilities to banks of €1,739.5 mil- ments of KION GROUP AG. The equity ratio was 49.8 per cent as lion (2018: €1,978.7  million) as well as loan liabilities and cash at the reporting date (2018: 50.3 per cent). pool liabilities to other Group companies. The liabilities to The €39.6  million rise in provisions to €125.1  million was banks comprise the financing via the promissory notes, the mainly the result of additions in tax provisions and to the provi- acquisition facilities agreement (AFA) and other loan liabilities. sions for share-based remuneration and short-term incentives. > TABLE 022 Pension provisions include provisions of €10.3  million (2018: €9.5 million) for former members of the Executive Board of KION GROUP AG and its legal predecessors. KION GROUP AG rec- ognised tax provisions of €44.3  million (2018: €23.2  million) including those in connection with its role as the parent company of the tax group. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 84 Financial position The liabilities to banks and the promissory notes are not hedged. KION GROUP AG has issued guarantees to the banks By pursuing an appropriate financial management strategy, the for all of the payment obligations under its liabilities to them and it KION Group – through KION GROUP AG – makes sufficient cash is the borrower in respect of all the payment obligations resulting and cash equivalents available at all times to meet the Group from the promissory notes. companies’ operational and strategic funding requirements. As at 31 December 2019, liabilities to banks amounted to KION GROUP AG is a publicly listed company and therefore €1,739.5 million (2018: €1,978.7 million). After deduction of cash ensures that its financial management takes into account the and cash equivalents, net debt amounted to €1,698.8  million interests of shareholders and banks. For the sake of these (2018: €1,960.4 million). stakeholders, KION GROUP AG makes sure that it maintains an appropriate ratio of internal funding to borrowing. KION GROUP AG has a multi-currency revolving credit facil- Employees ity of €1,150.0 million. It has a variable interest rate and, as it cur- rently stands, can be drawn down until February 2023. As at The average number of employees at KION GROUP AG was 31  December 2019, the amount drawn down was €0.0  million 249 in 2019 (2018: 217). KION GROUP AG employed 262 people (2018: €101.8 million). The drawdowns under the revolving credit as at 31 December 2019 (2018: 230). facility are classified as short term. KION GROUP AG also has liabilities to banks from variable- rate loans in the amount of €400.0 million (2018: €600.0 million) that mature in October 2021. These include the liabilities under the AFA, of which €400.0 million was repaid early in 2019 using cash received from operating activities, additional borrowing and the issuance of a new promissory note. As at 31 December 2019, the remaining liability under the AFA amounted to €200.0 million (2018: €600.0 million). In April 2019, KION GROUP AG issued a new variable-rate promissory note in a nominal amount of €120.5 million. In return, €20.5 million of the fixed-rate tranche of the promissory note from 2018 was repaid ahead of schedule. Promissory notes that mature between 2022 and 2027, and have variable-rate or fixed coupons, have been issued in a nominal amount totalling €1,310.0  million (2018: €1,210.0  million). KION GROUP AG has entered into a number of interest-rate derivatives in order to hedge the interest-rate risk resulting from the variable-rate tranches. Moreover, the risk of a change in the fair value of a fixed-rate tranche of the promissory note that was issued in 2018 is hedged using an interest-rate swap, thereby creating a EURIBOR-based variable-rate obligation. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 85 Concluding declaration on the report on relationships 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, 21 February 2020 The Executive Board Gordon Riske Anke Groth Dr Eike Böhm Ching Pong Quek KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 86 NON-FINANCIAL PERFORMANCE INDICATORS The KION Group’s employer brands are very important in this regard. Familiarity with the three main employer brands, Linde Material Handling, STILL and Dematic, remains very high and was further strengthened during the reporting period. In 2019, STILL was recognised as a top employer for the eighth year in succes- The KION  Group’s enterprise value is determined not only by sion by the Top Employers Institute, a certification organisation. financial KPIs but also by non-financial factors. They are based on the Company’s relations with its customers and employees, on its Our shared KION Group values technological position and on environmental considerations. The KION Group can only achieve the targets that it has formulated for The shared values and leadership principles of the KION Group, itself in the KION 2027 strategy if it is an attractive and responsible which were developed and introduced in 2017 as part of an inter- employer that is able to retain competent and committed employ- national bottom-up and top-down process, were in the spotlight ees at all sites. It also needs to develop products and solutions once again in 2019 with the objective of further embedding them that are closely tailored to customers’ needs and environmental in the Company. The Operating Units formulated and imple- requirements now and in the future, and to continually increase mented a host of measures at local level to facilitate and the customer benefits provided by its products and services. Fur- strengthen employees’ identification with the shared values. thermore, production processes must be designed in such a Regular communications via the KION intranet played an way that resources are conserved and emissions are avoided as important role alongside the local measures in 2019. For exam- far as possible. ple, a series of features on employees who embody the values The KION  Group firmly believes that these aspects are particularly well was expanded, as was a series of regular com- important to its positioning as a pioneering company in a highly munications on the 2027 strategy and the values. competitive environment. Employees HR strategy Headcount The average number of employees (full-time equivalents (FTEs), including trainees and apprentices) in the KION Group was 34,002 in 2019 (2018: 32,524 FTEs). As at 31 December 2019, the KION Group companies The ultimate objective of the KION Group’s HR strategy is to employed 34,604 FTEs, 1,476 more than a year earlier. > TABLE 023 provide the best possible support for the targeted implementa- tion of the KION 2027 strategy. The KION Group’s success in the implementation of KION 2027 is founded on the capabilities and commitment of its employees. To this end, the KION Group draws on a wide range of meas- ures 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 pro- gression afforded by working for an international group of compa- nies play an important role in this and provide a solid basis for meeting the manifold challenges presented by our workforce, the various labour markets, demographic change and digitalisation. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position Employees (full-time equivalents) * 31/12/2019 Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total 31/12/2018 Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total 87 TABLE 023 Total 21,302 3,281 101 3,233 1,219 5,468 849 263 – – – – 1,112 34,604 796 20,647 – – – – – 2,773 210 2,977 1,225 5,296 796 33,128 Industrial Trucks & Services Supply Chain Solutions Corporate Services 18,077 2,821 88 243 504 4,398 26,131 17,641 2,642 206 232 486 4,326 25,533 2,376 197 13 2,990 715 1,070 7,361 2,210 131 4 2,745 739 970 6,799 * Number of employees (full-time equivalents) as at balance sheet date; allocation according to the contractual relationship Personnel expenses amounted to €2,292.8  million. The main reason for this increase of 9.2 per cent compared with 2018 was the rise in average headcount for 2019 and changes to collective bargaining agreements. > TABLE 024 Personnel expenses in € million Wages and salaries Social security contributions Post-employment benefit costs and other benefits Total 2019 1,820.6 398.7 73.5 2,292.8 2018 1,653.4 364.2 82.6 2,100.2 TABLE 024 Change 10.1% 9.5% – 11.0% 9.2% KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 88 Diversity them on the path to fulfilling an executive function. Some mem- bers of this group have already been promoted to a senior The KION Group sees itself as a global company with strong inter- management position. cultural awareness: as at 31 December 2019, people from around As well as introducing programmes targeted at specific 95 different countries were employed across the KION Group. groups, the KION Group remains committed to generally offering One of the ways in which the Company promotes interna- its employees career opportunities and flexible, family-friendly tional collaboration between employees is the KION expat working-time models. The Group companies also collaborate programme, which gives employees the opportunity to transfer closely on areas such as talent management and training & devel- to different countries where the KION Group is represented. opment programmes. This helps to systematically identify and The KION Group is taking various steps to tackle the support staff across the Group who have potential, who are high challenges of demographic change, for example by providing performers or who are experts in key functions. working conditions that are suited to employees’ age-related The Operating Units STILL, Linde MH and Dematic also requirements and organising healthy-living programmes so have academies that run subject-specific and interdisciplinary that it can continue to benefit from older employees’ experience. training courses to develop employees’ skills, particularly in As at 31 December 2019, 26.7  per  cent of employees were sales and service. over the age of 50 (2018: 26.6 per cent). The proportion of the KION Group’s total workforce made Training and professional development up of women rose to 16.7  per  cent in 2019 compared with 16.2 per cent in 2018. To help increase the proportion of man- The companies in the KION Group currently offer training for agement positions occupied by women, the Executive Board set 23 professions in Germany. Besides providing dual vocational targets that are published in the corporate governance report. training schemes, KION Group companies offer work placements Going forward, the KION Group intends to fill more management for students combining vocational training with a degree course positions internationally in order to better fulfil the continually in cooperation with various universities. The total number of growing requirements placed on the Company. The KION Group trainees and apprentices was 672 as at 31 December 2019 offers flexible working-time models that promote a good work-life (2018: 601). balance. In addition, various initiatives were launched in 2019 aimed at increasing diversity in the Company, while the Female Sharing in the Company’s success Mentoring Programme that started in 2018 welcomed a second group of managers. The KION Group launched the KION Employee Equity Programme (KEEP) in 2014. Initially limited to Germany, the programme was Development of specialist workers and executives then rolled out to more countries. Around 1,850 employees participated in this share matching programme in 2019, roughly Further good progress was made in the implementation of the 7 per cent of the total number who are eligible to do so. new global process introduced in 2017/2018 for performance Since 2014, the remuneration of the approximately 500 top management and succession planning. Measures to actively executives has included a remuneration component running over manage the performance of executives were strengthened, for several years that is based on the long-term success of the example. Succession planning was also stepped up, resulting in Company and is granted annually. an increase in the number of candidates earmarked for key positions. There was an additional focus on identifying young high-potential candidates who will be put on targeted development programmes. In 2019, the first group of global high-potential candidates successfully completed a new training course to set KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 89 Employee commitment comprehensive minimum HSE standards, which are mandatory for all sites. Employees can access these via the intranet. The KION Group’s products and services destined for its cus- The KION Safety Championship provides additional moti- tomers are produced by committed employees. That is why all vation for employees to continually engage with HSE matters. KION companies aim to ensure a high level of employee commit- Based on regular reporting from the individual units and defined ment. Based on the manager survey conducted in 2015 and the evaluation criteria, a panel of judges awards prizes to those units action plan derived from it, a package of measures was defined that have shown special dedication or have suggested the most and implemented in 2016 as part of the ‘Lift up’ transformation improvements in an area of HSE. initiative, in particular to ensure the organisational structure is HSE managers at the KION Group’s production facilities firmly embedded and to communicate the KION Group’s strat- and in its sales and service units have the opportunity to meet egy more widely. A new manager survey was carried out in 2017 and talk with one another at international conferences that take which revealed that the action plan derived from the earlier survey place once a year. had been successfully implemented and the KION Group was Numerous activities aimed at improving health, such as fit- therefore able to improve on the results of the 2015 survey. ness programmes and advice on nutrition and healthcare, also The third manager survey conducted in autumn 2019 showed have a positive effect on health and safety in the Group. The vast further significant improvements. The large number of completed majority of employees have access to voluntary health-related action plans, many the product of team workshops, had a very activities at their site. The Nilkheim site, for example, launched a positive impact again, and this was again confirmed by the com- new exercise programme developed in partnership with sports parison with other companies. physicians that is tailored to specific work situations. At 2.8 per cent on average, the illness rate for 2019 remained Health and safety in the workplace at a satisfactory level (2018: 2.8 per cent). The illness rate is the figure for illness-related or accident-related absences from the As an employer, the KION Group is responsible for the health workplace. The lost time injury frequency rate (LTIFR) fell slightly and safety of its employees. The focus is always on avoiding all from 10.8 in 2018 to 8.7 last year. The long-term target is for this accidents and work-related illness wherever possible, as well as to remain permanently below 8. on maintaining each employee’s work capacity in the long term. Further information on this, on the other HSE key perfor- In 2017, the KION Group updated its corporate policy setting out mance indicators and on the measures initiated and implemented its obligations in respect of health, safety and the environment in 2019 will be included in the KION Group’s separate sustain- (HSE). These include taking comprehensive precautions to create ability report, which will be published in April 2020 on the KION a safe working environment and ensuring employees know how GROUP AG website. to avoid risks and accidents. HSE activities in 2019 continued to centre on an internal audit programme that covers the KION Group’s production facilities as well as sales and service. The programme system- atically documents HSE measures and processes and provides specific ideas for how they can be developed further. It also takes into account the requirements of the ongoing certification of all production facilities and sales and service outlets to ISO 14001, which is scheduled to be completed by the end of 2021. Last year, 20 central HSE audits were carried out within the KION Group. Further progress was also made in the implementation of KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 90 Research and development Key R&D figures Strategic focus of research and development Spending on research and development rose to €237.3 million in 2019 (2018: €221.7 million), which equates to 2.7 per cent of Under the KION 2027 strategy, research and development is set revenue (2018: 2.8  per  cent). Total R&D expenditure included up so as to facilitate the sustained success of the KION Group as €81.9 million in capitalised development costs (2018: €84.0 mil- a leading global supplier of integrated, automated supply chain lion). Alongside this addition to capitalised development costs, solutions and mobile automation solutions. The innovativeness of there were amortisation and impairment charges of €82.1 million the portfolio is being significantly increased by concentrating (2018: €76.6 million) (see note [16] in the notes to the consolidated heavily on automation and robotics solutions that are based on a financial statements). A total of €155.3 million (2018: €137.7 mil- cross-segment software platform. lion) was expensed. > TABLE 025 At the same time, R&D will continue to be structured cost- effectively, including through the use of groupwide synergies The number of full-time equivalents in R&D teams went up by and agile processes. This will further reduce the complexity and 3.9  per  cent to 1,583 employees compared to 31 December diversity of products and shorten development times for new 2018. products. R&D essentially works on a cross-brand and cross- The KION Group takes comprehensive measures to protect region basis, which ensures that research findings and techno- the products it develops against imitations and pursues a dedi- logical know-how are shared across the Group. Building on this, cated patent strategy. In 2019, the KION companies applied for a local product development teams working for the individual brand total of 81 new patents (2018: 105). As at 31 December 2019, the companies and regions develop customer-specific solutions. companies of the KION Group held a total of 2,912 patent appli- cations and issued patents (2018: 2,923 patent applications and issued patents). 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 2019 155.3 81.9 237.3 2.7% 2018 137.7 84.0 221.7 2.8% TABLE 025 Change 12.8% – 2.5% 7.0% – KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 91 Focus of R&D in 2019 Energy from the new Linde 1202 range offer digital networking capability thanks to a data transmission unit as part of the standard specifi- cation. This allows information about the trucks’ condition and The availability of lithium-ion technology was further improved usage to be analysed by special software that can also be used during the reporting period. Virtually all new products can, at the to optimally plan essential maintenance and efficiently calculate customer’s request, be fitted with the new battery system. This running costs. Linde also presented a new service manager app includes the new generation of the Linde N20 C low-lift order that allows service jobs to be created on a smartphone. picker, which makes order picking in the 1.2 to 2.5 tonne capacity As part of the digitalisation of internal processes, the fleet range more cost effective, and the new RX 60-25/35 electric management solutions from STILL (neXXt fleet) and Linde (con- forklift truck range from STILL, which also offers improved nect:desk) and Dematic’s iQ InSights asset performance man- hoisting speeds. A trade magazine attested that the RX 60 was agement platform were migrated to the corporate cloud. This the first electric forklift truck to offer greater productivity than means, for example, that software can be activated for customers comparable IC trucks. within a matter of minutes and they can be provided with real time The proportion of industrial trucks equipped with lithium-ion analyses and visualisations. The KION Product Development technology rose again, in part because of significant new orders, Optimisation (KPDO) initiative, meanwhile, is bringing greater effi- including one for Linde to supply a fleet of energy-efficient pallet ciency and greater customer focus to the product development stackers. Having a safe and quality-assured all-in-one system process and helping to bring products to market more quickly. comprising the truck, battery and charger is a major plus point. One of the improvement projects, the IC.IDO virtual reality system Decentralised chargers enable the batteries to be topped up for visualising integrated products in three dimensions, has regularly, which eliminates the need for battery changes. already been made available to STILL and Linde and is reducing The fuel cell portfolio was also expanded in 2019. The the need for physical prototypes. Making greater use of artificial hydrogen-powered variant of the Linde P250 tow tractor offers intelligence for products and software solutions is a further the advantages of extremely short refuelling times and long- long-term focus in the field of digitalisation. lasting fuel cells. Digital Automation The new modular automated guided vehicle (AGV) solution iQ Virtual is a new simulation and emulation platform from Dematic Compact is one of the ways in which the Mobile Auto- Dematic that provides a virtual environment to explore new mation unit accommodates the automated point-to-point transfer configurations of existing systems. It can be directly integrated of pallets, skids, racks, tubs and rolls, including pick-up, transport with the warehouse execution software Dematic iQ Optimize to and drop-off, for low to mid capacity applications. Its compact test in advance how efficiently a particular system would run design makes it suitable for tight spaces and for repetitive mate- under different operating conditions and in different scenarios. rial transport tasks in multi-shift operations. The onboard vehicle The virtual emulation model uses graphical rendering technology control software is standardised for all vehicle formats to enable to provide an accurate portrayal of labour productivity and the fast and easy configuration. Mobile Automation also focused on automated flow of materials, thus making a significant contri- developing products for the Industrial Trucks & Services segment bution to warehousing efficiency with the aid of integrated that would drive forward the automation and networking of ware- software control. The innovative iQ Virtual is suitable both for house and logistics solutions using driverless vehicles. analysing and optimising the design of new facilities and for PackMyRide, the world’s first fully automated parcel-loading optimising facilities that are already in operation. solution, is revolutionising how parcels are handled prior to the In addition, significant progress was made in integrating ‘last mile’ stage of delivery. The subsystem collects the parcels fleet management into a single software platform and in digital from the existing intralogistics system and transports them into connectivity. For example, the H20–H35 IC counterbalance trucks mobile racking units that communicate with automated guided KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 92 vehicle systems. This fully automates the process of loading Customers delivery vehicles, which should mean huge time and cost savings for parcel delivery services and customers from other industries. The KION Group’s industrial trucks and supply chain solutions Parcel delivery service DPD has successfully completed a trial of are deployed in all kinds of industries. the system. The Industrial Trucks & Services segment has a very broadly Dematic’s micro-fulfilment automation system, which was diversified customer base, ranging from large key accounts with introduced in the fourth quarter of 2019, is tailored to the require- global operations to small and medium-sized enterprises that ments of omnichannel retailers with high throughput rates. Orders typically order just a few trucks each year. are put together fully automatically within a maximum of one hour. The Supply Chain Solutions segment benefits from The micro-fulfilment facilities comprise proven technology such long-standing customer relationships with major players in the as Dematic’s Multishuttle and goods-to-person picking solutions e-commerce and logistics sectors. They influence the success of together with customised Dematic iQ software. The compact the segment’s new business and service business. Specific design of the fully automated system means that fulfilment cen- solutions, such as micro-fulfilment, help Dematic to further tres can be installed close to the end consumer, which brings consolidate its position in major customer sectors, including down delivery times even further. general merchandise, grocery wholesale and retail, fashion, food Efficiency gains are also being achieved with the new sub- and beverage manufacturing, and parcel and courier services. system for returns management, which runs on Dematic iQ soft- The KION Group is already a global player in most of these ware: it accelerates all processing steps from inspection to sectors and enjoys established relationships with its customers. repackaging and allows omnichannel retailers and online retailers It has been able to extend these relationships through joint devel- to significantly increase the number of returns they are able to opment projects and other initiatives. These efforts are supported handle on a daily basis and thus raise customer satisfaction and by targeted customer retention formats, such as the Dematic productivity. Pouch sorting systems are also being used more customer day that was launched in 2019 for small and medium- and more in e-commerce distribution centres. Thanks to the sized enterprises and focuses mainly on compact and versatile newly developed automatic pouch emptier, which uses a durable, automation solutions as well as aftersales services. cost-effective and fully automated mechanism to open the bottom The KION brand companies again exhibited at the sector’s of the pouch, Dematic has significantly increased the speed at leading trade fairs in various regions in 2019 in order to consoli- which its space-saving omnichannel solution operates. date their standing among customers and partners. Since 2019, new and updated automation products have In the EMEA region, the Linde, STILL and Baoli brand been fitted as standard with the kinds of sensors and communi- companies, as well as Dematic, presented their most important cation equipment that will make them suitable for the broad roll- innovations in the fields of automation, energy and safety at the out of IoT services and for better pre-emptive maintenance 2019 LogiMAT trade fair in Stuttgart. Dematic also exhibited its options as a means of further increasing uptime. comprehensive range of solutions for the optimisation of supply chains at the Warehouse Tech Middle East 2019 in Dubai. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Report on the economic position 93 The presence of the two operating segments in Asia and Sustainability North America was significantly expanded. At CeMAT ASIA, the flagship intralogistics trade fair for Asia, Linde, Baoli and Dematic Acting sustainably and responsibly is one of the key principles by teamed up to exhibit their products and technologies for automa- which the KION Group operates. The Group’s focus on sustaina- tion, digitalisation and alternative drive systems. The three brand bility is reflected in its safe and clean products, in its environmen- companies also intend to work closely together to make Industry tally friendly manufacturing processes and in the safe and 4.0 a reality in China. At ProMat 2019 in Chicago, the KION Group non-discriminatory working environment it provides. The KION was represented alongside Dematic and KION North America Group and its Operating Units strive for a balance between envi- and exhibited numerous new process solutions and technolo- ronmental, economic and social considerations in their activities. gies. The market launch of Linde’s product line for warehouse This is the basis upon which sustainability is enshrined in the automation marked a significant milestone for KION North Amer- KION 2027 strategy. The KION Group’s values also have a clear ica in its efforts to expand its North America business. Dematic, link to sustainability. meanwhile, sponsored the Material Handling & Logistics Confer- The KION Group’s commitment to sustainability has been ence in Utah, where customers and industry experts engaged recognised by investors, banks and rating agencies. The KION in dialogue in a wide range of workshops and lectures on new Group was added to the FTSE4Good Index Series for the first trends and applications. time in June 2019, following an independent assessment. Its cor- In 2019, the level of appreciation from customers and the responding FTSE Russel ESG Rating was 3.4. The KION Group strength in innovation demonstrated by the KION Group’s brand was also given a rating (B) by the global environmental impact companies were again recognised in the form of major awards. charity CDP and an industry-specific Prime Status rating (C+) by STILL collected yet another IFOY Award, this time for the auto- ISS ESG. These ratings are supporting the KION Group’s efforts mated LiftRunner with LTX 50 in the AGV & Intralogistics Robot to be categorised as a sustainable investment for environmentally category and for its online portal for intelligent fleet management, conscious investors. STILL neXXt fleet. At inter airport Europe 2019, Linde picked up In addition, the KION Group’s Operating Units further improved the event’s Excellence Award in the interRAMP category for its their sustainability profile last year. LMH EMEA, for example, innovative assistance system Linde Safety Guard. Dematic received a gold ranking from the rating agency Ecovadis. received the 2019 German Brand Award in the year that it cele- The groupwide sustainability report for 2019, which will be brates its 200th anniversary, and its Imagination Center at the published in April 2020, contains information on strategy, the Heusenstamm site won the coveted Red Dot design award. management approach and structures for sustainability as well as data on relevant key performance indicators. 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 2019 combined management report. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 94 Outlook, risk report and opportunity report OUTLOOK Expected macroeconomic conditions Forward-looking statements In its outlook for 2020 published in January 2020, the Interna- tional Monetary Fund (IMF) predicts a modest increase in the rate of global growth to 3.3 per cent, which will be driven mainly by the anticipated rally in the economies of the emerging markets The forward-looking statements and information given below are and developing nations. The IMF expects higher growth rates based on the Company’s current expectations and assessments. particularly for India, Russia and Central and South America, Consequently, they involve a number of risks and uncertainties. whereas growth in China is likely to slow a little. By contrast, the Many factors, several of which are beyond the control of the KION pace of expansion in the developed economies – including the Group, affect the Group’s business activities and profitability as eurozone – will remain at the low level achieved in 2019. According well as the earnings of KION GROUP AG. Any unexpected devel- to the IMF’s prediction, the worldwide volume of trade will grow at opments in the global economy would result in the KION Group’s a much faster rate than last year. and KION GROUP AG’s performance and profits differing signifi- Initial indications that the manufacturing industry and global cantly from those forecast below. trade appear to have turned the corner are positive signals for the The KION Group does not undertake to update forward- global economy. They are accompanied by an intensification of looking statements to reflect subsequently occurring events or expansionary monetary policy by the central banks, the first circumstances. Furthermore, the KION Group cannot guarantee signs of a rapprochement in the US-China trade dispute. The that future performance and actual profits generated will be UK’s withdrawal from the EU on 31 January 2020 and the associ- consistent with the stated assumptions and estimates and can ated transition phase also supports the assessment of a possible accept no liability in this regard. economic recovery. Actual business performance may deviate from our forecasts This outlook from the IMF is lower than its previous expecta- due, among other factors, to the opportunities and risks described tions, which it primarily attributes to unexpected macroeconomic here. Performance particularly depends on macroeconomic difficulties in some emerging markets. and industry-specific conditions and may be negatively affected The organisation makes explicit reference to risks that may by increasing uncertainty or a worsening of the economic and result, for example, from an escalation in the trade dispute between political situation. the US and some of its trading partners or from geopolitical factors. Assumptions Expected sectoral conditions The forecasts in this section are derived from the KION Group’s The overall market for industrial trucks and warehouse systems is multiple-year market, business and financial planning, which is likely to see further strong growth in 2020 if economic conditions based on various assumptions. Market planning takes into stabilise slightly as expected. The ongoing expansion of the account macroeconomic and industry-specific performance, supply chain solutions market and a stabilisation of the global which is described below. Business planning and financial plan- market for industrial trucks are primed to be the engines of ning are based on expected market performance, but also draw growth. Overall, the global material handling market is once again on other assumptions, such as those relating to changes in the expected to grow at a much faster rate than global GDP. The cost of materials, labour costs, sale prices and movements in KION Group believes that this is primarily because the fundamental exchange rates. growth drivers will remain intact, particularly the fragmentation of KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 95 value chains and consumers’ increasing preference for e-com- merce. Growth at regional level, particularly in the cyclical market for industrial trucks, will again depend heavily on the economic Expected business situation and financial performance of the KION Group conditions in the main sales markets. In 2020, the KION Group aims to build on its successful perfor- Following the market correction in 2019, the KION Group is mance in 2019 and, based on the forecasts for market growth, expecting new business with industrial trucks in terms of unit record a moderate increase in revenue. The KION Group’s sales to hold steady in 2020, but to be below the long-term adjusted EBIT for 2020 will be adversely affected by the substan- growth trend of around 4 per cent. Further geopolitical tensions tial volume of strategic capital expenditure aimed at further and global economic uncertainty cannot be ruled out for the year expanding the business. 2020. The KION Group is in an excellent position from which to The order intake of the KION Group is expected to be take advantage of the continued progress that is expected in between €9,050.0 million and €9,750.0 million. The target figure the electrification of warehouses. The high number of trucks in for consolidated revenue is in the range of €8,650.0  million to operation worldwide provides a sustainable customer base for €9,250.0 million. The target range for adjusted EBIT is €770.0 mil- the service business. lion to €850.0 million. Free cash flow is expected to be in a range In 2020, demand for supply chain solutions in the form of between €270.0 million and €370.0 million. The target figure for warehouse automation is likely to again be underpinned by the ROCE is in the range of 8.5 per cent to 9.5 per cent. strong inclination to invest seen in the main customer industries Order intake in the Industrial Trucks & Services segment is in connection with omnichannel and e-commerce strategies. In expected to be between €6,250.0  million and €6,550.0  million. the medium-term, market growth is expected to be in the high The target figure for revenue is in the range of €6,150.0 million to single digits. €6,450.0 million. The target range for adjusted EBIT is €610.0 mil- lion to €650.0 million. Order intake in the Supply Chain Solutions segment is expected to be between €2,800.0  million and €3,200.0  million. The target figure for revenue is in the range of €2,500.0 million to €2,800.0 million. The target range for adjusted EBIT is €240.0 mil- lion to €280.0 million. > TABLE 026 TABLE 026 KION Group Industrial Trucks & Services Supply Chain Solutions 2019 Actual 2020 Outlook 2019 Actual 2020 Outlook 2019 Actual 2020 Outlook 9,111.7 9,050.0 – 9,750.0 6,330.5 6,250.0 – 6,550.0 2,771.0 2,800.0 – 3,200.0 8,806.5 8,650.0 – 9,250.0 6,410.2 6,150.0 – 6,450.0 2,378.8 2,500.0 – 2,800.0 850.5 568.4 770.0 – 850.0 270.0 – 370.0 9.7% 8.5 % – 9.5 % 695.1 610.0 – 650.0 228.1 240.0 – 280.0 – – – – – – – – Outlook in € million Order intake * Revenue * Adjusted EBIT * Free cash flow ROCE * Disclosures for the Industrial Trucks & Services and Supply Chain Solutions segments also include intra-group cross-segment order intake. revenue and effects on EBIT KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 96 Expected financial position of the KION Group Principles of risk management Having significantly reduced its net financial debt as at 31 Decem- The procedures governing the KION Group’s risk management ber 2019, the KION Group does initially not plan to further reduce activities are laid down in internal risk guidelines. For certain types financial liabilities in view of the upcoming capital expenditure. 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 Overall statement on expected performance with inherent risks. Risk management is organised in such a way that it directly reflects the structure of the Group itself. Conse- The KION Group believes it will continue along its path of growth quently, risk officers supported by risk managers have been and aims to further improve its market position worldwide in appointed for each company and each division. A central Group 2020. The higher level of strategic capital expenditure will risk manager is responsible for the implementation of risk adversely affect adjusted EBIT and thus profitability in 2020. The management processes in line with procedures throughout the outlook for the fiscal year 2020 does not take into account possi- Group. His or her remit includes the definition and implementation ble effects from global pandemics or comparable events, as a of standards to ensure that risks are captured and evaluated. valid estimate of the resulting effects is not possible due to insuf- The risk management process is organised on a decentral- ficient data. RISK REPORT Risk strategy ised basis. Firstly, a groupwide risk catalogue is used to capture the risks attaching to each company. Each risk must be captured individually. If the losses caused by a specific risk or the likelihood of this risk occurring exceed a defined limit, the KION Group’s Executive Board and its corporate controlling function are notified immediately. Each risk is documented in an online reporting system designed specifically for the requirements of risk man- agement. Risks affecting more than one Group company, such as market risks and competition risks, are not recorded indi- The business activities of the KION Group necessarily involve vidually but are instead evaluated at Group level. Consequently, risk. Dealing responsibly with risk and managing it in a compre- such risks are not quantified. hensive manner is an important element of corporate manage- The scope of consolidation for risk management purposes is ment. The overarching aim is to fully harness business opportuni- the same as the scope of consolidation for the consolidated ties while ensuring that risk always remains under control. Using financial statements. The risks reported by the individual compa- a groupwide risk management system, the KION Group contains nies are combined to form divisional risk reports as part of a all identified risks by implementing suitable measures and takes rigorous reporting process. To this end, minuted risk manage- appropriate precautions. ment meetings are held once a quarter. Moreover, material risks This ensures that the losses expected if these risks arise will are discussed with the segments at the business review meet- be largely covered and therefore will not jeopardise the Company’s ings. The divisional risk reports are then used to compile an continuation as a going concern. Risk management is embedded aggregate risk portfolio for the KION Group as a whole. To sup- in the corporate controlling function and plays an active and port this, the relevant departments of the holding company wide-ranging role due to the strategic focus of corporate con- are consulted each quarter in order to identify and assess risk – trolling. The Operating Units’ business models, strategic per- particularly Company-wide, cross-brand risk affecting areas such spectives and specific plans of action are examined systemati- as treasury, purchasing, tax, human resources and financial cally. This ensures that risk management is integrated into the services. The Executive Board of KION GROUP  AG and the KION Group’s overall planning and reporting process. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 97 Supervisory Board’s Audit Committee are informed of the Group’s The accounting-based internal control and risk manage- risk position once a quarter. The Internal Audit department audits ment system encompasses defined control mechanisms, the risk management system at regular intervals. automated and manual reconciliation processes, separation of Material features of the internal control and risk management system pertaining to the (Group) accounting process Principles functions, the double-checking principle and adherence to policies and instructions. 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, recon- The main objectives of the accounting-related internal control ciliations and monitoring of the stipulated deadlines and pro- system are to avoid the risk of material misstatements in financial cesses. Monthly checklists have been drawn up for the consoli- reporting, to identify material mismeasurement and to ensure dation process and are worked through in a standardised manner. compliance with the applicable regulations and internal instruc- All postings are managed centrally and documented. A team is tions. This includes verifying that the consolidated financial state- responsible for monitoring the system-based controls, which it ments and combined management report comply with the relevant supplements with manual checks. The entire accounting process accounting standards. contains a number of specific approval stages, for which exten- sive plausibility checks have been set up. Employees with the Material processes and controls in the (Group) relevant expertise provide support on specialist questions and accounting process complex issues. Internal control mechanisms and ongoing analysis of the For its (Group) accounting process, the KION Group has defined regulatory framework enable any risks that might jeopardise the suitable structures and processes within its internal control compliance of the consolidated financial statements and group and risk management system and implemented them in the management report with accounting standards to be identified as organisation. soon as possible so that appropriate countermeasures can be Changes to the law, accounting standards and other pro- taken. Such risks form part of the KION Group’s aggregate risk nouncements are continually analysed with regard to their rele- profile and are classified as operational risk. vance and effect on the consolidated financial statements and group management report; the relevant changes are then incor- porated into the Group’s internal policies and systems. All consolidated entities must follow the KION Group IFRS Accounting Manual when preparing their IFRS reporting packages. This manual contains the recognition, measure- ment and disclosure rules to be applied in the KION Group’s accounting in accordance with IFRS. The accounting guide- lines primarily explain the financial reporting principles spe- cific to the KION Group’s business. In addition, all companies must adhere to the schedule defined by head office for the Group accounting process. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 98 The Internal Audit department evaluates governance, risk manage- Risk matrix DIAGRAM 005 ment and the control processes by following a systematic and structured process, thus helping to bring about improvements. It focuses primarily on the following aspects: 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 H G H I L E V E L K S I R I M U D E M • Market risk • Production risk • Procurement risk Risk Aggregate risk The aggregate risk position was largely unchanged compared with the prior year. With regard to 2020, the risks in the risk matrix below will be continually observed and evaluated in terms of their extent and probability of occurrence. For example, unlike in the prior year, the KION Group considers there to be a low probability of the materialisation of procurement risks that would lead to a negative deviation from the assumptions underlying the forecast. This is mainly because of the generally improved ability of suppli- • 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 ers to supply. As things stand at present, there are no indications The market risks and competition risks described, the risks along of any risks that could jeopardise the Company’s continuation as the value chain, the human resources risks and the legal risks a going concern. > DIAGRAM 005 largely relate to the Industrial Trucks & Services and Supply Chain Solutions segments. Risks arising from financial services mainly affect the Industrial Trucks & Services segment, while financial risks resulting from the Company’s general funding situation would predominantly impact on the Corporate Services segment. KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 99 Market risks and competition risks result in particular from any new escalation in the US-China trade Market risks dispute, despite the recent rapprochement between the two countries, and to geopolitical tensions that could potentially Market risk can arise when the economy as a whole or a par- weaken growth. In the medium-term, the barriers to trade could ticular sector does not perform as well as had been anticipated significantly hamper productivity and even lead to disruption in in the outlook. Following the decline in the Industrial Trucks & global supply chains. Financial market risks, for example in the Services segment in the reporting year, the KION Group expects form of higher risk premiums for emerging markets, could make it market growth to stabilise or increase slightly at best, and for more difficult to finance capital expenditure. the strong rate of expansion in the market for supply chain All these factors could have a negative impact on customers’ solutions to continue. These expectations have been factored willingness to invest and thus on demand for the KION Group’s into the outlook. products. However, it is not currently foreseeable whether these Cyclical fluctuations in macroeconomic activity affect both market risks will become relevant and then have a material effect the market for industrial trucks and the market for supply chain on the business situation and financial performance. solutions, although the latter has greater immunity to economic The geopolitical situation is monitored closely. Various meas- cycles. Customers’ decisions on whether to invest depend to a ures aimed at making cost structures more flexible – such as the large degree on the macroeconomic situation and conditions in consolidation of production facilities, leveraging of cost synergies their particular sector. In the event of hightened economic uncer- and the platform strategy – help to contain the earnings risk tainty, global pandemics or even economic downturns, custom- arising from reductions in revenue caused by economic condi- ers tend to postpone their capital expenditure plans. Although tions. Diversification of the customer base in terms of industry demand for services is less cyclical than new business with and region as well as expansion of service activities also play a industrial trucks, it correlates with the degree of utilisation of the role in mitigating risk. Moreover, the KION Group closely monitors trucks and systems, which usually declines during difficult eco- the market and its competitors so that it can identify market risks nomic periods. at an early stage and adjust its production capacities in good As the KION Group can only adjust its fixed costs to fluctua- time. Besides global economic growth and other data, the KION tions in demand to a limited extent, reductions in revenue impact Group also analyses exchange rates, price stability, the consumer on earnings. Despite the significant proportion of revenue gener- and investment climate, foreign trade activity and political stability ated outside the eurozone (due in part to the strong North Amer- in its key sales markets, constantly monitoring the possible ican business of the Supply Chain Solutions segment and the impact on its financial performance and financial position. Other expansion of business in China), the bulk of revenue continues to risks arise as a result of constant changes in the Company’s be billed in euros. As a result, the market conditions that prevail in political, legal and social environment. Because it operates in the eurozone impact significantly on the KION Group’s financial countries in which the political or legal situation is uncertain, the performance. KION Group is exposed to the consequent risk of government Following the significant slowdown in growth in 2019, a regulation, changes to customs rules, capital controls, expropria- moderate economic recovery is expected for 2020. The rate of tions and social unrest. expansion is poised to increase more in the emerging markets, The KION Group mitigates such strategic risks by, for example, driven in particular by growth in India, Russia and Central and carrying out in-depth market research, conducting thorough South America. This base forecast is subject to risks that would evaluation procedures to assess political and economic condi- tions and drafting contracts appropriately. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 100 Competition risks reasons. It is also possible that a partner will collaborate with Competition risk describes the risk that growing competitive competitors if exclusivity agreements are not in place. pressure will prevent the KION Group from achieving its predicted margins and market share. The markets in which the KION Group Risks along the value chain operates are characterised by strong competition, often price- driven. Price competition is compounded by some manufacturers Research and development risks having cost advantages in production, sometimes due to the The KION Group’s market position and business performance currency situation and sometimes because local labour costs are depend to a large extent on its ability to build on its leading lower. This mainly affects the Industrial Trucks & Services technological position in respect of individual products and segment, where competition is fierce, particularly in the economy system solutions in order to become the leading supplier of and volume price segments, and the impact is especially strong automated supply chain solutions and mobile automation solu- in emerging markets. Building on their local competitive strength, tions. This requires the Group to continually develop products manufacturers in emerging markets, especially China, are also that meet customer expectations and comply with changing looking for opportunities to expand. As developments in the regulatory and technological requirements. To this end, the KION competitive landscape during the course of the year showed, the Group must anticipate customers’ needs and changing market high quality expectations and the service needs of customers in conditions – including the growing use of digital technologies in developed markets still present a barrier to growth for many of value chains – and has to quickly bring new products to market. these manufacturers but the bar is getting lower. This situation is If the Company does not succeed in doing this, its technological likely to intensify competitive pressures in future. and competitive position could be compromised in 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 prod- volumes and margins may lead to overcapacity, which would put ucts or product components will be imitated. There is also a risk increased pressure on prices. Although the excellent customer that patent applications will not be successful. The KION Group benefits provided by its products have enabled the KION Group mitigates research and development risk by focusing firmly on to charge appropriate prices until now, it is taking a variety of 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 region- resources, market access, product range and digitalisation specific requirements. expertise. The steps that the KION Group is taking to mitigate its competition risk also include making its plants more efficient Procurement risks and 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 the construction and expansion of production intermediate products. In particular, capacity bottlenecks on the facilities, proactive cross-selling by the two operating segments, part of suppliers could result in the KION Group facing backlogs strategic partnerships, the creation of joint ventures or acquisition in the supply of individual raw materials and components. These of local manufacturers. One of the risks of such alliances and backlogs can lead to temporary decreases in revenue and acquisitions is that the expected benefits will materialise only liquidity as well as to inefficiencies in production. The KION Group partly or not at all. For example, the organisational integration obtains some of its key components from a limited number of of new units can harm financial performance for a variety of core suppliers. Key components in the Industrial Trucks & KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 101 Services segment include internal combustion engines, tyres and limit the risk of potential losses. Quality assurance is a high high-performance forged and electronic parts. priority throughout the value chain and reduces possible quality- The risk of supply bottlenecks – for example in the event of related risks arising from the products and services provided. The a shortage of raw materials or financial difficulties at core sup- KION Group mitigates its quality-related risks significantly by pliers – cannot be ruled out in future, despite an easing of the applying rigorous quality standards to its development activities, situation on the supplier side. The KION Group mitigates this risk conducting stringent controls throughout the process chain and by further diversifying its supplier structure in the context of a maintaining close contact with customers and suppliers. global procurement organisation. In addition, the supplier development department, which Risks arising from customer project business focuses on improving suppliers’ production processes, helps In the customer project business, risks can arise from deviations suppliers to ensure that their processes are cost-efficient and from the schedule originally agreed with the customer, potentially offer excellent quality. leading to revenue and profit being recognised in subsequent Price changes present another procurement-related risk. In years or, in isolated cases, contractual penalties having to be 2019, around 19.8 per cent of the cost of materials for new trucks paid. Another possible risk is that the technology deviates was directly influenced by changes in commodity prices (2018: from the promised specifications, which may result in additional around 25.5  per  cent). Moreover, conditions in the commodity completion costs. The long-term nature of individual projects markets typically affect component prices after a delay of three to can lead to cost increases over the term of the project that were six months. The KION Group endeavours to pass on price not anticipated in the project costing and cannot be passed increases to customers but cannot always do so entirely due to onto the customer. market pressures. Production risks To mitigate these risks in the Supply Chain Solutions segment, project management includes a comprehensive process of risk management. This involves detailed evaluation of the risks when Production risks are largely caused by quality problems, possible defining the technical aspects of quotations plus financial risk disruptions to operational procedures or production downtime provisioning based on the individual project specifications when at individual sites. They can also materialise as secondary risks preparing quotations. A multistage approval process based on an resulting from the aforementioned procurement risks. In such extensive list of criteria ensures that financial, country-specific, cases, the KION Group’s closely integrated manufacturing net- currency-specific and contractual risks are largely avoided. work presents a heightened risk to its ability to deliver goods on The potential risks that may arise in the project realisation time. There is also a risk that structural measures and reorganisa- phase are analysed in every individual project using detailed tion projects will not be implemented owing to disruption of continuous reviews based on the individual items of work that production or strikes. The process of ramping up new production make up the project. This keeps potential risks to a minimum. sites is another potential source of risk. Delays in delivery or a rise in the number of complaints could harm the KION Group’s posi- Sales risks tioning in the price segments and sales markets that it serves The main sales risks – besides a drop in revenue caused by market and, as a result, could harm its financial situation. conditions – result from dependence on individual customers and To mitigate these risks, the KION Group carries out preven- sectors. For example, it is possible that customers would post- tive maintenance, implements fire protection measures, trains pone or cancel orders during a period of economic difficulty. its staff and builds a pool of external suppliers. The risks involved There have not been any significant cancellations in previous in the process of ramping up new production sites remained years, however. It is also conceivable that customers would face insignificant in the reporting year and are minimised by means of a liquidity shortfall and therefore be unable to fulfil their payment project management and contractual provisions. The Company obligations immediately or even at all. Because of its customer has taken out a commercially appropriate level of insurance to project business, the Supply Chain Solutions segment generally KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 102 has a greater dependence on individual sectors and individual Financial risks customers than the Industrial Trucks & Services segment. Nevertheless, the concentration risk for the KION Group overall is Corporate Treasury is responsible for ensuring that sufficient finan- still considered to be low. The business is highly diversified from cial resources are always available for the KION Group. The main a regional perspective. In addition, the KION Group supplies types of financial risk managed by Corporate Treasury, including companies of all sizes. Experience has shown that the KION risks arising from funding instruments, are liquidity risk, currency Group’s exposure to the risk of possible payment defaults is low, risk, interest-rate risk and counterparty risk. Counterparty risk but this risk can be further mitigated by recovering any collateral. consists solely of credit risks attaching to financial institutions. IT risks A risk management policy issued by Corporate Treasury stipulates how to deal with the aforementioned risks. Risk arising A high degree of interconnectedness between sites and with out of the lending and promissory note conditions that have been customers and other companies means that the KION Group agreed was not regarded as material as at 31 December 2019. It also relies on its IT systems working flawlessly. The KION Group relates in particular to the restrictions in respect of compliance undertakes ongoing further development of a reliable, extendable with financial covenants and upper limits for certain transactions and flexible IT system environment with the aim of countering and in respect of the obligation to submit special regular reports. migration risk when updating software and any IT-related risks The KION Group complied with all the obligations in this regard in that may arise from the failure of IT systems and IT infrastructure. the reporting year. Internal IT resources are pooled in the cross-segment KION Some of the Group’s financing takes the form of variable-rate Group IT function, which has well-established processes for or fixed-rate financial liabilities. Interest-rate swaps are used to portfolio management and project planning and control. hedge the resultant interest-rate risk and the risk of a change in Independent external reviews are conducted to provide addi- the liabilities’ fair value. tional quality assurance. Various technical and organisational The Company generally refers to credit ratings to manage measures protect the data of the KION Group and the Group counterparty risk when depositing funds with a financial insti- companies against unauthorised access, misuse and loss. These tution. The KION Group only uses derivatives to hedge underlying measures include procedures to validate and log access to the operational and financial transactions; they are not used for Group’s infrastructure. speculative purposes. It is exposed to currency risk because of Further IT risks exist in connection with potential breaches of the high proportion of its business conducted in currencies other data privacy laws, including in relation to the processing of than the euro. In the Industrial Trucks & Services segment, at personal data and the documentation of such processing. For least 75 per cent of the currency risk related to the planned oper- example, serious breaches of the European General Data ating cash flows based on liquidity planning is normally hedged Protection Regulation (GDPR) can lead to fines of up to 4 per cent by currency forwards in accordance with the risk management of the previous year’s revenue. In the reporting year, the KION policy. The Supply Chain Solutions segment hedges itself against Group completed its groupwide project to ensure full compliance currency risk on a project-by-project basis. Corporate Treasury with the GDPR’s provisions related to data protection and rigorously complies with and monitors the strict separation of documentation. Furthermore, employees were reminded that all functions between the front, middle and back offices. of the Group’s stakeholders have privacy rights that must be Each Group company’s liquidity planning is broken down by upheld. Given that the KION Group maintains consistently high currency and incorporated into the KION Group’s financial compliance standards, the probability of data protection laws planning and reporting process. Corporate Controlling checks being breached is regarded as very low. The developments in the liquidity planning and uses it to determine the funding require- 2019 have confirmed this assessment. ments of each company. The funding terms and conditions faced by the lenders themselves (manifested, for example, in the KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 103 payment of liquidity premiums on interbank lending) may result in The KION Group mitigates its liquidity risk and interest-rate a future shortage of lines of credit and / or increased financing risk attaching to financial services by ensuring that most of its costs for companies. However, the Group currently does not transactions and funding loans have matching maturities and by expect any further changes in its lines of credit or any excessive constantly updating its liquidity planning. Long-term leases are increases in margins. primarily arranged on a fixed-interest basis. If they are financed Goodwill and brand names with an indefinite useful life repre- using variable-rate instruments, interest-rate derivatives are sented 32.1 per cent of total assets as at 31 December 2019 entered into in order to hedge the interest-rate risk. Hedging is (2018: 33.7  per  cent). Pursuant to IFRS, these assets are not carried out at regular intervals and is based either on the carrying amortised and their measurement depends, above all, on future amount of the assets or the outstanding cash flows from the expectations. If these future expectations are not fulfilled, underlying end customer contracts. there is a risk that impairment losses will have to be recognised The credit facilities provided by various banks and an effective on these assets. dunning process ensure that the Group has sufficient liquidity. The individual Group companies directly manage counter- In order to exclude currency risks, the KION Group generally party risks involving customers. These counterparty risks did not finances its lease business in the local currency used in each change significantly in 2019. Each individual Group company has market. established a credit management system for identifying custom- The counterparty risk inherent in the lease business con- er-related counterparty risks at an early stage and initiating the tinues to be insignificant. The Group also mitigates any losses necessary countermeasures. Analysis of the maturity structure of from defaults by its receipt of the proceeds from the sale of repos- receivables is an integral element of monthly reporting. sessed trucks. Furthermore, receivables management and credit risk management are refined on an ongoing basis. Besides Risks arising from financial services the design of the business processes, this also encompasses The lease activities of the Industrial Trucks & Services segment mean that the KION Group may be exposed to residual value Human resources risks and legal risks risks from the marketing of trucks that are returned by the lessee the risk management and control processes. at the end of a long-term lease and subsequently sold or The KION Group relies on having highly qualified managers and re-rented. Residual values in the markets for used trucks are experts in key roles. If they left, it could have a long-term adverse therefore constantly monitored and forecast. The KION Group impact on the Group’s prospects. That is why the KION Group regularly assesses its aggregate risk position arising from actively engages in HR work aimed at identifying and developing financial services. young professionals with high potential who already work for the The risks identified are immediately taken into account by Company and retaining them over the long term, thereby enabling the Company in the costing of new leases by recognising succession planning for key roles across the Group. The KION write-downs or provisions and adjusting the residual values. Group also positions itself in the external market as an employer Risk-mitigating factors include the demand for used trucks, which of choice. This will enable it to make strategic additions to its stabilises the residual values of the KION Group’s industrial portfolio of existing staff and, in this way, avert the risk of possibly trucks. In many cases, the residual values have underlying remar- losing expertise and thereby becoming less competitive. keting agreements that transfer any residual-value risk to the Any restructuring measures necessary to secure the lease company. This had a positive impact on the financial results Company’s long-term competitiveness may result in a risk of in 2019. Groupwide standards to ensure that residual values are strikes and reactions of other kinds by the workforce. The KION calculated conservatively, combined with an IT system for residual- Group is committed to doing all it can to limit the negative impact value risk management, reduce risk and provide the basis on on the workforce of such measures and, if job losses are which to create the transparency required. necessary, taking steps to ensure they are achieved with the KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 104 minimum possible social impact. At sites where codetermination arrangements provide for the workforce to be involved in decision-making, the KION Group engages in constructive talks on these matters with the employee representatives. OPPORTUNITY REPORT The legal risks arising from the KION Group’s business are Principles of opportunity management typical of those faced by any company operating in this sector. The Group companies are a party in a number of pending law- Opportunity management, like risk management, forms a central suits in various countries. The individual companies cannot part of the Company’s day-to-day management. In 2019, the assume with any degree of certainty that they will win any of the aggregate opportunity position was largely unchanged com- lawsuits or that the existing risk provision in the form of insurance pared with the previous year. Individual areas of opportunity or provisions will be sufficient in each individual case. However, are identified within the framework of the strategy process. the KION Group is not expecting any of these existing legal Opportunities are determined and managed on a decentralised proceedings to have a material impact on its financial position or basis in line with the Group strategy. financial performance. These lawsuits relate, among other things, There are monthly reports on the opportunity situation as to liability risks, especially as a result of legal action brought by part of the regular Group reporting process. As a result, the KION third parties because, for example, the Company’s products Group is in a position to ascertain at an early stage whether were allegedly faulty or the Company allegedly failed to comply market trends, competitive trends or events within the Group with contractual obligations. Further legal risk may arise as a require individual areas of opportunity to be re-evaluated. This result of the environmental restoration of decommissioned sites, may lead to reallocation of the budgets earmarked for the realisa- for example because of work required due to contamination. tion of opportunities. Such decisions are made on the basis of the Any damage to the environment may lead to legal disputes and potential of the opportunity, drawing on previous experience. give rise to reputational risk. There is no management system for the evaluation of opportu- The Company has taken measures to prevent it from nities comparable to the system for risk management. incurring financial losses as a result of these risks. Although legal disputes with third parties have been insignificant both currently and in the past, the Company has a centralised reporting system Categorisation of opportunities to record and assist pending lawsuits. In addition to the high qual- ity and safety standards applicable to all users of the Company’s ‘Opportunities’ are understood as positive deviations from the products, with which it complies when it develops and manufac- expectations set out in the outlook relating to the economic tures the products, it has also taken out the usual types of insur- situation and the KION Group’s business situation. Opportunities ance to cover any third-party claims. In addition, interdisciplinary are divided into three categories: teams work on the avoidance of risks arising from inadequate contractual arrangements. A further objective of this cooperation across functions is to ensure compliance with mandatory 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 – 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 Group companies. restructuring or cost-cutting measures. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 105 Opportunity situation Strategic opportunities Market opportunities The positive impact of the strategic activities under the KION 2027 strategy is already appropriately reflected in the expecta- The economy as a whole may perform better than expected in tions regarding the KION Group’s financial performance in 2020. 2020. In addition, circumstances may occur in the wider market at Nevertheless, the individual activities could create positive effects any time – such as quality problems at competitors or the effects that exceed expectations. There is also a possibility that new of consolidation – that increase demand for products from the strategic opportunities that were not part of the planning may KION Group brands. New, unforeseen regulatory initiatives could arise over the course of the year, for example in the form of be launched, for example the tightening of health and safety acquisitions and strategic partnerships. regulations or emissions standards, that would push up demand The KION Group’s medium- to long-term strategic oppor- for products offered by the KION Group brands. Average prices tunities in the Industrial Trucks & Services segment arise, in for procuring commodities over the year may be cheaper than particular, from: anticipated. Moreover, a weakening of the euro could bring posi- tive currency effects that have not been factored into the planning. Medium- to long-term market opportunities are presented, in particular, by: – 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 – growing demand for intralogistics products, solutions and services as a consequence of globalisation, industrialisation and fragmentation of supply chains as well as efficiency increases that are needed due to limited warehouse space and changing consumer requirements – high demand for replacement investments, especially in – the trend towards outsourcing of service functions for developed markets industrial 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, including in regard to lithium-ion technology – growing demand for automation solutions and fleet manage- ment solutions, including networked automated guided solutions – a greater presence in the economy and volume price segments, particularly as a result of the systematic imple- mentation of the segment-wide platform strategy – stronger involvement in the electrification of warehousing and logistics processes, including by ensuring availability of lithium-ion technology across the entire product range and expanding market share in the lightweight warehouse truck sector – further strengthening of its market-leading position in the EMEA region and achievement of a stronger position in the APAC and Americas regions, 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 ser- vices, at every stage of the product lifecycle, taking advan- tage of the high number of trucks in use and the installed vehicle systems and industry-specific system solutions, in base of supply chain solutions connection with the rapidly expanding e-commerce sector and the implementation of Industry 4.0 projects – the advancing digitalisation and automation of production and supply chains through the use of robotics solutions and their integration into the respective software application environment KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Outlook, risk report and opportunity report 106 The KION Group’s medium- to long-term strategic opportunities The following may lead to an increase in profitability in the in the Supply Chain Solutions segment arise, in particular, from: medium term: – further expansion of its position in the market for intralogistics solutions based on the growing acceptance of automation – Ongoing efficiency increases in the production network, including through the integration of additional sites, may boost sales and improve the gross margin. – Effective use and centralised coordination of global develop- – Activities to improve operational excellence and lower costs ment capacities may create synergies and economies of scale. may help the KION Group to achieve future growth with a disproportionately small rise in costs. concepts – the development and establishment in the market of solutions for systems and subsystems that meet specific customer requirements in specific industries, for example to allow automated and rapid fulfilment in close proximity to end customers – further strengthening of its market-leading position in – expansion of the market position in the EMEA regions, particu- automated guided vehicle systems (AGV) and larly central and eastern Europe, and APAC by sharing sales and production structures with Industrial Trucks & Services Business-performance opportunities Business-performance opportunities arise firstly from ongoing activities to modernise and streamline the KION Group’s produc- tion 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 oper- ational excellence in logistics, technology & product development and production and at lowering material and quality costs, for example by reducing the complexity of the product range. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 107 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 2019. It is divided > TABLE 027 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 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 2019, the Company held 130,644 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) International 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 subject to report pursuant to the WpHG or As far as the Company is aware, only Weichai Power (Luxem- other 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 2019 and its shareholding was 4. Shares with special rights that confer 45.0 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 2019COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 108 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 them- resolution or in issue on the date the authorisation is exercised, selves. 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 means of an offer to all shareholders. It may also sell the shares in Members of the Company’s Executive Board are appointed and return for a non-cash consideration, in particular in connection removed in accordance with the provisions of sections 84 and 85 with the acquisition of a business, parts of a business or equity AktG and section 31 MitbestG. Pursuant to article 6 (1) of the investments. In addition, the treasury shares may be offered to Company’s articles of association, the Executive Board must employees of the Company or of an affiliated company as part of have a minimum of two members. The Supervisory Board deter- an employee share ownership programme. The treasury shares mines the number of Executive Board members. Pursuant to can also be retired. Share buyback for trading purposes is pro- section 84 AktG and section 6 (3) of the Company’s articles of hibited. The authorisation may be exercised on one or more association, the Supervisory Board may appoint a Chief Execu- occasions, for the entire amount or for partial amounts, in pursuit tive Officer and a deputy. of one or more aims, by the Company, by a Group company or by Section 179 (1) sentence 1 AktG requires that amendments third parties for the account of the Company or the account of a to the articles of association be passed by resolution of the Group company. At the discretion of the Executive Board, the Annual General Meeting. In accordance with article 23 of the arti- shares may be purchased through the stock exchange, by way of cles of association in conjunction with section 179 (2) sentence a public purchase offer made to all shareholders or by way of a 2  AktG, resolutions at the Annual General Meeting on amend- public invitation to shareholders to tender their shares. ments to the articles of association are passed by simple majority In 2019, the Company again made use of this authorisation, of the votes cast and by simple majority of the share capital purchasing 60,000 shares in the period 9 to 20 September 2019. represented in the voting unless a greater majority is specified as From these newly acquired shares plus those that were already in a mandatory requirement under statutory provisions. The option treasury, a total of 67,104 shares were used during the reporting to stipulate a larger majority than a simple majority in any other year as part of KEEP 2019 and 14,136 bonus shares were used as cases has not been exercised in the articles of association. part of KEEP 2016 for the employees of the Company and certain The Supervisory Board is authorised in article 10 (3) of the Group companies. In February 2020, a further 7,338 treasury articles of association to amend the articles of association shares will be used for US participants’ own investments under provided that such amendments relate solely to the wording. KEEP 2019. – On the basis of a resolution of the Company’s Annual General Meeting on 11 May 2017, the Executive Board was author- ised, subject to the consent of the Supervisory Board, to increase the Company’s share capital by up to €10.88 million KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 109 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 entered in on the basis of the 2017 Authorised Capital. Consequently, con- the commercial register at the Wiesbaden local court (HRB ditional capital of up to €1.579 million is available on the basis of 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 mil- lion by issuing 9.3 million new no-par-value bearer shares in the 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 Company. This equates to an 8.55 per cent rise in the Company’s In the event of a change of control resulting from a takeover bid, share capital in existence on the effective date and at the time of certain consequences are set out in the following significant con- use of the 2017 Authorised Capital. The capital increase took tracts (still in force on 31 December 2019) concluded between effect when its implementation was entered in the commercial Group companies of KION GROUP AG and third parties: 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 the – Senior facilities agreement dated 28 October 2015, con- cluded between KION GROUP AG and, among others, 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. In the event that a person, companies affiliated with this person, – On the basis of a resolution of the Annual General Meeting on 11 May 2017, the Executive Board was also authorised, in the 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, – Acquisition facilities agreement dated 4 July 2016, concluded between KION GROUP AG and, among others, the London and to grant conversion rights and / or warrants to – and / or branch of UniCredit Bank AG to impose mandatory conversion requirements or option obligations on – the holders / beneficial owners of debt instruments to acquire up to 10.88  million new shares of KION GROUP  AG with a pro-rata amount of the share capital of up to €10.88  million (‘2017 Authorisation’). The 2017 Conditional Capital of €10.88  million was created to service the debt instruments. The 2017 Authorisation has not been used so far. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Disclosures relevant to acquisitions 110 The provisions in this agreement that apply in the event of a 9. Compensation agreements that the change of control are identical to those in the senior facilities agreement dated 28 October 2015. – Promissory note agreements (seven tranches with different coupons and different maturities) dated 13 February 2017 / 29 Company has signed with the Executive Board members or employees and that will be triggered in the event of a takeover bid No such agreements have been concluded between the Com- March 2017, concluded between KION GROUP  AG and pany and its current Executive Board members or employees. Landesbank Baden-Württemberg; the latter subsequently passed them on to its investors – 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 – Promissory note agreement dated 10 April 2019, concluded between KION GROUP  AG and Landesbank Hessen- Thüringen; the latter subsequently passed part of it on to its investors The provisions in these promissory note 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 2019COMBINED MANAGEMENT REPORT Remuneration report 111 Remuneration report In accordance with statutory requirements and the recommen- As recommended by the Executive Committee, the Super- dations of the German Corporate Governance Code (DCGK) as visory Board approved the remuneration system by adopting amended on 7 February 2017, this remuneration report explains resolutions at its meetings on 29 June 2016 and 28 Septem- the main features and structure of the remuneration system used ber 2016, taking account of the requirements of stock company for the Executive Board and Supervisory Board of KION GROUP law and the DCGK. AG and also discloses the remuneration of the individual mem- The remuneration system described below for the members bers of the Executive Board and Supervisory Board for the work of the Executive Board of KION GROUP AG has applied since 1 Jan- that they carried out on behalf of the Company and its subsidiar- uary 2017 and was approved by the Annual General Meeting of ies in 2019. The report also reflects the requirements of German KION GROUP AG on 11 May 2017 with a majority of 71.68 per cent. accounting standard (GAS) 17 and the German Commercial The Supervisory Board acknowledged these voting results from Code (HGB). the 2017 Annual General Meeting and believes that it therefore KION GROUP AG considers that transparency and clarity has an ongoing duty to review the remuneration system. surrounding both the remuneration system itself and the remuner- ation of the individual members of the Executive Board and Super- 1) Essential features of the Executive Board visory Board are fundamental to good corporate governance. remuneration system Because the act implementing the second Shareholder Rights’ Directive (‘ARUG II’) and the recommendations of the new The Supervisory Board based the level of remuneration for the German Corporate Governance Code come into force on 1 Jan- members of our Executive Board on benchmark analyses of uary 2020, the Supervisory Board will be approving a new remu- executive board pay in the MDAX. These analyses were con- neration system for the members of the Executive Board of KION ducted on behalf of the Supervisory Board by a consultancy that GROUP AG in 2020. This will incorporate feedback from investors is independent of KION. on the current remuneration system. The Supervisory Board put The Supervisory Board’s decision on changing the remuner- together a task force to deal with this matter in 2019. The new ation system was guided by KION GROUP AG’s positioning in the remuneration system will be finalised during the course of 2020 top quartile of the MDAX on the basis of its size, market position and presented to the 2021 Annual General Meeting for approval. and total assets. This is in accordance with the rules regarding first-time application The remuneration of the Executive Board of KION GROUP of ARUG II and the obligation to declare compliance with the new AG is determined in accordance with the requirements of the recommendations of the German Corporate Governance Code at German Stock Corporation Act and the DCGK and is focused on the time the next declaration of conformity is due to be issued. the Company’s long-term growth. It is determined so as to reflect EXECUTIVE BOARD REMUNERATION I. Remuneration system the size and complexity of the KION Group, its business and financial situation, its performance and future prospects, the normal amount and structure of executive board remuneration in comparable companies and the internal salary structure. The Supervisory Board also takes into account the relationship between the Executive Board remuneration and the remuneration paid to senior managers and the German workforce of the Com- pany as a whole, including changes over the course of time. To The Supervisory Board of KION GROUP AG is responsible for set- this end, the Supervisory Board has decided how the relevant ting and regularly reviewing the total pay of the individual members benchmarks are to be defined. Other criteria used to determine of the Executive Board. According to the rules of procedure for the remuneration are the individual responsibilities and personal per- Supervisory Board, the Executive Committee prepares all Super- formance of each member of the Executive Board. The financial visory Board resolutions pertaining to remuneration. and individual targets used in the Executive Board remuneration KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 112 system are in line with the business strategy. The Supervisory 2) Upper limits on total remuneration Board regularly reviews the structure and appropriateness of Executive Board remuneration. In accordance with the DCGK, remuneration is subject to upper In doing so, the Supervisory Board focuses on the sustainabil- limits on the amounts payable, both overall and in terms of the ity of the Company’s long-term performance and has therefore variable components. The upper limit on the total cash remuner- given a high weighting to the multiple-year variable remuneration ation to be paid, consisting of the fixed annual salary plus the components. The granting of a long-term incentive in the form of one-year and multiple-year variable remuneration, equals roughly performance shares with a three-year term means that this com- 1.7 times the target remuneration (2018: 1.7 times) – excluding the ponent is linked to the share price and incentivises Executive Board non-performance-related non-cash remuneration and other members to ensure the Company performs well over the long term. benefits paid in that financial year. Both the one-year and the The total remuneration of the Executive Board comprises a multiple-year variable remuneration are capped at 200 per cent of non-performance-related salary, non-performance-related non- the target value. The specific figures are shown in > TABLE 032. cash benefits, non-performance-related pension entitlements and performance-related (variable) remuneration. The system specifically allows for both positive and negative developments. 3) Overview of the structure and parameters of Executive Board remuneration Structure and parameters of Executive Board remuneration TABLE 028 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 performance 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 compared 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 2019COMBINED MANAGEMENT REPORT Remuneration report 113 The regular cash remuneration for a particular year, consisting of a Both the one-year and the multiple-year components are non-performance-related fixed annual salary and performance- linked to key performance indicators used by the KION Group to related (variable) remuneration, has a heavy emphasis on perfor- measure its success. The KPIs relevant to one-year variable mance. If the targets set by the Supervisory Board are completely remuneration are adjusted earnings before interest and tax (EBIT) missed, only the fixed salary is paid. The cash remuneration is and free cash flow. The relevant KPIs for multiple-year variable structured as follows in the event that the target value / maximum remuneration are return on capital employed (ROCE) and relative value is reached: Target value: total shareholder return (TSR). 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 in which the Executive Board service contract ends. The Super- fixed annual salary is paid at the end of each month in twelve equal instalments, the last payment being made for the full month visory 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 with benefits at a typical market level. 66% 34% 80% 20% TARGET REMUNERATION MAXIMUM REMUNERATION FIXED SALARY VARIABLE (STI + LTI) KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Remuneration report 114 2) Additional special benefits statutory guaranteed return rate for the life insurance industry Additional special benefits have been agreed for Mr Quek (applicable maximum interest rate for the calculation of the because he has been sent from Singapore to China on foreign actuarial reserves of life insurers pursuant to section 2 (1) of the assignment. German Regulation on the Principles Underlying the Calculation Under this arrangement, Mr Quek’s remuneration is struc- of the Premium Reserve (DeckRV)) until an insured event occurs. tured as if he were liable for taxes and social security contribu- If higher interest is generated by investing the pension account, it tions in Singapore. KION GROUP AG pays the taxes and social will be credited to the pension account when an insured event security contributions that Mr Quek incurs in China and Germany occurs (surplus). The standard retirement age for the statutory over and above the taxes that would theoretically apply in Singa- pension applies. Executive Board members are entitled to early pore. In 2019, this additional amount totalled €496  thousand payment of the pension no earlier than their 62nd birthday. In the (2018: €420 thousand). The additional benefits also agreed with event of invalidity or death while the Executive Board member has Mr Quek include the cost of trips home to Singapore for him and an active service contract, the contributions that would have been his family, a company car, rental payments in Xiamen, China, made until the age of 60 are added to the pension account, and private health insurance. In 2019, the additional benefits for although only a maximum of ten annual contributions will be Mr Quek amounted to a total of €135 thousand (2018: €136 thou- added. When an insured event occurs, the pension is paid as a sand). These additional benefits will be granted for as long as Mr lump sum or, following a written request, in ten annual instalments. Quek’s designated place of work is Xiamen or until his service contract with KION GROUP AG ends. B. Performance-related remuneration 3) Pension entitlements 1) One-year variable remuneration (short-term incentive) KION GROUP AG grants its Executive Board members direct The one-year variable remuneration is a remuneration compo- entitlement to a company pension plan consisting of retirement, nent linked to the profitability and productivity of the KION Group invalidity and surviving dependants’ benefits. in the relevant financial year. This is the same as the arrangement The Chief Executive Officer has a defined benefit entitlement in our remuneration system for senior managers. Its amount is that was granted in his original service contract and was trans- determined by the achievement of the following targets: ferred to his Executive Board service contract when the Com- pany changed its legal form. The amount of the entitlement is dependent on the number of years of service and amounts to a maximum of 50 per cent of the most recent fixed annual salary awarded in the original service contract after the end of the tenth – Adjusted earnings before interest and tax (adjusted EBIT), – Free cash flow, weighting of 50 per cent weighting of 50 per cent year of service. The target values for the financial components are derived from The present value of the previous defined benefit plan for the the annual budget and specified in target agreements between ordinary members of the Executive Board was transferred as a the Supervisory Board and Executive Board. starting contribution for a new defined contribution pension plan No bonus is paid if target achievement is 70 per cent or less when the Company changed its legal form. The new plan is struc- (lower target limit). In cases where the targets are significantly tured as a cash balance plan and is also applied to new Executive exceeded (upper target limit of 130 per cent), the bonus can be Board members. doubled at most (payment cap of 200 per cent). > DIAGRAM 007 Fixed annual contributions of €250  thousand for Ms Groth, €150  thousand for Ms Schneeberger and Dr Böhm and If the targets derived from the annual budget are achieved in full, €124.5 thousand for Mr Quek are paid into their pension accounts target achievement is 100 per cent. The target achievement levels for the duration of the member’s period of service on the Executive for the weighted targets (adjusted EBIT and free cash flow) are Board. Interest is paid on the pension account at the prevailing added together to give the total target achievement. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 115 The individual performance of the Executive Board members 1 a) Bonus curve for the short-term incentive is assessed by the Supervisory Board, which applies a discre- tionary performance multiple with a factor of between 0.7 and 1.3. STI bonus entitlement DIAGRAM 007 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- ment in the Company’s management culture. There are also agreements relating to special operational and, in particular, strategic 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, calculated 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 per- formance. 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 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 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. Upper target limit Target value Lower target limit 0 20 30 40 50 60 70 80 90 100 110 120 130 140 KPI results KION GROUP AGAnnual Report 2019 116 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) Frankfurt Stock Exchange (or a successor system that replaces For the members of the Executive Board, multiple-year variable it) over the last 60 trading days prior to the start of the perfor- remuneration has been agreed in the form of a performance mance period. share plan. A very similar plan is in place for the Group’s senior At the end of the performance period, the preliminary number managers. The basis of measurement has been defined as the of performance shares is adjusted depending on achievement of total shareholder return (TSR) for KION shares compared with the the two targets (relative TSR and ROCE) to give the final number MDAX and return on capital employed (ROCE). Each has a of performance shares. weighting of 50  per  cent. The annual tranches promised under In respect of the ROCE target, there is no entitlement if target the plan have a term (performance period) of three years and are achievement is 70  per  cent or less. If the target is significantly paid at the end of the term, provided the defined targets have exceeded (target achievement of 130 per cent or more), the enti- been achieved. tlement is capped at 200  per  cent. Regarding the relative TSR At the start of a performance period, a conditional entitle- target, there is no entitlement if KION shares underperform the ment to a certain target number of performance shares is granted. MDAX. If the KION shares outperform this index by 20 per cent or This preliminary number is calculated by dividing the allocation more, the entitlement is capped at 200 per cent. If KION shares value set out (in euros) in the service contract for the particular outperform the MDAX by 6.67  per  cent and the ROCE targets Executive Board member by the share price on the relevant date defined each year on the basis of the budget are achieved, total at the start of the performance period. This share price, which is target achievement will be 100 per cent. calculated to two decimal places, is determined from the average The amount paid for each tranche is determined by the final Xetra closing price of KION shares (closing auction prices) on the number of performance shares multiplied by the price of KION KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 117 shares (average price over the preceding 60 trading days) at the management culture. For the LTI too, there are also agreements end of the performance period. relating to special operational and, in particular, strategic projects Executive Board members’ individual performance is also that are very important to the Company’s long-term development. taken into account in the multiple-year variable remuneration. At Depending on achievement of these targets, the Supervisory the start of the performance period, the Supervisory Board Board can apply a discretionary factor to make a final adjustment defines targets for the three-year period. For the performance to the calculation of the amount to be paid out at the end of the share plan, the criteria used to assess individual performance performance period by plus or minus 30 per cent, although the are – as for the one-year variable remuneration – growth of mar- maximum payment may not exceed 200 per cent of the allocation ket share, successful innovations and the Organizational Health value. > DIAGRAMS 009 – 010. Index (OHI), which measures the improvement in the Company’s 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 2019COMBINED MANAGEMENT REPORT Remuneration report 118 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 performance share plan on the date of granting must be dis- closed. > TABLES 029 – 031 0% Underperformance 70% of budgeted figure The total expense in 2019 amounted to €4,084 thousand (2018: income of €1,763 thousand). 50% Outperformance of 0% 85% of budgeted figure 100% Outperformance of 6.67% Budgeted figure 200% Outperformance of 20% 130% of budgeted figure 2017 performance share plan TABLE 029 Contractual allocation 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 Number of performance shares granted 1 Fair value per performance share on date of grant 29,712 18,570 15,413 18,570 82,265 €53.85 €53.85 €53.85 €53.85 Expense for share-based remuneration in 2018 2 Expense for share-based remuneration in 2019 2 – €179 thousand €324 thousand – €112 thousand €203 thousand – €149 thousand €159 thousand €0 thousand €0 thousand – €440 thousand €686 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 29 per cent in 2019 (2018: 53 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. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 119 2018 performance share plan TABLE 030 Contractual allocation value of the performance share plan on the date of grant €1,600 thousand €1,000 thousand €861 thousand €830 thousand Gordon Riske Dr Eike Böhm Anke Groth 3 Ching Pong Quek Susanna Schneeberger 4 €750 thousand Total €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 Expense for share-based remuneration in 2018 2 Expense for share-based remuneration in 2019 2 €185 thousand €441 thousand €116 thousand €275 thousand €68 thousand €242 thousand €147 thousand €272 thousand €29 thousand €216 thousand €544 thousand €1,446 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 29 per cent in 2019 (2018: 53 per cent) as part of a tax equalisation agreement. 3 The contractual allocation 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 contractual allocation 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). 2019 performance share plan Contractual allocation value of the performance share plan on the date of grant €1,600 thousand €1,000 thousand €1,000 thousand €830 thousand €1,000 thousand €5,430 thousand Number of performance shares granted 1 Fair value per performance share on date of grant 32,868 20,542 20,542 17,050 20,542 111,544 €48.68 €48.68 €48.68 €48.68 €48.68 Gordon Riske Dr Eike Böhm Anke Groth Ching Pong Quek Susanna Schneeberger Total TABLE 031 Expense for share-based remuneration in 2019 2 €551 thousand €344 thousand €344 thousand €369 thousand €344 thousand €1,952 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 29 per cent as part of a tax equalisation agreement. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 120 3) Termination benefits Board member will receive 80 per cent of his fixed salary, but only In line with the DCGK, all Executive Board service contracts up to a point at which the service contract is terminated. provide for a severance payment equivalent to no more than two If an Executive Board member ceases to be employed by the years’ annual remuneration payable in the event of the contract Company as a result of death, the Executive Board member’s being terminated prematurely without good cause. The amount family will be entitled to the fixed monthly remuneration for the of annual remuneration is defined as fixed salary plus the variable month in which the service contract ends and for the three sub- remuneration elements, assuming 100  per  cent target achieve- sequent months, but only up to the point at which the service ment and excluding non-cash benefits and other additional ben- contract would otherwise have come to an end. efits, for the last full financial year before the end of the Executive Board service contract. If the Executive Board service contract 4) Share ownership guidelines was due to end within two years, the severance payment is In connection with the updated remuneration system for Executive calculated pro rata. If a service contract is terminated for good Board members that has been in force since 1 January 2017, the cause for which the Executive Board member concerned is Supervisory Board decided to introduce share ownership guide- responsible, no payments are made to the Executive Board lines, under which all Executive Board members are required to member in question. The Company does not have any commit- hold shares worth 100 per cent of their basic remuneration. They ments for the payment of benefits in the event of a premature termi- have to build up their shareholding to this percentage and hold the nation of Executive Board contracts following a change 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 pays the Executive Board member compensation for the duration first four years, they are permitted to increase their shareholding of the non-compete agreement amounting to 100 per cent of his incrementally: they must hold 25  per  cent of the full number of final fixed salary. Other income of the Executive Board member is shares 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 2019 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 obli- exception of remuneration for work as a member of a supervisory gation to purchase additional shares if the share price falls. There or advisory board or a board of directors) will be offset against is only an obligation to purchase additional shares if there is a these transitional benefits. change to the fixed annual remuneration in the member’s If an Executive Board member suffers temporary incapacity, Executive Board service contract or if a capital reduction, capital he will receive his full fixed salary for a maximum period of six increase or stock split takes place. months plus the one-year variable remuneration. In the event of temporary incapacity for a further six months, the Executive KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 121 III. Remuneration for members of the Executive Board in 2019 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 addi- tional benefits and – in the case of variable remuneration compo- nents – the maximum and minimum remuneration achievable are shown. > TABLE 032 Secondly, > TABLE 033 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 2019 was €14,025  thousand (minimum: €5,826  thousand, maximum: €22,224 thousand) (2018: €13,148 thousand). Of this amount, €4,276 thousand (2018: €3,628 thousand) was attribut- able to fixed non-performance-related remuneration compo- nents, €8,199  thousand (minimum: €0  thousand, maximum: €16,398 thousand) (2018: €7,722 thousand) to variable one-year and multiple-year performance-related remuneration compo- nents, €272  thousand (2018: €841  thousand) to non-perfor- mance-related non-cash remuneration and other benefits and €1,277 thousand (2018: €957 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, maximum: 200 per cent for target achieve- ment 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 con- tractual allocation value). The additional benefits were measured at the value calcu- lated for tax purposes. > TABLE 032 KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 122 Benefits granted in 2019 TABLE 032 Gordon Riske Dr Eike Böhm CEO of KION GROUP AG CTO of KION GROUP AG 2018 2019 2019 (min.) 2019 (max.) 2018 2019 2019 (min.) 2019 (max.) Fixed remuneration 1,400 1,400 1,400 1,400 650 650 650 650 € 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 2018 – 31 Dec 2020) Performance share plan (1 Jan 2019 – 31 Dec 2021) 34 34 34 34 1,434 1,434 1,434 1,434 15 665 17 667 17 667 800 800 1,600 1,600 0 0 1,600 400 400 3,200 1,000 1,000 0 0 17 667 800 2,000 1,600 1,000 1,600 0 3,200 1,000 0 2,000 Total 3,834 3,834 1,434 6,234 2,065 2,067 Pension expense 7 631 620 620 620 147 144 Total remuneration 4,464 4,454 2,054 6,854 2,212 2,211 667 144 811 3,467 144 3,611 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) 663 1,156 Minus the pension expense – 631 – 620 331 578 – 147 – 144 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 17 170 1 – 33 3,866 4,190 1,997 2,212 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 29 per cent (2018: 58 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 29 per cent (2018: 53 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 035). KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Remuneration report 123 Benefits granted in 2019 TABLE 032 Anke Groth Ching Pong Quek CFO of KION GROUP AG from 1 June 2018 Chief Asia Pacific Officer of KION GROUP AG 2018 2019 2019 (min.) 2019 (max.) 2018 2019 2019 (min.) 2019 (max.) Fixed remuneration 467 800 800 800 749 776 776 776 € 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 2018 – 31 Dec 2020) Performance share plan (1 Jan 2019 – 31 Dec 2021) Total Pension expense 7 320 787 13 813 13 813 13 813 136 885 135 911 135 911 292 500 861 1,000 0 0 1,000 525 428 2,000 1,270 1,071 0 0 135 911 857 2,141 861 1,270 1,000 0 2,000 1,071 0 2,141 1,939 2,313 247 813 247 3,813 2,679 2,410 247 120 118 911 118 3,909 118 Total remuneration 1,939 2,560 1,060 4,060 2,800 2,528 1,029 4,027 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 – 500 – 525 – 428 242 723 – 247 435 619 – 120 – 118 40 – 81 1,889 2,536 2,630 2,520 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 29 per cent (2018: 58 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 29 per cent (2018: 53 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 035). KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Remuneration report 124 Benefits granted in 2019 TABLE 032 Susanna Schneeberger Dr Thomas Toepfer CDO of KION GROUP AG from 1 October 2018 CFO of KION GROUP AG until 31 March 2018 2018 2019 2019 (min.) 2019 (max.) 2018 2019 2019 (min.) 2019 (max.) Fixed remuneration 163 650 650 650 200 € 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 2018 – 31 Dec 2020) Performance share plan (1 Jan 2019 – 31 Dec 2021) Total Pension expense 7 332 494 73 723 73 723 73 723 5 205 100 400 750 1,000 0 0 800 125 2,000 0 750 1,000 0 2,000 1,344 2,123 148 723 148 870 3,523 148 3,670 330 59 389 Total remuneration 1,344 2,270 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 – 400 83 0 578 – 148 1,327 2,301 – 125 104 – 59 2 311 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 29 per cent (2018: 58 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 29 per cent (2018: 53 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 035). KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Remuneration report 125 2) Allocation pursuant to the DCGK the Supervisory Board in line with the individual performance of The total remuneration allocated to / earned by Executive Board the Executive Board member. This adjustment may vary by plus members for 2019 was €11,303  thousand (2018: €9,320  thou- or minus 30 per cent of the variable remuneration. Ms Schnee- sand). Of this amount, €4,276 thousand (2018: €3,628 thousand) berger’s performance multiple was set at 1.0 for year 2019, i.e. was attributable to fixed non-performance-related remuneration there was no individual adjustment. For the multiple-year variable components, €5,477 thousand (2018: €3,894 thousand) to varia- remuneration, a payment from the 2017 tranche of the perfor- ble one-year and multiple-year performance-related remunera- mance share plan will be made in spring 2020 on the basis of the tion components, €272  thousand (2018: €841  thousand) to achievement of the long-term targets that were defined in 2017 at non-performance-related non-cash remuneration and other ben- the start of the performance period. The value shown for 2019 is efits and €1,277 thousand (2018: €957 thousand) to the pension also calculated on the basis of a preliminary total target achieve- expense in accordance with IFRS. The figure shown for one-year ment rate of about 46  per  cent and is subject to the perfor- variable remuneration is derived from a preliminary total target mance-based adjustment made by the Supervisory Board (using achievement rate of about 113 per cent based on the budgeted a discretionary performance multiple) for individual Executive figure. This target achievement rate was calculated using prelimi- Board members. Under the terms of the plan at the grant date, nary earnings figures at the beginning of 2020 and equates to a this performance-based adjustment may vary by plus or minus payout of around 145  per  cent of the target value for one-year 30 per cent. variable remuneration. The preliminary variable remuneration for The additional benefits were measured at the value calcu- each Executive Board member is also subject to adjustment by lated for tax purposes. > TABLE 033 KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 126 Allocation in 2019 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 Performance- related components Share-based long-term incentive Multiple-year variable remuneration Performance share plan 3 (1 Jan 2016 – 31 Dec 2018) Performance share plan (1 Jan 2017 – 31 Dec 2019) Total Pension expense 4 Total remuneration Gordon Riske Dr Eike Böhm CEO of KION GROUP AG CTO of KION GROUP AG 2018 1,400 34 1,434 2019 1,400 34 1,434 663 1,156 1,002 1,002 3,098 631 3,729 795 795 3,385 620 4,005 2018 650 15 665 298 557 557 1,519 147 1,667 2019 650 17 667 578 497 497 1,742 144 1,886 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 2018 is the actual amount paid out, which may differ from the estimated value listed in the 2018 consolidated financial statements. The discretionary performance multiple for Ms Schneeberger has already been set to 1.0 for 2019. 3 The figure shown for multiple-year variable remuneration is for the actual amount paid out, which may differ from the estimated value listed in the 2018 consolidated financial statements. 4 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 035). KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Remuneration report 127 Allocation in 2019 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 Performance- related components Share-based long-term incentive Multiple-year variable remuneration Performance share plan 3 (1 Jan 2016 – 31 Dec 2018) Performance share plan (1 Jan 2017 – 31 Dec 2019) 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 2018 467 320 787 242 0 1,028 1,028 2019 800 13 813 723 0 1,536 247 1,783 2018 749 136 885 354 593 593 1,832 120 1,952 2019 776 135 911 619 532 532 2,062 118 2,180 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 2018 is the actual amount paid out, which may differ from the estimated value listed in the 2018 consolidated financial statements. The discretionary performance multiple for Ms Schneeberger has already been set to 1.0 for 2019. 3 The figure shown for multiple-year variable remuneration is for the actual amount paid out, which may differ from the estimated value listed in the 2018 consolidated financial statements. 4 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 035). KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Remuneration report 128 Allocation in 2019 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 Performance- related components Share-based long-term incentive Multiple-year variable remuneration Performance share plan 3 (1 Jan 2016 – 31 Dec 2018) Performance share plan (1 Jan 2017 – 31 Dec 2019) 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 2018 163 332 494 83 0 577 577 2019 650 73 723 578 0 1,301 148 1,448 2018 200 5 205 104 0 309 59 368 2019 – – – – – – – – – – 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 2018 is the actual amount paid out, which may differ from the estimated value listed in the 2018 consolidated financial statements. The discretionary performance multiple for Ms Schneeberger has already been set to 1.0 for 2019. 3 The figure shown for multiple-year variable remuneration is for the actual amount paid out, which may differ from the estimated value listed in the 2018 consolidated financial statements. 4 Service cost in accordance with IFRS (the service cost in accordance with the HGB is shown in table 035). KION GROUP AGAnnual Report 2019 COMBINED MANAGEMENT REPORT Remuneration report 129 In its meeting on 19 December 2019, the Supervisory Board €4,461  thousand was attributable to non- performance-related authorised the chairman of the Supervisory Board to hold talks remuneration components, €87 thousand to a performance-re- with Ms Susanna Schneeberger regarding the early termination lated component with no long-term incentive, €118 thousand to of her appointment as a member of the Executive Board of KION a performance-related component with a long-term incentive GROUP AG, the termination of her Executive Board service (a pro rata amount for the 2018 and 2019 tranches in accord- contract including the conclusion of a termination agreement, ance with the rules of the performance share plan as at and regarding the appropriate arrangements required in accord- 31 December 2019), €73 thousand to the pro rata allocation of ance with the law and her contract. As a result of the talks, mutual this component for 2020 and €33  thousand to pension agreement was reached with Ms Schneeberger that she would expenses. step down on 12 January 2020 and that her Executive Board The table below shows the pension contributions (additions service contract would be terminated on 31 March 2020. to the plan) attributable to each individual Executive Board Of the total amount of €4,771  thousand paid to member and their separate present values in accordance with Ms  Schneeberger resulting from the termination agreement, IFRS and HGB > TABLES 034 – 035. Pension entitlements under IFRS TABLE 034 € thousand Gordon Riske Dr Eike Böhm Anke Groth Ching Pong Quek Susanna Schneeberger Dr Thomas Toepfer 1 Service cost 2019 Service cost 2018 Present value (DBO) 31 Dec 2019 Present value (DBO) 31 Dec 2018 620 144 247 118 148 631 147 120 59 8,621 733 430 951 209 6,897 502 148 670 38 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 035 € thousand Gordon Riske Dr Eike Böhm Anke Groth Ching Pong Quek Susanna Schneeberger Dr Thomas Toepfer 1 Service cost 2019 Service cost 2018 Present value (DBO) 31 Dec 2019 Present value (DBO) 31 Dec 2018 520 136 216 128 125 482 134 129 65 6,702 733 419 951 193 5,714 469 129 615 32 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. KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 130 The total remuneration paid to former members of the Executive or one of its committees does not hold their position for a full Board in 2019 amounted to €262  thousand (2018: €258  thou- financial year. sand). Provisions for defined benefit obligations to former The members of the Supervisory Board receive an attend- members of the Executive Board or their surviving dependants ance fee of €1,500 per day for meetings of the Supervisory Board amounting to €11,672 thousand (2018: €10,463 thousand) were and its committees, although they only receive this amount once recognised in accordance with IAS 19. if they attend more than one meeting on the same day. In the year under review, no advances were made to mem- The Company reimburses each member for any VAT incurred bers of the Executive Board, and there were no loans. in connection with his or her remuneration. SUPERVISORY BOARD REMUNERATION Remuneration system In the interests of the Company, a D&O insurance policy with- out an excess has been taken out for the members of the Super- visory Board. The Company pays the premiums for this. Remuneration paid to members of the Supervisory Board in 2019 The total remuneration paid to the Supervisory Board in 2019 was The Supervisory Board’s remuneration is defined in article 18 of €1,469  thousand (2018: €1,455  thousand). Of this amount, KION GROUP AG’s articles of association. Members of the €1,063  thousand (2018: €1,050  thousand) was attributable to Supervisory Board receive fixed remuneration plus reimburse- fixed remuneration for activities carried out by the Supervisory ment of out-of-pocket expenses. The fixed annual remuneration Board. The remuneration paid for committee work (including of an ordinary member amounts to €55,000. The chairman of the attendance fees) totalled €406 thousand (2018: €406 thousand). Supervisory Board receives three times the amount of an ordi- The following table shows the breakdown of remuneration paid to nary member, i.e. €165,000, and his deputy receives two times each Supervisory Board member for 2019. > TABLE 036 the amount of an ordinary member, i.e. €110,000. Additional remuneration is paid for being a member or chair- In 2019, no company in the KION Group paid or granted any man of a committee, although this does not apply in the case of remuneration or other benefits to members of the Supervisory the Nomination Committee or the Mediation Committee pursuant Board for services provided as individuals, such as consulting or to section 27 (3) of the German Codetermination Act (MitbestG). brokerage activities. Nor were any advances or loans granted to The annual remuneration for members of the Executive Commit- members of the Supervisory Board. tee is usually €8,000, while the chairman of the Executive Committee receives double this amount, i.e. €16,000. 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 paid pro rata in the amount of one twelfth of the annual amount for each full or partial month that they were a member. The same formula is applied if the chair of the Supervisory Board KION GROUP AGAnnual Report 2019COMBINED MANAGEMENT REPORT Remuneration report 131 Remuneration of the Supervisory Board of KION GROUP AG in 2019 (net) TABLE 036 Dr Feldmann, John (until 9 May 2019) €68,750.00 €12,916.67 Fixed remuneration Committee remu- neration (fixed) Attendance fee Total €9,000.00 €7,500.00 €90,666.67 €62,500.00 €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 €55,000.00 €55,000.00 €55,000.00 €55,000.00 €53,000.00 €19,500.00 €127,500.00 Behrendt, Birgit Dr Dibelius, Alexander Jiang, Kui* Dr Reuter, Christina Ring, Hans Peter Tan, Xuguang* (from 9 May 2019) €36,666.67 €1,500.00 €38,166.67 Dr Macht, Michael Xu, Ping* Pancarci, Özcan Casper, Stefan Kunz, Olaf Fahrendorf, Martin Schädler, Alexandra Wenzel, Claudia Dr Schepp, Frank Milla, Jörg Total €132,916.67 €20,666.67 €15,000.00 €168,583.33 €55,000.00 €7,500.00 €62,500.00 €110,000.00 €8,000.00 €18,000.00 €136,000.00 €55,000.00 €55,000.00 €55,000.00 €12,000.00 €67,000.00 €8,000.00 €16,500.00 €79,500.00 €12,000.00 €67,000.00 €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 €23,000.00 €24,000.00 €102,000.00 €1,063,333.33 €179,583.33 €226,500.00 €1,469,416.67 * 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: €67,915.14 €3,704.46 €10,418.80 €82,038.40 KION GROUP AGAnnual Report 2019CONSOLIDATED FINANCIAL STATEMENTS Contents 133 CONSOLIDATED FINANCIAL STATEMENTS 134 CONSOLIDATED INCOME STATEMENT 135 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 136 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 138 CONSOLIDATED STATEMENT OF CASH FLOWS 140 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 142 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 142 160 170 203 Basis of presentation Notes to the consolidated income statement Notes to the consolidated statement of financial position Other disclosures 242 INDEPENDENT AUDITORS’ REPORT 250 RESPONSIBILITY STATEMENT KION GROUP AGAnnual Report 2019CONSOLIDATED 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 tax Financial income Financial expenses Net financial expenses Earnings before tax Income taxes Current taxes Deferred taxes Net income Attributable to shareholders of KION GROUP AG Attributable to non-controlling interests Earnings per share Average number of shares (in million) Basic earnings per share (in €) Diluted earnings per share (in €) Note [7] [8] [8] [8] [8] [9] [10] [11] [12] [13] [14] [15] 2019 8,806.5 – 6,474.6 2,331.9 – 940.2 – 155.3 – 546.9 69.5 – 54.5 12.1 716.6 105.5 – 200.6 – 95.1 621.6 – 176.8 – 212.8 36.0 444.8 454.8 – 10.0 117.9 3.86 3.86 134 TABLE 037 2018 7,995.7 – 5,898.1 2,097.6 – 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 1.8 117.9 3.39 3.39 KION GROUP AGAnnual Report 2019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 Changes in unrealised gains / losses from equity-accounted investments Other comprehensive loss (income) Total comprehensive income Attributable to shareholders of KION GROUP AG Attributable to non-controlling interests Note [28] [22] [41] 2019 444.8 – 117.8 – 115.9 – 168.1 52.3 – 1.9 – 0.0 69.4 76.1 76.1 0.0 – 6.3 – 15.1 7.2 1.5 – 0.3 – 48.4 396.4 405.9 – 9.4 135 TABLE 038 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 0.3 16.8 418.4 416.9 1.5 KION GROUP AGAnnual Report 2019CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position 136 Consolidated statement of financial position Consolidated statement of financial position – Assets TABLE 039 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 Total assets Note 31/12/2019 31/12/2018 [16] [16] [17] [18] [19] [20] [21] [22] [23] [14] [24] [21] [33] [25] [14] [22] [23] [26] 3,475.8 2,256.6 1,361.2 632.9 1,236.3 84.5 1,080.9 44.6 73.8 449.7 3,424.8 2,296.8 1,261.8 670.5 1,077.8 82.3 826.2 29.8 58.9 421.7 10,696.4 10,150.6 1,085.3 340.1 150.2 1,074.2 24.9 74.1 108.8 211.2 994.8 271.2 119.3 1,036.4 31.5 83.4 106.2 175.3 3,068.8 2,818.2 13,765.2 12,968.8 KION GROUP AGAnnual Report 2019CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of financial position 137 Consolidated statement of financial position – Equity and liabilities TABLE 040 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 Total equity and liabilities Note 31/12/2019 31/12/2018 118.0 3,034.7 975.2 – 560.3 – 9.2 3,558.4 1,263.4 1,716.8 1,566.9 243.8 113.8 500.9 301.2 570.9 117.9 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 6,277.8 5,999.1 103.7 933.2 188.3 504.9 975.9 88.7 140.6 284.0 709.6 226.5 548.0 251.3 570.1 904.2 74.4 127.2 288.6 674.2 3,929.0 3,664.6 13,765.2 12,968.8 [27] [28] [29] [30] [31] [32] [35] [36] [14] [29] [30] [31] [33] [34] [14] [32] [35] [36] KION GROUP AGAnnual Report 2019CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flows Consolidated statement of cash flows Consolidated statement of cash flows in € million Earnings before interest and tax Note Amortisation, depreciation and impairment charges of non-current assets [8] Non-cash reversals of deferred revenue from leases Other non-cash income (–) / expenses (+) Gains (–) / losses (+) on disposal of non-current assets [9], [10] 2019 716.6 898.0 – 212.5 27.0 – 3.6 138 TABLE 041 2018 642.8 897.9 – 238.7 29.2 – 1.2 Change in leased assets (excluding depreciation) and receivables / liabilities from lease business Change in rental assets (excluding depreciation) and liabilities from rental business Change in net working capital * 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] – 122.1 – 137.5 [18], [35] [24], [25], [33], [34] [28] [32] [38] [38] [38] – 146.6 – 146.8 – 22.0 22.5 27.3 – 191.6 846.3 – 287.4 3.6 12.2 – 10.0 3.8 – 277.9 – 188.5 – 54.3 – 37.3 – 19.0 65.4 – 193.2 765.5 – 258.5 5.1 14.2 – 1.6 – 4.7 – 245.6 KION GROUP AGAnnual Report 2019CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flows Consolidated statement of cash flows (continued) in € million 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 * Net Working Capital comprises inventories, contract assets, trade receivables less contract liabilities and trade payables 139 TABLE 041 2018 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 2.2 173.2 175.3 Note [27] [38] [27] [38] [38] [38] [38] [38] [38] [38] 2019 3.7 – 2.9 – 141.5 – 3.1 0.0 – 3.8 2,940.1 – 3,166.2 3.1 – 36.7 – 126.5 – 1.1 – 534.9 2.4 35.9 175.3 211.2 KION GROUP AGAnnual Report 2019CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity 140 Consolidated statement of changes in equity Consolidated statement of changes in equity in € million Balance as at 01/01/2018 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 Balance as at 01/01/2019 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 Other changes Balance as at 31/12/2019 Note Subscribed capital 117.9 Capital reserves 3,034.0 0.0 0.0 – 0.1 0.1 – 3.5 2.6 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 – 254.7 – 283.3 1.8 8.4 – 0.6 3,002.5 35.8 35.8 – 0.2 – 0.2 – 12.2 – 12.2 – 6.4 – 6.4 0.2 0.2 Retained earnings 379.0 399.9 399.9 – 116.8 TABLE 042 Total 3,006.9 401.6 16.8 418.4 – 116.8 – 2.8 – 3.6 2.7 0.2 3,305.1 3,305.1 444.8 – 48.4 396.4 – 141.5 – 3.1 – 2.9 4.6 – 0.2 399.9 17.0 416.9 – 116.8 0.0 – 3.6 2.7 0.0 454.8 – 48.9 405.9 – 141.5 0.0 – 2.9 4.6 – 0.2 4.4 1.8 – 0.3 1.5 0.0 – 2.8 0.0 0.0 0.2 3.3 3.3 – 10.0 0.6 – 9.4 0.0 – 3.1 0.0 0.0 0.0 – 218.9 – 283.5 – 10.4 – 0.4 3,301.7 75.5 75.5 – 115.8 – 115.8 – 6.3 – 6.3 – 0.3 – 0.3 1.9 1.9 – 1.9 – 1.9 – 143.5 – 399.3 – 16.8 0.0 – 0.8 3,567.5 – 9.2 3,558.4 117.9 3,033.1 662.1 – 218.9 – 283.5 – 10.4 – 0.4 3,301.7 117.9 3,033.1 0.0 0.0 – 0.1 0.1 – 2.9 4.5 118.0 3,034.7 662.1 454.8 454.8 – 141.5 – 0.2 975.2 [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] KION GROUP AGAnnual Report 2019CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity Accumulated other comprehensive income (loss) Cumulative translation adjustment Gains / losses on defined benefit obligation 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 – 254.7 – 283.3 1.8 8.4 – 0.6 3,002.5 35.8 35.8 – 0.2 – 0.2 – 12.2 – 12.2 – 6.4 – 6.4 0.2 0.2 399.9 17.0 416.9 – 116.8 0.0 – 3.6 2.7 0.0 117.9 3,033.1 662.1 – 218.9 – 283.5 – 10.4 117.9 3,033.1 – 218.9 – 283.5 – 10.4 75.5 75.5 – 115.8 – 115.8 – 6.3 – 6.3 1.9 1.9 – 1.9 – 1.9 – 0.4 3,301.7 – 0.4 3,301.7 – 0.3 – 0.3 454.8 – 48.9 405.9 – 141.5 0.0 – 2.9 4.6 – 0.2 4.4 1.8 – 0.3 1.5 0.0 – 2.8 0.0 0.0 0.2 3.3 3.3 – 10.0 0.6 – 9.4 0.0 – 3.1 0.0 0.0 0.0 141 TABLE 042 Total 3,006.9 401.6 16.8 418.4 – 116.8 – 2.8 – 3.6 2.7 0.2 3,305.1 3,305.1 444.8 – 48.4 396.4 – 141.5 – 3.1 – 2.9 4.6 – 0.2 118.0 3,034.7 – 143.5 – 399.3 – 16.8 0.0 – 0.8 3,567.5 – 9.2 3,558.4 Consolidated statement of changes in equity in € million Balance as at 01/01/2018 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 Balance as at 01/01/2019 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 Other changes Balance as at 31/12/2019 Note Subscribed capital 117.9 Capital reserves 3,034.0 [27] [27] [27] [27] [27] [27] [27] [27] [27] [27] 0.0 0.0 – 0.1 0.1 – 3.5 2.6 0.0 0.0 – 0.1 0.1 – 2.9 4.5 Retained earnings 379.0 399.9 399.9 – 116.8 662.1 454.8 454.8 – 141.5 – 0.2 975.2 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 142 Notes to the consolidated financial statements Basis of presentation [1] GENERAL INFORMATION ON THE [2] BASIS OF PREPARATION COMPANY The consolidated financial statements of the KION Group for the KION  GROUP AG, whose registered office is at Thea-Rasche- financial year ended 31 December 2019 have been prepared in Strasse 8, 60549 Frankfurt am Main, is entered in the commercial accordance with section 315e of the German Commercial Code register at the Frankfurt am Main local court under reference (HGB) in conjunction with the International Financial Reporting HRB 112163. Standards (IFRSs) of the International Accounting Standards Shandong Heavy Industry Group Co., Ltd., Jinan, People’s Board (IASB) applicable as at the reporting date as well as the Republic of China, is the company that prepares the global con- associated interpretations (IFRICs) of the IFRS Interpretations solidated financial statements for the largest number of affiliated Committee (IFRS IC) as adopted by the European Union in companies. These consolidated financial statements are not accordance with Regulation (EC) No. 1606/2002 of the European publicly available. Parliament and of the Council concerning the application of inter- Weichai Power Co., Ltd., Weifang, People’s Republic of national accounting standards. All of the IFRSs and IFRICs that China, is the company that prepares the global consolidated had been enacted by the reporting date and that were required to financial statements for the smallest number of affiliated compa- be applied in the 2019 financial year have been applied in prepar- nies. These are available in English on the websites of the Hong ing the consolidated financial statements. Kong Stock Exchange (www.hkexnews.hk) and the company In order to improve the clarity of presentation, certain items (www.weichaipower.com). are aggregated in the statement of financial position and the The KION Group is a global leader in industrial trucks, related income statement. The items concerned are disclosed and services and supply chain solutions. In 2019, the Group and its explained separately in the notes. Assets and liabilities are broken highly skilled employees generated revenue of €8,806.5  million down into current and non-current items in accordance with IAS (2018: €7,995.7 million). 1.60. The consolidated income statement is prepared in accord- The consolidated financial statements and the combined ance with the cost of sales (function-of-expense) method. group management report and management report of the Com- The consolidated financial statements are prepared in euros, pany were prepared by the Executive Board of KION GROUP AG which is the Group’s presentation currency. All amounts are dis- on 21 February 2020. 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. The compara- tive figures for the prior year were determined on the same basis. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 143 Financial reporting standards to be adopted for the first time in the current financial year [3] PRINCIPLES OF CONSOLIDATION The following financial reporting standards were adopted for the first time in 2019: – Amendments to IFRS 9 ‘Financial Instruments’: amendments relating to the classification of particular prepayable financial assets – Amendments to IAS 19 ‘Employee Benefits’: amendments in connection with the remeasurement of net defined benefit Acquisitions are accounted for using the acquisition method. In accordance with IFRS 3, the identifiable assets and the liabilities assumed on the acquisition date are recognised separately from goodwill, irrespective of the extent of any non-controlling inter- ests. The identifiable assets acquired and the liabilities assumed are measured at their fair value. The amount recognised as goodwill is calculated as the liabilities resulting from plan amendments, curtailments or amount by which the acquisition cost, the amount of non-con- settlements – Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’: clarification relating to the accounting treatment of 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 long-term interests that form part of the net investment in an the fair value of the acquiree’s net assets, the negative goodwill is entity accounted for under the equity method – IFRIC 23 ‘Uncertainty over Income Tax Treatments’ – Annual Improvements to IFRSs (2015–2017). recognised in profit or loss. KION GROUP AG recognises non-controlling interests at the proportionate value of the net assets attributable to them excluding goodwill. In the case of business combinations in stages, previously The initial application of these standards and interpretations has held equity interests are recognised at their fair value at the acqui- had no significant effect on the presentation of the financial posi- sition date. The difference between the carrying amount of the tion and financial performance of the KION Group. interests and the fair value is recognised in profit or loss. Financial reporting standards released but not yet adopted For the purpose of impairment testing, goodwill is allocated to cash-generating units that are likely to benefit from the busi- ness combination. Contingent consideration elements are included at fair value at the date of acquisition when determining the purchase consid- The standards and interpretations that had been issued by the eration. Contingent consideration elements may consist of equity IASB as at 31 December 2019 but were not yet required to be instruments or financial liabilities, depending on the structure. adopted in 2019 will probably be applied by the subsidiaries in the On first-time consolidation of an acquisition, all identifiable basis of consolidation, and by KION GROUP AG, only from the assets and liabilities are recognised at their fair value at the acqui- time when they are required to be applied. The initial application sition date. The fair values of identifiable assets are determined of these financial reporting standards and interpretations is using appropriate valuation techniques. These measurements expected to have no significant effect on the presentation of the are based, for example, on estimates of future cash flows, financial position and financial performance of the KION Group. expected growth rates, exchange rates, discount rates and useful lives. In the event of material changes to assumptions or circum- stances, estimates must be reassessed and this can lead to the recognition of an impairment loss for the asset concerned. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 144 The consolidated financial statements include all of the parent company’s material subsidiaries. Intragroup balances, transac- tions, income and expenses, and gains and losses on intercom- pany transactions are eliminated in full. Deferred taxes are [4] BASIS OF CONSOLIDATION recognised on temporary differences arising from consolidation KION  GROUP  AG’s equity investments consist of subsidiaries, transactions. joint ventures, associates and financial investments. Transactions with non-controlling interests are treated as In addition to KION  GROUP  AG, the consolidated financial transactions with the Group’s equity providers. Differences statements of the KION  Group include, using the acquisition between the consideration paid for the acquisition of a non- method, all material subsidiaries over which KION  GROUP  AG controlling interest and the relevant proportion of the carrying exercises control. KION GROUP AG controls a subsidiary if it has amount of the subsidiary’s net assets are recognised in equity. decision-making power over the main activities of the entity and Gains and losses arising from the disposal of interests are also can use this power to affect the amount of the variable returns to recognised in equity, provided there is no change in control. which it is exposed as a result of the equity investment. Subsidi- Associates and joint ventures that are of material impor- aries acquired in the course of the financial year are consolidated tance to the presentation of the financial position and financial from the date on which control is obtained. Companies sold in the performance of the KION  Group are accounted for using the course of the financial year are deconsolidated from the date on equity method. which control is lost. Associates are equity investments whose financial and oper- ating policies may be significantly influenced, either directly or indirectly, by companies in the KION Group. Significant influence is assumed when companies in the KION Group hold between 20 per cent and 50 per cent of the voting rights. Joint ventures are equity investments that are jointly man- aged by companies in the KION Group together with one or more partners, and these parties have rights to the net assets of the joint venture. Equity investments over which KION  Group companies are unable to exercise control or a significant influence, or that are not jointly controlled by them, are classified as financial investments. The number of equity investments broken down by category is shown in > TABLE 043. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 145 Shareholdings by categories TABLE 043 Consolidated subsidiaries Domestic Foreign Equity-accounted associates and joint ventures Domestic Foreign Non-consolidated subsidiaries and other investments Domestic Foreign 01/01/2019 Additions Disposals 31/12/2019 134 26 108 9 5 4 58 15 43 4 1 3 – – – 3 – 3 5 1 4 – – – 8 1 7 133 26 107 9 5 4 53 14 39 A total of 26 (2018: 26) German and 107 (2018: 108) foreign In 2019, 53 (2018: 58) companies of minor importance were subsidiaries were fully consolidated in addition to KION GROUP AG recognised at amortised cost or at fair value through other com- as at 31 December 2019. prehensive income. The non-consolidated subsidiaries and other In addition, seven associates and two joint ventures were equity investments (joint ventures and associates that are not consolidated and accounted for using the equity method as accounted for using the equity method, plus financial invest- at 31 December 2019, which was the same number as at ments) are of minor importance to the presentation of the financial 31 December 2018. In each case, the last available annual finan- position and financial performance of the KION  Group, both cial statements were used as the basis for measurement. individually and as a whole. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 146 Where other requirements are met, the fully consolidated compa- For 2019, the UK subsidiaries listed in > TABLE 045 exercised nies listed in > TABLE 044 are exempt from the obligation to dis- the exemption in section 479A of the UK Companies Act 2006, close annual financial statements and to prepare notes to the which releases them from the obligation to have their separate financial statements and management reports in accordance financial statements audited. These subsidiaries are all held with sections 264 (3) and 264b of the German Commercial Code indirectly by KION GROUP AG. (HGB) on account of their inclusion in the consolidated financial A detailed overview of all the direct and indirect sharehold- statements. In the case of STILL Financial Services GmbH, it ings of KION GROUP AG is shown in the list of shareholdings has been decided solely not to disclose the annual financial (see note [48]). statements. 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 Linde Material Handling Rental Services 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 044 Head office Stuhr Dinklage Frankfurt am Main Geisa Frankfurt am Main Frankfurt am Main Reutlingen Haan Aschaffenburg Aschaffenburg Aschaffenburg Aschaffenburg Wörth an der Isar Essen Hamburg Hamburg Unterschleißheim KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation UK subsidiaries exempt from local audit Subsidiary Linde Holdings 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. 147 TABLE 045 Head office Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Exeter Basingstoke [5] CURRENCY TRANSLATION The financial statements of foreign equity-accounted invest- ments are also translated using the method described above. Transactions of the consolidated entities in foreign currencies are translated into the relevant company’s functional currency at Financial statements in foreign currencies are translated in the rate prevailing on the transaction date. On the reporting date, accordance with the functional currency concept. The functional monetary items are translated at the closing rate and non-mone- currency is the currency of the primary economic environment in tary items at the rate prevailing on the transaction date. Currency which a KION Group entity operates. The modified closing-rate translation differences are taken to income and recognised in method is used for currency translation. other income/expenses or in financial income/expenses. The assets and liabilities of foreign subsidiaries, including The translation rates used for currencies that are material to goodwill, are translated at the middle spot exchange rate, i.e. at the financial statements are listed in > TABLE 046. the average of the bid or offer rates on the reporting date. Income and expenses are translated at the average rate. With the excep- tion of income and expenses recognised as other comprehensive income, equity is recognised at historical rates. The resulting translation differences are not taken to income and are recog- nised in accumulated other comprehensive income until sub- sidiaries are disposed of. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation Major foreign currency rates in € Australia (AUD) Brazil (BRL) China (CNY) United Kingdom (GBP) USA (USD) Source: Bloomberg Average rate Closing rate 2019 1.6103 4.4154 7.7338 0.8772 1.1194 2018 1.5801 4.3073 7.8066 0.8848 1.1809 2019 1.5971 4.5124 7.8149 0.8459 1.1213 148 TABLE 046 2018 1.6268 4.4465 7.8669 0.8990 1.1467 [6] ACCOUNTING POLICIES Assumptions and estimates The impact of a change to an estimate is recognised prospec- tively when it becomes known and assumptions are adjusted accordingly. Revenue recognition The preparation of the IFRS consolidated financial statements requires the use of assumptions and estimates for certain line Revenue is the fair value of the consideration received for the sale items that affect recognition and measurement in the consoli- of goods and services and rental and lease income (excluding dated statement of financial position and consolidated income VAT) after deduction of trade discounts and rebates. In addition to statement. The actual amounts realised may differ from esti- the contractually agreed consideration, the transaction price may mates. Assumptions and estimates are applied in particular: also include variable elements such as rebates, volume dis- – in assessing the need for and the amount of impairment losses on intangible assets, property, plant and equipment, and inventories lease terms – 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 obliga- – 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 tions and other provisions revenue is recognised over a period of time. counts, trade discounts, bonuses and penalties. Revenue is rec- ognised when control over the goods or services passes to the customer. The point in time when the risks and rewards incidental to ownership of the goods sold are substantially transferred to the customer is determined by the underlying contract and the deliv- ery terms specified therein or by international trade rules. Pay- ment terms vary in accordance with the customary conditions in the respective countries. Other criteria may arise, depending on each individual transaction, as described below: KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 149 Sale of goods ual value obligation as deferred income and subsequently recog- nise the revenue in instalments over the term of the lease. If risks Revenue from the sale of goods is recognised at the point in time and rewards relating to the industrial truck are substantially trans- when the KION Group delivers goods to a customer, the risks and ferred to the vendor partner, entities in the KION Group immedi- rewards incidental to the ownership of the goods sold are sub- ately recognise the portion of the consideration received that stantially transferred to the customer and the flow of benefits to exceeds the residual value obligation as revenue. the Group is considered to be sufficiently probable. If a customer is expected to accept goods but has yet to do so, the corre- Project business contracts sponding revenue is only recognised when the goods are accepted. Shipping services are not usually treated as separate Revenue from the project business is recognised over time performance obligations. In addition to the contractually agreed according to the stage of completion (percentage-of-completion consideration, the transaction price for key-account customers method). The percentage of completion is the proportion of con- may also include variable elements such as rebates, volume tract costs incurred up to the reporting date compared to the total discounts, trade discounts, bonuses and penalties. The revenue estimated contract costs as at the reporting date (cost-to-cost from these sales is recognised in the amount of the price speci- method) and reflects the continual transfer of control over the pro- fied in the contract less the estimated price reductions. ject to the customer. If it is probable that the total contract costs Rendering of services will exceed the contract revenue, the expected loss is immedi- ately recognised as an expense in the financial year in which the loss becomes apparent. If the contract costs incurred plus the Revenue from the rendering of services is recognised on a profit and loss recognised exceed the progress billings, the straight-line basis over the period of performance or in accord- excess is recognised as a contract asset. If the progress billings ance with the proportion of the overall service rendered by the exceed the capitalised costs plus the recognised profit and loss, reporting date. By contrast, revenue from long-term service the excess is recognised as a liability under contract liabilities. agreements is recognised on the basis of the average term of If the outcome of a project business contract cannot be reli- the service agreements and in line with progressive costs ably estimated, the likely achievable revenue is recognised only (constant margin). Leases / short-term rentals up to the amount of the costs incurred. Contract costs are recog- nised as an expense in the period in which they are incurred. Var- iations in the contract work, claims and incentive payments are factored into the project costing if they are likely to result in reve- Revenue from direct lease business is recognised in the amount nue and the amount of revenue can be reliably estimated. If the of the sale value of the leased asset if classified as a finance lease calculated percentage of completion as at the reporting date and in the amount of the lease payments if classified as an oper- changes as a result, the difference between the revenue already ating lease. If industrial trucks are first sold to and then immedi- recognised up to that point and the revenue calculated on the ately leased back from a financing partner in order to finance basis of the new estimate of the percentage of completion is rec- leases, no selling margin in connection with the financing is rec- ognised in profit or loss. ognised as the financing partner usually does not obtain control Project business contracts are accounted for using the per- over the industrial truck. centage-of-completion method based on management esti- In the indirect lease business, industrial trucks are sold to mates of the contract costs incurred. If estimates change, or if vendor partners that enter into long-term leases with end cus- there are differences between planned and actual costs, this is tomers. As the vendor partner usually does not obtain control directly reflected in the profit or loss from project business con- over the industrial truck, entities in the KION Group initially treat tracts. The Operating Units continually review the cost estimates the portion of the consideration received that exceeds the resid- and adjust them as appropriate. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 150 Cost of sales Goodwill The cost of sales comprises the cost of goods and services sold Goodwill has an indefinite useful life and is therefore not amor- and includes directly attributable material and labour costs as tised. Instead, it is tested for impairment in accordance with well as directly attributable overheads. Cost of sales also includes IAS 36 at least once a year, and more frequently if there are indi- additions to warranty provisions, which are recognised in the cations that the asset might be impaired. amount of the estimated cost at the date on which the related Goodwill is tested for impairment annually at the level of the product is sold. Financial income and expenses cash-generating units (CGUs) to which goodwill is allocated. The cash-generating units identified for the purposes of test- ing goodwill and brand names for impairment equate to the LMH EMEA, STILL EMEA, KION APAC and KION Americas Operating Units in the Industrial Trucks & Services segment and to the Financial income and expenses mainly consist of interest expense Dematic Operating Unit in the Supply Chain Solutions segment. on financial liabilities, interest income from financial receivables, The recoverable amount of a CGU is determined by calculat- interest income and interest expense from leases, interest income ing its value in use on the basis of the discounted cash flow and interest expense from financial services, interest expense method. The cash flows forecast for the next five years are from procurement leases, foreign currency exchange rate gains included in the calculation for the impairment test. The financial and losses on financing activities and the net interest cost of the forecasts are based on assumptions relating to the development defined benefit obligation. Interest income and expenses are of the global economy, commodity prices and exchange rates. recognised in profit and loss in accordance with the effective Cash flows beyond the five-year planning horizon were extrapo- interest method. lated for the LMH EMEA, STILL EMEA, KION APAC and KION Americas CGUs using a growth rate of 1.0  per  cent (2018: 0.8 per cent). The growth rate used for Dematic was 1.3 per cent (2018: 1.3 per cent). CGU cash flows are discounted using a weighted average cost of capital (WACC) that reflects current market assessments of the specific risks to individual CGUs. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 151 >  TABLE  047 shows the significant parameters for impairment carrying amount of items classified as other intangible assets with testing broken down by Operating Unit. Any material changes a finite useful life. The carrying amount of an asset is compared to these and other factors might result in the recognition of with its recoverable amount. If the reasons for recognising impair- impairment losses. Further information on goodwill can be ment losses in prior periods no longer apply, the relevant impair- found in note [16]. ment losses are reversed, but subject to a limit such that the car- The impairment test carried out in the fourth quarter of 2019 rying amount of the asset is no higher than its amortised cost. did not reveal any need to recognise impairment losses for the Development costs are capitalised if the capitalisation criteria goodwill allocated to the LMH EMEA, STILL EMEA, KION APAC, in IAS 38 are met. Capitalised development costs include all costs KION Americas and Dematic CGUs. Using sensitivity analysis, it and overheads directly attributable to the development process. was determined that no impairment losses need to be recognised Once they have been initially capitalised, these costs and other for goodwill, even if key assumptions vary within realistic limits, in internally generated intangible assets – particularly internally gen- particular variations in WACC of plus or minus 100 basis points. erated software – are carried at cost less accumulated amortisa- Other intangible assets tion and accumulated impairment losses. All non-qualifying development costs are expensed as incurred and reported in the consolidated income statement under research and development costs together with research costs. Other purchased intangible assets with a finite useful life are car- Amortisation of intangible assets with a finite useful life is rec- ried at historical cost less all accumulated amortisation and ognised on a straight-line basis and predominantly reported impairment losses. If events or market developments suggest under cost of sales. The impairment losses on intangible assets impairment has occurred, impairment tests are carried out on the are reported under other expenses. Significant parameters for impairment testing TABLE 047 in % Industrial Trucks & Services LMH EMEA STILL EMEA KION Americas KION APAC Supply Chain Solutions Dematic Long-term growth rate WACC after tax 2019 1.0% 1.0% 1.0% 1.0% 1.3% 2018 0.8% 0.8% 0.8% 0.8% 1.3% 2019 7.5% 7.6% 8.3% 7.9% 8.3% 2018 7.3% 7.4% 8.2% 7.7% 8.6% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 152 The useful lives shown in > TABLE 048 are applied in determining als are classified as operating leases, again in accordance with the carrying amounts of other intangible assets. IFRS 16, and recognised as leased assets or rental assets. Other intangible assets with an indefinite useful life are car- If an entity in the Industrial Trucks & Services segment enters ried at cost and currently comprise only brand names. Brand into a finance lease as the lessor, the future lease payments to be names are not amortised because they have been established in made by the customer are recognised as lease receivables at an the market for a number of years and there is no foreseeable end amount equal to the net investment in the lease. These are meas- to their useful life. In accordance with IAS 36, they are tested for ured using the simplified impairment approach in accordance impairment at least once a year, and more frequently if there are with IFRS 9. Interest income is spread over the term of the lease indications that the asset might be impaired. in order to ensure a constant return on the outstanding net invest- The impairment test applies an income-oriented method in ment in the lease. which fundamentally the same assumptions are used as in the The classification of leases requires estimates to be made impairment test for goodwill. Assessments of indefinite useful life regarding the transferred and retained risks and rewards in con- are carried out in every period. nection with ownership of the industrial truck. When defining the Leases / short-term rentals lease term, management also takes into consideration all facts and circumstances that offer an economic incentive to exercise extension options or to not exercise cancellation options. Further information on leases can be found in notes [17] Leased assets, KION Group entities in the Industrial Trucks & Services segment [18] Rental assets and [19] Other property, plant and equipment. conduct lease and short-term rental business in which they lease or rent industrial trucks and related items of equipment to their Leases customers in order to promote sales. Entities in the KION Group enter into leases as lessors and as If the beneficial ownership of leased assets remains with a lessees. Where they act as lessors, the leases are classified as KION  Group entity as the lessor under an operating lease, the finance leases, in accordance with IFRS 16, if substantially all of assets are reported as leased assets in the statement of financial the risks and rewards incidental to ownership of the leased asset position. The leased assets are carried at cost and depreciated are transferred to the lessee. All other leases and short-term rent- on a straight-line basis over the term of the underlying leases until Useful life of other intangible assets Customer relationships / client base Technology Development costs Patents and licences Software TABLE 048 Years 4 – 15 10 – 15 5 – 7 3 – 15 2 – 10 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 153 the residual value is reached. To finance leases, industrial trucks Short-term rentals are generally sold to leasing companies (financing partners) and immediately leased back (head lease) before being sub-leased to Entities in the KION Group rent industrial trucks directly to end external end customers (described below as ‘sale and leaseback customers under short-term rental agreements. Short-term sub-leases’). rental agreements usually have a term ranging from a few The following applies to leases entered into from 1 January 2018 hours to a year. onwards: The financing partner usually does not obtain control The following applies to short-term rental agreements entered over the industrial truck and it is recognised as a leased asset in into from 1 January 2018 onwards: The financing partner usually the statement of financial position or, if the risks and rewards have does not obtain control over the industrial truck and it is recog- been transferred to the end customer, as a lease receivable. The nised as a rental asset in the statement of financial position. It is industrial truck recognised as a leased asset is carried at cost, carried at cost and usually depreciated on a straight-line basis while the lease receivable is recognised at an amount equal to over the normal useful life of between five and eight years, the net investment in the lease. In both cases, the liabilities for depending on the product group. The liabilities for financing this financing are recognised under liabilities from financial services. part of the short-term rental fleet are reported under liabilities In accordance with the transitional provisions of IFRS 16, the from financial services. sale and leaseback sub-lease portfolio in existence as at 31 Decem- In accordance with the transitional provisions of IFRS 16, ber 2017 was not reassessed with regard to the transfer of control the sale and leaseback sub-lease portfolio in existence as at to the financing partner in the head lease. In sale and leaseback 31 December 2017 was not reassessed with regard to the trans- sub-leases, risks and rewards incidental to the head lease are, in fer of control to the financing partner in the head lease. In the case general, substantially borne by entities in the KION Group. The of sale and leaseback sub-lease transactions, risks and rewards corresponding assets are therefore reported as leased assets incidental to the head lease are usually substantially borne by within non-current assets and measured at amortised cost. entities in the KION Group, so the industrial trucks are reported as However, if risks and rewards incidental to the head lease are rental assets and measured at amortised cost. The liabilities for substantially transferred to the end customer in the sub-lease, a financing this part of the short-term rental fleet are reported under corresponding lease receivable is recognised. In both cases, the other financial liabilities. funding items for these long-term customer leases, which are funded for terms that match those of the leases, are recognised as lease liabilities. Other property, plant and equipment In the indirect lease business, industrial trucks are sold to leasing companies that enter into long-term leases with end cus- Property, plant and equipment is carried at cost less depreciation tomers (vendor partners). As the vendor partner usually does not and impairment losses. The cost of internally generated machin- obtain control over the industrial truck, it is recognised as a leased ery and equipment includes all costs directly attributable to the asset in the statement of financial position of the KION Group production process and an appropriate portion of production entities and carried at cost. If the KION Group provides a residual overheads. value guarantee, an amount equivalent to the residual value Depreciation of property, plant and equipment is recognised obligation is recognised under liabilities from financial services. on a straight-line basis and reported under functional costs. The useful lives and depreciation methods are reviewed annually and adjusted to reflect changes in conditions. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 154 The ranges of useful life below are applied in determining the car- At the end of the lease term, the leased assets are returned rying amounts of items of property, plant and equipment. or purchased, or the contract is extended; the latter is accounted > TABLE 049 for as a modification or remeasurement. If there are certain indications of impairment of the property, KION  Group companies also lease property, plant and equip- plant and equipment, the assets are tested for impairment by ment for their own use through leases, which are recognised as comparing the residual carrying amount of the assets with their right-of-use assets under other property, plant and equipment. recoverable amount. If the residual carrying amount is greater As a rule, the leases are entered into for defined periods, although than the recoverable amount, an impairment loss is recognised they may contain extension and / or termination options. for an asset. The impairment losses on property, plant and equip- The right-of-use assets are depreciated over the shorter of ment are reported under other expenses. their useful life or the term of the lease, unless title to the leased If an impairment test for an item of property, plant and equip- assets passes to the lessee when the lease expires, in which case ment is performed at the level of a cash-generating unit to which the right-of-use asset is depreciated over the useful life of the goodwill is allocated and results in the recognition of an impair- leased asset. ment loss, first the goodwill and, subsequently, the assets must When liabilities from procurement leases are initially meas- be written down in proportion to their relative carrying amounts. If ured, the lease payments not yet made are discounted at an inter- the reason for an impairment loss recognised in prior years no est rate implicit in the lease. If this cannot be readily defined, a longer applies, the relevant pro-rata impairment losses are term-specific and currency-specific incremental borrowing rate of reversed, but subject to a limit such that the carrying amount of interest is essentially determined and used for the calculation. the asset is no higher than its amortised cost. This does not apply Lease instalments for procurement leases with a term of no to goodwill. more than twelve months and for procurement leases relating to low-value assets are immediately recognised as an expense under functional costs. Useful life of other property, plant and equipment Buildings Plant and machinery Office furniture and equipment TABLE 049 Years 10 – 50 3 – 15 2 – 15 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 155 Equity-accounted investments Financial assets In accordance with the equity method, associates and joint ven- In accordance with IFRS 9, the KION Group categorises financial tures are measured as the proportion of the interest in the equity assets as debt instruments measured at amortised cost (AC cat- of the investee. They are initially carried at cost. Subsequently, the egory), debt instruments recognised at fair value through profit or carrying amount of the equity investment is adjusted in line with loss (FVPL category) or equity instruments recognised at fair any changes to the KION Group’s interest in the net assets of the value through other comprehensive income (FVOCI category). investee. The KION Group’s interest in the profit or loss generated Debt instruments are measured at amortised cost if they are held as after acquisition is recognised in income. Other changes in the part of a business model whose objective is to collect the contractual equity of associates and joint ventures are recognised in other cash flows, and these cash flows consist solely of payments of comprehensive income in the consolidated financial statements principal and interest on the principal amount outstanding. in proportion to the Group’s interest in the associate or joint venture. Cash and cash equivalents, financial receivables, sundry If the Group’s interest in the losses made by an associate or financial assets and the majority of trade receivables are assigned joint venture exceeds the carrying amount of the proportionate to the AC category. Derivative financial instruments with a positive equity attributable to the Group, no additional losses are recog- fair value that are not part of a formally documented hedge, nised. Any goodwill arising from the acquisition of an associate or certain trade receivables and other financial investments are joint venture is included in the carrying amount of the investment assigned to the FVPL category. Financial investments are in the associate or joint venture. assigned to the FVOCI category. If there is evidence that an associate or joint venture may be Upon initial recognition, financial assets in the AC category impaired, the carrying amount of the equity investment in ques- are carried at fair value including directly attributable transaction tion is tested for impairment. The carrying amount of the asset costs. In subsequent periods they are measured at amortised is compared with its recoverable amount. If the carrying amount cost using the effective interest method. Low-interest or non- is greater than the recoverable amount, an impairment loss is interest-bearing receivables due in more than one year are carried recognised for the equity investment. at their present value. Financial instruments In line with the impairment approach for debt instruments in the AC category, both upon initial recognition and subsequently the KION Group recognises expected credit losses in profit or loss by recognising valuation allowances. These valuation allow- Recognition of financial instruments at fair value ances amount to the twelve-month expected losses, provided no significant increase in credit risk (for example as a result of mate- In accordance with IFRS 9, certain financial instruments are rec- rial changes to external or internal credit ratings) is observable at ognised at fair value. Fair value is determined regularly using suit- the reporting date. Otherwise, lifetime expected losses are recog- able valuation methods, where possible on the basis of observa- nised. The expected losses are calculated using the probability of ble inputs. If no observable inputs are available, unobservable default, the exposure at default and, taking into account any col- inputs are used. lateral, the estimated loss given default. The calculation draws on observable historical loss data, information on current conditions and the economic outlook. A default is defined as the occurrence of a loss event, such as a borrower being in considerable financial difficulties or a contract being breached. Financial assets are impaired if there are no reasonable prospects of recovering the underlying cash flows in full or partly. The recoverability is assessed on the basis of different indicators (for example, the KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 156 opening of insolvency proceedings over the borrower’s assets) Financial liabilities that take the relevant country-specific factors into account. The reversal of an impairment loss must not result in a carrying In accordance with IFRS 9, the KION Group differentiates amount greater than the amortised cost that would have arisen if between financial liabilities that are not held for trading and are the impairment loss had not been recognised. thus recognised at amortised cost using the effective interest Upon measurement of trade receivables subsequent to initial method (AC category) and financial liabilities that are held for recognition, the KION Group applies the simplified impairment trading and recognised at fair value through profit or loss approach of IFRS 9 and thus recognises lifetime losses. To deter- (FVPL category). mine the lifetime losses, for purposes of the valuation allowance Financial liabilities, liabilities from financial services, trade average loss rates are calculated on a collective basis in accord- payables and other financial liabilities (except derivative financial ance with the past due status of the receivables. The loss rates instruments with a negative fair value that are not part of a for- are calculated on the basis of observable historical loss data, tak- mally documented hedge) are assigned to the AC category. ing into account current conditions and the economic outlook (for Derivative financial instruments with a negative fair value that are example on the basis of expected probability of default for signif- not part of a formally documented hedge are assigned to the icant countries). The amount of the valuation allowance recog- FVPL category. nised is adjusted in profit or loss if there is a change in the Upon initial recognition, financial liabilities in the AC category estimate for the underlying inputs and thus in the losses to be are carried at fair value, including (where applicable) directly recognised. attributable transaction costs. Low-interest or non-interest-bear- Financial assets assigned to the FVPL category are initially ing liabilities due in more than one year are carried at their present recognised at fair value; directly attributable transaction costs value. Subsequently, financial liabilities are recognised at amor- have to be taken directly to profit or loss. In subsequent periods, tised cost using the effective interest method. financial assets in the FVPL category are recognised at fair value Financial liabilities assigned to the FVPL category are initially through profit or loss. recognised at fair value; directly attributable transaction costs Equity instruments in the FVOCI category are recognised at have to be taken directly to profit or loss. In subsequent periods, fair value through other comprehensive income. Upon initial rec- financial liabilities in the FVPL category are recognised at fair ognition at fair value, directly attributable transaction costs are value through profit or loss. included. Accumulated gains and losses in other comprehensive income are not reclassified to profit or loss upon derecognition of these financial assets but instead remain in equity. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 157 Hedge accounting Income taxes Derivative financial instruments that are part of a formally docu- In the consolidated financial statements, current and deferred mented hedge with a hedged item are not assigned to any of the taxes are recognised on the basis of the tax laws of the jurisdic- IFRS 9 measurement categories and are therefore recognised in tions involved. Deferred taxes are recognised in other compre- accordance with the hedge accounting rules described below. hensive income if they relate to transactions also recognised in In the case of cash flow hedges for hedging currency risk and other comprehensive income. interest-rate risk, derivatives are used to hedge future cash flow Deferred tax assets and liabilities are recognised in accord- risks from existing hedged items, planned transactions and firm ance with the liability method for all temporary differences obligations not reported in the statement of financial position. The between the IFRS carrying amounts and the tax base, as well as effective portion of changes in the fair value of derivatives is ini- for temporary consolidation measures. tially recognised in equity in the hedge reserve (other comprehen- Deferred tax assets also include tax refund claims that arise sive income). The amounts previously recognised in the hedge from the expected utilisation of existing tax loss carryforwards reserve are subsequently reclassified to the income statement and interest carryforwards in subsequent years and whose utili- when the gain or loss on the corresponding hedged item is rec- sation is reasonably certain according to current forecasts. On ognised. The ineffective portion of the changes in fair value is rec- the basis of this estimate, deferred tax assets have been recog- ognised immediately in the income statement. nised on some loss carryforwards and interest carryforwards. In addition, the KION Group uses an interest-rate swap to Deferred taxes are determined on the basis of the tax rates hedge the fair value of a fixed-rate financial liability. The effective that will apply at the recovery date, or have been announced, in portion of changes in the fair value of the interest-rate swap is accordance with the current legal situation in each country con- recognised in financial income/expenses. These are offset by cerned. Deferred tax assets are offset against deferred tax liabili- gains and losses on the change in the fair value of the hedged ties to the extent that they have the same maturity and relate to financial liability, which result in an adjustment in profit or loss the same taxation authority. of the carrying amount of the hedged item. The ineffective portion Significant estimates are involved in calculating income of the hedge is also recognised immediately in net financial taxes. These estimates may change on the basis of new informa- income / expenses. tion and experience (see also note [14]). Deferred tax assets on The critical-terms-match method is used to measure the pro- tax loss carryforwards and interest carryforwards are recognised spective effectiveness of the hedges. Ineffective portions can on the basis of an estimate of the future recoverability of the tax arise if the critical terms of the hedged item and hedge no longer benefit, i.e. an assumption as to whether sufficient taxable income match; this is determined using the dollar-offset method. 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 to the estimates made when the corresponding deferred tax assets were recognised. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 158 Inventories Retirement benefit obligation Inventories are carried at the lower of cost and net realisable The retirement benefit obligation is calculated in accordance with value. The acquisition costs of raw materials and merchandise the projected unit credit method, taking account of future are calculated on the basis of an average. The cost of finished increases in remuneration and pensions. Pension provisions are goods and work in progress includes direct costs and an appro- reduced by the fair value of the plan assets used to cover the priate portion of the material and production overheads and Group’s benefit obligations. production-related depreciation directly attributable to the pro- Remeasurements, including deferred taxes, are recognised in duction process. Administrative costs and social insurance / other comprehensive income. The service cost and the net interest employee benefits are included to the extent that they are attrib- cost of defined benefit plans are recognised in profit or loss. utable to the production process. The amount recognised is an Defined benefit pension entitlements are calculated on the average value or a value determined in accordance with the FIFO basis of actuarial parameters, although the fair value for certain method (FIFO = first in first out). plan assets is derived from inputs that are not observable in the Net realisable value is the selling price that can be realised market. As differences due to remeasurements are taken to other less the estimated costs of completion and the estimated distri- comprehensive income, any change in these assumptions would bution costs necessary to make the sale. not affect the net profit for the current period. Further information Write-downs are recognised for inventory risks resulting from on sensitivity analysis in relation to the impact of the discount rate duration of storage, impaired recoverability or other reasons. If and details of measurement can be found in the information on the reasons for the recognition of the write-downs no longer the retirement benefit obligation in note [28]. apply, they are reversed, but subject to a limit such that the carrying amount of the asset is no higher than its cost. Contract balances Liabilities from financial services Liabilities from financial services comprise all liabilities from financing the lease business and financing the short-term rental Contract assets mainly relate to work performed in the project fleet on the basis of sale and leaseback sub-leases from 1 Janu- business that has not yet been billed. Contract assets are meas- ary 2018 onwards, as well as all liabilities that arise from financing ured using the simplified impairment approach in accordance the direct lease business by means of lease facilities and the use with IFRS 9. The average loss rates calculated for trade receiva- of securitisations. Furthermore, liabilities from financial services bles are used as an approximation of the expected losses from arising from the lease business include residual value obligations contract assets. resulting from the indirect lease business. 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 lia- bilities, as are advances received from customers. Further infor- mation on contract balances can be found in note [33]. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation 159 Other provisions The recognition and measurement of other provisions are based on an estimate of the probability of the future outflow of Other provisions are recognised when the Group has a legal or resources, supplemented by past experience and the circum- constructive obligation to a third party as the result of a past event stances known to the Group at the reporting date. Accordingly, that is likely to lead to a future outflow of resources and that can the actual outflow of resources for a given event may be different be reliably estimated. Where there is a range of possible out- to the amount recognised in other provisions. Further details can comes and each individual point within the range has an equal be found in note [32]. probability of occurring, the provision is recognised in the amount of the mean of the individual points. Measurement is at full cost. Provisions for identifiable risks and uncertain liabilities are Share-based payments recognised in the amount that represents the best estimate of the cost required to settle the obligations. Recourse claims are not IFRS 2 distinguishes between equity-settled and cash-settled taken into account. The settlement amount also includes cost share-based payment transactions. increases identifiable as at the reporting date. Provisions with a Equity-settled share-based payment transactions are recog- maturity of more than twelve months are discounted using the nised at their fair value at the date of grant. The fair value of the standard market interest rate. The discount rate is a before-tax obligation is recognised as an expense under functional costs interest rate that reflects current market expectations for the time over the vesting period and offset against capital reserves. value of money and the specific risks inherent in the liability. The The portion of the fair value of cash-settled share-based pay- interest cost from unwinding the discount is recognised in ments that is attributable to service provided up to the valuation interest expenses. date is recognised as an expense under functional costs and is Warranty provisions are recognised on the basis of past or also reported as a liability. The fair value is recalculated on each estimated future claim statistics. The corresponding expense is reporting date until the end of the performance period. Any recognised in cost of sales at the date on which the revenue is change in the fair value of the obligation must be recognised recognised. Individual provisions are recognised for claims that (pro rata) under expenses. are known to the Group. Provisions for onerous contracts and other business obliga- tions are measured on the basis of the contractual obligations that are currently still to be fulfilled. A restructuring provision is recognised when a KION Group entity has prepared a detailed, formal restructuring plan and this plan has raised the valid expectation in those affected that the entity will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. The measurement of a restructuring provision only includes the direct expenditures arising from the restructuring and not associated with the ongoing activities of the entity concerned. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 160 Notes to the consolidated income statement [7] REVENUE > TABLE 050 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 050 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 lease business (in both cases where classified as finance lease) Aftersales Supply of spare parts Individual orders for repairs and maintenance work (Full) service contracts Rental business Direct long-term rental business and indirect lease business (in both cases where classified as operating lease) 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 Supply of spare parts Various business models, currently categorised as not material to the financial performance of the KION Group in the SCS segment Corporate Services Services Over a period of time Over a period of time At a point in time Mainly over a period of time Mainly at a point in time KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 161 >  TABLES  051 – 052 show revenue from contracts with customers, broken down by sales region, product category, timing of revenue recognition and segment. Disaggregation of revenue with third parties TABLE 051 2019 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 4,652.9 641.2 76.5 157.2 203.5 672.4 6,403.7 3,345.6 3,058.2 1,600.9 926.2 361.1 169.9 559.4 32.7 17.2 1,523.3 9.0 234.4 2,376.1 1,780.2 595.9 6,403.7 2,376.1 22.0 4.6 0.1 – – 0.0 26.7 26.7 26.7 20.8 5.9 Total 5,234.3 678.6 93.8 1,680.5 212.5 906.9 8,806.5 3,345.6 3,058.2 1,600.9 926.2 361.1 169.9 1,780.2 595.9 26.7 8,806.5 5,234.6 3,571.9 Timing of revenue recognition Products and services transferred at a point in time Products and services transferred over a period of time 4,951.6 1,452.1 262.2 2,113.9 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 162 Disaggregation of revenue with third parties TABLE 052 2018 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 4,287.5 561.9 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 – – 0.6 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 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 163 > TABLE 053 shows the revenue that is expected as a result of per- The total cost of materials recognised in the consolidated formance obligations in existence at the reporting date. This con- income statement went up by €360.2 million to €4,051.6 million in sists only of revenue from contracts with customers as defined by 2019 (2018: €3,691.4 million). IFRS 15. In the Supply Chain Solutions segment, this revenue is The total personnel expenses recognised increased by generated by the project and service business. In the Industrial €192.6 million to €2,292.8 million (2018: €2,100.2 million). These Trucks & Services segment, it is generated through aftersales personnel expenses included wages and salaries of €1,820.6 mil- (full-)service contracts with an expected original term of more lion (2018: €1,653.4  million), social security contributions of than one year. [8] COST OF SALES AND OTHER FUNCTIONAL COSTS €398.7 million (2018: €364.2 million) and expenses for pensions of €73.5 million (2018: €82.6 million). The interest cost from the unwinding of the discount on estimated pension obligations is not recognised under personnel expenses and is instead reported under financial expenses as a component of interest cost of the defined benefit obligation. Pension expenses essentially com- prised the pension entitlements of €41.5  million vested in 2019 (2018: €41.4  million) and unrecognised past service income of The cost of sales amounted to €6,474.6  million in the reporting €1.3 million (2018: cost of €1.4 million) arising from plan amend- year (2018: €5,898.1 million). The main components of the cost of ments and curtailments. sales are the cost of inventories recognised in profit or loss (cost Impairment losses and depreciation expenses on property, of materials), production-related personnel expenses, deprecia- plant and equipment together with impairment losses and tion expenses on property, plant and equipment, amortisation amortisation expenses on intangible assets came to a total of expenses on intangible assets in connection with purchase price €898.0 million in the reporting year (2018: €897.9 million). allocations, and amortisation expenses on capitalised develop- Research and development costs totalling €155.3  million ment costs. (2018: €137.7 million) were expensed. 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 more than three years TABLE 053 2018 2,728.9 1,837.9 506.8 179.6 204.6 2019 3,238.1 2,003.4 631.8 235.1 367.7 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 164 [9] OTHER INCOME [10] OTHER EXPENSES The breakdown of other income is as follows: > TABLE 054 The breakdown of other expenses is as follows: > TABLE 055 In 2019, other income fell by €17.0 million year on year. In 2019, other expenses fell by €8.8 million year on year. The decrease was predominantly attributable to the reduc- The decrease was predominantly attributable to the reduc- tion in foreign currency exchange rate gains. These gains are tion in foreign currency exchange rate losses. These losses are attributable to exchange rate gains arising in the course of the attributable to exchange rate losses arising in the course of the Group companies’ operating activities and to gains on hedges Group companies’ operating activities and to losses on hedges that were entered into in order to hedge currency risk arising that were entered into in order to hedge currency risk arising from the operating business and are not part of a formally from the operating business and are not part of a formally documented hedge (details of the countervailing losses can be documented hedge (details of the countervailing gains can be found in note [10]). found in note [9]). Sundry income included, among other items, income from non-consolidated subsidiaries and other equity investments amounting to €2.0 million (2018: €2.3 million). 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 TABLE 054 2018 44.2 2.4 2.3 1.2 36.4 86.5 2019 32.1 1.9 6.0 0.8 28.6 69.5 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 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 165 TABLE 055 2018 50.0 1.1 6.4 5.7 63.3 2019 37.9 2.4 6.9 7.4 54.5 [11] SHARE OF PROFIT (LOSS) OF EQUITY-ACCOUNTED INVEST- MENTS In 2019, financial income rose by €5.6 million year on year. The increase mainly resulted from higher interest income from leases (details of the countervailing interest expenses can be found in note [13]). The interest income from leases relates to the interest portion of lease payments in financial services transac- tions in which KION Group entities operate as lessors (in the case The share of profit (loss) of equity-accounted investments in the of leases classified as finance leases). reporting year amounted to a profit of €12.1  million (2018: Foreign currency exchange rate gains predominantly arise in €12.2  million). Further details on equity-accounted investments connection with foreign currency positions in internal financing can be found in note [20]. and the related hedging transactions that are not part of a for- mally documented hedge. [12] FINANCIAL INCOME Financial income breaks down as shown in > TABLE 056. Financial income in € million Interest income from leases Foreign currency exchange rate gains (financing) Other interest and similar income Total financial income TABLE 056 2018 43.8 48.9 7.1 99.9 2019 51.9 47.9 5.7 105.5 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 166 [13] FINANCIAL EXPENSES [14] INCOME TAXES Financial expenses break down as follows: > TABLE 057 The income tax expense of €176.8 million (2018: €143.7 million) consisted of €212.8  million in current tax expense (2018: In 2019, financial expenses rose by €3.3 million year on year. €166.5  million) and €36.0  million in deferred tax income (2018: Interest expense from loans decreased due to the corporate €22.9 million). actions carried out in 2019 and 2018, whereas the interest The current corporate income tax rate in Germany is expense from promissory notes increased. 15.0 per cent plus a solidarity surcharge (5.5 per cent of corpo- Interest expense from leases, which totalled €57.4  million rate income tax). Taking into account the average trade tax rate of (2018: €51.3  million), was attributable both to liabilities from 14.9 per cent (2018: 14.9 per cent), the combined nominal tax rate financing the direct and indirect lease business and to liabilities for entities in Germany was 30.7 per cent (2018: 30.8 per cent). from financing the short-term rental fleet. Leases entered into The income tax rates for foreign companies used in the calcula- with customers in connection with these financing transactions tion of deferred taxes were between 9.0  per  cent and that constitute operating leases resulted in interest expense of 34.0 per cent, as had also been the case in 2018. €23.3 million (2018: €18.9 million). The income from correspond- No deferred taxes have been recognised on temporary ing customer leases is a component of the rental and lease differences of €195.1 million (2018: €235.5 million) between the payments received and is therefore reported within revenue net assets reported in the consolidated financial statements for rather than as interest income. the Group companies and the tax base for the shares in these Foreign currency exchange rate expenses predominantly Group companies (outside basis differences) because the arise in connection with foreign currency positions in internal KION Group is in a position to manage the timing of the reversal financing and the related hedging transactions that are not part of of temporary differences and there are no plans to dispose of a formally documented hedge. equity investments in the foreseeable future. Deferred tax assets are allocated to the following items in the statement of financial position: > TABLE 058 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 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 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 167 TABLE 057 2018 22.9 16.3 51.3 16.9 19.4 4.5 55.2 10.7 197.3 TABLE 058 2018 137.7 141.8 238.7 609.6 186.9 21.4 – 914.4 421.7 2019 15.4 17.6 57.4 15.3 19.9 3.6 56.1 15.4 200.6 2019 200.6 179.3 309.4 653.0 138.1 10.9 – 1,041.7 449.7 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement 168 Deferred tax liabilities are allocated to the following items in the lion (2018: €7.8 million). Deferred taxes are recognised on tax loss statement of financial position: > TABLE 059 carryforwards and interest carryforwards to the extent that suffi- cient future taxable income is expected to be generated against The deferred tax liabilities essentially related to purchase which the losses can be utilised. The total amount of unrecog- price allocations in the acquisition of the KION  Group and nised deferred tax assets relating to loss carryforwards is there- Dematic, particularly for intangible assets and property, plant fore €173.0 million (2018: €137.4 million), of which €140.9 million and equipment. (2018: €111.2  million) concerns tax losses that can be carried The change in deferred taxes included currency effects of forward indefinitely. €6.1 million that were recognised in other comprehensive income The KION Group’s corporation-tax loss carryforwards in Ger- (loss) under cumulative translation adjustment, resulting in a many as at 31 December 2019 amounted to €137.4 million (2018: decrease in equity (2018: €7.0 million). €115.2  million), while trade-tax loss carryforwards stood at In 2019, the parent company and the consolidated subsidiar- €117.1  million (2018: €95.9  million). There were also foreign tax ies that reported losses for 2019 or 2018 recognised net deferred loss carryforwards totalling €498.6 million (2018: €454.4 million). tax assets on temporary differences and on loss carryforwards The interest that can be carried forward indefinitely in totalling €12.8  million (2018: €21.1  million). These assets were Germany as at 31 December 2019 amounted to €283.9 million considered to be unimpaired because these companies are (2018: €283.9 million). expected to generate taxable income in future. The table below shows the reconciliation of expected income No deferred tax assets have been recognised on tax loss tax expenses to effective income tax expenses. The Group rec- carryforwards of €714.9 million (2018: €580.7 million) – of which onciliation is an aggregation of the individual company-specific €128.9 million (2018: €103.1 million) can only be carried forward reconciliations prepared in accordance with relevant local tax on a restricted basis – or on interest carryforwards of €283.9 mil- rates, taking into account consolidation effects recognised in lion (2018: €283.9  million). Furthermore, no deferred tax assets income. > TABLE 060 have been recognised on other temporary differences of €0.2 mil- Deferred tax liabilities in € million Intangible assets and property, plant and equipment Other assets Provisions Liabilities Deferred income Offsetting Total deferred tax liabilities TABLE 059 2018 1,071.0 326.1 19.4 110.7 13.9 – 914.4 626.7 2019 1,027.8 368.8 13.8 186.5 15.7 – 1,041.7 570.9 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated income statement Income taxes in € million Earnings before tax 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 169 TABLE 060 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 2019 621.6 – 191.0 – 2.7 7.0 – 13.7 – 0.3 – 7.6 18.2 10.3 5.7 – 2.2 – 0.6 Effective income taxes (current and deferred taxes) – 176.8 – 143.7 [15] EARNINGS PER SHARE Diluted earnings per share (€3.86; 2018: €3.39) is calcu- lated by adding the potential dilutive no-par-value shares that employees can obtain for free under the employee share option programme (KEEP) to the weighted average number of Basic earnings per share (€3.86; 2018: €3.39) is calculated by shares outstanding during the reporting period. The calcula- dividing the net income accruing to the KION GROUP AG share- tion of diluted earnings per share was based on a weighted holders by the weighted average number of shares outstanding average of 117.9  million no-par-value shares issued (2018: during the reporting period (2019: 117.9  million no-par-value 117.9 million no-par-value shares). shares; 2018: 117.9 million no-par-value shares). The net income accruing to the shareholders of KION GROUP AG was €454.8 mil- lion (2018: €399.9 million). > TABLE 037 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 170 Notes to the consolidated statement of financial position [16] GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is broken down by Operating Unit as follows: > TABLE 061 Goodwill broken down by Operating Unit in € million Industrial Trucks & Services LMH EMEA STILL EMEA KION Americas KION APAC Supply Chain Solutions Dematic Total goodwill TABLE 061 2018 1,500.7 817.2 549.2 21.3 112.9 1,924.2 1,924.2 3,424.8 2019 1,502.9 818.5 549.0 21.8 113.6 1,972.9 1,972.9 3,475.8 The change in goodwill in 2019 resulted from currency effects. carrying amount of €7.8 million (2018: €7.8 million). These assets The KION Group intends to retain and further strengthen its are not amortised as they have an indefinite useful life. The brand most important brand names on a long-term basis. Brand names names allocated to the Supply Chain Solutions segment were worth €466.3 million are assigned to the LMH EMEA CGU (2018: worth €350.2 million as at the reporting date (2018: €350.6 mil- €466.2  million) and brand names worth €110.4  million to the lion) and essentially had an indefinite useful life. > TABLE 062 STILL EMEA CGU (2018: €114.6  million). As at 31 December 2019, the brand names allocated to the KION APAC CGU had a KION GROUP AGAnnual Report 2019171 TABLE 062 Total 5,716.5 0.3 78.9 110.7 – 0.2 – 182.8 – 1.7 – 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 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 Balance as at 01/01/2019 Group changes Currency translation adjustments Additions Disposals Amortisation Impairment Balance as at 31/12/2019 Gross carrying amount as at 31/12/2019 Accumulated amortisation 3,382.5 0.2 42.1 – – – – – 3,424.8 3,424.8 – 3,424.8 – 51.0 – – – – 3,475.8 3,475.8 – 944.6 – – 0.2 – – – 0.1 – – 944.3 954.9 – 10.6 944.3 – – 0.0 – – – 0.2 – 4.2 939.8 946.4 – 6.6 670.3 – 16.1 84.0 – 0.2 – 76.6 – – 4.0 719.0 0.1 21.0 26.7 – 0.0 – 106.1 – 1.7 4.0 689.7 662.9 5,721.6 992.4 – 302.7 689.7 – 9.9 81.9 – 0.0 – 82.1 – 1.5 1,000.1 – 337.3 662.9 0.0 14.5 26.7 – 9.6 – 75.5 – 6,372.2 – 650.6 5,721.6 0.0 75.4 108.6 – 9.6 – 157.9 – 5.7 697.9 619.0 5,732.5 1,042.6 – 344.7 999.9 – 381.0 6,464.8 – 732.3 The total carrying amount for technology and development assets Sundry intangible assets relate in particular to customer as at 31 December 2019 was €697.9  million (2018: €689.7  mil- relationships amounting to €541.3 million (2018: €575.7 million). lion). Development costs of €81.9 million were capitalised in the reporting year (2018: €84.0 million). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position [17] LEASED ASSETS The changes in leased assets in 2019 and 2018 were as follows: > TABLE 063 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 172 TABLE 063 2018 1,246.3 – – 9.7 514.9 – 189.4 – 306.3 – 0.4 6.4 1,261.8 1,978.2 – 716.4 2019 1,261.8 7.3 12.8 587.1 – 184.4 – 323.3 – – 1,361.2 2,040.7 – 679.5 Leased assets are attributable exclusively to the Industrial Trucks the issuance of notes (securitisation). Furthermore, leased assets & Services segment and relate to industrial trucks in the amount include assets in connection with the indirect lease business of €1,361.2  million (2018: €1,261.8  million) that are  provided for worth €553.1 million (2018: €639.5 million). use to external customers under operating leases in the direct Leased assets resulted in future lease payments expected to lease business or as part of the indirect lease business. be paid by customers under operating leases amounting to Leased assets include assets provided to customers with a €810.1 million (2018: €599.3 million). carrying amount of €413.7 million (2018: €405.4 million) that are The maturity structure of these expected future payments in financed by means of sale and leaseback sub-lease transactions the lease business is shown in > TABLE 064. with leasing companies. They also include assets provided to customers with a carrying amount of €387.4  million (2018: €151.7 million) that are financed by means of lease facilities and KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 173 Expected future payments from lease business TABLE 064 in € million Payments from lease 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 [18] RENTAL ASSETS The changes in rental assets in 2019 and 2018 were as follows: > TABLE 065 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 2019 810.1 260.2 214.9 163.1 108.6 51.8 11.5 2019 670.5 3.8 5.5 381.1 – 222.5 – 205.4 – – 632.9 1,104.7 – 471.8 2018 599.3 200.5 153.5 115.6 76.8 42.6 10.3 TABLE 065 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 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 174 Rental assets, which amounted to €632.9  million (2018: €670.5 million), are allocated solely to the Industrial Trucks & Ser- vices segment and comprise assets in the short-term rental fleet. Rental assets include assets with a carrying amount of €554.5 million (2018: €590.7 million) that are financed by means [19] OTHER PROPERTY, PLANT AND EQUIPMENT of sale and leaseback sub-lease transactions with leasing com- The changes in the carrying amounts of other property, plant and panies. equipment are shown in > TABLE 066. Other property, plant and equipment in € million 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 Balance as at 01/01/2019 Group changes Currency translation adjustments Additions Disposals Depreciation Impairment Reclassification Balance as at 31/12/2019 Gross carrying amount as at 31/12/2019 Accumulated depreciation Land and buildings Plant & machinery and office furniture & equipment Advances paid and assets under construction 601.7 – – 3.8 96.0 – 1.3 – 80.4 – 0.7 14.1 625.5 1,224.2 – 598.7 625.5 4.8 6.4 135.2 – 12.3 – 73.6 – 0.1 15.6 701.6 1,354.3 – 652.7 346.5 0.0 – 0.5 149.1 – 2.6 – 125.9 – 0.6 16.0 382.0 1,225.2 – 843.2 382.0 1.0 2.6 157.3 – 7.5 – 130.9 – 1.1 37.9 441.3 1,329.8 – 888.5 46.7 – 0.1 54.2 – 0.7 – – – 30.0 70.3 70.3 – 70.3 – 0.2 76.6 – 0.1 – – – 53.6 93.5 93.5 – TABLE 066 Total 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 1,077.8 5.8 9.2 369.0 – 19.9 – 204.5 – 1.2 – 1,236.3 2,777.6 – 1,541.3 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 175 Land and buildings in the amount of €18.3  million (2018: The expense recognised in 2019 for procurement leases with €18.3  million) were largely pledged as collateral for accrued a term of up to twelve months came to €20.4  million (2018: retirement benefits under partial retirement agreements. €13.0 million); the expense for procurement leases that relate to Other property, plant and equipment included a figure of low-value assets was €10.0 million (2018: €5.1 million). €452.7  million for right-of-use assets related to procurement There were also obligations arising from short-term procure- leases (2018: €390.7  million). Of this figure, €325.9  million was ment leases that already existed as at 31 December 2019 but will attributable to land and buildings (2018: €276.4  million) and be recognised as expenses in 2020 in an amount of €1.9 million €126.8 million to plant & machinery and office furniture & equip- (2018: €3.2 million) and nominal obligations of €44.4 million result- ment (2018: €114.3  million). The increase in right-of-use assets ing from procurement leases that already exist but have not yet attributable to land and buildings was primarily due to the start of started. two property leases. > TABLE 067 Other property, plant and equipment: thereof right-of-use assets TABLE 067 in € million 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 Balance as at 01/01/2019 Currency translation adjustments Additions Disposals Depreciation Other Balance as at 31/12/2019 Gross carrying amount as at 31/12/2019 Accumulated depreciation Land and buildings Plant & machinery and office furniture & equipment 247.6 – 0.6 81.5 – 0.4 – 51.0 – 0.7 276.4 483.6 – 207.2 276.4 3.5 107.2 – 11.8 – 53.9 4.5 325.9 568.0 – 242.2 99.8 – 0.8 69.6 – 0.3 – 53.8 – 0.2 114.3 214.6 – 100.2 114.3 0.8 73.6 – 3.8 – 58.4 0.2 126.8 243.3 – 116.5 Total 347.4 – 1.4 151.1 – 0.7 – 104.9 – 0.9 390.7 698.2 – 307.5 390.7 4.3 180.8 – 15.5 – 112.3 4.8 452.7 811.4 – 358.7 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 176 [20] EQUITY-ACCOUNTED INVESTMENTS GmbH & Co. KG, Aschaffenburg, the shares (45.0  per  cent) in Linde Leasing GmbH, Wiesbaden, the shares (45.0 per cent) in Linde High Lift Chile S.A., Santiago de Chile, Chile, and the shares (50.0  per  cent) in JULI Motorenwerk s.r.o, Moravany, Czech Republic. The associates and joint ventures can be seen in The KION Group reported equity-accounted investments with a the list of shareholdings (see note [48]). Their financial information total carrying amount of €84.5 million as at 31 December 2019 is summarised below. > TABLES 068 – 069 (2018: €82.3 million). The carrying amount of the equity-accounted investments The amounts in the tables are based on the share held by the mainly resulted from the shares (10.0 per cent) in Linde Hydraulics KION Group in the relevant associate or joint venture. 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 068 2018 46.6 6.6 1.0 7.6 TABLE 069 2018 35.7 5.6 0.1 5.7 2019 49.6 6.8 0.2 7.0 2019 34.9 5.4 – 0.1 5.2 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 177 [21] LEASE RECEIVABLES Lease receivables are financed by means of sale and lease- back sub-lease transactions with leasing companies in an amount of €705.1 million (2018: €764.5 million) and by means of lease facil- ities and the issuance of notes (securitisation) in an amount of The lease receivables of €1,421.0 million (2018: €1,097.3 million) €628.3 million (2018: €246.0 million). are based on the data shown in > TABLE 070. 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 TABLE 070 2018 1,069.5 311.5 256.9 208.2 152.2 89.5 51.2 2019 1,380.9 375.3 328.3 270.8 207.7 128.5 70.2 Plus unguaranteed residual values 176.9 135.7 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 17.6 19.4 24.9 35.0 38.0 42.0 13.0 16.1 20.9 26.8 31.7 27.2 Less unearned financial income 136.9 107.8 Present value of outstanding lease payments 1,421.0 1,097.3 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position [22] OTHER FINANCIAL ASSETS The breakdown of other financial assets is shown in > TABLE 071. Other financial assets in € million Financial investments Financial receivables Other financial investments Derivative financial instruments Sundry financial assets Other non-current financial assets Derivative financial instruments Financial receivables Sundry financial assets Other current financial assets 178 TABLE 071 2018 5.2 1.1 21.0 1.0 1.4 29.8 8.9 34.7 39.8 83.4 2019 14.4 0.9 24.2 2.6 2.6 44.6 9.4 23.1 41.6 74.1 Total other financial assets 118.7 113.2 Financial investments essentially comprise the equity investment, Other financial investments comprise long-term investments acquired in 2019, in Zhejiang EP Equipment Co., Ltd. and the that are held in order to cover the defined benefit obligation and equity investment in Balyo SA. These equity investments, which do not qualify as plan assets. have been assigned to the FVOCI category under IFRS 9 owing to Derivative financial instruments comprise currency forwards the strategic partnerships with the companies, are recognised at and interest-rate swaps with a positive fair value that are used to fair value through other comprehensive income without recycling reduce currency risk and interest-rate risk. Some of these to profit or loss upon disposal. derivative financial instruments are part of a formally documented Financial receivables largely relate to loans to non- hedge with a hedged item and are recognised in accordance with consolidated subsidiaries. the hedge accounting rules (see note [41]). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 179 [23] OTHER ASSETS [24] INVENTORIES The breakdown of other assets is as follows: > TABLE 072 The reported inventories break down as follows: > TABLE 073 Pension assets relate to asset surpluses from two defined benefit The year-on-year rise in inventories was largely attributable to the plans (2018: two) in the United Kingdom, in which plan assets volume-related increase in finished goods and in work in progress. exceed the present value of the defined benefit obligation (see There was a small countervailing decrease in materials and note [28]). supplies. 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 072 2018 25.6 33.3 58.9 49.0 57.2 106.2 2019 22.2 51.7 73.8 55.0 53.8 108.8 182.7 165.1 TABLE 073 2018 284.2 132.3 550.6 27.8 994.8 2019 276.6 143.3 638.5 26.9 1,085.3 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 180 In 2019, write-downs of €26.6  million were recognised on The change in valuation allowances for trade receivables is inventories (2018: €25.3 million). Reversals of write-downs were presented in >  TABLE  075. The average loss rates used for the recognised in an amount of €8.8  million (2018: €6.5  million) recognition of valuation allowances for expected losses vary because the reasons for the write-downs no longer existed. depending on the Operating Unit and the period by which the receivable is past due. They currently range from 0.0 per cent to 3.6 per cent (2018: 0.0 per cent to 4.0 per cent). [25] TRADE RECEIVABLES The trade receivables break down as follows: > TABLE 074 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 TABLE 074 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 2019 1,070.8 980.3 26.5 22.8 41.1 4.8 40.8 – 42.2 – 1.6 – 1.3 – 2.4 – 36.9 1,074.2 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 181 Change in valuation allowances for trade receivables TABLE 075 in € million Valuation allowances as at 01/01/ Additions Reversals Utilisations Currency translation adjustments Valuation allowances as at 31/12/ [26] CASH AND CASH EQUIVALENTS The change in cash and cash equivalents is shown in the consol- idated statement of cash flows. Further information can be found in note [38]. > TABLE 076 Cash and cash equivalents in € million Balances with banks, cash and cheques Pledged cash Total cash and cash equivalents 2019 37.8 11.6 – 2.0 – 5.1 – 0.0 42.2 2018 36.3 10.4 – 3.3 – 5.1 – 0.5 37.8 TABLE 076 2018 171.6 3.7 175.3 2019 207.4 3.8 211.2 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 182 [27] EQUITY programme can be found in note [45]. In February 2020, a further 7,338 no-par-value shares were issued for participants’ own investments under KEEP 2019. Subscribed capital and capital reserves Retained earnings As at 31 December 2019, the Company’s share capital amounted to €118.1 million, which was unchanged on 31 December 2018 The changes in retained earnings are shown in the consolidated and was fully paid up. It was divided into 118.1  million no- par- statement of changes in equity in >  TABLE 042. The retained value shares. earnings comprise the net income (loss) for the financial year and The Annual General Meeting on 11 May 2017 voted to create past contributions to earnings by the consolidated entities, new authorised capital that will enable the KION Group to continue provided they have not been distributed. to meet its funding needs quickly and flexibly. Subject to the con- The distribution of a dividend of €1.20 per share (2018: sent of the Supervisory Board, the Executive Board is authorised €0.99 per share) to the shareholders of KION GROUP AG resulted until 10 May 2022 to increase the Company’s share capital by up in an  outflow of funds of €141.5  million in May 2019 (2018: to €10.879  million by way of an issue of up to 10,879,000 new €116.8 million). no-par-value bearer shares (2017 Authorised Capital). With the consent of the Supervisory Board, the Executive Board of KION GROUP  AG decided on 22 May 2017 to utilise Appropriation of profit some of the authorised capital created by the 2017 Annual General Meeting. The share capital was increased against cash KION GROUP  AG’s net profit for 2019 was €156.9  million, of contributions by issuing 9.3  million new no-par-value bearer which €3.5 million will be transferred to other revenue reserves. shares. The gross proceeds from the capital increase came to The Executive Board and the Supervisory Board will propose to €602.9  million. An amount of €593.6  million was paid into the the Annual General Meeting to be held on 12 May 2020 that an capital reserves. amount of €153.4 million be appropriated from the distributable The total number of shares outstanding as at 31 December profit of €153.5 million for the payment of a dividend of €1.30 per 2019 was 117,959,356 no-par-value shares (2018: 117,924,442 dividend-bearing share. It is also proposed that the remaining no-par-value shares). Between 9 September 2019 and 20 Sep- sum of €0.2  million be carried forward to the next accounting tember 2019, a further 60,000 treasury shares (KEEP 2018: period. This equates to a dividend payout rate of 33.7 per cent of 66,000 treasury shares) were repurchased via the stock exchange net income. at an average price of €48.80 (2018: €54.17) in order to provide the shares for employees’ own investments and the free shares under the KEEP 2019 employee share option programme. The total cost was €2.9 million (2018: €3.6 million). In February 2019, a further 13,674 no-par-value shares were issued for employees’ own investments under KEEP 2018. Due to the issue of 14,136 bonus shares under KEEP 2016 (KEEP 2015: 22,580 bonus shares) and 67,104 no-par-value shares (2018: 38,691 no-par- value shares) under KEEP 2019, KION GROUP AG held 130,644 treasury shares at the reporting date (2018: 165,558). These treasury shares are not dividend- bearing and do not confer any voting rights. Further details on the KEEP employee share option KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 183 Accumulated other comprehensive income (loss) and non-controlling interests Defined benefit plans The KION Group currently grants pensions to almost all employ- The overall composition of, and changes in, equity are shown in ees in Germany and a number of foreign employees. These the consolidated statement of changes in equity in > TABLE 042. pensions consist of fixed benefit entitlements and are therefore The currency translation adjustment contains the exchange reported as defined benefit plans in accordance with IFRS. As at differences arising from the financial statements prepared in a 31 December 2019, the KION Group had set up defined benefit foreign currency of foreign subsidiaries, associates and joint plans in 15 countries (2018: 13). For all of the significant defined ventures. benefit plans within the Group, the benefits granted to employees The gains / losses on the defined benefit obligation are the are determined on the basis of their individual income, i.e. either result of remeasuring defined benefit pension obligations (see directly or by way of intermediate benefit arrangements. The larg- also note [28]). est of the KION Group’s defined benefit plans – together account- The gains / losses on hedge reserves are the effective portion ing for 92.9 per cent of the global defined benefit obligation (2018: of the changes in the fair value of hedging instruments in formally 92.7 per cent) – are in Germany, the United Kingdom and the US. documented hedges. The gains / losses on financial investments relate to the remeasurement of the equity investments in Zhejiang Germany EP Equipment Co., Ltd. and Balyo SA at fair value (FVOCI In Germany, the pension benefits granted comprise Company- category under IFRS 9). funded pension entitlements and employees’ payment of part of The gains / losses from equity-accounted investments contain their salary into the pension scheme. The contributions to the the share of other comprehensive income (loss) from associates new pension plans are invested in investment funds under and joint ventures accounted for under the equity method. contractual trust arrangements (CTAs); resulting returns on plan [28] RETIREMENT BENEFIT OBLIGATION Defined contribution plans assets are passed on to the pension beneficiaries when an insured event occurs. Members of the Executive Board (see also note [46]) and other executives are predominantly covered by individual pension plans. The amount of the benefits paid to executives depends on the type of entitlement. A very small proportion of pension benefits are granted in the form of final- salary-linked benefit obligations. The overwhelming majority of the existing pension entitlements are a combination of a defined benefit obligation and a defined contribution component. In the case of defined contribution pension plans, the Group pays Beside the securities-linked pension entitlements, some of contributions to government or private pension insurance provid- the KION Group’s pension obligations in Germany under closed ers based on statutory or contractual provisions, or on a voluntary plans are financed by way of CTAs. The assets transferred to the basis. The total expense arising from defined contribution plans trustee qualify as plan assets within the meaning of IAS 19. The amounted to €134.5  million in 2019 (2018: €93.3  million). Of trustees are required to follow a defined investment strategy and this total, contributions paid by employers into government-run investment guidelines. There are no statutory minimum funding schemes came to €105.9 million (2018: €76.7 million). requirements. In the event of the Company’s insolvency, the company pension scheme in Germany is to a large extent protected by law by the insolvency protection scheme (Pensions- Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit, PSVaG). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 184 United Kingdom Two of the plans are subject to statutory minimum funding In the United Kingdom, defined benefit pension obligations provisions that each specify a certain coverage ratio and provide predominantly relate to two plans. The defined benefits include for annual payments to maintain the required ratio. In 2019, a not only a life-long retirement pension but also surviving one-off sum of €0.9 million was paid (2018: €17.8 million). dependants’ benefits. The amount of the pension depends on employees’ length of service and final salary. Other countries The two plans are closed to new employees. Each plan is Furthermore, significant asset volumes are invested in external monitored by its own board of trustees, which oversees the running pension funds with restricted access in Switzerland and the of the plan as well as its funded status and the investment strategy. Netherlands. Decisions on additions to plan assets take into The members of the board of trustees comprise people appointed account the change in plan assets and pension obligations. They by the company involved and selected plan beneficiaries. also take into account the statutory minimum coverage require- Under UK law, the board of trustees is obliged to have a ments and the amounts deductible under local tax rules. valuation of the plan carried out at least every three years. In connection with the periodic valuation of the pension plans for the employees of the KION Group’s UK companies, the companies Measurement assumptions and the respective trustees of the pension funds agreed on a valuation in March 2019 that will ensure payments are made to The defined benefit obligation is calculated on the basis of the the beneficiaries of the plans in accordance with the relevant weighted-average assumptions as at the reporting date shown in requirements. On the basis of this current valuation, the KION > TABLE 077. Group will not have to make any top-up payments to the plan The assumed discount rate is determined on the basis of the assets. In addition, KION GROUP AG has given default guaran- yield as at the reporting date on AA-rated, fixed-interest senior tees to the trustees of four pension plans, under which, if any of corporate bonds with maturities that match the expected maturi- the companies concerned default, KION GROUP AG will assume ties of the pension obligations. all obligations of these companies up to a maximum guaranteed Future increases in salaries are estimated on an annual basis amount. As at 31 December 2019, the guaranteed amount taking into account factors such as inflation and the overall totalled €107.5 million (2018: €79.1 million). economic situation. United States The biometric mortality rates used in the calculation are based on published country-specific statistics and empirical The KION Group maintains three main defined benefit pension values. Since 2018, the Heubeck ‘Richttafeln 2018 G’ mortality plans in the US. The defined benefits include not only a life-long tables have been used as the biometric basis in Germany. The retirement pension but also surviving dependants’ benefits. S2PA tables (standard mortality tables for self-administered Unionised employees receive pension entitlements on the pension schemes (SAPS) based on normal health) are applied to basis of fixed amounts for each month of service. Salaried employ- the two defined benefit plans in the United Kingdom. In the US, ees receive benefits that generally depend on their period of calculations use the modified RP-2014 mortality tables with the service and on their average final salary fixed on the date the plan generational projection from the Mortality Improvement Scale concerned was frozen. These defined benefit plans have been MP-2016. frozen for some time now in relation to future periods of service. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 185 Assumptions underlying provisions for pensions and other post-employment benefits TABLE 077 Germany UK USA Other Discount rate Salary increase rate Pension increase rate 2019 1.15% 2.75% 1.75% 2018 1.90% 2.75% 1.75% 2019 1.85% 4.12% 3.20% 2018 2.65% 4.12% 3.37% 2019 3.30% 2018 4.25% – – – – 2019 0.73% 1.75% 0.25% 2018 1.43% 1.74% 0.26% The actuarial assumptions not listed in >  TABLE 077, such as The significant weighted-average assumptions shown in employee turnover and invalidity, are determined in accordance > TABLE 078 were applied to the calculation of the net interest cost with recognised forecasts in each country, taking into account and the cost of benefits earned in the current year (current ser- the circumstances and forecasts in the companies concerned. vice cost). Assumptions underlying pensions expenses TABLE 078 Germany UK USA Other Discount rate Salary increase rate Pension increase rate 2019 1.90% 2.75% 1.75% 2018 1.95% 2.75% 1.75% 2019 2.65% 4.12% 3.37% 2018 2.35% 4.12% 3.37% 2019 4.25% 2018 3.60% – – – – 2019 1.43% 1.74% 0.26% 2018 1.41% 1.49% 0.27% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 186 Statement of financial position The change in the present value of the defined benefit obligation (DBO) is shown in > TABLE 079. Changes in defined benefit obligation TABLE 079 Germany UK USA Other Total in € million 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 1,061.2 1,001.4 389.1 428.9 202.7 210.0 130.2 124.2 1,783.3 1,764.4 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 – – – – – – 24.9 – 4.6 37.1 36.7 – 20.3 3.8 – 18.8 3.7 – 16.4 – 15.9 0.9 – 10.3 – – 0.9 1.4 9.9 – – – 4.6 – 0.7 – 8.8 – – – 9.3 0.2 – 7.6 – – Pension benefits paid by funds Liability transfer out to third parties – 2.0 – 0.8 – 1.6 – 17.9 – 19.9 – 8.7 – 7.6 – 0.2 – – – – Actuarial gains (–) and losses (+) arising from changes in demographic assumptions 0.0 changes in financial assumptions experience adjustments 193.2 – 6.3 0.5 15.1 – – 10.6 – 0.3 – 0.6 36.2 – 18.7 26.4 – 17.2 2.9 – 16.2 1.9 1.4 1.0 – 2.2 4.2 – 1.3 1.8 1.1 – 1.4 – 6.0 4.9 – 1.5 13.7 1.6 – 2.0 3.6 – 1.7 1.0 – 31.7 41.5 – 1.3 41.2 4.9 – 6.7 41.4 1.4 38.0 4.7 – 1.5 – 17.8 – 17.5 – 2.7 – 34.6 – 31.9 1.9 4.1 1.7 0.0 – 1.8 – 10.7 – 0.7 269.4 – 21.4 0.7 – 19.4 6.6 Present value of defined benefit obligation as at 31/12/ thereof unfunded thereof funded 1,290.1 1,061.2 427.4 389.1 234.1 202.7 149.6 130.2 2,101.2 1,783.3 559.0 459.5 0.0 0.0 6.9 7.2 41.9 39.0 607.8 505.7 731.1 601.7 427.4 389.1 227.2 195.5 107.7 91.3 1,493.4 1,277.6 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 187 The DBO in the other countries was predominantly attributable to The payments expected for 2020 amount to €26.9 million (in subsidiaries in Switzerland (€65.6  million; 31 December 2018: 2018: €22.2 million for 2019), which includes direct payments of €54.7  million) and the Netherlands (€41.4  million; 31 December pension benefits amounting to €21.1 million (in 2018: €19.8 million 2018: €35.9 million). for 2019) that are not covered by corresponding reimbursements The change in the fair value of plan assets is shown in from plan assets. > TABLE 080. The reconciliation of funded status and net defined benefit Employees in Germany paid a total of €3.8 million from their obligation to the amounts reported in the consolidated statement salaries (2018: €3.7 million) into the KION pension plan in 2019. of financial position as at 31 December is shown in > TABLE 081. Changes in plan assets TABLE 080 Germany UK USA Other Total in € million 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Fair value of plan assets as at 01/01/ 100.7 93.8 419.1 448.7 171.7 165.0 82.0 78.4 773.5 785.9 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 – – 2.0 3.8 0.7 – 2.0 – 0.1 11.8 – – 1.8 3.7 0.8 – 27.4 11.1 – 0.9 – – 5.0 10.4 – 0.3 – 3.9 8.0 – 0.7 – 1.6 – 17.9 – 19.9 – 8.7 – 0.0 – – – – 7.7 6.1 – 17.6 – 7.6 – 2.3 35.1 – 15.2 25.6 – 17.0 – 1.9 1.1 1.1 1.4 – 1.7 0.9 1.0 1.1 – 33.1 22.2 4.9 3.6 – 4.4 19.2 4.7 19.7 – 6.0 – 2.7 – 34.6 – 31.9 4.8 9.6 1.8 4.7 1.8 – 0.4 82.1 – 30.4 Fair value of plan assets as at 31/12/ 116.9 100.7 475.7 419.1 201.3 171.7 95.7 82.0 889.5 773.5 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 188 Funded status and net defined benefit obligation TABLE 081 in € million 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 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 – 731.1 – 601.7 – 427.4 – 389.1 – 227.2 – 195.5 – 107.7 – 91.3 – 1,493.4 – 1,277.6 116.9 100.7 475.7 419.1 201.3 171.7 95.7 82.0 889.5 773.5 – 614.3 – 501.1 48.3 30.0 – 25.9 – 23.7 – 12.1 – 9.3 – 603.9 – 504.1 – 559.0 – 459.5 – 0.0 – 0.0 – 6.9 – 7.2 – 41.9 – 39.0 – 607.8 – 505.7 – 1,173.2 – 960.5 48.3 30.0 – 32.9 – 30.9 – 54.0 – 48.2 – 1,211.7 – 1,009.7 ‘retirement benefit obligation’ – 1,173.2 – 960.5 – 3.3 – 3.3 – 32.9 – 30.9 – 54.0 – 48.2 – 1,263.4 – 1,043.0 Reported as ‘Other non-current assets’ – – 0.0 51.7 33.3 – – – – 51.7 33.3 Overall, the funding ratio (ratio of plan assets to the present value Income statement of the defined benefit obligation) in the KION Group was 42.3 per cent (2018: 43.4 per cent). The breakdown of the net cost of the defined benefit obligation The changes in the retirement benefit obligations reported in (expenses less income) recognised in the income statement for the statement of financial position are shown in > TABLE 082. 2019 is shown in > TABLE 083. Statement of cash flows The KION Group’s net financial expenses include a net interest cost of €19.0  million (2018: €18.8  million). All other components of pension expenses are recognised under func- tional costs. For the main pension entitlements in the KION Group, a sum of The actual total comprehensive income on plan assets €17.8 million (2018: €17.5 million) was paid directly by the Company (including remeasurement) in 2019 was €104.3  million (2018: and a sum of €34.6  million (2018: €31.9  million) was paid from minus €11.2 million). plan assets in the reporting year. Cash contributions to plan assets in 2019 amounted to €3.6 million (2018: €19.7 million). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 189 Changes in retirement benefit obligation TABLE 082 in € million Balance as at 01/01/ Group changes Exchange differences Total service cost Net interest expense Pension benefits directly paid by company Germany UK USA Other Total 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 30.9 45.0 48.2 45.8 1,043.0 1,002.7 960.5 907.5 – – 37.1 18.3 – – 36.7 17.0 3.3 – 0.2 0.0 0.1 4.4 – – 0.0 0.1 0.1 – 0.7 – 0.7 0.8 – 1.6 0.2 1.5 – 16.4 – 15.9 – – – – – 0.4 3.0 0.8 – 1.4 – 1.4 0.2 4.2 – 0.3 3.6 0.7 – 1.3 39.4 19.9 – 1.9 40.6 19.3 – 1.5 – 17.8 – 17.5 – 1.1 – 3.4 – 19.8 0.1 0.5 – 0.6 181.6 – 0.2 15.9 Employer contributions to plan assets Liability transfer out to third parties Remeasurements Balance as at 31/12/ – 0.7 – 0.7 175.1 – 0.8 – 0.2 16.2 1,173.2 960.5 – 0.4 3.3 – 0.7 – 0.3 – 0.7 – 17.6 – – 1.0 – 1.9 – 0.2 3.3 32.9 30.9 54.0 48.2 1,263.4 1,043.0 Cost of defined benefit obligation TABLE 083 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 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 37.1 36.7 0.9 – 0.9 10.3 0.9 1.4 2.3 9.9 – 0.7 0.2 4.2 – – 0.7 8.8 – – 1.3 0.2 7.6 3.0 1.8 3.6 – 3.6 1.7 41.5 – 1.3 40.3 41.2 41.4 1.4 42.8 38.0 – 36.7 18.8 – 1.8 – 11.1 – 10.4 – 8.0 – 6.1 – 1.1 – 0.9 – 22.2 – 19.2 17.0 53.7 – 0.8 – 0.5 0.1 1.8 0.8 0.0 1.5 1.7 0.8 3.8 0.7 4.4 19.0 59.3 18.8 61.5 – 37.1 20.3 – 2.0 18.3 55.4 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 190 Other comprehensive income (loss) The gains and losses on the remeasurement of plan assets are attributable entirely to experience adjustments. The changes The breakdown of the remeasurement of the defined benefit in estimates relating to defined benefit pension entitlements obligation recognised in the consolidated statement of compre- resulted in a €115.9 million decrease in equity as at 31 Decem- hensive income in 2019 is presented in > TABLE 084. ber 2019 after deduction of deferred taxes (2018: €0.2 million). The components of the remeasurements of the defined benefit obligations are listed in > TABLE 079. Accumulated other comprehensive income (loss) TABLE 084 Germany UK USA Other Total in € million 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Accumulated other comprehensive income / loss as at 01/01/ – 350.2 – 334.0 – 32.6 – 45.1 Exchange differences – – – 1.5 0.4 8.1 0.2 7.9 0.4 – 24.8 – 24.0 – 399.4 – 395.1 – 0.4 – 0.3 – 1.7 0.4 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/ – 186.9 – 18.5 – 20.0 27.4 – 27.5 16.8 – 13.8 – 0.1 – 248.1 25.6 11.8 2.3 35.1 – 15.2 25.6 – 17.0 9.6 – 0.4 82.1 – 30.4 – 525.3 – 350.2 – 19.0 – 32.6 6.4 8.1 – 29.3 – 24.8 – 567.2 – 399.4 Composition of plan assets The plan assets of the main pension plans consist of the following components: > TABLE 085 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 191 Fair value of plan assets TABLE 085 Germany UK USA Other Total 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 in € million Shares Fixed-income securities Real estate Insurance policies Other 41.5 19.9 6.0 – 27.0 27.9 7.2 – 47.8 34.8 401.0 332.0 – – – – 89.8 94.9 – – 76.9 80.8 – – 49.5 38.6 26.9 52.3 16.5 14.1 Total plan assets 116.9 100.7 475.7 419.1 201.3 171.7 thereof total assets that do not have a quoted price in active markets Insurance policies Other Sensitivity analysis 19.2 14.3 12.7 15.8 – – – – 19.2 14.3 12.7 15.8 – – – – – – The sensitivity analysis shown in > TABLE 086 is not representative of an actual change in the present value of the defined benefit obligation because variations in the significant assumptions are unlikely to occur in isolation as, to some extent, the assumptions are interrelated. 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 12.2 14.0 8.9 41.6 19.0 95.7 56.9 41.6 15.3 10.3 12.6 7.8 35.9 15.4 82.0 48.0 35.9 12.1 191.3 149.0 529.8 453.3 14.9 41.6 15.0 35.9 111.8 120.4 889.5 773.5 88.7 41.6 47.2 78.0 35.9 42.1 TABLE 086 2018 – 280.2 377.0 17.7 – 17.9 39.5 – 37.9 63.7 2019 – 356.9 486.8 21.9 – 21.8 49.4 – 44.6 88.6 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 192 Future pension benefit payments fixed-interest senior corporate bonds. If the actual return on plan assets falls below the discount rates applied, the net obligation The pension benefit payments shown in > TABLE 087 are forecast arising out of the pension plans increases. The amount of the net for the next ten years for the defined benefit pension entitlements obligation is also particularly affected by the discount rates, and in existence as at 31 December 2019. The expected pension the low level of interest rates – especially in the eurozone – is benefits break down into future benefits to be paid directly by the resulting in a comparatively large net obligation. employer (for 2020: €21.1 million) and future benefits to be paid The plan assets are predominantly invested in corporate from existing plan assets (for 2020: €33.1 million). bonds and inflation-linked UK government bonds, particularly in As at the reporting date, the average duration of the defined the United Kingdom. The market risk attaching to plan assets – benefit obligation, weighted on the basis of the present value of above all in the case of equities – is mitigated by defining an invest- the defined benefit obligation, was 23.3 years in Germany (2018: ment strategy and investment guidelines and constantly monitor- 21.5 years), 15.2 years in the United Kingdom (2018: 14.3 years), ing the assets’ performance. Moreover, a downward trend in 13.9 years in the US (2018: 12.9 years) and 16.2 years in the other financial markets could have a significant effect on minimum fund- countries (2018: 15.7 years). ing requirements, some of which apply outside Germany. Risks The KION Group also bears the full risk of possible future pen- sion adjustments resulting from changes in longevity and inflation. Payroll-based contributions to the KION pension plan made by employees in Germany are invested in fund units. If the actual The funding ratio, the defined benefit obligation and the associ- returns on these fund units fall below the minimum rate of return ated costs depend on the performance of financial markets. The that has been guaranteed to participating employees, the KION return on plan assets is assumed to equal the discount rate, Group’s personnel expenses rise. which is determined on the basis of the yield earned on AA-rated, Expected payments for pension benefits in € million Germany 2020 2021 2022 2023 2024 2025 to 2029 26.5 23.3 25.8 29.2 29.7 173.4 UK 17.2 17.2 17.6 18.1 18.1 90.9 USA 5.8 10.7 11.0 11.4 11.5 61.1 Other 4.8 4.4 4.1 5.1 5.0 30.0 TABLE 087 Total 54.2 55.5 58.6 63.7 64.4 355.4 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 193 [29] FINANCIAL LIABILITIES Promissory notes In April 2019, KION GROUP AG issued a further promissory note in a nominal amount of €120.5 million. In return, €20.5 million of As at 31 December 2019, financial liabilities essentially comprised the fixed-rate tranche of the promissory note from 2018 was promissory notes and interest-bearing liabilities to banks. The repaid ahead of schedule. As at 31 December 2019, the total changes in financial liabilities as at 31 December 2019 are shown nominal amount of the issued promissory notes was €1,310.0 mil- in > TABLE 088. lion (2018: €1,210.0  million). The promissory notes maturing in 2022, 2024, 2025 and 2027 have fixed and variable interest rates Maturity structure of financial liabilities in € million Promissory notes due within one year due in one to five years due in more than five years Liabilities to banks due within one year due in one to five years due in more than five years Other financial liabilities due within one year due in one to five years due in more than five years TABLE 088 2018 1,214.3 – 744.5 469.8 826.4 221.9 604.5 – 4.6 4.6 – – 2019 1,317.3 – 981.0 336.3 498.3 98.8 399.5 – 4.9 4.9 – – Total current financial liabilities Total non-current financial liabilities 103.7 1,716.8 226.5 1,818.7 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 194 (EURIBOR + margin), while the promissory note maturing in 2026 The liabilities to banks are not collateralised. KION GROUP AG has a variable interest rate (EURIBOR + margin). An overview of has issued guarantees to the banks for all of the payment the nominal amounts of the promissory notes issued by KION obligations. GROUP AG can be found in > TABLE 089. KION GROUP  AG has entered into interest-rate derivatives in Other financial liabilities order to hedge the interest-rate risk resulting from the variable-rate and fixed-rate tranches (see note [41]). In November 2019, KION GROUP  AG launched a commercial The promissory notes are not collateralised. KION GROUP AG paper programme with a maximum programme volume of is the borrower in respect of all the payment obligations resulting €500.0  million. No commercial paper had been issued as at from the promissory notes. 31  December 2019, and hence the other financial liabilities Liabilities to banks related to immaterial items. Covenants Liabilities to banks decreased by €328.0  million year on year, mainly due to €400.0 million of the outstanding liability under Among other stipulations, the contractual terms of the liabilities to the acquisition facilities agreement (AFA) being repaid. There banks and promissory notes set out certain covenants. In addi- was a countervailing increase as a result of a fixed-rate loan of tion, there is a financial covenant that involves ongoing monitoring €200.0 million being taken out that will mature in 2021. of adherence to a defined maximum level of leverage. Non- KION GROUP AG has a revolving credit facility of €1,150.0 mil- compliance with the covenants or with the defined maximum lion. It has a variable interest rate (EURIBOR + margin) and can be level of leverage as at a particular reporting date may give lenders drawn down until February 2023. The drawdowns under the a right of termination or lead to an increase in interest payments. revolving credit facility are generally classified as short term. As at All covenants were complied with in the past financial year, as 31 December 2019, there were no drawdowns from the revolving was also the case in 2018. credit facility (2018: €101.8 million). Promissory note in € million Promissory note (10-year term) Promissory note (7-year term) Promissory note (7-year term) Promissory note (7-year term) Promissory note (5-year term) Maturity date April 2027 April 2026 June 2025 April 2024 May 2022 2019 27.5 120.5 179.5 236.5 746.0 TABLE 089 2018 27.5 – 200.0 236.5 746.0 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 195 [30] LIABILITIES FROM FINANCIAL SERVICES back sub-lease transactions entered into with leasing companies since 1 January 2018 in an amount of €729.6  million (2018: €440.2  million). They also include residual value obligations of €297.2  million (2018: €319.5  million) resulting from the indirect lease business. The liabilities from financial services relate to the financing of the Furthermore, liabilities from financial services include liabilities long-term lease business and residual value obligations arising from lease facilities in an amount of €392.9  million (2018: from the indirect lease business in an amount of €2,062.9 million €307.3 million), liabilities from the issuance of notes (securitisation) (2018: €1,165.3 million) and to the financing of industrial trucks for in an amount of €530.2  million (2018: €98.3  million) – of which the short-term rental fleet in an amount of €437.2 million (2018: €285.9 million was issued through K-Lift S.A., Luxembourg (2018: €307.1 million). > TABLE 090 €98.3 million) – and other liabilities from financial services in an amount of €113.0 million (2018: €0.0 million). Liabilities from financial services arising from the lease business The maturities of the liabilities from financial services are encompass liabilities from financing by means of sale and lease- shown in > TABLE 091. Liabilities from financial services TABLE 090 in € million Non-current liabilities from financial services thereof from lease business thereof from short-term rental fleet financing thereof from lease facilities thereof from asset-backed securities Current liabilities from financial services thereof from lease business thereof from short-term rental fleet financing thereof from lease facilities thereof from asset-backed securities thereof other 2019 1,566.9 806.4 339.8 4.3 416.4 933.2 220.4 97.4 388.6 113.8 113.0 2018 924.4 601.9 244.6 – 77.9 548.0 157.7 62.5 307.3 20.4 – KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position Maturity analysis of liabilities from financial services 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 196 TABLE 091 2018 1,539.9 589.7 244.8 240.9 209.2 172.7 82.5 2019 2,572.8 966.2 449.1 418.8 369.7 251.8 117.2 [31] LEASE LIABILITIES The amounts recognised as lease liabilities are based on the maturities of future lease payments (gross) shown in > TABLE 092. Lease liabilities amounting to €432.1 million (2018: €740.6 million) related solely to finance lease obligations arising from sale and leaseback sub-lease transactions entered into up to 31 Decem- ber 2017 for the financing of long-term leases with end custom- [32] OTHER PROVISIONS ers. On the opposite side of the statement of financial position, Other provisions relate to the following items: > TABLE 093 there were lease receivables worth €316.0  million (2018: €514.3 million) and leased assets under sale and leaseback sub- lease transactions of €166.1 million (2018: €268.6 million). 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 TABLE 092 2018 801.6 291.5 217.5 158.9 94.4 30.0 9.4 2019 455.5 200.5 143.0 82.0 22.9 5.7 1.4 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 197 Other provisions TABLE 093 in € million Balance as at 01/01/2019 thereof non-current thereof current Group changes Additions Utilisations Reversals Additions to accrued interest Currency translation adjustments Other adjustments Balance as at 31/12/2019 thereof non-current thereof current Provisions for product warranties Provisions for personnel Other obligations Total other provisions 81.0 23.5 57.5 0.3 45.7 – 31.7 – 16.7 0.0 0.9 2.3 81.8 18.9 62.9 80.0 52.5 27.5 – 57.6 – 28.6 – 1.8 2.0 0.5 4.3 114.0 73.8 40.2 65.2 22.9 42.2 0.0 25.4 – 21.1 – 9.8 0.1 0.7 – 1.8 58.6 21.1 37.5 226.2 98.9 127.2 0.3 128.8 – 81.4 – 28.3 2.1 2.0 4.8 254.4 113.8 140.6 The provisions for product warranties include contractual and social plans. The provisions for partial retirement obligations are statutory obligations arising from the sale of industrial trucks, recognised on the basis of individual contractual arrangements spare parts and automation solutions. It is expected that the bulk and agreements under collective bargaining law. In 2019, the of the cash payments will be incurred within the next two years KION Group recognised provisions for restructuring of €11.6 mil- after the reporting date. lion, predominantly in connection with the plans to consolidate The provisions for personnel comprise provisions for finance functions at one location from 2020 onwards. long-service awards, partial retirement obligations, share-based Other obligations include provisions for onerous contracts remuneration obligations, severance pay, and obligations under and litigation. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 198 [33] CONTRACT BALANCES [35] OTHER FINANCIAL LIABILITIES Contract assets stood at €150.2  million (2018: €119.3  million); Other financial liabilities comprise the following items: > TABLE 094 most of this amount, €143.6  million (2018: €114.7  million), was attributable to project business contracts. Of the contract assets Liabilities from short-term rental fleet financing relate to the recognised as at 1 January 2019, €91.5 million was billed in 2019 financing of the short-term rental fleet by means of sale-and- (2018: €88.1  million). By contrast, contract assets rose by leaseback sub-lease transactions entered into up to 31 Decem- €178.7  million year on year (2018: €213.8  million) as a result of ber 2017 in the amount of €178.6  million (2018: €289.9  million). goods and services already provided that will be billed only once The amounts recognised as liabilities from short-term rental fleet the contractually agreed project milestones have been reached. financing and from procurement leases are based on the maturi- Of the contract liabilities, €416.8  million was attributable to ties shown in > TABLE 095. The increase in liabilities from procure- project business contracts with a net debit balance due to ment leases was primarily due to the start of two property leases. customers (2018: €498.7  million) and €88.1  million to prepay- Derivative financial instruments comprise currency forwards ments received from customers (2018: €71.4 million). They relate and interest-rate swaps with a negative fair value that are used to services that are still to be provided but for which prepayments to  reduce currency risk and interest-rate risk. Some of these from customers have been received. Contract liabilities are rec- derivative financial instruments are part of a formally documented ognised as revenue as soon as the contractual goods and ser- hedge with a hedged item and are recognised in accordance with vices have been provided. The revenue recognised in the report- the hedge accounting rules (see note [41]). ing period that was included in the contract liability balance at the beginning of the period amounted to €468.7  million (2018: €292.6 million). Prepayments received from customers came to €549.6 million (2018: €558.3 million). [34] TRADE PAYABLES As at 31 December 2019, trade payables of €975.9 million (2018: €904.2 million) included liabilities to non-consolidated subsidiaries, equity-accounted investments and other equity investments of €33.5 million (2018: €23.7 million). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 199 Other financial liabilities TABLE 094 in € million Liabilities from short-term rental fleet financing Liabilities from procurement leases Derivative financial instruments Sundry 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 financial liabilities Other current financial liabilities 2019 101.7 380.6 11.4 7.1 500.9 76.9 105.5 12.8 4.4 84.4 284.0 2018 185.0 327.1 7.9 4.7 524.6 104.9 94.2 6.4 15.2 67.9 288.6 Total other financial liabilities 784.9 813.2 Maturity analysis of procurement leases and short-term rental fleet TABLE 095 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 Procurement leases Financing short-term rental fleet 2019 551.5 117.6 92.9 75.3 54.8 39.8 171.1 2018 464.1 105.8 79.7 57.5 45.7 34.0 141.3 2019 185.7 80.9 53.0 35.9 12.1 2.9 0.8 2018 315.0 122.8 86.6 53.8 34.4 12.2 5.2 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 200 [36] OTHER LIABILITIES Other liabilities comprise the following items: > TABLE 096 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 Deferred income included deferred gains on disposals of €448.8  million (2018: €627.4  million) resulting from indirect and direct sales lease business. Personnel liabilities primarily consist of liabilities for one-year variable remuneration, outstanding annual leave, flexitime and overtime credit, and wages and salaries not yet paid. TABLE 096 2018 473.5 473.5 250.0 266.8 51.6 105.8 674.2 2019 301.2 301.2 252.7 296.0 53.7 107.2 709.6 1,010.9 1,147.6 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 201 [37] CONTINGENT LIABILITIES AND OTHER FINANCIAL COMMITMENTS Contingent liabilities 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 contingent liabilities include guarantees and indemnities to the existing risk provision in the form of insurance or provisions external parties. In addition, guarantees and indemnities of will be sufficient in each individual case. However, the KION €2.3  million related to contingent liabilities assumed jointly Group believes it is unlikely that these ongoing lawsuits will require with another shareholder of a joint venture (2018: €2.3  million). funds to be utilised that exceed the provisions recognised. > TABLE 097 Contingent liabilities in € million Guarantees and indemnities TABLE 097 2018 89.5 2019 114.9 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated statement of financial position 202 Other financial commitments Sundry other financial commitments included future payment obligations to an associate amounting to €1.3  million (2018: €1.3 million). > TABLE 098 Other financial commitments in € million Commitments under long-term licence and support agreements Capital expenditure commitments in fixed assets Sundry other financial commitments Total other financial commitments TABLE 098 2018 99.7 59.0 1.3 160.0 2019 121.1 66.8 1.5 189.4 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 203 Other disclosures [38] CONSOLIDATED STATEMENT OF CASH FLOWS expenditure on production facilities, product development and purchased property, plant and equipment rose to €287.4 million (2018: €258.5 million). Free cash flow – the sum of cash flow from operating activi- ties and investing activities – increased to €568.4  million (2018: The consolidated statement of cash flows shows the changes in €519.9 million). cash and cash equivalents in the KION Group resulting from cash Net cash used for financing activities came to €534.9 million inflows and outflows in the year under review, broken down into (2018: €514.5  million), partly due to net repayments of financial cash flow from operating, investing and financing activities. The debt amounting to €226.0 million. One new promissory note was effects on cash from changes in exchange rates are shown sep- issued, whereas a further amount was repaid towards the remain- arately. Cash flow from operating activities is presented using the ing long-term tranches under the AFA. Overall, financial debt indirect method. taken on during the reporting period reached €2,940.1  million Net cash provided by operating activities totalled €846.3 mil- (2018: €1,811.7 million); repayments amounted to €3,166.2 million lion, which was much higher than the prior-year figure of (2018: €2,042.6 million). Payments made for interest portions and €765.5 million. This year-on-year improvement in cash flow from principal portions under procurement leases totalled €126.5 mil- operating activities was due to the higher level of earnings and a lion (2018: €114.0 million). Current interest payments decreased reduction in spending on the ongoing renewal and expansion of from €42.9 million in 2018 to €36.7 million in 2019 due to a year- the short-term rental fleet. Conversely, the growth of net working on-year fall in average net debt. The payment of a dividend to the capital lowered cash flow from operating activities by €146.8 mil- shareholders of KION GROUP AG in May 2019 resulted in an out- lion (2018: by €54.3  million), primarily because of a decline in flow of funds of €141.5 million (2018: €116.8 million). The acquisi- advance payments from customers in the project business. tion of employee shares caused a cash outflow of €2.9  million Net cash used for investing activities amounted to €277.9 mil- (2018: €3.6 million). lion, which was a higher amount than in the previous year (2018: Additional information for 2019 on the changes to liabilities €245.6  million). Within this figure, cash payments for capital arising from financing activities can be found in > TABLES 099 – 100. Reconciliation of liabilities arising from financing activities 2019 TABLE 099 in € million Non-current financial liabilities Current financial liabilities Liabilities from accrued interest Derivative financial instruments for hedging purposes Liabilities from procurement leases Total liabilities from financing activities 01/01/2019 Cash flows 1,818.7 226.5 15.2 7.3 421.2 2,489.0 – 100.0 – 126.0 – 34.2 – 2.5 – 126.5 – 389.2 Non-cash changes Foreign exchange movement Other changes 31/12/2019 0.0 – 4.5 – 0.0 – 4.7 0.2 – 1.9 7.7 23.3 4.9 186.7 220.7 1,716.8 103.7 4.4 9.7 486.1 2,320.7 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 204 Reconciliation of liabilities arising from financing activities 2018 TABLE 100 in € million Non-current financial liabilities Current financial liabilities Liabilities from accrued interest Derivative financial instruments for hedging purposes Liabilities from procurement leases Total liabilities from financing activities 01/01/2018 Cash flows 2,024.8 243.9 14.5 1.9 369.1 2,654.2 – 200.0 – 30.9 – 39.4 – 3.5 – 114.0 – 387.8 Non-cash changes Foreign exchange movement Other changes 31/12/2018 8.0 – 7.9 – 0.0 – – 1.6 – 1.5 – 14.1 21.5 40.2 8.9 167.7 224.1 1,818.7 226.5 15.2 7.3 421.2 2,489.0 Positive currency effects increased cash and cash equivalents by €2.4  million (2018: decrease of €3.2  million due to negative effects). Overall, cash and cash equivalents went up from €175.3 million as at 31 December 2018 to €211.2 million as at 31 December 2019. [39] INFORMATION ON FINANCIAL INSTRUMENTS The measurement categories used in accordance with IFRS 9 are presented below in > TABLES 101 – 102. In line with IFRS 7, the tables show the carrying amounts and fair values of the financial assets and liabilities. Derivative financial instruments that are part of a formally documented hedge are not assigned to any of the IFRS 9 measurement categories. The lease receivables, lease lia- bilities, liabilities from procurement leases and liabilities from short-term rental fleet financing fall within the scope of IFRS 16 and are therefore also not assigned to any of the IFRS 9 measure- ment categories. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 205 Carrying amounts and fair values broken down by class 2019 TABLE 101 Classes in € million Financial assets Lease receivables * Trade receivables Other financial assets thereof financial investments thereof financial receivables thereof other financial investments thereof sundry financial assets thereof derivative financial instruments Cash and cash equivalents Financial liabilities Financial liabilities thereof promissory notes thereof liabilities to banks thereof other financial liabilities Liabilities from financial services Lease liabilities * Trade payables Other financial liabilities thereof liabilities from procurement leases * thereof liabilities from short-term rental fleet financing * thereof sundry financial liabilities and liabilities from accrued interest thereof derivative financial instruments * as defined by IFRS 16 Categories Carrying amount FVPL AC FVOCI Fair value 1,421.0 1,074.2 118.7 14.4 23.9 24.2 44.3 12.0 211.2 1,820.5 1,317.3 498.3 4.9 2,500.2 432.1 975.9 784.9 486.1 178.6 96.0 24,3 4.8 1,069.4 14.4 24.2 7.2 23.9 44.3 211.2 1,317.3 498.3 4.9 2,500.2 975.9 96.0 5,3 1,427.4 1,074.2 118.7 14.4 23.9 24.2 44.3 12.0 211.2 1,827.7 1,323.9 498.9 4.9 2,515.4 435.3 975.9 794.7 494.6 179.9 96.0 24,3 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 206 Carrying amounts and fair values broken down by class 2018 TABLE 102 Classes in € million Financial assets Lease receivables * Trade receivables Other financial assets thereof financial investments thereof financial receivables thereof other financial investments thereof sundry financial assets thereof derivative financial instruments Cash and cash equivalents Financial liabilities Financial liabilities thereof promissory notes thereof liabilities to banks thereof other financial liabilities Liabilities from financial services Lease liabilities * Trade payables Other financial liabilities thereof liabilities from procurement leases * thereof liabilities from short-term rental fleet financing * thereof sundry financial liabilities and liabilities from accrued interest thereof derivative financial instruments * as defined by IFRS 16 Categories Carrying amount FVPL AC FVOCI Fair value 1,097.3 1,036.4 113.2 5.2 35.9 21.0 41.2 9.9 175.3 2,045.2 1,214.3 826.4 4.6 1,472.4 740.6 904.2 813.2 421.2 289.9 87.8 14.3 15.6 1,020.9 5.2 21.0 6.5 35.9 41.2 175.3 1,214.3 826.4 4.6 1,472.4 904.2 87.8 2.5 1,102.0 1,036.4 113.2 5.2 35.9 21.0 41.2 9.9 175.3 2,055.6 1,222.0 829.1 4.6 1,477.0 743.0 904.2 822.1 429.2 290.8 87.8 14.3 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 207 The net gains and losses on financial instruments in 2019 are bro- Fair value measurement ken down by IFRS 9 category as shown in > TABLE 103. Net gains and losses on financial instruments do not include gains / losses The majority of the cash and cash equivalents, financial receiva- arising on hedging transactions that are part of a formally docu- bles, trade receivables and trade payables recognised at amor- mented hedge (see note [41]). tised cost, sundry financial assets and liabilities, and liabilities The net gains and losses include interest income of €4.2 mil- from accrued interest have short remaining terms to maturity. The lion (2018: €6.2  million) and interest expenses of €70.5  million carrying amounts of these financial instruments are roughly equal (2018: €57.7 million) that result from financial instruments meas- to their fair values. ured at amortised cost (AC category) and are recognised within The fair value of promissory notes, liabilities to banks and financial income/expenses. In 2019, the measurement at fair liabilities from financial services corresponds to the present value value of equity instruments (FVOCI category) led to a loss of of the outstanding payments, taking account of the current yield €1.9 million that was recognised in other comprehensive income curve and the Group’s own default risk. This fair value, calculated (2018: €6.4  million). Currency translation gains and losses, divi- for the purposes of disclosure in the notes to the financial state- dends, valuation allowances for expected and incurred losses, ments, is classified as Level 2 of the fair value hierarchy. the marking-to-market of derivatives that are not part of a formally The fair value of lease receivables, lease liabilities, liabilities documented hedge and other measurement effects are also from short-term rental fleet financing and liabilities from procure- included in the net gains and losses. ment leases corresponds to the present value of the net lease payments, taking account of the current market interest rate for similar leases. Net gains and losses on financial instruments broken down by category TABLE 103 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) 2019 – 7.7 – 1.9 – 15.7 – 69.6 2018 – 1.9 – 6.4 – 16.9 – 58.1 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 208 The following tables show the assignment of fair values to the individual levels as defined by IFRS 13 for financial instruments measured at fair value. > TABLES 104 – 105 Financial instruments measured at fair value 2019 TABLE 104 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 Level 3 3.2 11.2 24.2 4.8 12.0 24.3 2019 55.3 14.4 24.2 4.8 12.0 24.3 24.3 Financial instruments measured at fair value 2018 TABLE 105 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 Level 3 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 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 209 Level 1 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 objec- using the transaction price achievable in an active market. The tives include the optimisation of the capital structure, the reduc- biggest influence on the transaction price is the default risk of tion of liabilities and ongoing Group cash flow planning and man- the counterparty. agement. Close cooperation between local units and Corporate Interest-rate swaps and currency forwards are also classified Treasury 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 using appropriate valuation methods on the basis of capital management. the observable market information at the reporting date. The Net financial debt – defined as the difference between finan- default risk for the Group and for the counterparty is taken into cial liabilities and cash and cash equivalents – is a key perfor- account on the basis of gross figures. The fair value of inter- mance measure used in liquidity planning at Group level and est-rate swaps is calculated as the present value of the future amounted to €1,609.3  million as at 31 December 2019 (2018: cash flows. Both contractually agreed payments and forward €1,869.9 million). interest rates are used to calculate the cash flows, which are then discounted on the basis of a yield curve that is observable in the market. The fair value of the currency forwards is calculated by Default risk the system using the discounting method based on forward rates on the reporting date. In order to eliminate default risk to the In certain operating and finance activities, the KION Group is sub- greatest possible extent, the KION Group only enters into ject to credit risk, i.e. the risk that partners will fail to meet their derivatives with investment-grade counterparties. contractual obligations. This risk is defined as the risk that a Level 3 essentially comprises the financial investment in counterparty will default, and hence is limited to a maximum of Zhejiang EP Equipment Co., Ltd. The fair value is determined the carrying amount of the assets relating to the counterparty using appropriate valuation methods that draw on observable involved. Default risk is limited by diversifying business partners inputs to the greatest possible extent. If no observable inputs are based on certain credit ratings. The Group only enters into trans- available, unobservable inputs are used. actions with business partners and banks holding a good credit rating and subject to fixed limits. The potential default risk attach- ing to financial assets is also mitigated by secured forms of lend- ing such as reservation of title, credit insurance and guarantees, and potential netting agreements. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 210 Counterparty risks involving our customers are managed by the almost the same as their fair value. The maximum downside risk individual Group companies. To reflect the default risk, valuation arising on the transferred financial assets that are to be fully allowances are recognised for defaults that have occurred and for derecognised amounted to €4.7 million as at 31 December 2019 expected defaults (see note [25]). Valuation allowances are based (2018: €19.9 million). on the credit risk associated with the receivables, the level of The following tables show all of the contractually agreed expected loss in the event of a default and, taking account of any undiscounted payments under recognised financial liabilities as collateral, the estimated loss given default. This risk is assessed at 31 December 2019 and 2018, including derivative financial mainly using factors such as customer credit rating and failure instruments with negative fair values. > TABLES 106 – 107 to adhere to payment terms. Financial transactions are only entered into with selected business partners that have an investment-grade credit rating. Risks arising from financial services The KION Group’s default risk remains insignificant. Liquidity risk The lease activities of the Industrial Trucks & Services segment mean that the KION Group may be exposed to residual value risks from the marketing of trucks that are returned by the lessee at the end of a long-term lease and subsequently sold or Based on the definition in IFRS 7, a liquidity risk arises if an entity re-rented. Residual values in the markets for used trucks are is unable to meet its financial liabilities. The KION Group main- therefore constantly monitored and forecast. The KION Group tains a liquidity reserve in the form of a revolving credit facility and regularly assesses its aggregate risk position arising from cash in order to ensure financial flexibility and solvency. Taking financial services. into account the credit facility that was still freely available, The risks identified are immediately taken into account by the the unrestricted cash and cash equivalents available to the Company in the costing of new leases by recognising write- KION Group as at the reporting date amounted to €1,357.4 million downs or provisions and adjusting the residual values. Risk-miti- (2018: €1,219.8 million). The age structure of financial liabilities gating factors include the demand for used trucks, which stabi- is reviewed and optimised continually. lises the residual values of the KION Group’s industrial trucks. In KION GROUP AG has an investment-grade credit rating, many cases, the residual values have underlying remarketing helping it to secure more advantageous funding conditions in agreements that transfer any residual-value risk to the leasing the capital markets. In January 2017, Fitch Ratings gave KION company. This had a positive impact on the financial results in GROUP AG an investment-grade long-term issuer rating of BBB– 2019. Groupwide standards to ensure that residual values are cal- with a stable outlook. This rating was reaffirmed in October 2019. culated conservatively, combined with an IT system for residual- The rating awarded by the rating agency Standard & Poor’s for value risk management, reduce risk and provide the basis on KION GROUP AG has been BB+ with a stable outlook since which to create the transparency required. December 2019. The KION Group mitigates its liquidity risk and interest-rate In 2019, the KION Group sold financial assets with a total risk attaching to financial services by ensuring that most of its value of €116.5 million (2018: €152.3 million) in factoring transac- transactions and funding loans have matching maturities and by tions. In some cases, the KION Group retains insignificant rights constantly updating its liquidity planning. Long-term leases are and obligations in connection with fully derecognised financial primarily arranged on a fixed-interest basis. If they are financed assets, primarily the provision of limited reserves for defaults. The using variable-rate instruments, interest-rate derivatives are recognised assets that serve as reserves for defaults and are entered into in order to hedge the interest-rate risk. Hedging is reported under other current financial assets stood at €0.7 million carried out at regular intervals and is based either on the carrying as at 31 December 2019 (2018: €3.1 million). The short remaining amount of the assets or the outstanding cash flows from the term of these financial assets means their carrying amount was underlying end customer contracts. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 211 Liquidity analysis of financial liabilities and derivatives 2019 TABLE 106 in € million Primary financial liabilities Promissory notes Liabilities to banks Other financial liabilities Liabilities from financial services Lease liabilities Trade payables Other financial liabilities (excluding derivatives) Derivative financial liabilities Derivatives with negative fair value + Cash in – Cash out Carrying amount 2019 Cash flow 2020 Cash flow 2021 – 2024 Cash flow from 2025 1,317.3 498.3 4.9 2,500.2 432.1 975.9 760.7 24.3 – 15.4 – 103.0 – 4.9 – 966.2 – 200.5 – 975.9 – 282.8 – 1,021.1 – 401.9 – – 1,489.4 – 253.6 – – 373.9 – 341.3 – – – 117.2 – 1.4 – – 171.9 409.5 – 426.8 89.2 – 97.7 – – Liquidity analysis of financial liabilities and derivatives 2018 TABLE 107 in € million Primary financial liabilities Promissory notes Liabilities to banks Other financial liabilities Liabilities from financial services Lease liabilities Trade payables Other financial liabilities (excluding derivatives) 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 1,214.3 826.4 4.6 1,472.4 740.6 904.2 798.9 14.3 – 14.5 – 233.3 – 4.6 – 589.7 – 291.5 – 904.2 – 316.4 – 798.8 – 646.0 – – 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 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 212 The lease facilities provided by various banks and an effective The main hedging instruments employed are foreign-currency dunning process ensure that the Group has sufficient liquidity. forwards, provided that there are no country-specific restrictions In order to exclude currency risk, the KION Group generally on their use. finances its lease business in the local currency used in each In the Industrial Trucks & Services segment, hedges are market. entered into at individual company level for highly probable future The counterparty risk inherent in the lease business contin- transactions on the basis of rolling 15-month forecasts, as well as ues to be insignificant. The Group also mitigates any losses from for firm obligations not reported in the statement of financial posi- defaults by its receipt of the proceeds from the sale of repos- tion. Currency risk arising from customer-specific project busi- sessed trucks. Furthermore, receivables management and credit ness contracts in the Supply Chain Solutions segment is hedged risk management are refined on an ongoing basis. This involves on a project-specific basis at individual company level. Some of not only the design of the business processes, but also the risk these hedges are classified as cash flow hedges for accounting management and control processes. purposes in accordance with IFRS 9 (see note [41]). In addition, foreign-currency forwards are employed to hedge the currency risks arising in the course of internal financing. > TABLE 108 shows an overview of the foreign-currency forwards entered into by the KION Group. Currency risk In accordance with the Corporate Treasury guideline, the KION Group hedges currency risk both locally at the level of the individ- ual companies and centrally via KION GROUP AG using pre- scribed hedging ratios. Foreign-currency forwards Fair value Notional amount in € million 2019 2018 Foreign-currency forwards (assets) Foreign-currency forwards (liabilities) Cash flow hedge Held for trading Cash flow hedge Held for trading 2.5 6.7 9.5 3.4 2.4 6.5 4.6 1.9 2019 116.0 509.1 250.4 144.9 TABLE 108 2018 180.4 332.1 211.8 112.8 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 213 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. in calculating currency sensitivity if the financial instruments are The 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 variable-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 presentation currency, i.e. currency swaps in order to hedge interest-rate risk arising on the varia- translation risks, are not included. ble-rate financial liabilities. These hedges are often accounted for Currency risk relevant to currency sensitivity in the KION as cash flow hedges in accordance with IFRS 9. An interest-rate Group arises mainly in connection with derivative financial instru- swap has also been entered into to hedge the risk of a change in ments, trade receivables and trade payables. It is assumed that the fair value of a fixed-rate financial liability. This is accounted for the portfolio of financial instruments as at the reporting date is as a fair value hedge (see note [41]). > TABLE 110 provides an representative of the portfolio over the whole of the year. The overview of the interest-rate derivatives used by the KION Group. sensitivity analysis for the relevant currencies (after tax) is shown in > TABLE 109. Foreign-currency sensitivity TABLE 109 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% 2019 2018 0.1 1.1 0.2 20.5 – 0.1 – 1.3 – 0.3 – 9.4 9.8 4.6 7.6 6.3 – 12.0 – 5.6 – 11.9 – 2.9 in € million GBP USD in € million GBP USD KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures Interest-rate swaps Fair value Notional amount in € million 2019 2018 Interest-rate swaps (assets) Interest-rate swaps (liabilities) Fair value hedge Held for trading Cash flow hedge Held for trading 2.4 0.5 9.7 1.9 1.0 – 7.3 0.6 2019 79.5 557.9 760.0 229.7 214 TABLE 110 2018 100.0 – 760.0 90.0 The shift in the relevant yield curves was simulated to assess On account of the short-term nature of the Group’s payment interest-rate risk. The cumulative effect after tax resulted from terms, reclassifications to the income statement of fair value variable-rate exposures and is shown in > TABLE 111. changes previously recognised in equity in the hedge reserve and [41] HEDGE ACCOUNTING Hedging currency risk the recognition of the corresponding cash flows generally take place in the same reporting period. A foreign-currency receivable or liability is recognised when goods are despatched or received. Until the corresponding payment is received, changes in the fair value of the derivative are recognised in the income statement such that they largely offset the effect of the measurement of the foreign-currency receivable or liability at the reporting date. The currency forwards used as hedges will mature in 2021 at In accordance with the Corporate Treasury guideline, the KION the latest. In total, foreign-currency cash flows of €366.4 million Group applies cash flow hedge accounting in hedging the cur- (2018: €392.1  million) were hedged and designated as hedged rency risks arising from highly probable future transactions and items, of which €343.2 million is expected by 31 December 2020 firm obligations not reported in the statement of financial position (2018: €372.4  million expected by 31 December 2019). The in various currencies. Foreign-currency forwards with settlement remaining cash flows designated as hedged items, which amount dates in the same month as the expected cash flows from the to €23.1 million (2018: €19.7 million), fall due in the period up to Group’s operating activities are used as hedges. The critical 31 December 2021 (2018: 31 December 2020). terms of the hedging instruments and the hedged items are therefore matched. The hedge ratio for these hedges is 1:1. Because the hedges are highly effective, the change in the fair value of the cash flows from the hedged items corresponds to the change in the fair value of the hedging instruments. The main currency hedges relate to pound sterling and the US dollar. The currency forwards in existence as at 31 December 2019 were entered into at average hedging rates of £0.8950 to €1 (2018: £0.8984 to €1) and US$ 1.1445 to €1 (2018: US$ 1.2077 to €1). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 215 Interest-rate sensitivity TABLE 111 in € million Net income Other comprehensive loss (income) + 50 bps – 50 bps + 50 bps – 50 bps 2019 4.0 4.4 2019 – 4.3 – 0.5 2018 – 0.6 7.3 2018 – 0.4 – 2.5 Hedging of interest-rate risk 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 The KION Group has issued variable-rate and fixed-rate promis- mature in 2025 is hedged using an interest-rate swap, thereby sory notes as part of its financing (see note [29]). The KION Group creating a EURIBOR-based variable-rate obligation. The carrying uses cash flow hedge accounting in connection with the hedging amount of the hedged promissory note tranche (€79.5  million), of interest-rate risk. It also uses a fair value hedge to hedge the which is recognised under financial liabilities, included an adjust- risk of a change in the fair value of fixed-rate promissory notes. ment of €9.3 million as at 31 December 2019 (2018: €6.8 million) The hedge ratio used in both cases is 1:1. The critical terms of the that was attributable to the change in fair value resulting from the hedging instruments and the hedged items are matched. The hedged risk. interest-rate swaps used as hedges reflect the maturity profile of the hedged items and will mature in 2025. Because the hedges are highly effective, the change in the fair value of the cash flows Change in the hedge reserve from the hedged items (cash flow hedge) and the change in the fair value of the hedged items (fair value hedge), corresponds to The change in the hedge reserves within accumulated other the change in the fair value of the hedging instruments. comprehensive income (loss) is presented in > TABLE 112. Interest-rate risks arising on the variable-rate tranches of the promissory note are hedged by entering into a number of inter- est-rate swaps, thereby transforming the variable interest-rate exposure into fixed-rate obligations. In 2019, the weighted, hedged risk-free fixed interest rate remained unchanged year on year at 0.5  per  cent. In total, variable cash flows of €0.1  million (2018: €4.1 million) were hedged and designated as hedged items, all of which are cash flows expected in 2021 to 2024. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 216 Reconciliation of hedge reserves resulting from hedges of currency and interest-rate risks TABLE 112 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 in € million Balance as at 01/01/2019 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 31/12/2019 [42] SEGMENT REPORT 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 Currency risk Interest-rate risk – 2.2 – 11.9 3.4 3.8 0.6 – 6.3 – 8.3 – 3.2 – – 1.0 – 10.5 Total 1.8 – 16.0 – 0.2 – 1.1 5.1 – 10.4 Total – 10.4 – 15.1 3.4 3.8 1.5 – 16.8 vices segment covers key steps of the value chain: product devel- opment, manufacturing, sales and service, truck rental and used trucks, fleet management and financial services that support the core industrial truck business. The segment operates a mul- The Executive Board, as the chief operating decision-maker ti-brand strategy involving the three international brands Linde, (CODM), manages the KION Group on the basis of the follow- STILL and Baoli plus the two local brands Fenwick and OM Voltas. ing segments: Industrial Trucks & Services, Supply Chain Solutions and Corporate Services. The segments have been Supply Chain Solutions defined in accordance with the KION Group’s organisational The Supply Chain Solutions segment, with its Dematic Operating and strategic focus. Description of the segments Industrial Trucks & Services Unit, is a strategic partner to customers in a variety of industries, supplying them with integrated technology and software solu- tions with which to optimise their supply chains. Manual and automated solutions are provided for all functions along custom- ers’ supply chains, from goods inward and multishuttle ware- house systems to picking and value-added packing. This seg- So that it can fully cater to the needs of material handling custom- ment is primarily involved in customer-specific, longer-term ers worldwide, the business model of the Industrial Trucks & Ser- project business operated under the leadership of the Dematic KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 217 brand. With global resources, eleven production facilities world- Segment management wide and regional teams of experts, Dematic is able to plan and deliver logistics solutions with varying degrees of complexity any- The KPIs used to manage the segments are order intake, revenue where in the world. Corporate Services and adjusted EBIT. Segment reporting therefore includes a rec- onciliation of externally reported consolidated earnings before interest and tax (EBIT) – including effects from purchase price The Corporate Services segment comprises holding companies allocations and non-recurring items – to the adjusted EBIT for the and service companies that provide services such as IT and segments (‘adjusted EBIT’). Intra-group transactions are generally logistics across all segments. The bulk of the total revenue in this conducted on an arm’s-length basis. Segment reports are pre- segment is generated by internal IT and logistics services. pared in accordance with the same accounting policies as the consolidated financial statements, as described in note [6]. >  TABLES 113 – 114 show information on the KION Group’s operating segments for 2019 and 2018. Segment report 2019 in € million Revenue from external customers Intersegment revenue Total revenue Earnings before tax 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 6,403.7 6.5 6,410.2 605.0 – 56.6 661.7 28.4 5.1 695.1 10,564.2 7,718.8 220.1 104.7 6,330.5 26,131 2,376.1 2.7 2,378.8 112.9 – 16.7 129.6 12.6 86.0 228.1 5,201.1 2,237.6 50.2 37.4 2,771.0 7,361 26.7 307.3 334.1 291.5 – 21.7 313.2 1.9 – 315.1 2,048.8 4,300.6 17.1 17.0 334.1 1,112 – – 316.5 – 316.5 – 387.8 – – 387.8 – – – 387.8 – 4,048.9 – 4,050.3 – – – 323.8 − 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 113 Total 8,806.5 – 8,806.5 621.6 – 95.1 716.6 42.9 91.0 850.5 13,765.2 10,206.8 287.4 159.1 9,111.7 34,604 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures Segment report 2018 in € million Revenue from external customers Intersegment revenue Total revenue Earnings before tax 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 218 TABLE 114 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 External revenue by region is presented in > TABLES 051 – 052. Net financial income and expenses, including all interest In 2019, revenue came to €1,700.5 million in Germany (2018: income and expenses, are described in notes [12] and [13]. €1,533.2 million), €1,604.6 million in the US (2018: €1,422.5 mil- The non-recurring items mainly comprised restructuring and lion) and €1,056.6 million in France (2018: €951.7 million). reorganisation-related measures initiated in the fourth quarter of 2019 and came to a total of €42.9 million (2018: €21.0 million). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 219 The effects from purchase price allocations comprised write- Capital expenditure in Germany came to €156.6  million in 2019 downs and other expenses in relation to the hidden reserves and (2018: €156.3 million). charges identified as part of the acquisition processes. Depreciation/amortisation relates to intangible assets with Capital expenditure includes additions to intangible assets finite useful lives and property, plant and equipment. and property, plant and equipment (excluding right-of-use assets The regional breakdown of non-current assets excluding related to procurement leases) and is shown in >  TABLE  115. financial instruments, deferred tax assets and post-employment Leased assets and rental assets are described in note [17] and [18]. benefits is shown in > TABLE 116. Capital expenditure broken down by company location* TABLE 115 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) 2019 189.6 24.1 0.0 37.3 1.3 35.2 2018 190.2 14.6 0.1 34.6 1.6 17.3 287.4 258.5 TABLE 116 2018 5,295.7 344.1 5.0 2,422.4 98.7 565.8 8,731.8 2019 5,374.9 438.7 2.4 2,441.8 103.5 601.6 8,962.8 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 220 As at 31 December 2019, non-current assets attributable to The related parties that are solely or jointly controlled by the Germany amounted to €3,387.9  million (2018: €3,395.7  million) KION Group or over which significant influence can be exercised and to the US €2,356.8 million (2018: €2,341.1 million). are included in the list of shareholdings as at 31 December 2019 [43] EMPLOYEES (see note [48]). Another related party is Weichai Power Co., Ltd., Weifang, People’s Republic of China, which indirectly held a 45.0 per cent stake in KION GROUP AG via Weichai Power (Luxembourg) Holding S.à r.l., Luxembourg (‘Weichai Power’) as at 31 Decem- ber 2019 (2018: 45.0 per cent). The distribution of a dividend of The KION Group employed an average of 34,002 full-time equiv- €1.20 per share (2018: €0.99 per share) to Weichai Power resulted alents (including trainees and apprentices) in the reporting year in an outflow of funds from KION  GROUP  AG of €63.8  million (2018: 32,524). The number of employees (with part-time staff (2018: €50.6 million). included on a pro rata basis) is shown by region in > TABLE 117. The revenue that the KION Group generated in 2019 and The KION Group employed an average of 606 trainees and 2018 from selling goods and services to related parties, and vice apprentices in 2019 (2018: 547). versa, is shown in >  TABLES  118 – 119 along with the associated receivables and liabilities as at the reporting date. The receivables include a loan that the KION Group has granted to Linde Hydrau- lics GmbH & Co. KG, Aschaffenburg. This involved a maximum commitment of €9.3  million (2018: €9.3  million), from which the KION Group had a loan receivable of €8.0 million as at 31 Decem- ber 2019 (2018: €8.0 million) with a variable interest rate. [44] RELATED PARTY DISCLOSURES In addition to the subsidiaries included in the consolidated finan- cial statements, the KION Group has direct or indirect business relationships with a number of non-consolidated subsidiaries, associates, joint ventures and other related parties in the course of its ordinary business activities. Employees (average) Western Europe Eastern Europe Middle East and Africa North America Central and South America Asia-Pacific Total employees TABLE 117 2018 20,116 2,658 239 3,029 1,246 5,236 2019 21,051 3,058 144 3,116 1,261 5,372 34,002 32,524 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures Related party disclosures 2019 in € million Non-consolidated subsidiaries Associates (equity-accounted) Joint ventures (equity-accounted) Other related parties * Total Receivables Liabilities Sales of goods and services 18.8 21.7 2.0 25.0 67.5 15.6 11.9 99.9 9.1 136.5 28.9 181.8 57.0 39.2 306.9 * ‘Other related parties’ include, among others, transactions with Weichai Power and its affiliated companies 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 38.8 312.3 221 TABLE 118 Purchases of goods and services 43.1 142.3 81.9 45.3 312.6 TABLE 119 Purchases of goods and services 22.1 133.1 78.6 11.5 245.3 * ‘Other related parties’ include, among others, transactions with Weichai Power and its affiliated companies The members of the Executive Board and Supervisory Board Assets Supervision and Administration Commission of Shandong of KION GROUP AG are also related parties. Details of the remu- People’s Government of the People’s Republic of China, Jinan, neration of the Executive Board and Supervisory Board can be People’s Republic of China. This Commission acts on behalf of found 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 Shan- Republic of China, which itself is owned by the State-owned dong Heavy Industry Group Co., Ltd. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 222 [45] VARIABLE REMUNERATION KEEP employee equity programme another free matching share (bonus share) for each share pack- age. 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 2019, the KION Group will On 20 September 2019, the Executive Board of KION GROUP AG bear the cost of one KION share (free share) in each of the first decided to launch a further share option programme for employ- seven share packages that an employee takes up. ees (KEEP 2019) in the countries that had been included in the The right to obtain a bonus share lapses if participants sell previous year. To be eligible to participate in KEEP 2019, employ- their own investment in KION shares or cease to work for the ees needed, at the start of the offer phase, to have had a perma- KION Group. The change in the number of bonus shares granted nent, uninterrupted employment contract with a participating is shown in > TABLE 120. KION Group company for at least one year. Currently, KION In 2019, 3,785 free shares were issued to employees as part GROUP AG plus 19 German (2018: 19) and 60 foreign (2018: 62) of their starter packages (2018: 4,225 free shares). subsidiaries are eligible to take part in KEEP. Each year, the Exec- The free shares to be issued are measured at their fair value utive Board of KION GROUP AG decides whether there will be an on the day on which employees obtain the right to acquire shares offer made under the employee share option programme that as their own investment. The fair value on the grant date is deter- year and which companies will participate. mined on the basis of Monte Carlo simulation. The measurement KEEP is a share matching plan. Participating employees parameters used are shown in > TABLE 121. acquire KION shares for their own investment purposes. Each set As at 31 December 2019, the fair value of a bonus share for of three KION shares represents a share package. Once the KEEP 2019 was €55.16 (KEEP 2018: €42.03; KEEP 2017: €62.02). three-year holding period has expired, employees are entitled to 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 120 2018 50,166 17,455 – 22,580 – 1,386 43,655 2019 43,655 24,794 – 14,136 – 537 53,776 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 223 Significant measurement parameters for the KION GROUP AG Share Matching Programme TABLE 121 Measurement parameters Expected dividend Price of the KION share as at grant date KEEP 2019 KEEP 2018 KEEP 2017 €1.30 €58.82 €0.99 €44.59 €0.88 €64.62 The fair value of the bonus shares to be granted is recognised The performance period for the 2019 tranche ends on as an expense and paid into capital reserves over the three-year 31 December 2021 (2018 tranche: 31 December 2020). The 2017 holding period. The holding period for KEEP 2016 ended on tranche expired on 31 December 2019 and will be paid out in the 5 October 2019 and the bonus shares were issued to the eligible first quarter of 2020. employees at no cost. At the beginning of the performance period on 1 January 2019 In 2019, an expense totalling €0.9  million was recognised (2018 tranche: 1 January 2018; 2017 tranche: 1 January 2017), under the relevant functional costs for free shares and bonus the managers were allocated a total of 274,460 phantom shares shares in connection with the employee share option programme for this tranche (2018 tranche: 188,531 phantom shares; 2017 (2018: €1.0  million). Of this amount, €0.3  million related to tranche: 171,573 phantom shares). The allocation was based on KEEP  2019, €0.2  million to KEEP  2018 (2018: €0.3  million), a particular percentage of each manager’s individual gross annual €0.2 million to KEEP 2017 (2018: €0.2 million) and €0.2 million to remuneration at the time of grant. At the end of the performance KEEP 2016 (2018: €0.2 million). In 2018, there had also been an period, the number of the phantom shares is amended depend- amount of €0.2 million relating to KEEP 2015. ing on the degree to which the relevant targets are achieved. The KION performance share plan (PSP) for managers resulting final number of 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 KION Group has the right to adjust the amount payable at the end of the performance period in the event of exceptional The 2019 tranche of the long-term, variable remuneration compo- occurrences or developments. The maximum amount payable is nent for the managers in the KION Group (LTI 2019) was granted limited to 200.0 per cent of the value of the shares allotted to an with effect from 1 January 2019 and has a term of three years. individual at the grant date. The remuneration component measured over the long term is The pro-rata expense calculation based on the fair value of based in equal parts on the total shareholder return (TSR) of KION the phantom shares on each valuation date is carried out using GROUP AG shares compared with the performance of the MDAX Monte Carlo simulation. The measurement parameters shown index as a measure of market performance, and with return on in >  TABLE 122 were used to value the phantom shares on the capital employed (ROCE) as an internal measure. It also depends reporting date. on the performance of KION GROUP AG shares during the rele- vant period. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 224 Significant measurement parameters of the KION Performance Share Plans TABLE 122 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 31/12/2019 Tranche 2019 Tranche 2018 35.0% 15.0% – 0.65% €1.30 €61.74 35.0% 15.0% – 0.71% €1.30 €61.74 €28,440.98 €28,440.98 €48.68 €69.85 €23,511.95 €26,396.86 Taking account of the remaining term of two years (2019 tranche) The total carrying amount for liabilities in connection with and one year (2018 tranche), the historic volatility of KION shares share-based remuneration was €12.5 million as at 31 December was used to determine the volatility on which the valuation is 2019 (2018: €7.7  million). Of this amount, €3.7  million related to based. As at 31 December 2019, the fair value of one phantom the 2017 tranche (2018: €2.4  million), €4.4  million to the 2018 share was €40.99 for the 2018 tranche (2018: €24.25) and €50.27 tranche (2018: €1.4 million) and €4.4 million to the 2019 tranche. for the 2019 tranche. On that date, the total fair value was €6.6 mil- In 2018, there had also been an amount of €3.8 million relating to lion for the 2018 tranche based on 161,350 phantom shares the 2016 tranche. In 2019, a pro-rata expense for twelve months (2018: €4.3 million) and €13.1 million for the 2019 tranche based of €1.3 million for the 2017 tranche (2018: income of €1.4 million), on 261,476 phantom shares. The amount of €3.7  million that is a pro-rata expense for twelve months of €3.0 million for the 2018 expected to be paid out for the 2017 tranche (2018: €3.8 million tranche (2018: €1.4  million) and a pro-rata expense for twelve for the 2016 tranche) is calculated on the basis of a preliminary months of €4.4  million for the 2019 tranche were recognised total target achievement rate. In March 2019, a payment from the under the relevant functional costs. Furthermore, income of 2016 tranche was made on the basis of the achievement of the €4.0 million for the 2016 tranche had been recognised under the long-term targets that were defined in 2016 at the start of the relevant functional costs in 2018. performance period. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 225 KION performance share plan (PSP) for the Executive Board The pro-rata expense calculation based on the fair value of the phantom shares on each valuation date is carried out using Monte Carlo simulation. The measurement parameters shown in The members of the Executive Board have been promised a mul- >  TABLE 122 were used to value the phantom shares on the tiple-year variable remuneration component in the form of a per- reporting date. formance share plan with a three-year term in each case. The Taking account of the remaining term of two years (2019 remuneration component measured over the long term is based tranche) and one year (2018 tranche), the historic volatility of KION in equal parts on the total shareholder return (TSR) of KION shares was used to determine the volatility on which the valuation GROUP AG shares compared with the performance of the MDAX is based. As at 31 December 2019, the fair value of one phantom index as a measure of market performance, and with return on share was €40.99 for the 2018 tranche (2018: €24.25) and €50.27 capital employed (ROCE) as an internal measure. It also depends for the 2019 tranche. On that date, the total fair value was €3.0 mil- on the performance of KION GROUP AG shares during the lion for the 2018 tranche based on 72,170 phantom shares (2018: relevant period. €1.8  million) and €5.6  million for the 2019 tranche based on The performance period for the 2019 tranche ends on 111,544 phantom shares. The amount of €1.8  million that is 31 December 2021 (2018 tranche: 31 December 2020). The 2017 expected to be paid out for the 2017 tranche (2018: €2.1 million tranche expired on 31 December 2019 and will be paid out in the for the 2016 tranche) is calculated on the basis of a preliminary first quarter of 2020. At the beginning of the performance period total target achievement rate. In March 2019, a payment from the on 1 January 2019 (2018 tranche: 1 January 2018; 2017 tranche: 2016 tranche was made on the basis of the achievement of the 1 January 2017), the Executive Board members were allocated a long-term targets that were defined in 2016 at the start of the total of 111,544 phantom shares for this tranche (2018 tranche: performance period. 72,170 phantom shares; 2017 tranche: 63,695 phantom shares) The total carrying amount for liabilities in connection with on the basis of the starting price of KION shares (60-day average). share-based remuneration was €5.8 million as at 31 December The shares were allocated on the basis of an allocation value in euros 2019 (2018: €3.8 million). Of this amount, €1.8 million related to specified in each Executive Board member’s service contract. the 2017 tranche (2018: €1.1  million), €2.0  million to the 2018 At the end of the performance period, the number of the tranche (2018: €0.5 million) and €2.0 million to the 2019 tranche. phantom shares is amended depending on the degree to which In 2018, there had also been an amount of €2.1 million relating to the relevant targets are achieved. The resulting final number of the 2016 tranche. In 2019, a pro-rata expense for twelve months phantom shares multiplied by the smoothed price of KION of €0.7 million for the 2017 tranche (2018: income of €0.4 million), GROUP AG shares at the end of the performance period deter- a pro-rata expense for twelve months of €1.4 million for the 2018 mines the amount of cash actually paid. The Supervisory Board tranche (2018: €0.5  million) and a pro-rata expense for twelve can also use a discretionary personal performance multiplier to months of €2.0  million for the 2019 tranche were recognised adjust the final payment at the end of the performance period by under the relevant functional costs. Furthermore, income of + / – 30.0  per  cent. The maximum amount payable is limited to €1.9 million for the 2016 tranche had been recognised under the 200.0 per cent of the value of the shares allotted to an individual relevant functional costs in 2018. at the grant date. The total carrying amount for liabilities in connection with share-based remuneration was €18.3 million as at 31 December 2019 (2018: €11.4 million). In 2019, a total expense of €13.7 million for twelve months was recognised for share-based remuneration (2018: total income of €4.8 million). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 226 [46] REMUNERATION OF THE EXECU- TIVE BOARD AND SUPERVISORY BOARD Executive Board Remuneration The remuneration paid to the Executive Board comprises a fixed salary and non-cash benefits, pension entitlements and perfor- mance-related components. The variable performance-related components comprise an annually recurring component linked to business performance and a multi-year performance-related component in the form of the KION performance share plan (see also note [45]). The pension entitlements consist of retirement, Responsibilities invalidity and surviving dependants’ benefits. The responsibilities of the members of the Executive Board are The total remuneration of the members of the Executive disclosed in the corporate governance report (see pages 35 bis 36). Board pursuant to IFRS is shown in > TABLE 123. Remuneration of the Executive Board (IFRS) TABLE 123 in € million Non-performance-related components Performance-related components Termination benefits Total short-term remuneration Share-based payments Post-employment benefits Total long-term remuneration Total remuneration (IFRS) 2019 4.5 3.6 4.8 12.9 4.1 1.3 5.4 18.3 2018 4.5 2.1 – 6.5 – 1.8 1.0 – 0.8 5.7 KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 227 Under section 314 of the German Commercial Code (HGB), Supervisory Board disclosure of the expense for share-based payments is not required. Rather, the payments must be included in the Executive The total remuneration paid to the members of the Supervisory Board members’ remuneration for the year in which they are paid Board for the performance of their tasks at the parent company on the basis of the fair value at the individual grant dates. The fair and subsidiaries in 2019 amounted to €1.5 million (2018: €1.5 mil- value of the share-based payments at their individual grant dates, lion). There were no loans or advances to members of the Super- including tax equalisation, amounted to €5.7  million (2018: visory Board in 2019. Members of the Supervisory Board also €5.5 million). Furthermore, disclosure of the current service cost received short-term employee benefits of €0.8 million for employee (€1.3 million; 2018: €1.0 million) is not required, nor is disclosure of services (2018: €0.7 million). the termination benefits (€4.8  million). On this basis, the total Further details of Supervisory Board remuneration, including remuneration of the members of the Executive Board pursuant to the individual amounts for each member, can be found in the section 314 HGB came to €13.8 million (2018: €12.0 million). remuneration report within the combined management report As in the previous year, no loans or advances were made to (see pages 130 to 131). members of the Executive Board in 2019. The present value of the The total remuneration of the members of the Executive defined benefit obligation in respect of Executive Board members Board and Supervisory Board came to €19.8  million (2018: as at 31 December 2019 was €10.9 million (2018: €8.3 million). €7.2 million). The total remuneration paid to former members of the Exec- utive Board in 2019 amounted to €0.3 million (2018: €0.3 million). Pension entitlements of former members of the Executive Board or their surviving dependants amounting to €11.7  million (2018: €10.5 million) were recognised in accordance with IFRS. Further details of Executive Board remuneration, including the individual amounts for each member, can be found in the remuneration report within the combined management report (see pages 111 to 130). KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 228 [47] MEMBERS OF THE EXECUTIVE BOARD AND SUPERVISORY BOARD Executive Board Chairman 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 Chairman of the Board of Directors of Linde Material Handling (Malaysia) Sdn. Bhd., Petaling Jaya, Malaysia Chairman of the Board of Directors of Linde Material Handling (Thailand) Co., Ltd., Pathum Thani, Thailand Gordon Riske Member of the Board of Directors of Linde Material Handling Pty. Chief Executive Officer (CEO) (since 14 March 2008) Ltd., Huntingwood, Australia Member of the Board of Directors of Lansing Bagnall (Aust.) Pty. Chairman of the Board of Directors of Linde (China) Forklift Ltd., Huntingwood, Australia Truck Co., Ltd., Xiamen, People’s Republic of China Member of the Advisory Board of Fujian JULI Motor Co., Ltd., Non-Executive Director of Weichai Power Co., Ltd., Putian, People’s Republic of China Weifang, People’s Republic of China Chairman of the APAC Advisory Board of Euro Asia Consulting Member of the Executive Board of the non-profit Hertie Foundation, Co., Ltd., Shanghai, People’s Republic of China Frankfurt am Main Anke Groth Member of the Board of Directors of Zhejiang EP Equipment Co., Ltd., Hangzhou, People’s Republic of China (since 11 July 2019) Member of the Executive Board / CFO (since 1 June 2018) Dr Eike Böhm Susanna Schneeberger Member of the Executive Board / CDO Member of the Executive Board / CTO (since 1 August 2015) (from 1 October 2018 to 12 January 2020) Member of the Advisory Board of JULI Motorenwerk s.r.o., Member of the Supervisory Board of Concentric AB, Linköping, Moravany, Czech Republic (until 12 September 2019) Sweden Member of the Board of Directors of Linde (China) Forklift Truck Member of the Supervisory Board of Hempel A/S, Kongens, Co., Ltd., Xiamen, People’s Republic of China Lyngby, Denmark Member of the Supervisory Board of e.GO Mobile AG, Aachen Ching Pong Quek Member of the Executive Board / Chief Asia Pacific Officer (since 11 January 2013) Chairman of the Board of Directors of KION South Asia Pte Ltd., Singapore, Singapore Chairman of the Board of Directors of KION Asia Ltd., Hong Kong, People’s Republic of China Chairman of the Board of Directors of KION Baoli Forklift Co., Ltd., Jiangsu, People’s Republic of China Chairman of the Board of Directors of KION India Pvte. Ltd., Pune, India KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 229 Supervisory Board Birgit A. Behrendt (since 1 January 2015) Member of the Supervisory Board and Management Consultant Dr Michael Macht (since 9 October 2018) Vice President of Joint Ventures, Alliances and Commercial Chairman of the Supervisory Board (since 9 May 2019) Affairs at Ford of Europe GmbH, Cologne Corporate Officer of the Ford Motor Company, Dearborn Shareholder and member of the Supervisory Board of (Michigan), USA (until 31 March 2019) Endurance Capital Aktiengesellschaft, Munich Member of the Executive Board of Ford of Europe GmbH, Member of the Supervisory Board of Ferretti S.p.A., Cattolica, Cologne (until 31 March 2019) Italy (until 1 August 2019) Member of the Supervisory Board of Ford Werke GmbH, Member of the Supervisory Board of Linde & Wiemann Cologne SE & Co. KG, Dillenburg Member of the Supervisory Board of Ford Deutschland Holding Chairman of the Advisory Board of Schweizer Group GmbH & GmbH, Cologne Co. KG, Hattenhofen (until 1 February 2019) Member of the Board of Directors of Ford Sollers Holding LLC, Non-Executive Director of Weichai Power Co., Ltd., Weifang, Chelny, Russia (until 31 March 2019) People’s Republic of China Member of the Audit Committee of Ford Sollers Holding LLC, Dr John Feldmann Chelny, Russia (until 31 March 2019) Member of the Board of Directors of Ford Otosan (from 28 September 2011 to 9 May 2019) (Ford Otomotiv Sanayi A.S.), Istanbul, Turkey (until 31 May 2019) Chairman of the Supervisory Board Member of the Advisory Board of Getrag Ford Transmission Former member of the Board of Executive Directors of BASF SE, Ludwigshafen am Rhein Stefan Casper 1 (since 11 May 2017) Member of the Supervisory Board of HORNBACH Baumarkt Chairman of the Works Council of KION Warehouse Systems GmbH, Cologne (until 31 March 2019) AG, Bornheim GmbH, Reutlingen Chairman of the Supervisory Board of HORNBACH Holding AG & Co. KGaA, Neustadt an der Weinstrasse Dr Alexander Dibelius (since 12 March 2007) Member of the Supervisory Board of HORNBACH Management Managing Partner at CVC Capital Partners (Deutschland) GmbH, AG, Annweiler am Trifels Frankfurt am Main Özcan Pancarci 1 (since 12 June 2013) Grenchen, Switzerland Deputy Chairman of the Supervisory Board Member of the Board of Directors of CVC Capital Partners Deputy Chairman of the Board of Directors of Breitling S.A., (Luxembourg) SARL, Luxembourg Chairman of the Plants I and II Works Council, Linde Material Chairman of the Supervisory Board of Diebold Nixdorf AG, Handling GmbH, Aschaffenburg Paderborn Chairman of the Group Works Council of the KION Group Chairman of the Supervisory Board of Diebold Nixdorf International Deputy Chairman of the Supervisory Board of Linde Material GmbH, Paderborn Handling GmbH, Aschaffenburg Member of the Board of Directors of Diebold Nixdorf Inc., Ohio, USA Member of the Supervisory Board of DKV MOBILITY SERVICES HOLDING GmbH & Co. KG, Ratingen (since July 2019) KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 230 Member of the Supervisory Board of Douglas GmbH, Member of the Board of Directors of Sinotruk Jinan Power Co., Düsseldorf Ltd, Jinan, People’s Republic of China Member of the Supervisory Board of Douglas Holding AG, Member of the Board of Directors of Ballard Power Systems Düsseldorf Inc., Burnaby, Canada Member of the Supervisory Board of ironSource Mobile Ltd., Chairman of the Board of Directors of Weichai Ballard Hy-Energy Tel Aviv, Israel (since 1 November 2019) Technologies Co., Ltd., Weifang, People’s Republic of China Member of the Supervisory Board of Kirk Beauty Investments Non-Executive Director of Weichai Power Co., Ltd., Weifang, SA, Luxembourg People’s Republic of China Member of the Advisory Board of Messer Industries Europe GmbH, Bad Soden Olaf Kunz 1 (since 1 September 2014) Member of the Advisory Board of Messer Industries US Inc., Head of Collective Bargaining at IG Metall District Office for the Bridgewater (New Jersey), USA Coast, Hamburg Member of the Shareholders’ Committee of Tipico Group Ltd., Member of the Supervisory Board of STILL GmbH, Hamburg Malta Martin Fahrendorf 1 (since 10 May 2018) Chairman of the Works Council of STILL GmbH, Hamburg Chairman of the Works Council of Dematic GmbH and Dematic Deputy Chairman of the Supervisory Board of STILL GmbH, Services GmbH, Heusenstamm Hamburg Jörg Milla 1 (since 16 November 2015) Jiang Kui (since 27 December 2012) Dr Christina Reuter (since 12 May 2016) President of Shandong Heavy Industry Group Co., Ltd., Head of Central Manufacturing Engineering & Operational Jinan, People’s Republic of China Excellence for Space Equipment Operations at Airbus Defence Chairman of the Board of Directors of Dezhou Degong and Space GmbH, Taufkirchen Machinery Co., Ltd., Dezhou, People’s Republic of China (since 30 November 2019) Hans Peter Ring (since 9 June 2013) Chairman of the Board of Directors of Shandong Degong Management Consultant, Munich Machinery Co., Ltd., Dezhou, 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 Member of the Board of Directors of Ferretti S.p.A., Holding B.V., Papendrecht, Netherlands Cattolica, Italy Member of the Executive Board of Hydraulics Drive Technology Alexandra Schädler 1 (since 2 October 2013) Beteiligungs GmbH, Aschaffenburg Trade Union Secretary on the National Executive of IG Metall, Member of the Supervisory Board of Linde Hydraulics Frankfurt am Main Verwaltungs GmbH, Aschaffenburg Member of the Supervisory Board of Linde Material Handling Member of the Board of Directors of PSI, Delaware, USA GmbH, Aschaffenburg Member of the Board of Directors of Shantui Construction Member of the Supervisory Board of Opel Automobile GmbH, Machinery Co., Ltd. Jining, People’s Republic of China Rüsselsheim Member of the Board of Directors of Sinotruk (BVI) Limited, British Virgin Islands Member of the Board of Directors of Sinotruk (Hong Kong) Limited, Hong Kong, People’s Republic of China KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 231 Dr Frank Schepp 2 (since 11 May 2017) Vice President of Quality at KION GROUP AG, Frankfurt am Main (based in Aschaffenburg) Tan Xuguang (since 9 May 2019) Chairman of the Board of Directors and President of Shandong Heavy Industry Group Co., Ltd., Jinan, People’s Republic of China Chairman of the Board of Directors of China National Heavy Duty Truck Group Co., Ltd., Jinan, People’s Republic of China Chairman of the Board of Directors of Ferretti International Holding S.p.A., Milan, Italy Chairman of the Board of Directors of Ferretti S.p.A., Cattolica, Italy Chairman of the Board of Directors of Weichai Holding Group Co., Ltd., Weifang, People’s Republic of China Chairman of the Board of Directors and Chief Executive Officer of Weichai Power Co., Ltd., Weifang, People’s Republic of China Claudia Wenzel 1 (since 1 November 2016) Full-time works council member, HQ and plant 2 at Linde Material Handling GmbH, Aschaffenburg Xu Ping (since 1 January 2015) Partner and Member of the Management Committee at King & Wood Mallesons, Beijing, People’s Republic of China Member of the Board of Directors of Ferretti International Holding S.p.A., Milan, Italy 1 Employee representatives 2 Executive representatives KION GROUP AGAnnual Report 2019Other disclosures NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 232 [48] LIST OF THE SHAREHOLDINGS OF KION GROUP AG, FRANKFURT AM MAIN The shareholdings of the KION Group as at 31 December 2019 are listed below. > TABLE 124 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country 1 KION GROUP AG Frankfurt am Main Germany Parent company Share- holding 2019 Share- holding 2018 Note Consolidated subsidiaries Domestic 2 BlackForxx GmbH 3 Dematic GmbH 4 Dematic Holdings GmbH 5 Dematic Logistics GmbH 6 Dematic Services GmbH 7 Eisengießerei Dinklage GmbH 8 Eisenwerk Weilbach GmbH 9 Fahrzeugbau GmbH Geisa Stuhr Germany Heusenstamm Germany Frankfurt am Main Germany 23 100.00% 100.00% 53 100.00% 100.00% 1 100.00% 100.00% Bielefeld Germany 53 100.00% 100.00% Heusenstamm Germany Dinklage Germany Frankfurt am Main Germany Geisa Germany 3 100.00% 100.00% 23 100.00% 100.00% 14 100.00% 100.00% 23 100.00% 100.00% 14 100.00% 100.00% 1 100.00% 100.00% 23 100.00% 100.00% 14 100.00% 100.00% 1 100.00% 100.00% 10 KION Financial Services GmbH Frankfurt am Main Germany 11 KION Information Management Services GmbH Frankfurt am Main Germany 12 KION Warehouse Systems GmbH Reutlingen 13 Klaus Pahlke GmbH & Co. Fördertechnik KG Haan Germany Germany 14 Linde Material Handling GmbH Aschaffenburg Germany 15 Linde Material Handling Rental Services GmbH Aschaffenburg Germany 14 100.00% 100.00% 16 LMH Immobilien GmbH & Co. KG Aschaffenburg Germany 14 & 17 99.64% 99.64% 17 LMH Immobilien Holding GmbH & Co. KG Aschaffenburg Germany 18 LMH Immobilien Holding Verwaltungs-GmbH Aschaffenburg Germany 14 94.00% 94.00% 14 100.00% 100.00% 19 LMH Immobilien Verwaltungs-GmbH Aschaffenburg Germany 14 100.00% 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 Germany Germany 14 100.00% 100.00% 10 100.00% 100.00% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 233 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country Parent company Share- holding 2019 Share- holding 2018 Note 23 STILL Gesellschaft mit beschränkter Haftung Hamburg Germany 14 100.00% 100.00% 24 Urban-Transporte Gesellschaft mit beschränkter Haftung Unterschleißheim Germany 14 100.00% 100.00% 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. Belrose Belrose 30 Linde Material Handling Pty. Ltd. Huntingwood 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. 35 STILL DANMARK A/S 36 BARTHELEMY MANUTENTION SAS 37 Bastide Manutention SAS 38 Bretagne Manutention SAS 39 Dematic SAS Zwijndrecht Wijnegem Indaiatuba / São Paulo Indaiatuba / São Paulo Kolding Vitrolles Bruguières Pacé Bussy-Saint- Georges Germany Germany Germany Australia Australia Australia Belgium Belgium Brazil Brazil Denmark France France France France 40 FENWICK FINANCIAL SERVICES SAS Elancourt France 41 FENWICK-LINDE OPERATIONS SAS Cenon-sur-Vienne France 42 FENWICK-LINDE SAS 43 KION France SERVICES SAS Elancourt Elancourt 44 LOIRE OCEAN MANUTENTION SAS Saint-Herblain France France France 45 Manuchar SAS Gond-Pontouvre France 46 Société Angoumoisine de Manutention Champniers France (SAMA) SAS 47 SM Rental SAS Roissy-Charles- de-Gaulle France 48 STILL Location Services SAS Marne-la-Vallée France 49 STILL SAS 50 URBAN LOGISTIQUE SAS 51 Dematic Ltd. Marne-la-Vallée France Elancourt Banbury France UK 27 27 14 74.00% 74.00% 74.00% 74.00% 74.00% 74.00% 53 100.00% 100.00% 28 100.00% 100.00% 14 100.00% 100.00% 53 & 3 100.00% 100.00% 23 & 84 100.00% 100.00% 78 & 3 100.00% 100.00% 23 100.00% 100.00% 23 100.00% 100.00% 42 80.00% 80.00% 42 100.00% 100.00% 42 100.00% 100.00% 53 100.00% 100.00% 43 100.00% 100.00% 42 100.00% 100.00% 43 100.00% 100.00% 14 100.00% 100.00% 42 71.18% 71.18% 42 100.00% 100.00% 49 100.00% 100.00% 42 100.00% 100.00% 43 100.00% 100.00% 43 100.00% 100.00% 24 100.00% 100.00% 53 100.00% 100.00% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 234 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country Parent company Share- holding 2019 Share- holding 2018 Note 52 Dematic Group Ltd. 53 Dematic Holdings UK Ltd. 54 KION FINANCIAL SERVICES Ltd. 55 Linde Creighton Ltd. 56 Linde Holdings Ltd. 57 Linde Jewsbury’s Ltd. 58 Linde Material Handling (UK) Ltd. 59 Linde Material Handling East Ltd. 60 Linde Material Handling Scotland Ltd. 61 Linde Material Handling South East Ltd. Banbury Banbury Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke 62 Linde MH UK Ltd. (formerly: Linde Castle Ltd.) Basingstoke 63 Linde Severnside Ltd. 64 Linde Sterling Ltd. 65 Mirror Bidco Ltd. 66 STILL Materials Handling Ltd. 67 Superlift UK Ltd. 68 KION India Pvt. Ltd. 69 Linde Material Handling (Ireland) Ltd. 70 Baoli EMEA S.p.A. 71 Dematic S.r.l. 72 Emhilia Material Handling S.p.A. 73 KION Rental Services S.p.A. 74 Linde Material Handling Italia S.p.A. 75 STILL S.p.A. 76 Dematic Ltd. 77 K-LIFT S.A. Basingstoke Basingstoke Banbury Exeter Basingstoke Pune Ballymount (Dublin) Lainate Cernusco sul Naviglio Modena Milan Buguggiate Lainate UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK India Ireland Italy Italy Italy Italy Italy Italy 78 100.00% 100.00% 78 100.00% 100.00% 67 100.00% 100.00% 58 100.00% 100.00% 67 100.00% 100.00% 58 100.00% 100.00% 56 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 4 100.00% 100.00% 67 100.00% 100.00% 14 100.00% 100.00% 105 100.00% 100.00% 56 100.00% 100.00% 23 100.00% 100.00% 53 100.00% 100.00% 74 100.00% 100.00% 70 & 74 & 75 100.00% 100.00% 14 100.00% 100.00% 14 & 70 100.00% 100.00% Mississauga Canada 53 100.00% 100.00% Luxembourg Luxembourg – – – [1] 78 Dematic Group S.à r.l. Senningerberg Luxembourg 4 100.00% 100.00% 79 Dematic (Malaysia) Sdn. Bhd. Petaling Jaya Malaysia 103 100.00% 100.00% 80 Dematic Logistics de Mexico S. de R.L. de C.V. Monterrey 81 DMTC Technology Services, S. de. R.L. de C.V. Monterrey 82 Dematic Trading de Mexico S. de. R.L. de C.V. Monterrey Mexico Mexico Mexico 51 & 109 100.00% 100.00% 51 & 109 100.00% 100.00% 51 & 109 100.00% 100.00% 83 Dematic B.V. 84 STILL Intern Transport B.V. s’Hertogenbosch Netherlands 6 100.00% 100.00% Hendrik-Ido- Ambacht Netherlands 23 100.00% 100.00% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 235 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name 85 STILL Norge AS 86 AUSTRO OM PIMESPO Fördertechnik GmbH 87 Linde Material Handling Austria GmbH 88 STILL Gesellschaft m.b.H. 89 Dematic Poland Sp. z o.o. 90 KION Polska Sp. z o.o. 91 Linde Material Handling Polska Sp. z o.o. 92 STILL POLSKA Sp. z o.o. Registered office Country Heimdal Linz Linz Norway Austria Austria Wiener Neudorf Austria Poznań Szczecin Warsaw Gadki Poland Poland Poland Poland Parent company Share- holding 2019 Share- holding 2018 Note 23 100.00% 100.00% 75 100.00% 100.00% 14 & 86 100.00% 100.00% 23 100.00% 100.00% 3 100.00% 100.00% 14 100.00% – [2] 14 100.00% 100.00% 23 100.00% 100.00% 93 STILL MATERIAL HANDLING ROMANIA SRL Giurgiu Romania 14 & 23 100.00% 100.00% 94 OOO “Linde Material Handling Rus” 95 OOO “STILL Forklifttrucks” 96 Linde Material Handling AB Moscow Moscow Örebro 97 Linde Material Handling Financial Services AB Örebro 98 Nordtruck AB 99 STILL Sverige AB 100 Dematic Suisse Sagl 101 Linde Material Handling Schweiz AG 102 STILL AG 103 Dematic S.E.A. Pte. Ltd. 104 KION South Asia Pte. Ltd. Örnsköldsvik Malmö Lugano Dietlikon Otelfingen Singapore Singapore 105 Linde Material Handling Asia Pacific Pte. Ltd. Singapore 106 Linde Material Handling Slovenská republika s.r.o. Trenčin 107 STILL SR, spol. s.r.o. 108 Linde Viličar d.o.o. 109 Dematic Logistic Systems S.A.U. 110 Islavista Spain S.A.U. 111 KION Rental Services S.A.U. 112 Linde Material Handling Ibérica, S.A.U. 113 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 14 & 8 100.00% 100.00% 14 & 23 100.00% 100.00% 14 100.00% 100.00% 96 100.00% 100.00% 96 100.00% 100.00% 23 100.00% 100.00% 53 100.00% 100.00% 14 100.00% 100.00% 23 100.00% 100.00% 53 100.00% 100.00% 14 100.00% 100.00% 14 100.00% 100.00% 14 & 117 100.00% 100.00% 23 & 120 100.00% 100.00% 14 100.00% 100.00% 53 100.00% 100.00% 14 100.00% 100.00% 110 100.00% 100.00% 110 100.00% 100.00% 110 100.00% 100.00% 114 Linde Material Handling (Pty) Ltd. Linbro Park South Africa 14 100.00% 100.00% 115 Linde Material Handling (Thailand) Co., Ltd. Pathum Thani Thailand 105 100.00% 100.00% 116 KION Supply Chain Solutions Czech, s.r.o. Český Krumlov Czech Republic 52 100.00% 100.00% 117 Linde Material Handling Česká republika s.r.o. Prague Czech Republic 14 & 23 100.00% 100.00% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 236 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country Parent company Share- holding 2019 Share- holding 2018 Note 118 Linde Material Handling Parts Distribution CZ Český Krumlov Czech Republic 14 100.00% 100.00% s.r.o. 119 Linde Pohony s.r.o. 120 STILL ČR spol. s.r.o. 121 STILL Regional Service Center, s.r.o. Český Krumlov Czech Republic 14 100.00% 100.00% Prague Prague Czech Republic 14 & 23 100.00% 100.00% Czech Republic 23 100.00% 100.00% 122 Urban Transporte spol. s.r.o. Moravany Czech Republic 24 100.00% 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 14 100.00% 100.00% 125 STILL Kft. 126 Dematic Corp. Környe Hungary 23 100.00% 100.00% Grand Rapids United States 65 100.00% 100.00% 127 KION North America Corp. Summerville United States 14 100.00% 100.00% 128 Dematic International Trading Ltd. Shanghai 129 Dematic Logistics Systems Ltd. Suzhou 130 Egemin Asia Pacific Automation Ltd. 131 KION ASIA (HONG KONG) Ltd. Causeway Bay – Hong Kong Kwai Chung – Hong Kong 132 KION Baoli (Jiangsu) Forklift Co., Ltd. Jiangjiang 133 Linde Material Handling Hong Kong Ltd. Kwai Chung – Hong Kong 134 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 78 100.00% 100.00% 78 100.00% 100.00% 31 100.00% 100.00% 14 100.00% 100.00% 131 100.00% 100.00% 14 100.00% 100.00% 14 100.00% 100.00% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 237 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country Parent company Share- holding 2019 Share- holding 2018 Note Non-consolidated subsidiaries Domestic 135 Comnovo GmbH Dortmund Germany 14 100.00% 100.00% 136 KION IoT Systems GmbH Frankfurt am Main Germany 1 100.00% 100.00% 137 Klaus Pahlke Betriebsführungs-GmbH Haan 138 OM Deutschland GmbH Neuhausen a. d. Fildern Germany Germany 14 100.00% 100.00% 75 100.00% 100.00% [R] 139 proplan Transport- und Lagersysteme GmbH Aschaffenburg Germany 1 100.00% 100.00% 140 Schrader Industriefahrzeuge Verwaltung GmbH Essen 141 Trainingscenter für Sicherheit Bremen und Transport GmbH 142 Willenbrock Fördertechnik Beteiligungs-GmbH Bremen 143 Willenbrock Fördertechnik Beteiligungs-GmbH Hannover Foreign 144 Lansing Bagnall (Aust.) Pty. Ltd. Huntingwood 145 NDC Automation Pty. Ltd. 146 NDC Manage Pty. Ltd. 147 SCI Champ Lagarde 148 Castle Lift Trucks Ltd. 149 Creighton Materials Handling Ltd. 150 D.B.S. Brand Factors Ltd. 151 Fork Truck Rentals Ltd. 152 Fork Truck Training Ltd. 153 Lancashire (Fork Truck) Services Ltd. 154 Lansing Linde Ltd. 155 Lansing Linde Trifik Ltd. Belrose Belrose Elancourt Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke 156 Linde Castle Ltd. (formerly: Trifik Services Ltd.) Basingstoke 157 Linde Heavy Truck Division Ltd. 158 McLEMAN FORK LIFT SERVICES LTD. 159 Regentruck Ltd. 160 Stephensons Enterprise Fork Trucks Ltd. 161 Sterling Mechanical Handling Ltd. 162 Urban Logistics (UK) Ltd. Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Basingstoke Germany Germany Germany Germany Australia Australia Australia France UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK 14 100.00% 100.00% 27 74.00% 74.00% 27 27 74.00% 74.00% 74.00% 74.00% 58 & 14 100.00% 100.00% 29 100.00% 100.00% 29 100.00% 100.00% 42 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 64 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 64 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 58 100.00% 100.00% 55 100.00% 100.00% 58 100.00% 100.00% 64 100.00% 100.00% 58 100.00% 100.00% 24 100.00% 100.00% [R] [R] [R] [R] [R] [R] [R] [R] [R] [R] [R] [R] [R] [R] [R] KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 238 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country 163 Handling & Storage Equipment (Ireland) Ltd. 164 QUALIFT S.p.A. 165 URBAN LOGISTICA S.R.L. 166 WHO Real Estate UAB Ballymount (Dublin) Verona Lainate Vilnius Ireland Italy Italy Lithuania Parent company Share- holding 2019 Share- holding 2018 Note 69 100.00% 100.00% [R] 74 100.00% 100.00% 24 100.00% 100.00% 27 74.00% 74.00% 167 Linde Material Handling (Malaysia) Sdn. Bhd. Petaling Jaya Malaysia 105 100.00% 100.00% 168 Linde Viljuškari d.o.o. 169 IBER-MICAR S.L.U. Vrčin Gavà Serbia Spain 87 100.00% 100.00% 14 100.00% 100.00% 170 Dematic Thailand Co. Ltd. Bangkok Thailand 103 & 191 73.89% 73.89% 171 Baoli Material Handling Europe s.r.o. 172 Použitý Vozík CZ, s.r.o. 173 TOV “Linde Material Handling Ukraine” Prague Prague Kiev Czech Republic 132 100.00% 100.00% Czech Republic 117 100.00% 100.00% Ukraine 14 & 8 100.00% 100.00% Associates (equity-accounted investments) Domestic 174 Carl Beutlhauser Kommunal- und Fördertechnik Hagelstadt Germany 14 25.00% 25.00% GmbH & Co. KG 175 Hans Joachim Jetschke Industriefahrzeuge Hamburg Germany 14 21.00% 21.00% (GmbH & Co.) KG 176 Linde Hydraulics GmbH & Co. KG Aschaffenburg Germany 177 Pelzer Fördertechnik GmbH Kerpen Germany Foreign 178 Linde High Lift Chile S.A. 179 Labrosse Equipement SAS 180 Normandie Manutention SAS Santiago de Chile Chile Saint-Péray Saint-Etienne-du- Rouvray France France 14 14 14 42 42 10.00% 10.00% 24.96% 24.96% 45.00% 45.00% 34.00% 34.00% 34.00% 34.00% KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 239 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country Parent company Share- holding 2019 Share- holding 2018 Note Joint Ventures (equity-accounted investments) Domestic 181 Linde Leasing GmbH Wiesbaden Germany 14 45.00% 45.00% Foreign 182 JULI Motorenwerk s.r.o. Moravany Czech Republic 14 & 23 50.00% 50.00% Associates (at cost) Domestic 183 JETSCHKE GmbH Hamburg Germany 184 Linde Hydraulics Verwaltungs GmbH Aschaffenburg Germany 185 MV Fördertechnik GmbH 186 Supralift Beteiligungs- und Kommunikationsgesellschaft mbH 187 Supralift GmbH & Co. KG Foreign 188 Chadwick Materials Handling Ltd. 189 Bari Servizi Industriali S.c.a.r.l. 190 Carretillas Elevadoras Sudeste S.A. 191 Dematic Holding (Thailand) Co., Ltd. 192 Motorové závody JULI CZ s.r.o. 193 DEMATIC ELECTROMECHANICAL SYSTEMS MIDDLE EAST L.L.C. Blankenhain Frankfurt am Main Hofheim am Taunus Corsham Modugno Murcia Bangkok Moravany Dubai Germany Germany 14 14 14 14 21.00% 21.00% 10.00% 10.00% 25.00% 25.00% 50.00% 50.00% Germany 14 50.00% 50.00% UK Italy Spain Thailand Czech Republic United Arab Emirates 58 75 112 103 14 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 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 240 List of shareholdings as at 31 December 2019 (continued) TABLE 124 No. Name Registered office Country Parent company Share- holding 2019 Share- holding 2018 Note Financial investments Foreign 194 Balyo SA 195 TPZ Linde Viličari Hrvatska d.o.o. 196 Zhejiang EP Equipment Co., Ltd. [1] Consolidated in accordance with IFRS 10 as structured entity [2] Addition during 2019 [3] No material influence [R] Dormant company Ivry-sur-Seine Zagreb Hangzhou France Croatia People’s Republic of China 14 14 6.35% 6.48% 20.00% 20.00% [3] [3] 134 4.99% – [2], [3] KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other disclosures 241 [49] AUDITORS’ FEES [51] INFORMATION ON PREPARATION AND APPROVAL The fees recognised as an expense and paid to the auditors of the consolidated financial statements (Deloitte GmbH Wirtschaft- The Executive Board of KION GROUP AG prepared the consoli- sprüfungsgesellschaft, Munich, Frankfurt am Main branch office) dated financial statements on 21 February 2020 and approved in 2019 amounted to €2.2 million (2018: €2.3 million) for the audit them for forwarding to the Supervisory Board. The Supervisory of the financial statements, €0.1 million (2018: €0.1 million) for Board has the task of examining and deciding whether to approve other attestation services, €0.0 million (2018: €0.0 million) for the consolidated financial statements. tax consultancy services and €0.0  million (2018: €0.0  million) for other services. Frankfurt am Main, 21 February 2020 [50] EVENTS AFTER THE REPORTING DATE The Executive Board On 3 January 2020, the KION Group signed an agreement with Gordon Riske Anke Groth Weichai Power Co., Ltd., Weifang, People’s Republic of China, to jointly establish a factory for the production of Linde counterbal- ance trucks in China. The name of the company is KION (Jinan) Forklift Co., Ltd., Jinan, People’s Republic of China. The capital expenditure at the new site is likely to amount to around €100.0 million up to 2022. Dr Eike Böhm Ching Pong Quek Since the start of the year, KION GROUP AG and BMZ Hold- ing GmbH have been operating the joint venture KION Battery Systems GmbH, Karlstein am Main, with the aim of developing and manufacturing lithium-ion batteries for industrial trucks. In January 2020, KION GROUP AG repaid all of the remaining liability of €200.0 million under the acquisition facilities agreement (AFA) earlier than planned. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 242 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 and 315d German Commercial Code GROUP AG, Frankfurt am Main/Germany, and its subsidiaries (HGB) included in the combined management report. (the Group) which comprise the consolidated statement of finan- cial position as at 31 December 2019, and the consolidated state- Pursuant to Section 322 (3) Sentence 1 German Commercial ment of profit or loss and other comprehensive income, the con- Code (HGB), we declare that our audit has not led to any reserva- solidated statement of changes in equity and the consolidated tions relating to the legal compliance of the consolidated financial statement of cash flows for the financial year from 1 January to statements and of the combined management report. 31 December 2019, and the notes to the consolidated financial statements, including a summary of significant accounting poli- Basis for audit opinions cies. In addition, we have audited the combined management We conducted our audit of the consolidated financial statements report for the parent and the group of KION GROUP AG, Frank- and of the combined management report in accordance with furt am Main/Germany, for the financial year from 1 January to Section 317 HGB and the EU Audit Regulation (No. 537/2014; 31 December 2019. In accordance with the German legal require- referred to subsequently as ‘EU Audit Regulation’) and in compli- ments, we have not audited the content of the consolidated ance with German Generally Accepted Standards for Financial corporate governance statement pursuant to Sections 289f, Statement Audits promulgated by the Institut der Wirtschafts- 315d German Commercial Code (HGB) included in the combined prüfer (IDW). Our responsibilities under those requirements and management report. principles are further described in the ‘Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the In our opinion, on the basis of the knowledge obtained in the audit, Combined Management Report’ section of our auditor’s report. – the accompanying consolidated financial statements com- ply, in all material respects, with the IFRSs, as adopted by the We are independent of the group entities in accordance with the requirements of European law and German commercial and pro- fessional law, and we have fulfilled our other German professional EU, and the additional requirements of German commercial responsibilities in accordance with these requirements. In addi- law pursuant to Section 315e (1) German Commercial Code tion, in accordance with Article 10 (2) point (f) of the EU Audit Reg- (HGB) and, in compliance with these requirements, give a ulation, we declare that we have not provided non-audit services true and fair view of the assets, liabilities, and financial prohibited under Article 5 (1) of the EU Audit Regulation. We position of the Group as at 31 December 2018, and of its believe that the audit evidence we have obtained is sufficient and financial performance for the financial year from 1 January to appropriate to provide a basis for our audit opinions on the con- 31 December 2019, and solidated financial statements and on the combined manage- ment report. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 243 for an impairment. The impairment test is conducted at the Key audit matters in the audit of the consolidated level of the operating entities, which represent the cash-gen- financial statements erating units, by determining the corresponding realisable Key audit matters are those matters that, in our professional amount and comparing that realisable amount with the corre- judgement, were of most significance in our audit of the consoli- sponding carrying value. The realisable amount is determined dated financial statements for the financial year from 1 January to using the discounted cash flow method on the basis of KION 31 December 2019. These matters were addressed in the context GROUP AG’s budget consisting of the operative three-years of our audit of the consolidated financial statements as a whole plan (2020 budget and 2021 to 2022 medium-term budget) as and in forming our audit opinion thereon; we do not provide a well as of a projection concerning two further years, which is separate audit opinion on these matters. adjusted using assumptions about long-term growth rates. The result of this measurement highly depends on the execu- In the following we present the key audit matters we have deter- tive directors’ estimation of the anticipated cash flows of the mined in the course of our audit: corresponding operating entity as well as the discount rate used (weighted average cost of capital – WACC) and, there- 1. Recoverability of the goodwill and brand names with indefinite fore, is subject to great uncertainty. Therefore and due to the useful life as recognised in the consolidated statement of underlying complexity of the valuation models applied, this financial position 2. Recognition of leases as regards sales matter was of particular significance in the scope of our audit. 3. Realisation of revenue regarding the project business in the For information provided by the Parent on the goodwill and Supply Chain Solutions segment brand names with indefinite useful life, please refer to notes [6] Our presentation of these key audit matters has been structured as follows: and [16] to the consolidated financial statements. b. During our audit, we, among other things, obtained an under- standing of the method applied in the impairment test, the a) description (including reference to corresponding information budget process of KION as well as the definition of the in the consolidated financial statements) cash-generating units and assessed the determination of the b) auditor’s response WACC. In this context, we considered the Group’s adherence to the budget process over the past years. 1. Recoverability of the goodwill and brand names with indefinite useful life as recognised in the consolidated statement of Regarding the impairment test, we examined the appropriate- financial position ness of the expected future cash flows mainly by comparing a. As at 31 December 2019, the carrying amount of the goodwill the information with the operative budget (2020) approved by and brand names with indefinite useful life in the consolidated the supervisory board and with the medium-term budget financial statements is mEUR 3,475.8 (25.3% of the Group’s (2021 to 2022) approved by the executive directors and by total assets) and mEUR 939.3 (6.8% of the Group’s total examining the key measurement assumptions and parame- assets), respectively. The goodwill and brand names with ters for plausibility based on expectations about macroeco- indefinite useful life are tested by the executive directors for nomic and industry-specific trends. As a significant portion of impairment each year. This impairment test is conducted the value in use has been determined based on projected regardless of whether there are external or internal indicators cash flows for the period following the five-year budget (period KION GROUP AGAnnual Report 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 244 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 Group-wide, consistent lease application 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 IFRS are complete and cor- ments, we finally conducted sensitivity analyses with regard to rect. The determination of the criteria and parameters in the both the growth expectations of the future cash flows from the application is subject to the executive directors’ judgement. operating entities and the applied discount rate. The classification and entry routines of the lease application are updated, programmed and managed centrally in Germany 2. Recognition of leases as regards sales while the contract input is performed locally in the operating or a. To a great extent, KION uses leases as a sales instrument in the Group’s own financial services entities. the segment Industrial Trucks & Services. The corresponding agreements comprise contracts, under which the KION enti- Due to the high transaction volume in connection with the var- ties qualify as contract parties, and those, under which the ious contract types, any errors in this area may considerably lease object was sold to external finance partners. The follow- affect the consolidated financial statements. For this reason, ing three contract types are primarily used: the assessment of the accounting for leases was of particular – Single step lease: The lease object is directly leased to the – Sale and leaseback sublease: The lease object is sold to consumer; a 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. 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. b. As part of our audit, we first updated our understanding of the process including our understanding of the existing contract types as well as the company’s internal controls regarding leases. As at 31 December 2019, the carrying value of the receivables and assets under the lease agreements is mEUR 1,421.0 In the light of our understanding of the organisational compo- (10.3 per cent of total assets) and mEUR 1,994.1 (14.5 per cent sition and the overall process, the audit on the one hand of total assets), respectively. focused on the lease applications used and on the other hand on the completeness and accuracy of the data input in the Single-step leases are classified as finance leases or operat- individual component areas. ing leases within the meaning of IFRS 16. For sale and lease back sublease contracts concluded until and including With respect to the lease applications used, we examined the 31 December 2017, an asset and a lease liability is accounted appropriateness, implementation and, where required, effec- for taking advantage of the right of continuance specified in tiveness of certain IT controls in line with our audit strategy. IFRS 16. For sale and lease back sublease contracts con- As part of this examination, we consulted internal IT specialists. cluded after 31 December 2017, the transaction is classified as a finance lease. Accordingly, a liability related to financial KION GROUP AGAnnual Report 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 245 In a next step, we obtained an understanding of whether the 3. Realisation of revenue regarding the project business in the automated entry and classification routines used in the lease Supply Chain Solutions segment application comply with the relevant IFRS. To this end, we first a. The revenue in the Supply Chain Solutions segment amounts examined the KION IFRS Accounting Manual, which repre- to mEUR 2,376.1 in the financial year 2019 (prior year: mEUR sents the basis for routine programming, for conformity with 2,052.1). This accounts for 27.0 per cent (prior year: 25.7 per the IFRS. In addition, we assessed whether the entry and clas- cent) of the Group’s total revenue. sification routines have been appropriate. Therefore, we examined the agreements on the basis of judgemental selec- A significant portion of the revenue generated in the Supply tions or by applying sampling methods. However, we made Chain Solutions segment (mEUR 1,780.2; prior year: mEUR sure that all contract types were subject to our examination. 1,514.0) relates to the project business (74.9 per cent of the Based on the data inputs, we assessed for each selected con- segment’s total revenue). Revenue for the project business- tract whether the results of the lease application comply with related customer contracts is recognised in line with the corre- the relevant IFRS. sponding period unless there is an alternative possibility of use and right to the services already rendered. The revenue to be We examined the data inputs made in the financial year in the realised is determined based on the percentage of completion individual component areas for accuracy directly in the oper- method. The percentage of completion is determined based ating entities on a sample basis in the form of mathematical on the proportion of the contract costs that have already been and statistical methods and extrapolated any identified devia- incurred to the total contract costs estimated as at the report- tions to the corresponding basic population. In this context, ing date. apart from the accuracy, we audited the appropriate cut-off and completeness of the data inputs on the basis of the original The revenue highly depends on estimations subject to the contracts. Where required, we received confirmations of third legal representatives’ judgement, in particular with regard to parties to assess the completeness of the entered contracts. the total contract costs and the resulting percentage of com- pletion. Also taking into account the high amount of revenue related to the project business in the consolidated financial statements, we considered this matter to be of particular significance in the scope of our audit. For information on revenue realisation related to the project business in the Supply Chain Solutions segment, please refer to the notes [6] and [7] to the consolidated financial statements. KION GROUP AGAnnual Report 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 246 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 2020. Group. We examined the appropriateness of the internal controls’ design and implementation regarding the estimation The executive directors and supervisory board are responsible of the percentage of completion and continued review of for the declaration related to the German Corporate Governance contract costs. Code in accordance with Section 161 German Stock Corporation Act (AktG), which is part of the corporate governance statement Considering this, we selected projects based on risk consid- included in the combined management report. The supervisory erations. First, we assessed – based on the individual basis of board is responsible for the report of the supervisory board the contracts – whether the projects meet the requirements included in the annual report. In addition, the executive directors for revenue recognition according to the percentage of com- are responsible for the other information. pletion method. Subsequently, we assessed the estimation made for the individual contracts. To this end, we examined Our audit opinions on the consolidated financial statements and the current cost reports and project calculations taking into on the combined management report do not cover the other account the customer contracts with respect to the percent- information, and consequently we do not express an audit opin- age of completion of the selected projects. To this end, we ion or any other form of assurance conclusion thereon. additionally consulted the employees responsible for the rele- vant projects on matters such as the current project phase, In connection with our audit of the consolidated financial state- any risks including fines and changes to original assumptions ments, our responsibility is to read the other information and, in and requested explanations for unexpected project develop- doing so, to consider whether the other information ments, which were compared with supplementary evidence. In addition, we have convinced ourselves, where required, of the project progress on site and have taken into account the adherence to the budget planning based on retrospective analyses of selected projects. – 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. Other information Responsibilities of the legal representatives and the supervisory The executive directors and/or the supervisory board are respon- board for the consolidated financial statements and the com- sible for the other information. The other information comprises bined management report the following documents obtained up to the date of this auditor’s The executive directors are responsible for the preparation of the report: – the corporate governance statement included in the com- – the executive directors’ confirmation regarding the consoli- bined management report dated financial statements and the combined management consolidated financial statements that comply, in all material respects, with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB, and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position and financial performance report pursuant to Section 297 (2) sentence 4 and Section of the Group. In addition, the executive directors are responsible 315 (1) sentence 5 HGB, respectively, respectively – all the remaining parts of the annual report, with the excep- tion of the audited consolidated financial statements and for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. combined management report and our auditor’s report. KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 247 In preparing the consolidated financial statements, the executive Reasonable assurance is a high level of assurance, but is not a directors are responsible for assessing the Group’s ability to con- guarantee that an audit conducted in accordance with Section tinue as a going concern. They also have the responsibility for 317 German Commercial Code (HGB) and the EU Audit Regula- disclosing, as applicable, matters related to going concern. In tion and in compliance with German Generally Accepted Stand- addition, they are responsible for financial reporting based on the ards for Financial Statement Audits promulgated by the Institut going concern basis of accounting unless there is an intention to der Wirtschaftsprüfer (IDW) will always detect a material misstate- liquidate the Group or to cease operations, or there is no realistic ment. Misstatements can arise from fraud or error and are con- alternative but to do so. sidered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of Furthermore, the executive directors are responsible for the users taken on the basis of these consolidated financial state- preparation of the combined management report that as a whole ments and this combined management report. provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial We exercise professional judgement and maintain professional statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible scepticism throughout the audit. We also – identify and assess the risks of material misstatement of the consolidated financial statements and of the combined man- for such arrangements and measures (systems) as they have agement report, whether due to fraud or error, design and considered necessary to enable the preparation of a combined perform audit procedures responsive to those risks, and management report that is in accordance with the applicable obtain audit evidence that is sufficient and appropriate to German legal requirements, and to be able to provide sufficient provide a basis for our audit opinions. The risk of not detect- appropriate evidence for the assertions in the combined man- ing a material misstatement resulting from fraud is higher agement 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 controls. – 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 management report in order to design audit procedures that financial 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- priate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal systems. – evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures. – conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on requirements and appropriately presents the opportunities and the audit evidence obtained, whether a material uncertainty risks of future development, as well as to issue an auditor’s report exists related to events or conditions that may cast significant that includes our audit opinions on the consolidated financial doubt on the Group’s ability to continue as a going concern. statements and on the combined management report. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 248 the combined management report or, if such disclosures are We communicate with those charged with governance regarding, inadequate, to modify our respective audit opinions. Our among other matters, the planned scope and timing of the audit conclusions are based on the audit evidence obtained up to and significant audit findings, including any significant deficien- the date of our auditor’s report. However, future events or cies in internal control that we identify during our audit. conditions may cause the Group to cease to be able to con- tinue as a going concern. – evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, We also provide those charged with governance with a statement that we have complied with the relevant independence require- ments, and communicate with them all relationships and other and whether the consolidated financial statements present matters that may reasonably be thought to bear on our independ- the underlying transactions and events in a manner that the ence, and where applicable, the related safeguards. consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial perfor- From the matters communicated with those charged with mance of the Group in compliance with IFRSs, as adopted by governance, we determine those matters that were of most the EU, and with the additional requirements of German significance in the audit of the consolidated financial statements commercial law pursuant to Section 315e (1) German Com- of the current period and are therefore the key audit matters. We mercial Code (HGB). – obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express audit opinions on the consoli- dated financial statements and on the combined manage- ment report. We are responsible for the direction, supervision 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 executive directors as a basis for the prospective information, and evaluate the proper derivation of the pro- spective 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 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Independent auditors’ report 249 Other legal and regulatory requirements German public auditor responsible for the engagement Other information pursuant to Article 10 EU Audit Regulation We were elected as group auditor by the general meeting on The German Public Auditor responsible for the engagement is 9 May 2019. We were engaged by the supervisory board on Kirsten Gräbner-Vogel. 14 May 2019 and 27 June/23 July 2019. We have been the group auditor of KION GROUP AG, Frankfurt am Main/Germany, which Frankfurt am Main / Germany, 21 February 2020 was named KION Holding 1 GmbH until 12 June 2013, without interruption since the financial year 2007. Since the financial year Deloitte GmbH 2013, the Company has been a public interest entity within the Wirtschaftsprüfungsgesellschaft meaning of Section 319a (1) Sentence 1 HGB. We declare that the audit opinions expressed in this auditor’s Signed: Signed: report are consistent with the additional report to the audit Kirsten Gräbner-Vogel Stefan Dorissen committee pursuant to Article 11 of the EU Audit Regulation Wirtschaftsprüferin Wirtschaftsprüfer (long-form audit report). [German Public Auditor] [German Public Auditor] KION GROUP AGAnnual Report 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Responsibility statement 250 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, 21 February 2020 The Executive Board Gordon Riske Anke Groth Dr Eike Böhm Ching Pong Quek KION GROUP AGAnnual Report 2019ADDITIONAL INFORMATION Contents 253 ADDITIONAL INFORMATION 254 QUARTERLY INFORMATION 255 MULTI-YEAR OVERVIEW 256 DISCLAIMER 257 FINANCIAL CALENDAR 257 CONTACT KION GROUP AGAnnual Report 2019ADDITIONAL INFORMATION Quarterly information 254 Quarterly information Quarterly information TABLE 125 in € million Order intake Q4 Q3 Q2 Q1 2019 2018 2019 2018 2019 2018 2019 2018 2,577.3 2,287.4 2,337.6 2,060.3 2,078.6 2,424.0 2,118.3 1,885.0 thereof Industrial Trucks & Services 1,753.0 1,724.2 1,493.8 1,454.8 1,573.2 1,546.5 1,510.5 1,485.2 thereof Supply Chain Solutions 823.4 556.3 838.6 598.5 506.0 874.2 602.9 396.3 Total revenue 2,282.3 2,225.5 2,160.0 1,895.9 2,280.7 2,031.1 2,083.4 1,843.3 thereof Industrial Trucks & Services 1,710.6 1,685.8 1,552.8 1,417.9 1,638.2 1,449.6 1,508.6 1,368.8 thereof Supply Chain Solutions Adjusted EBITDA thereof Industrial Trucks & Services thereof Supply Chain Solutions 567.3 433.4 382.0 68.2 533.0 457.2 395.2 65.4 600.6 420.1 348.2 80.5 472.7 380.1 326.0 56.1 642.0 425.0 355.3 78.2 578.8 377.0 318.0 64.0 568.8 378.9 324.0 62.1 470.7 340.9 301.0 46.1 Adjusted EBITDA margin 19.0% 20.5% 19.4% 20.0% 18.6% 18.6% 18.2% 18.5% thereof Industrial Trucks & Services 22.3% 23.4% 22.4% 23.0% 21.7% 21.9% 21.5% 22.0% thereof Supply Chain Solutions 12.0% 12.3% 13.4% 11.9% 12.2% 11.1% 10.9% EBIT thereof Industrial Trucks & Services thereof Supply Chain Solutions Adjusted EBIT thereof Industrial Trucks & Services thereof Supply Chain Solutions 162.5 166.0 23.0 225.8 198.8 52.0 206.2 195.7 22.2 252.3 213.8 49.9 194.9 169.4 42.7 217.1 169.8 64.4 168.6 156.2 20.9 192.7 157.4 43.8 Adjusted EBIT margin 9.9% 11.3% 10.1% 10.2% 200.6 177.8 39.0 225.2 177.7 63.6 9.9% 142.1 136.1 19.4 187.0 148.2 51.5 9.2% thereof Industrial Trucks & Services 11.6% 12.7% 10.9% 11.1% 10.8% 10.2% thereof Supply Chain Solutions 9.2% 9.4% 10.7% 9.3% 9.9% 8.9% 158.7 148.5 24.8 182.4 148.8 48.2 8.8% 9.9% 8.5% 9.8% 125.8 137.1 1.9 157.9 135.9 35.0 8.6% 9.9% 7.4% KION GROUP AGAnnual Report 2019ADDITIONAL INFORMATION Multi-year overview Multi-year overview KION Group multi-year overview in € million Order intake Revenue Order book ¹ Financial performance EBITDA Adjusted EBITDA 2 Adjusted EBITDA margin 2 EBIT Adjusted EBIT 2 Adjusted EBIT margin 2 2019 9,111.7 8,806.5 3,631.7 1,614.6 1,657.5 18.8% 716.6 850.5 9.7% 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% 2016 5,833.1 5,587.2 2,396.6 889.5 931.6 16.7% 434.8 537.3 9.6% 255 TABLE 126 2015 5,215.6 5,097.9 864.0 824.2 850.0 16.7% 422.8 482.9 9.5% Net income 444.8 401.6 422.5 246.1 221.1 Financial position ¹ Total assets Equity Net financial debt ROCE 3 Cash flow Free cash flow 4 Capital expenditure 5 13,765.2 12,968.8 12,337.7 11,297.0 3,558.4 1,609.3 9.7% 3,305.1 1,869.9 9.3% 2,992.3 2,095.5 9.3% 2,495.7 2,903.4 6.9% 6,440.2 1,848.7 573.5 11.9% 568.4 287.4 519.9 258.5 474.3 218.3 – 1,850.0 166.7 332.7 142.6 Employees 6 34,604 33,128 31,608 30,544 23,506 1 Figures as at balance sheet date 31/12/ 2 Adjusted for PPA items and non-recurring items 3 ROCE is defined as the proportion of adjusted EBIT to capital employed 4 Free cash flow is defined as cash flow from operating activities plus cash flow from investing activities 5 Capital expenditure including capitalised development costs, excluding right-of-use assets 6 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 2019ADDITIONAL INFORMATION Disclaimer 256 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 2019 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 2019ADDITIONAL INFORMATION Financial calendar / Contact 257 FINANCIAL CALENDAR CONTACT 3 March 2020 Contacts for the media Contacts for investors Publication of 2019 annual report, financial statements press conference Michael Hauger Antje Kelbert and conference call for analysts Senior Vice President Senior Manager Investor Relations 5 March 2020 Capital Markets Day Corporate Communications Phone +49 69 201 107 346 Phone +49 69 201 107 655 antje.kelbert@kiongroup.com michael.hauger@kiongroup.com 28 April 2020 Frank Grodzki Dana Unger Quarterly statement for the period Senior Director External Communications Senior Manager Investor Relations ended 31 March 2020 (Q1 2020), Phone +49 69 201 107 496 Phone +49 69 201 107 371 conference call for analysts frank.grodzki@kiongroup.com dana.unger@kiongroup.com 12 May 2020 Annual General Meeting 30 July 2020 Interim report for the period ended 30 June 2020 (Q2 2020), conference call for analysts 29 October 2020 Quarterly statement for the period ended 30 September 2020 (Q3 2020), 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 2019KION GROUP AG Corporate Communications Thea-Rasche-Straße 8 60549 Frankfurt am Mainn | Germany Phone: +49 69 201 100 Fax: +49 69 201 107 690 info@kiongroup.com www.kiongroup.com 

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