7 Capital expenditures

To ensure efficient management of capital expenditures, there is a two-stage process for approving capital expenditures throughout the Group. The first step, which is part of the annual planning process, covers capital expenditures planning for major projects, including individual descriptions of them. Projects involving capital expenditures of more than €250 thousand also go through a second step, in which they are assessed individually. This involves examining the feasibility of the individual project using the discounted cash flow method. The projects are assessed on the basis of the internal rate of return and the payback period. Capital expenditures projects are generally only approved if they will earn a higher internal rate of return than the cost of capital for the KION Group and will therefore contribute to increasing shareholder value. Projects involving capital expenditures of more than €250 thousand generally have to be approved first by the Management Board of the relevant brand and then by the KION Group's Executive Board.

Against the backdrop of the reduced capacity utilisation resulting from the economic crisis, the KION Group's capital expenditure (excluding equity investments and additions to leased assets) was targeted at support for restructuring projects as part of the KIARA performance enhancement programme and at investment in products and IT. In view of the market recovery that began in 2010, capital expenditures was increased by 14 per cent to €123 million. Expenditures on development projects for new products and facelifts as well as design-to-cost activities were maintained at a high level. At the same time, investment in leaner production processes enabled the Group to leverage potential for efficiency. The Group also committed an appropriate level of replacement investment to modernise some of its machinery.

One of the key areas of capital expenditures in 2010 was the relocation of production facilities from Basingstoke to Aschaffenburg and the relocation of the affected product lines from Reutlingen to Hamburg, which was all completed by the end of the year. These relocation activities necessitated construction work in Aschaffenburg and Hamburg last year to ensure that the right infrastructure was in place (e.g. alterations to the buildings and setting up a test site).

The Group pushed ahead with key development projects, especially in the electric lift trucks (387/388 series) and reach trucks (1120 series) segments. A rigorous cross-divisional product development process is shortening the time it takes to develop new trucks and optimising the cost of products before they go into series production. This is paving the way for Linde Material Handling and STILL to rapidly extend their product range for the North American, Asian and eastern European markets. Last year, the STILL brand introduced an IC truck with torque converter specifically to meet demand in eastern Europe. Other innovations in this and other product areas (e.g. hybrid technology) are planned.

In 2010, the KION Group continued to advance its IT project KION ONE Sales & Services, the aim of which is to standardise and optimise the system landscapes used in sales. This project will again be a focus of capital expenditure in 2011. The KION ONE Infrastructure project was also launched in 2010, as part of which the European data centres will be merged and the existing infrastructure hardware and software optimised.