Letter to shareholders

Dear shareholders, customers, partners, employees and friends of the KION Group,

Rarely has there been such an exciting time to be fulfilling our customers’ needs in connection with material handling and intralogistics solutions. As well as becoming an increasingly prevalent part of our day-to-day lives, digitalisation has been firmly established in our industry for some time, too. E-commerce continues to boom. Automation is crucial to getting ahead of the competition. Constantly changing requirements regarding the speed and efficiency of material handling are turbocharging the innovativeness, creativity and dedication of the KION Group’s employees worldwide, who work day in, day out to find solutions for our customers.

For the first time, the KION brand companies received orders for more than 200,000 industrial trucks in a single year – up 13 per cent.

The past year has been another exciting and momentous one for us, and we maintained our path of profitable growth. Our revenue and the value of our order intake increased significantly, due to both organic growth and the acquisition of Dematic. The rise in orders received by the Industrial Trucks & Services segment – our traditional business of forklift trucks, warehouse technology and related services – was particularly impressive. 2017 was the first time that more than 200,000 trucks were ordered within the space of one year – a figure that represented a 13 per cent increase on 2016.

The year began on a positive note when, in January, rating agency Fitch gave the KION Group an investment-grade credit rating for the first time in recognition of our excellent financial profile. Just a few weeks later, we issued a promissory note for more than €1 billion with great success, utilising the favourable interest-rate environment to refinance a large part of the Dematic acquisition. In May, a capital increase generated gross proceeds of around €603 million that were also used to refinance the acquisition. We began to significantly expand our plant in Stríbro, Czech Republic, so that Dematic conveyor systems can be produced there. In North America, we launched a broad portfolio of new trucks. Moreover, we now offer our European customers trucks that have a lifting capacity of two to three tonnes and are fitted with lithium-ion batteries.

‘Response and responsibility’ as the title of the annual report

We have given this year’s annual report the title ‘response and responsibility’. One of the main reasons for including ‘responsibility’ is that, a few months ago, we produced a groupwide sustainability report for the first time, documenting how everything that we do is underpinned by a forward-looking and values-based approach to our business.

We also chose to include ‘response’ in the title.

Our acquisition of Dematic in 2016 was a very important response to the opportunities and challenges that we face in our industry. Since then, we have been able to offer everything that our customers need in terms of intralogistics, from hand pallet trucks to highly complex, automated supply chain solutions. We firmly believed at the time, and remain convinced, that this was exactly the step we needed to take to position ourselves for further profitable growth. We are just as confident of our entire Group’s prospects for the medium to long term as we were when Dematic became the youngest member of the KION family. And we can proudly report, following the great progress made over the past year, that the integration of Dematic is now at a very advanced stage.

Another hugely important response is our “KION 2027” strategy, which we are presenting to you for the first time in this report. Since we unveiled our Strategy 2020 four years ago, a lot of other things besides the purchase of Dematic have happened. The acquisition made it necessary to introduce a new structure for managing the Company. The KION Group now comprises the Industrial Trucks & Services segment, our traditional business involving forklift trucks and warehouse technology, the Supply Chain Solutions segment – which now only comprises Dematic – and Corporate Services. We have also created a new internal organisational structure. The Group is now run as five Operating Units, each with responsibility for their own business success. And, under the leadership of our Chief Technology Officer Eike Böhm, we have pooled our research and development capabilities from across all brands and regions to create a highly effective centralised R&D unit.

”KION 2027“ strategy
The KION Group strategy for further profitable growth over the next decade.

The “KION 2027” strategy reflects these major developments and focuses on profitable growth. This of course benefits you, our shareholders. Our other objectives are similar to those in the Strategy 2020: to grow at a faster rate than the market, to be the most profitable supplier in the industry, to generate a profit at every stage of the business cycle and to always offer our shareholders an attractive return on their investment.

Action areas point the way

The clearly defined action areas in the KION 2027 strategy show the route that we need to take to achieve these objectives, namely through innovation, digitalisation, automation, efficient energy use, and products and processes that deliver an even better performance. We foster innovation by creating a suitable, effective environment and putting cutting-edge processes in place. Not only are we developing digital solutions for our customers, we are also digitalising our own operations. Our products enable our customers to achieve the maximum benefit from automation. We strive to lead the way in using energy as efficiently as possible; at the same time, we are focusing on new energy sources. And if we can improve the performance of our trucks, we will also boost our own efficiency as a Group.

Fantastic opportunities lie ahead of us. The material handling market is expected to double in size over the next ten years. In the same period, the market for supply chain solutions is likely to grow to such an extent that it will overtake global forklift truck and warehouse technology business. While the EMEA market will probably remain the biggest region worldwide in absolute terms, the fastest growth is predicted for the Americas and the Asia-Pacific region. In all these markets, we are excellently placed to achieve sustained business success in both segments.

Sustainability and shared values that are here to stay

The KION Group is not only firmly focused on the future. Being a good corporate citizen is also a cornerstone of our success. Sustainability is becoming a guiding principle for everything that we do, and we genuinely mean this. We are aligning our processes accordingly, raising awareness among employees and managers and calling on them to play their part in the KION Group becoming a little bit more sustainable every day. Our suppliers and business partners are also in our sights. We are encouraging and requiring them to show their commitment, because corporate citizenship does not start and finish at the factory gate. Instead, we want our entire value chain to live up to our high standards. We want to be a leader in our industry in terms of our sustainability efforts, too.

Part of being an organisation with a healthy corporate culture is having clear values. The process with which we developed our shared KION Group values – integrity, collaboration, courage and excellence – involved giving a voice to hundreds of people across the Group. These values represent the convictions of the entire KION Group and are enshrined in our daily work. By integrity, we mean doing the right thing. Collaboration shows that we trust each other. We demonstrate courage in our approach to innovation and change. And we deliver outstanding benefits for our customers through our excellent work.

Market set to double in size
According to forecasts, the material handling market
will double in size over the next ten years.

The results for the period under review, which are the first to include a full year of the contribution from Dematic, provide further evidence of how these values are now very much embedded in our organisation and are being translated into commercial success. The KION Group ended 2017 by recording strong growth and achieved its KPI targets, as adjusted in October. Driven by organic growth and the acquisition of Dematic, the Group achieved new records in order intake, revenue, adjusted EBIT, adjusted margin and net income. The profit margin rose to 10.0 per cent. In 2018, the KION Group aims to build on its successful performance in 2017 and, based on the outlook for market growth, achieve further increases in order intake, revenue and adjusted EBIT.

Almost 32,000 committed and highly qualified employees

We have once again delivered an excellent set of results thanks to the approximately 32,000 committed and highly qualified employees who now make up our global workforce. My fellow Executive Board members and I would like to offer our heartfelt gratitude to them for their outstanding efforts.

The KION Group – your KION Group – has evolved a great deal over the past twelve months. We have set ourselves clear new targets with the “KION 2027” strategy and further strengthened our internal structures. Rather than simply reacting to the intralogistics opportunities and challenges of tomorrow, we have honed our ability to anticipate key developments that will benefit our customers, supported by the best technology, excellent employees and very robust business and financial foundations. This means we can continue to do what we do best: come up with the right response.

With best wishes,

Gordon Riske
Chief Executive Officer KION GROUP AG