[36] Segment report

IFRS 8 specifies the 'management approach' for defining operating segments. Under this approach, the internal reports that are regularly used by the chief operating decision-maker to make decisions on the allocation of resources to a segment and to assess the performance of a segment are used as the basis for determining the operating segments. The chief operating decision-maker in the KION Group is its Executive Board comprising Gordon Riske (CEO), Otmar Hauck (COO), Klaus Hofer (CHRO) and Harald Pinger (CFO).

Since the 2011 financial year, the chief operating decision-makers have divided the KION Group into the Linde Material Handling (LMH) and STILL brands for management purposes. Segment reporting follows the same breakdown, taking into account the relevant organisational structures and corporate strategy of the KION Group.

Linde Material Handling (LMH)

Linde Material Handling manufactures material-handling products under the Linde, Fenwick and Baoli brands and also produces hydraulic components that are used both in its own trucks and in the products of external manufacturers.

Baoli operates in the market as an independent brand focusing on the economy segment in China and other growth markets.

STILL

The STILL brand has positioned itself as a leading provider of intelligent intralogistics management tools. In addition to core products (forklifts, warehouse handling equipment and tow tractors), the product range includes pioneering material flow services.

As a leading Italian manufacturer, OM provides customers in the value segment with reliable, technologically advanced electric and diesel trucks as well as warehouse handling equipment.

In 2010, the STILL and OM brands began to bundle their activities, enabling them to boost their competitiveness by benefiting from each other's product range and distribution capability. OM focuses on its home Italian market and is integrating the STILL Group's activities in Italy into its operations. In the medium term, STILL will integrate the OM Group's activities outside Italy into its network. STILL is also using attractive products from OM to supplement its own product range. It is therefore significantly expanding its coverage of the market for these products and greatly improving their market penetration via its excellent distribution network. The STILL and OM brands have been merged and managed jointly under the STILL segment since the 2011 financial year.

Other

The 'Other' segment comprises the companies operating under the Voltas brand as well as holding and service companies in the KION Group. Voltas is a KION Group brand company whose manufacturing is based in India and whose business activities focus primarily on this market. The service companies perform cross-segment services for the KION Group. The bulk of the revenue in this segment is generated by internal IT and logistics services rendered by the service companies.

The basis for internal reporting is a presentation of the financial position and financial performance based on data from continuing operations, excluding items relating to the KION Group in December 2006 and excluding non-recurring items. In addition to the above items, other net financial income/expenses and the share of profit (loss) of equity investments are also excluded from the performance indicator known as 'management reporting EBIT'. Segment reporting therefore includes a reconciliation of externally reported consolidated earnings before interest and tax (EBIT) including KION acquisition items and non-recurring items with the adjusted EBIT for the segments ('management reporting EBIT').

Segment reports are prepared in accordance with the same accounting policies as the consolidated financial statements, as described in note [7]. Intra-group transactions are generally conducted on an arm's length basis. The following tables show information for the KION Group's operating segments for 2011 and 2010:

The breakdown of segment revenue by region is as follows

There are no relationships with individual customers that generate revenue deemed to be significant as a proportion of total consolidated revenue.

Financial income and expenses including all interest income and expenses are described in notes [12] and [13].

The non-recurring items mainly comprise severance payments, social plan costs, costs relating to the planned transfers of production and consultancy costs. Also included for 2011 are the remeasurement of purchase price obligations and the remeasurement of an existing equity investment in an entity, over which a controlling influence can be exerted following the acquisition of additional shares. The KION acquisition items comprise a net write-down on the fair value adjustments identified as part of the purchase price allocation (PPA).

Segment capital expenditures include additions to intangible assets and property, plant and equipment, but not additions to leased assets. A separate segment report for leased assets is presented in note [17].

Depreciation/amortisation relates to intangible assets with finite useful lives and property, plant and equipment.

The regional breakdown of non-current assets excluding financial assets, financial instruments, deferred tax assets and post-employment benefits is as follows:

Supplementary disclosures based on future segment structure

In 2011 the KION Group put in place the organisational structures required under the German Commercial Code (HGB) to enable it to manage and report the Group's financial services (FS) activities as a separate segment in 2012.

To this end, separate financial services companies have been established in the key markets of France, Germany, Italy, Spain and the United Kingdom. Further companies will be gradually introduced in countries with a high proportion of finance and leasing business. In countries with lower levels of FS activity, sales and service companies will continue to engage in financial services operations as well.

During the course of 2011 the Group also developed a reporting model for the discrete reporting and management of financial services business. Future reporting in the KION Group will be based on this model. The sections below include voluntary additional disclosures based on the new reporting model and the associated revised breakdown of business activities in order to give prominence to the greater importance of financial services activities in the KION Group and to the future segment structure. These voluntary supplementary disclosures for the reporting year follow the principles required by IFRS 8.

Financial services activities will form a separate Financial Services segment alongside the LMH, STILL and Other brand segments described above:

Financial Services (FS)

The purpose of the FS segment is to act as an internal partner for the brand segments, providing finance solutions that promote sales. The FS activities include internal financing of short-term rental fleets, the financing of long-term leasing business for KION Group customers, and risk management. When long-term leasing business is being conducted, FS operates as a contractual partner to external customers and provides the necessary funding in conjunction with external financial partners. When short-term business is being transacted, FS's contractual relationship is with the LMH and STILL brand segments or with the external financial partners. Besides management of residual-value risk, risk management also includes the credit risk management system, which was refined as part of the work involved in transferring financial services activities to a separate segment. The key performance indicator used to manage the FS segment is earnings before tax (EBT).

The underlying business management model into which FS has been integrated views FS as an internal finance partner that operates as the interface between the brand segments and external finance providers or the capital markets. LMH, STILL and FS are therefore reported as independent operating subgroups, and transactions between these segments are presented in the same way as business conducted on an arm's-length basis. The regular (interest) margin income that FS generates from its business activities reflects prevailing market conditions. Surpluses from leasing that exceed this interest rate are reflected in the producer margin within the operating profit generated by the LMH and STILL brand segments.

Segment reports are generally prepared in accordance with the same accounting policies as the consolidated financial statements, as described in note [7]. Contrary to these policies, however, the LMH and STILL brands' intersegment sales to FS are always treated as revenue for the brand segments.

Assets and/or liabilities associated with the long-term leasing business are assigned to the FS segment. The expenses in the FS segment's income statement therefore reflect, in particular, depreciation/amortisation on the assets, interest expense relating to the funding of these assets as well as operating expenses. These expenses are offset under income by the finance instalments paid by the customer (lease payments excluding service portion).

Whereas the main feature of long-term leasing business is the provision of a financial service for the external lessee, the focus in short-term leasing is on the service function. External customers are offered flexible arrangements involving rental trucks from a rental pool – including associated services – for short-term use. Unlike the situation in long-term leasing, financial performance in the short-term business is largely dependent on the achieved level of utilisation of the rental fleet, management of which lies entirely within the responsibility of the brand segments. Given this structure, the assets associated with the short-term business remain on the balance sheets of the brand segments and the related income and expenses remain on the brand segments' income statements.

In an indirect leasing arrangement ('sale with risk'), which forms part of the long-term leasing business, the otherwise typical financing function of the FS segment as a lender for the leasing transaction no longer applies. As a result of the sale of the leased asset to the external finance provider in such transactions, the brand segments view the transactions in the same way as a sale to an end-user. Consequently, these transactions and all the revenue that they generate are recognised in the LMH and STILL brand segments.

The breakdown of segment information for 2011 and 2010 is as follows: