Business model and market positioning

Business model

KION earns most of its consolidated revenue from the sale of industrial trucks. In the reporting year, new products accounted for 56 per cent of the Group's revenue, while service business (including spare parts) generated 40 per cent. Four per cent related to hydraulics components, which were sold to Weichai Power to the furthest extent possible with effect from 27 December 2012.

So that it can offer comprehensive support to customers worldwide, KION covers every step of the value chain: product development, manufacturing, sales and logistics, spare parts business, financial services and system and software solutions.

The purpose of research and development activities (R&D) is to consolidate and extend KION's technology leadership. 847 developers are employed across the KION brand companies. The focus of the Group's R&D activities is described in the Research and development section.

The different industrial trucks are manufactured at production facilities situated at strategically beneficial locations within the global network. Owing to the particular requirements of its business and to ensure security of supply, KION manufactures most of the major components itself – notably lift masts, axles, counterweights and safety equipment. Other components – such as electronic components, rechargeable batteries, engine components and industrial tyres – are purchased through KION's global procurement organisation. There are also long-term supply agreements for hydraulics components with Weichai Power (for further information about the strategic partnership with Weichai Power). KION operates a total of 15 production facilities in eight countries.

The product portfolio includes counterbalance trucks powered by an internal combustion engine or electric drive, warehouse technology (ride-on and hand-operated industrial trucks) and towing vehicles for industrial applications. It covers all load capacities, from 1 tonne to significantly in excess of 40 tonnes.

KION’s production and major logistics sites

Revenue from the high-margin service business stabilises consolidated revenue and reduces dependency on market cycles. KION's sales and service network encompasses more than 1,100 outlets in over 100 countries. Of the total sales and service workforce – which is predominantly made up of service technicians – about two thirds are employed in the KION companies. In various markets, KION relies on external dealers.

The service business caters to an active fleet of over 1 million industrial trucks. Europe has the greatest concentration of service outlets. In established markets, a significant proportion of services is covered by leasing arrangements and is offered for the entire term of the lease. Service business also includes individual orders for repairs and maintenance, spare parts, used trucks and rental trucks.

Financial services support product sales in all brand companies. They largely consist of long and short-term rental, and customised fleet management.

Market and influencing factors

Industrial trucks are used for a wide variety of applications. Material handling products are used for tasks such as loading and unloading, linking production steps, moving pallets in logistics centres and transferring containers in ports. They therefore form part of the production processes and supply chains in different industries around the world. Measured in terms of unit sales of new trucks, the growth of the industrial truck market has exceeded global economic growth over the past ten years (2002 to 2012), rising at an average of around 5 per cent per year.

In KION's view, the significant influencing factors with a sustained impact are the following:

• Mature markets are generating strong demand for trucks to replace old ones as customers have not made replacement investments when required in recent years, as a result of the financial and economic crisis. KION estimates that around 90 per cent of sales in western Europe are currently accounted for by replacement investments.
• In China and other emerging markets, economic growth and the increasing need for infrastructure solutions are creating disproportionately strong demand for inexpensive industrial trucks.
• As a result of globalisation, individual steps in the value chain are increasingly being moved to different regions, causing greater demand for transport services and logistics solutions.
• As the technology in industrial trucks becomes more complex, their users are more likely to outsource service functions. The demand for efficient fleet management is also rising.
• The market as a whole will continue to depend heavily on economic conditions in key sales markets, with the level of capital investment and the growth in global trade being particularly crucial. During an economic downturn customers tend to delay purchasing any new trucks they need, whereas they buy more new trucks during an upturn. The service business, which is generally less cyclical, is affected by truck utilisation, which itself depends partly on macroeconomic activity. In addition, the overall market is subject to regulatory intervention, in particular in relation to emission levels, production standards and workplace safety standards (see Regulatory situation section).

Measured in terms of units ordered, almost half of the volume of new business (46 per cent) was accounted for by counterbalance trucks with an internal combustion engine – with higher proportions in China and other emerging markets. Counterbalance trucks with an electric drive accounted for around 16 per cent and warehouse technology for 38 per cent.

The products in the premium price segment are characterised by an above-average useful life, driver productivity, comfort and high performance, combined with lower running and energy costs. This price segment accounted for 27 per cent of the new trucks ordered according to a study conducted in 2012, although the proportions were lower in China and other emerging markets. The middle price segment (value) generated 48 per cent of orders. The low price segment accounted for 25 per cent of the global market; it is the main segment in China.

Broken down by region, Europe generated 33 per cent of total new trucks sales, followed by China with 23 per cent and North America with 19 per cent.

Market position

KION is one of the world's leading manufacturers of industrial trucks owing to its global presence and volume of revenue. Measured in terms of units sold, KION consolidated its position as the number one in Europe and the number two worldwide in the year under review. Based on the sales figures for 2012, KION's market share was 15 per cent worldwide and 34 per cent in Europe. KION is ranked third in the Chinese market behind two domestic manufacturers, making it the largest foreign producer. It is one of the leading manufacturers in Brazil – the largest individual market in South America – and is the market leader for electric forklift trucks and warehouse trucks.

Besides its strong market position in established markets and growth regions, KION has a number of other competitive advantages:

As a result of its multi-brand strategy and broad range of products and services, KION is represented in all the major sales regions, product segments and price segments that make up the industrial truck market. The multi-brand strategy has helped KION to systematically expand its presence in the emerging markets in recent years.

KION's position as a leading technology provider secures the status of LMH and STILL as premium brands: customers can contain the total cost of ownership (TCO) owing to the trucks' cost efficiency, high productivity and relatively low maintenance and to the high residual values of used trucks. This technology leadership position is based, among other factors, on KION's pioneering role in hydrostatic and diesel-electric drive systems and on its product innovations in the field of energy-efficient and low-emission drive technologies (electric drives, hybrid drives, fuel cells). KION is also one of the leading companies with regard to workplace safety and ergonomics (see Research and development section). Compared with other companies in the industry, KION spends a high proportion of its revenue on research and development. By operating eleven local development centres, KION ensures that it can fully cater to the specific needs of customers in the different markets. There are two development centres in China, one in Brazil and one in India.

KION has an integrated business model, which is based on its presence in all major product categories and the fact that the service business is intrinsically tied into the new truck business. The service business generates above-average margins for KION and is less affected by economic fluctuations. In addition, the growing number of new trucks fitted with customer-specific equipment is also stabilising the service business. The associated production, service and sales processes present a significant barrier to market entry for competitors, as does the extensive network of service outlets.

KION's attractive profit margins are derived from the premium positioning of its brands and the significant proportion of revenue contributed by its high-margin service business. Economies of scale, diversification advantages and synergies resulting from its global position also benefit KION.

Moreover, profitability has been improved by implementing effective measures to boost efficiency and lower costs, for example during the financial and economic crisis in 2008 and 2009. Consolidation of production facilities (see Strategy of the KION Group section) has also increased capacity utilisation. The lower level of fixed costs and the resulting more flexible cost structure have enabled KION to improve its profitability and put it in a better position to absorb the impact of economic downturns than in the past. Modular and platform strategies in product development and production also help to increase cost efficiency.