KION's strategy, which is centred on value and growth, is based on the Group's aforementioned strengths. The strategic objectives are:
1. Strengthen KION’s leading position in western European core markets
KION is consolidating its position as the number one in Europe's industrial truck market with customer-focused technological innovations and a high proportion of trucks with bespoke fittings. In recent years, the proportion of revenue spent on research and development has been above the market average and stood at 2.5 per cent in the year under review. KION aims to increase customer benefits in all price segments by introducing innovative drive systems, advanced ergonomics, intelligent intralogistics solutions and other developments.
2. Expand the range of services in European markets and in growth regions
KION is continually extending its portfolio of services and improving their quality at every stage of the product lifecycle. This includes servicing, maintenance and spare parts as well as fleet management solutions, intralogistics processes, efficient supply chains and IT systems. Financial services are also a key component of the service portfolio. KION has an installed base of more than 1 million trucks from which to expand its service business. The Company also intends to increase its market share by, for example, opening additional service outlets in attractive growth markets and stepping up the short-term rental business.
3. Tap the full market potential of growth regions
KION wants to take full advantage of buoyant demand in the BRIC countries (Brazil, Russia, India, China) and other emerging markets. That is why it is launching region-specific products in fast-growing price segments and strengthening its local production and sales network. To do so, KION is making targeted investments in production capacity, product development and the sales and service network. It is also weighing up whether to acquire manufacturing companies and dealers in growth regions. The strategic partnership entered into with Weichai Power in 2012 will play a key role in strengthening KION's position in the Chinese and other Asian growth markets, while KION gains access to the lower price segment in India through Voltas MH.
The range of products and services is tailored to region-specific requirements. To this end, KION operates a multi-brand strategy in the different regions. Region-specific products based on low-cost production platforms are the preferred option in the fast-growing emerging markets of Asia, Central America and South America. For this reason, LMH and STILL are positioned accordingly in those markets, with the Baoli and Voltas MH brand companies also playing a key role. Other external opportunities for growth are examined on an ongoing basis, including in relation to the sales and service network. Fast-growing emerging markets accounted for 30 per cent of consolidated revenue in 2012, compared with 22 per cent in 2011.
4. Optimise production, leverage group-wide synergies and thereby reduce costs
Over the past few years KION has streamlined its production capacity in developed markets, bringing about improvements to capacity utilisation and cost efficiency. At the same time it has created new capacity in Brazil, India and China. This transfer of some aspects of production to emerging markets is expected to continue.
Another way in which KION improves efficiency and increases margins is by operating a cross-brand purchasing organisation. Over the next few years it plans to increase its purchasing volume from emerging markets from 28 per cent in 2012 to as much as 40 per cent.
Although the brand companies in the KION Group are largely responsible for their own market activities, KION harnesses group-wide synergies and ensures that resources are used efficiently by centralising certain functions. Central departments are responsible for quality and production control, logistics and IT. This makes it possible to establish best practice across the Group. There are also a number of research and development initiatives aimed at cutting costs, improving quality and speeding up the development process. For example, KION intends to increase the proportion of standard modules used by multiple brand companies without compromising the brands' independence.
Key strategic measures in 2012
Tap full market potential in growth regions
The primary objective of the strategic partnership that KION entered into with Weichai Power at the end of 2012 is strategic collaboration on hydraulic pumps, engines, valves and drive technologies. Weichai Power and KION have also agreed to cooperate in a number of strategic areas, such as the supply of engines, parts and components. The aim for both companies here is to foster growth and competitiveness in the respective product segments.
Under an agreement reached between the KION Group and Weichai Power, the partnership also extends to the sharing of best practice and the development by Weichai Power of engines for installation in certain industrial trucks. Additional possibilities are also being considered, such as consolidating the forklift truck business in China. An agreement for the joint use of sales and purchasing structures has already been reached. Weichai Power has more than 500 service outlets in China, which KION can use to extend its own sales and service network. Other advantages include the strengthening of the industrial base in Europe and access to Weichai Power's suppliers in China and Europe.
The partnership generates substantial economies of scale for Linde Hydraulics and enables it to improve its international competitive position. On 27 December 2012 Linde Hydraulics entered into a ten-year purchase and supply agreement with LMH GmbH, which includes an exclusivity rule for the first five years. There is also a licence agreement that ensures Linde Material Handling GmbH (LMH GmbH) has access to all the patents necessary for its industrial truck business.
Weichai Power paid a cash contribution (including premium) of €467 million into KION Holding 1 GmbH to take over a 25 per cent of the Company’s share capital as part of a capital increase. The price to acquire 70 per cent of the shares (including options) in Linde Hydraulics GmbH & Co. KG was €271 million.
The partnership with Weichai Power improves KION’s market presence in China via KION Baoli (Jiangsu) Forklift Co., Ltd. (referred to below as 'KION Baoli') – the regional brand for industrial trucks – following LMH GmbH's acquisition of the outstanding 2.7 per cent of the shares. The transaction was completed at the end of August 2012. In addition, Baoli also has a presence in additional emerging markets, particularly in the Near and Middle East, India and Southeast Asia, but also in Australia. By collaborating with Weichai Power, Baoli will be able to expand its product range in the short term, and consequently be an even more attractive business partner for distributors.
A second major milestone was reached in the Indian market. KION acquired the outstanding 34 per cent of shares in Voltas Material Handling Private Limited (referred to below as 'Voltas MH') with effect from 2 November 2012. Founded in 2011 as a means of strategic cooperation between KION and the Indian conglomerate Voltas Limited, Voltas MH develops, manufactures, sells and maintains forklift trucks and warehouse trucks, focusing on India's high-volume market. The acquisition of the outstanding shares in Voltas MH enables KION to tap into the potential of the Indian market more efficiently. Voltas MH's sales and service network encompasses 59 dealers. In the second quarter of 2012 Voltas MH opened a new production facility in Pune, where it builds smaller counterbalance trucks powered by an internal combustion engine or electric drive as well as warehouse trucks.
By setting up a new legal entity, KION South Asia Pte. Ltd., in Singapore in April 2012, KION put in place the necessary organisational structure to fully unlock the market potential in other countries of South and Southeast Asia. KION South Asia is enabling the steady expansion of the local sales and service networks of the Linde, STILL and Baoli brands.
On 1 September 2012, KION South America launched production operations at its new plant in Indaiatuba/São Paulo, Brazil, thereby doubling its capacity. By pooling production in São Paulo and stepping up cross-brand cooperation, KION can leverage synergies and respond faster to customer requirements. KION's strategic competitive position has improved significantly because it can now manufacture counterbalance trucks (with an internal combustion engine) locally in addition to warehouse trucks. Imports of trucks, which are subject to high customs duties, can therefore be reduced significantly. The new facility also has better transport connections. The warehouse technology factory in Rio de Janeiro has closed, and the building and site have been sold. Some employees have transferred to the new plant. KION helped those unwilling to move to find new employment.
Consolidation of market position in Europe and expansion of service network
The sales and service network was strengthened through acquisitions and partnerships in 2012. One of KION's sales channels in the large Russian market is the sales company Liftec, which has been part of LMH since November 2011. In the reporting year LMH also acquired Liftec's business in Kazakhstan (February 2012) and Ukraine (July 2012). This has given LMH direct access to these markets and will enable it to expand its sales and service structures in Eastern Europe and Central Asia. STILL continued to consistently expand its service and distribution organisations in growth regions, by opening new branches in Russia and Poland, and its own Asian representative office in Singapore. In February 2012 LMH acquired the outstanding 51 per cent of shares in the sales company Linde Creighton Ltd., West Bromwich, United Kingdom. This was another measure aimed at strengthening LMH's presence in the United Kingdom following the acquisition of the outstanding shares in Linde Castle Ltd. and Linde Sterling Ltd. in 2011. Between them, the three companies employ over 650 people. LMH has also restructured its sales operations in Croatia by entering into a joint venture with a local dealer.
Increase in cost efficiency through optimisation of production and leverage of group-wide synergies
In 2012 KION continued to rigorously implement the extensive restructuring and consolidation programme that it had begun in 2009 in light of the financial and economic crisis. The long-term optimisation of production capacity has already begun to pay off and was a considerable factor in improving profitability in 2012. By making its cost structure more flexible, KION can take faster and more extensive action in an economic downturn. The relocation of individual warehouse technology production plants within Europe was completed in the year under review. Production operations in Montataire, France, were transferred to Luzzara in Italy, while forklift truck production in Bari, Italy, was moved to Hamburg, Germany. Furthermore, at the end of 2012 the decision was made to carry out the process of restructuring the container handler and heavy forklift truck business at the Merthyr Tydfil site (Wales, UK), which should improve the competitiveness of both segments in the long term, as well as increase the efficiency of KION’s European production network. Steps were also taken to increase efficiency in purchasing and product development.
KION expects that the strategic partnership with Weichai Power will also help to boost cost efficiency, notably through the joint use of sales structures and improved access to low-cost sources of supply for components.
In addition, KION has initiated measures to improve cost efficiency in research and development by using module and platform strategies (see Research and development section). The aim here is to reduce the complexity and diversity of products and accelerate the development process.