Declaration pursuant to section 289a of the German Commercial Code (HGB)

The corporate governance declaration required by section 289a HGB includes the comply-or-explain statement in accordance with section 161 AktG (see 1. below), relevant disclosures on corporate management practices extending beyond statutory requirements (see 2. below), a description of the working methods of the Executive Board and the Supervisory Board, and a description of the working methods and composition of the Supervisory Board committees (see 3. below). The declaration on corporate governance pursuant to section 289a HGB is part of the management report. According to section 317 (2) sentence 3 HGB, the information provided in accordance with section 289a HGB does not have to be included in the audit of financial statements.

1. Comply-or-explain statement pursuant to section 161 (1) AktG

Section 161 (1) of the German Stock Corporation Act (AktG) requires the management board and supervisory board of a publicly listed company to issue an annual declaration stating that the company has complied with, or intends to comply with, the recommendations of the Code and also stating which recommendations it has not applied or does not intend to apply, and the reasons why. Detailed reasons must be given for any departure from the recommendations of the Code. The comply-or-explain statement must be made permanently available to the public on the company’s website.

KION GROUP AG has been a listed company on the regulated market of the Frankfurt Stock Exchange since 28 June 2013. It has not previously issued a comply-or-explain statement pursuant to section 161 (1) AktG. However, the Company has already stated in its IPO prospectus that with one exception, it complies, and will comply in future, with the recommendations in the Code.

The Executive Board and Supervisory Board have considered the recommendations of the Code in detail and on 19 December 2013 they issued the first comply-or-explain statement of KION GROUP AG as required by section 161 (1) AktG as follows:

1. KION GROUP AG complies, and will continue to comply in future, with all but one of the recommendations of the German Corporate Governance Code government commission (dated 13 May 2013) published by the Federal Ministry of Justice in the official part of the electronic Federal Gazette.
   
   In departure from section 3.8 (3) of the German Corporate Governance Code (the Code), the articles of incorporation of KION GROUP AG do not provide for an excess in the D&O insurance policies for members of the Supervisory Board. The Company believes that such an excess is not typical at international level and would therefore make it considerably more difficult to find independent candidates, in particular candidates from outside Germany.
2. KION GROUP AG has been a listed company since 28 June 2013 and has not previously issued a comply-or-explain statement pursuant to section 161 AktG. Since its initial public offering (IPO), KION GROUP AG has issued guidelines on diversity in the Company in order to document its compliance with the recommendations in sections 4.1.5, 5.1.2 (1) and 5.4.1 (2) of the Code. Since the IPO, KION GROUP AG has complied with all of the recommendations of the government commission (dated 13 May 2013) except for the recommendation in section 3.8 (3) of the Code, as described above.
   
   With respect to section 5.4.2 of the Code, the Supervisory Board believes that, taking account of the employee representatives on the Supervisory Board, it is appropriate to have two independent members of the Supervisory Board, who are elected by the shareholders.

Wiesbaden, 19 December 2013

For the Executive Board:

For the Supervisory Board:

Dr John Feldmann

The comply-or-explain statement is available on the website of KION GROUP AG kiongroup.com/comply_statement.

2. Relevant disclosures on corporate governance

The corporate governance of KION GROUP AG is essentially, but not exclusively, determined by the provisions of the German Stock Corporation Act and those of the Codetermination Act and also follows the recommendations of the German Corporate Governance Code. KION GROUP AG complies with all the Code’s recommendations, with one exception. These fundamental principles are combined with a commitment to sustainable business, taking account of society’s expectations in the markets in which the Company operates.

In 2013 the Executive Board and the Supervisory Board (or its committees) regularly discussed corporate governance issues in accordance with a rolling schedule of topics. This ensured that the key elements of corporate governance within the KION Group were always on the agenda at meetings of the Company’s main decision-making bodies. The Supervisory Board in particular complied with the supervisory duties incumbent upon it under the German Stock Corporation Act. For example, the Supervisory Board’s Audit Committee, which was set up partly for this purpose, received regular reports on the accounting processes and the effectiveness of the internal monitoring and risk management systems and of the audit of financial statements, and then reported back to the full Supervisory Board on these matters.

2.1 Internal control system

KION GROUP AG has an internal control system designed to meet the specific needs of the Company. Its processes are intended to ensure the correctness of the internal and external accounting processes, the efficiency of the Company’s business operations and compliance with key legal provisions and internal policies. These control processes also include the Company’s strategic planning, where the underlying assumptions and plans are reviewed on an ongoing basis and revised as necessary.

The Supervisory Board and in particular the Supervisory Board’s Audit Committee regularly obtain information on the processes put in place as part of the internal control system and are satisfied as to their efficiency.

2.2 Accounting-related internal control system

For its accounting process, the KION Group has defined suitable structures and processes as part of its internal control and risk management system and implemented them throughout the Group. Besides defined control mechanisms, it includes, for example, system-based and manual reconciliation processes, clear separation of functions, strict compliance with the double-checking principle and written policies and procedures. The overarching aim is for the separate financial statements, consolidated financial statements, management report and group management report to be fully compliant with the relevant statutory and regulatory requirements and, in particular, the applicable financial reporting standards. Changes to these requirements and standards are analysed on an ongoing basis and taken into account as appropriate. Details can be found in the risk report, which is part of the group management report.

2.3 Risk management system

As part of professional and responsible corporate management, the Executive Board is required to regularly obtain information from the Company’s risk management function about existing risks and changes to them and then to report on this to the Supervisory Board. The KION Group’s risk management system is defined in groupwide risk guidelines, which contain a standardised catalogue of risks. Specific individual risks are then reported by the individual Group entities using an online reporting tool. Reporting on cross-segment risks and groupwide risks is carried out by the Accounting & Finance function and the relevant departments.

2.4 Compliance management system

The Executive Board and Supervisory Board of KION GROUP AG consider that adhering uncompromisingly to broad-ranging compliance standards is essential to sustained financial success. That is why a comprehensive compliance programme, centring around the KION Group Code of Compliance, has been set up for KION GROUP AG and its Group companies worldwide.

The KION Group Code of Compliance, which is available in all of the main languages relevant to the Group companies of KION GROUP AG, provides every employee with clear guidance on how to conduct their business in accordance with sound values and ethics and in compliance with the law. The aim is that all employees should receive regular training on the most important compliance subjects (e.g. competition law, data protection, communication and anti-corruption). Desk-based employees can use e-learning tools to complete the mandatory training.

Compliance activities focus on anti-corruption, foreign trade/export controls, liability of senior management, directors’ and officers’ liability, capital markets compliance, IT security and data protection.

KION GROUP’s compliance organisation is made up of the following committees, functions and duties:

The Executive Board of KION GROUP AG bears collective responsibility for the functioning of compliance management within the Group; the compliance department reports to the Chief Executive Officer of KION Group AG. Responsibility for implementing compliance management has been delegated to the Chief Compliance Officer, the CEOs of the STILL and LMH segments, and the heads of the KION regions. Responsibility for monitoring of course remains with the CEO of the Group. The KION compliance department, the KION compliance team and the KION compliance committee provide operational support to the aforementioned functions. The KION compliance department focuses mainly on preventing compliance violations by providing guidance, information, advice and training. It manages the KION compliance team, in which local and regional compliance officers of the Group are represented.

The members of the compliance team at KION GROUP AG are available to advise all Group employees and answer their questions at any time. They are also responsible for the implementation of the compliance programme, particularly for providing advice, information and training.

Actual or suspected incidents of non-compliance can be reported by post, email or fax. All employees can also report any cases of non-compliance via a compliance hotline and can choose to remain anonymous.

As part of its work, the compliance department at KION GROUP AG cooperates closely with the legal and internal audit departments. The KION compliance committee is staffed by the heads of these departments and the head of human resources, operating as a cross-functional committee that primarily advises on, examines and, if relevant, punishes incidents of non-compliance that are reported. While the KION compliance department is responsible for preventing compliance violations, the internal audit unit is tasked with checking the facts of reported non-compliance cases. On behalf of the Executive Board, the internal auditors also monitor subsidiaries for compliance with regulations. If their audits confirm cases of non-compliance, it is the task of HR or Legal to remedy the violations and sanction those responsible, if appropriate.

The Management Boards of the KION brand parent companies and their subsidiaries are responsible for ensuring compliance. The Local Compliance Representatives advise and support the directors and senior managers in ensuring compliance throughout the Group.

2.5 Audit-relevant processes

The KION Group’s separate financial statements and management report, and the consolidated financial statements and group management report, which are prepared by the Executive Board of KION GROUP AG, are audited by an independent auditor, discussed by the Audit Committee and approved by the Supervisory Board.

The independent auditor reviews the condensed consolidated interim financial statements and the condensed interim group management report for the first half of the year. The Executive Board discusses all interim reports with the Audit Committee before they are published.

2.6 Avoiding conflicts of interest

Conflicts of interest between the governing bodies and other decision-makers in the Company or significant shareholders go against the principles of good corporate governance and are harmful to the Company. KION GROUP AG and its governing bodies therefore adhere strictly to the recommendations in the Code. The employees of KION GROUP AG and its investees are made aware of the problem of conflicts of interest as part of compliance training and are bound by rules on how to behave in the event of actual or potential conflicts of interest.

The Company attaches high priority to preventing possible conflicts of interest from occurring in the first place and to dispelling any impression that they might exist. This is especially important in view of the long-standing involvement of major shareholders Goldman Sachs and KKR, which exerted considerable influence over the Company’s Executive Board in the years before KION GROUP AG’s conversion to a public limited company and its IPO, Weichai Power’s significant investment in KION GROUP AG, and the representation of these shareholders on the Supervisory Board of KION GROUP AG. The Company achieves these aims by avoiding business scenarios or personnel scenarios that could give the impression of a conflict of interest and by taking transparent steps that effectively avoid concerns about conflicts of interest.

The Company’s Chief Executive Officer, Mr Gordon Riske, was appointed a non-executive director of Weichai Power with effect from 24 June 2013. The Supervisory Board had previously given its consent. Appropriate precautions have been taken to ensure that this role at a major shareholder of the Company does not create a conflict of interest relating personally to Mr Riske. Formal processes have been put in place to ensure that Mr Riske, in his role as a non-executive director of Weichai Power, will not be involved in transactions that could give rise to a conflict with the interests of the KION Group. Nor will Mr Riske will be involved in transactions relating to the exercise of voting rights by Weichai Power or its subsidiaries at the Annual General Meeting of KION GROUP AG. It has been ensured that Mr Riske maintains a strict separation between his duties as a non-executive director of Weichai Power and his duties as Chief Executive Officer of KION GROUP AG and that he fulfils all of his legal obligations in the interests of the Company.

Executive Board member Ching Pong Quek received an incentive bonus of RMB 486,659.00 in the year under review from Siming District, Xiamen, China. Based on the average exchange rate in 2013, this is equivalent to €59,596.20. This payment was not related to Mr Quek’s work on the Executive Board; it was paid exclusively in connection with his role as a member of the Management Team (Chief Executive Officer) of Linde (China) Forklift Trucks Corp., Ltd., Xiamen, China. Similar incentives in varying amounts were also paid to 23 other members of the management team of Linde (China) Forklift Trucks Corp., Ltd., Xiamen, China. The bonuses are awarded each year by the administrative district of Siming to management teams of local companies who have made a particular contribution to the regional economy over the past twelve months. Such payments are also common in other districts in China and serve to make these regions more attractive to talented managers and, in particular, employees from foreign companies who are seconded to China. The payment was disclosed to the Chief Executive Officer and the Supervisory Board.

3. Working methods of the Executive Board and Supervisory Board and composition of the committees of the Supervisory Board

The Executive Board and Supervisory Board of KION GROUP AG have a close and trusting working relationship that focuses on ensuring the sustained success of the Company. The members of the Executive Board regularly attend Supervisory Board meetings, unless the Supervisory Board decides to meet without the Executive Board.

The Board of Management promptly, comprehensively and regularly reports to the Supervisory Board on the performance of the KION Group. Besides the reporting obligations defined by law, the rules of procedure for the Executive Board of KION GROUP AG set out further reporting requirements and reservations of approval in favour of the Supervisory Board.

3.1 Working methods of the Executive Board

The Executive Board of KION GROUP AG comprises five members. It is responsible for managing the Company in the Company’s interest, i.e. taking account of shareholders, customers, employees and other stakeholders with the aim of creating sustainable added value. The Executive Board develops the Company’s strategy, discusses it with the Supervisory Board and ensures that it is implemented. Every Executive Board member is responsible for his or her own area of responsibility, and keeps his or her fellow board members informed of developments on an ongoing basis. >> Table 003

Every Executive Board member must disclose potential conflicts of interest to the Supervisory Board immediately and must also inform the other Executive Board members. All transactions between KION GROUP AG and Executive Board members or parties or companies closely associated with them must be concluded on an arm’s-length basis.

Rules of procedure laid down by the Supervisory Board define the areas of responsibility of the Executive Board members and the way in which they work together. The full Executive Board normally meets every 14 days and is chaired by the CEO. Individual Executive Board members sometimes take part via video conference. At the meetings, the board members discuss measures and business that, under the Executive Board’s rules of procedure, require the approval of the full Executive Board. Resolutions of the Full Executive Board are passed by simple majority unless a greater majority is required by law. The chairman has a casting vote in the event of a tied vote. Resolutions of the Executive Board may also be adopted between meetings. Taking account of the requirements of section 90 AktG, the Executive Board provides the Supervisory Board with regular, timely and comprehensive information on all matters of relevance to the business as a whole relating to operating policy, strategic planning, business performance, financial position, financial performance and business risks. The Chief Executive Officer meets regularly with the chairman of the Supervisory Board to discuss these matters too.

The working methods of the Executive Board are described in more detail in the rules of procedure laid down by the Supervisory Board for the Executive Board, which also set out the business allocation plan and the matters reserved to the full Executive Board. The Executive Board’s rules of procedure reserve certain important transactions for the approval of the Supervisory Board. The budget planning requires the approval of the Supervisory Board, for example, as do major acquisitions or investments.

The Company is represented by two members of the Executive Board, by one member of the Executive Board acting conjointly with a Prokurist (person with full commercial power of representation), or by two Prokurists.

3.2 Working methods of the Supervisory Board

The Supervisory Board of KION GROUP AG advises and monitors the Executive Board in its management of the Company and reviews its work. The Supervisory Board is fully involved from an early stage in all decisions that are fundamental to KION GROUP AG.

The Supervisory Board of KION GROUP AG consists of 16 members, eight of whom are employee representatives and eight are shareholder representatives. The shareholder representatives are elected by the Annual General Meeting by simple majority.

The Supervisory Board has drawn up rules of procedure for its work. These apply in addition to the requirements of the articles of incorporation and also define the Supervisory Board committees. According to these rules, the chairman of the Supervisory Board coordinates its work and the cooperation with the Executive Board, chairs its meetings and represents it externally. The Supervisory Board meets in person at least twice in each half of a calendar year, and adopts its resolutions at these meetings. Between these meetings, resolutions may also be adopted in writing, by telephone or by other similar forms of voting, provided that the chairman of the Supervisory Board or, in his absence, his deputy, decides on this procedure for the individual case concerned. The Supervisory Board adopts resolutions by a simple majority of the votes cast unless a different procedure is prescribed by law. If a vote is tied, the matter will only be renegotiated if the majority of the Supervisory Board vote in favour of this option. Otherwise the Board must vote again without delay. If this new vote on the same matter also results in an equal number of votes for and against, the chairman of the Supervisory Board has a casting vote.

3.3 Objectives for the composition of the Supervisory Board

The Supervisory Board strives to ensure that its composition is appropriate to its responsibilities and obligations. In particular, this means considering members’ individual qualities and skills as well as the specific requirements resulting from the global business activities of KION GROUP AG and its Group companies. The Supervisory Board is therefore of the opinion that the priority in aiming for a composition based on diversity must be the expertise of the individual members and a balanced mix of personal qualities, experience, skills, qualifications and knowledge of all members in line with the requirements of the business, and has agreed upon guidelines for the selection of Supervisory Board members in the form of a diversity statement. This also means that the Supervisory Board’s aim is to have an appropriate number of women on the Supervisory Board. Given that at present – as in the past – there are already two female members on the KION GROUP AG Supervisory Board, it believes that an appropriate proportion has already been achieved which takes account of the specifics of the enterprise and it will make efforts to retain this proportion of women. The Supervisory Board would also support the inclusion of other female Board members who meet the above criteria, but at present it does not see any need for further increasing the proportion of women on the KION GROUP AG Supervisory Board in the short term, or for introducing a mandatory quota for female members of the Supervisory Board. At the same time, it is following the debate in society and among politicians regarding a statutory minimum quota for women on supervisory boards and will take any measures that may be required.

3.4 Working methods and composition of the committees of the Executive Board and Supervisory Board

On 29 May 2013, but with effect from the registration of the change of form to KION GROUP AG, the Supervisory Board of KION Holding 1 GmbH (known as KION GROUP AG (under formation) before the effective date of the change of legal form) resolved to create four committees, whose tasks, responsibilities and work processes comply with the provisions of the German Stock Corporation Act (AktG) and the German Corporate Governance Code. The chairman of each committee reports regularly to the full Supervisory Board on his committee’s work. The committees have each drawn up rules of procedure that define their tasks and working methods.

Executive Committee

The Executive Committee consists of four shareholder representatives and four employee representatives. Its chairman is always the chairman of the Supervisory Board. It prepares the meetings of the Supervisory Board and is responsible for ongoing matters between Supervisory Board meetings. The Executive Committee also prepares the Supervisory Board’s decisions relating to corporate governance, particularly amendments to the comply-or-explain statement pursuant to section 161 AktG reflecting changed circumstances and the checking of adherence to the comply-or-explain statement. It also prepares documents for the Supervisory Board when Executive Board members are to be appointed or removed and, if applicable, when a new Chief Executive Officer is to be appointed. Other documents prepared by the Executive Committee relate to any matter in connection with Executive Board remuneration. The Executive Committee is also responsible for resolutions concerning the conclusion, amendment and termination of Executive Board employment contracts and agreements with Executive Board members governing pensions, severance packages, consultancy and other matters and for resolutions about any matters arising as a result of such contracts and agreements, unless they relate to remuneration. The responsibilities of the Executive Committee also include resolutions about the extension of loans to Executive Board members, Supervisory Board members and parties related to them within the meaning of sections 89 and 115 AktG, as well as resolutions to approve contracts with Supervisory Board members outside their Supervisory Board remit. The Executive Committee should – in consultation with the Executive Board – regularly deliberate on long-term succession planning for the Executive Board.

In 2013, the members of the Executive Committee were:

Dr John Feldmann (chairman)
Joachim Hartig (deputy chairman)
Dr Alexander Dibelius
Denis Heljic
Johannes P. Huth
Jiang Kui
Thilo Kämmerer
Kay Pietsch

Mediation Committee

The Mediation Committee comprises the chairman of the Supervisory Board, his deputy, an employee representative and a shareholder representative. If a majority of two thirds of votes as required by section 27 (3) and section 31 (3) MitbestG is not reached in a vote by the Supervisory Board on the appointment of an Executive Board member, the Mediation Committee must propose candidates for the post to the Supervisory Board within one month. The chairman of the Supervisory Board does not have a second vote on the candidates proposed.

In 2013, the members of the Mediation Committee were:

Dr John Feldmann (chairman)
Joachim Hartig (deputy chairman)
Johannes P. Huth (from 27 June 2013)
Dr Alexander Dibelius (until 27 June 2013)
Kay Pietsch

Audit Committee

The Audit Committee has four members, who are elected by the Supervisory Board. Its purpose is to assist the Supervisory Board in performing its task of monitoring accounting processes, compliance matters and reporting. These responsibilities encompass monitoring the quality and integrity of the consolidated and separate financial statements (as well as related disclosures), the internal control mechanisms, risk management and the internal audit system. The Audit Committee also reviews the work carried out by the independent auditor and checks that the independent auditor is qualified and independent. It is also responsible for engaging the independent auditor, determining the focus of the audit and agreeing the fee. In addition, the Audit Committee exercises the rights in investee companies set forth in section 32 (1) MitbestG.

In 2013, the members of the Audit Committee were:

Hans Peter Ring (chairman, from 27 June 2013)
Dr Martin Hintze (chairman, until 27 June 2013)
Kay Pietsch (deputy chairman)
Dr John Feldmann (from 27 June 2013)
Dr Roland Köstler (until 30 September 2013)
Alexandra Schädler (from 2 October 2013)
Silke Scheiber (until 27 June 2013)

As an independent member of the Audit Committee, the chairman, Hans Peter Ring, has the required expertise in the areas of accountancy and auditing specified in sections 100 (5) and 107 (4) AktG.

Nomination Committee

The Nomination Committee has four members, all of whom are shareholder representatives and are elected by the shareholder representatives on the Supervisory Board. The Nomination Committee’s only task is to propose new candidates for the Supervisory Board to the Company’s Annual General Meeting.

Members of the Nomination Committee:

Dr John Feldmann (chairman)
Dr Martin Hintze (deputy chairman)
Jiang Kui
Silke Scheiber

Until 27 June 2013, when its tasks were taken over by the Executive Committee, the members of the Human Resources Committee were:

Johannes P. Huth (chairman)
Joachim Hartig (deputy chairman)
Dr Alexander Dibelius
Thilo Kämmerer