Letter to shareholders

»2013 was a financially solid year. 9.3 per cent EBIT margin represents a new record.«
»35 per cent of our new trucks go to customers in emerging markets.«
»One in four of our developers works in China on new products and platforms.«
»The high-margin service business accounts for more than 40 per cent of the KION Group’s revenue.«

Gordon Riske

Chief Executive Officer

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Thu, 20 March 2014 08:08am

From: Gordon Riske
To: KION Group Shareholders
CC: Thomas Toepfer, Theodor Maurer, Bert-Jan Knoef, CP Quek, Supervisory Board, Customers, Empoyees, Business Partners
Subject: Annual Report 2013

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

On 28 June 2013 we were able to celebrate the fact that the shares of KION GROUP AG had been successfully listed on the Frankfurt Stock Exchange. Both for our staff and for me personally this day was one of the most moving professional events of the past financial year. We are especially proud that this initial public offering (IPO) was so successful because it took place in such challenging market conditions. The foundations for this high-profile launch in the capital market were laid by our customers, shareholders and partners and, in particular, by the commitment and dedication of our employees around the world. On behalf of the KION Group Executive Board I would like to take this opportunity to thank our highly motivated and expert workforce for this achievement.

Today we are publishing our first annual report as a publicly traded company. We are reporting on a year whose financial results were able to build impressively on the previous years. At the same time we have taken the key operational and financial measures needed to ensure that we can continue on our global growth trajectory over the coming years while further enhancing our profitability on a sustainable basis.

Funding strengthened by the IPO

As far as the implementation of its growth strategy is concerned, the KION Group is now in an even stronger financial position than it was a year ago. The proceeds received from the capital increases carried out as part of the IPO have provided us with a very sound and extensive capital base.

Our equity ratio at the end of 2013 came to 26.7 per cent. Our net debt at the reporting date was only around 1.4 times adjusted EBITDA for the previous twelve months. We therefore have a very solid and secure long-term funding base.

The prospects for our business and, consequently, for our shareholders and employees are excellent, with independent research predicting that the worldwide market for industrial trucks is once again set to grow at roughly 1.5 times the rate of the global economy over the next decade. We intend to benefit disproportionately from this growth.

Business stabilised at a high level

Global demand for industrial trucks continued to grow in 2013. The total number of units sold in the material handling market exceeded 1 million for the first time, which represented year-on-year growth of 7 per cent. In addition to the United States there was also strong growth in the emerging markets of China, eastern Europe and Brazil, which are particularly important to the KION Group.

In this market environment we continued to develop our business at the high level of the outstanding previous year. Despite being impaired by the adverse market conditions in western Europe – which remains the KION Group’s core market – sales of new KION trucks amounted to 142,800 units, in line with the impressive figure achieved in 2012 (141,700 units). The total value of the KION Group’s order intake came to a substantial €4.489 billion. We generated revenue of €4.495 billion – which was in line with the excellent prior-year figure – despite adverse exchange-rate effects. We further increased our adjusted earnings before interest and tax (EBIT) to €416.5 million. Our EBIT margin reached 9.3 per cent, which was a new record for the KION Group.

We are deliberately exploiting the economies of scale that we possess compared with our competitors. At the same time we are constantly improving the efficiency of our European production network. In October, for example, we closed our heavy truck plant in Merthyr Tydfil and transferred the bulk of this production to a contract manufacturing facility.

Presence in emerging markets expanded

The continuing success of our strategy of expanding our presence in the world’s emerging markets has strengthened our resolve to redouble our efforts in this direction. 35 per cent of the orders that we received for new trucks came from emerging markets, which was more than ever before. And in December our Linde brand company celebrated its 20th anniversary in China when it handed over the 100,000th Linde truck manufactured in China.

The material handling market in China presents excellent prospects. Whereas 530 new trucks were sold in western Europe for every 1 million inhabitants in 2013, only 180 were sold in China, which is now the KION Group’s second-largest market in terms of unit sales (behind only Germany). And truck sales in China continue to grow apace. The sales and service organisation that we have established throughout this country enables us to fully exploit this enormous potential, and we have therefore been able to successfully introduce our business model – which includes a high proportion of service business – in China as well.

The strategic partnership with Weichai Power will provide the KION Group with additional stimulus for its operations in China and the rest of Asia. This unique alliance offers both parties the opportunity to enter new business lines together and to reap synergies for their mutual benefit. It also takes us to the next stage in the long-term expansion of our business in Asia.

But this was not the only place where we made considerable headway last year. We expanded production at our Indian brand company Voltas, whose plant commenced operations in 2012. We officially opened a completely new KION plant at Indaiatuba, São Paulo, in Brazil last year. In addition to warehouse trucks, KION South America has also been manufacturing IC trucks at this site since then under the Linde and STILL brands for the South American market.

Product portfolios intelligently combined

In 2013 we also constantly broadened the product ranges offered by our brand companies, introducing more than a dozen new trucks and truck families. Our multi-brand strategy and global reach provide us with a key competitive edge in this respect. We modify successful products in line with specific requirements in other regions where fresh demand for similar trucks arises. In these emerging markets our brand companies Baoli and Voltas are the main providers that localise the manufacture of established trucks, modify them for specific brands and then launch them in the market. Our development centre in China plays an important role in this aspect of our business. Roughly a quarter of our total global development staff work there on new products and platforms designed to meet the requirements of the emerging markets in particular.

In 2013 we spent more than €114 million, or 2.5 per cent of our revenue, in research and development, which makes us an industry leader in this respect. The outstanding competitive position occupied by our Linde and STILL brands in our European home market is largely based on our technology leadership.

Last year, Linde Material Handling presented the BMW factory in Leipzig with a fleet of industrial trucks fitted with fuel-cell hybrid drives for production of the BMW i. Having been extensively refined, new engines make Linde’s EVO models the lowest-emission series-production diesel trucks in the market. The pollutants that they produce are on average 69 per cent below the maximum permitted statutory limits, which means that these trucks can even be used inside buildings.

The STILL RX 70 Hybrid was named International Forklift Truck of the Year in 2013 after having already won the Federal Ecodesign Award in the previous year. The first-ever hybrid truck manufactured in series production, which is equipped with a diesel-electric drive, obtains the energy for its drive system from both the diesel tank and from electric energy storage units known as ‘ultracaps’. STILL extended its RX 70 family range in 2013 by introducing new IC trucks with load capacities of between four and eight tonnes. Their optimum handling capacity is based on a unique combination of power, precision, ergonomics, compactness and safety.

New products planned for the US market

However, we are not only focusing on our home market and on emerging markets. We are also concentrating on other markets where we do not yet have a sufficiently large presence. A case in point is the United States, where we see considerable growth potential for the KION Group’s brands. After all, this is the world’s second-biggest single market after China. In the US we have a factory with substantial unused capacity as well as an extensive nationwide dealer network. We can build on these over the long term by launching new US-specific products that are currently being developed.

Sales and service expanded by the addition of new sites

We are constantly expanding the sales and service network used by KION Group’s brand companies in order to strengthen our brands in the various regions around the world. In mid-2013 our brand company STILL acquired a majority stake in Turkish dealer Arser in order to increase its footprint in this important country. Linde opened new branches in Thailand and Malaysia to enable it to serve these markets even more effectively. As the size of its fleets in markets outside western Europe grows, the proportion of revenue accounted for by the service business increases accordingly. Stable and profitable, the service business contributes more than 40 per cent of the KION Group’s revenue. The services provided for our installed fleet of some 1.2 million trucks worldwide substantially reduce our reliance on short-term economic cycles and, at the same time, offer attractive margins.

Experienced workforce is the key driver of our success

Our investment in 2013 went beyond sales and service structures and new products. Our workforce grew as well, as more than 1,000 highly qualified people joined our organisation worldwide. At the same time we continued to invest in the best-possible training and development opportunities for these employees. We want to remain a reliable partner for our customers and work with them to put new ideas into practice. By offering highly efficient and economical trucks, we help to ensure that our customers are successful.

Some of our 22,000 employees who work each and every day for our customers are featured in the front part of this annual report. You may even meet one of them in person at some point. This is quite possible if you consider that our products and staff travel around the world in the service of our customers: We keep the world moving. I therefore hope that you have an interesting journey of discovery through the world of the KION Group.

With best wishes,

Gordon Riske
Vorsitzender des Vorstands | Chief Executive Officer

Abraham-Lincoln-Straße 21 | 65189 Wiesbaden (Germany)
Sitz der Gesellschaft | Registered Office: Wiesbaden (Germany)
Registergericht | Court of Registration: Wiesbaden (Germany), HRB 27060

Vorsitzender des Aufsichtsrats | Chairman of the Supervisory Board: Dr. John Feldmann
Vorstand | Executive Board: Gordon Riske (Vorsitzender/CEO), Bert-Jan Knoef, Theodor Maurer, Ching Pong Quek, Dr. Thomas Toepfer