[41] Segment report

The Executive Board divides the KION Group into financial services (FS) activities and 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. Since the start of 2015, KION India Pvt. Ltd., Pune, India, has been included in the LMH brand segment. This change has not been reflected in the prior-year figures in the segment reporting because it only had a minor effect on the key financials for the LMH and Other segments. Egemin Automation became the seventh brand in the KION Group upon completion of the acquisition on 7 August 2015 and has been included in the Other segment since then.

Description of the segments

The Linde Material Handling (LMH) segment encompasses the Linde, Fenwick, Baoli and Voltas brands. The 10.0 per cent stake held in Linde Hydraulics is allocated to the LMH segment and accounted for using the equity method.

The STILL segment comprises the STILL and OM STILL brands.

FS activities include the financing of long-term leasing business with external customers of the KION Group and short-term rental business of the LMH and STILL operating segments as well as 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. Besides management of residual-value risk, risk management also includes the management of credit risk. In addition, FS provides the financing for short-term rental fleets on behalf of the LMH and STILL brand segments, which operate and maintain such fleets as part of their operational business.

The Other segment comprises the subsidiary Egemin NV and its eight subsidiaries as well as holding companies and service companies in the KION Group. Egemin Automation is a leading logistics automation specialist. The service companies provide services for all segments in the KION Group. The bulk of the total revenue in this segment is generated by internal IT and logistics services.

Segment management

The KPIs used to manage the brand segments are order intake, revenue and adjusted 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 – to the adjusted EBIT for the segments (‘adjusted EBIT’).

Earnings before tax (EBT) and return on equity (ROE) are the KPIs used to manage the Financial Services segment. ROE is calculated on the basis of average equity employed excluding net income (loss) for the current period. As at 31 December 2015, ROE – earnings before tax as a percentage of average equity – was 13.1 per cent (31 December 2014: 13.0 per cent).

Intra-group transactions are generally 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 margin are reflected in the producer margin within the operating profit generated by the LMH and STILL brand segments.

Segment reports are 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, irrespective of which entity might retain any opportunities and risks.

Assets and liabilities associated with the long-term leasing business, including related income and expenses, are assigned to the FS segment.

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 rental business is on the service function. External customers are offered 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 rental business remain on the brand segments’ statements of financial position and the related income and expenses remain on the brand segments’ income statements.

In an indirect end customer finance arrangement, 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 following tables show information on the KION Group’s operating segments for 2015 and 2014: > TABLES 111 – 112

Segment report 2015

111

in € million

LMH

STILL

Financial Services

Other

Consoli­dation / Recon­ciliation

Total

1

Capital expenditure including capitalised development costs, excluding leased and rental assets

2

On intangible assets and property, plant and equipment excluding leased and rental assets

3

Number of employees (full-time equivalents) as at balance sheet date 31/12/; allocation according to the contractual relationship

Revenue from external customers

3,058.1

1,569.0

417.3

53.5

5,097.9

Intersegment revenue

371.7

381.2

322.9

199.3

–1,275.2

Total revenue

3,429.8

1,950.2

740.3

252.8

–1,275.2

5,097.9

Earnings before taxes

345.7

83.7

5.3

77.1

–181.5

330.2

Financial income

12.7

2.0

65.7

19.8

–48.8

51.4

Financial expenses

–30.4

–35.8

–58.6

–70.0

50.8

–144.0

= Net financial expenses / income

–17.8

–33.8

7.1

–50.2

2.0

–92.6

EBIT

363.4

117.5

–1.8

127.3

–183.5

422.8

+ Non-recurring items

–0.3

20.3

0.0

27.9

–15.0

33.0

+ KION acquisition items

20.8

6.2

0.0

0.1

27.0

= Adjusted EBIT

383.9

144.0

–1.8

155.3

–198.5

482.9

Segment assets

5,120.9

2,296.9

1,603.4

722.1

–3,303.1

6,440.2

Segment liabilities

1,819.7

1,435.4

1,555.9

3,103.2

–3,322.6

4,591.5

Carrying amount of equity-accounted investments

49.9

4.2

19.5

0.0

73.6

Profit from equity-accounted investments

5.9

1.8

2.9

0.0

10.6

Capital expenditure1

73.6

52.4

0.0

16.6

142.6

Amortisation and depreciation2

92.8

46.2

0.0

18.4

157.4

Order intake

3,516.3

1,980.0

740.4

268.6

–1,289.7

5,215.6

Number of employees3

14,486

8,103

59

858

23,506

Segment report 2014

112

in € million

LMH

STILL

Financial Services

Other

Consoli­dation / Recon­ciliation

Total

1

Capital expenditure including capitalised development costs, excluding leased and rental assets

2

On intangible assets and property, plant and equipment excl. leased and rental assets

3

Prior-year figures restated to reflect the change in the order intake calculation introduced in 2015

4

Number of employees (full-time equivalents) as at balance sheet date 31/12/; allocation according to the contractual relationship

Revenue from external customers

2,769.1

1,511.0

350.1

47.6

4,677.9

Intersegment revenue

308.1

339.7

270.7

188.1

–1,106.6

Total revenue

3,077.2

1,850.7

620.9

235.7

–1,106.6

4,677.9

Earnings before taxes

258.1

83.8

5.2

79.8

–168.7

258.3

Financial income

14.8

1.8

58.8

55.3

–46.2

84.4

Financial expenses

–27.1

–36.4

–55.6

–99.6

45.4

–173.2

= Net financial expenses / income

–12.3

–34.6

3.1

–44.3

–0.7

–88.8

EBIT

270.3

118.4

2.1

124.1

–167.9

347.0

+ Non-recurring items

36.9

8.7

0.0

11.4

57.0

+ KION acquisition items

32.4

6.5

0.0

0.0

38.9

= Adjusted EBIT

339.6

133.6

2.1

135.5

–167.9

442.9

Segment assets

4,918.8

2,206.7

1,361.3

1,241.7

–3,600.0

6,128.5

Segment liabilities

1,713.3

1,370.8

1,314.8

3,669.4

–3,586.9

4,481.4

Carrying amount of equity-accounted investments

92.8

4.3

17.5

0.0

114.6

Profit / loss from equity-accounted investments

–28.6

1.1

2.7

0.0

–24.8

Capital expenditure1

68.2

50.1

0.0

14.8

133.1

Amortisation and depreciation2

88.4

44.8

0.0

17.0

150.3

Order intake3

3,128.4

1,895.1

622.7

236.5

–1,111.3

4,771.2

Number of employees 4

13,945

7,976

60

688

22,669

The following table gives a breakdown of the revenue from external customers by location: > TABLE 113

Segment revenue broken down by customer location

113

in € million

2015

2014

Western Europe

3,724.1

3,411.0

Eastern Europe

432.5

403.3

Americas

263.0

245.3

Asia

524.6

470.7

Rest of world

153.7

147.5

Total segment revenue

5,097.9

4,677.9

Revenue in Germany came to €1,276.3 million in 2015 (2014: €1,221.8 million). 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 expenses for efficiency measures initiated under the Strategy 2020, consultancy costs and expenses in connection with severance payments. They totalled €33.0 million in 2015 (2014: €57.0 million). In 2015, these items also included components of the share of profit (loss) of the equity-accounted Linde Hydraulics amounting to an expense of €2.8 million (2014: expense of €14.7 million) and income from the deconsolidation of the 20.0 per cent of the shares in Linde Hydraulics of €2.5 million. In 2014, non-recurring items had also included the impairment charge recognised on the equity-accounted investment in Linde Hydraulics totalling €13.5 million, which related to the LMH segment.

The KION acquisition items relate to the acquisition of the KION Group, which was formed at the end of 2006 when it was spun off from Linde AG, Munich. These items comprise net write-downs and other expenses in relation to the hidden reserves identified as part of the purchase price allocation.

The assets attributable to the Financial Services segment include long-term leases, which were reported as either leased assets or lease receivables, depending on the type of lease. As at the reporting date, lease receivables due from unrelated third parties amounted to €627.6 million (31 December 2014: €521.9 million). There were also intra-group lease receivables of €549.2 million (31 December 2014: €473.0 million), which primarily resulted from the funding of the short-term rental business of LMH and STILL. The leased assets of the Financial Services segment amounted to €316.1 million at the reporting date (31 December 2014: €267.4 million).

The liabilities attributable to the Financial Services segment largely comprised liabilities to leasing companies of €1,253.7 million (31 December 2014: €1,037.5 million) relating to sale-and-leaseback transactions that resulted from the funding of long-term leases with external third parties and intra-group customers. In the reporting year, €853.1 million (2014: €702.9 million) of this amount was attributable to the funding of leases with external customers and €400.6 million (2014: €334.5 million) related to the funding of intra-group leases with the subsidiaries in the LMH and STILL segments as lessees that had, in turn, entered into short-term leases with external third parties. Moreover, the liabilities include net financial debt of €185.6 million (2014: €155.1 million) arising from general corporate finance for the FS segment.

Capital expenditure by the Financial Services segment includes additions to intangible assets and property, plant and equipment. Leased assets are described in note [18]. > TABLE 114

Capital expenditures broken down by company location (excl. leased and rental assets)

114

in € million

2015

2014

Western Europe

113.1

111.9

Eastern Europe

7.5

2.6

Americas

3.1

2.1

Asia

18.1

15.6

Rest of world

0.8

0.9

Total capital expenditures

142.6

133.1

Capital expenditure in Germany came to €88.2 million in 2015 (2014: €88.2 million).

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 shown in > TABLE 115 below.

Non-current assets broken down by company location

115

in € million

2015

2014

Western Europe

3,432.7

3,303.7

Eastern Europe

129.4

112.5

Americas

48.2

51.5

Asia

178.5

156.9

Rest of world

50.7

48.2

Total non-current assets (IFRS 8)

3,839.6

3,672.7

Non-current assets attributable to Germany amounted to €2,606.0 million as at 31 December 2015 (31 December 2014: €2,618.7 million).