Strategy of the KION Group

The successful acquisitions of Egemin Automation, Retrotech and Dematic marked the start of the process to refine the KION Group Strategy 2020. This will provide the basis for updating the Strategy 2020 over the course of 2017. Besides continuing with the growth strategy in the segments, the overarching objective of the strategy is to systematically unlock the potential for cross-selling and synergies, thereby continually increasing the benefits for customers. This potential arises from their complementary technological position with compatible software solutions, different regional coverage, large installed base of truck fleets and supply chain solutions, and the combined strength in sales and service.

From a technological perspective, the focus is on incorporating intelligent industrial trucks and fleet management services into integrated, automated and bespoke supply chain solutions using the Dematic iQ software platform. To this end, Dematic will be integrated into the KION Group’s tried-and-tested global CTO structure.

In sales, priority will be given to joint business development on the basis of combined portfolios. Dematic can make use of the comprehensive sales and service organisation of Linde and STILL in Europe while, conversely, Dematic’s strong market position in North America and elsewhere should help to stimulate the truck business outside Europe.

At the same time, the intelligent alignment of the production infrastructure and shared use of corporate services should increase efficiency across the Group. This is expected to generate cost synergies equating to 1 – 2 per cent of Dematic’s revenue within the next two to three years.

Overall, this action plan should generate profitable growth in the two segments, balance out the revenue structure and, at the same time, secure their technological position.

Objectives of the Strategy 2020

The Strategy 2020 continues to provide the guiding framework for the KION Group. Although originally formulated for what is now the Industrial Trucks & Services segment, it sets out the objectives for the entire Group:

• Growth: The KION Group wants to accelerate its growth. To this end, it is strengthening its leading position in the European market and, at the same time, capturing significant market share in growth markets, particularly those in Asia and North America. In the Industrial Trucks & Services segment, the KION Group aims to close the gap on the global market leader by 2020. This is to be accompanied by a far greater presence in the largest price segment (volume).
• Profitability: The KION Group aims to further improve its EBIT margin in order to entrench its position as the most profitable supplier in the market. In doing so, it aims to improve its EBIT margin so that it is permanently in the double-digit range – a target that has remained unchanged in communications since the IPO.
• Efficient use of capital: The KION Group is working steadfastly to optimise the return on capital employed (ROCE). Besides increasing earnings, the focus here is on how assets and finance are to be managed going forward.
• Resilience: The KION Group aims to improve its ability to cope with economic downturns. It is therefore also diversifying its business in terms of regions and customer sectors alongside its efforts to optimise the production network and expand the service business.

Strategic focus areas of the Strategy 2020

The Strategy 2020 essentially encompasses six closely related areas of focus.

Multi-brand strategy

The starting point is the further development of the successful multi-brand strategy throughout the Group. This will ensure that the Industrial Trucks & Services segment is represented in all regions and price segments. The premium brands, Linde and STILL, are continuing to consolidate their presence at the upper end of the volume segment on the basis of the platform strategy, particularly in North America, South America and Asia. Especially in the premium segment and at the upper end of the volume segment, seamless integration into customer-specific logistics solutions is playing an increasingly important role. IT-based assistance systems, such as fleet data management and truck control systems, also look set to bolster sales of trucks, primarily in the premium segment. As an international brand, Baoli will position itself in the economy segment and at the lower end of the volume segment with a product and sales strategy that is tailored to regional requirements.

Following the multi-brand strategy, Dematic will remain the leading brand in the Supply Chain Solutions segment. The Egemin Automation and Retrotech brands will be retained but as part of the Dematic portfolio. Overall, the leading position in supply chain solutions is to be further strengthened.

Global modular and platform strategy

Further development of the multi-brand strategy requires the product portfolio to be managed end to end on the basis of the global modular and platform strategy. At the start of the reporting year, the technical functions were brought together into a central KION organisation under the new CTO Executive Board role. Dematic was integrated into this organisation following its acquisition in November.

In the volume and economy segments outside western Europe, the KION Group’s Industrial Trucks & Services segment is working with cross-brand, cost-efficient platforms for product development and production that are also allowing a strong degree of regional differentiation in the industrial trucks business. New platforms were created and products brought to market for electric forklift trucks, diesel trucks and warehouse trucks once again in 2016. The ongoing refinement of the Baoli platform and its localisation for different regional markets are particularly important in the volume segment. In western Europe, the premium brands, Linde and STILL, will continue to use different platforms in order to maintain the defining characteristics of their brands, but will increasingly deploy shared modules.

The current focus in the Supply Chain Solutions segment is on synchronising the various types of automated guided vehicle (AGV) systems on one technology platform. Going forward, the cross-segment integration of software on the basis of Dematic iQ will be extremely important.

Global production network

In the Industrial Trucks & Services segment, the KION Group strives to build its industrial trucks close to the markets in which they will be sold. To this end, production facilities worldwide are being efficiently integrated – harnessing economies of scale and ensuring a high level of capacity utilisation. A programme of capital expenditure is aimed not only at updating and expanding existing plants but also at establishing factories in new locations.

During the reporting year, further progress was made on modernising the plants in Aschaffenburg (Linde) and Hamburg (STILL), with a clear focus on increasing capacity, improving processes and containing costs. A total of around €83 million will have been made available for these projects between 2014 and 2021. Both sites are also working closely with the plant in Stříbro (near Plzeň in the Czech Republic), which commenced production of warehouse trucks in January 2016. The Aschaffenburg plant now focuses on making electric and diesel trucks and has been able to structure its production processes more efficiently. Capacity at non-European sites is also continually adjusted and processes optimised in response to market growth. For example, the KION North America plant in Summerville is being expanded for the production of electric forklift and IC trucks as well as warehouse trucks in order to close gaps in the portfolio.

In the Supply Chain Solutions segment, the site in Monterrey (Mexico) opened in 2014 has joined the global production network. The assembly plant serves the North American market alongside the Grand Rapids site in Michigan (United States), focusing on conveyor belts, sorting equipment and multishuttle racking systems.

Regional growth strategies

Having enhanced its multi-brand strategy and its modular and platform strategy, as well as increasing integration between the sites in its production network, the KION Group has put everything in place to increase its market share in strategically important regions.

The Industrial Trucks & Services segment mainly focuses on North America and China. In North America, one of the largest markets for industrial trucks, the segment aims – including by capitalising on Dematic’s market presence – to move from being a niche provider to a major market player offering a full portfolio of products by 2020. This will enable it to capture an increasing share of this growing market. The various platforms are being specially adapted to the American market within the context of the cross-brand approach. For example, Baoli introduced products specifically for the lower price segment in the reporting year. As well as expanding the range of products, KION North America is also strengthening the sales and service network, which encompassed more than 70 partners at around 220 sites at the end of 2016.

The segment is also looking to gain additional market share in the high-growth markets, including through new products for the volume segment that have been developed on the basis of Baoli’s economy platform. New electric forklift trucks and warehouse trucks are being developed, primarily for China’s fast-growing e-commerce sector. Linde and STILL are pooling their sales activities in Brazil, the most important sales market in South America, in view of the difficult situation in this market.

The Supply Chain Solutions segment is gearing its portfolio to the specific needs of the high-growth customer segments and regions. Building on its solid position in the North American market, the segment plans to make use of the strong sales and service network for industrial trucks in order to expand its footprint in the European and Asian markets.

Aftersales and service business

The KION Group’s strategy for aftersales and service aims to unlock more of the potential offered by the installed base, which is expanding worldwide. This will help to boost revenue. To this end, the Company is continually broadening its portfolio of services and improving their quality at every stage of the product lifecycle.

The KION Group is progressively extending its comprehensive service offering in the Industrial Trucks & Services segment to also cover the volume and economy segments in high-growth markets. Financial services are also a key component of the service portfolio as they support the KION Group’s core industrial business. The Company intends to further increase its market share by opening additional service outlets in attractive growth markets and stepping up the short-term rental business.

The Supply Chain Solutions segment plans to increasingly provide services, e.g. for modernising logistics processes, that complement its project business.

Back-office functions

The KION Group is aligning its corporate services, which provide back-office support across the Group, with the growing requirements of the global organisation in order to leverage economies of scale and synergies. For example, KION Group IT was restructured as a global shared services organisation in the reporting year and has begun to further standardise and pool its processes and infrastructure. In order to keep the costs of the expanded service offering low, the operating units will be integrating their administrative tasks more closely.