Letter to shareholders

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

We all experience on a daily basis how rapidly the world around us is changing. The rate of progress is accelerating; product and innovation cycles are getting shorter. In the Information Age, connectivity and the sharing of data are the new success factors. The Internet of Things, which links the physical with the virtual, is opening up unimaginable opportunities. One megatrend in particular – digitalisation – has emerged as an important driver that will also have a lasting influence on intralogistics. Digitalisation is transforming our world, and the way in which we live and work. For us, this change is an opportunity to help shape the future of Industry 4.0 on behalf of our customers and to define the key intralogistics technologies of tomorrow. The challenge is great, but it is one that we are fully motivated and fully committed to meeting.

Our mission is to remain the vanguard of our industry

Last year, we demonstrated yet again that we are the vanguard of our industry. Our unique range of products and services enabled us to consolidate our position as the global number two for forklift trucks and warehouse technology and a leading supplier of supply chain solutions. Automation and digitalisation are part of our DNA. Our automated systems serve as a benchmark in the intralogistics sector. But we are not content to rest on our laurels and have created a dedicated Executive Board role for digitalisation in order to maintain and build on our technological leadership. The appointment of Susanna Schneeberger as Chief Digital Officer (CDO) highlights the importance that we are attaching to digitalisation and automation under our KION 2027 strategy. Back in January, we launched the Digital Campus, an innovation laboratory that gives strategists, user experience designers and developers a forum for collaborating on quick-turnaround digital projects.

Digital solutions have been an important part
of our product range for a number of years.

Beyond these recent initiatives, digital solutions have been an important and growing part of our product range for a number of years and are strengthening our position as an industry leader. Linde Safety Pilot and other intelligent assistance systems are enhancing warehouse safety, dynamic mast control is counteracting mast oscillation in reach trucks and autonomous picking trucks such as STILL’s iGo neo are easing the workload of operatives. The collection, smoothing and analysis of data are presenting opportunities for intralogistics that we are creating for our customers through the medium of warehouse management software and digital fleet management. Solutions such as Linde connect and STILL neXXt fleet can optimise capacity utilisation and raise productivity. Many other applications, including special servicing apps and predictive maintenance for industrial trucks, are facilitating the work of our customers and their employees.

Market leader in mobile automation

Automation is also a top priority for us. In the area of automated order pickers and storage and retrieval systems, we are the global market leader. We can meet our customers’ growing demand for speed and precision in logistics. Our automated guided vehicles (AGVs) deliver huge benefits wherever applications require continuous throughput or recurring processes can be automated. Guided by a laser scanner, for example, they are able to move on their own and transport, store and retrieve goods.

Many of our solutions facilitate the work
of our customers and their employees.

We have established ourselves as a leading supplier of automated systems thanks to Dematic’s broad-ranging portfolio. Every Dematic system uses the Dematic iQ software platform, which consolidates all key data related to warehouse operations and delivers significant efficiency gains. It allows us to greatly improve our customers’ warehouse processes – whether the workflows are manual, semi-automated or fully automated. Our robotic picking system is a software-controlled robot arm that is equipped with sensors and visual processing capabilities and has the ability to grip objects. Because the system is more efficient at completing repetitive tasks, it can accelerate warehouse processes.

The next steps in our innovation drive

As proud as we are of these achievements, we are not content to let them be our only successes as we continue on our path towards the future of intralogistics. With every innovation, we create important new benefits that give our customers a competitive edge. This is what drives us.

Our developers and IT specialists are working on many other high-potential projects. One of these is our virtual facility software, an online tool that will enable customers to simulate their plans for warehouse expansion. It will make planning much easier and dramatically reduce the number of problems that occur when the new facilities are brought on stream. The KION cloud is the latest and perhaps most comprehensive project in our innovation drive. It is a virtual service centre that gives customers wanting to record and analyse their intralogistics data unlimited capacity and flexibility. We can use this data to develop solutions tailored to their specific challenges in fields ranging from the Internet of Things to artificial intelligence. The KION cloud is the common link between all our activities, which are not only supporting the transformation of intralogistics, but actively shaping it.

We are taking digitalisation and automation to their logical conclusion. Many of our customers are waiting for the fully automated warehouse, which will no longer need to be lit. It requires humans to only be available to monitor the systems. In many of the world’s metropolitan regions, warehouse operatives are becoming as scarce a resource as space to locate the warehouses. Thus our customers are sure to be pleased that our automated solutions are helping them inch closer towards the goal of a ‘lights-out’ warehouse.

Intralogistics has become the key competitive factor
in today´s web economy.

The forklift truck business and related services, including financial services, continue to play a key role alongside the development of future technologies. Our Operating Units again launched a variety of important product innovations last year. STILL brought the award-winning RX20 electric forklift truck to the market and reached a milestone in the use of trucks powered by fuel cells. Linde Material Handling rounded out its lithium-ion product range and is now offering customers a choice between lead-acid and lithium-ion batteries in nearly all its warehouse trucks. This has taken us beyond intralogistics to become a leading innovator in drive systems.

Upward trend despite unexpected challenges

In 2018, our market-leading products and solutions enabled us to build on the upward trend of recent years. Order intake rose by 8.5 per cent year-on-year to reach a record €8.7 billion, which gives us a healthy basis for 2019 and beyond. We also achieved our outlook for all other key performance indicators, despite the major challenges that faced us during the year related to currency effects, the higher cost of materials, increased personnel expenses and inefficiencies in production caused by bottlenecks at individual suppliers. Revenue increased by 5.2 per cent to almost €8 billion. At €643 million, EBIT was 14.6 per cent higher than the figure for the previous year, while net income amounted to €402 million.

With important capital expenditure we are laying the foundations
for success in the years ahead.

E-commerce, retail, wholesale and production supply chains, and a global economy based on the division of labour – our products and solutions help all of them to function smoothly. Our connected forklift trucks, our automated warehouse systems and, not least, our software are making the logistics chains that form the backbone of the world’s economy increasingly efficient. Intralogistics has become the key competitive factor in today’s web economy. Our industry’s exceptional growth rates are a reflection of this.

The intralogistics market has consistently been expanding at a faster rate than the global economy in recent decades. And the prospects for further growth in the coming years look attractive as well. Worldwide demand for industrial trucks is projected to increase by around four per cent a year and demand for supply chain solutions is expected to see a high single digit percentage increase over the medium term. We will be looking to benefit from these growth markets by offering many new products, services and software solutions as well as a sales and service network that is unparalleled in our industry.

Key investments in the future

In the year ahead, in order to fully exploit this growth potential, we will be continuing to invest in innovative products and solutions and in expanding our capacities. To help achieve the latter, we are building an additional plant in Poland that is scheduled to come on stream in 2020.

In our long-term planning for production and plant structure, we specified which sites will be manufacturing which products going forward. The main plants of Linde Material Handling in Aschaffenburg and STILL in Hamburg will focus on higher-margin, premium products. At these locations too, we will continue investing in expanding capacities and in new production technologies. This capital expenditure is important and essential and with it we are laying the foundations for success and growth in the years ahead.

On behalf of my colleagues on the Executive Board, I would like to personally thank our employees for the excellent results we achieved in 2018. It was a real team effort. Your unfailing dedication to our customers, your creativity and your commitment to our shared values make us the successful company that we are today. The KION Group is entering 2019 in very good shape. The order books are well filled and, in the coming year alone, we will bring around 50 new products and solutions to market. In 2019, as a leading innovator in our industry, we will be looking to again capitalise on the huge opportunities presented to us by digitalisation, automation and the other factors driving the growth of logistics.

With best wishes,

Gordon Riske
Chief Executive Officer
KION GROUP AG