Business performance in the Group

Resilient and flexible business model

The coronavirus pandemic, which first emerged in the first quarter of 2020, and the measures taken to contain it had a significant influence on the KION Group’s business in the reporting year. In the first half of 2020, supply logistics and production in the Industrial Trucks & Services segment were adapted to the changes brought about by the coronavirus pandemic. This required the temporary suspension of manufacturing at a number of major production plants. In view of the disruption to global supply chains, the KION Group focused on taking action to improve the availability of materials during this phase. The buffer inventory of bought-in parts that was built up at the plants made it possible to ease the short-term difficulties on the supply side and to gradually resume production at the major production plants. The KION Group was able to continue scaling back the short-term measures from the third quarter onward and therefore reduce the buffer inventory. The second wave of coronavirus that emerged in EMEA and other regions in September did not have a significant impact because, unlike in the spring, there were no government-imposed, strict lockdowns necessitating the closure of factories and other workplaces.

In the Supply Chain Solutions segment, most plants remained busy and continued to operate almost without disruption. The project business experienced minor interruptions but only in the first half of the year. These were due to local restrictions on access for project engineers and the resulting delays to projects. It was possible to make up for almost all of these delays in the second half of 2020.

The measures to keep the business up and running were accompanied by comprehensive health protection measures that were imposed without delay to minimize the risk of infection for employees, customers, and suppliers. Chains of infection were prevented from arising at any of the sites in the year under review.

The KION Group also reacted decisively to the particular challenges of the coronavirus crisis with regard to its financing. In May 2020, it reached agreement with its core group of banks on the provision of a syndicated liquidity line, with Kreditanstalt für Wiederaufbau (KfW) taking a leading role. The liquidity line was arranged as a precaution to protect the Group’s financial strength and had a volume of €1.0 billion. However, the stabilization of business performance and the cost-cutting measures imposed meant that this additional line did not have to be drawn down. The KION Group also agreed with the banks providing its funding that the covenants in respect of the current credit facility and the additional liquidity line can be temporarily suspended. The Annual General Meeting on July 16, 2020 approved a substantial reduction in the dividend to €0.04 per dividend-bearing share. This played a big part in preserving liquidity, as did the postponement of selected capital expenditure projects.

In the second half of the year, the focus shifted to boosting financial strength over the long term and diversifying the portfolio, partly in view of the growth to be targeted after the coronavirus pandemic. To increase the flexibility of the Group’s financing in the long term with help from the capital markets, KION GROUP AG established a euro medium term note (EMTN) program with a total volume of €3 billion that is listed on the regulated market of the Luxembourg Stock Exchange. The first bond under this program, which had a total volume of €500.0 million and a term of five years, was placed on the regulated market of the Luxembourg Stock Exchange in September 2020. In early December 2020, around 13 million new shares were placed as part of a rights issue against cash contributions. The gross issue proceeds amounted to €813.3 million. After receiving the proceeds from the rights issue, KION GROUP AG terminated the syndicated liquidity line that it had agreed at the start of the crisis but had not drawn down and used the available cash to further reduce its financial debt at the end of the year. This included the early repayment of a fixed-rate loan of €200.0 million taken out in 2019 and a further partial repayment, in a nominal amount of €72.5 million, of the promissory note maturing in 2026. This followed on from the early repayment on October 30, 2020 of variable-rate tranches of the promissory note maturing in May 2022, which has a nominal amount of €653.5 million. The proceeds from the first bond under the EMTN program were used to repay these tranches.

These liquidity measures were accompanied by a range of cost-cutting initiatives. A variety of personnel measures – including using up accumulated credit hours in working-time accounts, introducing short-time working, and forgoing salary increases – helped to flexibly manage the temporary capacity adjustments and production restrictions. A capacity and structural program was initiated over the course of 2020 in order to further stabilize the operating business and secure the Group’s competitiveness. Some parts of the program have already been implemented. The program mainly affects the Industrial Trucks & Services segment and is aimed at streamlining and optimizing the organizational structures and capacity in production, sales, and service in the EMEA region in order to reflect the anticipated medium-term market environment after the coronavirus pandemic and achieve lasting cost savings.

Continued investment in global growth

Despite the temporary restrictions resulting from the coronavirus pandemic, the KION Group forged ahead with its capital expenditure on new production sites in 2020. Focusing mainly on eastern Europe and China, these projects should enable the volume of business to be increased in the fast-growing regions of the global material handling market. The postponement of selected capital expenditure projects in order to preserve liquidity during the coronavirus pandemic did not impact to any material extent on the development and expansion of new sites due to the strategic importance of these projects. The KION Group also strengthened its technological and market position through strategic acquisitions that focused on the areas of automation and digitalization.

The key project aimed at further expanding the KION Group’s market position in the Chinese material handling market, which is expected to see strong long-term growth, is the construction of a new factory for manufacturing Linde and Baoli counterbalance trucks in the eastern Chinese city of Jinan. Building work got under way in August 2020. The construction project, for which capital expenditure of around €100 million has been budgeted, is due to be completed in 2022. More than 800 new jobs are to be created in Jinan by 2025. The new plant will enable the KION Group to capitalize on opportunities for growth in the value segment and on the increasing electrification of industrial trucks in China. The operator of the new plant will be KION (Jinan) Forklift Co., Ltd., which was established with Weichai Power Co., Ltd. at the start of 2020 and in which the KION Group holds a 95.0 percent stake.

The KION Group’s third factory building at its Stříbro site in the Czech Republic went into operation in September 2020 and manufactures items for the Supply Chain Solutions segment such as conveyor belts, pouch sorting systems, and storage and retrieval equipment – known as Multishuttle systems – that ensure the smooth flow of goods in warehouses and distribution centers. The segment’s increased production capacity enables it to take even greater advantage of the growing demand for omnichannel solutions and the rapid expansion of e-commerce. More than €60 million has been invested in the construction of an industrial truck plant in Kołbaskowo, near Szczecin in Poland, which is now almost complete and is due to go into operation in spring 2021. The two production facilities will help to unlock market potential in the EMEA region even more effectively.

Besides investing in new sites, the KION Group also strengthened its position with strategic acquisitions and partnerships in the year under review. In March 2020, the acquisition of UK specialist software company Digital Applications International Limited (DAI) significantly expanded the software offering of the Supply Chain Solutions segment. The total expenditure is around €120 million, of which €98.0 million (or €89.3 million after deduction of cash and cash equivalents acquired) was included in the calculation of free cash flow in the year under review. The integration of solutions provided by DAI in the areas of logistics automation and supply chain engineering gives Dematic additional capacity in these areas, enabling it to provide even better support for the transportation, storage, and distribution of goods along the entire supply chain.

The strategic partnership formed in the second half of 2020 with Shanghai Quicktron Intelligent Technology Co. Ltd. (Quicktron), a Chinese manufacturer of autonomous mobile robots (AMRs) based in Shanghai, is aimed at expanding the product portfolio of the KION Group and has been underpinned by the acquisition of a minority stake in the company. The partnership enables Quicktron’s mobile automated warehouse solutions to be distributed directly via the global sales and service networks of the KION brands Linde, STILL, and Dematic.

KION Battery Systems GmbH (KBS), a joint venture between KION GROUP AG and BMZ Holding GmbH, went into production of lithium-ion batteries for industrial trucks at a new factory in Karlstein am Main in November 2020. This means that the KION Group’s brand companies can optimally cater to the rapidly growing demand for heavy-duty and high-performance electric forklift trucks, particularly in the EMEA region.