The business activities of the KION Group necessarily involve risk. Dealing responsibly with risk and managing it in a comprehensive manner is an important element of corporate management. The overarching aim is to fully harness business opportunities while ensuring that risk always remains under control. Using a groupwide risk management system, the KION Group contains all identified risks by implementing suitable measures and takes appropriate precautions.
This ensures that the losses expected if these risks arise will be largely covered and therefore will not jeopardize the Company’s continuation as a going concern. Risk management is embedded in the Corporate Controlling function and plays an active and wide-ranging role due to the strategic focus of Corporate Controlling. The Operating Units’ business models, strategies, and specific plans of action are evaluated systematically. This ensures that risk management is integrated into the KION Group’s overall planning and reporting process.
Principles of risk management
Under its KION 2027 strategy, the KION Group is consciously taking on a limited amount of risk in order to achieve its business objectives. In doing so, it follows a well-balanced risk strategy that ensures consistently stable funding conditions. All management decisions take the risk perspective into consideration. Comprehensive risk management ensures a clear view of the value at risk, the probability of occurrence, and countermeasures at the different levels of the organization.
Having a groupwide risk-bearing capacity plan requires the Group to define a level of risk appetite that is appropriate to its strategy. Risk-bearing capacity is defined as the maximum risk that can be sustained, while strictly avoiding any risks to the Group’s survival as a going concern. It provides the framework for the risk appetite of the Operating Units in respect of the different risk types. At the level of the KION Group, risk appetite is defined as the aggregate risk across the individual risk types that will be tolerated in order to achieve the strategic objectives and medium-term planning. Risk appetite and the groupwide risk-bearing capacity plan are therefore key elements of the risk strategy.
The procedures governing the KION Group’s risk management activities are laid down in internal risk guidelines. For certain types of risk, such as financial risk or risks arising from financial services, the relevant departments also have guidelines that are specifically geared to these matters and describe how to deal with inherent risks. Risk management is organized in such a way that it directly reflects the structure of the Group itself. Consequently, risk officers and their subordinate risk managers have been appointed for each company and each Operating Unit. A central Group risk manager is responsible for the implementation of risk management processes in line with procedures throughout the Group. His or her remit includes the definition and implementation of standards to ensure that risks are captured and evaluated. He or she is also responsible for the Group’s internal reporting to KION GROUP AG’s Executive Board and Supervisory Board.
Like the organizational structure, the risk management process is also generally organized on a decentralized basis. Firstly, a groupwide risk catalog is used to capture the risks attaching to each company. Each risk must be captured individually. If the losses caused by a specific risk and the likelihood of this risk occurring exceed defined limits, KION GROUP AG’s Executive Board and the KION Group’s Corporate Controlling function are notified immediately. Each risk is documented in a reporting system designed specifically for the requirements of risk management. Risks affecting more than one Group company, such as market risks and competition risks, are not recorded individually but are instead evaluated at Group level.
The scope of consolidation for risk management purposes is the same as the group of consolidated companies. The risks reported by the individual companies are combined to form Operating Unit risk reports as part of a rigorous reporting process. To this end, minuted risk management meetings are held once a quarter. Moreover, material risks are discussed with the Operating Units at the business review meetings. The discussed Operating Unit risk reports are then used to compile an aggregate risk portfolio for the KION Group as a whole. To support this, the relevant departments of KION GROUP AG are consulted each quarter in order to identify and assess risk – particularly Company-wide risk – affecting areas such as corporate finance, procurement, legal, compliance, tax, human resources, and the lease business. The Executive Board of KION GROUP AG and the Supervisory Board’s Audit Committee are informed of the Group’s risk position once a quarter. The Internal Audit department audits the risk management system at regular intervals.
Material features of the internal control and risk management system pertaining to the (Group) accounting process
The main objectives of the accounting-related internal control system are to avoid the risk of material misstatements in financial reporting, to identify material mismeasurement, and to ensure compliance with the applicable regulations and internal instructions. This includes verifying that the consolidated and separate financial statements and the combined management report comply with the relevant accounting standards.
Material processes and controls in the (Group) accounting process
For its (Group) accounting process, the KION Group has defined suitable structures and processes within its internal control and risk management system and implemented them in the organization.
Changes to the law, accounting standards, and other pronouncements are continually analyzed with regard to their relevance and effect on the consolidated financial statements and group management report; the relevant changes are then incorporated into the Group’s internal policies and systems.
All consolidated entities must follow the KION Group IFRS Accounting Manual when preparing their IFRS reporting packages. This manual contains the recognition, measurement, and disclosure rules to be applied in the KION Group’s accounting in accordance with IFRS. The accounting guidelines primarily explain the financial reporting principles specific to the KION Group’s business. In addition, all companies must adhere to the schedule defined by head office for the Group accounting process.
The accounting-based internal control and risk management system includes defined control mechanisms, automated and manual reconciliation processes, separation of functions, the double-checking principle, and adherence to policies and instructions.
The employees involved in the (Group) accounting process receive regular training in this field. Throughout the accounting process, the local companies are supported by central points of contact. The consolidated accounts are drawn up centrally using data from the consolidated subsidiaries. Specially trained KION Group employees carry out the consolidation activities, reconciliations, and monitoring of the stipulated deadlines and processes. Monthly checklists have been drawn up for the consolidation process and are worked through in a standardized manner. All postings are managed centrally and documented. A team is responsible for monitoring the system-based controls, which it supplements with manual checks. The entire accounting process contains a number of specific approval stages, for which extensive plausibility checks have been set up. Employees with the necessary expertise provide support on specialist questions and complex issues.
Internal control mechanisms and ongoing analysis of the regulatory framework enable any risks that might jeopardize the compliance of the consolidated financial statements and group management report with accounting standards to be identified as soon as possible so that appropriate countermeasures can be taken. Such risks form part of the KION Group’s aggregate risk profile and are classified as operational risk.
The Internal Audit department evaluates governance, risk management, and the control processes by following a systematic and structured process, thus helping to bring about improvements. It focuses primarily on the following aspects:
- appropriateness and effectiveness of the internal control systems for avoiding financial losses
- compliance with legal requirements, directives from the Executive Board, other policies, and internal instructions
- correct performance of tasks and compliance with business principles
The coronavirus pandemic and its fallout continue to have an impact on the KION Group’s aggregate risk situation, above all with regard to procurement risk. The pandemic has limited the availability of bought-in parts and raw materials, and this may continue to result in temporary production delays and outages as well as longer delivery times. By contrast, the risk situation in terms of market risk, production risk, and sales risk almost normalized compared with the previous year. Where relevant from a Group perspective, changes to the probability of occurrence and the level of risk have been adjusted in the risk matrix below.
The KION Group held relatively steady in the face of market disruptions and cyclical fluctuations thanks to the further rise in the proportion of total revenue attributable to the Supply Chain Solutions segment and the service business of the Industrial Trucks & Services segment, whose revenue contributions have proved comparatively resilient. Overall, the risk situation is regarded as moderate, and this will remain the case for 2022. This means that the limits specified in the risk-bearing capacity plan are not expected to be exceeded. As things stand at present, there are no indications of any risks that could jeopardize the Company’s continuation as a going concern.
While the risk report examines possible negative influences and variances from the scenario on which the outlook is based, potential positive influences are described in the opportunity report. At the time that this combined management report was prepared all risks known were recognized in the outlook for the financial year 2022.
The market risks and competition risks described, the risks along the value chain, the human resources risks, and the legal risks largely relate to the Industrial Trucks & Services and Supply Chain Solutions segments. Risks arising from the lease business mainly affect the Industrial Trucks & Services segment, while project risks primarily relate to the Supply Chain Solutions segment. Financial risks resulting from the Company’s general funding situation would predominantly impact on the Corporate Services segment.
Market risks and competition risks
Market risk can arise when the economy as a whole or a particular sector does not perform as well as had been anticipated in the outlook. In the market of the Industrial Trucks & Services segment, the outlook for 2022 assumes a noticeable decline in the number of new trucks sold. By contrast, the 2022 outlook for the market in the Supply Chain Solutions segment points to a sustained uptrend for warehouse automation. Nevertheless, problems with product availability are persisting across various sectors worldwide, which may adversely affect the growth of the material handling market. However, the KION Group anticipates a slightly lower probability of occurrence for such risk in 2022 compared with 2021, but it believes the level of risk will remain unchanged.
Cyclical fluctuations in macroeconomic activity affect both the market for industrial trucks and the market for supply chain solutions, although the latter has greater immunity to economic cycles. Customers’ decisions on whether to invest depend to a large degree on the macroeconomic situation and conditions in their particular sector. In the event of heightened economic uncertainty or an economic downturn, including as a result of external shocks such as a global pandemic, customers tend to postpone their capital expenditure plans. Although demand for services is less cyclical than new business with industrial trucks, it correlates with the degree of utilization of the trucks and systems, which usually declines during difficult economic periods.
As the KION Group can only adjust its fixed costs to fluctuations in demand to a limited extent, reductions in revenue impact on earnings. Despite the strength of the North American business in the Supply Chain Solutions segment and the growth of business in China, the bulk of revenue continues to be generated in Europe. As a result, the market conditions that prevail in Europe impact significantly on the KION Group’s financial performance.
The global economy bounced back strongly in 2021, whereas a moderate slowdown of growth – albeit with regional differences – is expected in 2022. The ongoing coronavirus pandemic remains a threat, even for developed economies with high vaccination rates, because the virus may mutate again. Other risks include further rises in inflation, limited availability of materials for an extended period, more restrictive monetary and fiscal policy, and increasing volatility in financial markets.
Risks in connection with trade disputes and geopolitical tensions may also hinder some aspects of the global economy’s recovery. A possible escalation of the trade dispute between the United States and China is a particular risk as it may also affect companies that have a presence in both countries due to the regional distribution of their revenue or shareholders. The simmering conflict of interests between Russia and Ukraine may also continue to have an adverse impact. In the medium term, new barriers to trade could significantly hamper production and lead to renewed disruption to global supply chains. Financial market risks, for example in the form of higher risk premiums for emerging markets, could make it more difficult to finance capital expenditure.
All these factors could have a negative impact on customers’ willingness to invest and thus on demand for the KION Group’s products. However, it is not currently foreseeable whether such market risks will become relevant and then have a material effect on the business situation and financial performance.
Developments in the coronavirus pandemic, including any knock-on effects, and the geopolitical situation are monitored closely. The KION Group has already significantly improved its cost structures by implementing various structural and efficiency measures, thereby containing the earnings risk arising from reductions in revenue as a result of economic conditions. Diversification of the customer base in terms of industry and region, the growth of business in the Supply Chain Solutions segment, which is highly resilient in the face of economic volatility, and the expansion of service activities also play a role in mitigating risk.
Moreover, the KION Group closely monitors the market and its competitors so that it can identify market risks at an early stage and adjust its production capacities in good time. Besides global economic growth and other data, the KION Group also analyzes exchange rates, price stability, the consumer and investment climate, foreign trade activity, and political stability in its key sales markets, constantly monitoring the possible impact on its financial performance and financial position. Other risks arise as a result of constant changes in the Company’s political, legal, and social environment. Because it operates in countries in which the political or legal situation is uncertain, the KION Group is exposed to the consequent risk of government regulation, changes to customs rules, capital controls, expropriations, and social unrest.
The KION Group mitigates such strategic risks by, for example, carrying out in-depth market research, conducting thorough evaluation procedures to assess political and economic conditions, and drafting contracts appropriately.
Competition risk describes the risk that growing competitive pressure will prevent the KION Group from achieving its predicted margins and market share. The markets in which the KION Group operates are characterized by strong competition, often price-driven. Price competition is compounded by some manufacturers having cost advantages, sometimes due to the currency situation and sometimes because local labor costs are lower. This mainly affects the Industrial Trucks & Services segment, where competition is fierce, particularly in the economy and volume price segments. On the other hand, the wide range of product variants made possible by efficient modular concepts, along with rapid and reliable access to services, creates a competitive advantage. This is especially the case in the volume and premium segments.
Building on their local competitive strength, rivals in emerging markets are also markedly stepping up their efforts to find opportunities for expansion in regions outside their local markets, particularly in the Industrial Trucks & Services segment. Competition has continued to increase, especially from manufacturers in China. This can be seen from the changes in the competitive situation last year. Customers in developed markets have sophisticated service needs and high expectations in terms of quality. This still presents a barrier to growth for some of these manufacturers, but the bar is getting lower. Competitive pressures are likely to continue to intensify in the future. Consequently, the KION Group anticipates a higher probability of occurrence for competition risk in 2022 compared with 2021 and puts the level of risk at medium-high.
It is also conceivable that competitors will join forces and their resulting stronger position will be detrimental to the KION Group’s sales opportunities. Moreover, predictions of higher volumes and margins may lead to overcapacity, which would put increased pressure on prices. Although the excellent customer benefits provided by its products have enabled the KION Group to charge appropriate prices until now, it is taking a variety of steps to contain competition risk. Alliances, partnerships, acquisitions, and other measures are increasingly playing a role in improving the KION Group’s competitiveness in terms of resources, market access, and technology. One of the risks of such partnerships and acquisitions is that the expected benefits will materialize only partly or not at all. For example, the organizational integration of acquired companies may actually harm the Group’s financial performance. It is also possible that a partner will collaborate with competitors if exclusivity agreements are not in place. The steps that the KION Group is taking to mitigate its competition risk also include improving its cost position and securing low-cost, stable sources of supply.
The KION Group also continually evaluates its options for strengthening and consolidating its market position, in particular through the strategic construction and expansion of production facilities, and proactive cross-selling by the two operating segments.
Risks along the value chain
Research and development (R&D) risks
The KION Group’s market success and business performance depend to a large extent on its ability to build on its position as a technology driver in respect of individual products and system solutions in order to become technology leader for automated supply chain solutions, including in the area of mobile automation. This requires the Group to continually develop products that meet customer expectations and comply with changing regulatory and technological requirements. To this end, the KION Group must anticipate customers’ needs and changing market conditions and has to quickly bring new products to market. If the Company does not succeed in doing this, its technological and competitive position could be compromised in the long term.
The innovations developed by the KION Group are comprehensively protected by intellectual property rights, in particular patents. Nevertheless, there is always the possibility that products or product components will be imitated. There is also a risk that patent applications will not be successful. The KION Group mitigates research and development risks by focusing firmly on customer benefit in its development of products and solutions. Customer needs are incorporated into the development process on an ongoing basis by ensuring close collaboration between sales and development units and taking account of all region-specific requirements. Potential research and development risks are also reduced by carefully managing projects and processes.
Procurement activities constitute a potential risk for the KION Group in terms of the general availability of parts and components and the rising cost of raw materials, energy, and primary or intermediate products. Procurement risk increased once again in 2021, partly as a result of the fallout from the coronavirus pandemic. Disruptions and blockages in global supply chains, which initially impacted on semiconductors, spread to a variety of other components as well as materials and supplies. This resulted in temporary production delays and thus longer delivery times, despite intensive efforts to counteract the impact with a global sourcing strategy.
The supply problems have continued in the early part of 2022 and are likely to persist over the course of the year. Bottlenecks in suppliers’ capacity could lead to backlogs in the supply of further raw materials and components to the KION Group at any time. Furthermore, the KION Group obtains some of its key components from a limited number of core suppliers. Key components in the Industrial Trucks & Services segment include internal combustion engines, tires, and high-performance forged and electronic parts. The resulting backlogs and shortages can lead to temporary decreases in revenue and liquidity as well as to inefficiencies in production.
Overall, procurement risks continue to be viewed as medium-high. The KION Group mitigates the risks by continually monitoring supply chains, the availability of materials, and suppliers’ ability to fulfill orders. For critical materials, it has also increased its buffer of inventories. The KION Group also minimizes the risks effectively by further diversifying its supplier structure in the context of a global procurement organization.
Price changes present another procurement-related risk. In 2021, 19.3 percent of the cost of materials for new trucks in the Industrial Trucks & Services segment was directly influenced by changes in commodity prices (2020: 20.2 percent). Moreover, conditions in the commodity markets typically affect component prices after a delay of three to six months. One of the consequences of the shortage of materials was a sharp rise in prices in the year under review. Moreover, the increase in energy prices during 2021 may impact on the cost of energy for production and transportation in 2022. The KION Group endeavors to pass on price increases to customers but cannot always do so entirely due to market pressures.
Production risks are largely caused by quality problems, possible disruptions to operational procedures, or production downtime at individual sites. They can also materialize as secondary risks resulting from the aforementioned procurement risks. The risk of business process disruptions and production outages at individual sites as a result of the pandemic declined sharply again in 2021 and is viewed as moderate for 2022 too. This is also reflected in the KION Group’s expectation of a reduced probability of occurrence for such risk compared with 2021. In view of the vaccination rate now achieved and the comprehensive hygiene and contact tracing measures put in place, significant chains of infection within the workforce continue to be seen as fairly unlikely. No production departments or entire sites needed to be closed in 2021.
The KION Group’s closely integrated manufacturing network presents a heightened risk to its ability to deliver goods on time. There is also a risk that structural measures and reorganization projects will not be implemented owing to ramp-up difficulties, disruption of production, or strikes. Delays in delivery or a rise in the number of complaints could harm the KION Group’s standing with its customers and, as a result, could harm its financial situation.
Contractual provisions and comprehensive project management are important elements of reorganization projects because they help to minimize this risk. The KION Group also carries out preventive maintenance, implements fire protection measures, trains its staff, and builds a pool of external suppliers. The Company has taken out a commercially appropriate level of insurance to limit the risk of potential losses. Quality assurance is a high priority throughout the value chain and reduces possible quality-related risks arising from the products and services provided. The KION Group mitigates its quality-related risks significantly by applying rigorous quality standards to its development activities, conducting stringent controls throughout the process chain, and maintaining close contact with customers and suppliers.
Risks arising from customer project business
In the customer project business of the Supply Chain Solutions segment, risks can arise from deviations from the schedule originally agreed with the customer, potentially leading to revenue and profit being recognized in subsequent years or, in isolated cases, contractual penalties having to be paid. Another possible risk is that the technology deviates from the promised specifications, which may result in additional completion costs and contractual penalties. The scope and complexity of individual projects can lead to unexpected cost increases over the term of the project that were not anticipated in the project costing and cannot be passed onto the customer. Project-specific risk management is carried out in order to mitigate these risks. This involves detailed evaluation of the risks when defining the technical aspects of quotations plus financial risk provisioning based on the individual project specifications when preparing quotations. A multi-stage approval process based on an extensive list of criteria ensures that technological, financial, country-specific, currency-specific, and contractual risks are largely avoided.
The potential risks that may arise in the project realization phase are monitored in every individual project using detailed continuous reviews based on the individual items of work that make up the project. This enables corrective measures to be taken at an early stage and thus keeps risks under control. In the customer project business, the aforementioned disruptions to the supply of components mainly manifest themselves in the form of isolated project delays and increased expenditure on project realization, but they can also affect procurement. Given that the situation with regard to product availability remains very difficult worldwide and affects multiple sectors, the KION Group expects the level of risks from the project business to be higher in 2022 than in 2021.
The main sales risks – besides a drop in demand caused by market conditions – result from dependence on individual customers and sectors. Thanks to the greatly improved macroeconomic environment, the risk that customers will cancel or postpone orders declined again in the year under review. Once again, there were no significant cancellations or major problems resulting from other changes to orders in 2021. The level of sales risk and the probability of occurrence for such risk are therefore both regarded as lower for 2022 than for 2021. However, the KION Group is continuing to engage in dialog with its customers and is closely monitoring the further course of the coronavirus pandemic and its fallout.
Because of its customer project business, the Supply Chain Solutions segment generally has a greater dependence on individual sectors and individual customers than the Industrial Trucks & Services segment, which is not dependent on individual customers. The KION Group’s presence in various customer industries and segments helped to minimize the overall risk.
The concentration risk for the KION Group as a whole is therefore still considered to be low. The business is highly diversified from a regional perspective. In addition, the KION Group supplies companies of all sizes.
A high degree of interconnectedness internally between sites and externally with customers and other companies means that the KION Group also relies on its IT systems working flawlessly. The KION Group undertakes ongoing further development of a reliable, extendable, and flexible IT system environment with the aim of countering migration risk when updating software and any IT-related risks that may arise from the failure of IT systems and IT infrastructure. Internal IT resources are pooled in the cross-segment KION Group IT function, which has well-established processes for portfolio management and project planning and control. Independent external reviews are conducted to provide additional quality assurance. Various technical and organizational measures protect the data of the KION Group and the Group companies against unauthorized access, misuse, and loss. These measures include, in particular, measures to protect and defend against cyber-attacks on IT systems of the KION Group. Among other things, procedures are in place to validate and log access to the Group’s infrastructure. The Company has also taken out a commercially appropriate level of insurance to limit the risk of potential losses.
Further IT risks exist in connection with potential breaches of data privacy laws, including in relation to the processing of personal data and the documentation of such processing. For example, serious breaches of the European General Data Protection Regulation (GDPR) can lead to fines of up to 4 percent of the previous year’s revenue. Given that the KION Group maintains consistently high compliance standards, the probability of data protection laws being breached continues to be regarded as very low. The developments in 2021 confirmed this assessment.
The main types of financial risk relating to corporate finance, including risks arising from funding instruments, are liquidity risk, currency risk, interest-rate risk, and counterparty risk. Counterparty risk consists solely of credit risks attaching to financial institutions.
A risk management policy stipulates how to deal with the aforementioned risks. Risk arising out of the bond, lending, and promissory note conditions that have been agreed was not regarded as material as at December 31, 2021. It relates in particular to the restrictions in respect of compliance with financial covenants and upper limits for certain transactions and in respect of the obligation to submit special regular reports. The lending covenants and the obligations arising from the bond and promissory note conditions were met in full in the 2021 financial year.
Some of the Group’s financing takes the form of variable-rate or fixed-rate financial liabilities. Interest-rate swaps are used to hedge the resultant interest-rate risk.
The Company generally refers to credit ratings to manage counterparty risk when depositing funds with a financial institution. The KION Group only uses derivatives to hedge underlying operational and financial transactions; they are not used for speculative purposes. It is exposed to currency risk because of the high proportion of its business conducted in currencies other than the euro. In the Industrial Trucks & Services segment, at least 75 percent of the currency risk related to the planned operating cash flows based on liquidity planning is normally hedged by currency forwards in accordance with the risk management policy. The Supply Chain Solutions segment hedges against currency risk on a project-by-project basis. Corporate Finance rigorously complies with and monitors the strict separation of functions between the front, middle, and back offices.
Each Group company’s liquidity planning is broken down by currency and incorporated into the KION Group’s financial planning and reporting process. Corporate Controlling checks the liquidity planning and uses it to determine the funding requirements of each company. The funding terms and conditions faced by the lenders themselves (manifested, for example, in the payment of liquidity premiums on interbank lending) may result in a future shortage of lines of credit and / or increased financing costs for companies. However, the Group currently does not expect any changes in its lines of credit or any excessive increases in margins.
The individual Group companies directly manage counterparty risks involving customers. Each individual Group company has established a credit management system for identifying customer-related counterparty risks at an early stage and initiating the necessary countermeasures. Analysis of the maturity structure of receivables is an integral element of monthly reporting.
Goodwill and brand names with an indefinite useful life represented 28.3 percent of total assets as at December 31, 2021 (December 31, 2020: 30.9 percent). Pursuant to IFRS, these assets are not amortized and their measurement depends, above all, on expectations about the future financial performance of the KION Group. If these future expectations are not fulfilled, there is a risk that impairment losses will have to be recognized on these assets.
Risks arising from lease business
The lease activities of the Industrial Trucks & Services segment mean that the KION Group may be exposed to residual value risks from the marketing of trucks that are returned by the lessee at the end of a long-term lease and subsequently sold or re-rented. Residual values in the markets for used trucks are therefore constantly monitored and forecast. The KION Group regularly assesses its aggregate risk position arising from the lease business.
The risks identified are taken into account by the Company in the costing of new leases by recognizing write-downs or provisions and, if necessary, adjusting the residual values. Groupwide standards to ensure that residual values are calculated appropriately, combined with an IT system for residual-value risk management, reduce risk and provide the basis on which to create the transparency required.
The KION Group mitigates its liquidity risk and interest-rate risk attaching to the lease business by ensuring that most of its transactions and funding loans have matching maturities and by constantly updating its liquidity planning. Long-term leases are primarily arranged on a fixed-interest basis. If they are financed using variable-rate instruments, interest-rate derivatives are entered into in order to hedge the interest-rate risk, if economically reasonable.
The credit facilities provided by various banks and an effective dunning process ensure that the KION Group has sufficient liquidity. As a rule, the KION Group finances its lease business in the same currency as the lease with the end customer in order to exclude currency risks.
The counterparty risk inherent in the lease business continues to be insignificant. The Group also mitigates any losses from defaults by its receipt of the proceeds from the sale of repossessed industrial trucks. Furthermore, receivables management and credit risk management are refined on an ongoing basis.
Human resources (HR) risks and legal risks
The KION Group relies on having highly qualified skilled workers and managers in key roles. If they left, it could have a long-term adverse impact on the Group’s prospects. That is why the KION Group actively engages in HR work aimed at identifying and developing young professionals with high potential who already work for the Company and retaining them over the long term, thereby enabling succession planning for key roles across the Group. The KION Group also positions itself in the external market as an employer of choice. Firstly, this should enable it to make strategic additions to its portfolio of existing staff and, in this way, avert the risk of possibly losing expertise. Secondly, access to highly skilled workers helps to lay the foundations for future profitable growth. Recruitment is a challenge, especially given the high growth rates in the Supply Chain Solutions segment.
Any efficiency enhancement measures, capacity adjustments, or restructuring necessary to secure the Company’s long-term competitiveness may result in a risk of strikes and reactions of other kinds by the workforce. The KION Group is committed to doing all it can to limit the negative impact on the workforce of such measures and, if job losses are necessary, taking steps to ensure they are achieved with the minimum possible social impact. At sites where codetermination arrangements provide for the workforce to be involved in decision-making, the KION Group engages in constructive talks on these matters with the employee representatives.
The legal risks arising from the KION Group’s business are typical of those faced by any company operating in this sector. The Group companies are a party in a number of pending lawsuits in various countries. The individual companies cannot assume with any degree of certainty that they will win any of the lawsuits or that the existing risk provision in the form of insurance or provisions will be sufficient in each individual case. However, the KION Group is not expecting any of these existing legal proceedings to have a material impact on its financial position or financial performance. These lawsuits relate, among other things, to liability risks, especially as a result of legal action brought by third parties because, for example, the Company’s products were allegedly faulty or the Company allegedly failed to comply with contractual obligations. Further legal risk may arise as a result of the environmental restoration of decommissioned sites, for example because of work required due to contamination. Any damage to the environment may lead to legal disputes and give rise to reputational risk.
The Company has taken measures to prevent it from incurring financial losses as a result of these risks. Although legal disputes with third parties have been insignificant both currently and in the past, the Company has a centralized reporting system to record and assist pending lawsuits. In addition to the high quality and safety standards applicable to all users of the Company’s products, with which it complies when it develops and manufactures the products, it has also taken out the usual types of insurance to cover any third-party claims. In addition, interdisciplinary teams work on the avoidance of risks arising from inadequate contractual arrangements. A further objective of this cooperation across functions is to ensure compliance with mandatory laws, regulations, and contractual arrangements at all times.
Owing to the KION Group’s export focus, legal risk and reputational risk arise due to the numerous international and local export controls that apply. The Company mitigates these risks with a variety of measures. Consequently, export controls are an important part of the compliance activities carried out by the Group companies.