Letter to shareholders

Rob Smith
Chief Executive Officer

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

KION’s story is one of success, even during the ongoing coronavirus crisis. We managed to steer the Group very successfully through the pandemic in 2021. Indeed we achieved the best ever order intake and revenue results in our Company’s history and are performing at a significantly higher level than before the crisis. In terms of profitability too, the KION Group is among the best in its field. Once again, we have proven ourselves to be an industry leader. And even better, all signs are pointing to further growth. The boom in e-commerce and continued strong demand for automated warehouse logistics technologies are creating new growth opportunities for our supply chain solutions, and they are also boosting our industrial truck business, which features growing numbers of driverless and digitally networked trucks.

The foundation for this outstanding success is our KION 2027 strategy, which we raised to a new level in 2021 through an additional field of action on sustainability. And if the strategy is our foundation, then our employees, of which there are now nearly 40,000 doing great things all over the world, are the most important building blocks. Our employees made 2021 a hugely successful year for the KION Group, demonstrating talent and experience, immense commitment, and a great deal of passion in their work and in their efforts on behalf of our customers. I would like to offer my heartfelt thanks – and those of the entire Executive Board, the Supervisory Board, and our Company’s owners – to our employees for these achievements. Our global teams have showed our customers that they can continue to move forward with KION!

As you know, I took over as the new CEO of KION GROUP AG a little more than two months ago. The KION Executive Board oversaw this exceptionally successful year under the stewardship of Gordon Riske, who will be retiring this summer. We owe him great gratitude. He hands over the reins of the KION Group having seen it record the best set of results in its history. In his 14 years at the Company, he transformed it from a truck manufacturer focused on Europe to a leading global provider of intralogistics solutions with tremendous prospects for the future. Since the KION Group floated on the stock market in 2013, its share price has risen by more than 250 percent (as of December 31, 2021) – outperforming both the DAX and the MDAX indices during this period.

Together with my colleagues on the Executive Board and the entire workforce, I will do everything in my power over the coming years to continue this remarkable story of success. As an innovative full-service provider of intralogistics solutions, we have all the ingredients in place to do this. We offer our customers around the globe everything they need – from simple hand pallet trucks and racking to digitally networked, electric-powered forklifts and fully automated warehouses – as well as the support of one of the most extensive production, sales, and service networks in our industry.

2021: A hugely successful year amid considerable uncertainty

The strong results achieved during the pandemic illustrate how successfully we have managed to improve the Group’s resilience in recent years. We are maintaining our course, even in choppy waters. Despite the ongoing coronavirus crisis and its effects, our order intake in 2021 was 32.2 percent higher than in 2020. The consolidated revenue generated between January and December 2021 jumped by 23.4 percent year on year. Adjusted EBIT was also higher than in 2020, increasing by 53.9 percent to €841.8 million. Net income amounted to €568.0 million, more than double compared to the year 2020. Indeed, we hit our targets for all of our corporate key performance indicators. In addition, Standard & Poor’s followed the lead of its fellow rating agency Fitch by awarding the KION Group an investment-grade rating for the first time last year – a testament to our outstanding financial profile.

Given this positive overall picture, we raised our medium-term target for annual consolidated revenue from its previous level of over €11 billion to more than €12 billion by 2023. At the same time, we reaffirmed our target for 2023 of achieving a double-digit adjusted EBIT margin of between 10 and 12 percent. We are expecting to see significant growth in our core markets in the medium term. In the market for supply chain solutions, we anticipate an annual growth rate along the long-term trend of more than 10 percent, driven primarily by growth in e-commerce. For the new business in the industrial trucks market, we expect a decline in 2022 in the single-digit percentage range following the very strong year 2021 and thus below the long-term growth trend of around 4 percent.

Our roadmap for sustained profitable growth

Advancing digitalization and automation

The digital transformation – one of the defining megatrends of our time – is changing the way that we live and work. The flow of goods within warehouses and the distribution of these goods are a case in point. At the KION Group, we are looking to drive forward automation in the material handling sector and thus play a pivotal role in shaping the Industry 4.0 revolution by providing intelligently networked and flexible intralogistics solutions – from simple software systems to autonomous and fully digital warehouses. Around the globe, be it in Europe, Asia-Pacific, or North and South America, the KION Group has teams of software specialists working on the development of innovative digital technologies for the intralogistics sector.

This is exemplified by the integration of UK software company Digital Applications International Limited (DAI), which specializes in logistics applications. DAI has significantly expanded KION subsidiary Dematic’s portfolio of digital offerings that support the transportation, storage, and distribution of goods. It has brought together leading hardware and software to generate significant competitive advantages for our customers. The industry-leading logistics automation software developed by DAI complements Dematic’s existing warehouse management system.

Sensors, software, big data, cloud solutions, and much more besides: KION is combining engineering expertise with state-of-the-art information technology, gradually transforming itself from a hardware into a software business in the process. On the intralogistics front, this development will eventually lead to what is known as a ‘dark warehouse’, a fully automated warehouse whose inter-connected, automated guided vehicles and storage and retrieval systems mean that in theory it will not need any lighting, because all of its processes will run perfectly smoothly without any physical human intervention. The distribution centers of the future will be triumphs of high technology. They will be the realm of robots, with humans merely supervising from control centers.

We are also very proud to have completed the construction of a very large automated distribution center for the Landmark Group in Dubai with Dematic. Landmark is one of the biggest retailers in the Middle East and in India. From its new distribution center, the Landmark Group stores and distributes garments, furniture, toys, small goods, and much more to nearly 1,400 of its retail outlets. The new center covers an area the size of 40 soccer pitches, making it the biggest warehouse Dematic has ever installed. It is also the fastest, and so means that the KION subsidiary has set a logistics benchmark for the entire Middle East.

Energy systems of the future

Energy – and how we use it sustainably, manage it, and save it – is the topic of the decade, including in logistics. The KION Group is a leader in the material handling industry when it comes to the development of resource- and energy-efficient systems. More than 87 percent of new industrial trucks made by the KION Group now run on electricity. This demonstrates how firmly electric-powered intralogistics is embedded into our day-to-day business. We offer our customers the full range of current drive technologies – from conventional internal combustion engines to engines that run on liquid petroleum gas, and from lead-acid and lithium-ion batteries to hydrogen fuel cells.

The use of lithium-ion batteries in drive technology is at the heart of our research and development activities. KION Battery Systems GmbH (KBS), a joint venture between KION GROUP AG and BMZ Holding GmbH, develops and manufactures lithium-ion batteries for use in the KION Group’s forklift trucks and warehouse trucks. The key advantage of our electric forklift trucks is that they offer zero-emission operation but with a performance that is comparable to diesel trucks and much lower maintenance costs. Last year, KION subsidiary Linde Material Handling GmbH unveiled its new generation of electric forklift truck models (Linde X20–X35) with a load capacity of 2.5 to 3 tonnes, whose power output is comparable with trucks driven by internal combustion engines. The electric forklift trucks made by STILL GmbH are also extremely powerful. The drive technology of this KION subsidiary is grounded in nearly 100 years of expertise in electrical engineering.

But making our brand companies’ high-performance forklift trucks compatible with batteries is just one facet of our research and development work. We also focus on energy management and smart interfaces to enable our customers to reduce energy use in their warehouses. Last year, for example, the KION Group took a stake in the company ifesca GmbH. Using their software, which is built around artificial intelligence (AI), we are now able to offer customers a fully integrated energy management solution. The ultra-precise forecasts of this AI-based platform allow our customers to plan the optimum charging times for their fleets of industrial trucks, to avoid peaks in charging and uncharging, and in doing so to significantly reduce their energy costs and the demands they put on electricity grids. By continually improving our products and our software and supplying integrated energy solutions for individual logistics requirements, we are helping our customers to achieve their own sustainability goals – and accompanying them on the journey toward the zero-carbon warehouses of the future.

Future-focused innovations

Strength in innovation and a pioneering spirit will be key if we are to help shape the future of intralogistics. The KION Group is a technology leader in its industry. Around 1,900 researchers and developers worldwide (information correct as at 2021) are dedicated to increasing the speed and efficiency at which new technologies, products, structures, and processes are developed – and they all work tirelessly to find new and innovative solutions. In the past five years, we at the KION Group invested an average of nearly 3 percent of our revenue in research and development, primarily in the fields of new energy, automation, and digitalization, with a particular focus on connectivity.

For example, we are currently working with the Fraunhofer Institute for Material Flow and Logistics (IML) to develop swarm robots for the warehouses of the future. Our shared objective is to pave the way for a new generation of automated guided vehicles that will revolutionize intralogistics using AI. These will be both faster and smarter than any autonomous vehicles that we have seen before. They will be able to coordinate their actions in an intelligent, swarm-like way using distributed AI. This makes them ideal for the kinds of sorting tasks that are carried out in parcel depots, for example. But it is not just perfect coordination that they offer, they are also designed to collaborate. If required, multiple vehicles and trailers will be able to link together magnetically to transport large and bulky items. Swarm robots will soon be finding their way into warehouses, and KION will be an exclusive partner for this exciting new technology.

Today’s growing demand for rapid delivery times – with same-day delivery the gold standard – calls for new solutions. The KION Group is responding to this trend with the concept of micro-fulfillment, in which small urban distribution centers facilitate more rapid fulfillment of e-commerce orders in densely populated cities. Micro-fulfillment facilities from Dematic can be located at the back of supermarkets, for example, where they seamlessly integrate with the customer area. The system can be set up in only twelve weeks and can pick up to 600 orders a day. This increases the availability of goods, allows them to be delivered more quickly, and thus leads to greater customer satisfaction.

Global investment for sustained growth

Strategic capital expenditure is helping us to achieve our growth targets. Only in November of last year, we announced plans to build a new plant in Jinan, China, that will make equipment for warehouses and distribution hubs. It will be located right next door to our new plant for counterbalance trucks, which we officially opened in December 2021. The two new plants represent a further milestone in our growth strategy in China and will allow us to expand our product range across both our operating segments – Industrial Trucks & Services (ITS) and Supply Chain Solutions (SCS) – in one of the world’s biggest and fastest-growing markets for material handling. Capital expenditure on this future-focused project is expected to amount to approximately €140 million. The KION Group plans to create more than 1,000 new jobs in Jinan in the medium term. More than 4,600 of our almost 40,000-strong workforce are already based in China.

2021 also saw us bring on stream our new state-of-the-art industrial truck plant in Kołbaskowo near Szczecin in Poland. The site will produce counterbalance trucks, including model series previously produced at sites in western Europe. The new plant in Poland adds to our existing European-wide production network and will produce for customers in the EMEA region. The Group invests a total of around €80 million in the new plant. Our plan is to create up to 400 jobs at the Polish site by the end of 2023.

As well as adding new products and capacities, we are also forging ahead with the expansion of our global sales and service network, particularly in Asia. And in doing so we are continually strengthening our market position.

But we are also looking closer to home in our expansion efforts. For example, we are investing in the mid double-digit million range to create a new premium facility in Kahl am Main, located between Frankfurt and Aschaffenburg in Germany. Known as the Regional Distribution Center Kahl, this ultra-modern parts warehouse with high-bay storage facilities and automated, digitalized, and intelligently net-worked processes will occupy a total area of around 31,000 square meters. It is currently scheduled to commence operations in spring 2024. As well as securing the existing 300 jobs at the site, we also hope to create new ones.

Sustainability firmly enshrined in the Group

A forward-looking and values-based approach to business is a central pillar of our corporate culture. The KION Group aligns its actions with environmental, social, and economic objectives. We embrace the tenets of sustainability in all that we do. Acting responsibly as a business and recognizing our responsibility to society are key principles by which we operate. That is why we have now positioned sustainability in our KION 2027 corporate strategy. Our focus on sustainability is reflected in our eco-friendly and safe products, in our resource-efficient manufacturing processes, and in the safe and non-discriminatory working environment that we provide.

This has been recognized not just by customers but also by investors, banks, and rating agencies. For 2020, the KION Group received a B rating from global environmental non-profit organization CDP and was awarded an industry-specific prime status rating (B-) from ISS ESG. These ratings support the KION Group’s efforts to be categorized as a sustainable investment for environmentally conscious investors.

Every day, we aim to do a little bit better – including when it comes to sustainability. And because sustainability does not begin and end at our factory gates, we have also widened its scope to include our suppliers and business partners. Their engagement is something that we encourage and indeed require, and we support them – like we do our customers – in the implementation of their own sustainability programs. By doing so, we play an important role in securing their long-term success.

We also use these same high standards to gauge our own performance. Last year, for example, we linked 20 percent of the variable remuneration for the Executive Board and other senior managers directly to the achievement of ambitious sustainability targets because we believe that sustainability is a key task in the running of the Company. And there is still much more that we want to do. At the end of last year, we completed the global KION Pulse survey of our entire workforce in which we asked for suggestions on how we could improve.

A bright future despite prevailing challenges

I am pleased to tell you that our future looks very bright, despite the ongoing challenges of supply bottlenecks, rising commodity and energy costs, climate targets, trade barriers, and the negative impact of Brexit.

There has rarely been a more exciting time to be a part of our intralogistics industry. So far, only a small number of warehouses worldwide are automated or digitalized. And the market as a whole is set to grow by 10 percent a year. There is still a high level of fragmentation in the market for automated warehouse logistics, and KION has put itself in the best possible position to be a major player in this competitive field. Great opportunities lie ahead for us. Thanks to the boom in e-commerce, the market for supply chain solutions is likely to grow to such an extent that it will overtake global forklift truck and warehouse technology business in just a few years’ time. We are well equipped to take full advantage of this. Both our ITS and our SCS operating segments are excellently positioned to achieve further commercial success and generate sustained profits.

Your KION Group has evolved a great deal over the past twelve months. We are now better positioned than ever, more resilient than ever, and remain on track for growth. Never has it been easier for customers to find the right solution for their varied and individual needs and to do so from a single source, i.e. from KION!

That is why we are looking to 2022 full of optimism – for our customers, our business partners and the KION Group.

With best wishes,

Rob Smith
Chief Executive Officer