Report of the Supervisory Board of KION GROUP AG
Dr. Michael Macht
Chairman of the Supervisory Board
We lived through truly unprecedented times in 2021. Exceptional growth in demand for our Company’s products and solutions – but also highly challenging conditions – prevailed in nearly all of the markets in which we act as a reliable partner to our customers, offering solutions to their needs. In the year under review, Germany and other regions of importance to our Company experienced a third wave of coronavirus before a brief spell of falling case numbers in the summer followed by a fourth wave at the end of the year. The biggest problems affecting the production and delivery of our trucks and solutions were created by the procurement markets: shortages of various intermediate products, particularly semiconductor chips, coupled with higher prices for certain commodities and skyrocketing logistics costs. Political and economic tensions took their toll on the business and regulatory environment in which our Company operates. We witnessed a push for the regionalization of supply chains along with rising inflation rates in many major economies. Very robust demand for material handling products and Dematic’s automation solutions proved more than a fleeting trend, with order intake and revenue reaching an all-time high in both segments. KION ended 2021 with a record order book volume, thereby putting itself in an excellent position for the start of the new year, which once again began with an uncertain outlook. The Company’s rapid growth has more than made up for the decline experienced in crisis-hit 2020. This rollercoaster ride has placed huge demands on everyone in our Company, on our employees and their family and friends. The same goes for our customers and our suppliers, our other business partners, and ultimately our shareholders. On behalf of the entire Supervisory Board, I would like to thank our Company’s employees and the Executive Board for their outstanding work in these extremely difficult and uncertain times. This dedication was needed in order to continue providing our customers with our high-performance products and outstanding services in the adverse economic environment created by the coronavirus pandemic. Against this backdrop, we particularly commend all the people working in our Company’s healthcare services, who very prudently and promptly implemented appropriate and effective measures to protect everyone, both within the KION Group and at our customers’ sites.
The Supervisory Board advised and monitored the Executive Board as it took a prudent but resolute approach during these unparalleled times. In doing so, we gave the Executive Board our backing, not only in respect of the countermeasures introduced at short notice in 2020 but also with regard to implementation of the structural initiatives with a medium- to long-term effect aimed at safeguarding the Company’s future commercial success in the different markets for its products.
Both the Executive Board and the Supervisory Board acknowledge the trust that all stakeholders – not least our shareholders, but also our customers and suppliers – have placed in our Company during these uncertain times. And we are very much aware of the responsibility that this imposes on us.
Highlights of 2021 – robust growth and the foundations for future business success
Over the course of the reporting year, it became clear that demand in the Industrial Trucks & Services (ITS) and Supply Chain Solutions (SCS) segments was increasing very strongly. In nearly every regional market, our Company registered demand for its products, solutions, and services on a scale never seen before. The boom experienced in the SCS segment in 2020 continued apace across the various customer segments, which are mainly served by Dematic.
Alongside the necessary structural changes, primarily in the ITS segment in the EMEA region, the Company built on the profitable growth-oriented capital expenditure and innovation programs that had begun in 2020.
A major milestone was reached in the Chinese city of Jinan on December 16, 2021, when a new factory for the manufacture of a new generation of counterbalance trucks came on stream. In parallel to the launch of this fully automated production facility, which was constructed in record time, the first truck to be built there from our value product segment rolled off the assembly line. This momentous day also saw the ground-breaking ceremony for the construction of a new production facility for the SCS segment’s future activity in the Chinese market. These three landmark events are a clear sign of the Company’s resolve to capture significant market share in this highly attractive market. Another highlight was the on-time completion and launch of the ITS segment’s new plant in Kołbaskowo, Poland.
In its deliberations on the SCS segment’s business, the Supervisory Board particularly concentrated on the growth prospects for the various regions that are key to the performance of this business. The focus was on the prerequisites for both organic growth and growth by acquisition in order to satisfy the rapidly rising demand for the products of the SCS segment.
Another fundamentally important matter for the Company was its decision to establish a common, standardized KION process landscape combined with the implementation of a new IT system for enterprise resource planning (ERP). The objectives of this project are to strike the right balance between process harmonization on the one hand and the different requirements of the KION Operating Units on the other and to put in place a new groupwide ERP system based on SAP S/4HANA and supplementary software products. The system incorporates all of the main business processes within our Group and lays down standards for the management and quality of data across the Company.
The Supervisory Board was involved in every key step of the realization of these fundamental initiatives for the future of our Company and gave the necessary approvals unanimously.
The final highlight to be mentioned is the Supervisory Board meeting in September 2021, at which the Executive Board discussed the updated KION 2027 strategy with the Supervisory Board. Following the signing off in 2017 of the Company’s strategy for the period up to 2027, the time had come to take stock of and analyze the advancing megatrends that are currently shaping our Company’s success and will continue to do so in the future. Important aspects of this discussion were the changes in respect of sustainability, including the shift to greener sources of energy. The Company is very serious about its responsibility for providing sustainable products and solutions, ensuring the well-being of its employees, protecting the environment, upholding human rights, and contributing to the society in which we live and has defined sustainability as an important field of action for the future. Other topics covered by the discussion included further developments pertaining to advancing urbanization and the importance of e-commerce services, changing social structures, rapid progress in the fields of automation and robotics, and big data. These trends have led to shifts in the significance of individual product segments that will become important in terms of achieving the Company’s strategic targets and have now been factored into the updated KION 2027 strategy. Overall, this gives rise to evolving structures for the achievement of our goal for the Company of generating above-average profitable growth over the period covered by the strategy.
The resolute and focused pursuit of our KION 2027 strategy has set the Company on the right course and will ensure that we remain very well positioned going forward.
Personnel matters relating to the Executive Board
The Supervisory Board prepared and implemented the succession process for the Chief Executive Officer with the amount of lead time that befits such an important decision.
The long-serving Chief Executive Officer Gordon Riske has had a defining influence on the Company since it was spun off from its parent company. After taking over responsibility for running the Company, he worked closely with the Company’s then owners to put it on a solid operational and financial footing and thereby lay the foundations for the initial public offering in 2013. A key factor in this regard was the involvement of the anchor investor Weichai Power, with which a highly successful working relationship has since been established. Another strategic highlight of Mr. Riske’s time in office was the 2016 acquisition of Dematic, which now forms the core of the SCS segment. This broadening of the range of business activities gave KION an entirely new positioning and laid the foundations that are enabling the Company to tap into and shape the booming business of automation solutions for logistics processes in major, fast-growing markets. The Supervisory Board trusted and embraced Mr. Riske’s business acumen – which is changing our industry – and his essential dose of entrepreneurial courage. Under the leadership of its Chief Executive Officer, the Company anticipated future trends in its markets and thus laid the foundations for further growth. This foresight can be seen from the fields of action that were defined for the KION 2027 strategy and then reaffirmed in September 2021. The focus is firmly on demand from customers for efficient and sustainable products in light of their sometimes rapidly changing requirements. The continual rise in the share price and the very strong interest in the placement of new shares are proof positive that shareholders and investors also have faith in the Company’s positioning, which Mr. Riske played such a key role in shaping. Mr. Riske made an exceptional contribution to KION, which owes him a huge debt of gratitude. On behalf of the Company, its employees, and the entire Supervisory Board, I would like to offer our heartfelt thanks to Mr. Riske for his great personal dedication and for all that he has done for KION.
Given this background, the onus was on the Supervisory Board to find a successor for Mr. Riske who can successfully lead the Company during its next phase of development. We are confident that, in Dr. Rob Smith, we have found the right person to take on the task. Dr. Smith has had a successful career in both operational and strategic roles in the capital goods industry. In a structured process involving all of the stakeholder groups represented on the Supervisory Board, Dr. Smith was selected as the most suitable person from among the diverse range of shortlisted candidates. The Supervisory Board is looking forward to a strong working relationship with him for the benefit of the Company.
In another change beside the appointment of the new Chief Executive Officer with effect from
January 1, 2022, Anke Groth, the Chief Financial Officer (CFO) and Labor Relations Director of KION GROUP AG, whose contract would have been coming up for renewal, reached agreement by amicable and mutual consent with the Supervisory Board that her employment at KION GROUP AG will end with effect from March 31, 2022, before the end of her contract, so that she can take on new challenges outside the Group.
On behalf of the entire Supervisory Board, I would like to offer Anke Groth my heartfelt thanks for her excellent work over the past four years. During her tenure, Ms. Groth has enduringly strengthened the financial position of the KION Group and put in a huge amount of effort that enabled the Group to achieve investment-grade credit ratings. By successfully implementing a plan of action, she strengthened the operating segments’ long-term competitiveness and developed the Finance function into a highly effective business partner for the Group.
On behalf of everyone on the Supervisory Board, I wish Ms. Groth all the best for the future and further success as she continues along her career path.
Collaboration between the Supervisory Board and Executive Board
Last year, the Supervisory Board continued to fulfill the tasks and responsibilities imposed on it by the law, the Company’s articles of association, and the German Corporate Governance Code with dedication and diligence.
As in previous years, the Supervisory Board – in addition to the areas of focus mentioned above – discussed numerous other issues and transactions requiring consent, made necessary decisions, regularly advised the Executive Board on all significant matters relating to managing the Company, and monitored the Executive Board’s running of the Company’s business. The Supervisory Board was always fully involved in major decisions affecting the Company from an early stage. Giving the specified period of notice, the Executive Board presented to the Supervisory Board transactions that, according to the law, the Company’s articles of association, and / or the rules of procedure for the Executive Board of KION GROUP AG, require the Supervisory Board’s consent so that it could adopt resolutions. Between meetings of the Supervisory Board and between those of its committees, the chairmen of the Supervisory Board and Audit Committee remained in close contact at all times with the Chief Executive Officer and Chief Financial Officer. There was also regular contact between the chairman of the Audit Committee and those responsible for internal audit and compliance in the Company.
Approval of the Executive Board remuneration system
The Supervisory Board recognizes the particular significance of appropriate, performance-based, and transparent remuneration arrangements for the Executive Board. Having adopted a resolution on the updated remuneration system for the members of the Executive Board in December 2020, the Supervisory Board presented the system to the Annual General Meeting on May 11, 2021, at which it was approved. Meetings with investors have revealed an apparent need for further information on some elements of the remuneration system. This also applies to the system of personal targets for the individual Executive Board members, which follows the principle of pay for performance. These personal targets, linked to measurable objectives, are the basis for determining the individual performance factor in the context of both the short-term and the long-term bonus as part of a transparent process.
The remuneration report for 2021 will be presented to the shareholders for approval at the 2022 Annual General Meeting. A description of the remuneration system will be an important element of this report. This represents an opportunity to present the remuneration system in an even more understandable and transparent way and to provide shareholders with more in-depth information.
Self-assessment by the Supervisory Board
In the second half of the reporting year, the Supervisory Board carried out another self-assessment in order to review its work. External advisors were engaged, as they had been for the previous review of the Supervisory Board’s processes. The findings of the review were presented and discussed at the September meeting of the Supervisory Board. As had been the case in 2015 and 2018, the advisors were very positive in their assessment of the work of the Supervisory Board in the Company.
The members of the Supervisory Board saw it as a particular positive that suggestions for improvements to the Supervisory Board’s processes resulting from the previous efficiency review had been taken up and implemented.
The Supervisory Board members attached particular priority to the provision of detailed information on matters that they view as especially important for the Company, not least environmental, social, and corporate governance (ESG) topics under the banner of sustainability, but also cybersecurity, automation, and future trends that are relevant to the Company. The Company has promised to provide the members of the Supervisory Board with detailed information and, in some cases, has done so already.
Preparations for the election of shareholder representatives
The terms of office of Supervisory Board members Dr. Michael Macht, Ms. Birgit A. Behrendt, Dr. Alexander Dibelius, and Mr. Xuguang Tan will end at the close of the 2022 Annual General Meeting. As a result, four shareholder representatives need to be elected to the Company’s Supervisory Board at the 2022 Annual General Meeting.
As part of its preparations, the Nomination Committee examined the Supervisory Board’s skills model from 2017 to ascertain whether it was still applicable to the Company. Three new skills areas were identified that the Nomination Committee and the Supervisory Board as a whole believed should be added as high-profile elements of the requirements catalog. These areas are sustainability, alternative energy sources, and the Chinese economic area.
The Nomination Committee prepared and discussed the nominations at its meeting in December 2021. All of the current shareholder representatives whose terms of office end in 2022 declared that they were willing to stand for re-election. The main points of discussion during the preparation of the nominations included the concerns expressed by the other investors about some of the current shareholder representatives. After carefully weighing up the arguments, the Supervisory Board came to the unanimous conclusion that each individual nomination was in the interests of the Company and its shareholders. The diverse membership of the Supervisory Board, which is made up of people with a wide range of experience, skills, and qualifications, helps to underpin the success of the Supervisory Board’s work. This was also emphatically confirmed by the results of the self-assessment.
Other corporate governance matters handled by the Supervisory Board
The Supervisory Board and its committees carried out preparations regarding the Supervisory Board’s own obligations in relation to the Company’s corporate governance decisions and declarations before adopting unanimous resolutions.
At its meeting on December 15, 2021, the Supervisory Board held its final discussion on the alignment of the KION Group’s processes with the recommendations of the German Corporate Governance Code and issued its declaration of conformity pursuant to section 161 of the German Stock Corporation Act (AktG). This has been made permanently available to the public on the KION GROUP AG website.
The Supervisory Board must review the content of the non-financial Group report, which the Company is obliged to publish in accordance with section 315b of the German Commercial Code (HGB). The Supervisory Board had engaged our Company’s auditors for the preparation of this review of the 2020 report, which was presented to the Supervisory Board for a decision in April 2021 and published on April 30, 2021, and also for the preparation of the review of the upcoming report for 2021. No concerns were raised as a result of the Supervisory Board’s review of the report. As was the case in the previous year, the Supervisory Board will take account of the auditors’ assessment in its own review of the 2021 non-financial Group report, which will take place in April 2022, i.e. after this report of the Supervisory Board has been submitted. After carrying out detailed preparations, the Supervisory Board will make a decision promptly to ensure that the report can be published on time by the end of April 2022.
The Executive Board and Supervisory Board provide a detailed report on corporate governance at KION GROUP AG in the corporate governance statement, which can be found in the section Corporate Governance of this annual report and on the KION GROUP AG website. Information on the steps taken by the Supervisory Board in connection with its regular self-assessment can also be found there.
The Company continues to provide the members of the Supervisory Board with suitable training and development opportunities after their initial introduction to the role. In 2021, these consisted of individual training courses and events for the full Supervisory Board that were paid for by the Company. This mainly included in-depth information, conveyed by external and internal experts, concerning the German Supply Chain Due Diligence Act and the changes to the Company’s governance model.
No conflicts of interest occurred on the Supervisory Board during the year under review.
Relationships with affiliated entities (dependency report)
The Supervisory Board also examined the report concerning relationships with affiliated entities (dependency report), which the Executive Board signed off on February 22, 2022. The auditors reviewed this report and issued an auditors’ report. Based on their audit, which they completed on February 22, 2022 without having identified any deficiencies, the auditors issued the following opinion:
“Based on our audit and assessment in accordance with professional standards, we confirm that
- the facts in the report are stated accurately,
- the consideration given by the entity for the transactions specified in the report was not unreasonably high,
- there are no circumstances in respect of the measures specified in the report that would justify an opinion materially different from the opinion of the Executive Board.”
The dependency report and the auditors’ report about it were distributed to all the members of the Supervisory Board in good time. Both reports were discussed in detail in the presence of the auditors at the Supervisory Board meeting on March 2, 2022 after the auditors had presented their report in person. The Supervisory Board agreed with the findings of the audit. Based on the final outcome of its own review, the Supervisory Board did not raise any objections to the Executive Board’s declaration at the end of the dependency report.
Work of the committees
KION GROUP AG’s Supervisory Board had five standing committees last year: the Mediation Committee pursuant to section 27 (3) of the German Codetermination Act (MitbestG), the Executive Committee, the Audit Committee, the Nomination Committee and, since March 1, 2021, the Remuneration Committee. These committees, but primarily the Executive Committee, prepare the matters to be discussed at the meetings of the full Supervisory Board. Outside of the formal meetings, informal working sessions took place to prepare for upcoming resolutions and related complex issues, such as remuneration. The chairman of the Supervisory Board is also chairman of all committees except the Audit Committee. The chairmen of the committees each report regularly to the full Supervisory Board on their committee’s deliberations. In addition, the minutes of the committee meetings are distributed to the members of the Supervisory Board for information purposes once the committee members have approved them.
Summary of members’ attendance at the meetings of the Supervisory Board and its committees
In 2021, the Supervisory Board and its committees dealt with the matters at hand and made the necessary decisions at a total of 19 meetings. These consisted of eight meetings of the full Supervisory Board, four of the Executive Committee, five of the Audit Committee, one of the Remuneration Committee, and one of the Nomination Committee. The Mediation Committee did not meet in the reporting period. There were also several telephone and video conference calls for the purpose of providing the members of the Supervisory Board or the relevant committees with advance information.
With the exception of Mr. Tan Xuguang, all members of the Supervisory Board participated in all eight Supervisory Board meetings. Due to the time difference, the Supervisory Board members based in China did not participate in the extraordinary meeting held in August but did take part in the adoption of resolutions in writing. Mr. Tan Xuguang participated in two of the eight Supervisory Board meetings and sent his apologies for his absence from the other meetings. With the exception of the chairman Dr. Michael Macht and Ms. Alexandra Schädler, all members of Supervisory Board committees took part in all of the relevant committee meetings. Dr. Macht and Ms. Schädler were each absent from one of the five meetings of the Audit Committee and sent their apologies.
Engagement of the auditors; audit of the separate and consolidated financial statements
The Company’s independent auditors, Deloitte GmbH Wirtschaftsprüfungsgesellschaft (Deloitte), Munich, Frankfurt am Main branch office, audited the separate financial statements, consolidated financial statements, and combined management report for KION GROUP AG and the Group for the year ended December 31, 2021 following their engagement by the Annual General Meeting on May 11, 2021. The corresponding proposal to the Annual General Meeting had been prepared in meetings held between the chairman of the Audit Committee and the auditors. The proposal was discussed at the Audit Committee’s meeting on February 19, 2021, and committee members were given the opportunity to speak to the auditors in person.
The auditors were appointed by the chairman of the Supervisory Board on June 2, 2021. The key audit matters were discussed and set out accordingly at the Audit Committee’s meeting on October 25, 2021.
The auditors submitted their report and the documents relating to the 2021 financial statements to the members of the Audit Committee and the members of the Supervisory Board, in each case with the required lead time. The Audit Committee and Supervisory Board each discussed the report extensively, in both cases in the presence of the auditors. The auditors reported in detail on the main findings of the audit on each occasion.
The auditors issued an unqualified opinion for the separate financial statements, consolidated financial statements, and group management report, which was combined with the Company’s management report, on February 22, 2022. Having itself scrutinized the Company’s separate financial statements, consolidated financial statements, and combined management report for the year ended December 31, 2021, the Supervisory Board – on the basis of a recommendation from the Audit Committee – agreed with the findings of the audit by the auditors after further discussing these findings at its meeting on March 2, 2022. Based on the final outcome of its own review, the Supervisory Board did not raise any objections. The Supervisory Board approved the Company’s separate financial statements and consolidated financial statements for the year ended December 31, 2021 prepared by the Executive Board, thereby adopting the annual financial statements.
At its meeting on March 2, 2022, the Supervisory Board also discussed and approved the proposal made by the Executive Board that the distributable profit of KION GROUP AG be appropriated for the payment of a dividend of €1.50 per no-par-value share. In doing so, the Supervisory Board took account of the Company’s financial situation and performance, its medium-term financial and capital-expenditure planning, and the interests of the shareholders. The Supervisory Board believes the proposed dividend is appropriate.
The details of this report were discussed thoroughly at the Supervisory Board meeting on March 2, 2022, when it was adopted.
Dr. Michael Macht