Letter to shareholders
Dear shareholders, customers, partners, and friends of the KION Group,
2022 was a year full of challenges for the KION Group – external as well as organic. Global geopolitical and macroeconomic developments accelerated volatility in our supply chains and led to dramatic inflation in our material, energy, and logistics costs. We saw that our commercial and operational processes, systems, and practices established during many years of relative stability required significant overhaul in order to deliver strong profitable performance in times of volatility. We are fully committed to this journey and took significant steps in 2022 to bring the KION Group back on track for strong profitable growth going forward. And we have the wind in our sails. The global megatrends of automation, digitalization, and urbanization are fundamentally intact and present us with an excellent opportunity to generate strong profitable growth over the long term. In addition, the KION Group has excellent customers, business partners and over 41,000 talented and experienced employees that demonstrate immense commitment to each other and to our long-term success together. I would like to offer my heartfelt thanks – and those of the entire Executive Board – to all of our KION Group stakeholders for their excellent support and teamwork in 2022.
We are looking back on a difficult year
Last year, our business was affected by disruptions in the supply chain, by spiraling costs for materials, energy, and logistics, and in some cases also by a decline in demand. This decreased demand among some customers is based on a reticence in starting new investment decisions. Inefficiencies resulting from the lack of availability of key parts at project sites led to delays in the Supply Chain Solutions (SCS) segment. As more new projects were ramping up in parallel, the availability of skilled labor, especially in North America, became a limiting factor due to high demand from other industries. Additionally, in 2022 SCS had only been able to pass a minor portion of the cost increases on to customers as we did not have cost escalation protection measures in place. This took its toll on earnings as it pushed up the expected overall project costs for long-term customer orders. In the second of our two operating segments, Industrial Trucks & Services (ITS), sharp increases in costs and persistent shortages of bought-in parts and components also had a negative impact on earnings and – due to the significant increase in net working capital – free cash flow.
In order to counteract these developments, we have set out a roadmap that is specifically targeted at improving our profitability through increasing our commercial and operational agility. We are strengthening our network of suppliers, expanding our service offering, and adopting dynamic pricing. Even now, the price adjustments in our order book are laying a solid foundation for the new year ahead. Moreover, we stepped up the work we are doing to improve our project management processes in the Supply Chain Solutions segment in the second half of 2022. In the Industrial Trucks & Services segment, we managed, over the course of the year, to significantly reduce our inventories of unfinished trucks for which only individual components were missing due to supply chain disruptions, and to deliver the trucks to our customers. We also substantially reduced the number of high-risk suppliers. As you can see, we are on the right path to ensuring that the KION Group remains resilient and profitable for many years to come.
The KION Group is also on a solid footing in terms of its finances. Although our free cash flow was well into negative territory and the level of net working capital was high in 2022, we have a strong financial flexibility at our disposal.
The war in Ukraine has been with us for over a year now. Our thoughts are with everyone who has suffered so much in this conflict. We responded quickly and supported the Red Cross both financially and through the provision of forklifts. The KION GROUP AG has adhered to all sanctions imposed since spring 2022 and the Executive Board of KION GROUP AG made the decision in 2022 to withdraw from all business in Russia. Promising negotiations on the sale of the Russian ITS business are already being held; the local business of SCS has already been largely wound down.
Groundbreaking innovations for a successful future
Our industry remains very much on track for growth, with persistently strong demand for automated technologies and software solutions in warehouse logistics continuing to drive our business forward – both in the Supply Chain Solutions segment and the Industrial Trucks & Services segment. As an innovative full-service provider of intralogistics solutions, we supply our customers around the globe with everything they need – the full spectrum of intralogistics solutions from simple hand pallet trucks and racking to intelligently networked electric forklift trucks, automated warehouse trucks, and even fully automated and digitalized warehouses – as well as the support of one of the most extensive production, sales, and service networks in our industry. KION Group is using its pioneering spirit and innovative strength to shape the future of intralogistics. Every year, we invest around 3 percent of our revenue in research and development. And our innovation pipeline is well stocked thanks to our effective CTO organization and the around 2,000 people that we employ in research and development around the world.
Intelligent swarm robots for the warehouses of tomorrow
Our LoadRunner is one of the leading innovations that will help meet the growing demands on our industry for automated digital solutions. We have partnered with the Fraunhofer Institute for Material Flow and Logistics in Dortmund to develop swarm robots for the warehouses of the future. Our objective is to pave the way for a new generation of autonomously operating transport vehicles that will revolutionize intralogistics using artificial intelligence (AI). These miniature transportation vehicles not only operate independently, but also together as a swarm – and this is how they will open up a new chapter in warehouse logistics in more ways than one. They will be considerably faster than all previous AGVs and, critically, more intelligent in that they are able to coordinate their actions independently. The swarm robots will therefore make warehouse processes even simpler, even quicker, and even more efficient. Last year, at its site in Cologne, the parcel delivery service DPD put the LoadRunner through its paces for the first time in a real-world application, describing it as a “true revolution in intralogistics”. These autonomous swarm robots will be ready for the market in the near future.
Digitalization, autonomy, and connectivity for efficient warehouse logistics
As a pioneering innovator, we are leading the way with wide-ranging research initiatives and are already coming up with answers to the questions of tomorrow. We are concentrating in particular on bringing together digitalization, autonomy, and connectivity. Several of our projects, in which we collaborate with respected partners in industry and research, are focused on solutions in this area. For the ARIBIC project, for example, we have teamed up with LeddarTech, Karlsruhe Institute of Technology (KIT), and the University of Toronto’s STARS Lab. ARIBIC stands for artificial intelligence-based indoor cartography and refers to the continuous analysis of large volumes of data in order to create a real-time digital twin of a warehouse or production environment.
The IMOCO4.E project, meanwhile, is taking AGVs to a new level. The objective is to enable trucks to navigate entirely autonomously in a factory or warehouse, by using AI and state-of-the-art sensors to avoid obstacles and calculate the optimum routes.
Projects like this call for new forms of connectivity and real-time communications in warehouses and production environments. Thanks to 5G technology, campus networks can fulfill the most stringent requirements of a communication network in terms of latency, reliability, security, and uptime. This makes 5G campus networks particularly attractive for applications destined for use in industry. Funded by the Federal Ministry for Economic Affairs and Climate Action, the CampusOS project, in which the KION Group is a partner, is looking to build a nationwide modular ecosystem for campus networks based on the latest technology.
Energy system of the future: lithium-ion batteries made inhouse
Energy – and how we use it sustainably, manage it, and save it – is the topic of the decade, including in the material handling sector. We are one of the world’s leading suppliers of electric vehicles used in intralogistics. Already, around 90 percent of all new forklifts and warehouse trucks manufactured by the KION Group are electrically powered. We offer our customers the full range of current drive technologies. And the focus of our research and development is on future generations of energy solutions in the form of lithium-ion battery systems and hydrogen fuel cells.
In April 2022, in order to meet the fast-growing demand for high-performance drive modules in intralogistics, we expanded our production capacity for lithium-ion batteries for industrial trucks through KION Battery Systems GmbH (KBS), a joint venture between KION GROUP AG and BMZ Holding GmbH in Karlstein am Main. We had already been making 48-volt and 80-volt batteries for counterbalance trucks since 2019. Then last year, we opened a new manufacturing and assembly line for 24-volt batteries that will be able to deliver up to 30,000 batteries a year. Because we have kept this drive technology inhouse, we are able to offer our European customers a high degree of reliability even in times of fragile global supply chains. Certainly our KION technology continues to provide full truck integration with premium functionality. It is an approach that we have been committed to for several years now.
Managing energy efficiently so it can be used more sustainably
Anyone purchasing a battery-powered fleet of forklift trucks will need an efficient energy management system and the appropriate support. And we are able to deliver here too. To help customers overcome these challenges, the KION Group has teamed up with ifesca GmbH to employ artificial intelligence to forecast and manage energy use in industrial applications. The energy management tool of our brand company Linde Material Handling is helping our customers manage their internal energy networks more efficiently. The platform’s ultra-precise forecasts allow customers to plan the optimum charging times for their fleets of industrial trucks, to avoid peaks in charging, and in doing so to significantly reduce their energy costs.
Proprietary fuel-cell systems as an alternative to electric drives
We are on track to progress the transition toward sustainable and resource-efficient intralogistics thanks not just to lithium-ion technology but also to hydrogen drive systems. Industrial trucks from our Linde Material Handling brand company that are powered by hydrogen and therefore emission-free are already in use at the BMW Group’s Leipzig plant, for example. And our STILL brand is operating one of Europe’s biggest fleets of fuel-cell forklift trucks at the French retail and wholesaling company Carrefour. The KION Group is going one step further, however. It is entering into the development and production of hydrogen drives and will be manufacturing its own fuel-cell systems in the future. This means the KION brand companies will be able to offer their customers everything from a single source: the truck, the fuel cell, and the requisite aftersales service. A proprietary 24-volt fuel-cell system for warehouse trucks will be brought to market before the end of this year. The plan is for a 48-volt system to follow soon afterwards. From today’s perspective, this will make the KION Group the only industrial truck manufacturer in the European market to manufacture its own fuel cells – to date a truly unique selling point.
Global investment for further growth
Last year, we invested €383 million, including €182 million in Germany. In order to remain at the cutting edge of technology, we invest in our future even in challenging times.
We are pressing ahead with our growth strategy in China, one of the world’s most important and fast-growing markets for material handling, by strengthening our production site in Jinan, in Shandong province. We are currently building a new plant here for the Supply Chain Solutions segment right next door to our existing plant for forklift trucks. It will be used by our brand company Dematic to manufacture Multishuttle racks, welded components for automated guided vehicle systems, and conveyor systems. The plant is scheduled to commence operations in 2023. The production site will also feature a dedicated technology center for customer demonstrations. We are investing nearly €40 million in this project and will create more than 300 new jobs by the end of 2024. The KION Group already employs more than 4,600 people in China, out of its overall workforce of around 41,000 people.
KION North America is also adding to its production capacity in the Industrial Trucks & Services segment. In the US state of South Carolina, we are investing nearly €40 million in the expansion of production and assembly lines. Our brand companies Linde Material Handling and Baoli cater to the specific requirements of the North American market with a comprehensive and complementary portfolio of products that are known for their innovative technologies, low energy consumption, and low operating costs. The expansion is set to create around 450 new jobs and is scheduled to be completed in 2024.
We are also building our capacities in Germany where we are investing around €60 million to create a new premium facility in Kahl am Main, located between Frankfurt and Aschaffenburg. Known as the Kahl Regional Distribution Center, this ultra-modern parts warehouse with highly automated high-bay storage facilities and small parts stores will occupy a total area of around 31,000 square meters. It will also serve as an example of the Company’s logistical expertise. The warehouse will supply service technicians with spare parts around the clock. It is due to come on stream at the beginning of 2025. As well as optimizing the service we provide for our customers, we will be focusing the approximately 300 jobs that already exist at the site on future requirements and will also create new jobs at the site going forward.
In addition, we are planning to completely reorganize all plant logistics at Linde Material Handling’s base in Aschaffenburg. We will be consolidating the five external stores in and around Aschaffenburg into the Urban New Home center. Workshops, warehouses, and supply facilities are being converted for this purpose. The various buildings are centered around a high-bay storage facility that will be supplemented by smaller warehouses. We are investing almost €30 million at the site. A new office and administrative building is also being created, with modern workstations for 300 employees and a showroom for events and product demonstrations. The building is scheduled to be completed in mid-2023.
In Reutlingen, we are expanding the plant used by KION Warehouse Systems GmbH (KWS), which serves as the center of excellence within the KION Group for the development and production of very narrow aisle trucks for our brand companies. Our plan is to increase the volume of order picking stacker trucks and vertical order pickers that KWS produces by just over 60 percent. We are investing a low double-digit million euro amount to expand the existing factories and modernize the site’s plant, machinery, and processes. The plan is for construction to begin in early 2024 and for the expanded production facilities to come on stream in 2025.
KION 2027 strategy updated and improved
Our KION 2027 strategy gives us a strong foundation for securing our long-term success. And we updated it last year to make it even more effective, holding numerous meetings with our intralogistics customers and visiting their facilities in order to discuss and co-create their current and future intralogistics strategies and developments. One of the outcomes of this process was the update to our six fields of action, which are now as follows: multi-branded go-to-market combining the strengths of our segments and brand companies, region-specific growth plans, sustainability, automation and software including our digital solutions, performance and agility, and values, employees, and leadership (see also the section entitled "Strategy of the KION Group" in this annual report).
These six fields of action describe how we intend to achieve our ambitious targets. With our comprehensive multi-brand strategy, we exploit the potential of integrated products and solutions and bring SCS and ITS offerings together effectively. We position each of our strong brands successfully and can offer our customers the products, services, and solutions they need for their individual business. We take responsibility for offering sustainable products that benefit our customers in their warehouses and plants and help them to meet their own sustainability goals, for ensuring the wellbeing of our employees, and for protecting the planet and the society in which we live. Through our products and solutions, we want to lead the way in the material handling sector when it comes to energy use and alternative energy systems. We enable our customers to use automation effectively and support them on their journey to fully automated and digitalized lights-out warehouses.
In October 2022, the Supervisory Board appointed Valeria Gargiulo to the newly created role of Chief People & Sustainability Officer (CPSO). Marcus A. Wassenberg was appointed as the new Chief Financial Officer (CFO). Both are experienced executives with a proven track record in their areas of responsibility and a compelling vision for the future of our Company. Whereas Marcus has been dedicating himself to his new role since January of this year, Valeria will take on her new responsibilities no later than May 2023. Thanks to these new additions, the Executive Board is in an excellent position and is well equipped to drive forward our strategy in all six fields of action and to make this strategy a success.
The KION Group has progressed enormously in what has been a challenging twelve months. We put ourselves on a much more resilient and agile footing in 2022, and we shall relentlessly drive forward on our profitable growth path in the years to come.
Our objective is clear. We want to be the global leader in understanding our customers’ intralogistics and supply chain needs and providing the right sustainable solutions, both today and in the future. Our successfully positioned differentiated brands are teaming up, to offer our customers a unique complete solution offering and strategic competitive advantages. This comes in the form of our global 360-degree portfolio of hardware, software, and services, which combine to create integrated and ultra-modern material handling solutions.
That is why we are looking ahead to 2023 with confidence – for our customers and business partners, for you as our shareholders, and for the entire KION Group.
With best wishes,
Chief Executive Officer
KION GROUP AG