Report of the Supervisory Board of KION GROUP AG

Dear shareholders,

The KION Group was able to report strong results and lay the foundations for long-term growth in 2023, despite macroeconomic uncertainties and the ongoing geopolitical conflicts.

Over the course of the year, the Company made significant efforts to improve its agility and position itself better for the future while at the same time strengthening its resilience to any unforeseen developments. Although 2024 will be another challenging year and the Supply Chain Solutions (SCS) segment, in particular, needs to return to growth, the course of business in 2023 gives cause for optimism about the future.

Moreover, the Executive Board and the Company’s approximately 42,000 employees have been relentless in their pursuit of KION’s strategy in relation to digital transformation, automation, and sustainability.

The Supervisory Board would like to take this opportunity to thank the members of the Executive Board and all employees of the KION Group for their hard work in this area in 2023.

In 2023, the Supervisory Board continued to advise the Executive Board and diligently fulfilled the tasks and duties imposed on it by the law and the Company’s articles of association. 

Focus of the Supervisory Board’s work

At the total of seven ordinary and three extraordinary Supervisory Board meetings held in the year under review, the Supervisory Board thoroughly discussed all matters of relevance to the Company and satisfied itself that the Company was being run lawfully, purposefully, and properly. In addition, six resolutions were adopted in writing. Although individual Supervisory Board members were occasionally unable to participate in meetings of the Supervisory Board, they were mostly still able to vote as required using a written voting form.

Regarding the Company’s operations, the Supervisory Board obtained regular updates on progress with the package of measures initiated in 2022 to boost profitability. This package is mainly focused on strengthening the supplier network, taking measures to enhance operational and commercial agility, improving risk management, and managing the implementation of projects in the SCS segment more efficiently. The Supervisory Board’s work in 2023 also focused on supporting the Executive Board in its implementation of the Company-wide transformation and digitalization project and the related implementation of a new enterprise resource planning (ERP) system based on SAP S/4HANA.

During a number of meetings in 2023, the Supervisory Board discussed sustainability matters of significance to the Company, including the decision to join the Science Based Targets initiative (SBTi). Developments in relation to occupational health, safety, and the environment were presented to the Supervisory Board on a regular basis. The Supervisory Board was involved in every key step of the realization of these fundamental initiatives for the future of the Company.

The ordinary meetings of the Supervisory Board in 2023 were also used to address its regular schedule of topics. At the ordinary meeting on March 1, 2023, this included approval and adoption of the separate financial statements of KION GROUP AG, examination of the proposal for the appropriation of profit, approval of the consolidated financial statements of KION GROUP AG for 2022, determination of target achievement for the Executive Board members’ variable remuneration, the adoption of resolutions on the 2022 financial reporting and, as preparation, on the 2022 non-financial reporting and the 2022 remuneration report, and the adoption of resolutions in preparation for the 2023 Annual General Meeting.

Following the resignation of its previous chairman, Dr. Michael Macht, the Supervisory Board elected Hans Peter Ring as its new chairman and as chairman of the Executive, Remuneration, Nomination, and Mediation Committees immediately after the Annual General Meeting on May 17, 2023. The newly elected Supervisory Board member Dr. Nicolas Peter was elected as chairman of the Audit Committee and as a member of the Executive, Remuneration, and Mediation Committees.

The Company’s economic position and the core topics of increasing the Company’s profitability (particularly in the SCS segment), sustainability, and progress with the Company-wide transformation and digitalization project were discussed by the Supervisory Board in detail at its meeting on June 28, 2023.

At its ordinary meeting on September 21, 2023, the Supervisory Board held in-depth discussions on the Company’s financial and operating situation and on the cybersecurity, compliance, and human resources reports received. At its strategy meeting, which was also held on September 21, 2023, the Supervisory Board closely examined the KION 2027 strategy, including the medium-term planning for 2024 to 2026, and the strategic targets relating to sustainability, the business model, and the product portfolio of the Company. The Supervisory Board also deliberated on the strategic significance of the Company-wide transformation and digitalization project and on the progress with its implementation.

At the final ordinary meeting of the reporting year, held on December 12, 2023, the agenda included the Supervisory Board’s examination of the budget planning for 2024, various corporate governance matters (including the 2023 declaration of conformity), the adoption of resolutions on personnel matters relating to the Executive Board and on changes to the Executive Board remuneration system, and the setting of the 2024 targets for the Executive Board’s variable remuneration.

The extraordinary Supervisory Board meetings on March 17, 2023, July 6, 2023, and October 18, 2023 focused on personnel matters relating to the Executive Board, including its organizational structure and the schedule of responsibilities of the individual Executive Board members.

By way of written resolutions, the Supervisory Board decided on personnel matters relating to Executive Board members, the non-financial reporting, and transactions requiring its consent.

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.

The Supervisory Board worked tirelessly to oversee and monitor the Executive Board and advise it on how to manage the Company.

The Executive Board provided the Supervisory Board with regular written and oral reports on the Company’s economic position and on material business transactions, both during meetings and between meetings.

As in previous years, the Supervisory Board – in addition to the areas of focus mentioned above – discussed numerous other issues and transactions requiring consent and made necessary decisions. It was always fully involved in major decisions affecting the Company from an early stage. All members of the Supervisory Board had the opportunity to examine the documents, reports, and proposed resolutions that were presented in the full meetings or in the committees and to analyze and discuss them in detail.

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 were also regular discussions between the chairman of the Audit Committee and those responsible for internal audit and corporate compliance in the Company.

Work of the committees

Five standing committees support the Supervisory Board’s work and prepare resolutions to be adopted by the full Supervisory Board so that it can perform its tasks with the necessary degree of care and efficiency: the Mediation Committee pursuant to section 27 (3) of the German Codetermination Act (MitbestG), the Executive Committee, the Audit Committee, the Nomination Committee, and the Remuneration Committee.

The Executive Committee held four ordinary meetings in the year under review. One member was unable to take part in one of the meetings, but otherwise all members of the Executive Committee participated in all of its meetings. In 2023, the Executive Committee mainly focused on preparations for the full Supervisory Board meetings, on the Company’s financial position and financial performance, and on personnel and organizational matters relating to the Executive Board.

The Audit Committee, which is also the committee responsible for all sustainability and ESG-related matters, held five ordinary meetings in 2023. One member was unable to take part in one of the meetings, but otherwise all members of the Audit Committee participated in all of its meetings. The meetings focused on the Group’s business performance and financial planning, on the Company’s risk situation, on matters related to the audit, its quality control, and the independence of the auditor, on the audit of the separate and consolidated financial statements of KION GROUP AG, on the quarterly financial statements, and on sustainability matters. It also addressed financial and non-financial reporting and the compliance and internal audit reports. Particular attention was paid to matters relating to the KION Group’s internal control and risk management system. The committee satisfied itself that there were no conflicts of interest in respect of the auditor. Supervisory Board resolutions required in this regard were prepared by the Audit Committee and reported to the Supervisory Board. The auditor reported regularly to the Audit Committee on its audit work and findings. The Audit Committee regularly held discussions without the Executive Board.

The Remuneration Committee, which held four ordinary meetings in 2023, dealt with the setting of targets and the achievement of the targets for the Executive Board members’ variable remuneration as well as the 2022 and 2023 remuneration reports. With the support of an independent external corporate governance consultant, it also examined the appropriateness of the level of Executive Board remuneration and prepared planned changes to the Executive Board remuneration system in 2024. All members of the Remuneration Committee participated in all of its ordinary meetings.

The Nomination Committee convened for one extraordinary meeting in 2023, in which all of its members took part. It carried out the Supervisory Board’s preparations for appointing a successor for the previous chairman of the Supervisory Board, Dr. Michael Macht, and interviewed potential candidates. At its meeting, the Nomination Committee made a final decision about proposing Dr. Nicolas Peter to the Annual General Meeting for election as a new member of the Supervisory Board.

There was no need for the Mediation Committee to meet in 2023.

The Supervisory Board meetings included regular reports on the work of the committees. Details of the committees’ members are provided in the ‘Corporate governance statement’.

Summary of the nature of, and members’ participation in, the meetings of the Supervisory Board and its committees

Because of the diverse composition of the Supervisory Board and its committees, each of which has members from outside Germany, all meetings of both the Supervisory Board and its committees were held in a hybrid format, i.e. with a combination of video conferencing and attendance in person. The members of the Supervisory Board and its committees based in Germany routinely attended in person with only a few exceptions; the members of the Supervisory Board based in China predominantly used video conferencing to participate.

There were also a number of working sessions and telephone and video conference calls for the purpose of providing the members of the Supervisory Board or the relevant committees with advance information. The employee representatives and, where necessary, the shareholder representatives too held separate preliminary discussions to deliberate on the agenda items of the full meetings of the Supervisory Board. In some cases, preparatory discussion took place between individual Supervisory Board or committee members as well.

The rate of participation for the meetings of the Supervisory Board and its committees stood at around 93 percent.

The members of the Executive Board generally participated in the meetings of the Supervisory Board and its committees. However, the Supervisory Board and its committees also met regularly without the Executive Board to discuss individual matters.

Personnel matters relating to the Executive Board

There was a change in the position of Chief Financial Officer at the beginning of the year, with Marcus Wassenberg taking on the role on January 1, 2023. The Company and Marcus Wassenberg then parted ways by mutual agreement on July 6, 2023, and Christian Harm took over as Chief Financial Officer on the same day.

Valeria Gargiulo took up the newly created role of Chief People and Sustainability Officer (CPSO) on May 1, 2023. Her main responsibilities are human resources, sustainability, and occupational health and safety.

Dr. Henry Puhl, Chief Technology Officer (CTO), and Hasan Dandashly, President KION SCS, stepped down from the Executive Board with effect from the end of December 31, 2023. Michael Larsson took over as President KION SCS on January 1, 2024 and assumed responsibility for the ITS Americas business at the same time. Responsibility for the CTO role passed to Ching Pong Quek on January 1, 2024. He carries out this remit separately from and in addition to his existing responsibility for the ITS APAC business. The schedule of responsibilities for the Executive Board was adjusted accordingly with effect from January 1, 2024.

Following preparatory work by its Executive Committee, the Supervisory Board closely monitored these personnel matters and discussed them in detail at a number of meetings. It also deliberated extensively on the Executive Board’s organizational structure and schedule of responsibilities. The Supervisory Board believes that, in its current composition, the Executive Board is now very well positioned for the profitable growth targeted by the Company and for the technological and geopolitical challenges that lie ahead.

Executive Board remuneration and the Executive Board remuneration system

The Supervisory Board and, in particular, its Remuneration Committee reviewed the appropriateness of Executive Board remuneration and the Executive Board remuneration system in 2023. In the fourth quarter of 2023, the Remuneration Committee prepared a new version of the Executive Board remuneration system, which the Supervisory Board adopted in December 2023.

The new Executive Board remuneration system adopted by the Supervisory Board on December 12, 2023 is subject to approval by the 2024 Annual General Meeting on May 29, 2024. If the 2024 Annual General Meeting approves it, the 2024 remuneration system will apply retrospectively from January 1, 2024. A key priority in updating the remuneration system was to make sure that it continues to support the Company’s strategic and long-term development to the fullest possible extent. The feedback received from shareholders in recent years was also incorporated, for example by restricting the discretionary elements of the Executive Board’s remuneration. The intention with the introduction of the 2024 Executive Board remuneration system is for the Company to start complying with recommendation G.10 of the German Corporate Governance Code in the version dated April 28, 2022 (GCGC) (long-term variable remuneration components accessible only after four years).

Details of the new 2024 remuneration system will be published on the KION Group’s website as part of the preparations for the 2024 Annual General Meeting and will be made available to shareholders ahead of the meeting.

Corporate governance matters handled by the Supervisory Board

In the declaration of conformity pursuant to section 161 of the German Stock Corporation Act (AktG), which was issued on November 27 / December 12, 2023, the Supervisory Board and Executive Board declared that KION GROUP AG had complied with all the recommendations in the GCGC since the issue of the previous declaration of conformity, with one exception, and would also comply with them in the future. The exception relates to recommendation G.10 of the GCGC (long-term variable remuneration components accessible only after four years). The most recent declaration of conformity and previous versions are permanently available to the public on the website of KION GROUP AG.

At the start of 2024, the chairman of the Supervisory Board held discussions with investors about corporate governance matters relating to the Supervisory Board.

The Supervisory Board must also 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 the Company’s then auditor, Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich, Frankfurt am Main branch, to prepare the review of this report for 2022; the report was presented to the Supervisory Board for a decision in April 2023 and published on April 27, 2023. The Company’s current auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, was engaged to prepare the review of the non-financial Group report for 2023. No concerns were raised as a result of the Supervisory Board’s reviews of these reports. The Supervisory Board took account of the auditors’ assessments in its own reviews of the non-financial Group reports for 2022 and 2023 and did not raise any objections.

The Executive Board and Supervisory Board provide a detailed report on corporate governance at KION GROUP AG in the ‘Corporate governance statement’, which can also be found on the KION GROUP AG website. The corporate governance statement also includes information on the objectives for the composition of the Supervisory Board, including its diversity plan and profile of skills and expertise, and reports on progress with achieving them.

The Company supports the members of the Supervisory Board in the performance of their tasks by providing suitable training and development opportunities. New members of the Supervisory Board are given special onboarding information in order to familiarize them with the KION Group and its internal structures and processes.

No conflicts of interest on the Supervisory Board came to light 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 27, 2024. The auditor reviewed this report and issued an auditor’s report. Based on its audit, which it completed on February 28, 2024 without having identified any deficiencies, the auditor issued the following opinion:

“Based on our audit and assessment in accordance with professional standards, we confirm that

1. the facts in the report are stated accurately;
2. the consideration given by the entity for the transactions specified in the report was not unreasonably high;
3. 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 auditor’s 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 auditor at the Supervisory Board meeting on February 28, 2024, after the auditor had presented its report in person. The Supervisory Board approved the findings of the audit conducted by the independent auditors and, based on the final outcome of its own review, did not raise any objections to the Executive Board’s declaration at the end of the dependency report.

Engagement of the auditor; audit of the separate and consolidated financial statements

The Company’s independent auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, audited the separate financial statements, the consolidated financial statements, and the combined management report for KION GROUP AG and the Group for the year ended December 31, 2023 following its engagement by the Annual General Meeting on May 17, 2023.

The auditor was appointed by the chairman of the Supervisory Board on December 11, 2023. The key audit matters were discussed and set out accordingly at the Audit Committee’s meeting on October 24, 2023.

The auditor submitted its report and the documents relating to the 2023 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 the presence of the auditor and, in some cases, without the Executive Board being present. The auditor reported in detail on the main findings of the audit on each occasion.

The auditor 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 28, 2024. Having itself scrutinized the Company’s separate financial statements, consolidated financial statements, and combined management report for the year ended December 31, 2023, the Supervisory Board – on the basis of a recommendation from the Audit Committee – agreed with the findings of the audit by the auditor after further discussing these findings at its meeting on February 28, 2024 and 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, 2023 prepared by the Executive Board, thereby adopting the annual financial statements.

At its meeting on February 28, 2024, 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 €0.70 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.

Personnel changes on the Supervisory Board of KION GROUP AG

Dr. Michael Macht, the previous chairman of the Supervisory Board, resigned from the Supervisory Board and all related roles at the end of the Annual General Meeting on May 17, 2023. As proposed by the Company’s Executive Board and Supervisory Board, the Annual General Meeting on May 17, 2023 elected Dr. Nicolas Peter to the Supervisory Board with effect from the end of the Annual General Meeting for the remaining period of Dr. Michael Macht’s term of office, i.e. until the end of the 2025 Annual General Meeting.

The details of this report were discussed thoroughly at the Supervisory Board meeting on February 28, 2024, when it was adopted.

Hans Peter Ring
Chairman