Investor Handbook April 2012 Investor Handbook April 2012

Disclaimer

This Investor’s Handbook is issued by the management of Kardex AG. It is being made available to current Kardex AG shareholders as well as persons who are evaluating the possibility to enter into a shareholder relationship with Kardex AG and thus making their own opinions on the transaction, for which they ultimately hold full responsibility.

This document is for information purposes only and does not constitute or form part of, and should not be construed as an offer or invitation to subscribe or purchase any securities of Kardex AG in the Switzerland or in any other jurisdiction. It should, therefore, not form the basis of any investment decision for shares of Kardex AG.

This document contains forward-looking statements. These statements are based on information currently available to our management as well as on management‘s current assumptions and forecasts. Various known and unknown risks, uncertainties and other factors could lead to material differences between our actual and future results, financial situation, development or performance and the estimates given in this document. Kardex AG does not assume any liability to update forward-looking statements or other information in this document or to confirm such forward-looking statements or other information to future events or developments.

This document does not purport to be inclusive or to contain all the information, which a prospective investor would require. Neither Kardex AG nor any of their officers, directors, employees or agents may guarantee the accuracy or completeness of this Handbook or any part thereof, and each therefore rejects liability concerning such information.

The distribution of this document may be restricted by law. Any persons reading this document should inform themselves of and observe any such restrictions.

Kardex AG Gerhard Mahrle, CFO Thurgauerstrasse 40 CH-8050 Zürich Tel. +41 44 386 44 72 www.kardex.com [email protected]

Version 2.1, 25 April 2012

2 Investor Handbook April 2012

Table of Contents

8 1 Summary 8 1.1 Kardex in brief 8 1.2 Key trends: Increasing automation – with a strong need for reduction of complexity 9 1.3 Business model and strategy 10 1.4 Strategic drivers for growth and profitability 10 1.5 Overview product and service offering 11 1.6 Differentiating factors

12 2 Key figures and share information 12 2.1 Key figures at a glance 13 2.2 Financial highlights 2011 14 2.3 Consolidated Balance Sheet 15 2.4 Consolidated Income Statement 16 2.5 Information on the Kardex share

18 3 Kardex’s ‘Strategic themes’ and the ‘Equity Story’ 18 3.1 Introduction 18 3.2 Group Mission and Strategy 18 3.3 Key trends: Increasing automation – with a strong need for reduction of complexity 19 3.4 An attractive market with long-term potential 20 3.5 Kardex’s three entrepreneurial managed divisions well positioned 20 3.6 Unique existing customer base is a key asset 20 3.7 Six-pillar strategy to exploit growth opportunities 21 3.8 The turnover mix of the divisions will change 22 3.9 Financial Targets (over the cycle)

23 4 Industry Outlook 23 4.1 Material Handling Equipment Manufacturing (MHEM)-Industry 24 4.2 MHEM market fundamentals 24 4.2.1 Sound global demand 26 4.2.2 Increasing role of Asian players 26 4.2.3 Rising warehouse capacity 27 4.2.4 Cyclicality of the MHEM industry 28 4.2.5 Steel price remains volatile 29 4.3 Emerging trends 29 4.3.1 Improvement in efficiency needed due to surging costs 29 4.3.2 New projects, refurbishment and modernization of warehouses 30 4.3.3 Increasing use of automation 32 4.3.4 Specific stand-alone sub-systems getting more important 32 4.3.5 After-sales service and support 33 4.3.6 Technology and product development

4 34 5 Company descriptionand Management 34 5.1 Kardex in brief 35 5.2 Historical evolution 35 5.3 Group structure 36 5.4 Positioning 36 5.5 Business model and strategy 37 5.6 The three Divisions 37 5.6.1 Kardex Remstar 41 5.6.2 Kardex Stow 45 5.6.3 Kardex Mlog 48 5.7 Board of directors 50 5.8 Executive Committee 52 5.9 Capital structure

54 6 Peer Analysis 54 6.1 Competition prevails mostly on division level 55 6.2 Peer Profiles 55 6.2.1 BITO-Lagertechnik Bittmann GmbH 55 6.2.2 Constructor Dexion 55 6.2.3 Daifuku Co Ltd 55 6.2.4 Dematic AG 55 6.2.5 Feralco 56 6.2.6 Handler A/S 56 6.2.7 Hänel GmbH & Co. KG 56 6.2.8 HK Systems, Inc. 56 6.2.9 Jungheinrich AG 56 6.2.10 Knapp Logistics 56 6.2.11 LTW Intralogistics GmbH 57 6.2.12 Mecalux 57 6.2.13 Modula 57 6.2.14 Nedcon 57 6.2.15 SencorpWhite 57 6.2.16 SSI Schäfer 58 6.2.17 Stöcklin Logistik AG 58 6.2.18 Swisslog AG 58 6.2.19 TGW Systems Integration 58 6.2.20 Viastore Systems Inc 58 6.2.21 Zecchetti srl

59 7 Risk analysis

61 8 Scot analysis

5 Investor Handbook April 2012

Table of Figures

9 Figure 1: Kardex Business model

19 Figure 2: The accessable markets and its dynamics

22 Figure 3: Turnover mix divisions 2011–2014E

24 Figure 4: Regional MHEM markets

24 Figure 5: Composition of Material Handling Equipment market in Europe (2009–10)

26 Figure 6: Exports of material handling equipment

27 Figure 7: Warehousing capacity additions across Europe over next 5 years

28 Figure 8: Material handling equipment manufacturers forecast

28 Figure 9: Development of the steel price (2005–2011)

29 Figure 10: European Warehousing Rental Index

30 Figure 11: Willingness to upgrade warehouse systems through organic improvements (like better equipment)

31 Figure 12: Performance of market for S/R and loading machines

31 Figure 13: Automation scope is high given the low level of existing automation

32 Figure 14: Contribution of revenues from after-sales services to the total revenues

34 Figure 15: Production plants

35 Figure 16: Group structure

40 Figure 17: Kardex Remstar: Sales and Service Network

43 Figure 18: Kardex Stow: Sales Network Europe

43 Figure 19: Kardex Stow: Sales Network Asia-Pacific

6 7 Investor Handbook April 2012

1 Summary

1.1 Kardex in brief

Kardex is a leading provider of automated and static storage, retrieval and materials handling systems. With three entrepreneurial managed divisions, two of them with a global footprint, the Group developed from a product and sub-system supplier into a global acting industry partner with an attractive product, service and software offering under the Kardex brand name. Kardex is well positioned to grow in a market with strong fundamentals and as such will be able to achieve attractive financial returns.

With over 100’000 installed Kardex Remstar machines, 800 Kardex Mlog warehouses and more than 2’000 stacker cranes the Group has a broad existing customer base that needs ongoing after-sales services. This helps to reduce the cyclicality of the business. With five production sites, service centers in all important markets and a workforce of more than 2'100 employees around the globe Kardex can rely on a globalized production and service system which reduces risk and currency exposure and can serve its customers around the clockas well.

Kardex is listed on the SIX Swiss Exchange since 1987.

1.2 Key trends: Increasing automation – with a strong need for reduction of complexity

Storage and product handling is a key cost and efficiency factor, not only in traditional production and distribution facilities but increasingly also for service providers and in new (e.g. internet-based) business models. Many of them have to invest in modernizing their storage and warehouse facilities in the coming years. Costs can be reduced by further automation of such facilities in order to save space and, increase the availability of the stored goods. Further key functions to operate a warehouse more efficiently are increasing the picking and commissioning speed of the goods as well as overall access time to the goods.

Companies with a manufacturing basis in high cost countries in Central Europe were the main drivers of the automation trend. The rest of Europe, North America and increasingly also Asia/Pacific and South America are following this trend. However, even in Central Europa only 30% of all distribution centres and warehouses have been automated so far, the global average is at only about 10%.

A second, newer trend follows the crucial requirements for effective logistics: companies have “to deliver in full and on time”. But in the same time they have to cope with increased diversification and complexity: in distribution centres more articles in smaller amounts have to be handled faster, in manufacturing sites production is are more and more individualized (e.g. car industry). For logistics this causes high requirements regarding storing security, flow tracking, transparency and reliability of delivery. In contradiction, the systems have to be easy to operate. This results in a growing demand for lower complex systems, that can be overseen and managed by local, “normal” skilled workforce.

8 1.3 Business model and strategy

The Mission of the Kardex Group is to provide solutions and services in order to increase the efficiency in storing and handling of goods and materials on a global scale. Kardex Remstar and Kardex Mlog Divisions are leading providers of solutions and services for automated storage, retrieval and materials handling , whereas Kardex Stow is a leading provider of solutions for static storage and materials handling .

Based on a comprehensive product and service offering, all three Divisions aim to serve their clients as a life-time partner for warehousing solutions; starting from consulting to implementation through to service and life cycle management. In order to maintain and strengthen its competitive position through technological innovation and customer loyalty, the Group is substantially investing in R&D activities as well as in the expansion of its service organization.

The Kardex business model:

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Figure 1: Kardex Business model

9 Investor Handbook April 2012

1.4 Strategic drivers for growth and profitability

To meet its key goals, the Group has defined six strategic drivers to exploit growth and profit opportunities. First and foremost, the service organizations and after-sales services will be further strengthened on a global scale. Second, product innovation is focused on speed and availability to meet the clients very first needs. Third, the sales approach is increasingly focused on dedicated industry group solutions. Fourth, efficiency programs, ongoing process optimization efforts and the centralization of the Group’s procurement activities are expected to yield in cost reductions. Fifth, marketing efforts will be started to penetrate more markets with a focus on emerging economies especially in Asia, Eastern Europe and South America. Last but not least, management development programs on all levels have been initiated in order to further strengthen Kardex reputation as premium employer and to attract the best talents in the market.

1.5 Overview product and service offering

Heavy loads Pallet Racking (Kardex Stow) High Density Vertical Lifts & Carousels (Kardex Remstar) Horizontal Carousels (Kardex Remstar) AS/RS Machines and pallet conveyors (Kardex Mlog)

Light loads Mini-loads Racking (Kardex Stow) Mini-load Crane and MDynamic (Kardex Mlog) Vertical Carousels (Kardex Remstar)

Software Machine Control Software (Kardex Remstar) Materials Flow Software (Kardex Mlog) Warehouse Control and Warehouse Management Software (Kardex Mlog, Kardex Remstar)

Systems Automated warehouses and material handling systems, Stand alone Subsystems (Kardex Mlog, Kardex Remstar)

Life Cycle Services Monitoring, Service, Modernization (Kardex Remstar, Kardex Mlog) 24/7 hotline and support (Kardex Remstar, Kardex Mlog)

10 1.6 Differentiating factors

Strong market positions Kardex Remstar is a global market leader for dynamic storage, retrieval and material handling solutions. Kardex Mlog has a leading position in Central Europe for automated stacker cranes, conveyor systems and automated material handling systems. Kardex Stow has a strong market position in the pallet racking market in large parts of Europe and Asia (China)

Large installed base The large existing customer base provides future revenue generating prospects through the delivery of after-sales services, refurbishment as well as new solutions to meet changing customer requirements in all three divisions of the Group.

Customized solutions Each division separately as well as combined offers of the three divisions are well positioned to increase the market demand for stand-alone subsystems for specific industry and service segments.

Brand visibility The Kardex brand family has been unified. A new corporate identity has been launched in 2011 and further enhanced the Group’s visibility on a global scale.

Global footprint Kardex’ global footprint offers a strong basis to provide sales and service worldwide

11 Investor Handbook April 2012

2 Key figures and share information

2.1 Key figures at a glance

Net debt/Equity Operating result (EBIT) in EUR millions in EUR millions

100 40

80 30

60 20

40 10 35.2 42.3 6.3 – 2.2 10.4 20 0

0 – 10 07* 08 09 10 11 07* 08 09 10 11

Net debt *continued operations Equity *continued operations

Net revenues Net revenues by division by regions in EUR millions Business year 2011 in %

500

8.0 400 6.2

300

200

100 85.8

0 07* 08 09 10 11

Kardex Remstar Europe, Middle East and Africa Kardex Stow Asia/Pacific Kardex Mlog Americas (2010: May to Dec.) *continued operations

From 2007 – 2009 financial accounting applied to IFRS, since 2010 to Swiss GAAP FER.

12 2.2 Financial highlights 2011

Strong revenue growth (+29 %) and solid order backlog (+14.2 %) in all divisions

Group returns to profitability, EBIT EUR 10.4 million, net result EUR 3.0 million

Capital increase of EUR 25.4 million strengthens balance sheet and secures operating flexibility

Shift of management responsibility to the divisions is bearing fruits

EUR millions 1 January to 31 December 2011 2010 +/– %

Bookings 480.2 391.0 22.8 % Order backlog (31 December) 148.5 130.0 14.2 % Net revenues 459.2 355.9 29.0 % Gross Profit 97.9 78.6 24.6 % OPEX 87.5 80.8 8.3 % Operating result (EBIT) 10.4 – 2.2 n.m. EBIT in % of revenues, net 2.3 % – 0.6 % EBITDA 21.5 8.3 159.0 % Result for the period 3.0 – 9.1 n.m. Result per share for the period 0.48 – 1.62 n.m. Free cash flow – 7.8 – 18.8 58.5 %

31.12.2011 31.12.2010 +/– %

Net debt 15.6 42.6 – 63.4 % Equity 64.5 36.1 78.7 % Equity ratio in % 25.5 % 14.6 % Employees (full-time equivalents) 2 124 2 122 0.1 %

13 InvestorFinanzielle Handbook Berichterstattung April 2012 der Kardex AG (Holding)

2.3 Consolidated Balance Sheet

Year ended 31st December (amounts in EUR millions)

EUR millions Notes 31.12.2011 31.12.2010

Property, plant and equipment 9 57.3 62.7 Intangible assets 9 5.5 6.3 Financial assets 11 7.3 7.0 Non-current assets 70.1 76.0 Inventories, work in progress 12 41.4 30.2 Trade accounts receivable 13 91.3 73.7 Other receivables 14 9.9 11.9 Prepaid expenses 2.9 2.8 Financial assets 11 – 10.0 Cash and cash equivalents 15 36.9 42.8 Current assets 182.4 171.4 Assets 252.5 247.4

Share capital 16 59.9 39.4 Capital reserves 84.2 79.3 Retained earnings incl. translation differences – 79.5 – 82.0 Treasury shares 16 – 0.1 – 0.6 Equity 64.5 36.1 Non-current financial liabilities 18 41.9 34.8 Non-current provisions 20 21.1 21.5 Non-current liabilities 63.0 56.3 Trade accounts payable 55.7 52.5 Current financial liabilities 18 10.6 50.6 Current provisions 20 6.4 7.2 Accruals 27.2 20.4 Other current liabilities 21 25.1 24.3 Current liabilities 125.0 155.0 Liabilities 188.0 211.3 Equity and liabilities 252.5 247.4

For reasons of comparability, the figures and lay-out of last year are adjusted to Swiss GAAP FER. 14 2.4 Consolidated Income Statement

Year ended 31st December (amounts in EUR millions)

Proportion Proportion EUR millions Notes 2011 (%) 2010 (%)

Net revenues 459.2 100.0 % 355.9 100.0 % Cost of goods sold and services provided – 361.3 – 78.7 % – 277.3 – 77.9 % Gross profit 97.9 21.3 % 78.6 22.1 %

Marketing and sales expenses – 55.2 – 12.0 % – 52.4 – 14.7 % Administrative expenses – 29.1 – 6.3 % – 25.4 – 7.1 % Development expenses – 5.2 – 1.1 % – 5.4 – 1.5 % Other operating income 5 4.5 1.0 % 4.6 1.3 % Other operating expenses 5 – 2.5 – 0.5 % – 2.2 – 0.6 % Operating result (EBIT) 10.4 2.3 % – 2.2 – 0.6 %

Financial result, net 7 – 6.4 – 1.4 % – 6.1 – 1.7 %

Result for the period before tax 4.0 0.9 % – 8.3 – 2.3 %

Income tax expense 8 – 1.0 – 0.2 % – 0.8 – 0.2 % Result for the period 3.0 0.7 % – 9.1 – 2.6 %

Result per share for the period, Kardex AG: – basic/diluted (EUR)1 17 0.48 – 1.62

1 No dilutive effect occurred in 2011 and 2010, the diluted result per share for the period is the same as the basic result per share for the period.

For reasons of comparability, the figures and lay-out of last year are adjusted to Swiss GAAP FER. 15 Investor Handbook April 2012

2.5 Information on the Kardex share

Share capital and capital structure

2011 2010 2009 2008 2007

Par value per share (CHF) 11.00 11.00 11.00 13.50 13.50 Total bearer share – – – 5 627 453 5 627 453 Total registered share 7 730 000 5 627 453 5 627 453 – – Number of treasury shares 3 149 15 364 57 573 60 796 28 466 Number of dividend-bearing shares 7 726 851 5 612 089 5 569 880 5 566 657 5 598 987 Registered capital (CHF 1 000) 85 030 61 902 61 902 75 971 75 971 Conditional capital (CHF 1 000) – 9 900 9 900 12 150 12 150 Authorized capital (CHF 1 000) 7 823 – – – – Total voting rights 7 726 851 5 612 089 5 569 880 5 566 657 5 598 987

Key stock exchange figures per share

CHF 2011 2010 2009 2008 2007

Share price high 32.00 39.25 36.35 66.25 73.00 Share price low 10.60 23.10 21.00 25.60 49.95 Closing rate 11.95 30.30 33.45 30.00 61.50 Average volume per trading day 11 617 7 712 8 692 10 615 17 849 Market capitalization – CHF million 92.37 170.51 188.24 168.82 346.09

Key figures per share

CHF 2011 2010 2009 2008 2007

Net result per share 0.48 – 2.23 0.21 9.30 6.35 Price earnings (closing rate) 24.97 156.44 3.22 9.68 Operating cash flow – 0.54 2.51 6.87 10.43 14.91 Free cash flow – 1.25 – 4.62 4.81 5.69 21.34 Dividend – – – – – Par value reduction – – – 2.50 – Equity 10.20 8.03 25.86 28.47 21.82

The registered shares of Kardex AG are traded in the Domestic Standard of SIX Swiss Exchange in Zurich. They are contained in the SPI (Swiss Performance Index). Stock exchange symbol: KARN/Swiss security no.: 10083728/ISIN number: CH0100837282/Bloomberg: KARN SW Equity/Reuters: KARN.S. Current prices can be seen at www.kardex.com.

16 Share price performance Kardex AG (Holding) share On SIX Swiss Exchange 1.1.2011 to 29.2.2012 based on the weekly closing price in CHF

% CHF

100 31.60

90 26.60

80 21.60

70 16.60

60 11.60

Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb.

Registered shares of Kardex AG (KARN) Swiss Performance Index (SPI)

The value of a Kardex share decreased by 60.6 % from CHF 30.30 to CHF 11.95 in 2011. Since Kardex opted not to make a distribution/dividend payment in the year under review, the overall performance for the entire year was likewise – 60.6 %. Trading in shares from the capital increase commenced on 6 September 2011.

Shareholder structure As at 31 March 2012, there were 1352 shareholders (31 December 2010: 1592) entered in the share register. The following shareholders held more than 3 % of the outstanding share capital of Kardex AG on 31 December 2011:

31.03.2012 31.12.2010

Buru Holding and Philipp Buhofer 22.0 % 20.3 % Pictet Funds SA – 5.1 % Stancroft Trust Limited <5.0 % – LB (Swiss) Investment AG <5.0 % – Markus Eberle <5.0 % –

Contact Kardex AG Gerhard Mahrle, CFO Edwin van der Geest, Investor Relations Tel. +41 44 419 44 79 [email protected]

Contact share register Ursula Bareth, Assistant to the Board of Directors and the Group CFO Tel. +41 44 419 44 79

Corporate Calendar Interim Report 2012 23 August 2012 17 Investor Handbook April 2012

3 Kardex’s ‘Strategic themes’ and the ‘Equity Story’

3.1 Introduction

Kardex is a leading provider of automated and static storage, retrieval and materials handling systems. With three entrepreneurial managed divisions, two of them with a global footprint, the Group has developed from a product supplier into a global acting industry partner with an attractive and comprehensive product, service and software offering under the Kardex brand name. Kardex is well positioned to grow in a market with strong fundamentals and as such able to achieve attractive financial returns.

3.2 Group Mission and Strategy

The Mission of the Kardex Group is to provide solutions and services to increase the efficiency in storing and handling of goods and materials on a global scale for its customers.

Based on a comprehensive product and service offering, the Divisions aim to serve their clients as life- time- partner for for warehousing solutions; starting from consulting to implementation through to service and life cycle management.

3.3 Key trends: Increasing automation – with a strong need for reduction of complexity

Storage and product handling is a key cost and efficiency factor, not only in traditional production and distribution facilities but increasingly also for service providers and in new (e.g. internet-based) business models. Many of them have to invest in modernizing their storage and warehouse facilities in the coming years. Costs can be reduced by further automation of such facilities in order to save space and, increase the availability of the stored goods. . Further key functions to operate a warehouse more efficiently are increasing the picking and commissioning speed of the goods as well as overall access time to the goods.

18 3.4 An attractive market with long-term potential

The accessable market segments for the Kardex ranges from basic static products (racks) to complex and fully automated warehousing projects. The average annual growth rate for static products and automated product is 4–6% – reflecting the booming emerging countries –, the growth rate for integrated subsystems and complex system is slightly higher than the GDP growth of the respective country (2–4% p.a.). The most rapidly growing and newest market segment is the area of stand-alone sub-systems. This market is driven by the need of smaller (light industrial and service) companies to increase efficiency and the trend towards new business models as internet shops as well as by the trend towards “easy manageable” systems on a stand alone basis as indicated before.

Profitability is lower in the static racking market (commodities) as well as in the most-complex segment (due to the higher project risks) whereas the stand-alone sub-system market offers attractive margins at lower risk.

The accessable markets and its dynamics

Market volume

CAGR 2–4% CAGR +10% CAGR 4–6%

Profitability

Static Automated Stand-alone Integrated Systems Complexity Products Products Sub-Systems Subsystems No Software Machine- Warehouse Warehouse Warehouse- (SW) control SW control SW control SW Mgmt System, with interfaces interfaces ERP

Figure 2: The accessable markets and its dynamics

19 Investor Handbook April 2012

3.5 Kardex’s three entrepreneurial managed divisions well positioned

The three divisions of the Kardex Group act independently with entrepreneurial management teams in their respective markets. Kardex Remstar is one of the leading suppliers of dynamic storage and retrieval systems and Kardex Mlog is offering automated materials handling systems and stacker cranes for pallets and small parts as well as in depth know-how in project management. Kardex Stow is well positioned in the field of static racking systems. All three divisions operate manufacturing facilities in Europe, Kardex Stow and Kardex Remstar have established an international sales force operating in their crucial markets. The Kardex Mlog division is focused on Central Europe, the technologically most advanced market, while it started in 2010 to expand its activities into neighbouring countries successfully.

3.6 Unique existing customer base is a key asset

With over 100’000 installed Kardex Remstar machines, 800 Kardex Mlog systems and more than 2000 stacker cranes the Group has a broad existing customer base that needs ongoing after-sales services. Furthermore, many of these clients must and will upgrade their systems in the years to come and Kardex – with its broad offering – is well positioned to benefit from these needs.

3.7 Six-pillar strategy to exploit growth opportunities

The main strategic initiatives within the Kardex Group and its divisions are listed below. The major aim – beside the increase of profitability – is to reduce the exposure of the company to cyclicality. Thereby the major driver to achieve a more stable business development is to systematically increase the level of the service business and to decrease the overheads cost of the whole organization including the manufacturing sites (breathing factory).

20 Remstar Mlog Stow Increasing service activities ++ +++ + (excl. modernizations) 2011: 27% of Total Sales 2011: 15% of Total Sales Ramp-up service for Hard- and Software (Target >30%) (Target >25%) automated products Technical Support Geographical coverage

Product innovation +++ +++ + Portfolio expansion, focus Mini-loads for industry and Automated products, on efficiency and user service facilities (synergies Re-design existing friendliness (ergonomics, Remstar software) products ease of use

Sales approach ++ +++ +++ Targeted sales approach Targeted sales approach Increased sales team (market intelligence, (market intelligence, focussed on smaller orders specific industry sege- defined customer groups) Expansion OEM ments

Operational efficiency +++ +++ ++ Service and production Reduction of complexity, Geographical expansion of efficiency (Re-design, standardization production facilities production allocation) Re-engineering of all processes

Geographical footprint ++ + +++ Defend and expand in Gradually expand activities Expand market share in Europe, expand Asia/USA from Germany to Western + Eastern Europe, Prepare entry South central Europe Asia America

Human Resources ++ ++ ++ Management Develop- Management Develop- Management Develop- ment programs ment programs on all ment programs on all on all levels levels levels Build strong corporate Build strong corporate Build strong corporate culture culture culture

Level of impact: + important, ++ significant, +++ strong

3.8 The turnover mix of the divisions will change

The combination of a) exploiting the opportunities created by the key trends in the accessable markets, b) the business modell of the divisions, c) the huge installed basis, d) using synergies between the divisions and d) the realization of the above listed strategic intitiatives will lead to a substantial change in the turnover mix of the divisions over the next years. Thereby the increased level of life cycle services as well as the higher percentage of stand-alone subsystems will positively effect the margins and reduce the exposure to cyclicality and project risks.

21 Investor Handbook April 2012

Turnover mix divisions 2011–2014E in %:

Kardex Remstar Kardex Mlog Kardex Stow

15 27 35 10

65 8

35 98

5 1

20 30 40 55

14 40 94

Services Services Automated Products Stand-alone Sub-Systems Stand-alone Sub-Systems Services Automated Products Integrated Sub-Systems Static Products Systems

Figure 3: Turnover mix divisions 2011–2014E in %

3.9 Financial Targets (over the cycle)

Growth EBIT margin ROCE Kardex Remstar 6–10% Kardex Mlog 5–8% Kardex Stow 3–5% Group 3–5% p.a. >5% >15%

22 4 Industry Outlook

4.1 Material Handling Equipment Manufacturing (MHEM)-Industry

The MHEM industry produces mechanical equipment used in the movement, storage, control and protection of materials, goods and finished products. Such equipment is used for manufacturing, retrieval, distribution, and disposal of all kinds of materials, goods and finished products. In many end user industries they have become an integral part of the value-added process.

The key benefits derived by the end user industries through the use of MHEM products and solutions are:

Cost reduction of development, warehousing, manufacturing and distribution processes Faster availability of materials and goods Increased throughput (picking, commissioning, delivery) Reduced order-to-delivery and time-to-market cycles Optimal utilization of available warehousing space and warehouse staff More efficient warehouse management through controlled material flow processes Integration into existing ERP-Systems

Sub-segments of the MHEM industry*

FEM (The European Material Handling Federation) classifies the wide range of products and systems used under the MHEM industry into the following categories:

1. Conveyors: equipment to move materials along a predetermined path usually on a “belt”

2. Cranes & lifting equipment: lifting and hoisting equipment such as tower and harbour cranes, mobile cranes etc

3. Elevating equipment: lift tables, dock levellers and tail lifts for vehicles

4. Industrial trucks: self-propelled industrial trucks, pedestrian-propelled manual and semi-manual trucks, driverless industrial trucks, industrial wheels and castors

5. Intra-logistic systems: automation, control and information technologies/software (material handling, warehouse management systems), and integration of several types of materials handling equipment into one system, stacker cranes

6. Mobile elevating work platforms: scissor lifts, self-propelled boom lifts, vehicle-mounted platforms, trailer push-around, vertical personnel platforms, insulated aerial devices

7. Racking & shelving: storage equipment such as adjustable pallet racking, drive-in racking, and gravity live storage racking, plastic storage containers etc.

*Relevant Kardex markets in bold 23 Investor Handbook April 2012

4.2 MHEM market fundamentals

4.2.1 Sound global demand

Worldwide, the MHEM market size for 2011 stood at USD 100 billion 1. The demand is projected to increase by 6.5% per year through 2014 to approach USD 113 billion 2. Demand growth in the Asia/Pacific region is expected to outpace the global average, increasing 7% per year through 2014 3. India and China will have the strongest growth among national markets, due to rising manufacturing output, which will require material handling equipment to facilitate production and distribution. India’s expected warehousing capacity increase of approximately 15 million tonnes 4 in next five years is likely to increase demand for MHE. China has grown into a leading supplier of material handling products, mainly taking advantage of its inexpensive labour pool. Nevertheless, Europe and the US will continue to remain stable sources of revenue.

Composition of Material Handling Regional MHEM markets EquipmentHandling Equipment market in marketEurope (2009–10) Regionalin % MHEM markets inin % Europe (2009–10)

14% 40

8% 30

33% 31% 10

24% 78% 12% 0 Western Asia North Other Europe Pacific America Regions Materials Handling and lifting equipment Global Material Handling Product Demand Storage equipment Global Material Handling Product Demand Materials Handling and lifting equipment Software and automation Storage equipment Software and automation

Figure 4: Regional MHEM markets Figure 5: Composition of Material Handling Source: Freedonia Focus Equipment market in Europe (2009–10) Source: FEM

Segment wise, the average annual growth rate for static products and automated products is expected to reach 4–6% 5 driven by the emerging markets, especially in Asia Pacific. The growth rate for integrated subsystems and complex is expected to be at 2–4% 6. The most rapidly growing market – also the newest segment – is the area of stand-alone sub-systems. Stand alone sub-systems are intra-logistic systems that are consisting of several components (e.g. mini-load, conveyor systems and software) that are operable independently.“ This market is driven by the need of smaller (light industrial and service) companies to increase efficiency and the trend towards new business models as internet shops as well as by the trend towards “easy manageable” systems on a stand alone basis as indicated before.

1 Freedonia Group 2 Freedonia Group 3 PR Newswire 4 Business Standard 5 Kardex estimates 6 Kardex estimates 24 Static products The static storage systems are typically used in high-bay warehouses for storage of palletised goods or for storage of smaller boxes, creation of modular warehouse shelving and racking solutions. Racking and shelving systems are the most basic requirements in any distribution, storage, or material handling operation and include various types of storage racks such as cantilever storage racks, portable stacking racks, conventional pallet racks, etc. Typical end-user industries include warehousing and logistics, retail, and transportation. Price pressure prevails in the static products market.

Automated products The dynamic storage and retrieval systems consist of automated products such as carousels (vertical and horizontal), vertical lift modules etc. and are using technologies such as RFID (radio frequency identification), voice and robotics. Typical products offered in this segment include shuttles, carousels, bins & accessories, pick-to-light products, lifts and various software solutions. Designed to be user friendly, these products help to reduce costs and to optimize space. The payback period is driven by labour and land cost. Typical end-user industries include warehousing and logistics, pharmaceuticals, food, mechanical engineering and automotive.

Stand-alone subsystems and Automated warehousing and materials handling systems include a combi- integrated sub-systems nation of products such as individual storage and retrieval machines, conveyor systems, material flow control systems etc. Apart from individual equipment such as automated stacker cranes and conveyor systems, vendors also provide turnkey solutions, for example mobile racking system, pallet picking stores and Warehouse Management Systems. Typical end-user industries include manufacturing industries such as mechanical engineering, automotive, food, pharmaceuticals and consu- mer durables and service industries such as warehousing and logistics. Demand for stand-alone sub-systems is growing fast and offers the best returns.

25 Investor Handbook April 2012

4.2.2 Increasing role of Asian players

Large companies in the MHEM industry are located in developed countries, but this is expected to change over time with China becoming even more important as a hub for manufacturing in general and a major producer and exporter of material handling equipment in particular. China benefits mainly from a large pool of cheap labour and demand for its exports.

Exports of material handling equipment Exports in bUSD

8 2009 2010 YOY YOY 6 Country growth growth Germany –23.9% 7.2% 4 8.3 8.9 10.9 China –16.9% 6.1% US –33.3% 21.1%

2 5.9 4.9 5.2 Japan –44.7% 19.2% 5.7 3.8 4.6

4.7 2.6 3.1 Italy –38.2% 19.0% 3.4 2.1 2.5 0 2.9 1.7 1.8 France –41.0% 5.9% Germany China US Japan Italy France

2008 2009 2010

Figure 6: Exports of material handling equipment Source: VDMA

4.2.3 Rising warehouse capacity

Warehousing capacity additions are likely to drive the need for material handling equipments. In the next five years, on an average approximately 6.8 million square feet of warehouse space will be added with maximum space of 1.8 million square feet to be added to the largest market in western Europe; Germany (31% of Europe total warehousing capacity) 7. Western Europe remains the technologically most advanced market in the industry. However, a sharply rising number of new facilities in Eastern Europe, North America and Asia Pacific is planned.

7 Jones Lang LaSalle 26 Warehousing capacity additions across Europe over next 5 years in .000 sqm

2,000

1,600

1,200

800

400

0 Belgium Spain Nether- UK Italy France Germany Hungary Czech Poland Russia lands Republic

Under construction 5-year annual completions average

Figure 7: Warehousing capacity additions across Europe over next 5 years Source: Jones Lang LaSalle Research

4.2.4 Cyclicality of the MHEM industry

The overall MHEM industry moves in line, albeit with a time lag, with the global economy. This cyclicality is induced in the industry by its end-users who, in line with any down-swing, postpone or cancel their orders but on the other hand have to invest extensively in any given economic up-swing. This cyclicality and the associated time lags were also observable during the last economic crisis as well as the subsequent economic recovery which started in the first half of 2009.

The time lag between economic recovery and increase in MHEM orders or shipments is approximately 9–12 months and is driven by the following factors: 1. Capital intensity of the installed solutions 2. Use of handling equipment in critical processes which have high switching costs 3. Dependency of new orders on capacity expansion 4. High level of sophistication and customisation requirements in most end-user industries

27 Investor Handbook April 2012

Material handling equipment manufacturers forecast Left scale: New orders and shipments in % / Right scale: GDP four quarter Percent Change in %

Forecast 30 8

20 6

10 4

0 2

–10 0

–20 –2

–30 –4 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11e 12F 13F 14F

New Orders New Orders Forecast GDP Nominal +2Q Shipments Shipments Forecast Global Insight Forecast

Figure 8: Material handling equipment manufacturers forecast Source: MHIA

4.2.5 Steel price remains volatile

Steel is one of the most heavily used raw materials in the MHEM industry. Steel prices have been volatile during the past five years, reaching its peak in August 2008 and declining sharply thereafter in response to the global economic crisis. However, with signs of global economic recovery, steel prices have started increasing since then. This increase in steel prices can result in a squeeze in margins of MHEM companies. However, leading suppliers such as Kardex Stoware able to pass on steel price fluctuations to their customers as many of them have a tendency to accept fluctuating steel costs by using a special formula when calculating prices.

Development of the steel price (2005–2011) In USD per Metric Tonne

1,200

1,100

1,000

900

800

700

600

500 06/05 11/05 04/06 09/06 02/07 07/07 12/07 05/08 10/08 03/09 08/09 01/10 06/10 11/10 04/11 09/11 02/12

Figure 9: Development of the steel price (2005–2011) Source: Bloomberg 28 4.3 Emerging trends

4.3.1 Improvement in efficiency needed due to surging costs

Warehousing rents and labour costs have been consistently increasing in the last few years, forcing companies to utilize their warehousing and storage space more efficiently. Operators need to have a sharp eye on these cost factors and this has given an impetus to the storage solution equipment manufacturers. Many products with space efficient storage systems have been developed recently to address this need and further automation – in order to reduce labour costs – are expected to continue.

European Warehousing Rental Index in %

–5

–10

–15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011

Western Europe Eastern Europe

Figure 10: European Warehousing Rental Index Source: Jones Lang LaSalle Research

4.3.2 New projects, refurbishment and modernization of warehouses

Warehouse refurbishment and modernization is gaining importance for small and large companies alike responding to increased focus on efficiency by implementing automated intra-logistics solutions. While the smaller companies use specific products and low complexity/low capital solutions, larger ones are migra- ting towards complete warehouse automation. End-users who cannot afford large capital expenses are refurbishing their existing manual or automated systems to extend the lifecycles.

According to a survey conducted by Logistics Management (2010), 69% of the participants planned investing in new equipment or equipment upgrades in 2011 and 2012. Topping the list of specific material handling equipment and systems investments is radio frequency identification (RFID) at 43%. While the push for technology, specifically RFID, automated storage and bar code scanners may lead the charge of material handling investments in the next 18 months.

29 Investor Handbook April 2012

A recent survey by Logistics Management 8 revealed that 58% of the respondents intend to increase their material handling investments over the next two to three years, with 31% of the respondents planning to invest more in material handling solutions in 2010 as compared to 28% in 2009. Furthermore, a survey conducted by Aberdeen Group in July 2009 among 250 companies from various industries using warehouse automation revealed that more companies are willing to upgrade or enhance their existing warehouse management systems rather than implement a new one 9.

Willingness to upgrade warehouse systems through organic improvements (like better equipment) in %

Taking any action (net) 95%

Improving warehouse processes 77%

Improving inventroy control 60%

Changing rack and layout configuration 48%

Improving information technology 40%

Reducing staff 43%

Renegotiating leases 27%

Using 3 PL 14%

Other 3%

2011 2010 0 20 40 60 80 100 120

Figure 11: Willingness to upgrade warehouse systems through organic improvements (like better equipment) Source: Aberdeen Group

4.3.3 Increasing use of automation

Automation is increasing in the material handling process to save costs and reduce lead time. While Germany was the leader in the process, the Rest of Europe and America are coming closer to Central European standards, followed by Asia Pacific and South America. The increasing use of storage and retrieval machines without operator is one of the indicators of increasing automation.

8 “Logistics Management” conducted the survey in February 2010, with an aim to better understand the changes in the material handling market over the past year. A total of 353 manufacturing and warehousing/ distribution companies with revenues both large (41% had revenues above USD100 million) and small (18% had revenues under USD5 million) participated in the survey. Refer to the Appendix for key results of the survey. 9 Aberdeen Group, June 2009 30 Performance of market for S/R and loading machines Index of orders (base: 2005) 132

121 117 121 120

100 103 100 98 100 93 87 82 79 80

0 S/R Machines without operator Miniload Machines

2005 2007 2009 2006 2008 2010

Figure 12: Performance of market for S/R and loading machines Source: FEM

In Central Europe, only around 30% 10 of all distribution centres and warehouses have been automated so far while the global average in only about 10% 11. Important to note, order picking can account for 50–60% of the costs of a manually operated warehouse or distribution centre. Therefore, it implies by increasing automation, significant cost savings can be achieved.

Automation scope is high given the low level of existing automation in %

Conventional 85% Automated 6% Conveyor based 8% Storage Other 3%

Conventional 69% Conveyor based 10% Replenishment Automated 9%

Conventional 80% Conveyor based 15% Picking Automated 9%

Conventional 89% Conveyor based 12% Receiving

2011 0 10 20 30 40 50 60 70 80 90 100 2010

Figure 13: Automation scope is high given the low level of existing automation Source: MHIA

10 Kardex estimates 11 Kardex estimates 31 Investor Handbook April 2012

4.3.4 Specific stand-alone sub-systems getting more important

Rapidly reconfigurable manufacturing systems are acknowledged to serve the needs of the manufacturing companies for handling the shortening product life cycles and mass customization. Companies have to deliver in full and in time. As such, they have to cope with increasing diversification and complexity. This causes high requirements regarding storing security, flow tracking and reliability of delivery. As a conse- quence, demand for stand-alone subsystems for specific customer groups or needs is likely to grow. However, these systems need to be easy to operate by the local workforce (for example in Eastern Europe or Asia). In addition, new business models such as online retailers or internet based businesses are expected to come to the market and as such will have to invest in material handling equipment and inventory management software systems. Online retail sales are forecasted to reach an estimated USD 334 billion for US and USD150 billion for Europe by 2012 and crossing USD600 billion in aggregate by 2016 12. Such an increase in online retail needs to be supported by back end inventory management and supply chain management which will cause sound demand for MHEM industry particpants.

4.3.5 After-sales service and support

Product related services (which include installation, maintenance, repair and engineering services) are gaining in importance and have established a capacity to contribute in growth of large and medium scale product companies. Due to increasing competition from low cost manufacturing locations like China, India and other Asian countries, product related service business offers higher top line and bottom line growth to be derived from significant differentiation and increased brand loyalty. Due to increasing competition, MHEM companies are focusing on providing consultative value added services to their customers after the normal sales cycle. The contribution of revenues from after-sales services to total revenues has been increasing in the recent past.

Contribution of revenues from after-sales services to the total revenues in %

0 2004 2005 2006 2007 2008 2009 2010

Kardex Daifuku Jungheinrich Interroll Figure 14: Contribution of revenues from after-sales services to the total revenues Source: Company Annual Reports

12 Techcrunch

32 According to a McKinsey & Co. study, 62% of new hardware product orders in the U.S., and 64% worldwide, include maintenance and support contracts. It implies almost 40% of products sold could generate additional after-sales revenues and profits if properly pursued.

Deloitte‘s study of leading manufacturers world-wide highlighted the business potential for after-sales in manufacturing. The manufacturing businesses studied reported on an average 75% more profits from the services and parts operations than the main product business. On an average, after-sales accounted for 26% of their revenues, while in some cases, it sometimes accounted for more than 50% of total revenues.

4.3.6 Technology and product development

MHEM companies continue to make significant investments in their R&D activities to stay competitive. Some of the noticeable technological innovations or improvements in material handling systems are: Smart sensors and interactive interfaces are the latest technological innovations in the current wave of material handling systems. These technologies enable a dashboard view of performance of the machine based on user-defined operating range for each opportunity 13. Auto-ID or automated identification technology enables end-users with total supply chain visibility by recording the product’s identity and location within the whole supply chain. This information is used to track the location of the products and also perform specific actions such as labelling, packaging, sorting, shipping and receiving. Radio Frequency Data Terminals (RFDT) are used to improve the coordination amongst the warehousing staff with the help of hand held laser scanners. Real Time Warehouse Control Systems (RTWCS) enable efficient material flow based on work queue, priority and resource optimisation 14.

Lean material handling techniques are being implemented by many companies. Examples of products being improved to suit lean handling requirements include mini-load AS/RS, unit-load AS/RS, horizontal and vertical carousels. Mini-load AS/RS: Mini-load AS/RS are used to handle loads in small containers, boxes or totes, enabling the user to store more material in less space. Suppliers are not only focusing on increasing the height and speed of mini-loads but also developing independent mini-load handlers and drive systems which compensate for mass movement with motor-driven anti-pendulum and belt-driven omega drives. Instead of using mini-loads as a mere stand-alone storage system, there is an increasing trend to include them as an integrated part of an overall picking strategy in order to achieve the lowest cost per piece picked. Unit-load AS/RS: In distribution centres, unit-load AS/RS are used to store pallet loads, replenish mini-loads or direct picking. New products are being developed, which are as high as 48 meters tall but with lower weight than before. This decrease in weight reduces the required drive motor capacity resulting in lower power consumption. Shuttle and Vertical Carousel: The standard widths of trays for Shuttle systems rise up to a useful width of 4.0 meters which allows more picks with one move and increase productivity. For Vertical Carousels there is an increasing demand for special applications such as refrigeration, humidity or clean room control.

13 Industry week magazine, Article- Material Handling: The Next Generation by David Blanchard 14 Indian Institute for material management 33 Investor Handbook April 2012

5 Company description and Management

5.1 Kardex in brief

Kardex AG (referred to as “Kardex or the Group”) is a leading provider of automated and static storage, retrieval and materials handling systems. It consists of the three corporate divisions Kardex Remstar, Kardex Stow and Kardex Mlog. Kardex Remstar develops, produces and maintains dynamic storage and retrieval systems, Kardex Stow static storage systems, shuttles and automated mobile shelving systems and Kardex Mlog integrated materials handling systems and automated high-bay warehouses.

All divisions are partners for their customers over the entire lifecycle of a product or solution. This starts with an assessment of customer requirements and continues via the planning, realization and implementation of customer-specific systems through to ensuring a high level of availability and low lifecycle costs by means of customer-oriented lifecycle management. Kardex has six manufacturing facilities, of which five are located in Europe and one in China. Out of the five production plants in Europe, three are in Germany and one each in Belgium and Czech Republic. More than 2100 employees in over 30 countries worldwide work for the companies of the Kardex Group.

Production plants

A B D E G C

A - Bellheim, Germany B - Neuenstadt am Kocher, Germany C - Neuburg, Germany D - Dottenijs, Belgium E - Karvina, Czech Republic F - Shanghai, China G - Westbrook, USA (assembly only)

Figure 15: Production plants

Key Figures 2011 Registered office Zurich, Switzerland Number of subsidiaries 46 Number of full-time employees 2,113 Net Revenues EUR 459.2 million EBITDA EUR 21.5 million EBIT EUR 10.4 million

34 5.2 Historical evolution

1977 Kardex incorporated under Swiss law 1987 Kardex listed on the SIX Swiss Exchange Acquisition of AFT Automation and Conveying Systems GmbH, Germany; 2000 creation of the AFT division 2001 Acquisition of Kardex Stow Group, Belgium 2003 Kardex takes over the remaining 40% of the Belgian Kardex Stow Group Kardex merged with investment company Tuxedo Invest AG, resulting in an 2004 inflow of equity amounting to approximately CHF 61 million 2006 Spin-off of Industrieholding Cham/Kardex Remstar

Sale of AFT Division 2007 Acquisition of French distribution partner Leader Systèmes SA Integration of Kardex International and Megamat to strengthen the Kardex Remstar division

2008 Acquisition of Kardex Systems Inc (Marietta, OH), a former competitor in the US 2009 Acquisition of Scandinavian distributor Element Storage Systems AS 2010 Acquisition of Germany-based Kardex Mlog Logistics GmbH

5.3 Group structure

Effective 1 June 2011 the operational management of the Kardex Group was reorganized. The Kardex Group is led by an Executive Committee, which is headed by the Delegate of the Board of Directors. Further members of the Executive Committee are the three Heads of Divison and the Group CFO.Head- quartered in Zurich, Switzerland, Kardex is listed on the SIX Swiss Exchange. The Group has three divisions, Kardex Stow, Kardex Remstar and Kardex Mlog.

Board of Directors Committees: Audit Committee Compensation and Nomination Committee

Executive Committee Group Functions

Kardex Remstar Division Kardex Stow Division Kardex Mlog Division

Dynamic storage and Static storage systems Automated warehouse and retrieval systems material handling systems

Figure 16: Group structure

35 Investor Handbook April 2012

5.4 Positioning

The Group developed from a product and sub-system supplier into a global acting industry partner with an attractive product, service and software offering under the Kardex brand name. Today, the three divisions act independently with entrepreneurial management teams in their respective markets. Each division separately as well as combined offers of the three divisions are well positioned to increase the market demand for stand-alone subsystems for specific industry and service segments. From a long-term per- spective, the current areas of business are attractive and the Groups expertise is meeting with a positive echo from the market.

Kardex Remstar is one of the leading suppliers of dynamic storage and retrieval systems and Kardex Mlog is offering automated materials handling systems and stacker cranes for pallets and small parts as well as in depth know-how in project management. Kardex Stow is well positioned in the field of static racking systems. Till date, Kardex has installed over 100,000 Kardex Remstar machines, 800 Kardex Mlog systems including 2,000 stacker cranes across the globe and as such a broad existing customer base.

5.5 Business model and strategy

With the shift in corporate responsibility to the divisions, the strategic focal points of the Group and its divisions were reviewed and given a sharper profile. The strategies are consequently being developed and implemented at division level. The common one-stop shop proposition continues to play a role in the marketplace; however, the success of each individual, independent division – with its own products, subsystems and services – remains central. Based on a comprehensive product and service offering, all three Divisions aim to serve their clients as a life-time partner for warehousing solutions; starting from consulting to implementation through to service and life cycle management. In order to maintain and strengthen its competitive position through technological innovation and customer loyalty, the Group is substantially investing in R&D activities as well as in the expansion of its service organization.

36 5.6 The three Divisions

5.6.1 Kardex Remstar

Kardey Remstar is a leading provider of dynamic storage and retrieval system that can handle small to large and light to heavy weight goods and materials. It is gradually transforming itself from a traditionally product based company to a supplier of simple, low complex systems. Kardex Remstar solutions provide customers with transparent savings both in space and process cost as well as with high quality that ensures seamless in-house logistics processes. Kardex Remstar customers can be found in a broad range of industries, from highly industrialized through to office environments. The Division has two main manufacturing sites, both located in Germany in Bellheim and in Neuburg. Over the last decades, Kardex Remstar has successfully completed over 100'000 projects across the globe. With its sales network and business partners, Kardex Remstar is actively present in over 30 countries and employs over 1,200 people world-wide.

Kardex Remstar is operating in an environment that has become increasingly competitive in recent years, which calls for a continuous Improvement of cost structures in addition to greater innovative efforts to remain a technology and market leader. Over the last 18 months many initiative have been started to bring the organization even closer to the market and customers. Foremost, organizational adjustments in the US and in the Benelux countries were implemented. In addition, the whole sales strategy and approach together with the sales organization were reviewed and harmonized on a global level. Expansion of the customer service operation as a main growth and profitability driver was successfully launched in 2011. On the revenue side, leverage lies first and foremost in the expansion of service activities and a systematic expansion of the regional presence. Furthermore, investments in new, innovative products remain an important element in strengthening the leading market position and capturing new sales areas.

Solution-/ Product Offerings Kardex Remstar continues combining product sales with value-added applications and solutions in order to significantly differentiate itself from competition. Most of the products for some of the industry segments come equipped with special options like controlled environment (air and temperature), protection against fire and state of the art software and controls. All related activities are centralized in a special application team and one of the main strategic pillars for the next years is to substantially expand this team and its offering. In addition, the other main success factor is a well developed software suite that provides Kardex Remstar customers with easy to use and highly innovative process support. Kardex Remstar will continue to invest in the next generation software and controls that will provide more value to its customers and will serve as a leverage factor for increased product and system sales. The current product range will have to be extended via new development initiatives with two major development directions – extension of the product dimensions and features within the existing portfolio and the extension of the current product portfolio itself.

37 Investor Handbook April 2012

Solution Concept Products family Products Customer Benefits Examples

Automated storage Vertical Lift The Shuttle XP is a solution Improvements in picking and commissioning Systems for high density storage and productivity up to 400% solutions for tooling, Kardex Shuttle increased order picking compared to conventional stationery, industrial productivity with almost storage products lead to an and commercial unrestricted flexibility in enormous reduction of the hardware and terms of height (up to 30 costs per pick and increase of consumables metres). One unit can carry a process efficiency gross load of 60 tonnes or even more

Vertical Carousels The Megamat RS is an The Megamat RS helps in Megamat RS automated vertical carousel saving up to 75% of the floor using the paternoster space that is required for principle. This high density traditional shelving systems. storage system enables the As well as to reduce energy greatest possible warehouse consumption up to 40% (com- capacity in both stand alone pared to competitor systems) or networked solutions and to improve security and ergonomics on a modular, future based machinery conception

Automated storage Horizontal The Kardex Remstar High picking productivity due and commissioning Carousels Horizontal is an automated to much reduced walking and solutions for tooling, computer controlled waiting time, combined with stationery, industrial horizontal carousel. The software control of picking and commercial integrated QuickPick® sequences ensures that the hardware and pick-to-light technologies are Kardex Horizontal delivers an consumables used to indicate the active excellent Return on carousel, shelve level and Investment (ROI) quantity of items to be picked

Element New vertical lift module espe- The Element provides simple cially for the US- and Asian but highly effective improve- markets. Based on the shuttle ments compared to static technology, the Element storage racks in the way of fulfils basic customer space requirements, access requirements for machine time and storing efficiency to driven storing concepts with a competitive price-/ limited technical options performance ratio

38 Solution Concept Products family Products Customer Benefits Examples

Automated storage Lektriever The Lektriever is a software The Lektriever will save 50% and commissioning controlled automated media plus on floor space when solutions for storage and retrieval system, compared to conventional document based on the paternoster racks. Office staff can management principle. The Lektriever can become 40% more produc- hold thousands of files, tive. Fire protection and videos, CD’s , DVD, or a host access control are further of other media for use in any product specific advantages office environments in private which meet customer and public companies demands administration

Software solution Software Power Pick Global is a Kardex Remstar software concepts from stock Small Business user-friendly software solutions cover the whole control applications Order Processor package which covers both range of software application to fully integrated Communicator storage control and material for storage and distribution, warehouse Pro management applications based on the customer’s management Warehouse from a basic to a high functionality needs. The solutions Edition sophisticated level of company is also able to offer functionality in a modular, customized software solutions flexible and user-friendly way in order to include individual warehouse systems into ERP systems

Order picking Special Kardex Remstar storage Excellent logistics processes solutions and Applications systems for air-conditioned, are handling and dry and clean room condi- expressed in the form of low automation tions. Intelligent product stock solutions handling and optimised levels, short supply times, production logistics to on-time planning, controlling and delivery and low logistics monitoring logistics processes costs on a higher level of with a very high degree of complexity precision

Service Service contracts, remote Active management of the service, 7days/24 hours, complete life cycles of Kardex worldwide Remstar solutions. Kardex Remstar service provides a secure basis for the long term, efficient operation and ensures the sustainability and profitability

39 Investor Handbook April 2012

Sales and Service Network

Subsidiaries Distributors Australia Czech Republic Austria Hungary Belgium Poland China Russia Cyprus Singapore Finland France Germany Great Britain India Ireland Italy Malaysia Netherlands Norway Spain Sweden Switzerland Turkey USA

Figure 17: Kardex Remstar: Sales and Service Network

The division has subsidiaries in 25 countries throughout Europe, Asia and the US. It has distributors also in the Middle East, Far East and South America. For Kardex Remstar, local presence combined with a locally and globally well-functioning service organization is a crucial differentiator in terms of securing and gaining market share. Beside high product quality, key factors of a modern customer service include customer vicinity and short response times, high and fast availability of spare parts and reduced general maintenance intervals. In addition, a professional global support network has to be maintained in order to ensure timely solutions to all customer needs.

Financial data

Key Figures 2010 2011 Bookings (EUR millions) 203.3 230.0 Order backlog (EUR millions) 60.3 70.2 Net revenue (EUR millions) 192.8 219.3 EBIT (EUR millions) 3.8 10.5 EBIT margin 2.0% 4.8% EBITDA 9.7 17.1 EBITDA margin 5.0% 7.8% Number of full-time employees 1,296 1,237

Source: Company reports

40 2011 results: growth in revenues and margins In the Kardex Remstar Division, net revenues in 2011 grew 13.7 % to EUR 219.3 million. A particularly positive rise in net revenues was recorded in Europe thanks to strong growth in Germany, while net revenues in the US continued to develop at a below-average rate. In Asia Pacific, a 20 % increase in net revenues was achieved but still on a low level. Thanks to higher-than-average growth, Kardex Remstar succeeded in gaining market share. A solid economic environment and more intense, focused marketing efforts were the main drivers behind the good level of bookings in financial year 2011. At EUR 230 million, bookings were up 13.1 % year-on-year. Operational margins could not been raised at the same level. Along with the increasing competition or a high degree of price sensitivity among customers, reasons included inefficiencies within the Division and non-recurring costs of EUR 1.6 million relating to restructuring measures in the US in the second half of the year. The result was an operating profit (EBIT) of EUR 10.5 million. The order backlog stood at EUR 70.2 million at the end of the financial year, up 16.4% on the previous year.

5.6.2 Kardex Stow

Headquartered in Dottignies, Belgium, the Kardex Stow Division develops, designs and manufactures static storage equipments including silos and also provides on-site assembly services. Kardex Stow is one of the market leaders in static storage and stacking systems for pallets, small parts and long goods. The offered products combine high quality with short delivery times – a considerable competitive advantage. Despite the low complexity of its products, continuing product development remains an important success factor.

Achievable margins are optimized gradually through order and project size. Customers such as general logistics contractors, logistics service providers and large industrial and trading conglomerates increasingly favour medium-sized warehouses with a capacity in the range of 30 000 to 40 000 pallet spaces. The products of Kardex Stow are mass-produced in the highly automated production facilities situated in Dottignies (Belgium) as well as the well-established factories in Karvina (Czech Republic) and Shanghai (China). Through its well connected sales network, Kardex Stow delivers to markets in Europe, the Middle East and Asia.

Kardex Stow is operating in a very competitive market environment. At the same time, the division continues to remain the industry’s cost leader but this advantage in the production process can only be partly exploited because high transport costs combined with limited margin potential mean various sales areas remain unattractive. Therefore, strategic alternatives are evaluated. These range from the acquisition of local suppliers through to partnerships.

Product Offerings Kardex Stow mainly provides customised solutions to third party logistics (3PL) providers, large distributors, manufacturers and retailers. The product portfolio of Kardex Stow consists of basic components and accessories required for storage and are distinguished because of their easy and quick installations.

41 Investor Handbook April 2012

Product family Products Description Examples Pallet storage Conventional pallet racking, The storage space can be High bay racking systems Drive-in racking, optimised by using racks, which system Open face racking, can be up to 30m in height. Mobile racking, These can bear loads up to 45 Pallet live storage, tonnes. High bay pallet racking, Customised racking and Heavy duty racking

Small goods storage Long span racking, Storage systems are used in Miniload single-store Shelving system, shelving, racking, long time Multitier racking, racking and multitier installations. High rise shelving, These are designed to carry load Carton live storage, of up to 230 kg/shelf. They have Miniload single-store and a frame load capacity of up to Miniload multi-store systems 4,000kg.

Mezzanine floor and Mezzanine floors which can be Flooring systems can be easily Mezzanine flooring mezzanine flooring combined with pallet racking modified. Staircases, handrails systeme systems systems and multitier flooring and safety gates can also be systems attached to them. The systems are distinguished because of their low price and the flexibility that they provide due to their modular structure.

Cantilever racking Kardex Stow’s Cantilever racking It provides easy and safe access Cantilever racking system is suitable for the storage to the products and mainly used of long, irregular and mixed loads for long-sized goods such as metal and plastic tubes, wooden boards and hot rolled steel. These can be loaded with load up to 2500kg per cantilever arm and the maximum system height is 9 meters. The lengths of the cantilever racking arms range from 600 to 2,500mm.

Innovation Silo Stow Silo will enter the market during 2011, and is in line with the newest market demands

Pallet shuttle Stow Atlas is a pallet shuttle system

42 Sales Network Kardex Stow has subsidiaries in 13 countries across Europe and Asia. Further, its distribution network covers 32 countries in Europe, the Middle East, the US and Asia. The Division is expanding its sales organization so that in future it can focus more closely on acquiring smaller orders with higher margins in all the markets it operates in.

Kardex Stow: Sales Network Europe

Subsidiaries Distributors UK Croatia Romania Austria Cyprus Serbia Belgium Denmark Slovenia Czech Republic Estonia Sweden France Finland Switzerland Germany Hungary Ukraine Luxemburg Iceland Netherlands Ireland Norway Kazakhstan Poland Latvia Russia Lithuania Slovakia Macedonia

Figure 18: Kardex Stow: Sales Network Europe

Kardex Stow: Sales Network Asia-Pacific

Subsidiaries Distributors China Australia India Indonesia Korea New Zealand Pakistan Sri Lanka

Figure 19: Kardex Stow: Sales Network Asia-Pacific

43 Investor Handbook April 2012

Financial data

Key Figures 2010 2011 Bookings (EUR millions) 138.2 180.7 Order backlog (EUR millions) 33.8 44.3 Net revenue (EUR millions) 135.6 168.7 EBIT (EUR millions) 0.0 3.6 EBIT margin 0.0% 2.1% EBITDA 4.0 7.3 EBITDA margin 2.9% 4.3% Number of full-time employees 567 615

Source: Company reports

2011 results: growth in revenues and margins Net revenues in the Kardex Stow Division in 2011 grew to EUR 168.7 million from EUR 135.6 million in the previous year. As the outsourcing trend – and consequently the demand for simple, reliable storage solutions – continued unabated, sales showed a pleasing development in markets in Europe and China, where a 60 % rise in net revenues was achieved. Sales remained below expectations in the UK and – due to high transportation costs and the weak zloty – the otherwise lucrative market of Poland. Overall, the second half of the year was significantly more robust and marked by a further rise in net revenues combined with higher margins. This enabled high organic growth in net revenues of 24.4 % to be achieved by the year-end. This resulted in a clear improvement in profitability and led to an EBIT of EUR 3.6 million following the breakeven result achieved in the previous year. Despite restructuring costs of around EUR 0.4 million the Division’s profit came to EUR 0.1 million. The order backlog improved substantially and at the end of 2011 showed a 30% year-on-year increase.

44 5.6.3 Kardex Mlog

The German-based Kardex Mlog, a leading supplier of automated stacker cranes and materials handling systems, was acquired by the Kardex Group as of 1 May 2010 and became the Groups third division under the name Kardex Mlog. Kardex Mlog has three business segments namely, greenfield installation, refurbishment and after sales service. The Division focuses on automated logistic solutions. However, automated high-bay warehouses have not yet become the standard in many industries, and accordingly these markets offer plenty of potential. More than 40 years of experience of Kardex Mlog is reflected in more than 900 successfully installed systems and around 2,000 equipments that are sold till date. This installed basis offers considerable potential because customers look for very accurate information about the condition of their systems and about the maintenance that is required for value retention.

Because of cost considerations Kardex Mlog decided to focus its attention on its key sales market of Germany, as well as neighbouring countries of Benelux, Austria and Hungary. These sales territories constitute around 60% of the currently identifiable market. At the same time, the focus is increasingly on the acquisition of higher-margin refurbishment project and the expansion of after-sale services to lessen the dependence on Greenfield projects. The introduction of standardized solutions for specific industries will allow lowering both project risks and project costs.

Product Offerings

Product family Products Description Examples Storage and These systems are The height of the systems ranges between MSingle for pallets Retrieval machines used to organise 18 meters and 45 meters. Load capacity the picking of ranges between 300 to 1,600 kg. Further, pallets and the systems can be held by one or two consumables in handling devices. Travel speed can reach shelves. from 120 m/min up to 300m/min.

Conveyor systems Continuous The Conveyor system carries Euro pallets, Transfer carriage conveyors, Transfer industrial pallets, containers/cages and units, Vertical special pallets. It can carry a load of conveyors, Transfer maximum up to 1,200kg, with a speed carriage, Pallet ranging from 0.2 m/s to 4 m/s. The stacker and Control conveyor systems are mainly used in the devices mass production facilities to move large quantities of products.

MTOWER This system consists of a storage and MTower retrieval machine and a racking arrange- ment. It also has a warehouse management system to control the processes. It has a storage capacity of up to 500 pallets within geometries up to 25 meters.

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Product family Products Description Examples System Solutions MDynamic Modular Stand-Alone Sub-Systems MDynamic MSingle A MTower These systems consist of a storage and MCompact retrieval machine and a racking arrange- ment. It also has a warehouse management system to control the processes.

INNOVATION MDynamic The compact MDynamic offers a powerful and economical complete solution for the automated small parts warehouse from a single source. Easily integrated into any environment. Pre-configured, perfectly coordinated hardware and software components, short installation, set-up times are guaranteed. Storage and retrieval machine is characterized by a low tare weight and high payload. The braking energy that is released is converted directly and without limiting the dynamics into driving and lifting movements. The system is suitable for warehouses of almost any aisle length and with heights of up to 12 meters. The various load handling devices guarantee high flexibility for the single-deep or multiple-deep storage of load carriers.

Software Material flow Software solutions for material flow systems: systems from user administration through MBase, MVisu, networking and visualisation of the entire MCom, MFlow, facility to an intelligent energy management MWork, MEnergy system. The system can also be integrated and MWms. into the existing installations or the new value added supply chains. It can also be customised to meet the specific demands of customers.

Service Preventative maintenance Spare part management Repairs Ramp-up support Training Soft-ware maintenance Up-date/Up-grade service 24/7 remote-service Full-service contracts

46 Financial data

Key Figures 2010* 2011 Bookings (EUR millions) 50.0 73.0 Order backlog (EUR millions) 36.1 36.0 Net Revenue (EUR millions) 27.8 73.4 EBIT (EUR millions) – 1.7 -2.4 EBIT margin – 6.1% – 3.3% EBITDA -1.2 -1.7 EBITDA margin -4.3% -2.3% Number of full-time employees 249 261

Source: Company reports Note: *IFRS, figures for the period 1 May 2010 to 31 December 2010.

Results 2011: revenue growth due to focus on core competencies Kardex Mlog increased its net revenues in 2011 by 164 % compared with the previous year to reach EUR 73.4 million, whereby the growth on comparable basis was 88%. Demand for stacker cranes and conveyor technology showed an encouraging trend,particularly in the second half of the year. This enabled an improvement in margins during those months and followed the distinctly negative operating result suffered by the Division in the first half as a result of significant pressure on prices. Despite the introduction of process optimization measures, the excessive proportion of fixed costs at the main site in Neuen- stadt am Kocher and expenses related to expansion of the sales network meant that operating costs were still not fully covered. This culminated in a negative operating result (EBIT) of EUR 2.4 million for financial year 2011. Although the order backlog was virtually unchanged against the prior year period, there was an improvement in the risk profile of orders and therefore in the resulting achievable margins.

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5.7 Board of directors

Members of the Board of directors

The Board of Directors of Kardex AG currently consists of one executive and four non-executive members (the Articles of Incorporation stipulate between three and seven). At the General Meeting of 24 April 2012, Jakob Bleiker and Ulrich Jakob Looser were elected to the Board of Directors of Kardex AG for a term of office of one year, replacing Leo Steiner and Martin Wipfli, who tendered their resignation. Felix Thöni as President of the Executive Committee is an executive member of the Board of Directors and as such not independent in the sense of the Swiss Code of Best Practice for Corporate Governance. The Board of Directors consists of the following members:

Philipp Buhofer Chairman of the Board of Directors since the 2012 General Meeting Member of the Board of Directors since 2004

1959, Swiss citizen, HWV Horw/Lucerne Since 1997 independent entrepreneur 1987 – 1997 EPA AG, since 1993 Member of the Executive Management 1984 – 1987 Metro International, procurement

Walter T. Vogel Vice Chairman of the Board of Directors since the 2012 General Meeting Member of the Board of Directors since 2006

1957, Swiss citizen, grad. mechanical engineer, ETH Zurich Since 2007 CEO Aebi-Schmidt Group 2003 – 2007 CEO Von Roll Holding AG 1999 – 2003 Von Roll Group, Head of the Infratec Division and member of Group Management 1995 – 1999 HILTI AG, Head of Direct Fastenings Unit and member of extended Group Management 1992 – 1995 Aliva AG, Director of Sales and Marketing and member of the Executive Board

Dr. Felix Thöni Delegate of the Board of Directors and President of the Executive Committee since the 2012 General Meeting Member of the Board of Directors since 2011

1959, Swiss citizen, Dr. oec. HSG Since 2010 independent management consultant, Cham 2003 – 2009 CFO Charles Vögele Group, Pfäffikon 1992 – 2002 CFO Gavazzi Group, Steinhausen 1988 – 1991 Area Controller, Schindler Management AG, Ebikon 48 Jakob Bleiker Member of the Board of Directors since 2012

1958, Swiss citizen, lic. oec. HSG, Dipl. Phys. ETH Zurich Since 2011 Bosch AG, Head Confectionary and Food Since 2004, Bosch AG, Head Packaging Systems 2002-2003 SIG AG, Head Business Unit Sigpack Service and Specialty Market 1988-2003 Sulzer AG, various management positionss

Ulrich Jakob Looser Member of the Board of Directors since 2012

1957, Swiss citizen, lic. oec. HSG, Dipl. Phys. ETH Since 2009, Partner at Berg Looser Rauber & Partners 2005-2009 Chairman of Accenture 1987-2001 McKinsey & Company Ltd, Partner as of 1993 1983-1984 Spectrospin AG, Software Development

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5.8 Executive Committee

Members of the Executive Committee

The Kardex Group is led by an Executive Committee, which is headed by the Delegate of the Board of Directors. Further members of the Executive Committee are the three Heads of Divison and the Group CFO.

Dr. Felix Thöni Since 1 June 2011 Member of the Executive Committee and since 24 April 2012 Delegate of the Board of Directors and President of the Executive Committee Member of the Board of Directors since 2011

Gerhard Mahrle, CFO 1957, Swiss citizen, lic. oec. HSG Since 1 April 2009 CFO of the Kardex Group

2000 – 2009 CFO sia Abrasives Holding AG 1998 – 2000 CFO Batigroup Holding AG 1992 – 1998 CFO Eugster/Frismag Group 1985 – 1992 Various senior positions in finance at the Galenica Group and the Hilti Group

50 Jens Fankhänel, Head of Kardex Remstar Division 1965, German citizen Grad. electrical engineer/automation technologist, University of Chemnitz

Since January 2011 Head of Kardex Remstar Division 2008 – 2010 Managing Director WDS Region Europe 1 Swisslog AG Buchs 2005 – 2008 Vice President & CEO Hub Central Europe Dematic GmbH & Co. KG Offenbach 2002 – 2005 Managing Director Swisslog, Australia 1994 – 2002 Senior Consultant/Director i+o GmbH, Heidelberg

Jos De Vuyst, Head of Kardex Stow Division 1963, Belgian citizen, grad. electrical engineer RU Gent, MBA Vlerick Management School

Since 1 June 2011 Head of Kardex Stow Division January 2006 – May 2011 CEO of the Kardex Group (from April 2009 to December 2010 also Head of Kardex Remstar Division) 2005 COO of the Kardex Group 2004 CEO of the Stow Division (static storage systems) and CEO Stow International nv 2001 – 2003 General Manager of the Stow Division (static storage systems) 1996 – 2003 General Manager of Stow International nv 1989 – 1996 Financial Manager of Stow International nv

Hans-Jürgen Heitzer, Head of Kardex Mlog Division 1962, German citizen, grad. mechanical engineer, Aachen Technical University

Since 1 September 2011 Head of Kardex Mlog Division 2010 – 2011 Managing Director Kardex Mlog, Neuenstadt 2002 – 2009 Managing Director Locanis AG, Unterföhring 2000 – 2001 Division Manager Distribution and Project Management automatic high rack storages MAN Logistics, Heilbronn 1996 – 2000 Division Manager Systems Mannesmann Dematic, South Africa 1989 – 1996 Project management Entire projects Mannesmann Dematic, Offenbach

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5.9 Capital structure

Ordinary capital Kardex AGs ordinary share capital amounted to CHF 61 901 983 on 31 December 2010 divided into 5 627 453 fully paid-in registered shares each with a par value of CHF 11.00. At the General Meeting of 26 April 2011 shareholders approved the creation of authorized capital in the amount of CHF 30 950 986 (2 813 726 shares with a par value of CHF 11.00). Following the capital increase carried out in September 2011 in the amount of CHF 23 128 017 and the payment of 2 102 547 shares, the company has CHF 85 030 000 (number of shares 7 730 000) in ordinary capital as at 31 December 2011. All shares are entitled to dividends and entitle the holder to one vote at the General Meeting. The right to apply the special rules concerning treasury shares held by the company is reserved, particularly in relation to the exception from the entitlement to dividends.

Conditional capital in the amount of CHF 12.2 million was created at the General Conditional and authorized capital Meeting of 24 May 2007. As a result of the decrease in the par value per share from CHF 13.50 to CHF 11.00, the total conditional capital was reduced to CHF 9.9 million. The registered shares, which each have a par value of CHF 11.00, are reserved for conversions of the 2.25 % convertible bond 2007 – 2011. Through the capital increase in September 2011 in the amount of CHF 23.1 million the associated reduction in conditional capital exceeds its total amount of CHF 9.9 million. The company therefore no longer has conditional capital.

At the General Meeting of 26 April 2011 shareholders approved the creation of authorized capital in the amount of CHF 30 950 986 (2 813 726 shares with a par value of CHF 11.00). Following the capital increase carried out in September 2011 in the amount of CHF 23 128 017 and the payment of 2 102 547 shares, the company only has CHF 7 822 969 (number of shares 711 179) in authorized capital as at 31 December 2011.

The capital changes described under sections 2.1. and 2.2. were carried out in Capital changes the financial year just ended. The funds accruing from the capital increase were used in part to repay the bridge financing drawn on to refinance the convertible bond. For an overview in table form of the capital changes during the financial years 2007 – 2011, please see the table Share capital and capital structure on page 8.

The 7 730 000 registered shares of Kardex AG have a par value of CHF 11.00 each. Shares and participation certificates One registered share corresponds to one vote and the holder is entitled to a dividend.

Kardex AG has no participation capital on 31 December 2011.

52 Kardex AG has issued no profit participation certificates by 31 December 2011. Profit participation certificates

The registered shares of Kardex AG may be purchased by any legal or natural Restrictions on transferability and nominee registra- person. The purchasing of shares is subject to the following limitations on nominee tions registrations: The company may refuse registration as a shareholder in the share register if upon request the purchaser does not expressly declare that they hold the shares in their own name and for their own account. The Board of Directors is entitled to delete an entry in the share register with retroactive effect from the date of that entry if such entry was based on false information. It may seek an explanation from the shareholder or beneficiary concerned in advance. Evidence of purchase is also required.

The aforementioned limitations on nominee registrations are explicitly laid down in article II, § 3c, paras. 4 and 5 of the Articles of Incorporation. These provisions of the Articles of Incorporation may be rescinded by a simple decision of the General Meeting. The foregoing applies subject to any restrictions on transferability imposed by the law. No exceptions were granted in the year under review.

As of 31 December 2011, Kardex AG has no convertible bond or options outstanding. Convertible bonds and options

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6 Peer Analysis

6.1 Competition prevails mostly on division level

Overall, Kardex competes with many large and mid-size companies which are into businesses similar to one or more divisions of Kardex. It is important to note that Kardex is not competing as a whole because it operates with three independent entrepreneurial managed divisions. However, on a product level and/or division level, tough competition prevails. Some competitors leverage their knowledge and expertise in selective segments in comparison to other peers and prefer to have a larger manufacturing presence and sales network.

Kardex Remstar enjoys market leadership in the dynamic storage solutions market with a global market share of approx. 40%. Over 35 years of experience in the dynamic storage market, a broad range of automated storage and retrieval solutions and global presence are the factors that give Kardex Remstar an edge over its competitors. More than 90% of total revenues of Kardex Mlog are generated in the German market. According to Kardex estimates, Kardex Mlog had a market share of approximately by 15% in this market in Germany in 2011. According to Kardex estimates, in 2011, the addressable static racking market in Europe was valued at EUR 2,000 million, of which Kardex stow had a sizeable market share.

With over 100’00 installed Kardex Remstar machines, 800 Kardex Mlog systems and more than 2000 stacker cranes the Group has a broad existing customer base that will need ongoing after-sales-services. This setup provides future revenue generating prospects as the level of service business can systematically be increased and margins can be improved.

The following table lists various peers of Kardex (estimated ranking), according to the divisions of Kardex.

Kardex Stow Kardex Remstar Kardex Mlog competitive landscape competitive landscape competitive landscape Mecalux Kardex Remstar SSI Schäfer SSI Schäfer Hänel Daifuku Constructor Dexion Modula Systems Group Dematic / HK Systems Kardex Stow SSI Schäfer Swisslog Averys Zecchetti srl TGW Systems Bito Sencorp White Systems Knapp Logistics Nedcon Constructor Dexion Viastore Systems Kardex Mlog LTW Stöcklin Logistik

Source: Kardex estimates

54 6.2 Peer Profiles

6.2.1 BITO-Lagertechnik Bittmann GmbH

BITO-Lagertechnik Bittmann GmbH is a German family-owned company founded in 1845. The company manufactures storage and order picking systems. BITO storage products such as shelving & racking, plastic bins & containers and workshop equipments as well as BITO storage and order picking systems are used in warehouses, distribution centres and various manufacturing plants. The company has three production plants, with two in Germany and one in India and it has distribution networks in Europe, Middle East, South Africa and the US.

6.2.2 Constructor Dexion

Constructor Dexion is a German-based manufacturer and supplier of pallet racking and shelving solutions, which provides storage, archiving and logistics solutions to various end-users such as factories, warehouses, distribution centres, offices, medical institutions and retail outlets. Constructor Dexion is a part of the Constructor Group AS, which sells its products under various market brands, and is owned by Swedish- based private equity firm Altor Fund ll since October 2007.

6.2.3 Daifuku Co Ltd

Based in Japan, Daifuku Co Ltd engages itself in three business segments namely, Logistics systems, Electronics Equipment and Others (involved in the sale of car-washing machines, rear lifts for automobile chairs). Approximately 92% of the sales are generated through the logistics systems segment. The company serves a diverse customer base belonging to many industries centred on food, pharmaceuticals, pharmaceutical wholesalers, distribution and agriculture, through a wide range of products by combining conveying, storage, sorting, picking and controls.

6.2.4 Dematic AG

Dematic AG, a German-based company, provides solutions in logistics material handling automation. Its product portfolio contains light goods storage & buffering solutions, pallet handling and package handling products and palletizing systems. Dematic was created out of the merger of Siemens AG and Mannes- mann Dematic in 2001, however later in 2006 the company was acquired by a US-based private equity firm, Triton Fund. The company has production plants in the US, Europe, China and Australia and sales distribution centres all across the world.

6.2.5 Averys

Averys Group is a France-based manufacturer of shelves and metal furniture. Averys engages mainly in the production of a range of static and dynamic storage products. The product portfolio comprises of pallet racks, cantilevers, storage rack systems, metal storage systems and dynamic storage systems. The company has two prodcution facilities, one in France and the other in Poland.

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6.2.6 Handler A/S (SSI Schäfer)

Handler A/S, founded in 1981, is a Denmark-based company. The company manufactures shelving and pallet racking, in-house transport materials, and total logistic solutions. Handler’s product range includes vertical lifts, picking carts, trolleys, pallet racks, mezzanine constructions and Shark, a warehouse management software system which focuses on automated picking and storing. The company also provides complete turn-key solutions for warehouses.

6.2.7 Hänel GmbH & Co. KG

Established in 1953 by Gerhard Hänel, Hänel GmbH & Co. KG is a German-based company. The company has five branch offices located in Europe and the US and has sales centres in more than 60 countries worldwide. The company is mainly into manufacturing of carousels, lift systems, conveyors, teleferics, escalators and moving walkways. The company’s Hänel Lean-Lifts and Hänel Rotomats are high quality products that use complex technologies.

6.2.8 HK Systems, Inc. (Dematic)

The US-based HK Systems, Inc. is a manufacturer of automated material handling systems and supply chain execution software with over 1,000 large systems operational in North America. Through its three manufacturing facilities situated in the US, the company produces automated storage and retrieval systems, automated guided vehicles, conveyors, picking systems, palletizers and depalletizers and logistics software. It has been acquired by Dematic in mid 2010.

6.2.9 Jungheinrich AG

Established in 1953, Jungheinrich AG is one of the largest suppliers of industrial trucks, warehousing technology and materials flow technology. The company is mainly focused on providing all-round solutions for stacking, transporting, warehousing and order picking. Its product portfolio comprises of a comprehensive range of forklift trucks, racking systems, services and consulting, with its main focus on intra-logistics. Headquartered in Hamburg, Germany, the company has four production plants, of which three are in Germany and one in China. The distribution network of Jungheinrich expands to Europe, US, Asia, Middle East and Africa.

6.2.10 Knapp Logistics

Knapp Logistics is an Austrian material handling solutions provider that mainly provides systems and solutions for warehouse logistics and warehouse automation. The company produces a range of storage systems, conveyor systems, picking systems and warehouse logistics software. Through its 26 subsidiaries and representative offices, the company has a sales presence throughout the world.

6.2.11 LTW Intralogistics GmbH

Established in 1981, LTW Intra-logistics GmbH is an Austria-based intra-logistics solutions provider. The company is a part of Doppelmayr Group which is involved in cable car technology. The company produces conveyors and -conveying equipments, stacker cranes and warehousing control and management software. LTW Intra-logistics supplies the components required for high bay warehousing systems as well as complete turnkey systems. The company has sales presence in Europe, Americas as well as the Near and Far East. 56 6.2.12 Mecalux

Mecalux, founded in1966, is a Spain-based company, which specialises in the design, manufacturing, sale and services of metal racking, automated warehouses and other storage solutions. The company has eleven production centres in six countries, and its own sales structure in Europe, USA, Mexico, Argentina, Chile and Brazil, and distributors in Asia, Africa, Australia and Central America.

6.2.13 Modula

Modual belongs to Systems Group and is an Italy-based provider of automated material handling systems for warehouses, distribution centres and manufacturing operations worldwide. The company manufactures vertical and horizontal high density storing systems called MODULA® and CUBE® respectively. The company also develops MODULA WMS® software which provides a complete warehouse management software solution for any requirement.

6.2.14 Nedcon

Nedcon is a Netherlands-based company, which designs and manufactures standard racking and customized constructions for automated warehousing. The company’s division, Nedcon Storage Systems is involved in a wide range of racking activities from producing standard racking components up to total logistic racking solutions. Whereas, the company’s other division, Nedcon Integrated Systems provides customized racking solutions for automated storage and retrieval applications. The company has sales presence in Europe, USA, Australia and Middle East. Since 2004, Nedcon is part of Voestalpine Division Profilform.

6.2.15 SencorpWhite

Formerly known as White Systems Inc, SencorpWhite is a US-based company engaged in the business of designing and building storage and retrieval systems for small parts storage. The company‘s products and services include carousels, vertical lift modules, robotics and systems integration, along with Windows- based software and controls. In April 2010, the company consolidated its businesses with Sencorp, Inc, a thermoforming and sealing machines producer.

6.2.16 SSI Schäfer

Established in 1937, the German-based SSI Schäfer Group is recognized as a leading systems integrator for automated warehouses and distribution centres worldwide. SSI mainly produces warehouse equipments. Further, it also provides equipments for workshops, plants, and offices along with customised solutions for waste engineering and recycling. The product portfolio of the Group includes storage and transport containers, shelves, pallets, cantilevers, manually operated mobile racking systems and fully automated storage systems. The Group has 16 production plants in four continents and is represented in 53 countries worldwide.

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6.2.17 Stöcklin Logistik AG

Based in Switzerland, Stöcklin Logistik AG began with producing wheels and trucks and later entered into the material handling equipments sector with the production of warehouse trucks, pallets and conveying and storage systems. The product portfolio of Stöcklin is classified into two segments: Materials handling & storage systems, and Floor handling equipment. Along with the plant in Switzerland, the company has nine subsidiaries across Europe and South America.

6.2.18 Swisslog AG

Swisslog is a Switzerland based company that provides material handling solutions and integrated logistics solutions to almost 50 markets across the globe. The services offered by the company include building complex warehouses and distribution centres to in-house logistics solutions for hospitals. The company has two divisions, namely the warehouse & distribution solutions division, which caters to warehouses and the healthcare solutions division, which offers material handling solutions to hospitals.

6.2.19 TGW Systems Integration

TGW Systems Integration is an Austria-based supplier of automated intra-logistics solutions for warehousing, production, order picking and distribution. The Austria-based group engages in providing integrated logistics solutions and material handling equipments and is also responsible for providing planning, designing, manufacturing, installation, and supporting integrated logistics solutions to both large and small companies. Main products of the company include pallets, cartons and conveyors, and AS/RS technologies, as well as the system controls, and warehouse controls. The company has production plants in the US, UK, Germany, Spain, Poland, France, Italy and Austria with a worldwide network of business partners and sales teams.

6.2.20 Viastore Systems Inc

Viastore Systems Inc, based in Germany, supplies integrated material handling systems to distributors and manufacturers worldwide. The products provided by the company include high-speed order picking systems, automated storage/retrieval systems and dynamic automated picking, storage and transportation systems. In addition, the company also develops in-house warehouse management software (viad@ tWMS) and material flow control software. The company along with having a production plant in Germany has subsidiaries in Europe, Asia and the US, with representative offices in Denmark and Turkey.

6.2.21 Zecchetti srl

Zecchetti srl is an Italy-based privately owned company founded in 1960. The company has been operating in the packaging sector and has recently entered the automated warehousing systems market. Zmagazzini is the company’s specialized division involved in warehouse logistics. The product portfolio of the company consists of automated warehouse systems, conveyors, palletizers, shuttle cars, automated warehouse with stacker cranes and control software.

58 7 Risk analysis

Kardex is a Switzerland based manufacturer providing dynamic storage and retrieval systems and automated warehouse and material handling systems to various end-user markets. The Group and its Divisions have exposure to the following risks amongst others:

Credit Risk Credit risks arise out of the possibility that the customers might default in their payments. To manage credit risk, Kardex decides on the individual risk limits for each customer based on factors such as their financial position and past credit history. For new customers, the Group obtains external credit report. Further, down payments are mandatory for large orders. As of 31 December 2011, the Group did not have a significant credit risk concentration. Large-scale activities in the international market as well as activities in high-risk countries are usually secured by bank guarantees or letters of credit.

Interest rate risk The Group takes out long- and short-term loans at both floating and fixed interest rates. Group treasury is responsible for monitoring interest rate movements continuously and for optimizing future interest expenses. As a means of partially hedging interest rate risk, the Group uses interest rate swaps. The interest rate swaps have maturity dates more than one year after the balance sheet date. If necessary, interest rate swaps are renewed at maturity.

Foreign exchange risk As a group active in global markets, Kardex is exposed to risks associated with foreign currencies primarily to CHF, EUR and USD. The Group partially hedges this risk by entering into forward contracts. The Kardex Group does not conduct business in currencies that are exceptionally volatile or otherwise regarded as unusually risky. However, a majority of expenses and sales are both occurring in EUR a natural hedging is in place and limits the currency exposure of the Group.

Financing The business of the Kardex Group requires adequate financing. On top of sufficient liquidity to finance current assets bank guarantees are required to cover prepayments received from customers and to ensure delivery of products, plants and systems.

Cyclicality The intra-logistics market and subsequent services are dependent on the economic environment and the conditions in buyer markets. Important factors are the investment climate and the expected and actual economic growth rate. The last economic downturn and subsequent upturn had a material impact on the MHEM industry. The MHEM industry in which Kardex operates is subject to cyclical fluctuations due to the end-users’ investment cycles which has historically followed the economic growth. Due to the capital intensive nature of the products, a rebound in the industry’s performance usually follows with a certain lag to the recovery in the markets. Raw materials form a significant manufacturing cost component for Kardex. Hence, any unfavourable development in the prices of raw materials could impact the bottom-line negatively.

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Labour cost and availability Labour is another significant cost component. Over the years, the labour cost in the manufacturing industries in the US and Europe, the two key markets of Kardex, has consistently been on the rise. Furthermore, the existence of unionized workforce in Germany and Belgium may lead to higher salary costs for Kardex.

Competition Competition in the intra-logistics market is intense and elements such as customer benefits, price, technology and innovation, readiness for delivery and after-sales services are important differentiating factors.

Failure to launch products faster than competitors The ability to innovate and remain abreast with the latest technologies is of great importance. Although Kardex has a strong pipeline of new products, it competes with peers who also have sound financial strength and innovation capabilities. Failure to innovate and introduce new products in the market ahead of its competitors may weaken Kardex’s competitive position in the market.

Failure to reposition Kardex Mlog Kardex has acquired Mlog in 2010 in order to position itself as a provider of lower-level complexity automated warehouses and material handling systems. The repositioning might delay or fail and thus affect the profitability of the Group.

Regulatory issues The main focus of the Group is to penetrate more geographical markets with a focus on emerging markets especially Asia. In emerging economies such as India, many regulatory issues come into picture which might undermine the growth of the industry. For example, there is a lack of adequate patent protection due to poor law enforcement in India. Further, some countries have import restrictions or non-uniform tax regimes across the country which makes it unviable for certain end-users to upgrade their existing systems.

60 8 SCOT analysis

Strengths Challenges Wide product and service range Anticipate future trends and changing end-user requirements High level of technological competence and strong pipeline of new products Remain technologically abreast on a constant basis to maintain competitive position Cross-selling potential amongst the three divisions Economic troubles still persist in Europe, the largest market for Kardex Experienced and skilled management team Cost considerations at Kardex Mlog Strong market positions Increasingly competitive environment Sound balance sheet

Opportunities Threats Emerging Asian markets to offer huge potential Overcapacity in the end-user markets for growth driven by increase in manufacturing output and fixed investments Volatility in raw material prices

Increasing trend of end-users towards automation Shortage of skilled labour to further increase labour cost Increased outsourcing of logistics function to 3PL and 4PL providers, one of the key end-users of Peers adapting inorganic growth route to increase the industry geographic presence and enhance product portfolio Refurbishment and after-sales service requirement of end-users Growth in the material handling equipment exports from China leading to sales pressure Increasing costs of warehousing space to stimulate demand for space efficient storage New competitors systems Price pressure

Increasing costs for commercial land as well as Deflation labour in the US and in Asia.

Active life-cycle management

Cross-selling potential among divisions

Enhanced operational efficiency

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Kardex Tool Storage and Material Handling

Shuttle XP Kardex Remstar

Mezzanine Constructions Kardex Stow

Megamat RS Kardex Remstar

Longspan Racking Kardex Stow

Long Items Racking Kardex Stow

Pallet Live Storage Kardex Stow

Horizontal Kardex Remstar

Longspan Racking Kardex Stow

Conveyor Small Goods Miniload SR Kardex Warehousing Megamat RS Shuttle XP Systems Racking Machines and Small Parts Storage Kardex Remstar Kardex Remstar Kardex Mlog Kardex Stow Kardex Mlog 62 Kardex High Bay Storage and Conveyor Systems

Greenfield Installation Kardex Mlog

Pallet Racking Kardex Stow

Pallets SR Machines Kardex Mlog

Monorail Kardex Mlog

Vertical Conveyor Kardex Mlog

Conveyor Systems Kardex Mlog

Small Goods Racking Kardex Stow

Miniload SR Machines Kardex Mlog

Mobile Shelving Lektriever Times Two Kardex Kardex Remstar Kardex Remstar Kardex Remstar Office Solutions 63 Kardex Group Thurgauerstrasse 40 8050 Zurich Switzerland

Phone: +41 (44) 419 44 44 Fax: +41 (44) 419 44 18

For detailed information: www.kardex.com