KION HOLDING 1 GmbH Wiesbaden Annual Report 31 December 2011 KION Holding 1 GmbH Management report 2011 This is a translation of the German „KION Holding 1 GmbH Konzernabschluss 2011“ Sole authoritative and universally valid version is the German language document. KION Holding 1 GmbH Management report for 2011 Page 2 of 57 Group management report Contents Highlights in 2011 .................................................................................................................................... 3 1. Milestones in 2011 ............................................................................................................................... 4 2. Company profile .................................................................................................................................. 6 2.1 Group structure .............................................................................................................................. 6 2.2 Business activities of the KION Group ........................................................................................... 6 3. Economic conditions .......................................................................................................................... 13 3.1 General business environment .................................................................................................... 13 3.2 Business environment in the sector ............................................................................................. 15 3.3 Market for industrial trucks ........................................................................................................... 16 3.4 Legal situation .............................................................................................................................. 18 4. Strategy ............................................................................................................................................. 19 4.1 Strategic objectives ...................................................................................................................... 19 4.2 Strategic levers ............................................................................................................................ 20 4.3 Financial Services segment ......................................................................................................... 22 4.4 Initiatives to cut costs and improve efficiency .............................................................................. 22 4.5 Financial KPIs for managing the Company's business................................................................ 23 4.6 Acquisitions and alliances ............................................................................................................ 24 5. Notes on financial position and financial performance ...................................................................... 25 5.1 Operating and financial performance ........................................................................................... 25 5.2 Financial position ......................................................................................................................... 29 5.3 Net assets .................................................................................................................................... 31 6. Research and development (R&D) ................................................................................................... 35 7. Capital expenditure ............................................................................................................................ 37 8. Purchasing ......................................................................................................................................... 38 9. Employees ......................................................................................................................................... 39 10. Management .................................................................................................................................... 41 10.1 Key management team .............................................................................................................. 41 10.2 Supervisory Board ..................................................................................................................... 42 10.3 Shareholders' meeting ............................................................................................................... 43 10.4 Corporate governance ............................................................................................................... 43 11. Sustainability ................................................................................................................................... 43 12. Opportunities and risks report ......................................................................................................... 47 12.1 Opportunities report ................................................................................................................... 47 12.2 Risk management ...................................................................................................................... 48 12.3 Types of risk ............................................................................................................................... 50 12.4 Overall risk ................................................................................................................................. 55 13. Events after the balance sheet date ................................................................................................ 55 14. Outlook ............................................................................................................................................ 55 14.1 Outlook for the global economy ................................................................................................. 55 14.2 Market outlook ........................................................................................................................... 56 14.3 Outlook for the KION Group ...................................................................................................... 56 KION Holding 1 GmbH Management report for 2011 Page 3 of 57 Group management report Highlights in 2011 The KION Group can look back on a successful 2011. Strong demand and rigorous cost management led to significant year-on-year increases in revenue and earnings. • Strong demand in Germany and the BRIC countries • Order intake rises by 21 per cent to €4,682 million • Revenue climbs by 24 per cent to €4,368 million • Adjusted EBIT margin more than doubles to 8.3 per cent • Negative net earnings due to one-off items • Free cash flow before tax increases more than threefold • Successful placement of a secured corporate bond with a volume of €500 million • Leading position maintained in the global market: number one in Europe, number two worldwide KION Group key figures Changes € million 2011 2010 2009 2011/2010 Revenue 4,368 3,534 3,084 23.6% In Germany 1,175 900 770 30.6% Outside Germany 3,194 2,634 2,314 21.2% Order intake 4,682 3,860 3,028 21.3% Order backlog 953 801 533 18.9% EBITDA 569 380 183 49.7% Adjusted EBITDA¹ 665 462 311 43.9% EBIT 213 35 -182 >100% Adjusted EBIT¹ 365 139 -29 >100% Loss for the year -93 -197 -366 52.8% Cash and cash equivalents² 373 253 463 47.7% Financial debt after borrowing costs 2,997 2,872 2,918 4.4% Financial debt 3,030 2,894 2,948 4.7% Net financial debt 2,657 2,641 2,484 0.6% Equity -488 -400 -213 -21.9% Adjusted EBITDA margin¹ 15.2% 13.1% 10.1% - Adjusted EBIT margin¹ 8.3% 3.9% -0.9% - Free cash flow before tax³ 282 83 34 >100% Capital expenditures 133 123 108 7.7% Total spending on R&D 120 103 101 16.3% R&D spending/revenue (%) 2.8% 2.9% 3.3% - Employees incl. apprentices and trainees as at 31 December 21,862 19,968 19,953 9.5% R&D employees 900 827 833 8.8% ¹ Adjusted for KION acquisition items and one-off items ² Cash and current securities ³ Internal key performance indicator KION Holding 1 GmbH Management report for 2011 Page 4 of 57 Group management report Group management report of KION Holding 1 GmbH for the year ended 31 December 2011 1. Milestones in 2011 2011 – growth markets continue to gain in importance KION Group increases order intake to €4,682 million – growth markets account for almost one in three trucks delivered Despite the European sovereign debt crisis and uncertainties in the financial markets, the global market for industrial trucks experienced a strong upturn in 2011. Two factors encouraged this positive trend: the recovery of demand in Europe and the rapid pace of economic growth in the emerging markets. The KION Group particularly benefited from the sharp rise in global demand for warehouse trucks and for efficient counterbalance trucks with electric motors or internal combustion (IC) engines. Aftersales business also expanded compared to 2010, and there was a year-on-year rise in revenue from rental and used trucks. Order intake for the KION Group rose to €4,682 million, representing a year-on-year increase of around 21 per cent (2010: €3,860 million). Revenue advanced by 24 per cent year on year to €4,368 million (2010: €3,534 million). The KION Group's earnings before interest and tax (EBIT), adjusted for non-recurring items, rose from €139 million in 2010 to €365 million in 2011. This represented an EBIT margin of 8.3 per cent, which was higher than the figure achieved in the record