Incoming orders up 22% to 2.435 billion euro - Sales in the first six months of the year up 9.8% to 2.123 billion euro - Substantial increase in EBITA margin from 6.0% to 6.9% - Significant improvements in efficiency arising from the GoIPO program - 9% increase in R&D expenditure - Outlook for 2007: Further increase in sales and earnings expected.

 

The KION Group, world number two in the forklift truck and warehouse equipment industry, has again achieved strong results in the first half of 2007, following on from its success in the 2005 and 2006 fiscal years. The group reinforced its market position in a significantly expanding market. Incoming orders were boosted to 2.435 billion euro, 22 percent up on the figure for the comparable prior year period of 1.996 billion euro. The world market for industrial trucks grew by just under 11 percent in the first half of 2007.

 

"Given the exceptionally strong market growth in the first six months of the year, it is a remarkable achievement for the KION Group to outperform the market and increase its market share," said KION Group CEO Hubertus Krossa on Tuesday at the presentation of the group's half-year figures¹ in Frankfurt. "This success underlines the high quality of our product portfolio and justifies our multi-brand strategy, which allows us to provide the best possible service to customers in both premium and value segments." The KION Group's order book grew to some 1.050 billion euro at the end of June 2007.

 

Earnings grow faster than sales

 

In the first six months of 2007, the KION Group achieved a 9.8 percent increase in sales to 2.123 billion euro, up from 1.933 billion euro in the comparable prior year period. Earnings before interest, tax and amortisation (EBITA), after adjusting for non-recurring items arising in particular from the GoIPO program, saw a significant increase of just under 27 percent to 146.7 million euro, compared with the figure for the prior year period of 115.6 million euro, slightly exceeding the group's own expectations. The EBITA margin, adjusted for non-recurring items, improved significantly to 6.9 percent, compared with 6.0 percent in the first half of 2006. ."This was also due to our GoIPO program, which has achieved and sometimes even exceeded its objectives," said KION CFO, Dr Nedim Cen. "We will continue to apply every effort to the task ahead. Our objective is to continue to reinforce the industry benchmark position we have created, in terms of profitability as well."

 

In the course of the year 2007, the group will spend a total of more than 40 million euro on the GoIPO synergy and improvement program, which aims to achieve further improvements in efficiency across the group and to speed up the process of preparing KION for a potential IPO in the medium term. The group expects to see improvements particularly in the following areas: purchasing, spare parts and service, lean manufacturing and the optimisation of product cost. KION is expecting to achieve substantial cost savings, for example in the area of procurement, mainly by bundling together its purchasing activities across the brands.

 

Market performance driven by the European market

 

"On the one hand, we are currently reaping the benefits of a healthy economy, and many companies have taken advantage of the situation to spend money on investment projects they had previously deferred," said Krossa. On the other hand, especially in the important European market, there is an increasing demand for premium products which significantly improve intralogistics efficiency. Despite strong competition, all three brands have been able to increase their prices in response to the increase in the price of raw materials. "Given the premium quality of our products, there was less pressure on our prices than on those of our competitors who operate solely in the value segment of the market," Krossa emphasized.

 

Around 37 percent of the world market for industrial trucks in the first half of 2007 was in Western Europe, 7.5 percent in Eastern Europe, 24 percent in America and 28 percent in Asia. The highest growth rates in the world market were once again in Europe. Compared with the same period in the prior year, the market in Western Europe saw growth of 18.5 percent and the Eastern European market grew at a rate of over 50 percent. Demand for industrial trucks in Asia increased by 15 percent, while the entire American market saw a 10 percent decline.

 

KION Group was once again able to improve its leading market position in both Western and Eastern Europe. In Asia, the group succeeded in maintaining its market position. At the moment, there is strong demand in the developing Asian markets for industrial trucks in the low-price and value segments, whereas demand for vehicles and equipment in the premium segment tends to increase in more mature markets where utilisation is more intensive. KION is well-placed to achieve sustainable momentum in Asia, with its own Chinese development and manufacturing facilities for the Linde and OM brands. Production and procurement in China will also provide KION with significant cost benefits in the world market. In the current weak American market, KION saw a slight improvement in its hitherto insignificant position in the market. KION is preparing a market offensive for the coming year, with a new US-specific product line, which will set new standards of reliability and quality in the US market.

 

All three KION brands have contributed to the good business performance of the group. According to Mr Krossa, the greatest challenge will be to meet the enormous demand on the production side as well. "The resources of our suppliers are limiting our growth, and our own factories are working at full capacity. Our employees are working extremely hard and are fully committed to supplying our customers in as short a time-frame as possible."

 

Linde Material Handling

 

Linde Material Handling, which has 12,749 employees, including trainees, achieved a 6.8 percent increase in sales in the first six months of 2007 to 1.352 billion euro (2006: 1.266 billion euro). The company secured a number of major orders, in particular from Europe and Asia, including orders from logistics companies, the food retail trade and the automobile industry. Major orders were also received for explosion proof industrial trucks, for example from a company in the oil industry in China and from a German chemical company

 

On 25 May 2007, the new development centre in Aschaffenburg was inaugurated. At a cost of around 10 million euro, this is one of the largest single investments at this location in the past few years. In a space of just under 10,000 square metres, development offices, testing bays, workshops, assembly areas and the prototype workshop have all been brought under one roof. A new, innovative product development process (iPEP) will shorten the period of time it takes to develop new vehicles and reduce product cost right at the beginning of the production process. This is important to ensure the swift expansion of the product line which Linde Material Handling is using to target the markets in North America, Asia and Eastern Europe.

 

The recently introduced Linde PureMotion program incorporates a number of technical and design solutions to reduce the impact on people and on the environment in the daily routine of work. Foremost among these are the prevention of vibration for truck operators, energy efficiency and the reduction of particulate matter and CO2 emissions.

 

STILL

 

With around 6,371 employees, including trainees, STILL achieved a 13.1 percent increase in sales in the first half of 2007 to 684 million euro (2006: 605 million euro). Once again, STILL obtained a number of major orders from customers with international operations, for example 500 units from a retail chain in France. The logistics customer segment saw particularly positive market trends.

 

In the first six months of 2007, STILL launched a total of five new warehouse trucks. This means that over the past five years, STILL has replaced almost its entire product range and now offers its customers in the intralogistics field the most modern solutions, based on a particularly low Total Cost of Ownership (TCO). The new products significantly help users to reduce their intralogistics costs. Moreover, forklift trucks with a load capacity of 2.5 to 3.5 tonnes were added to the electric truck product line, and forklift trucks with a load capacity of 4 to 5 tonnes were added to the diesel truck product line.

 

In February, STILL developed an automated warehouse system for a provider of logistics services, in which driverless fully-automatic high-level order pickers were used for the first time. The intelligent interaction between manually operated counterbalanced trucks, automatic high-level order-pickers and the STILL material flow management system has significantly improved the processes in the bulk warehouse and reduced the customer's costs to such an extent that he will be able to recover his investment within a short period of time.

 

OM

 

OM, the market leader in Italy and a significant supplier in the value segment in the markets of Southern and Eastern Europe, which has 1,234 employees including trainees, achieved a 23 percent increase in sales in the first half of 2007 to 181 million euro (2006: 147 million euro). OM performed particularly well in Eastern Europe, where it significantly exceeded the market growth rate, with incoming orders more than doubling, mainly as a result of significant orders in Hungary, Romania and the Ukraine.

 

The continued high level of growth in OM confirms KION's strategy of becoming increasingly involved in the value segment in addition to focusing on its two premium brands. In this context, OM expanded both its Chinese development and production facilities for forklift trucks. Electric trucks and internal combustion (IC) trucks are now being produced in China for the Chinese market and for overseas markets in Latin America, South-east Asia, the Middle East, Africa and Russia.

 

OM expects the strong growth it has seen in the first half of the year to continue throughout 2007. Numerous product innovations are contributing to this. In June 2007, a new family of electric warehouse trucks with new drive technology was launched. In the second half of the year, these will be followed by two new models of IC counterbalanced trucks and the re-engineering of an electric truck with new drive technology.

 

Service: A growth area

 

There are almost one million industrial trucks operating in the world which belong to one of the three KION brands. Typically, forklift trucks remain in operation for around ten years, while items of warehouse equipment are used for around eight years. The service and spare parts business, which generated over 450 million euro in sales in the first six months of 2007, is a substantial source of income for KION and a significant factor in the consistency of the long-term business performance of the group. KION's objective is to provide all after-sales service for at least three-quarters of vehicles used by customers in all three brands. STILL, which has a 70 percent rate of providing after-sales service, is the pacesetter in this respect in the KION Group. New processes have been introduced throughout the group to ensure that the quality of service provided to customers is improved still further in the future. As Mr Krossa says "We want to continue to provide our customers with the very best service in the industry."

 

Intense R&D and investment activity

 

Research and development (R&D) are of key importance in order to maintain and develop the technological leadership of the KION Group in the material handling field. The group has therefore continued to place an emphasis on research and development activities in the first six months of 2007, increasing expenditure in this area by 9 percent. R&D expenditure of 55.5 million euro (2006: 50.9 million euro) has focused not only on product innovations, but also on research into technologies of the future in the areas of logistics systems, new drive concepts, energy efficiency, reduction in emissions and ergonomics. Including capitalised development costs of 25.2 million euro (which form part of the capital expenditure figure), over 3.5 percent of sales revenue has been spent on R&D, and more than 900 employees work in this area.

 

One of the most important areas of capital expenditure has been on increasing capacity, to take account of the growing market and in particular KION's increased market share. Due to some investment being deferred to the second half of the year, the figure for capital expenditure in the first half of 2007 of 71.8 million euro was slightly below the figure for the same period in 2006 of 80.5 million euro. KION is expecting the capital expenditure figure for the whole year of 2007 to be higher than in the previous year.

 

Moderate increase in number of employees

 

In the first six months of 2007, the KION Group increased the number of its employees by around 2 percent. At 30 June 2007, it employed 20,453 staff worldwide, including 551 trainees (31.12.2006: 20,102 employees). 38 percent of KION employees work in Germany and 62 percent in the rest of Europe and other regions of the world.

 

Long-term continuity on the Executive Board

 

In May 2007, the KION Group paved the way for long-term continuity in the management of the group. Gordon Riske (50), currently Chairman of the Executive Board of Deutz AG, will become a member of the Executive Board of the KION Group on 1 October 2007 and Chairman of the Management Board of Linde Material Handling GmbH. Riske will initially provide strong technical and operational support to the KION Executive Board, assuming the CEO's role on the KION Executive Board in the medium term. "I am delighted that we have succeeded in bringing Gordon Riske on side for KION. Gordon Riske will be a definite asset to KION," Mr Krossa said.

 

Outlook

 

The Executive Board of the KION Group anticipates the robust growth in the world market for industrial trucks to continue in the second half of the 2007 fiscal year, at a rate of around 9 percent. Against this economically favourable background, KION expects that it will once again achieve significant increases in incoming orders and sales in 2007 and that, boosted by the GoIPO program, it will achieve significant increases in earnings before adjustments for non-recurring items. "This year, we want to achieve sales growth of at least 10 percent and growth in earnings well into the double digits," said the KION CFO, Dr Cen. The group is also optimistic about the medium-term outlook. KION CEO Mr Krossa stated "Even if it may not always be possible to achieve the level of market growth seen in 2007, we expect the positive trends in our group to continue in 2008 and 2009. The GoIPO program and moderate increase in staffing in the current boom phase will enable us to increase our efficiency and competitiveness even in periods of slower growth. Our aim is consistently to outperform the market. With the most modern product range in the industry, we are ideally placed to achieve this objective."