Risk report

Risk strategy

The business activities of the KION Group involve risks. Dealing with risks and opportunities responsibly and managing them carefully are important elements of corporate management. The overarching aim is to harness business opportunities to the fullest possible extent while taking account of controlled risks. Risks to the Group’s ability to continue as a going concern should be avoided.

The management functions in the KION Group can therefore consciously decide whether to accept, transfer, or avoid risks or reduce them by taking suitable mitigating action. Under its strategy, the KION Group consciously takes on a limited amount of risk in order to achieve its business objectives. In doing so, the KION Group follows a well-balanced risk strategy that is conditional upon it always being able to secure external funding and ensuring that it can continue as a going concern.

Principles of risk management and of the internal control system

Risk management system

The purpose of the groupwide risk management system is to identify and assess risks that could prevent the KION Group from achieving its corporate goals and to implement suitable measures to manage them. Rather than being included in the risk management system, opportunities are assessed as part of the strategic planning. Risk management is embedded in all of the KION Group’s companies and functions and is overseen by a group function. The aim is to systematically evaluate and manage risks in respect of target-setting, the business model, strategic direction and the day-to-day running of the business. Management decisions therefore take the risk perspective into consideration. Risk management is intended to ensure a clear view of the amount of potential financial losses, the probability of occurrence, and the steps being taken to manage risk at the different levels of the organization.

The risk-bearing capacity plan that has been established across the Group helps to identify developments at an early stage that could affect the ability to continue as a going concern and to promptly initiate countermeasures. Risk-bearing capacity is defined as the maximum risk that the KION Group is willing to sustain. Risks need to be aggregated in order to determine the KION Group’s aggregate risk exposure. Aggregation of risks is facilitated by a Monte Carlo simulation in which different scenarios are modeled. The results of the Monte Carlo simulation plus a risk cushion are used to evaluate risk-bearing capacity.

The procedures governing the KION Group’s risk management activities are laid down in a groupwide risk management policy. For certain types of risk, the relevant departments also have guidelines that are specifically geared to these matters and describe how to deal with risks specific to the business units. Risk management is organized in such a way that it directly reflects the structure of the Group itself. For each company and each Operating Unit, risk officers and risk managers have been appointed who are responsible for identifying, assessing, and independently managing risk, and reporting to the central risk management function. The risk organization also includes a risk committee, which, every quarter, examines the aggregate risk situation from a cross-functional perspective and discusses existing and emerging aspects of risk. The risk committee’s discussions allow risks to be considered in the round and potential threats to be identified at an early stage. In this context, risk management is aligned with the financial organization, so the roles described are each assigned to the finance function.

Risk organization in the KION Group

Like the organizational structure, the risk management process is also generally organized on a decentralized basis. Firstly, a groupwide risk catalog is used to capture the risks attaching to each individual company where the financial impact of the risk has been measured. Each risk must be captured individually. Risks are always quantified on the basis of their likelihood of occurrence and the financial impact if they were to occur. In exceptional cases, there may also be a qualitative assessment. This applies, for example, to extreme risks and sustainability risks, for which sufficiently accurate quantification is not yet possible.

In addition, selected risks are not documented as part of the bottom-up assessment. Instead, they are captured and managed by a corporate risk manager who, together with the corporate risk officer, is responsible for ensuring that proper procedure is followed in the execution of the risk management process. KION GROUP AG’s Executive Board and the KION Group’s central risk management function are notified immediately if a new risk is identified outside the regular reporting cycle for which the gross value of expected losses exceeds the defined limit. Each risk is documented in a reporting system designed specifically for the requirements of risk management.

Risk management is primarily the responsibility of the individual companies and is therefore organized on a decentralized basis. A regular reporting process is used to update the central risk management function each quarter on the impact of the steps taken to manage risk, in particular changes to the expected losses and the probability of occurrence.

All subsidiaries that are included in the basis of consolidation are covered by a standardized risk reporting system, in which the risks reported by the individual companies are summarized in risk reports and discussed at quarterly risk management meetings. In addition, each of the risks that are material to strategic planning is analyzed and discussed as part of the regular business review meetings. To support this, the relevant departments of KION GROUP AG are consulted each quarter in order to identify and assess risk – particularly Company-wide risk – affecting areas such as procurement, treasury, KION Group IT, accounting, tax, and legal. The central risk management function then produces a quarterly risk report that is presented to KION GROUP AG’s Executive Board and to the Audit Committee of its Supervisory Board.

The KION Group’s Internal Audit function audits the risk management system at regular intervals. In addition, the KION Group’s external auditor examines the early-warning system for risk as part of its annual audit of the consolidated financial statements.

Internal control system*

The KION Group’s internal control system, which is geared toward the specific needs of the Company, covers the entirety of the systematically defined controls and monitoring activities that are designed to ensure the efficiency of the Company’s business operations, the reliability of its financial reporting, and compliance with legal provisions and internal policies.

The elements of KION Group’s internal control system are structured in line with the internationally recognized framework for internal control systems developed by the Committee of Sponsoring Organizations of the Treadway Commission (‘COSO framework’). The internal control system therefore features, as its main components, the control environment, risk assessment, control activities, information and communication, and ongoing monitoring.

All consolidated subsidiaries of the KION Group are covered by the internal control system. The scope of the control activities to be carried out is dependent on the specific risks and their materiality for the consolidated financial statements of KION GROUP AG.

The system and the methods applied are refined on an ongoing basis and are regularly assessed to ensure they are functioning as intended. However, because of the limitations inherent in any control system it is not possible to provide complete assurance.

Internal Audit regularly evaluates the internal control system, thus helping to bring about continuous improvements. It focuses primarily on the following aspects:

• Appropriateness and effectiveness of the internal control systems for avoiding financial losses
• Compliance with legal requirements, directives from the Executive Board, other policies, and internal instructions
• Correct performance of tasks and compliance with business principles

Please refer to the information provided in the corporate governance statement for an assessment of the appropriateness and effectiveness of the risk management system and internal control system.

* The content of this chapter/section is disclosed voluntarily and is therefore unaudited.

Material features of the internal control and risk management system pertaining to the (Group) accounting process

The main objectives of the accounting-related internal control system are to avoid the risk of material misstatements in financial reporting, avoid material mismeasurements, and ensure compliance with the applicable regulations and internal instructions. This includes verifying that the consolidated and separate financial statements and the combined management report comply with the relevant accounting standards. For its (Group) accounting process, the KION Group has defined structures and processes within its internal control and risk management system and implemented them in the organization.

The Corporate Accounting, Controlling & Tax group function coordinates the preparation of the consolidated and separate financial statements of KION GROUP AG. It specifies the requirements for the reporting content, which are mandatory for all subsidiaries, and manages and monitors the stipulated deadlines and processes. The relevant departments or specialists from outside the Company are brought in to handle particularly complex issues and questions.

Changes to the law, accounting standards, and other pronouncements are continually analyzed with regard to their relevance and effect on the consolidated financial statements and group management report; the relevant changes are then incorporated into the Group’s internal policies and accounting processes.

All consolidated entities must follow the KION Group IFRS Accounting Manual when preparing their IFRS reporting packages. This contains the recognition, measurement, and disclosure rules to be applied in the KION Group’s accounting in accordance with IFRS and primarily explains the financial reporting principles specific to the KION Group’s business.

The accounting-based internal control and risk management system is underpinned by written policies and procedures, the double-checking principle, and approval procedures. Another important aspect, the separation of functions, has been integrated into processes and systems. The employees involved in the Group accounting process receive regular training in this field.

Those in charge of the control functions and senior managers regularly conduct control self-assessments in order to evaluate the appropriateness and operational effectiveness of the internal control system. The results are captured and documented in a central IT system. External reviews are also conducted for individual parts of the internal control system. Internal Audit regularly reviews the internal control system and accounting processes, including Group accounting. Any identified shortcomings to the controls are documented in the proper way and steps are taken to resolve the issues. The Executive Board of KION GROUP AG and the Audit Committee of its Supervisory Board are informed of the results of the self-assessments for the internal control system once a year.

Risk

Aggregate risk

At the time that this combined management report was prepared, all known risks were reflected in the outlook for 2025 as appropriate. While the risk report examines possible negative influences and variances from the scenario on which the outlook is based, potential positive influences are described in the opportunity report.

The outlook for 2025 is based on the assumptions made about the economy and the geopolitical situation. For example, the predicted macroeconomic recovery of the main EMEA sales region will not materialize if geopolitical events cause the supply chain situation to deteriorate and materials to increase in price again. Renewed escalation of the conflict in the Middle East could lead to a scarcity of supply in the oil market that might, in combination with the ongoing war in Ukraine, trigger a commodity crisis that would stunt global trade while also driving up inflation. Global trade disputes and trade barriers could also squeeze the Company’s earnings. This would entrench the restrictive monetary policy, and the associated constraints on growth, while increasing financing risk and financing costs. Customers in both operating segments would then become more reluctant to invest again. Equally, escalation of the real-estate crisis in China could lead to state interventions that would dent the outlook for growth, not just in the APAC region but also in the export-driven European economy. Furthermore, political uncertainty and elections – whether scheduled or snap elections – in various countries could take their toll on economic conditions and the political situation alike.

Currently, the KION Group still regards the overall risk to its ability to continue as a going concern as low. The risk tolerance specified in the risk-bearing capacity plan is not expected to be exceeded in 2025. As things stand at present, there are no indications of any individual or aggregated risks that could jeopardize the Company’s continuation as a going concern.

The risk matrix below shows the risks that have been quantified and are considered relevant to the Group, along with the gross amount of expected losses and the gross probabilities of occurrence, i.e. before mitigating action has been initiated. This paragraph describes the changes in the risk assessment compared with the end of 2023. Furthermore, the probability of occurrence for financial risk has been downgraded from medium to low, but the gross risk level has been raised from low to medium. IT risk has been expanded to include data security risk, while the assessment of gross risk level and probability of occurrence remains unchanged compared with the previous year. The probability of occurrence for tax risk has been raised from low to medium. The gross risk level for HR risk has been raised from low to medium. >>For the first time, environmental risk and other external risk have been included as categories. Environmental risk has been assigned a low probability of occurrence and a low gross risk level. External risk has been included with a low gross risk level and a medium probability of occurrence. The environmental risk category also encompasses the sustainability risks from the double materiality analysis, which have undergone a qualitative assessment for the first time. Details can be found in the ‘Sustainability risks’ section.

The KION Group recognizes the importance of extreme risks and is aware that they could present a significant threat to the Company. Extreme risks are risks that lie outside the range of normal risk, that cannot be influenced or can be influenced only to a minor extent, and that could have severe financial consequences for the KION Group. Examples of extreme risks include natural disasters, terrorist attacks, pandemics, and political instability. These risks could lead to substantial losses that might severely restrict the Company’s business activities or jeopardize its continuation as a going concern. The KION Group knows that, although the occurrence of extreme risks is rare, the severity of the potential losses mean that they could still have a critical impact on business. Events such as the coronavirus pandemic, the ongoing war in Ukraine, and the conflict in the Middle East illustrate that extreme risks very much can occur and how important it is for the KION Group to prepare for them. The KION Group has therefore established a wide range of risk identification processes – such as the top-down collection of risk data in addition to the usual bottom-up risk identification processes – and local business continuity plans so that it can respond swiftly to the occurrence of these types of extreme risk.

Risk matrix

The market risks and competition risks described, the risks along the value chain, the human resources risks, and the legal risks relate to the Industrial Trucks & Services and Supply Chain Solutions operating segments. Risks arising from the lease business mainly affect the Industrial Trucks & Services segment, while risks arising from the customer project business primarily relate to the Supply Chain Solutions segment. However, financial risks resulting from the Company’s general funding situation are relevant to the Group as a whole, as are IT risks, tax risks, and environmental risks.

In 2024, the existing risk catalog was revised in respect of sustainability-related risks and, in accordance with the requirements of the Corporate Sustainability Reporting Directive (CSRD), additional ESG risks were added. Drawing on the double materiality analysis carried out in accordance with these new regulations, the identified ESG risks were integrated into the KION Group’s risk management on the basis of a qualitative assessment. (ESRS 2 IRO-1 paragraph 53 c ii.) <<*

The risks applicable to KION GROUP AG generally correspond to the risks applicable to the KION Group due to profit-and-loss transfer agreements with key subsidiaries. There are also risks arising from the potential impairment of investments in affiliated companies, from the recoverability of loans to affiliated companies, and from losses made by subsidiaries that directly affect KION GROUP AG because of a profit-and-loss transfer agreement.

* This disclosure is part of the Group sustainability report of the KION Group for the 2024 financial year.

Market risks and competition risks

Market risks

Market risk can arise when the economy as a whole or the relevant sector does not perform as well as had been anticipated in the outlook.

In the Industrial Trucks & Services segment, the market outlook for 2025 assumes a moderate increase in order numbers. The KION Group anticipates moderate growth across all markets but does see a risk that order numbers could decline, contrary to expectations. This would take its toll on the financial performance of the Industrial Trucks & Services segment.

In the Supply Chain Solutions segment, the KION Group is expecting investment in warehouse automation to pick up slightly. Cyclical fluctuations in macroeconomic activity affect both the market for industrial trucks and the market for supply chain solutions, although the latter generally has greater immunity to economic cycles because the capital expenditure decisions have a longer-term perspective. Customers’ investment activity depends to a large degree on the macroeconomic situation and conditions in their particular sector. This means there is a risk that the KION Group’s revenue expectations for 2025 have been set too high.

As the KION Group can only adjust its fixed costs to fluctuations in demand to a limited extent and with a delay, reductions in revenue impact on earnings. Despite the importance of the North American business (mainly in the Supply Chain Solutions segment) and the prospective growth of the KION Group’s business in China, the bulk of the Group’s revenue continues to be generated in the EMEA region. As a result, the market conditions that prevail in Europe significantly influence the KION Group’s financial performance.

Risks in connection with trade disputes and geopolitical conflicts and tensions may also hinder some aspects of the global economy’s recovery. As well as the war in Ukraine, a new area of focus is the potential for trade barriers in connection with the new US administration. Moreover, the KION Group will continue to carefully monitor the dispute between the People’s Republic of China and Taiwan and the conflict in the Middle East. In the medium term, new barriers to trade could significantly hamper sales opportunities and lead to renewed disruption to global supply chains that would have a knock-on effect on production.

All these factors could have a negative impact on customers’ willingness to invest and thus on demand for the KION Group’s products and services, resulting in a decline in revenue. However, it is not currently foreseeable whether such market risks will occur and then have a material effect on the business situation and financial performance.

Further developments in the geopolitical situation, including any knock-on effects that change the level of risk, are monitored closely. Measures have been taken in both operating segments to help to contain the earnings risk arising from reductions in revenue as a result of economic conditions. Diversification of the customer base in terms of industry and region and the expansion of service activities also play a role in mitigating risk.

Moreover, the KION Group closely monitors the market and the competition so that it can identify market risks at an early stage and adjust its production capacities in good time. Besides global economic growth and other data, the KION Group also analyzes exchange rates, price stability, the consumer and investment climate, foreign trade activity, and political stability in its key sales markets, constantly monitoring the possible impact on its financial performance and financial position.

Given the high level of gross risk and low probability of occurrence, market risk is still regarded as medium overall.

Competition risks

Both operating segments risk losing market share to competitors and coming under increased price pressure, which could lead to them generating less revenue than expected.

The markets in which the KION Group operates are characterized by strong competition, often price-driven. Price competition is compounded by some manufacturers having cost advantages, in some cases due to the currency situation and in some cases because local manufacturing costs are lower. This mainly affects the Industrial Trucks & Services segment, where price competition is fierce, particularly in the economy and volume segments. The KION Group mitigates this risk though a wide range of product variants made possible by modular concepts, along with good availability of services, mainly in the volume and premium segments.

It is possible that competitors will join forces and their resulting stronger position will be detrimental to the KION Group’s sales opportunities. Moreover, predictions of higher volumes and margins may lead to overcapacity, which would put increased pressure on prices. Although the excellent customer benefits provided by its products and services have enabled the KION Group to charge appropriate prices until now, it is taking – and will continue to take – a variety of steps to contain competition risk. These include entering into joint ventures and partnerships, encouraging innovation, and implementing measures to reduce product costs.

For 2025, competition risks continue to be regarded as low, based on a low gross risk level and a medium probability of occurrence.

Risks along the value chain

Research and development (R&D) risks

The KION Group’s market success and business performance depend to a large extent on its ability to tailor its products and services to the specific needs of the various industries in which its customers operate. Key to this is the integration of the hardware (industrial trucks and automation solutions), software (from control center to warehouse management systems), and services (from repair to financing) into a single offering. The Group therefore needs to continually develop products that meet customer expectations and comply with changing regulatory and technological requirements. To this end, the KION Group must anticipate customers’ needs and changing market conditions and has to quickly bring new products to market. If the Company fails to do this, there could be lasting damage to its technological and competitive position, leading to a decline in revenue over the medium to long term.

The KION Group mitigates research and development risks by focusing firmly on customer benefit in its development of products and solutions. Customer needs are to be incorporated into the development process on an ongoing basis by ensuring close collaboration between sales and development units and taking account of all region-specific requirements. As at the reporting date, no material R&D risks had been identified that would have required measurement and therefore inclusion in the risk matrix.

Procurement risks

Procurement activities constitute a potential risk for the KION Group in terms of the general availability of parts and components and the rising cost of raw materials, inputs and intermediate products, logistics services, and energy.

Although the cost of materials, energy, and logistics continued to fall on the whole in 2024, they remain key factors in the KION Group’s cost structure. In addition, geopolitical developments can cause procurement prices, for example the price of energy commodities, to increase suddenly.

Issues with disrupted supply chains and the resulting reduction in the availability of parts and materials had largely been resolved in 2024 despite the ongoing war in Ukraine. However, geopolitical shocks could at any time significantly restrict suppliers’ capacity and therefore their ability to supply further raw materials and components to the KION Group. The KION Group obtains some components from a limited number of suppliers. The resulting potential supply bottlenecks in respect of the KION Group’s end customers could lead to temporary decreases in revenue and liquidity as well as to inefficiencies in production.

Overall, capacity bottlenecks at suppliers are diminishing due to the general economic situation and normalizing demand in the industry. Nevertheless, the KION Group has introduced a program of collaborative demand and capacity management for suppliers with the aim of conducting precise analysis in order to prevent future problems.

The supply chain risks for 2025 are regarded as manageable based on current market conditions. The KION Group has initiated countermeasures in order to mitigate problems with suppliers and in respect of sales to customers. For example, the supplier base has been further diversified in order to mitigate disruption in the supply chains and suppliers are being closely monitored in the context of the global procurement function. The objective is to take further steps to increase diversification in 2025. In addition, dedicated project teams are continually monitoring supply chains, the availability of materials, and suppliers’ ability to fulfill orders. For critical materials, the KION Group has also increased its buffer of inventories.

Moreover, prudent contractual arrangements can be put in place to allow the continuing rise in material and energy costs to be passed on to customers through appropriate price increases and thus to reflect changing market circumstances.

Procurement risk continues to be regarded as having a low probability of occurrence, as was in the case in the previous year. The gross risk level remains medium.

Production risks

Production risks are largely caused by quality problems, possible disruptions to operational procedures, or production downtime at individual sites. They can also materialize as secondary risks resulting from the aforementioned procurement risks. There is also a risk that structural measures and reorganization projects will not be implemented owing to ramp-up difficulties, disruption of production, or strikes. Delays in delivery or a rise in the number of quality defects could harm the KION Group’s standing with its customers and, as a result, could harm its financial situation.

The KION Group reduces production downtime risk by carrying out preventive maintenance, implementing fire protection measures, and training its staff. To manage risk, critical elements of the value creation process are identified and the impact that would materialize if they were disrupted is assessed. Contingency plans and, in some cases, redundant production processes have been put in place as a preventive measure. Insurance is taken out to limit the financial impact where there is potential for loss events to occur. Quality assurance is a high priority throughout the value chain and reduces possible quality-related risks arising from the products and services provided. The KION Group mitigates its quality-related risks by applying rigorous quality standards to its development activities, conducting stringent controls throughout the process chain, and maintaining close contact with customers and suppliers. In light of the measures that have been taken, the gross risk value is regarded as medium with a low probability of occurrence and is therefore unchanged from the prior year.

Risks arising from customer project business

In the customer project business of the Supply Chain Solutions segment, risks can arise from deviations from the schedule originally agreed with the customer, potentially leading to an increase in project costs, delayed recognition of revenue and profit until subsequent years, and the imposition of contractual penalties. Another possible risk is that the technology deviates from the promised specifications, which may result in additional completion costs and contractual penalties. A high degree of complexity in the technical specification of customer solutions can lead to unexpected cost increases over the term of individual projects that were not anticipated in the project costing and cannot be (or cannot be fully) passed on to the customer. If these risks were to occur, it would have a negative impact in terms of the expected revenue and adjusted EBIT. Given the complexity of the influencing factors, project-specific risk management is carried out that entails continual monitoring throughout the term of the project. Consequently, the definition of the technical aspects of quotations includes a detailed evaluation of the risks plus financial risk provisioning based on the individual project specifications. A multi-stage approval process based on an extensive list of criteria is intended to ensure that technological, financial, country-specific, currency-specific, and contractual risks are mitigated to the greatest extent possible.

The potential risks that may arise in the project realization phase are monitored in every individual project using detailed continuous reviews of the individual items of work that make up the project. This enables corrective measures to be taken at an early stage and thus keeps risks under control. In the customer project business, the aforementioned risks of disruptions to the supply of components would mainly manifest themselves in the form of isolated project delays and increased expenditure on project realization. Given this risk potential, the KION Group still regards the probability of occurrence for risk from the customer project business to be medium and the gross risk value to be high for 2025. In contrast with the evaluations of other types of risk, the risk-mitigating effects of the measures that have been taken are already factored in.

Sales risks

The main sales risks – besides a drop in demand caused by market conditions – result from dependence on individual customers and sectors. Even though the macroeconomic situation remained muted, the level of order cancellations or problems resulting from other types of changes to orders was not material in 2024.

Because of its customer project business, the Supply Chain Solutions segment generally has a greater dependence on individual sectors and individual customers than the Industrial Trucks & Services segment, which is not dependent on individual customers. The KION Group’s presence in a multitude of different customer industries and segments helps to minimize the overall risk. The business is also highly diversified from a regional perspective.

The concentration risk for the KION Group as a whole is therefore still considered to be low.

No material sales risks were identified that would have required measurement and therefore inclusion in the risk matrix.

IT and data security risks

The KION Group continually refines its IT system environment in order to counter migration risk when updating software as well as any IT and data security risks that may arise from the failure of IT systems and IT infrastructure. Internal IT resources are pooled in the cross-segment KION Group IT function, which has well-established processes for project management. Independent external reviews are conducted to provide additional quality assurance.

The number of attacks on company's global IT infrastructure that can be attributed to organized crime or industrial espionage has increased significantly. Failure of critical systems, disruption of production and the ability to deliver to customers, and the loss or release into the public domain of data are among the potential consequences of these attacks. Losses are also possible because a successful cyberattack can result not only in financial losses and liability risk but also reputational damage.

Various technical and organizational measures have been implemented with the aim of protecting the KION Group’s data against unauthorized access, misuse, and loss. These measures include, in particular, action to protect and defend against cyberattacks on IT systems. The KION Group’s cyber and information security strategy is aimed at providing continuous protection for all processes and systems, particularly those that are business-critical. It is based on internationally recognized frameworks, such as ISO 27001. For example, procedures are in place to validate and log access to the Group’s infrastructure. The KION Group has also implemented a cybersecurity tool stack to provide optimum protection against existing or future cyber threats. Other key countermeasures include continuous vulnerability scans of the entire IT infrastructure and regular penetration testing of critical systems.

For 2025, the gross risk level for IT and data security risks is unchanged year on year at medium, while the probability of occurrence remains low.

Financial risks

Financial risk encompasses liquidity risk, currency risk, interest-rate risk, and counterparty risk. In the context of corporate finance, counterparty risk relates to credit risks attaching to financial institutions. Financial risk also includes the risk of impairment, particularly of the Group’s goodwill and brand names. Groupwide policies stipulate how to deal with the aforementioned risks.

Exceeding the agreed maximum level of leverage as at a specific reference date, thereby giving lenders a right of termination, is a particular risk in connection with the agreed bond, lending, and promissory note conditions. Also, a cross-default situation could trigger a right of termination in respect of the other contracts. If these funding instruments are terminated, the KION Group will need to agree new financing, probably on less favorable terms.

Some of the Group’s financing takes the form of variable-rate or fixed-rate financial liabilities. Interest-rate swaps are used in some cases to reduce the interest-rate risk arising from the variable-rate financial liabilities. This mitigates the risk of rising finance costs in a risk scenario with increasing inflation and more restrictive monetary policy.

To minimize the counterparty risk attaching to financial institutions, the KION Group generally only works with investment-grade financial institutions.

Because of the high proportion of its business conducted in currencies other than the euro, the KION Group is exposed to currency risk and opportunities. These result mainly from fluctuations in exchange rates in connection with future cash flows – both revenue and costs – that are denominated in foreign currencies. In the Industrial Trucks & Services segment, 75 percent of the currency risk related to the planned operating cash flows based on liquidity planning is normally hedged by currency forwards in accordance with the risk management policy. The Supply Chain Solutions segment hedges against currency risk on a project-by-project basis. As a further natural hedge against currency risk, the KION Group endeavors, where possible, to make payments in the currencies in which cash inflows are generated.

Each Group company’s liquidity planning is broken down by currency and incorporated into the KION Group’s financial planning and reporting process. The liquidity planning is checked on an ongoing basis and used to determine the funding requirements of each company. The funding terms and conditions faced by the lenders themselves (manifested, for example, in the payment of liquidity premiums on interbank lending) may result in a future shortage of lines of credit and/or increased financing costs for companies.

The individual Group companies manage customer-related counterparty risk directly. They use a credit management system for identifying customer-related counterparty risks at an early stage and initiating the necessary countermeasures.

Goodwill and brand names with an indefinite useful life represented 24.4 percent of total assets as at December 31, 2024 (December 31, 2023: 25.9 percent). Pursuant to IFRS, these assets are not amortized and their measurement depends, above all, on expectations about the future financial performance of the KION Group. If these future expectations are not fulfilled, there is a risk that impairment losses will have to be recognized on these assets. Any such impairment losses can have an adverse and substantial non-cash impact on earnings and affect the balance sheet ratios. Regular monitoring of goodwill is important for identifying potential risks at an early stage and taking suitable steps to ensure the financial stability of the Company. This monitoring is carried out as part of the routine year-end processes and not as part of the risk management process, which is why monitoring of goodwill and of investments in and loans to affiliated companies do not form part of the risk matrix.

The overall assessment of the gross risk level for financial risk has been raised compared with the 2023 annual report and is classified as medium, whereas the probability of occurrence has been reduced to low.

Risks arising from lease business

The lease activities that are used to promote sales in the Industrial Trucks & Services segment mean that the KION Group may be exposed to residual value risks from the marketing of trucks. The trucks are returned by the lessee at the end of a long-term lease and subsequently sold or re-rented. Residual values in the markets for used trucks are therefore constantly monitored and forecast on the basis of prices in these markets. The KION Group regularly assesses its aggregate risk exposure arising from the lease business.

Risks identified in relation to the existing contract portfolio are taken into account by prospectively adjusting the depreciation expense, impairment losses, or provisions, which therefore reduces the level of adjusted EBIT. If there is a sustained decline in residual values, they will be adjusted in the costing of new leases. Groupwide standards to ensure that residual values are calculated appropriately, combined with an IT system for residual-value risk management, aim to reduce risk and provide the basis on which to create the transparency required.

Long-term leases with end customers are primarily arranged on a fixed-interest basis. If they are financed using variable-rate instruments, interest-rate derivatives are entered into in order to hedge the interest-rate risk, where it makes commercial sense to do so. Nevertheless, the lease business is still subject to interest-rate-volatility risk related to residual, non-matching maturities. The level of this risk depends in part on the relevant market interest rates.

As a rule, the KION Group finances its lease business in the same currency as the lease with the end customer in order to exclude currency risks.

The counterparty risk inherent in the lease business continues to be insignificant. The Group also mitigates any losses from defaults by its receipt of the proceeds from the sale of repossessed industrial trucks. Furthermore, receivables management and credit risk management are refined on an ongoing basis.

For 2025, the risk arising from the lease business is again regarded as low in terms of both probability of occurrence and gross risk value.

Human resources risks and legal risks

The KION Group relies on having highly qualified skilled workers and managers in key roles. If they left, it could have a long-term adverse impact on the Group’s prospects. That is why the KION Group actively engages in HR work aimed at identifying and developing young professionals with high potential who already work for the Company and retaining them over the long term, thereby enabling succession planning for key roles across the Group. The KION Group also positions itself in the external labor market as an employer of choice. Firstly, this should enable it to make strategic additions to its portfolio of existing staff and, in this way, avert the risk of possibly losing expertise. Secondly, access to highly skilled workers helps to lay the foundations for future profitable growth.

Any efficiency enhancement measures, capacity adjustments, or restructuring necessary to secure the Company’s long-term competitiveness may result in a risk of strikes and reactions of other kinds by the workforce. The KION Group is committed to doing all it can to limit the negative impact on the workforce of such measures and, if job losses are necessary, taking steps to ensure they are achieved with the minimum possible social impact. At sites where codetermination arrangements provide for the workforce to be involved in decision-making, the KION Group engages in constructive talks on these matters with the employee representatives.

Defined benefit obligations are subject to an annual actuarial valuation and the future payment obligations are discounted. A reduction in the discount rate increases the present value of the defined benefit obligations and therefore decreases equity. A further risk arises from the fact that if the return on the plan assets of the KION pension plan in Germany falls below the minimum guaranteed interest rate that exists in some cases, the KION Group is required to make up the difference. This may result in higher expenses for defined benefit obligations. The KION Group aims to limit this risk by adopting a suitable investment strategy.

The legal risks arising from the KION Group’s business are typical of those faced by any company operating in this sector, for example in connection with warranties or employment-law matters. The Group companies are a party in a number of pending lawsuits in various countries. The individual companies cannot assume with any degree of certainty that they will win any of the lawsuits or that the existing risk provision in the form of insurance or provisions will be sufficient in each individual case. These lawsuits relate, among other things, to liability risks, especially as a result of legal action brought by third parties because, for example, the Company’s products were allegedly faulty or the Company allegedly failed to comply with contractual obligations. Overall, the KION Group is not expecting any of these existing legal proceedings to have a material impact on its financial position or financial performance.

Further legal risk may arise as a result of the environmental restoration of decommissioned sites, for example because of work required due to contamination. Any damage to the environment may lead to legal disputes and give rise to reputational risk. There are also risks arising from the need to implement regulatory requirements intended to facilitate a circular economy and mitigate climate change and from the implementation of regulatory requirements restricting the use of certain pollutants. These risks are captured and assessed only on a qualitative basis. They continue to be regarded as low due to the KION Group’s business model and to the standards that have already been achieved in the areas of energy-related emissions, occupational health and safety, and supply chain monitoring.

Further legal risks exist in connection with potential breaches of data protection laws, including in relation to the processing of personal data and the documentation of such processing. For example, serious breaches of the European General Data Protection Regulation (GDPR) can lead to fines of up to 4 percent of the previous year’s revenue. Given the compliance standards maintained by the KION Group, the probability of data protection laws being breached and the risk level continues to be regarded as low. Events in 2024 did not necessitate any changes to this assessment.

The Company has taken measures to prevent it from incurring financial losses as a result of these risks. Although legal disputes with third parties have been insignificant both currently and in the past, the Company has a centralized reporting system to record and assist pending lawsuits. The Company applies high quality and safety standards to the use of its products and in product development and manufacturing, and it has also taken out the usual types of insurance to cover any third-party claims. In addition, interdisciplinary teams work on the avoidance of risks arising from inadequate contractual arrangements. A further objective of this cooperation across functions is to ensure compliance with mandatory laws, regulations, and contractual arrangements at all times.

Owing to the KION Group’s export focus, legal risks arise due to the numerous international and local export controls that apply. The Company mitigates these risks with a variety of measures. Consequently, export controls are an important part of the compliance activities carried out by the Group companies.

Reputational risks are secondary risks that can arise from legal risks as well as other types of risk. Involvement in legal proceedings and investigations into non-compliance with laws could harm the reputation of the KION Group and of the individuals responsible. This could result in the loss of customers and have a negative impact on the positioning of the brand companies in the competitive arena. As they are qualitative in nature, reputational risks are not quantified and therefore do not form part of the risk matrix.

The probability of occurrence and the gross risk level for the KION Group’s human resources risk and legal risk both continue to be regarded as low.

Tax risks

The KION Group also takes tax risks into account. Uncertainty regarding the interpretation and application of tax laws may lead to unexpected tax charges. In addition, changes in tax legislation or disputes with the tax authorities may lead to financial risks. Potential consequences include back payments and penalties.

To minimize these risks, the KION Group continuously monitors the tax rules and adjusts its tax strategy accordingly. Tax advisors or other external experts are consulted for particularly complex or specialist matters.

The level of losses in connection with tax risks continues to be categorized as low, but the probability of occurrence has been raised to medium.

Sustainability risks

The KION Group’s business activities give rise to circumstances that may have a negative impact on the KION Group and the entire value chain. In addition to the effects of global warming, these include the possible use of potentially polluting substances and the generation of potentially harmful emissions in the value chain. Sustainability risks are identified as part of the regular materiality assessment. Material sustainability-related risks identified in this way are recorded and tracked in the KION Group’s risk management system. The risks and their potential financial impact have not been fully assessed to date, so they are not yet included in the risk matrix. In addition to the existing qualitative description of the risks, adequate quantification will be carried out in the future, in the same way as for the analysis performed in connection with sustainability management.

Extreme weather events in supply chains represent a material risk that could have a negative financial impact on the KION Group. The environmental effects of global warming and the growing frequency of extreme weather events, such as storms and flooding, may lead to unstable supply chains, shortages of materials, and thus higher prices for materials.

In the same context, climate change brings with it the potential risk of water shortages at different stages of the upstream supply chains. This could result in temporary disruptions to production that, given the KION Group’s reliance on stable supply chains, would lead to operational inefficiencies and unforeseen costs for the KION Group. Water shortages could also adversely affect some aspects of the production process within the KION Group’s own value chain.

Furthermore, shortages of raw materials for which there is limited availability could result in supply bottlenecks, while rising prices for materials, and thus higher procurement costs, could have a material financial impact on the KION Group. Disruptions to production, resulting in longer delivery times for customers, would adversely affect the KION Group’s profitability. A partial or full ban on per- and polyfluoroalkyl substances (PFAS) could lead to supply disruptions that would have significant financial implications for the Group if no – or only limited supplies of – alternative components could be sourced at short notice.

Another material risk for the KION Group is if its competitive position is potentially weakened. The resilience of the KION Group could be under threat in the long term should competitors succeed in fully implementing circular economy strategies ahead of time. Major customers could prefer competitor products. The KION Group could also lose market share and suffer reputational damage due to customer expectations and a lack of circular products in its portfolio. Investors’ interest in the Company could also be tangibly dampened, and obtaining corporate finance could become harder. Moreover, an inadequate focus on achieving a circular economy may lead to higher costs as a result of rising prices in the supply chain for raw materials that are becoming increasingly scarce.

With regard to a functioning circular economy, sufficient financial resources must be available for the necessary investment in the development and expansion of existing corporate structures if the risks of a loss of competitiveness and reputation are to be avoided. This can represent a financial risk for the KION Group.