[39] Segment report

The chief-operating decision makers divide the KION Group into the two brands Linde Material Handling (LMH) and STILL, as well as the financial services (FS) activities for management purposes. Segment reporting follows the same breakdown, taking into account the relevant organisational structures and corporate strategy of the KION Group.

Since 2011 the chief-operating decision makers divided the KION Group into the LMH and STILL brands for management purposes and therefore for segment reporting. Starting in 2011 the KION Group had put in place the organisational structures required under the German Commercial Code (HGB) to enable it to manage and report the Group's financial services activities as a separate segment in 2012. The segment reporting in the notes to the 2011 financial statements included additional voluntary disclosures based on the future reporting model. These additional disclosures provide the basis for the comparative data. The new segment structure has been used for management purposes since the end of 2012.

In this context, separate financial services companies have been established in the core markets of Germany, France, United Kingdom, Italy and Spain. Further companies will be gradually introduced in countries with a high proportion of finance and leasing business. In countries with lower levels of FS activity, the sales and service companies will continue to run the financial services operations.

Description of the segments

The Linde Material Handling (LMH) segment encompasses the Linde, Fenwick and Baoli brands. The remaining 30 per cent held in Linde Hydraulics is allocated to the LMH segment at fair value and will be accounted for using the equity method on a going-forward basis.

The STILL segment comprises the STILL and OM-STILL brands.

FS activities include the financing of long-term leasing business for KION Group customers and risk management. When long-term leasing business is being conducted, FS operates as a contractual partner to external customers and provides the necessary refinancing in conjunction with external financial partners. Besides management of residual-value risk, risk management also includes the management of credit risk. In addition, FS provides the financing for short-term rental fleets on behalf of the LMH and STILL brand segments.

The 'Other' segment comprises the companies operating under the Voltas brand as well as holding and service companies in the KION Group. Voltas is a KION Group brand company whose manufacturing is based in India and whose business activities focus primarily on this market. The service companies perform cross-segment services for the KION Group. The bulk of the revenue in this segment is generated by internal IT and logistics services rendered by the service companies.

Segment management

The key performance indicator used to manage the brand segments is 'adjusted EBIT'. Segment reporting therefore includes a reconciliation of externally reported consolidated earnings before interest and tax (EBIT) – including KION acquisition items and non-recurring items – to the adjusted EBIT of the segments ('adjusted EBIT').

The key performance indicator used to manage the FS segment is earnings before tax (EBT).

Intra-group transactions are generally conducted on an arm's-length basis. The regular (interest) margin income that FS generates from its business activities reflects prevailing market conditions. Surpluses from the leasing business that exceed this interest margin are reflected in the producer margin within the operating profit generated by the LMH and STILL brand segments.

Segment reports are prepared in accordance with the same accounting policies as the consolidated financial statements, as described in note [8]. Contrary to these policies, however, the LMH and STILL brands' intersegment sales to FS are always treated as revenue for the brand segments, irrespective of the possible remain of opportunities and risks. These sales always take place at market price.

Assets and liabilities associated with the long-term leasing business are assigned to the FS segment. The expenses in the FS segment's income statement therefore reflect, in particular, depreciation/amortisation of the assets, interest expenses relating to the financing of these assets as well as operating expenses. These expenses correspond to income by the finance instalments paid by the customer (lease payments excluding service portion).

Whereas the main feature of long-term leasing business is the provision of a financial service to the external lessee, the focus in short-term leasing is on the service function. External customers are offered rental trucks from a rental pool – including associated services – for short-term use. Unlike the situation in long-term leasing, financial performance in the short-term business is largely dependent on the achieved level of utilisation of the rental fleet, management of which lies entirely within the responsibility of the brand segments. Given this structure, the assets associated with the short-term business and the related income and expenses remain on the brand segments' income statement or statement of financial position.

In an indirect leasing arrangement ('sale with risk'), the otherwise typical financing function of the FS segment as a lender for the leasing transaction no longer applies. As a result of the sale of the leased asset to the external finance provider in such transactions, the brand segments view the transactions in the same way as a sale to an end-user. Consequently, these transactions and all the revenue that they generate are recognised in the LMH and STILL brand segments.

The following tables show information on the KION Group's operating segments for 2012 and 2011:

The table below gives a breakdown of revenue from external customers by region.

There are no relationships with individual customers that generate revenue deemed to be significant as a proportion of total consolidated revenue.

Financial income and expenses including all interest income and expenses are described in notes [14] and [15].

The non-recurring items mainly comprised costs incurred in connection with severance payments, social plan costs, costs relating to the relocation and closure of production sites and consultancy costs. They totalled €70,928 thousand in 2012 (2011: €115,483 thousand). Also included for 2012 are the gain from the disposal of the controlling interest (70 per cent) in Linde Hydraulics (€-103,071 thousand), the gain from the remeasurement of the remaining shares (30 per cent) in Linde Hydraulics (€-108,692 thousand), the gain from the remeasurement of the shares already held in Linde Creighton Ltd., which were previously accounted for using the equity method, (€-8,015 thousand) and the gain from the remeasurement of purchase price obligations (€-4,557 thousand). In 2012 material non-recurring items amounting to €-107,092 thousand were non-cash items. In the segment LMH the non-cash items result in an income of €-109,397 thousand and in the segment STILL €-5,825 thousand. The segment other includes non-cash expenses amounting to €8,130 thousand. The KION acquisition items comprise depreciation, amortisation and impairment charges on the fair value adjustments identified as part of the purchase price allocation (PPA).

The assets attributable to the Financial Services segment include long-term leases which were reported as either leased assets or lease receivables, depending on the type of lease. At the reporting date, lease receivables due from unrelated third parties amounted to €379,946 thousand (31 December 2011: €361,225 thousand). There were also intra-group lease receivables of €373,354 thousand (31 December 2011: €300,046 thousand), which primarily resulted from the funding of the short-term rental business of LMH and STILL.

KION Group’s consolidated statement of financial position include liabilities to leasing companies arising from procurement leases, from financing of the rental fleet and from agreements classified as ‘sale with risk’ in the amount of €300,340 thousand (2011: €254,723 thousand), which are reported as other financial liabilities. Thereof €260,154 thousand (2011: €222,245 thousand) are allocated to the liabilities of Financial Services. The segment liabilities attributable to the financial services business also include liabilities to external leasing companies of €470,180 thousand (2011: €446,789 thousand) arising from finance lease obligations from sale-and-leaseback transactions for the funding of long-term leases with customers, which are reported as lease liabilities in the consolidated financial statements. Moreover, they include net financial debt of €174,853 thousand (2011: €127,337 thousand) arising from general financing of the Financial Services segment.

The equity-accounted investment (45 per cent) in Linde Leasing GmbH, Wiesbaden, was allocated to the FS segment when the new segment reporting model was introduced. The purpose of Linde Leasing GmbH is to provide financial services and it is therefore assigned to the FS segment.

Capital expenditures of the Financial Services segment includes additions to intangible assets and property, plant and equipment. Leased assets are described in note [19].

Depreciation/amortisation relates to intangible assets with finite useful lives and property, plant and equipment.

The regional breakdown of non-current assets excluding financial assets, financial instruments, deferred tax assets and post-employment benefits is as follows: