[38] Segment report

The Executive Board divides the KION Group into financial services (FS) activities and the Linde Material Handling (LMH) and STILL brands for management purposes. Segment reporting follows the same breakdown, taking into account the relevant organisational structures and corporate strategy of the KION Group.

Description of the segments

The Linde Material Handling (LMH) segment encompasses the Linde, Fenwick and Baoli brands. The 30 per cent stake held in Linde Hydraulics is allocated to the LMH segment and accounted for using the equity method.

The STILL segment comprises the STILL and OM STILL brands. FS activities include the financing of long-term leasing business with external customers of the KION Group and short-term rental business of the LMH and STILL operating segments as well as risk management. When long-term leasing business is being conducted, FS operates as a contractual partner to external customers and provides the necessary funding 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, which operate and maintain such fleets as part of their operational business.

The Other segment comprises the company 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 the Indian volume market. The service companies provide services for all segments in the KION Group. The bulk of the revenue in this segment is generated by internal IT and logistics services.

Segment management

The KPIs used to manage the brand segments are order intake, revenue and 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 for the segments ('adjusted EBIT’). To improve comparability and control, the non-recurring items for the Linde Material Handling segment in 2012 also include the elimination of the EBIT items for the hydraulics business, which was sold at the end of 2012.

Earnings before tax (EBT) and return on equity (ROE) are the KPIs used to manage the Financial Services segment. ROE is calculated on the basis of average equity employed excluding net income (loss) for the current period. As at 31 December 2013, ROE – earnings before tax as a percentage of average equity – remained unchanged on the prior year at 13.0 per cent.

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 leasing 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 [7]. 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 which entity might retain any opportunities and risks.

Assets and liabilities associated with the long-term leasing business, including related income and expenses, are assigned to the FS segment.

Whereas the main feature of long-term leasing business is the provision of a financial service for the external lessee, the focus in short-term rental business 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 remain on the brand segments’ statements of financial position and the related income and expenses remain on the brand segments’ income statements.

In an indirect leasing arrangement, 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 2013 and 2012: >> Tables 107–108

The table below gives a breakdown of the revenue from external customers by location. >> Table 109

Revenue in Germany came to €1,115 million in 2013 (2012: €1,225 million). 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 [12] and [13].

The non-recurring items mainly comprised consultancy costs, as well as costs incurred in connection with severance payments, social plan costs and costs relating to the relocation of production and closure of production sites. They totalled €12.8 million in 2013 (2012: €70.9 million).

In 2013, these items also included further income and expenses connected with the sale of our controlling interest (70 per cent) in Linde Hydraulics GmbH & Co. KG, Aschaffenburg in December 2012, and components of the share of profit (loss) of the remaining 30 per cent of the equity-accounted shares, which amounted to net income of €0.1 million. For reasons of comparability and control, the hydraulic business’s current income of €28.8 million for 2012 was also eliminated as a non-recurring item from EBIT in last year’s segment reporting.

The KION acquisition items relate to the acquisition of the KION Group, which was formed at the end of 2006 when it was spun off from Linde AG, Munich. These items comprise net write-downs on the hidden reserves identified as part of the purchase price allocation.

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. As at the reporting date, lease receivables due from unrelated third parties amounted to €458.1 million (31 December 2012: €379.9 million). There were also intra-group lease receivables of €449.1 million (31 December 2012: €373.4 million), which primarily resulted from the funding of the short-term rental business of LMH and STILL.

The liabilities attributable to the Financial Services segment largely comprised liabilities to leasing companies of €935.2 million (31 December 2012: €730.3 million) relating to sale and leaseback transactions that resulted from the funding of long-term leases with external third parties and intra-group customers. In the reporting year, €615.5 million (2012: €470.2 million) of this amount was attributable to the funding of leases with external customers and €319.7 million (2012: €260.2 million) related to the funding of intra-group leases with the LMH and STILL brand companies as lessees, who had in turn entered into leases with external third parties. Moreover, they include net financial debt of €163.6 million (2012: €174.9 million) arising from general corporate finance for the FS segment.

Capital expenditure by the Financial Services segment includes additions to intangible assets and property, plant and equipment. Leased assets are described in note [18]. >> Table 110

Capital expenditure in Germany came to €82.2 million in 2013 (2012: €105.0 million).

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: >> Table 111

Non-current assets attributable to Germany amounted to €2,676.6 million in 2013 (2012: €2,552.6 million).