KION GROUP AG (KGX) Earnings Call Transcript & Summary

Welcome to KION's Virtual Analyst and Investor Event 2021. My name is Sebastian Ubert, Head of Investor Relations at KION. A very warm welcome from the entire Board of Directors of KION and my colleagues and I from the Investor Relations team. Thank you for your interest in KION and for joining us for today's virtual event. Before I start, please let me do one of the housekeeping items right up front, which is to bring your attention to the legal disclaimer on Page 2. Although we are not meeting in person today, like we did at our last CMD in early March 2020, just before the corona pandemic shut the travel corridors down, it's good to see a lot of familiar names on today's participant list. A lot has happened since then. And as we have also shared in our most recent Q3 results last week, KION continues to perform. Today, our focus will be on our future. Accelerating profitable growth is the title of our event. We will take you on our journey into the future. For this, we have all our Executive Board members talking to you today. Most of them you will know. Henry Puhl, our CTO, you will not have met before. He has been with KION for 5 years, and today, we'll focus on ESG. They are all live on stage here at our headquarters in Frankfurt, except for CP, who joins us virtually from China. Before we start, the last housekeeping item. The camera will focus on our speakers and will facilitate the live stream and recording of today's event. You can start sending your questions during the event already. [Operator Instructions] During the Q&A session later, I will take your questions and pass them on to the respective Executive Board member. Welcome to KION. [Presentation]

Also from my side, a very warm welcome to this event. Since our last Capital Markets Day in early March 2020, we've all lived through turbulent times, and the COVID-19 pandemic has challenged us in many aspects of our daily lives. At KION, we also faced challenges. And looking back over the past 1.5 years, I'm very proud to say that we have successfully overcome these challenges. We are back on track and deliver strong performance this year, thanks to KION's increasingly resilient business profile and continued attractive future for the markets that we operate in. Today, we will give you an update on our KION 2027 strategy and a 2023 medium targets update, also taking a closer look at our segments. Anke will tell you more about that later today. The starting point for our KION 2027 strategy is a highly dynamic market environment that we operate in. Our material handling industry benefits from attractive macro drivers. E-commerce has accelerated through the COVID-19 times and drives the demand for warehouse automation, which is forecasted to grow around 13% in the coming years. The rise of emerging markets, especially China, fuels the expected growth of around 11% for China industrial trucks. We see a societal, political and economic drive to create green solutions that meet the increasing demands for a carbon-free economy. Lithium-ion trucks are one of KION's answers to that, and that market is also projected to grow at 50% in the coming years. In my view, the next 10 years will be the most innovative years in the history of our industry. At the same time, our population is changing. Labor becomes scarcer, has to be more specified and more expensive. So the possibilities for mobile robots to take on more and more tasks are vast. And with Dematic and KION mobile automation, we can participate in this market, which is expected to grow at around 53% in the coming years. These trends drive the growth for material handling solutions, and we are right in the middle of it. So our core markets are expected to grow substantially. In the medium and longer term, despite the pandemic, both the automation and the industrial market have remained stable in the last years. And looking forward for the automation systems market, we expect a compound annual growth rate of 13% until 2023 and a long-term growth rate in the double-digit range, driven especially by the growth in e-commerce. On the industrial truck side, we expect also a strong resurgence, resulting in a 9% annual growth rate from 2020 until 2023. In the longer term, market growth is expected to remain at around 5%, and so above the GDP growth. Strong market fundamentals have contributed to KION's solid performance in 2020 and a very strong rebound in 2021. And you saw this in our last week's Q3 results presentation, where we beat all the numbers and all the expectations. Now to stay with our performance, last year, we delivered a revenue of EUR 8.3 billion and EUR 547 million adjusted EBIT. Today, we confirm for our outlook for this year targeting EUR 9.7 billion to EUR 10.3 billion in revenue and an adjusted EBIT between EUR 810 million and EUR 890 million. This strong rebound and acceleration in growth is mainly driven by our business mix. In particular, KION's significant share of resilient business has increased given the focus on the 2 areas: SCS business solutions and our overall service offering. We have grown these strongly over the last years, of course, starting with the acquisition of Dematic. These now make up almost 2/3 of our revenue, and we expect their contribution to grow to around 69% by the year 2023, up from 46% in 2014. Our business today and for the future is significantly more predictable. So besides the tailwinds from the strong market development, we will drive this development further with our KION 2027 strategy. The KION 2027 strategy continues to provide the basis for our success and represents a framework for profitable growth for the group. It focuses on the growth sectors of automation, digitalization and high-performance energy systems, and it drives our innovation and performance. We have now also anchored sustainability in our fields of actions, and I'm convinced that sustainable action is one of the most important aspects for every business. That is why we are currently working on defining new targets and initiatives. And today, we want to give you a first glimpse into what we have done so far. Within our fields of actions, we are continuing to pursue strategic investments. So take -- let's take a closer look at the topics of sustainability and strategic investments. KION is fully committed to sustainable material handling. And although we may not have talked about it so much in the past, we've already done and achieved a number of great things. And Henry will give you an update on this later. We recently received our first A score at CDP, Linde Material Handling, EMEA and STILL EMEA both have EcoVadis Gold Ratings, and S&P Global CSA sees us in the top quartile for machinery. These are some of the recognitions for the work that have we done -- that we have done so far. Besides sustainability, a key aspect of KION 2027, I'd like to focus on today are the strategic investments we are making. Now even during the COVID-19 crisis, we continued our investments in ITS with our program of investing in new plants in Poland as well as in Jinan, China. This will be a base for the new product platform, and Andreas and CP will tell you more about this later in the presentation. So these ITS investments are already executed. Next up in line are the SCS investments. During our Q2 2021 results, we announced that we had signed an agreement to acquire an Indian player in the field of SCS supporting our increasing focus on Asia Pacific and SCS. And since the acquisition is still subject to regulatory approval, we cannot provide all the details quite yet. Staying with -- we are planning the new SCS plant also in Jinan, China next to the ITS plant. This investment is expected to further support growth of SCS in China and utilizes the already existing ITS plant infrastructure in Jinan very efficiently. These investments take us to the next level to achieve our medium-term targets. All of these developments give us confidence that we will be able to continue to grow profitably in the medium term. And so based on these successes, we are raising our medium-term revenue target to be over EUR 12 billion at the KION Group level by the year 2023 versus our previous target of over EUR 11 billion. At the same time, we confirm our margin target aiming for double-digit margin between 10% and 12% by the year 2023. Again, as stated before, we will today provide you with more transparency on how our segments contribute to these targets so that you can reflect all of this in your KION models. So in conclusion, we have a strong rebound in the business. The business is more resilient than ever. We are in a very strong market environment, and that gives us the confidence to raise our medium-term targets. Now let me hand over to Anke for an in-depth update on our financials.

Yes. Thank you, Gordon. Welcome from my side. Indeed, we have a very attractive business model, and we also have a strong outlook for the future. We have a sound financial profile, which we have used as a basis for the execution of key investments. On the back of the dynamic market environment, we aim for an increased medium-term revenue target for KION and introduce a strong medium-term outlook for SCS and ITS. To provide the next chapter of our success story, we continue to invest with focus on our strongly growing SCS business in preparation for the next growth phase. Let's look at our sound financial profile. We are in very good shape financially. Our strong operational results allow us to drive cash conversion. 80% on the last 12 months' basis may look lower than in the past, but this is due to the buildup of working capital driven by the current supply chain issues. Following the Dematic acquisition, we have been able to deleverage continuously. And on this basis, rating agencies have upgraded our credit work rating across the board to investment grade. As I said, our sound financial profile enabled us to execute on all investments we told you back in March 2020. We executed on all the investments we announced last year with a strong focus on our ITS segment. The successful execution will support our medium-term targets. And obviously, they will also have a positive impact beyond full year 2023. Looking specifically at the investments for our new plants in Kolbaskowo and Jinan. By 2023, we foresee our new plants in Eastern Europe and China contributing up to EUR 280 million to revenue. And Jinan is not just about capacity expansion. It is also going to allow us to bring a new product family online, which Andreas and CP will share with you later. All in all, this gives us great confidence in our ability to deliver profitable growth in the medium term. Dynamically growing markets and executed investments, together with our attractive products and our highly skilled employees, are the strong foundation for our future. For this year, we anticipate revenues in the range of EUR 9.7 billion to EUR 10.3 billion and an adjusted EBIT of between EUR 810 million and EUR 890 million. For this year, I would say, for revenue, we strive for the upper end. Looking at adjusted EBIT. The current consensus expectation slightly above the midpoint looks reasonable to me. For 2023, based on continued SCS and ITS revenue growth, supported by additional capacities and products as well as leveraging scale effects and our continued strict cost discipline, we intend to further grow profitably aiming for a new medium-term target of more than EUR 12 billion in revenue, up by EUR 1 billion versus what we told you back in April 2021, while we are confirming our adjusted EBIT margin target of 10% to 12%. So even at the lower end of the adjusted EBIT range, this would translate to an adjusted EBIT for the group clearly above the EUR 1 billion mark, a record level for KION. Now let us have a look at how our segments will contribute to these targets. With respect to SCS, we want to grow even stronger with revenue surpassing EUR 4.5 billion by 2023. Our adjusted EBIT margin is expected to be 12% to 14% as we expect a significant impact from gross profit initiatives. These include the focus on strongly growing verticals and an increased regional presence; growing the highly profitable service business; increasing the regional production, especially in developing countries to drive the global cost position efficiently; and improving execution in terms of speed and effectiveness by increasing the application of standardized automation solutions. And of course, we will not neglect SG&A costs, which are expected to impact profitability positively based on scale effects. Now let us take a look at ITS. For ITS, we target revenues of more than EUR 7.5 billion by 2023. In terms of margin, we expect to achieve a margin in excess of 10% by then. To achieve these targets, KION will take advantage of the attractive markets with new offerings and products. And this will be supported by the strengthened production footprint and the additional capacity. We will also grow our resilient and highly profitable service business. While at the same time, we will work to achieve further efficiency improvements. Summarizing our targets. We have set ourselves clear goals. KION intends to deliver more than EUR 12 billion revenue, more than EUR 4.5 billion from SCS and more than EUR 7.5 billion from ITS. At the same time, our profitability is expected to increase to 10% to 12% for the group. This will be achieved by ITS contributing a double-digit adjusted EBIT margin and SCS delivering in the 12% to 14% range. Consensus expectations to currently not yet reflect these new assumptions, specifically for SCS, where consensus is only expecting 12.4% and 10.6% for the group to be reached by full year 2023. So obviously, we are raising the bar here. Besides that, we are increasing our dividend payout range. While the lower end remains unchanged at 25%, we raised the upper end towards 40%. This will begin with the dividend for the fiscal year 2022. Let's look at the next phase of growth together and how we are preparing our organization accordingly. Very strong top line growth allows KION to maintain R&D spend at around 3% of group revenue. We will undertake a shift in R&D spend towards SCS. The focus of the spend will be the development of intelligent software solutions. Now let us take a look at our strategic investments. Having executed key investments in 2020 and 2021, especially in ITS, we are now looking at future investments. We have dedicated capacity investments for SCS, including a new plant in Jinan and further expansion in Monterrey and Stríbro. We expect these investments to enable us to take the next step in our growth journey. Further M&A activity is not displayed on the chart for 2022 and 2023 as we act opportunistically. In conclusion, we are in a strong financial position. We have increased our medium-term targets, and we are preparing for growth beyond this time horizon. We look forward to our shareholders continuing to be part of this journey, also with an increased dividend policy. And now let me hand over to the segments to give you more color on the plans, starting with Hasan and SCS.

Thank you, Anke, and good afternoon to all of you. It is great to be with you again, even if not in person, after the pandemic of our generation. I'm excited to share with you that our industry has not only maintained the growth we shared with you in March of 2020, but has further accelerated. The future is honestly more promising than ever. So let's look at the drivers. The same drivers we discussed last time we were together continue to exist. But as I am sure all of you have personally contributed to, e-commerce grew 26% year-over-year. The skill shortages that are hampering many industries that we all interact with every day are even more pronounced in the supply chain warehousing space. In the U.S. alone, turnover in the last 5 years reached 150%. Amazon today operates distribution centers that would be larger than 8,000 football fields, that's American Football, and still growing. And with all the progress and -- we and others are making, only 10% of warehouses globally are fully automated. This means the opportunities for automation to grow are immense. The COVID pandemic has further accelerated demand for intelligent and connected supply chain solutions that we are fortunate to be the best at providing globally. So putting this in market numbers. You will remember from last year's presentation that we had expected the market to grow about 8%. We now anticipate our market to grow 13% between '20 and '23 and believe the growth will happen in all geographies. Companies post COVID think of automation as essential to survive the future. The pandemic has shown us that even the best and the most sophisticated supply chains in the world were challenged. This has resulted in increased spend and automation. We are now confident in our served markets will surpass EUR 40 billion by 2023. Let me bring this to life. Come with me to the Arabian desert to the Jabal Ali Industrial Zone North of Dubai. To the Landmark Group, one of the largest retail conglomerates in the Middle East, India and Africa, headquartered in Dubai, operating 2,200 stores in 3 continents. They wanted to optimize their supply chain with focus on speed and efficiency. You can read all the impressive numbers from more than 11 kilometers of conveyors, 74,000 boxes processed every day, 1,800 tons of steel. But what is more impressive is that this is a highly intelligent system driven by software or robots to optimize receiving goods and distributing them to over 2,200 stores in a mostly autonomous environment. Now let's look at the single largest and the most sophisticated automation project in the Middle East delivered by Dematic. Let's play the video. [Presentation]

This is Dematic. This is supply chain solutions at KION. So now let's take a quick look at the financial headlines. The combination of exciting markets and our leading capabilities and Dematic's global scale mean we aim to grow our revenues to more than EUR 4.5 billion by 2023 and drive efficiencies, which is expected to improve our profitability to the 12% to 14% range, as Anke showed you earlier. How will we do this? There are 4 parts to our playbook. Number one is focus on the highest-growth segments globally where we can bring the most value to our customers; number two, lead with our technology to solve customer problems, software, robotics and integrated automation; number three, partner with our customers for life to maximize their return on investment and keep their distribution centers operating optimally; and last but not least, number four, execute at scale and differentiate our building blocks through standard subsystems. I will now go over these in more detail one by one to show you how we will grow and drive efficiencies and profitability. Starting with number 1 and how we grow faster and continue to outpace the market. We provide solutions across all market verticals, as you see on the left and the bottom of this chart. The verticals you see on the left have all continued to grow. They have as well been accelerated by the pandemic. Dematic is in a great position with our expertise to grow in them. As many of these verticals are essential businesses, we are proud to partner with our customers that deliver these essential services to consumers every day. Our global footprint showed our value and scale to our customer during the darkest day of the pandemic. With the growth of e-commerce as a channel, many verticals have seen significant growth. The general merchandise market, which is 30% of the automation market, is expected to grow at a compounded annual growth rate of 17% between 2020 and 2023. You can see on the chart that the other key verticals that we provide service solutions in are also growing very well. We are well positioned in these verticals with intelligent solutions combined with our domain expertise and scale to grow and gain market share. I will now drill down into just one key vertical you all buy from every week, groceries. The journey of your groceries from supplier to distribution center, to store, to your house, as you ordered online, is only possible with intelligent automation. Without starting from the farm, I will go direct to the grocer distribution network. Groceries must be received and stored in central distribution centers. They will then make their way to either a regular store or to a store with a micro fulfillment capability in the back or to a dark store that is fully autonomous. The heart of this network is the autonomous robotic distribution center orchestrated and optimized by software. As soon as you walk into one of these distribution centers, you wonder where the people are. Our intelligent robotic solutions optimize the receiving of pallets from the wholesalers, de-palletizing the pallets into cases, sorting the cases, creating store mixed pallets and getting them ready for store distribution. Our software is the brain that optimizes the flow of goods to make sure your favorite box of cereal is on the shelf when you want it. When you order online, our systems from the back of a grocery store or from a dark store make it possible for your order to be ready and delivered in 2 hours. To bring this to life, let's learn about Americold. Americold, as their name implies, is a 3PL that specializes in refrigerated and frozen storage and distribution of goods for 120 years. They operate more than 1 billion cubic feet of refrigerated storage in 183 temperature-controlled warehouses. Beyond the requirement to optimize the distribution, it's not easy to find enough labor that want to work in cold and subfreezing environments. Dematic is building mostly autonomous robotic intelligent, integrated systems for Americold in 2 U.S. locations. They start from receiving the goods to delivery to stores. Very few have the capabilities and scale to deliver solutions like this, and even fewer have the network and capacity to provide services for lifetime of the distribution center. Dematic does and has done this for over 200 years. And covering the first element for our playbook on the market and verticals we are focused on, I already started touching on the second element of playbook technology. I will now drill down a bit on the software that is not as easy to see as the shuttles, the cranes or the robots moving around. Our customers are on a journey from manual warehouses to the future of fully autonomous supply chain. Automation systems, advanced technology hardware and robots will be the building blocks for these future systems. Software and data are the brains and the glue that bring it all together. At Dematic, our software offerings start from programmable logic controllers that drive all the moving elements of the automation; and from there up to the warehouse execution systems that manage the whole distribution center and optimize the movement of goods to meet the delivery mission; to the flexible fulfillment that uses autonomous mobile robots to move and sort goods; to the warehouse management systems that manage all aspects of manual and automated warehouses, goods, labor receiving, shipping, et cetera. Our sweet spot is with customers that are on the forefront of automation and looking to optimize their networks. And we have the expertise, capability and global presence to do so. Our vision is centered around ecosystem-based intelligence solutions that drive measurable value to our customers, as you see on this page. We have the global network to do this with over 1,600 software experts who serve more than 500 clients with a 99.8% client retention rate. With our software offerings, we serve brand names that you all know as H&M, Walmart, Tesco, Caterpillar and Rubbermaid, to mention a few. What we are most proud of is the outcomes that our software offerings deliver to our customers that you see on the bottom of this page. Now moving to the third element for our playbook, aftermarket services. Our aftermarket services ensure that our customers' automation -- automated distribution centers run reliably and efficiently. In services, you must be close to your customers, and Dematic has one of the most extensive global service networks. Our 2,300 employees, supported by some of the best service technologies, working closely with around 8,000 customers installations and delivering greater than 98% uptime. Services give us the customer intimacy that keep them coming back to us as they advance on their automation journey. Let me share with you some more details on what we do in services and where we are going. The advantage of -- the average life of a distribution center is 20 years. Our services start even before we hand over a distribution center. We help customers use the automation effectively through our start-up services. This is critical for customers who are new on automation. We make sure they learn and ramp up to full production in the most optimal way. We plan their maintenance and provide the spare parts they need to have ready. For some, we help with maintenance and operations through our resident services. And as the distribution center ages, we provide the modernizations and upgrades to keep their assets operating optimally. And more than ever before, we're using modern digital capabilities to monitor our systems, predict failures before they happen, optimize the maintenance and help our customers optimize their operations. We're also including long-term value-based service agreements, moving away from break-and-fix to win-win agreements where we and our customers benefit when the systems are running reliably and efficiently. All this is expected to not only drive growth in services but high efficiency and profitability. And now to the fourth element of the playbook, execution at scale. Key to fuel our growth is our global execution capability. We continue to build on our people and manufacturing capabilities across the globe. We manufacture in 12 factories to produce our equipment close to our customers, improving our cost and delivery times. We have more than 4,000 engineers who develop and implement our intelligent systems around the globe. Our scale drives efficiencies that help us improve our profitability as we grow, and we are taking some further strategic steps in that direction. We are expanding our manufacturing network with a new factory in Jinan, China, as you have seen in today's press release. At 28,000 square meters, this new state-of-the-art manufacturing site will be our largest in Asia. It will support our growth in China and the APAC region. It also gives us the cost advantage of China. We're also expanding our software and engineering presence in 3 best-cost countries in Mexico, Lithuania and India. This will add to our global network to support our growth and drive our efficiency. On the investment side, as you heard from Gordon earlier, we are excited about our entry into India to serve that growth market more directly. We will share details after we get the required regulatory approvals. Beyond scale, we also continue to invest in subsystem standardization. As you have seen earlier in my presentation, Dematic provides intelligent robotic systems in our customers' vertical markets. No 2 customers are the same. We work with each one to create the best solution for them to meet their business needs. As we scale our business, we are investing in developing standard building blocks that integrate hardware, controls and software. These subsystems will drive scalability, faster execution and reusability. By 2023, we target to have 40% of our offerings based on standard building blocks, fueling our growth and profitability. Let me now conclude. It is truly an exciting time to be in the Supply Chain Solutions business. All the fundamentals point to continued robust double-digit growth. At KION Supply Chain Solutions, we are privileged to shape and lead with the technologies to deliver the promise of optimizing supply chain. Our scale will drive our growth and -- all over the globe and fuel our profitability. Our people, software and robotics technologies are our differentiators. I'm truly honored to be leading this great business in an exciting time with the most committed people delivering for our customers globally every single day. Thank you for your time. And now we will have a short break before my partners, Andreas and CP, continue. [Break]

Welcome back after the break. After Hasan has talked about our Supply Chain Solutions segment, welcome now to our global Industrial Trucks & Service segment. CP joining us from China, and I will share with you how we see a highly attractive ITS market expected to grow strongly and how we drive profitable growth using 3 pillars. The first pillar being growth, gaining further market share via our new value series positioning and expanding our production footprint. The second pillar being resilient services, accessing greater profit pools by a more active truck life cycle management, even better utilizing our growing installed truck base. And the third pillar, efficiency improvement, driving efficiency by reducing production costs, by structure programs as well as by standardization. And all these 3 pillars driving profitable growth. So let's get started by looking at the attractive market we operate in. The global ITS market continues to show attractive growth across all 3 regions. The global market for industrial trucks is expected to grow medium term at a rate of around 9%, reaching a total market size of EUR 52 billion in 2023. Actually, in 2021, we are seeing a very strong growth versus 2020 already. The EMEA market is expected to remain the biggest, reaching EUR 20 billion in 2023. And the APAC market slightly surpassing EUR 60 billion will then slightly exceed the Americas by 2023. Overall, this robust market growth gives us the confidence that we deliver on our targets. And KION's ITS segment is expected to exceed EUR 7.5 billion revenues and reach double-digit adjusted EBIT margin by 2023. So supported by a very strong market growth in 2021, KION's ITS segment is expected to achieve revenues in the range of EUR 6.25 billion to EUR 6.55 billion. And for 2023, we target to reach revenues exceeding EUR 7.5 billion at an adjusted EBIT margin of above 10%. So with the message that KION ITS segment is expected to reach double-digit adjusted EBIT margin in 2023, let me now hand over to my colleague, CP, who will outline our 3 pillars to drive the operational and the financial development of KION's ITS segment.

Thank you, Andreas, and a very warm welcome also from my side. Sorry that due to the COVID travel restriction in China, I can only now participate in online. Continuing on what Andreas has said, let me now provide you with a clear framework on how ITS is able to capture further growth from a promising market and how we can achieve a double-digit EBIT margin in the coming years. As you can see from the slide, our framework is basically built upon our 3 pillars that Andreas talked about just now, namely: growth with new product offerings, strengthening our resilience services and efficiency improvement program. First, when it comes to growth, we continue to invest into innovation, introduction of new product platform and increasingly our production capacity in all regions, and this will ensure us able to compete and capture the market growth. When it comes to services, while having the right product is very important for us, it is also important for us to further expand and strengthen our after services business. Even though we have so far able to capture a pretty high market share from our installed fleet, we still see very good opportunities where we can further expand -- we can further support this asset that we have throughout their entire product life cycle. Remember, the after service business is our most attractive part of our unique business model, and it provides us with high profitability and as well high resiliency, especially during downtime. When it comes to efficiency improvement, as we gain volume and scale, we need at the same time to drive forward with efficiency improvement initiatives, such as in areas like process standardization, productivity gains and as well structural cost reduction. Let me now take you through the very first pillar in more detail, starting with growth. So if you look at this slide, you can see that one key expect of the growth pillar is definitely the launch of our KION global value platform counterbalance truck, which actually have introduced during the last year Capital Market Day. So now let me take the chance today to update you with the latest progress of this new platform. As highlighted last year, the KION global value platform counterbalance truck is designed to address the strong growing value segment. It is actually built upon a modular platform approach, under which both our IC and as well our electric truck can be produced on the same platform. It is a multi-brand platform covering all our 3 strong brands: be it Linde, be it STILL and also Baoli. From this slide, you can see the 3 photos of the 3 trucks that we are showing here. And actually, they all come from the same platform, and yet they are being equipped with different features and different performance level. This new platform also features a vertical integration of our critical component supplier. Such strategic partnership with our local supplier allow us not only to secure reliable component supply, but at the same time as well achieving better cost position. For information, these trucks will be produced very soon from our Jinan new factory, which will be the KION largest value factory. As mentioned last year, we are investing around EUR 100 million to build this factory and alongside our global value R&D center, and it is almost done now. And we will start our first production mid of next month. We strongly believe that with the launch of this product and with the production footprint that we are putting, it will really help us to better position ourselves against our Chinese competition. Let me now show you how and why this modular design can provide us such competitive advantages. The product offering that we have from this KION global value platform is actually geared towards the strong growing value segment, where competitive pricing is actually very important. And we are able to achieve this pricing through highly modular platform and through scale effect from all the volumes that we can get across all the KION regions. This modular design concept will enable us to build a total 50 types, 50 types of trucks, both IC truck and electric truck using basically standard common components. And such components are either produced in-house or through vertical integration investment and partnership with our strategic supplier, which we have found lately. And we are able to from here achieve volume and scale effect. Such critical components are like lithium-ion battery, which is very important, axle, cylinder and et cetera. And all these will increase our cost and pricing competitiveness. Also to compete and to differentiate versus our competition, we managed to also achieve by reducing the service time for this trial and as well achieving better performance versus our local competition. At the end, our offering has to be overall more optimized, especially in price/performance ratio, in order for customers to actually switch in buying from us. And as I said, this platform is the basis for over 50 new product types, starting with the highest-volume segment, which is the 2- to 2.5-tons truck both for Linde and Baoli scheduled to be launched in early next year. And the remaining 48 types will be launched in the coming 2 years. It will serve not just the domestic Chinese market, but as well the global market. And take note that it will not just be the normal electric truck, but as well including a full range of new energy lithium-ion series for all our brands across all the region. The launch of these new products, of course, has to be supported by the new production capacity expansion, which we have done so far. Here, let me introduce to you our 2 newest completely new factory. On the right side, you will see our new Jinan factory. And this photo actually show you some glimpse of the factory. This factory has an annual plant capacity of 40,000 trucks and feature a broad level of automation that fit well into our value production strategy. As the global value counterbalance factory, the Jinan factory will produce all types of global value platform counterbalance truck for all the brands. Again, all the preproduction will start next month, and the regular service production will happen in February next year. The second factory I would like to introduce to you is our newest factory in Kolbaskowo, Poland. This factory has just been open for production recently, and it will help us to increase our counterbalance production capacity in addition to our only Germany-focused counterbalance site in Europe. It has a design annual capacity of 12,000 units and has further areas for expansion available. In July, actually, we have started production for the low-tonnage IC truck in this factory. And from next year onwards, it will also start to produce electric trucks targeting at a competitive value segment. Therefore, in conclusion, our first pillar growth, combine our new truck offerings with our expanded new production capacity, will definitely support ITS' future growth. Now let's move on to our second pillar, which I will hand over back to Andreas.

Thank you, CP. So the continuous growth of our global installed truck base is actually the key ingredient for our second pillar, resilient services. And as many of you know, our service business is consisting of various offerings. We offer aftersales maintenance, we offer aftersales repair, we offer spare part sales, rental business and used truck business, and all of these services being highly profitable. And as you can see in this chart, our aftersales revenue grow very nicely in parallel to the growth of our globally installed truck base. And so now with that, let me explain how we intend to use this installed base to drive profitable growth within KION's ITS service segment. So the growing installed base steadily increases, and that gives us the potential for resilient services, and particularly by extending the service focus from the first to the second and the third life of trucks. So in the ITS segment, we have today already a very high share of full-service contracts, along with long-term rental contracts. So for our customers, the full-service contracts actually ensure high uptime of the trucks. And for us, the full-service contracts enable profitable aftersales revenues. So now once the long-term rental agreement expires, there are several options for the use after the first life of the returning trucks. One option is we refurbish those trucks and utilize them as a short-term rental truck; or a second option, we refurbish the trucks and actually sell them as used trucks. So for our customers, both options are actually an attractive service offering. So for example, they can use a high-performing refurbished truck under a short-term rental contract to support peak demands that they experience or they can buy a high-performing refurbished truck for occasional use. In any case, whatever option we and our customers decide upon, this generates highly profitable service revenues. So for the ITS segment to even better utilize the lifetime opportunities of the installed base, we have 2 approaches. The first approach is we increase the pie by keeping more of the assets under our services. And the second approach, we keep the trucks longer by extending the life cycle for services. So regarding keeping more assets under our service, we continuously increase the share of long-term rental agreements with full-service contracts. And regarding keeping trucks longer, we are extending the life cycle of services by actually refurbishing a higher share of trucks after the first life and even after the second life and then using those trucks for short-term rental fleets or for what we call advanced rental solutions, and those advanced rental solutions being a mix of offerings of new trucks and refurbished trucks adjusted to whatever specific needs the customer has. And we are also extending the life cycle for service by pushing out the sale of the asset then to the end of the third life. In addition to that, we also increase the efficiency of our services throughout the asset life. And this we achieve by digitalizing our services via remote monitoring or truck health management and also by utilizing remote services, which we can now do with our new digital truck models having all a digital twin. And we further drive efficiency of our used truck refurbishment by generating scale. And scale we achieve by consolidating and industrializing our refurbishment operations from being done today mostly in the local workshops only to setting up a network of midsized refurbishment operations. So in a nutshell, resilient services broadens our customer offering by better using the entire life cycle of our installed base. The additional revenue potential of an asset during the second and the third life is about 80% to 100% of the first life. So again, highly attractive. Let's now turn to the third pillar of the ITS segment, and that's efficiency improvements. So ITS continuously drive forward efficiency improvement initiatives in product cost, in structural cost reduction as well as through standardization. And within the ITS segment, we have a very strong foundation in continuously driving efficiency improvements across all cost drivers. Today, I will highlight 3 of the many initiatives that we're executing. There are 2 initiatives within the category of product cost. The first one is about building a reach truck competence center in Stríbro, Czech across all brands; and the second being increasing our production productivity through smart automation. And I will also highlight 1 initiative within standardization, and this is about industrializing our production for the very fast-growing mobile automation segment. There are many other important initiatives shown in this charge, which also support the quality of our customer action while at the same time driving efficiency for our business. Let's now look at building our reach truck competence center. So with building our reach truck competence center, we are creating an even stronger key warehouse product for industry verticals that are actually highly resilient. And the reach trucks are a key product used in warehouse operations as those combine on one hand, high vertical storage capability with very fast horizontal transportation speed. And so the performance of the reach truck is often the decisive factor that determines which brand customer decides upon for the warehouse fleets. And reach trucks are also, at the same time, used mostly in highly resilient industries such as retail, grocery as well as the food sector. So to serve the ITS market in EMEA with reach trucks of the Linde brand, we opened already a first haul in 2016 in Stríbro, Czech Republic. Now after building a second haul there, we are integrating also the reach truck of the STILL brand. And both brands are using a modular platform, which is then being differentiated in terms of the offering according to the brand positioning. So now this reach truck competence center consolidates all steps from the design to the production. And in total, we have now capacity of more than 18,000 trucks. This relocation now of the reach truck from the Hamburg site to Stríbro actually contributes annual savings in the high single-digit million euro range. And besides those important cost savings, there's also further advantage that whenever we drive product improvements, we can more easily scale them across the modular platform being now on one competence center. Now for another example, we will show you a short video in a moment. And this is about smart automation and smart automation increases our product productivity, particularly in our Western European plants. In the video that you will see, it actually shows a double-digit euro million investment in a semi-automated welding line for roofs and frames. And this particular is used for the new 12XX counterbalance platform that we are producing in our Aschaffenburg plant in Germany. This platform, the 12XX platform has been introduced initially to the market in 2019 and further variance for the different tonnage classes will hit the market until 2024. Now semi automation means that parts are positioned manually in fixtures, and then the further welding operation is completed by robot. Let's now take a look at the dance of the giants. [Presentation]

So those robots that you can see cannot only dance, but they also perform very reliably. And so overall, the semi-automated line not only massively increases productivity, but it also increases quality of the process as consistency of the automated welding operation is very, very high. Now let me share a third example for our pillar efficiency improvement, and let's look at an example for standardization. And with that, let's move to mobile automation. And this is an area where KION ITS and SCS come together. Overall, we consider the mobile automation segment as one of the most interesting segments right now, specifically in the next decade for both ITS and SCS. From a rather low level today, we are anticipating growth rates in the mid-double-digit percentages in the next years. And given the various material handling processes across different industries, we are seeing that the type of mobile automation solutions will branch out. So depending on the type of goods, the weight of the goods, the distance to be transported, the different products are required. And thus, our broad offering ranges, and you can see this on the chart from left to right, hybrid trucks and automated mobile robots in the center, but also customized automated guided vehicles. So now in focus for us is that by industrializing our mobile automation solution, KION is taking the necessary steps for the strong market growth in that segment. So for us to be able to profitably offer the product range, and enable communication interaction with manual trucks and our automated fixed solution requires a standardization of the product architecture and interfaces, but it also requires a standardization to efficiently produce and deliver. So therefore, we are taking the necessary steps to fulfill the expected strong growth by standardizing and industrializing those key products. For example, for our Pallet Stackers, shown on the left side of the chart, we substantially reduced production cost by replacing manual assembly processes with automated operations. And this industrialized operation will go live in early 2022 in our site in Châtellerault, France. Now the product range shown in the center, the so-called AMRs or automated mobile robots. We are serving by our investment in Quicktron. And the AMR product range is used in different variants by all of our large brands, so Dematic, STILL and Linde Material Handling. The software interfaces, they are standardized again to smoothly interact with our warehouse management and our warehouse control system. And the production of those is successfully ramping up in China. But more so, we are also working on advanced mobile automation technology, shown on the right side, which is the LoadRunner. And for this, we recently entered a collaboration with the Fraunhofer IML in Dortmund to achieve the market launch. And the LoadRunner is essentially a high speed small-sized AI-assisted AMR, which will be able to sort up to 10,000 parcels per hour using only 60 LoadRunner units. So this solution is very promising to truly transform sorting technologies in the future. So let me conclude on our third pillar efficiency improvements, which will consistently address margin improvement through initiatives in standardization, productivity and structural cost. CP, back to you.

Thank you, Andreas. Ladies and gentlemen, after hearing what Andreas and I have presented, I'm sure you are as confident as we are that the ITS business is poised to benefit from the accelerated volume growth. And as such, is targeted to return back to the double-digit adjusted EBIT margin in the medium term. In short, we continue to see a highly attractive global ITS market, growing steadily over the midterm. To reiterate, our attractive profitable growth model will be based on the 3 pillars we have just shared: number one, our continued growth based on our investment in innovation, in new products alongside with increased production capacity; number two, our resilient services where we were covered an even higher market share from our growing installed base further supporting this asset through active product life cycle management, which will ensure us having high profitability and high resiliency. Lastly, on efficiency improvement, we will continuously driving efficiency improvement through initiatives in standardization, productivity gain and structural cost reduction. In summary, we will continuously harvesting on our investment in such a highly attractive market. With that, let me hand over to Henry.

Thank you, CP. Thank you, Andreas. Now sustainability is at the core of everything we do at KION, and it has been for a long time. In fact, we believe that sustainable performance is closely linked to our performance on sustainability. Today, I want to share a few of our sustainability targets and achievements over the last year. I'm sure most of you will have seen and read our sustainability report on how we keep the world moving in a sustainable way. In fact, we take responsibility to keep the world moving. That means 3 major things: first, we create a great place to work for our employees, where health and safety is paramount and built on certified occupational health and safety management systems; second, we are supporting our customers to make their businesses more sustainable and reduce their CO2 footprint with our electrified products and solutions from lithium ion or fuel cell power trucks to the full carbon-neutral warehouse; third, but not least, we actively manage the impact of our own operations on the environment. Already in 2020, we achieved a 30% reduction in our CO2 emissions, 7 years ahead of our target. Now let's take a closer look at these 3 sustainability areas of focus. As I said, the well-being of our employees is paramount because they are the ones working relentlessly on new products, solutions, services for our customers' success. That's why we are establishing global safety standards at all sites but even today already provide access to health and safety training and free examinations as well as health and fitness courses. These standards and the culture we have established helped us to adapt quickly and seamlessly to the pandemic protocols and keep our business running. As a company, we are convinced that our success is very closely linked to our success on ES&G and employee satisfaction. As a result, our management's remuneration is closely correlated to our performance in this area as well. As part of this, the AT IFR and the ISO 14001 certification, both are included in the Board's short-term incentive plan. And the S&P Global CSA rating and the employee service score are linked to the Board's long-term incentives. This moving on to products. Today, 100% of our SCS portfolio is electrified, and over 87% of our ITS portfolio is electrified. And it is not just about being electrified. It is about energy-efficient solutions, allowing our customers to make their business more sustainable, consume less energy and in return have a positive impact on climate change. Let me give you some short examples. Our new Linde X20 - X35 has further improved motor efficiency using less energy overall. E is now more effective than IC in all aspects and it is also on the same power level. Our UL1200 that uses state-of-the-art brake resistors and regenerate energy when decelerating to save up to 40% energy. We also deliver new solutions like energy management to support our clients to better understand and manage their energy demand, which we do in partnership with Ifesca. But for our KION products, it's not just about energy. For us, sustainability already starts with product design. Up to 99% of our trucks are recyclable and are designed with reusability in mind. We believe in the circular economy and for our European counterbalance trucks, almost 100% of weights are made from melted scrap metal. To have multiple lives, our trucks are high quality and durable. They usually have a first, second and third live and through our service network are well maintained, repaired and refurbished to extend the life span as much as possible before being retired and recycled. As mentioned before, OHS is paramount to us at KION, but also to our customers. Let me give you an example of noise. With Quiet Flow Solutions, we take a holistic approach to reduce noise levels throughout the warehouse. The Quiet Flow Solutions combine a noise audit equipment recommendations and building treatments into one solution. The dramatic technology itself is, for example, infused with dampening materials and solutions to reduce vibration, energy consumption and noise. The iGO Neo, on the other hand, is highly ergonomic. -- automatically follows the picker and thus reduces mounting and dismounting for an operator by 75%. Think of it as a brave dog following, understanding and supporting all you need to do. And with all the safety features to ensure it doesn't run over you. Now that we have looked at people and our product, let's move to the third element, our processes, and of course, our impact on climate change, specifically CO2 emissions. In 2018, we set ourselves the goal to reduce our CO2 emissions by 30% up until 2027. Ever since, we tirelessly strive to improve our own operations. It was an ambitious goal at that time. And as I said, we achieved it last year already, largely driven by ongoing efficiency initiatives and the switch to renewable energies. Yes, pandemic also had an effect, and we will, therefore, carefully look into the 2021 numbers. What is clear already today is that more measures are necessary to further slow climate change, and we are currently setting a new ambition to advance our contribution to the climate protection program. We understand that our responsibility does not stop at our factory gates but goes further out into the supply base. So we closely collaborate with a huge supplier network to create more responsibility and transparency along the full value chain. We have established our sustainable supply chain initiative with EcoVadis, a reliable partner with a comprehensive assessment of sustainability and strict external validation. By 2023, we will have engaged with all of our strategic and high-risk suppliers as well as our small- and medium-sized suppliers to really ensure we are all contributing to our goals. Our sustainability efforts are focused on people, products and processes, including financing processes. Let me give you an example. We have recently agreed on the first ES&G-linked RCF for KION Group for an amount of EUR 1 billion that replaces our existing RCF. Our new RCF is based on credit rating criteria. It also has an interest rate adjustment of plus/minus 2.5 basis points based on our ESG performance. And as that's linked to our LTIFR, the share of electric trucks produced as well as the amount of our greenhouse gas emissions. This does show once more our commitment towards a sustainable material handling industry. So in conclusion, we have a clear plan on sustainability and have made a huge step forward with obviously more to do for KION to deliver sustainable business performance, we must also deliver on ES&G as they go hand in hand. Finally, I wish for you to stay safe and healthy. Thank you, and back to Gordon.

Yes. Thank you, Henry, and bringing everything you have heard together and reinforcing why KION continues to be an attractive investment. We operate in an attractive market environment, and we've strengthened our position as one of the global leaders in material handling. Through COVID-19, we have shown that we have further solidified our business model and remain committed to further increase our resilience. Our strategy sets us up to play in the right growth markets. We target profitable growth with a balanced product portfolio and will continue to pursue attractive strategic investments. Lastly, KION creates value by achieving scale and synergies from our combined operations and further integrating our structures and offerings. All of these elements are the basis for KION Group's outstanding share performance. Since our IPO in 2013, our share price has more than quadrupled significantly outperforming the MDAX and DAX. And with this look back on the market, I'd like to spend the last words on a look to the future and also on a personal note. So before bringing the presentation of our exciting future to a close, as you know, I will be coming to the end of my journey with KION after 14 years. It has been a privilege to lead this business, and we have written some great chapters together. Thank you. Thank you all investors and analysts that have been with us on this journey so far. But we're only halfway through the KION 2027 strategy. And as you have heard from my colleagues, there's lots more to come. And this future is in the safe and capable hands of Dr. Rob Smith and the team that you just heard from. And with that, the team and I are ready to take on your questions. Sebastian, over to you.

Thank you, Gordon. And thank you for the already submitted questions, which we will now start working through. In the meantime, please continue to send through your questions. But in the interest of time, we would start with taking your first 2 questions. And I have the first question that comes in from UBS from Sven Weier. That is for you, Anke. The question is, how do you see the timing of your 2023 targets? Will they be back-end loaded? Or is it a stable growth?

Yes, Sven, thank you for your question. If I do look at the order backlog, we already had end of Q3, we are talking roughly about an order book of EUR 6 billion. I would rather say that we are looking at its front-end loaded because we have to turn the backlog now into revenues.

Thank you, Anke. We have the next question here coming from Shell Asset Management from Assad Fahrit. And those question that goes to you, Hasan, the question is, are there significant synergies between Dematic and ITS?

Thank you, Assad. And I'll be glad to take that. We do have synergies. They come in 3 different ways that you've seen some. First, we have activities around cross-selling as our customers move from manual to automated, we're able to provide kind of the full scope. So our commercial teams are constantly together to make sure that as we're selling automation, we're bringing our trucks, and we're selling trucks and customers moving to automation, we're doing that. So we have a lot of synergy that comes that way through a fairly expanded kind of footprint in our commercial workforce. The second one, and you've heard Andreas talk about is around mobile automation. We see mobile automation as kind of the intersection of the best of what ITS and SCS can bring together. So we're together building our R&D and manufacturing capability around the mobile automation space. This way, 2 is better than 1. And last but not least, you've also heard about manufacturing. So we have plants that are close to each other in Stríbro and now in Jinan that share infrastructure and are able to capitalize on the scale of KION. So yes, there are synergies and they come in these areas.

Thank you, Hasan. There is another question that goes to you also from Assad from Shell asset management. I'll take the 2 together. The one is about competition from Amazon's Kiva. Do you see that as a threat in the long term? And that also goes along the lines with KION's market share in the SCS segment is that improving in the future?

Okay. So I'll take the first one, and I'd never like to hear the word Amazon and competition because Amazon is one of our most valuable customers. So Amazon is a great customer. And yes, they do use Kiva. And we work with them on sites that -- we've worked with them on sites that have used Kiva for shelf to person for a long time. Now they're introducing Kiva and Sortation and our scope with Amazon continues to be very healthy. So we don't see that as a competition. We see it as an evolving technology and what we offer our key customer, Amazon and others. So no concern there. The second question was around market share. And we don't really report market share. I think you can look at the market size, look at our results and be able to compute it. But I can tell you that we continue to do very well. We're excited about the backlog that we see that reflects the growth in the market and our ability to continue to win in it. You've seen that in our results year-to-date, and you'll see it at the end of the year.

Thank you, Hasan. But staying with you. We have a lot of questions coming in for our SCS segment. I will take the next one that comes from George Featherstone from Bank of America Merrill Lynch. First of all, thank you for the additional divisional targets. Can you please get an update on the growth that we see with DAI, so the acquisition we did last year? And how software the share of that is in our expectations for 2023?

Yes. Thank you, George, for your question. I can assure you that DAI has been a great add to our KION and Dematic family. They have done very well. We've increased the staff there significantly and continue to really enjoy the capability and the growth they brought to us. With respect to software as a market share or a total, we don't measure it or report it that way. And as you saw, what we do and you hope you saw from the video, we bring highly integrated and intelligent solutions. So software is the brain that makes it all work for us. So it's all integrated and the complete value that we bring to our customers. That's how we look at it.

Okay. And then we also have a question that comes from Stefan Augustin from Warburg Research. That goes to you, Anke. I think we have touched on those points already last week with our Q3 results. But again, what is implied by our guidance in the fourth quarter? What is left over for 2021 before then going into the bright future by 2023.

Yes, you are right. We talked about that during our Q3 presentation, and I agree it looks quite soft as the SCS fourth quarter if you look at consensus and midterm guidance and so on. But the answer to that is that, first of all, Q4 SCS always is a little bit driven by seasonality, as you know. Last year, it was a special situation based on COVID. Then we are growing our employee base, as Hasan also has spoken about to prepare for further growth. But the most important effect in Q4 are some material bottlenecks supply chain issues, which drive cost inefficiencies, and we expect the impact to be the highest for SCS in Q4.

Thank you, Anke. That was crystal clear. We have one question coming in from Akash Gupta from JPMorgan. It goes to you, Hasan, again. Could you please describe the stage of the tender processes for a new project in SCS? And what are the products and services that are key to get into this phase? And how many competitors do we face typically?

Thank you, Akash, for your question. And we -- the life cycle for project starts, first, by us really knowing our customers very well and knowing the vertical markets and the needs in those vertical markets. And then we start with developing a solution that takes a lot of know-how early on and simulating these solutions to make sure that the investment that we're proposing for our customers will actually give them the ROI that they need. And from there, it goes into contract award and then engineering and software development and sourcing and manufacturing and then integration into the field and then hand over. So the products that we use, we have a great mix. So there's -- as I said, we started with our know-how and our engineering. There are products that we manufacture. There are products that we source from other people. So we build fairly complete and highly integrated robotic systems. So we include scope from ourselves, from other people, and then we bring it to our customers. And we also provide services for a lifetime. So we go through 20 years of services providing our customers for the lifetime of their distribution center.

Thank you, Hasan. I see SCS is really in much favor of our analysts and investors. I have a follow-up question that comes from Akash Gupta from JPMorgan. You working in the SCS business on more efficient proprietary storage solutions for like cubic storage. I think that comes alongside the AutoStore IPO? If not, then why given the valuation investors put on such companies?

Yes. We're always working on new technology solutions that we will announce when they become ready. With respect to AutoStore, we do use AutoStore as one of our providers. And the way it is different from what we provide is our products are and our solutions are more focused on high throughput and high speed. When people need a smaller density or higher density solution is when we use AutoStore. So we will collaborate with AutoStore. We use them as part of the offerings that we provide. So that's how it fits with what we do. With respect to the market and valuations, that's for the market, not for me, so...

Okay. Thank you, Hasan. And we have a question that goes to you, Andreas, that comes from Berenberg from our analyst, Philippe Lorrain. The question is, could you please explain what will be the focus of the German lift truck plants since the new Poland and China factories are in the ramp-up phase. And what is -- yes, the focus of the Western European lift truck market, how will that evolve over time in terms of price and segmentations. And also, again, here, the value will that become the new normal in the long term.

Thank you, Philippe, for those questions. First of all, you will see that our Western European plants, especially those German, we spend a lot of time in automation like the dance of the giants that you've seen. So we maintain capacities but automate. And you can see our footprint is basically growing in Eastern Europe as well as in China. But overall, it's like we are very happy with the very experienced plans we have there. Generally, as we've seen the market overall growth and EMEA remains the biggest market for ITS globally. We will certainly -- we're certainly seeing and expecting a stronger growth of what we call the value segment, and therefore, CP has introduced our KION Global value platform, which will be a key product to compete in that market. So that area will grow a bit stronger. But overall, we see all segments remaining very attractive for us.

Thank you, Andreas. And we also have another question that goes to you, Hasan. It's on AutoStore. You know we are partnering with them. But Sven from UBS, he wants to know. Yes, AutoStore is talking about that they will win market share with their compact solutions from other concepts, such as auto shuttle systems or AGVs. Can you please explain to him what are the pros and cons of our solutions with AutoStore, and yes, not losing market share.

Yes. And again, as I answered just a few minutes ago, we do use AutoStore in our solutions. It always goes as part of a solution when our customer is looking for a higher density solution with respect to the products that AutoStore is able to move, which is kind of smaller products that are -- and where you don't have enough space and you need a higher density solution. When you look at shuttle-based solutions like we provide, they are geared more towards problems that require higher throughput and higher speed, and this work comes. So the offerings that we have are complementary, so we use AutoStore when needed versus shuttle-based solutions. With respect to would they -- with their new offerings in the smaller market space, do we see that as an issue. We don't see it. It's where we're both growing and we're both growing very well, and we continue to do that in a fairly very exciting market that we showed -- we showed you the numbers where it's growing between now and 2023 at 13% CAGR so.

Thank you, Hasan. And I have one question that goes into the direction of Andreas that comes from Daniel Gleim from Stifel. Andreas, what is our view for the ITS EMEA market for 2021? But differently, what is the growth assumption after the record year of 2021 for the years 2022 and 2023?

Thank you, Dan, for iterating here on the market size. As we've shown earlier, overall, we expect the growth to 23.9%. And obviously, in 2021, we've seen an extraordinary growth, high double-digit numbers. That's basically -- it's like a reinvestment after a slow mark in 2020 as well as also customers pulling forward orders as the lead times are now pretty long. So a very high mark in '21. We expect a bit of a breeze in '22, but then growth again in '23.

Okay. Thank you, Andreas. And we have a follow-up question that comes from Akash Gupta from JPMorgan. He wants to know, Hasan, can you tell us about the patent portfolio of SCS? Can you also walk us through the process of how you allocate R&D inside SCS and how much investments are directed towards software?

Again, the way we go about our R&D is every year, we look at it as part of our KION 2027 targets and the market needs and where we need to go. So we invest in all our different R&D areas. And as Anke shared with you earlier, we're shifting more and more towards investment and intelligent software solutions. So this is how we allocate it based on what we see is coming and what the industry needs, and we move it that way. So that's how we do it.

Okay. Then we have a follow-up question that comes from Assad Farid from Shell Asset Management. That also goes to you, Hasan. How does Dematic improve its WMS capability? It seems to be weaker versus WCS and WES?

Assad, you and I have to become best friends, you're asking my questions. And look, we don't believe that our WMS capability is weaker. It's actually very strong. We believe both our WMS or WCS, AWS, our whole software stack is very strong. But our software stack is really focused. As I said, our sweet spot is on customers that want to use automation that are highly automated. So we focus it in the verticals and the domains where we are very strong and where we can bring the best value to our customers an integrated intelligent robotic solutions versus having a Swiss army knife that you could give to everybody at all levels. So this is -- so we're actually very strong in that area, and we pride ourselves in the value that we can bring in our WMS solutions to our customers.

Thank you, Hasan. Anke, I have a question for you that comes from Katie Self from Morgan Stanley. She wants to know why our ITS margin cannot return to the previous levels seen pre-COVID. She thinks 10% appears unambitious versus the 2015 to '19 average of around 11%, particularly given the increased growth outlook.

Yes. Katie, thank you very much for that question. I don't deem it unambitious to be honest. You know that we have set back because of material costs. I said that our results even this year could have been higher when we look at Q3, but based on material cost headwinds and also the supply chain issues we are where we are, but we also do not expect that to be over with the 31st of December. You also know that we spoke at last year's CMD about IT costs and depreciation because of the investments we are doing -- and also those effects do stay with us. But as we said, by 2023, we are double digit again above the 10%.

Okay. Thank you, Anke. I have now also a question coming in from one of our investors that comes from Adam Kogler with Texas Teacher Retirement. He goes the way towards Andreas and CP. How is product development with Quicktron? Will ITS be launching its own AMRs, Andreas?

Like as you know, we have invested in Quicktron because we selected them after a long process, and we find they're a very attractive partner for us with a very good portfolio. And so we are very much eager to scale the portfolio. We're doing very well in China, and we are in the process of bringing those Quicktron solutions or more and more to the market, and we are very happy with the solution that they offer.

And from the product development side, I think we are now launching all the standard products that we have actually so-called negotiated and arranged with Quicktron. And at the same time, there are a couple of products that we are actually in the pipeline where we co-developed the product and will be coproduced this product in our KION China factory.

Thank you, Andreas and CP. And the question from Adam that goes further beyond. Also looking on our reach truck strategy. Andreas, the combination of growth rates and the competitive advantages, why do we have the focus on the reach trucks?

I mean, first of all, as I explained earlier, the reach trucks is one of the key decisive products when a customer decides upon which brands to work with because -- the reach truck is very versatile. As I said, it can go to relevant vertical areas and is very fast horizontally. So it's really the anchor product and a very flexible product. So therefore, you want to be well positioned in that segment. And then you can say like largely the rest sells with it. And so therefore, being very competitive in that segment is key to be winning.

Thank you, Andreas. I'm staying with IT&S. The question comes from Gael de-Bray at Deutsche Bank. And this goes to CP. Could you elaborate on the current market dynamics in China and what that means for the ramp-up and the timing of our new factory in Jinan.

Thank you very much for the question. Actually, the market for China year-to-date is actually a very strong one. And we can see that it is mainly driven by electrification where especially on lithium-ion-driven trucks, this is really booming like crazy. And at the same time, a lot of new entry-level warehouse truck is also growing very fast in China and as well the value segment, as we keep talking about it since the last year, also progressing as per plan. So I think we are actually very happy with the timing that we have actually launched our growing in China initiative last year. And now this is proving to be the right initiative in order to capture the high rising market.

Thank you, CP. We have one more question for Anke that comes from Sven Weier from UBS. Anke, what does the higher CapEx in the years 2022 and 2023 mean for your cash conversion rate, will that stay at the 80% only?

The cash conversion rate, Sven, you see on the chart is operating cash flow. That excludes CapEx. So on that ratio, there is no influence of the slightly elevated CapEx level you have seen. And if I may add, the 80% I pointed out is due to the issues we are currently seeing with inventory going up quite drastically. And I think at the end of the year, you will also see that we can return to the level we have shown in the past.

Thank you, Anke. We have also a follow-up question that comes from Philippe Lorrain at Berenberg. That goes to you, Andreas. He refers to Slide #55, what exactly will you automate in the assembly in Châtellerault?

Yes. This was in the context of our third pillar efficiency improved when I talked about examples for standardization, and I mentioned that our hybrid AGVs -- or some of our hybrid AGVs that we built in Châtellerault, we will automate and this is the context also of introducing a new product platform for manual as well as automated trucks. And there, we will do a similar automation, as you have seen in the dance of the giants. It's a bit of a lighter application because the material thickness is a bit lower than for the counterbalance trucks, but it's very similar to what you've seen in that video.

Okay. Then we have another question from Philippe Lorrain at Berenberg that goes to you, Gordon. Looking on Slide #8 of our presentation, he said that you seem to imply that the industrial trucks market will only grow at about 2% CAGR between 2023 and 2027 after growing at about 9% over the next 3 years. In the past, we were talking about 4% growth what is driving this lower growth? Or is there a difference between growth and the trends in the market in unit terms and versus the value?

Well, let's -- don't forget where we're at today, and that is we are at an extreme rebound in the year 2021, so very, very strong growth, which has to be handled, and we have handled it pretty well. But we do think that we will have a breather in the coming years. So I do expect some normalization in this period, '23 to '27, whether it's 3% or 4% at 6 years in front of us. So I think the market is very, very strong, and it will normalize a little bit in the outer years.

Okay. Thank you, Gordon. I have one follow-up question that comes for you, Hasan. It comes from Simon Rowe at Janus Henderson. It's one of our investors. Regarding SCS, why are we so shy about quantifying the software element in SCS. It's clearly important, in his view.

Yes. Thank you for your question, Simon. And I don't think we've ever accused of being shy. So we -- software plays a critical element in the value that we bring to our customers. It's actually the brains and the glue that makes all these pieces work as I hope you saw from the video and then the material that we presented. We offer our solutions to our customer as a totality, including the mechatronics, the software, the resale, the value we bring through the design and integration. So we don't provide it as separate pieces and price it as different pieces. So that's why we don't speak about that separately because we bring the value of the solution to our customers in a -- with software being the brains and the intelligence in that solution.

Thank you, Hasan. I have a question that comes from the Bastion Grove now at Exane Paribas, that goes to you, Anke. And he has 2 questions, so I will take them one by one. We will start with Supply Chain solutions. Anke, our financial guidance framework implies about 20% contribution margin at SCS as for ITS. As you pointed to software as a key differentiating factor besides your global footprint and leading scale, why doesn't: a, growing software content; and b, above proportionate growth contribution from services trigger an even higher-margin uplift potential.

Sebastian, first of all, back, so to say. I can imagine that the software portion is, as Hasan also described, is getting more and more important. You have seen in our R&D investments that it will be geared towards SCS, and also within SCS, we invest heavily into software. So I would expect it will materialize in the future, but we are looking here at target until 2023. And if you look at our starting point and where we will be potentially end of this year, the uplift until 2023 is already quite significant.

Thank you, Anke. And coming to the next point of Sebastian, that's on the free cash flow. With above proportionate growth in SCS, how should we think about the free cash flow conversion going forward? And can you provide a net working capital outlook for SCS in particular, is there any material impact to be expected from a growing business contribution from APAC and China.

Yes, that's very interesting indeed because as many of you know, SCS is in normal times running on a negative net working capital. So with growing SCS business that, of course, has a positive impact on our cash conversion if SCS is growing, the impact is definitely positive. I would say on APAC and the impact is rather limited. I do see there. So in general, positive impact on our cash conversion.

Thank you, Anke. And we come to the next question that comes from Peter Roth goes to you, Hasan. Considering the huge cost increase for materials, Hasan, do you see a risk in the Dematic backlog for the margin quality. And to what extent do you have the chance to pass on higher raw material costs after the order has been accepted?

Thank you, Bader. And truly, just like everybody else, we deal with the supply chain challenges and then some increase in material costs. We do manage that on a contract by contra fixed and we manage it. But overall, as you saw from our results and continue to see, we're managing that area pretty well and delivering to our customers and to our shareholders.

Thank you, Hasan. And staying with you the next question that comes from Deutsche Bank from Arsalan Obaidullah. Hasan, how -- is warehouse automation competitive, the environment? Is there a difference in China versus the current competition we see in the U.S. and in the European markets. And how will the new factory that we just announced today gain advantage for us?

Thank you, Arsalan. We have competition in all these regions. And in the U.S., the market is not as tight from a competition perspective as it is in Europe. As you know, our industry started in Europe. So there's a lot more competition and price pressure in Europe. As we get into Asia, the same thing happens. It's a maturing industry. So there's still also more pressure there. But we look at all our 3 geographies between the Americas, Europe and APAC and China to be growing and then balancing each other in the portfolio. And our factory in China will definitely contribute to our growth in APAC and also provide the efficiency that we need to be competitive there. And across the globe, we manufacture very close to our customers, and we have people that are in all these regions. So we're able to make sure that we're getting the efficiencies in those regions that we're operating in.

Thank you, Hasan. We have another question that goes to you, Anke. It comes from Jorge González, our analyst at Hauck. Anke, he wants to know about CapEx. Can we split how much is maintenance CapEx for KION in the range until 2023? And especially for the SCS division, after the planned investments that we do with the new factory.

Yes. We received the question, I think also during the Q3 presentation, and we do not split the CapEx into pure maintenance or growth CapEx. Also maintenance CapEx comes with plant efficiency and therefore, is allowing further growth and again, further efficiency. So we don't split it up further.

Thank you, Anke. And I have a question that goes to you, Andreas, that comes from Will Turner of Goldman Sachs. And he wants to know, given KION's modular manufacturing strategy, are you expecting a convergence and pricing between premium and value brands? And how will you maintain the difference in prices between the brands? Is the focus on the value segment going to have a negative impact on the profitability in IT&S?

Yes. I mean what we clearly see well in the market is the classical price performance relationship. So we do see demand customers requiring higher performance and they're also willing to pay a higher price for that. And similarly, customers that are in different utilization intensities, expecting lower performance, also want to pay a different price. So therefore, we don't see conversions, but we clearly see customers paying for performance that we expect to continue in that market. And at the end, it's just a matter of us being competitive and providing them healthy margins by continuously focusing on our product cost, production cost, as we outlined.

Thank you, Andreas. I'm staying with Bill Turner from Goldman Sachs. The next question that goes to Anke. And again, it's on working capital. So SCS has always a negative working capital, how come that other players in the industry inflect Daifuku or Swisslog have a positive working capital?

Yes, unfortunately, I can't comment on our competitors and how they are managing their businesses with respect to working capital. The answer is yes, SCS normally always had and will have a negative working capital -- It's for the first time in Q3 that we have seen a different situation, but that is based on the milestone billing, which is delayed due to supply chain issues, we have explained that -- but in normal times, yes, always negative.

Thank you, Anke. And I have one follow-up question from Deutsche Bank from Gael de-Bray that goes to you CP over to China. And the question is on China. Can we give any color on the level of volumes that the volume segment trucks need to achieve in value trucks and to be able to see margins similar to the KION's more sophisticated products.

So thank you, Gael, for the question. Actually, in our business case for the KION Global Value platform, we are targeting the same margin as what we have in our more sophistical product. And under Phase 1, we are actually planning a 40,000 trucks, which we'll be producing in the Jinan factory and with the mix of products to be sold in China and as well product could be sold outside China, which normally have higher margin. So I will see that is the basis of where we can achieve the same margin as our normal premium products.

Thank you, CP. And staying in Asia Pacific, the next question that also goes to UCP that comes from one of my former colleagues at Societe Generale. It comes from Debashis Chand, also out of Asia. He wants to know for the Chinese ITS business between e-trucks and the entry warehouse trucks -- Where do you see the potential for higher growth in the market? And the second question goes into which business do you see the scope for increased competition?

Okay. Thank you for the question. Between e-truck and entry-level warehouse truck, we do see the potential for the entry warehouse truck growing at a much higher rate, simply because it is a much lower value per truck. And also due to the Chinese economics, the demography that there are many people who want to replace a hand pallet truck to an electric so-called entry-level warehouse truck. And therefore, you can see from the trend, this part has been growing very fast. So this is question 1. What is question 1, sorry?

It is with regards to the scope of the business in Asia Pacific.

I think for us, we are targeting both where we are having both a product road map that can cover both ECB and also the entry-level trucks, which we would like to grow at least along the market growth trend.

Okay. Thank you, CP. And I have a follow-up question that comes from Sven Weier from UBS. That goes to you, Hasan, again. And it's regarding the synergies that we have mentioned between the 2 segments, SCS and ITS. Hasan, can you quantify what percentage of revenues come from sales from the leads, what is ITS and where is SCS in the lead?

Yes. Sven, this is not really a number that we share externally, but I can tell you it's a very active work for us, and it's been very proactive in helping us really get value to our customers. That's what we look at the most that are coming from either starting automation or from a manual warehouse and be able to bring more value to them. But it's not a number that we publish externally.

Okay. Thank you, Hasan. And staying Hasan, you. We have a follow-up question that comes from Philippe Lorant of Berenberg. And he also wants to know from you, Hasan, are there any customers perhaps in the area of small and midsized enterprises that could be interested in only warehouse software or our SCS solutions always involving both hard and software?

The answer is yes. There are some that are interested in software-only solutions, and we do provide that. But as we feel as we believe that we provide more value for customers that are on an automation journey when we bring the software to really provide the intelligent robotic systems that we do that's an area of significant growth for us. But we do have customers that are small, medium that only buy software solutions, and we do provide that. But that's not the area where we drive our focus because we bring the value in the whole integrated system.

Okay. And we have also a follow-up question from Philippe Laurent at Berenberg that goes to you, Andreas. He asked, it seems like that the product mix has very much shifted into ITS, and we're probably even more further towards products with somewhat lower margins. Do you agree with a view that it could be a reason why the ITS margin could be below historical levels?

And Philippe, I agree with your observation, Philippe, but I disagree with your thesis. I mean, as we know, we have 2 large segments. One is the counterbalance and the warehouse segment. And like historically, we have seen that the share of the warehouse is continuously growing. On the other hand, we always need to be aware the counterbalance is also growing in size, but the share is declining. Now what exacerbated a bit the growth in the warehouse segment is especially that we now count in what we call the entry warehouse range with essentially an electrification of hand pallet trucks. So that bring down the average price but I would make a distinction here between bringing down the average price. It doesn't mean you bring down the margin. So that's more a matter of being highly productive and modular also in these product segments. And that's what we do. It's like the challenge we currently face is certainly material cost increasing and -- but we expect also those to come down. So that's a short-term challenge we work on.

Thank you, Andreas. And we have one more question that comes from Asad Farid from Shell Asset Management. That goes to you, Hasan. And the question is what are the areas where Dematic aims to improve its software portfolio for warehouse automation?

Thank you, Asad. Excellent question. I would break it into 3 areas. The first one is continuing to modularize our software in order to support our standard subsystem strategy and improve the scaling of our ability to implement solutions for our customers faster and cheaper. So the modularization for software is a key investment area for us. The second one is around intelligence, right? So our software is not just transactionally controlling a distribution center. Our software is making intelligent decisions. And this intelligence could come into the area of improving throughput, right? So there are many things that we can do in order with the same hardware that you have to get more product out as we implement algorithms and intelligent algorithms to have better ways of moving the product in the DC to get more out of it. The other one is around maintenance optimization. So as we get more and more sensing and data we're able to build digital twins and we're able to do predictive maintenance and optimize the maintenance for our customer. And then in the area of intelligence, it's also around operation optimization. We understand how the product is flowing and we know that seasonally, products will flow in a different way. So we're always adding intelligence to really improve the operations of our customers. And the third element is around domain-specific functionality. We provide solutions in vertical markets. So as we get into grocery, Micro fulfillment. This new functionality we add in order to make sure that we're able to combine the manual picking with the automated picking to get the order ready for the customer to come and to get it in 2 hours to come and pick it. So a lot of functionality we had around these 3 areas to make our software better and add more value to our customers.

Thank you very much, Hasan. And the next question that we have here also goes to you. It comes from Katie Self from Morgan Stanley. She wants to know for the SCS segment. Is it possible to provide a breakdown, just qualitative of the backlog? How much of the backlog is, say, old or traditional technology like conveyors, sortation systems, how much is automated storage retrieval systems? And how much of the backlog is in the area of new and advanced technologies such as AGVs, AMRs?

We don't break it out in this detail, but I can tell you that as we look at our portfolio, we're always focused on making sure that, first, we are utilizing our resources to bring the best value to the customers in ways that brings the best value to the company at the same time. So we look at it and we balance it between what we call more enterprise, maybe complex solutions versus point that are convey and sort that are higher volume but don't have the same complexity versus aftermarket services that are providing that customer intimacy and providing the stability. So we'll look at it, and we're growing in all of these areas. When it comes to technology, like AGVs or AMRs, it's always integrated in our solutions. So we're not selling an AGV standalone or an AMR standalone. It's always part of the complete solution that we deliver to our customers. And we do see that coming in more and more as the technology evolves into the solutions that we bring.

Thank you, Hasan. We have another question that comes from Philippe Lorrain at Berenberg and that goes first to Henry, and then the second part goes to Anke. Henry on ESG, can you please summarize which KPIs are going to be used for both the STI and the LTI?

Yes. Thanks, Philippe. Actually, the Page #59 is trying to answer this, right, because we have 4 KPIs, 2 for the STI and 2 for the ATI. STI goes with lost time injury rate and goes also with the number of units, ISO 14001 certified. This is STI. While on the LTI, we go with the S&P Global Corporate Sustainability Assessment of the score rating we get. And the second for the LTI is the score from the employee satisfaction survey.

Thank you, Henry. And the second part of that question, I guess that also belongs to STI and LTI that goes to you, Anke. Can you please remind us what other operational financial metrics are we using?

Yes, I can do. I also can point you to the compensation report, which normally explains that at length. But for STI, apart from the ESG criteria, you just heard, revenue goes into it, EBIT margin goes into it, free cash flow. And the LTI ROCE and the relative total shareholder return in comparison to the index.

Thank you, Anke. And then we have one more question that comes from Sven Weier from UBS. That goes to you, Andreas. Given the high utilization of our rental fleet currently, is there also the need for increasing rental CapEx next year? If so, how significant could this be?

Yes. Thank you, Sven. And indeed, we are enjoying a good utilization of our fleet with a nice growth and good margins this year. And we are every year increasing our fleet to cater to the markets. We don't see an extraordinary increase versus this year because to be transparent, also some of our rental trucks are right now used as bridging trucks because of long lead times. So those will be freed up next year. And the regular investment that we do in that fleet is already factored in the numbers we've shown you.

Thank you, Andreas. Currently, we do not see any further question in our systems. You still have the chance to pass them on to us. [Operator Instructions] It seems this is not the case. So we have answered all the questions that have been coming through. And with this, I would like to thank you very much for joining us today and your interest in KION. And as always, my team and I are at your disposal following our event today.