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KONE CMD 2015 Building on our strengths in the world’s largest E&E market William B. Johnson, EVP, Greater China September 25, 2015

Welcome to the world’s largest E&E market

Our competitive strengths today

The market in the near term and long term

Our way forward in China

September 25, 2015 William B. Johnson | KONE Capital Markets Day 2015 | © KONE Corporation 2

China accounts for 2/3 of the global new equipment market volumes

0

400

800

600

1,000

200

2012

31%

2013 2014

815

69%

2010 2011 2009 2008 2007 2006 2005 2004 2003 2002 2001

288

12%

88%

Rest of the world China

New equipment orders, thousand units


24%

CAGR

8%

CHINA’S SHARE OF THE WORLD NEW EQUIPMENT MARKET 2005-2014

Based on KONE estimates

China is also seeing the largest absolute maintenance market growth

6.0

5.0

4.0

3.0

2.0

1.0

0.0

+0.2

+1.0

+2.6

Americas

1.2 1.0

EMEA

5.7

4.7

China

3.3

0.7

2014 2005

Units in operation, millions


GROWTH OF UNITS IN OPERATION IN SELECTED MARKETS


To succeed in the E&E industry, one needs to succeed in China. We continue to strengthen our presence and build our competitiveness in the China market.

Soft manufacturing Weaker real estate Moderate inflation

0

5

10

15

20

25

Q1/15 Q1/14 Q1/13 Q1/12 Q1/11 Q1/10 -6

-4

-2

0

2

4

6

8

Q1/15 Q1/14 Q1/13

Q1/10 Q1/11 Q1/12 -10

0

10

20

30

40

50

Q1/15 Q1/14 Q1/13 Q1/12 Q1/11 Q1/10

PPI CPI

The Chinese economy has showed softness since early 2014


The slowdown has been visible in the moderating new equipment market in H1 2015

CPI and PPI growth (%) Real-estate investment growth (%)

Industrial production growth (%)

Source: National Bureau of Statistics of China

Starts are down; developers have a large work-in-progress stock and land banks to draw from

New construction starts have declined since 2014

However, there is a large WIP under development


With the large WIP under development, developers can easily ramp up construction in response to a pick-up in the market

-20-15-10

-505

101520

1-8/ 2015

-16.8

2014

-10.7

2013

13.5

2012

-6.7

2011

16.1 Growth y-o-y %

Source: National Bureau of Statistics of China, KONE estimates

0

1

2

3

4

5

6

70.7

6.4

02/15

5.7

02/14 02/13 02/11 02/11

Years

The Chinese government has a versatile set of tools at its disposal and the pace of actions has been increased

Monetary stimulus

Monetary stimulus

Fiscal stimulus

Fiscal stimulus

Property market

Interest rate cuts

Reserve requirement ratio cuts

Infrastructure and govt funded development

Supporting local govts’ ability to invest

Changes in mortgage policies and property

taxes

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015


Some early positive signs in the property market indicators

Price/sqm growth y-o-y Sales area growth y-o-y


Trends are not uniform across the country. We continue to focus on understanding the market granularly

% %

-60-40-20

020406080

100120

01/15 01/14 01/13 01/12 -6-4-202468

1012

0.2

-4.4

01/15 01/14 01/13 01/12

Sources: National Bureau of Statistics of China, CREIS. Sales area growth based on nation-wide statistics; housing price development includes top 100 cities.

There is clear variation between segments and geographical regions

Real estate investment growth Jan-Aug 2015

Real estate investment growth Jan-Aug 2015


3.5% total

>20% 10%-20%

-10%-0% <-10%

0%-10%

Growth y-o-y %

With the varied market environment, a granular understanding of the market opportunities is required

Source: National Bureau of Statistics of China.

8%

2%

Commercial Residential

We expect the Chinese new equipment market to decline slightly in 2015

2015E 2014

~560,000 units

Slight decline from 2014

Affordable housing Other residential Commercial and infrastructure

E&E indicative market growth, 2015e

Residential segment (excluding affordable housing) developing in line with the market, in slight decline

Segment-specific development

Commercial and infra segments seeing some growth Retail segment flat or declining slightly Office segment stable or growing slightly Strong growth in infrastructure thanks to stimulus

Affordable housing activity is relatively stable 7.4 million planned starts for 2015 Focus on urban renewal and shanty town

reconstruction



There are both headwinds and tailwinds in the market environment


- + Larger developers

gaining share Increased focus on

quality and safety Favorable raw

materials

Slower growth

environment Price competition Labor cost

inflation

Trends in the market environment are in favor of the larger OEMs

Replacement building in

total floor space increase, bn sqm

Expected growth in

middle income consumers, millions

We are confident on the long-term demand drivers in the Chinese market

Urbanization

Growth of middle income

consumers


Urban renewal

Sources: U.N. World Urbanization Prospects 2014 revision; UNDP Human Development Report, data from Brookings Institution. Middle income consumer group earning or spending $10–$100 a day (2005 PPP). KONE data; expert interview

948779

2025E 2015

55.6%

652268

2025E

1,449

2015

1,402

Total population Middle income consumers

+10 ppts

2025 2015 2000

11

27 6

42

3

19 21

+168M

65.4%

+384M

+47M

Replacement building Total new floor space

Total floor space stock

Expected growth in urban population,

millions, and increase in urbanization rate

Even the largest cities will continue to see changes in the urban landscape.

Competitive landscape still very fragmented today: OEM share ~25%

Landscape will consolidate in response to regulation and technological change

OEMs are in better position to − respond to new regulation that

aims to improve safety and reliability

− develop and adapt new technologies


The service opportunity will continue to increase in significance

2025E 2014

3.3

...and the market will continue to mature The installed base will grow...

In millions of units

Market size and future scenario based on KONE estimates

We have continued to outgrow the market

40

30

20

10

0

-5 2013

~10%

~44%

2014

>15%

~23% ~20%

2006-2012 CAGR

>15%

H1 2015

~5%

KONE Market

New equipment orders received (units) vs. market growth


KONE’s maintenance base vs. total installed base growth

We have sustained our momentum in the China market

26%

2014

18%

2006-2013 CAGR

21%

37%

Note: KONE figures 2006-2014 include GiantKONE from December 2011 onwards. Market growth based on KONE’s estimate.

This has brought us to a leading position in the world’s largest E&E market

# 1

# 1

Largest OEM in new equipment

Joint leader in maintenance

Our competitive strengths

Best-in-class solutions

Strong dual brand strategy: KONE and GiantKONE

Wide geographical coverage

World-class field force



We have a comprehensive offering and we are constantly developing our service capabilities

Entry level

Mid-range

High end KONE

GiantKONE

...and we differentiate with our delivery We have a broad offering …

Easy to do business with

Delivering on our promises

High-quality service capabilities

We have continued to expand our geographic presence in China, particularly in service

Note: Status at the end of June 2015

KONE Branch: 50

KONE Sales Office: 55

Footprint in China KONE Shanghai HQ

KONE Kunshan factory

KONE Service Station: 434

Giant KONE Branch: 37

Giant KONE Sales Office: 40

Giant KONE HQ

Giant KONE factory



We are leaders in maintenance and continue to ramp up our coverage

Widest coverage in maintenance across China

Large number of units under

first service period provides a pipeline for growth through conversions

Industry leading conversion rate

CAGR

0

200

100

2011 2012 2014

+37%

2013 2010 2009 2008 2006 2007

Units in maintenance base Units under first service period

Based on KONE estimates. Figure includes GiantKONE from December 2011 onwards.

UNITS MAINTAINED BY KONE IN CHINA 2006-2014

thousand units

We are building our capabilities in modernization rapidly to address the growing opportunity


13%

22%

2020 2019 2018 2017 2016 2015 2014

There are modernization opportunities already in the largest cities

Locally many cities are taking action to inspect the safety and condition of existing equipment

Lifetime of elevators will be shorter in China compared to Western markets due to higher usage rates of equipment

~500K


ELEVATORS IN CHINA OVER 15 YEARS OLD

KONE will modernize Plaza 66 business center in Shanghai, which includes 18 elevators in office towers 288m tall. The new elevators will reduce waiting times, improving the efficiency of People Flow with the latest technology.

We have made significant progress in our field productivity


Improvements in installation cost achieved with the roll-out of advanced site

installation methods

New installation field management and competence development tool

Structured training and skill assessment program for new maintenance

technicians

400-600 Orders received booked

4,000 Installation sites with our equipment

9,000 Elevator packages going through our distribution centers

22,000

Service visits made by our 5,000 service technicians

Our scale in the market is an asset. A normal Friday for us in China means today…


Focus areas in developing our business 2005

Segment coverage Development of competitive offering to cover all segments

Two-brand strategy Second brand GiantKONE broadening offering coverage

Geographical coverage Presence across the country

Building a leading service business 2005-2014 maintenance base CAGR over 35%

Talent management KONE seen as a desirable employer with high empoyee satisfaction

We have been able to grow faster than the market and our growth has been profitable


Segment coverage

Two-brand strategy

Geographical coverage

Building a leading service business

Talent management

We will continue to target profitable growth, while retaining a challenger mindset


Leverage our scale and delivery capabilities

Increase field productivity with new technology and

processes

With our competitive assets in China, we will...

Accelerate the growth of the service business

30

We are excited about our future in China No. 1 position Best team Great offering Fast-growing service

business

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