KONE CAPITAL MARKETS DAY 2012 Sustainable growth in China · Limitations on buying 2nd and 3rd...
Transcript of KONE CAPITAL MARKETS DAY 2012 Sustainable growth in China · Limitations on buying 2nd and 3rd...
KONE CAPITAL MARKETS DAY 2012
Sustainable growth in ChinaWilliam B. Johnson, Managing Director, KONE ChinaJune 8, 2012
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson2
� Construction market trends
� E&E market development
� Improved competitiveness with new offering
� Maintenance and modernization in China
� Developing KONE China further
Agenda
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson3
Source: People's Bank of China, National Bureau of Statistics of China.
Macroeconomic indicators
Growth is slowing down in a controlled way
28.1
26.6
16.7
3.9
10.1
2004
19.8
26.0
16.4
1.8
10.4
2005
21.8
23.9
16.6
1.5
11.1
2006
30.2
24.8
18.5
4.8
11.4
2007
20.9
26.1
12.9
5.9
9.6
2008
16.1
30.5
10.3
-0.7
8.7
2009
33.2
24.5
15.7
3.3
10.3
2010
27.9
23.8
13.9
5.4
9.2
2011
23.5Real estate investment
20.9Fixed investments
11.6Industrial production
3.8CPI
8.1GDP
2012Q1y-o-y %-change
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson4
Real estate industry growth is slowing down
0
50 000
100 000
150 000
200 000
0
5
10
15
20
25
30
35
40
45
50
Q1/2012
0%
2011
16%
2010
41%
2009
13%
2008
2%
2007
19%
2006
15%
Y-O-Y, rhs
New Construction area, lhs
10,000 m2
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
55 000
60 000
65 000
0
5
10
15
20
25
30
35
40
45
50
Q1/2012201120102009200820072006
21%
28%
33%30%
16%
24%22%
Real Estate Investment, lhs
Y-O-Y, rhs
RMB100 mn% %
New construction area 2006-Q1/2012 Real estate investment 2006-Q1/2012
Source: China National Bureau of Statistics
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson5
Continued measures targeted to a controlled shift in the economic growth pattern – real estate sector implications
Real estate sector
� Limitations on buying 2nd and 3rd housing in 1st tier, 2nd tier as well as in some 3rd tier cities and tight requirements on down payment
� With a partial easing of financing restrictions, it has become easier for first-time apartment buyers to get mortgages at lower interest rates
� Corporate financing availability is still tough for smaller construction companies
Monetary policy
� Focus on the general price level –seeking to maintain balance between stability in the economy and relatively fast economic growth
� Reserve requirement ratio cut again in May 2012, the third cut after 12 increases in 2010-2011
� Further cuts of reserve requirement ratio expected during 2012
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson6
Real estate investment growth rates in 1st, 2nd and lower tier cities
0%
10%
20%
30%
40%
50%
Other cities
Tier 2
Tier 1
20102009200820072006
4 cities:Beijing, Shanghai, Shenzhen, Guangzhou
30 cities:E.g. Nanjing, Wuhan, Shenyang, Xi’an, Chengdu etc.*
Lower tier cities outside of tier 1/2 cities
Real estate investment growth, %
Source: Soufun DatabaseChina Index Academy
2011 2012Q1
30%
22%
7%
*Tier 2, 30 cities: Nanjing, Wuhan, Shenyang, Xi’an, Chengdu, Chongqing, Hangzhou, Qingdao, Dalian, Ningbo, Jinan, Harbin, Changchun, Xiamen, Zhengzhou, Changsha, Fuzhou, Urumqi, Kunming, Lanzhou, Suzhou, Wuxi, Nanchang, Guiyang, Nanning, Hefei, Shijiazhuang, Hohhot, Tianjin
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson7
34.2 %
Real estate investment is growing at a lower rate than in 2011 with strongest growth in in-land cities
Real estate investment growth rate, Q1/2011
Source: China Economic Information Network
Real estate investment growth rate, Q1/2012
23.5 %
>50%
40%~50%
30%~40%
20%~30%
0%~20%
<0%
>50%
40%~50%
30%~40%
20%~30%
0%~20%
<0%
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson8
� Construction market trends
� E&E market development
� Improved competitiveness with new offering
� Maintenance and modernization in China
� Developing KONE China further
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson9
Significant expansion in the new equipment market in 2011
390 000
310 000
235 000
0
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
450 000
’82’81’80 ’83 ’84 ’07 ’08 ’09 ’10 ’11’00’99’98’97’96’95’94’93’92’91’90’89’88’87’86’85 ’01 ’02 ’03 ’04 ’05 ’06
Source: China Elevator Association and KONE’s estimates on the market size
Market growth estimate 2010-2011: 26%
China new equipment market growth 1980– 2011, units
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KONE and GiantKONE are well placed to capture growth opportunities
China new equipment market in 2011 and estimated growth in 2012, indicative
Affordable housing
Other residential
Commercial and infrastructure
20122011
390 000units
Single digit growth
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson11
Affordable housing remains the key growth driver in 2012
� Announced target to build 36 million affordable homes in 2011-2015– 2011: 10 million starts announced in line with target– 2012: at least 7 million starts targeted;
January-April 2.3 million starts announced
� The affordable housing market for elevators is expected to continue to grow in 2012– The affordable housing starts accelerated in the 2nd
half of 2011– Lag between construction start and elevator order
� KONE’s E MiniSpace offering for affordable housing has proved to be very competitive– KONE’s market share in affordable housing is still
slightly below KONE’s market share in the overall market
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson12
Competitive landscape remains diverse
� Focus on low-end of the market and lower tiers of cities
� Components from suppliers with large volumes
Global companies
JVs of global companies
Local companies
New equipment Maintenance
� Increasing focus
� Focus still on the new equipment business; equipment maintained by local independent maintenance companies
� Focus on mid-end and low-end of the market
� Focus on 2nd, 3rd and lower tiers of cities
� Focus on all segments from high-end to low-end and from big to small cities
� Strong, global brands as support
� At an early stage and typically facing challenges in building a maintenance business
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson13
� Construction market trends
� E&E market development
� Improved competitiveness with new offering
� Maintenance and modernization in China
� Developing KONE China further
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson14
New offering will further improve KONE’scompetitiveness in China
� New KONE N MonoSpace elevator further strengthens KONE’s leading position in machine-room-less elevators
� New KONE N MiniSpace elevator further improves competitiveness in mid-rise volume segment of small machine-room elevators
� The affordable housing segment will continue to be covered by the competitive KONE E MiniSpace elevator launched in early 2011
� GiantKONE will continue with its own product line; competitiveness developed continuously
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson15
� Construction market trends
� E&E market development
� Improved competitiveness with new offering
� Maintenance and modernization in China
� Developing KONE China further
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson16
Installed base is growing fast, maintenance market still very fragmented
400K
2011
2,0M
2010
1,6M
2000
Elevator and escalator units in operation in China
� Significant annual feed from new equipment installations
� Maintenance market still very fragmented– Share of OEMs approx. 25% of total– Share of self-maintenance still high
� Maintenance in the affordable housing segment still in a development phase – KONE has developed an optimized
cost competitive maintenance method for the segment
Source: China National Special Equipment Safety Supervision Bureau and KONE’s estimate
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson17
Maintenance regulation is becoming stricter
� The government and local authorities are tightening maintenance regulation
– Two-man maintenance required by local authorities in 12 provinces
– Central government considering tougher guidelines for maintenance to ensure safety and related product quality
– Some pilot initiatives to develop city level remote monitoring platform in big cities (e.g., Beijing, Hangzhou, Chengdu)
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson18
Strong focus on developing a market-leading maintenance business in China
� High conversion and retention rates
� Average annual growth rate of KONE’s maintenance base 2006-2011 (in units in service): 36%
� Continuous geographic expansion of maintenance network
� High focus on profitability through active development– Pricing development– Optimized maintenance method for affordable housing
� Regional technical training centers and technical school collaboration program to ensure availability of skilled people and to further develop maintenance technicians’ skills
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson19
Modernization represents an important future opportunity
2030
1 250 000
2020
240 000
2010
80 000
Units in operation in China at least 20 years old, estimated
� Focus on 1st and 2nd tier cities with biggest aging elevator/escalator base
� Continuous development of offeringcompetitiveness – Particular focus on further increasing
competitiveness of solutions for mid-end customers in commercial segments
� Continuous development of the skills of dedicated talent for modernization ahead of the growth wave
Source: Based on KONE’s estimate. Assuming full replacement of equipment after 30 years in operation.
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson20
� Construction market trends
� E&E market development
� Improved competitiveness with new offering
� Maintenance and modernization in China
� Developing KONE China further
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson21
KONE has grown clearly faster than the market in China
KONE Market
42%
21%
Note: The KONE figure includes GiantKONE for December 2011.
Market growth source: Based on KONE’s estimate.
� Very competitive product portfolio covering all segments
� Significant expansion in geographical coverage: over 87 branch offices, 34 sales offices and over 200 service stations spread around China
� Strong leadership and sales teams, skilled technical workforce
� Dual brand strategy: KONE and GiantKONE
KONE growth in orders received (units) vs. market growth, CAGR 2004-2011
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson22
We have a competitive product offering for all market segments in China
KONE
GiantKONE
Lower-end
Mid-range
Higher-end
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GiantKONE to keep own brand and production, but processes are aligned and sourcing synergies sought
� GiantKONE continues with its own brand, differentiated offering and production
� Balanced portfolio of products covering volume residential and low-end of retail and commercial segments
� Synergies realized in areas, which do not impact differentiation, e.g. sourcing scale benefits and back office functions and processes
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson24
KONE Service Stations: 205
GiantKONE Branches: 41
KONE Branches: 46
GiantKONE Nanxun factory
KONE Kunshan factory
KONE Shanghai HQ
KONE Sales Offices: 34
We have continued to expand our geographical coverage in China
Note: Status at the end of May 2012
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson25
Motivated and highly capable employees are our key asset – talent management is a priority
� Attracting the best talent– Campus recruitment & employer branding– Collaboration with technical schools– Career opportunities with the fastest
growth company– Open and collaborative culture
� Improving employee engagement– Above market employee retention rates
� Developing leaders at all levels– KONE leadership programs – Mentoring and coaching: local, global and
cross-company– Promoting from within
KONE headcountin China, 2005-2011
20112005
7 450
5 400
2 020
2009
3 780
KONEGiantKONE
2 050
June 8, 2012 © KONE Corporation | Capital Markets Day | William B. Johnson26
Growing in China in a sustainable way
� KONE today no. 2 in China
� Objectives:– Continue to grow faster than the market– Build market-leading service business
– Continue to improve our profitability
� Key focus areas:– Offering performance and competitiveness– Pricing excellence– Productivity development in operations– Active talent management