KONE’S CAPITAL MARKETS DAY 2011 Catching the China Opportunity · KONE’S CAPITAL MARKETS DAY...

KONE’S CAPITAL MARKETS DAY 2011

Catching the China OpportunityWilliam B. JohnsonManaging Director, KONE China

May 19, 2011 © KONE Corporation | Capital Markets Day | William B. Johnson2

Real estate market trends

E&E market development

Developing KONE in China

Going forward


Source: People's Bank of China, National Bureau of Statistics of China.

Macroeconomic indicators

Continued strong macroeconomic backdrop

34.133.216.120.930.221.819.828.129.7Real estate investment

25.023.830.126.124.823.926.026.627.7Fixed investments

14.415.710.312.918.516.616.416.717.0Industrial production

5.03.3-0.75.94.81.51.83.91.2CPI

9.710.38.79.611.411.110.410.110.0GDP

2011Q120102009200820072006200520042003y-o-y %-change


Real estate industry has continued to perform strongly, but with a slight decline in the growth rate from the 2010 peak

16 %

34 %33 %

21 %30 %

22 %

0

10 000

20 000

30 000

40 000

50 000

60 000

2006 2007 2008 2009 2010 Jan.-Mar.110 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

Real Estate Investment Y-O-Y

15 %19 %

2 %

13 %

41 %

23 %

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

2006 2007 2008 2009 2010 Jan.-Mar.110 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

New Construction area Y-O-Y10,000 m2 RMB100 mn

New construction area 2006-Q1/2011 Real estate investment 2006-Q1/2011

Source: National Bureau of Statistics of China


Real estate investment growth rates in 1st, 2nd and 3rd tier cities in Q1 2011

18%

32%

57%

0%

10%

20%

30%

40%

50%

60%

201020092008200720062005

Tier 3

Tier 2

Tier 1

Jan.-Mar.

Beijing, Shanghai, Shenzhen, Guangzhou

E.g., Chengdu, Chongqing, Wuhan, Hangzhou, Tianjin

E.g., Guiyang, Haikou, Xining, Yinchuan

Real estate investment growth, %

Source: Soufun Database


Focus of growth moving from 1st and 2nd tier to 3rd and 4th tier cities and from East to West

33.2 %

Real Estate Investment growth rate, 2010

Source: China Economic Information Network


Measures to cool down real estate sector, but strong focus on affordable housing

Tightening of policies to limit housing prices in the beginning of 2011…

… but strong push for affordable housing

Increased down-payment requirements

Limitations on buying 2nd and 3rd housing

Local city level housing price control targets for 2011

Target to build 36 million affordable homes in 2011-2015 of which 10 million in 2011

Investment 1.3 trillion RMB (USD 197 billion) in 2011

Financing from - Central government - Local governments (from land

sales)- Society institutions


Affordable housing is the key growth driver

Many forms of affordable housing:– Reconstruction of urban shanty towns,

subsidized by government – Public rent housing - built by government and

leased to fresh graduates and migrant workers)

– Economically affordable housing (commercial apartments, controlled profit margin)

Fixed percentage of development floor area per project to affordable housing and the rest for commercial development

Robust model for years to come to ensure a sufficient amount of entry level apartments





Going forward


0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

200 000

220 000

240 000

260 000

280 000

300 000

320 000

340 000

360 000

'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 ’98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

• In 1992, housing reform implemented.

Significant expansion in the new equipment market

7.9%22.6%

units

310,000

105,000

46,710

• In 1998, housing ceases to be provided by the state.

High-sp

eed deve

lopment s

tage

China new equipment market growth 1980 – 2010

Source: China Elevator Association and KONE’s estimates on the market size

• In 1978, China begins to carry out a policy of reform and opening.

• Market-oriented economic development policy implemented as of 1984.


New equipment: expected market development in China for 2010-2011

2010 2011

Affordable housing the strongest growing segment, following the China government’s target to build 10 million affordable homes in 2011. Translates into approx. 100 000elevators or somewhat more.

Normal residential affected in 1st and 2nd tier cities by tightened policies to limit housing purchases, lending etc, but high activity expected to continue in lower tier cities.

Non-residential segments expected to continue to grow.Developers shifting focus from residential to commercial real estate.

310 000

Approximately +15% growth

Affordable housing

Otherresidential

Nonresidential

Expected development of new equipment market segments, units

Source: Based on KONE’s estimate


Competitive landscape: many tiers of competition

Focus on all segments from high-end to low-end and from big cities to small citiesStrong, global brands as support

Focus on mid-end and low-end of the marketsFocus on 2nd, 3rd and lower tiers of cities

Focus on low-end of the market and lower tiers of citiesComponents from suppliers with large volumes

Global companies

JVs of global companies

Local companies


KONE has grown to become strong Top 3 company in the Chinese E&E market

2005

Competitor

Competitor

Competitor

Competitor

Competitor

Competitor

Competitor

(no. 8)

Competitor

Competitor

Competitor

Competitor

(strong no. 4)

Competitor

Competitor

Competitor

Competitor

Competitor

GiantKONE (no. 10), one of the fastest growing smallercompanies

+ GiantKONE

strong within the Top 3

Competitor

Competitor

Competitor

Competitor

Competitor

Competitor

Competitor

2009 2010

GiantKONE (JV in 2005)

...





Going forward


KONE has grown clearly faster than the market

KONE Market

725%

195%

KONE growth in orders received units vs. market growth, 2004-2010

Grown every year faster than the market during the past 6 years

Significant expansion in the coverage of network in China

Been able to improve its profitability

Developed a market leading maintenance business


Wenzhou

Shenyang

HangzhouNingbo

Harbin

Dalian

Zhengzhou

Beijing

Jinan

Wuhan

Changsha

ChengduChongqing

Guiyang

Kunming

Nanning

Hainan

Zhuhai

Shenzhen

XiamenFuzhou

Qingdao

Shijiazhuang

Urumqi

Hefei

Tianjin

Changchun

Yinchuan

Lanzhou Shanxi

Lasa

Dongguan

Hohhot

Xining

ShanghaiKunshan

NanjingSuzhouXi’an

Foshan

Shanghai HQKunshan factory

BranchesService stations

Guangzhou

Nanchang

Jiaxing

KONE’s distribution and service network extends to growth regions in China


Branches: 43Sales offices 25Service stations: 168


Strong portfolio of solutions to meet the needs of the different segments

Residentialmarket

Officemarket

Hotelmarket

Infrastruc-ture

marketMedicalmarket

SpecialBuildingsmarket

Machine-room-less elevators (MRL)

• Leader in the MRL technology• KONE MonoSpaceTM and SMonoSpaceTM and TransysTM elevators

•Small machine room elevators (SMR)

• Range of KONE MiniSpaceTM elevators• Serving segments from low-end residential to high-rise applications

•Escalators and moving walks

• Commercial and heavy duty escalators• Moving walks to infrastructure markets and inclined Moving Walks to retail

•

CommonEcoDisctechnology throughout the whole elevator product range


Industry-leading energy efficiency ratings also in China

KONE 3000MiniSpace

KONE 3000MiniSpace

KONE 3000SMonoSpace

Load (kg) 2000 1350 1350

Speed (m/s) 6 2.5 1.75

Energy efficiencyclass

A A A

The VDI 4707 is a guideline published by the Association of German Engineers (Verein Deutscher Ingenieure), which aims at classifying elevators based on their energy consumption.

Energy efficiency class provided by TÜV

Certificates for elevators manufactured in Kunshan, China


Maintenance: providing strong future opportunities

Maintenance market characteristics:Significant annual feed from new equipment market to maintenance baseMaintenance market is fragmented, but need for high quality service increasingStrong basic standards for maintenance exist – a license required

KONE focus:KONE focuses on high conversion rate from new installations to serviceService in all segments

410

770

1629

2000 2005 2010

Elevator and Escalator units in operation in China (thousand units)

Over 300 000units to be added in 2011


Market trends and KONE’s response

Strong develop-ment of affordablehousing market

New KONE 3000 EMiniSpace elevator launched in Q1/2011 with particular focus on affordable housing segment

Growing environ-mental awareness

Leadership in eco-efficiency with VDI A-level energy consumption solutionsContinuous improvement to maintain leadership

Fast growth of installed base

Focus on high conversionsKONE Care service solutions to meet the needs of different customer segments

Demand for high-end majorprojects increasing

Further development of sales, sales support and project management resources


GiantKONE provides strong second distribution channel

GiantKONE has a strong product portfolio covering– Volume range of small machine room and

machine roomless passenger elevators– Freight elevators– Escalators and ramps

GiantKONE provides– Second distribution channel with a focus on

the fastest growing segment and markets– Additional production capacity, synergy

between KONE China and GiantKONE


KONE vs. GiantKONE positioning

KONE

Giant KONE


Jilin

LiaoningBeijingTianjin

Hebei

Shanxi Shangdong

JiangsuSuzhou

Shanghai

Nanxun FactoryHuzhou Ningbo

Hangzhou Jiaxing ShaoxingWenzhou Jinhua Taizhou

Henan

Anhui

Jiangxii

Fujian

Hubei

Hunan

Guangzhou Dongguan ShenzhenGuangxiYunnan

SichuanChongqing

Shananxi

Xinjiang Ningxia

Gansu

Inner Mongolia

Heilongjiang

Guizhou

Hainan

Nanxun HQ and factoryBranch

GiantKONE’s geographical coverage


Branches: 40





Going forward


What we have achieved in China

Grown faster than the market every year for the past 6 years

Reached Top 3 on the Chinese market(KONE and GiantKONE combined)

Expanded product portfolio and geographical coverage

Actively developed our personnel and recruited key talent

Been able to improve profitability


What we want to achieve in China

Continue to grow faster than the market– Residential, affordable housing– Commercial segments– Major projects

Expand service business

Further expand network in 3rd and 4th tier cities

Continue strengthening product portfolio– Ride experience– Cost competitiveness, optimize for China

Brand – even stronger awareness of KONE

Fully utilize the market opportunities through two channels, KONE and GiantKONE

KONE’S CAPITAL MARKETS DAY 2011 Catching the China Opportunity · KONE’S CAPITAL MARKETS DAY...

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