Capitalizing on our strong position in China

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1 KONE CMD 2017 Capitalizing on our strong position in China WILLIAM B. JOHNSON SEPTEMBER 29, 2017

2 AGENDA THE CHINA REAL-ESTATE MARKET CONTINUES TO OFFER MANY OPPORTUNITIES THE SERVICES MARKET IS GROWING RAPIDLY KONE S NEW STRATEGY IN A CHANGING ENVIRONMENT

KONE in China today Market leader in the world s largest elevator and escalator market with approximately 20% market share in new equipment in 2016 Revenue

3 KONE in China today Market leader in the world s largest elevator and escalator market with approximately 20% market share in new equipment in 2016 Revenue of over EUR 2.5 billion in 2016 <90% new equipment, >10% services ~15,000 employees across China >30,000 customers, including 9 of China s top 10 developers 3

4 We have solidified our presence in new equipment in a changing market environment We have maintained our strong market share KONE s new equipment orders received in China vs. market development (units) Our strategy has been to maximize value 50 through an optimal balance between volumes, pricing and product mix >35% KONE This year, we have been able to stabilize 20 <20% Market pricing with focused pricing actions and improved our product mix vs. end of <5% 0 ~-5% ~-5%~-5% slight decline CAGR H1/2017 4

5 Our service business continues to grow at a solid double-digit rate The maintenance base has continued to grow robustly The high level of new equipment deliveries provides a pipeline for continued growth through conversions 24/7 Connected Services gaining momentum Our maintenance base and units in first service (units) % Modernization business has grown at a CAGR of ~30% for the last three years Units under first service period Units in maintenance base 5

6 The China real-estate market continues to offer many opportunities

7 Due to fast price growth, restriction measures have been implemented to cool the housing market Inventory levels have declined in the lower-tier cities Newly built area for sale / monthly sales 3-month rolling avg Housing market remains strong Price / square meter y-o-y growth (%) % 0 Property sales area has declined in the higher-tier cities Sales area y-o-y growth (%) Housing restrictions in place in over 50 cities covering ~60% of real-estate investment and ~50% housing sales area 22.6% 5.6% / /13 03/14 03/15 03/16 03/17 03/12 03/13 03/14 03/15 03/16 03/17 5.0% 8.2% -28.3% /12 03/13 03/14 03/15 03/16 03/17 Tier-1 Tier-2 Other Underlying fundamentals point to a healthy market, but government policy will decide short-term cycles 7

8 Real estate investment has been driven by increasing construction activity as well as rising land prices 60 Real-estate investment y-o-y growth (%) Nationwide land transaction price (RMB/sqm) y-on-y growth (%) Land acquisition costs a significant driver of REI growth /12 02/13 02/14 02/15 02/16 02/ /12 02/13 02/14 02/15 02/16 02/17 8

We expect the new equipment market decline to moderate in 2017 New equipment market orders 2001-H1/2017 ( 000 of new equipment units) 800 600 400 515 We expect the Chinese new equipment market to

9 We expect the new equipment market decline to moderate in 2017 New equipment market orders 2001-H1/2017 ( 000 of new equipment units) We expect the Chinese new equipment market to decline by 0-5% in units ordered in 2017 Competition is expected to remain intense in Mix shift and pricing stabilized sequentially in Q2/ development will 200 depend on potential government policy this year, including impact on housing policies and raw materials 9

10 We are confident on solid demand in the long-term as upgrading and renewal balance slower new urbanization Urbanization Upgrading Urban renewal New urban citizens per year millions Urban residential floor space per capita sqm Elevator density (units / Mn sqm) % +3% % +5% E E E 10 Source: National Bureau of Statistics, KONE estimates

11 Lower-tier cities are growing in importance New equipment market demand by city tier ( in units) ( in units) New equipment market demand by segment 10% +5.6% 38% 29% +8.8% +9.0% Tier 1 Tier 2 Tier-3 Tier-4+ 68% Residential Commercial Infrastructure 29% 28% 18% 25% % 2016 REI growth in H % % 8% 2016 Market trends Lower-tier cities close to Tier-1 and major Tier-2 cities forming hubs Also new hubs developing around certain lower-tier cities Large property developers constructing satellite cities Market trends Government continues to invest heavily in infrastructure The trend of hubs and towns drives demand of both residential and commercial segments Emerging residential rental market 11 Based on KONE estimates

12 Our customers are consolidating and the role of big developers is growing Property sales split by developer size (in monetary value) 100% Largest developers are gaining share Prefer working with established OEMs More pricing power on the other hand 80% 60% 40% 20% Others Top Top Top 1-10 Big developers look for new ways to differentiate from competition Higher land prices and raw material costs put pressure on developers: Look for ways to speed up construction 0% H1/17 Strive to build taller buildings Look for cost efficiencies 12 Source: CRIC, National Bureau of Statistic

13 Selected geographic areas are still growing - case Henan Key facts on Henan province Population: million: 7% of China total Urbanization rate in 2016: 48.5%. Target: 60% by 2020 H1/17 GDP RMB 2030bn, 5.3% of China GDP, up 8.2% y/y vs 6.9% in China Real estate investment growth rate H1/17: Real estate investment growth 2017 H1 >20% 10%-20% 0%-10% -10%-0% <-10% +22.9% y/y vs +8.5% in China For full year 2016, new E&E orders estimated to account for >4.7% of total China market Source: National Bureau of Statistics 13

14 The services market is growing rapidly

China is now the world s largest E&E market by installed base and will continue to grow driven by new equipment China has the world s largest installed base by far (in units) China s elevator and

15 China is now the world s largest E&E market by installed base and will continue to grow driven by new equipment China has the world s largest installed base by far (in units) China s elevator and escalator base is growing in double digits ( units) 9% 4% % 8% 31% 4 3 CAGR: +16% 2 42% China EMEA North America Japan&Korea Rest of Asia-Pacific South America Source: KONE estimates 15

16 Maintenance market remains fragmented yet opportunities exist for market share gains The maintenance market remains fairly fragmented (market share split in new equipment and maintenance in UN) ~15% ~20% ~70% Others Top 5-8 Top 4 OEMs We believe we can improve our position in maintenance despite tough competition Customers remain sensitive to price in majority of market Digitalization, IoT, 24/7 are increasingly important to larger customers still early days >60% New equipment in 2016 <10% >20% Maintenance in 2016 We see an opportunity to strengthen our position in the maintenance market through continued introduction of new technologies and services Source: KONE estimates 16

17 Modernization is an increasingly interesting opportunity Number of units older than 15 years expected to grow significantly faster than in past years ( 000 units) The clear majority of the old installed base is expected to be in the higher-tier cities % Tier-1 22% 29% % % 33% 38% 32% 40% 31% 42% 44% 46% 48% Tier E 2018E 2019E 2020E 29% % % 2017E 26% 2018E 25% 2019E 24% 2020E Lower-tiers Based on KONE estimates 17

The market in China will shift more towards services with new equipment remaining a significant part of the market Chinese market split by business in monetary value

18 The market in China will shift more towards services with new equipment remaining a significant part of the market Chinese market split by business in monetary value could potentially look like this in 10 years >50% ~90% ~85% New equipment Maintenance Modernization <50% <10% <5% <15% <5% E 18 Based on KONE estimates

19 KONE s new strategy in a changing environment

20 China is digitalizing at an incredible speed Ancient China was at the forefront of innovation China continues to lead the way in the 21 st century Papermaking Gunpowder High-speed rail Alipay Compass Movable-type printing Bike-sharing Online shopping 20

Technological disruption has permanently upgraded customer expectations and ways of working What our customers want What are our customers doing to achieve it Transparency for better operations

21 Technological disruption has permanently upgraded customer expectations and ways of working What our customers want What are our customers doing to achieve it Transparency for better operations planning Investing into new solutions and services that focus on enduser experience Faster clockspeed and increased productivity to reduce cost Improved product and services quality to differentiate from competition Using digital platforms to manage and control operations Standardizing offering and processes to gain scale and productivity 21

22 Winning with Customers in China

23 We are increasing our focus on the large property developers Large developers share of KONE s orders received (in terms of units) ~25% What are we doing to offer added value to large developers? Creation of customer-oriented solutions that help our developer customers save money and differentiate from their competitors ~15% ~75% Further improved service level in project planning and sales Focus on increased speed and quality ~85% 2010 Large developers 2016 Other 23

Our 24/7 Connected Services have been introduced with good momentum 24/7 Connected Services roll-out started in Q2/2017 Good customer adoption with several thousands of equipment connected to the IBM

24 Our 24/7 Connected Services have been introduced with good momentum 24/7 Connected Services roll-out started in Q2/2017 Good customer adoption with several thousands of equipment connected to the IBM cloud Positive initial customer feedback being used to further develop value-adding features New KONE Care will be introduced more broadly in China in 2018 KONE opened a remotemonitoring center in Kunshan in

We are developing our processes to make customers lives easier and taking action to improve productivity Scaffoldless installation Key focus areas for productivity improvement Full implementation of

25 We are developing our processes to make customers lives easier and taking action to improve productivity Scaffoldless installation Key focus areas for productivity improvement Full implementation of KONE s scaffold-less installation method Improved subcontractor performance and cost management Focus on increased installability of products in all existing and new products Harmonization between KONE and Giant KONE Continued improvement in manufacturing productivity 30% reduction in installation time Improved site quality & safer working environment 25

26 KONE JumpLift in Beijing s tallest tower Customer estimates JumpLift to save 1 million work hours during the project

We are further strengthening our capabilities in modernization Stronger sales management and customer communication New processes and tools to make projects simpler, easier, and faster Dedicated

27 We are further strengthening our capabilities in modernization Stronger sales management and customer communication New processes and tools to make projects simpler, easier, and faster Dedicated Chinese engineering center New offering to suit Chinese market needs Focus on training field personnel and sharing best practices with other regions KONE s modernization solutions maximize building value and minimize disruption 27

28 We are excited about our future in China! We are capitalizing on our strong position in both new equipment and services The share of service business will continue to grow We will continue to improve competitiveness in line with our new strategy

Leading in a new phase in China

KONE CMD 2016 Leading in a new phase in China WILLIAM B. JOHNSON SEPTEMBER 28, 2016 Agenda New equipment market in a new phase Opportunities in the growing service market Leading in a new market environment