KONEResult presentation 2017JANUARY 25, 2018
HENRIK EHRNROOTH, PRESIDENT & CEO
ILKKA HARA, CFO
Q4 2017 Highlights
• Orders received grew in all
regions and their margin
stabilized in the fourth quarter
• Profitability burdened by
several headwinds. Actions to
counter the headwinds
starting to show results
• Roll-out of new services
gained momentum
• Dividend proposal EUR 1.65
per class B share
January 25, 2018 Results presentation 2017 | © KONE Corporation3
ORDERS RECEIVED AND SALES GREW IN ALL REGIONS AND IN ALL BUSINESSES - EBIT MARGIN DECLINED
Q4 2017 Key figures
Q4/2017 Q4/2016 ChangeComparable
change
Orders received MEUR 1,845.8 1,839.2 0.4% 5.3%
Order book MEUR 8,240.2 8,591.9 -4.1% 3.1%
Sales MEUR 2,656.9 2,593.2 2.5% 6.8%
Operating income (EBIT) MEUR 365.7 392.2 -6.8%
Operating income margin (EBIT %) % 13.8 15.1
Adjusted EBIT MEUR 375.6 392.2 -4.2%
Adjusted EBIT margin % 14.1 15.1
Cash flow from operations
(before financing items and taxes)MEUR 335.0 409.8
Basic earnings per share EUR 0.55 0.58
January 25, 2018 Results presentation 2017 | © KONE Corporation4
ORDERS RETURNED TO GROWTH - SEVERAL HEADWINDS IMPACTED THE RESULT
1–12/2017 Key figures
1–12/2017 1–12/2016 ChangeComparable
change
Orders received MEUR 7,554.0 7,621.0 -0.9% 1.7%
Order book MEUR 8,240.2 8,591.9 -4.1% 3.1%
Sales MEUR 8,942.4 8,784.3 1.8% 4.2%
Operating income (EBIT) MEUR 1,217.1 1,293.3 -5.9%
Operating income margin (EBIT %) % 13.6 14.7
Adjusted EBIT MEUR 1,230.3 1,293.3 -4.9%
Adjusted EBIT margin % 13.8 14.7
Cash flow from operations
(before financing items and taxes)MEUR 1,263.3 1,509.5
Basic earnings per share EUR 1.89 2.00
5
14%
(14%)
32%
(31%)
53%
(55%)
ModernizationMaintenanceNew equipment
20%
(19%)
41%
(40%)
39%
(41%)
EMEA (Europe, Middle East and Africa) AmericasAsia-Pacific
BY BUSINESS BY AREA
1–12/2017 Sales splitSHARE OF SERVICES AND THE AMERICAS AND EMEA REGIONS CONTINUED TO GROW
1–12/2016 figures in brackets.
Figures in charts are rounded and at historical exchange rates.
January 25, 2018 Results presentation 2017 | © KONE Corporation
Business highlights in 2017
– Actions to offset the margin headwinds started to show positive
results
– Solid development in the service business with continued strong
growth in China
– We invested more than ever in innovation and new technologies
– We revolutionized elevator maintenance with the flexible KONE
Care and 24/7 Connected services
– Our Winning with Customers strategy is resonating positively with
both employees and customers
– Accelerate program progressing, the aim is to speed up the
execution of the strategy
6
>1.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2012 20132011 2017
>6%
2016
>1.1
20152014
MAINTENANCE BASEmillions of units
January 25, 2018 Results presentation 2017 | © KONE Corporation
NEW EQUIPMENT
Orders received (units): ~158,000
(2016: ~158,000)
Units delivered: ~141,000
(2016: ~136,000)
Split-adjusted dividend per class B share, EUR, 2006–2017
Adjusted for share splits in 2008 (1:2) and 2013 (1:2).
*Board’s proposal
Dividend proposal: EUR 1.65 per class B share
7
▪ Dividend payout in
2017: 87% of earnings
per share
▪ Effective dividend yield
in 2017: 3.7%
0.250.33 0.33 0.33
0.45
0.70
0.881.00
1.20
1.401.55
1.65
0.65
0.75
0.33
20102009 2017*200820072006 201620152014201320122011
Ordinary dividend
Extraordinary dividend
CAGR +19 %
January 25, 2018 Results presentation 2017 | © KONE Corporation
Market development
9
New equipment market development in Q4
EMEA market North American market Asia-Pacific market
Q4 development
(in units) + + Stable
Share of global
market (in units)
• Central and North European
market stable on a high level
• Slight growth in South Europe
and the Middle East
• Slight growth in the United
States with positive
development in both residential
and commercial segments
• Pricing environment continued
to be favorable
• Stable market in China both in
units and monetary value.
Pricing environment remained
tough
• Indian market started to recover
after several reforms
• Southeast Asian market grew
but situation varied from country
to country
>2/3<5%~20%
GLOBAL NEW EQUIPMENT MARKET GREW SLIGHTLY IN UNITS ORDERED
January 25, 2018 Results presentation 2017 | © KONE Corporation
10
Chinese property market
Housing inventories Housing sales and prices E&E market
• Inventories relatively low in higher-tier
cities but still somewhat elevated in lower-
tier cities
• Government’s restrictive measures have
cooled down the housing market
• Property sales still growing at a good rate
in lower-tier cities
• Growth in real estate investment has
slowed down slightly
• Consolidation among property developers
continues
• E&E demand relatively stable in 2017
-10
0
10
20
30
40
Q1
2016
Q3
2015
Q1
2015
Q3
2014
7%
Q1
2014
1%
Q3
2017
5%
Q1
2017
Q3
2016
Tier-2 sample of lower tier citiesTier-1
-10
0
10
20
30
4%
Q1
2017
Q3
2017
Q3
2015
Q1
2015
Q3
2016
Q3
2014
Q1
2014
Q1
2016
REI Y-o-Y E&E market Y-o-Y in units
Sources: China NBS, E-house, CREIS, KONE estimates
11/2017: Q4 2017:
0
10
20
30
40
50
Q1
2014
Q3
2017
Q3
2016
23.0
Q1
2016
11.7
12.4
Q1
2017
Q1
2015
Q3
2014
Q3
2015
Tier-2 sample of lower tier citiesTier-1
12/2017:
Newly built area for sale / monthly sales 3-m MVA
January 25, 2018 Results presentation 2017 | © KONE Corporation
Stable
Government measures cooling down the housing market
Housing prices, change Y-o-Y
Service market development in Q4
EMEA market North American market Asia-Pacific market
Maintenance+ + +++
Q4 development
Share of global
market (in units)
• Pricing environment remained
tough, especially in South
Europe
• Price competition remained
rather intense
• Continued good growth across
the region
Modernization+ + +++
Q4 development
Share of global
market
(in monetary value)
• Slight growth across the region • Pricing environment favorable • Strong market growth
~35%<10%<50%
GROWTH CONTINUED ACROSS REGIONS
~15%~25%~1/3
11 January 25, 2018 Results presentation 2017 | © KONE Corporation
Q4 and 2017 financials
1,8461,739
2,0561,913
0
500
1,000
1,500
2,000
2,500
Q2
+0.4%
Q1
-1.8%
Q3
-0.6%-1.5%
Q4
87
Growth at
comp. FX
Q4 2016
1,839
Q4 2017
1,846
FX
13
Orders receivedORDERS RECEIVED GREW IN ALL REGIONS AT COMPARABLE EXCHANGE RATES IN Q4 2017
MEUR
2010 2017
At historical exchange rates
▪ The margin of orders stabilized
in Q4 2017
+ Growth in all
regions
5.3%
January 25, 2018 Results presentation 2017 | © KONE Corporation
2,657
2,1912,284
1,810
0
500
1,000
1,500
2,000
2,500
3,000
+2.5%
Q2 Q3 Q4
+3.5%
+0.9%
Q1
+0.5%
106
Mo
de
rniz
atio
n
Ma
inte
nan
ce
New
equ
ipm
en
t
Q4
2016
2,593
Q4
2017
2,657
FX
14
SalesSALES GREW IN ALL BUSINESSES AND IN ALL REGIONS IN Q4 2017
MEUR
2010 2017
At historical exchange rates
▪ EMEA: +3.6%
▪ Americas: +17.1%
▪ Asia-Pacific: +5.0%
+6.8%
At comparable exchange rates:
+7.1%
+5.0%
+9.1%
January 25, 2018 Results presentation 2017 | © KONE Corporation
376
311326
218
0
250
500
Q2
-6.4%-6.2%
-4.2%
Q4
-1.7%
Q1 Q3
17
392
Q4
2017*
ProfitabilityGrowthQ4 2016
376
FX
15
EBITEBIT MARGIN STILL BURDENED BY SEVERAL HEADWINDS IN Q4 2017
ADJUSTED EBIT*, MEUR
2010 2017
At historical exchange rates
+ Growth in all businesses
+ Productivity
improvements
- Raw materials, margin
pressure in China
- R&D and IT
January 25, 2018 Results presentation 2017 | © KONE Corporation
* Adjusted EBIT was introduced in September 2017. Adjusted EBIT excludes
restructuring costs related to the Accelerate program.
▪ Restructuring costs related to the
Accelerate program were EUR 10
million in Q4 2017
16
2017 EBIT bridgeSEVERAL FACTORS BURDENED THE PROFITABILITY IN 2017
January 25, 2018 Results presentation 2017 | © KONE Corporation
37
Growth2016 EBIT
1,293
2017 adjusted
EBIT
1,230
Other factors
impacting EBIT-%
Rising raw
material prices
>50
Increase in R&D
and IT spend
~40
FX
Sales grew in all
businesses
Biggest impact
from EUR
strengthening
against CNY and
USDR&D and IT’s
share of sales
increased by
around 40bps
+ Productivity
improvements
+ Focused pricing actions
+ Share of Maintenance
increasing
- Price pressure in China
- Share of China
decreasing
January 25, 2018 Results presentation 2017 | © KONE Corporation17
CASH FLOW WAS SOLID BUT BELOW THE STRONG LEVEL OF RECENT YEARS
Cash flow 2017
7668
110 1,263
1,510
Cash flow from
operations,
2016
Other
7
Working
capital’s
contribution
in 2016
Change in
working
capital, 2017
Change in
EBIT, 2017
Cash flow from
operations,
2017
Working capital contributed
positively to cash flow in
2016
Advances
received /
inventories stable
at 145%
(2016: 144%)
Receivables
somewhat higher
than in the end of
2016
*before financing items and taxes
1,263
0
400
800
1,200
1,600
2017
-16%
2009
MEUR
CASH FLOW FROM OPERATIONS*
Market and business outlook for 2018
Market outlook for 2018
January 25, 2018 Results presentation 2017 | © KONE Corporation19
▪ Asia-Pacific: The market in China is expected to decline slightly or to be
stable in units ordered and competition to remain intense. In the rest of
Asia-Pacific, the market is expected to grow.
▪ Europe, Middle East and Africa: The market is expected to grow slightly
▪ North America: The market is expected to grow slightly
▪ The maintenance market is expected to see the strongest growth rate
in Asia-Pacific, and to grow slightly in other regions
NEW EQUIPMENT MARKETS
MAINTENANCE MARKETS
▪ The modernization market is expected to grow slightly in the Europe,
Middle East and Africa region and in North America and to develop
strongly in Asia-Pacific.
MODERNIZATION MARKETS
Business outlook for 2018
▪ In 2018, KONE’s sales is estimated to
grow at around a similar rate as in 2017 at
comparable exchange rates.
January 25, 2018 Results presentation 2017 | © KONE Corporation20
▪ The adjusted EBIT margin is expected to
continue to decline in 2018 as witnessed in
2017. However, the margin pressure is
expected to start to ease towards the end
of 2018 as a result of pricing and
productivity actions that have been taken.
Sales
Adjusted EBIT margin
Burdening our resultBoosting our performance
Margin pressure in
earlier orders received
from intense competition
in China and higher raw
material prices
Foreign exchange rates
(approx. MEUR -40)
Solid order book
Services business
growth
Continued performance
improvements
21 January 25, 2018 Results presentation 2017 | © KONE Corporation
Our strategy is delivering results and we areaccelerating the execution of the strategy
January 25, 2018 Results presentation 2017 | © KONE Corporation22
TO GET FULL BENEFITS WE NEED TO
ACCELERATE THE PROGRESS
January 25, 2018 Results presentation 2017 | © KONE Corporation23
Winning with CustomersBRINGING OUR NEW STRATEGY ALIVE TOGETHER WITH OUR CUSTOMERS
We help our
customers
differentiate and
improve their
businesses
We don’t just
transport people
within buildings – we
want to give them
the best experience
Summary
• Sales growth continues
• The actions to counter the
margin headwinds are already
showing positive results
• Our latest solutions and
services resonate well with
customers – strengthened
differentiation
APPENDIX
KONE in China
January 25, 2018 Results presentation 2017 | © KONE Corporation27
2016
<35% >30%
2017 2016 2017
>25%~30%
Share of
sales
NEW EQUIPMENT MARKET
New equipment orders received in units vs. market development
CHINA’S SHARE OF KONE’S ORDERS AND SALES
In monetary value
-5
0
5
10
15
20
25
30
35
40
45
50
>35%
Q4Q2 Q3Q1201720162015
<5%
<20%
2006-
2014
CAGR
~-5%
Market
KONE
Share of
orders received
The China market
was stable in units
KONE’s orders
were stable in
units and grew
clearly in monetary
value
stable stable stable stable
declined
slightly~-5%
Currencies
January 25, 2018 Results presentation 2017 | © KONE Corporation28
SALES BY CURRENCY 1–12/2017
(MEUR) Q4/2017 1-12/2017
Sales -106 -200
EBIT -17 -37
Orders
received-87 -195
Others
USD
RMB
EUR
MAIN CURRENCIESCURRENCY IMPACT
2017
average
2016
average
Dec 31,
2017 spot
EUR / RMB 7,5828 7,3199 7,8534
EUR / USD 1,1151 1,1021 1,1806
EUR / GBP 0,8719 0,8159 0,8818
EUR / AUD 1,4592 1,4807 1,5075
Q4 2017 Balance sheet – assets employed
January 25, 2018 Results presentation 2017 | © KONE Corporation29
MEUR Dec 31, 2017 Dec 31, 2016
Assets employed
Goodwill 1,325.5 1,371.8
Other intangible assets 274.5 292.9
Tangible assets 377.0 368.3
Investments 115.8 129.9
Net working capital -875.6 -1,054.8
Assets employed total 1,217.2 1,108.0
Financed by
Equity 2,907.4 2,795.6
Net debt -1,690.2 -1,687.6
Equity and net debt total 1,217.2 1,108.0
Q4 2017 Net working capital
January 25, 2018 Results presentation 2017 | © KONE Corporation30
MEUR Dec 31, 2017 Dec 31, 2016
Net working capital
Inventories 1,244.6 1,373.5
Advance payments received -1,806.1 -1,976.9
Accounts receivable 1,608.7 1,573.7
Other non-interest-bearing assets 445.8 429.8
Other non-interest-bearing liabilities -1,653.4 -1,692.5
Provisions -142.3 -183.2
Accounts payable -705.1 -743.3
Net deferred tax assets / liabilities 132.2 164.1
Net working capital total -875.6 -1,054.8
Q4 2017 Consolidated cash flow
January 25, 2018 Results presentation 2017 | © KONE Corporation31
MEUR10-12/2017 10-12/2016 1-12/2017 1-12/2016
Operating income 365.7 392.2 1,217.1 1,293.3
Change in working capital before financing items and taxes -60.3 -10.9 -68.1 109.7
Depreciation and amortization 29.5 28.6 114.3 106.5
Cash flow from operations before financing items and
taxes 335.0 409.8 1,263.3 1,509.5
Financing items and taxes -57.5 -92.7 -299.6 -331.0
Cash flow from operating activities 277.5 317.1 963.7 1,178.4
Investing activities -47.2 -37.5 -143.5 -197.6
Purchase of own shares - - - -39.3
Increase in equity (option rights) 3.3 6.9 24.9 18.4
Profit distribution - - -795.4 -718.2
Changes in non-controlling interest -2.4 -0.2 -5.5 -26.7
Free cash flow 231.2 286.3 44.2 214.9