KONE CMD 2014 Healthy business model supporting strong financial development Eriikka Söderström, CFO September 26, 2014 Graph on slide 13 has been updated February 18,2015.
Agenda How we drive KONE s profitable growth Solid balance sheet Long-term financial targets and outlook for 2014
Achieving the industry s best financial development is one of our strategic targets Most loyal customers Great place to work Faster than market growth Best financial development Leader in sustainability Best financial development Our goal is to achieve better financial development than our competition 3 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
KONE s business model is flexible and capital-light, yielding a high return on capital Global position in a lifecycle business High cash flow generation Enables us to catch growth opportunities in all regions and businesses as they arise Negative working capital, low capital intensity Flexible cost structure Low amount of fixed costs, subcontracting used for example in installation High return on capital Absolute EBIT growth combined with low investment requirements generate a high return 4 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
Our sales mix has become weighted towards new equipment driven by strong growth in Asia-Pacific KONE s sales by business KONE s sales by region MEUR MEUR New equipment Modernization Maintenance 6,277 6,933 EMEA Americas Asia-Pacific 6,277 6,933 4,744 4,987 5,225 54% 4,744 4,987 5,225 46% 47% 19% 14% 62% 16% 34% 32% 21% 17% 38% 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 5 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation GiantKONE consolidated from December 2011 onwards.
Our absolute EBIT has continued to grow faster than sales Improvement in both absolute EBIT and EBIT margin 12 months quarterly rolling absolute EBIT & margin progression, Q2/2009-Q2/2014 MEUR 1,000 900 800 700 600 500 400 300 200 100 0 12.1 Q2/2009 Q2/2010 Q2/2011 Q2/2012 Q2/2013 EBIT EBIT-% 16% 14.1 14% 12% 10% 0% Q2/2014 6 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation Note: Excluding one-time items.
Headwind from exchange rates, but also tailwind from raw material prices in H1/2014 Sales by currency 1 6/2014 Raw material price development Index change of market prices, % Other EUR 2010 2011 2012 2013 1-6/ 2014 Hot-rolled steel 23% 19% -12% -4% -1% Stainless steel 25% -1% -15% -11% +2% Copper 50% 14% -12% -8% -7% USD/ CAD Rare Earths 130% 439% -43% -45% -5% RMB Aluminum 17% 7% -8% -8% -8% Brent oil 31% 39% 1% -3% 0% Source: LME, Shanghai Futures Exchange, American Metal Market, Steel Info, MEPS, Finnish Technology Industries, Asian Metal, China Commodity Marketplace. Metal prices are averages of regional prices. 7 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
We have advanced in developing our pricing, but there is still room for improvement Our pricing actions Products Continuous development of our solutions, services and our branding Competences Understanding the customer and offering the right solutions Pricing management Local level responsibility with right targets and incentives Finding the right price for different situations 8 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
Our order book rotation has extended slightly Share of major projects has increased Share of major projects of KONE s new equipment order book Order book rotation Estimated lag from new equipment order to completion Major projects ~30% Major projects Globally Up to 5 years Europe ~1 1.5 years Volume business ~70% Volume business North America ~1.5 2 years Asia-Pacific* ~1.5 2.5 years China < 1 year 9 2009 2010 2011 2012 2013 1-6/2014 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation *) Excluding China
We benefit from operational and financial flexibility Flexibility built into our new equipment business model Service Sourcing & manufacturing Installation High share of outsourcing to component suppliers Low investment requirements in manufacturing/assembly Subcontracting used in installation Service less prone to cyclicality Own technicians used in service Admin Further centralization opportunities in back-office activities 10 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
Our investments to process development & IT enable scalability to support business growth ERP system covers more than 90% of sales Investments have supported our fast growth and provide a platform for future growth KONE countries with ERP KONE present Common ERP enables countries to utilize other global solutions in sales, ordering, installation and field operations Further improvement potential in process and IT system harmonization 11 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
How we drive KONE s profitable growth Solid balance sheet Long-term financial targets and outlook for 2014
We have maintained our strong cash flow and negative working capital High operative cash flow generation Negative working capital MEUR 1,250 1,000 1,178 MEUR 0-100 -200 750 500-300 -400-500 250-600 0 Q2 09 2010 2011 2012 2013 Q2 14 12m rolling quarterly cash flow from operations (before financing items and taxes) -700-800 13 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation Q2 09 2010 2011 2012 Inventories advance payments Other WC items 2013-698 Q2 14
Working capital rotation has been stable Working capital item development WC rotation relative to sales MEUR 1 800 Days 100 1 600 90 1 400 1 200 1 000 800 600 400 80 70 60 50 40 30 20 200 10 0 0 Assets Q2 09 2010 Total inventories Accounts receivable & other non-ib assets 2011 Liabilities 2012 2013 Advance payments received Accounts payable & other non-ib liabilities Q2 14 Q2 09 2010 2011 2012 2013 Inventory rotation Accounts receivable & other non-ib assets rotation Accounts payable & other non-ib liabilities rotation Q2 14 14 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation Note: Figures in both graphs are LTM average values
Capex remains at a low level, and we have acquired less than usual in H1/2014 120 110 100 90 80 70 60 50 40 30 20 10 Capital expenditure and depreciation MEUR 0 62 64 66 52 47 44 49 50 50 13 13 16 119 86 53 33 Capital expenditure excluding acquisitions 79 74 58 20 2009 2010 2011 2012 2013 Amortization of acquisition-related intangible assets Depreciation 41 32 30 11 1 6/ 2014 MEUR 200 180 160 140 120 100 15 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation 80 60 40 20 0 46 167 185 169 83 2009 2010 2011 2012 2013 1-6/ 2014 21 21 (Nr of acquisitions) Acquisitions 23 21 38 Most acquisitions are small or medium-sized maintenance companies 4 3
KONE s financial performance has enabled increasing dividend payments to shareholders EUR 1.0 0.9 0.8 0.7 0.6 Split-adjusted ordinary dividend per class B share, 1980-2013 CAGR +14% 0.70 0.88 1.00 0.5 0.45 0.4 0.3 0.2 0.1 0.0 0.01 0.02 0.01 0.02 0.06 0.04 0.25 0.19 0.09 0.33 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 Note: Adjusted for share splits in 1999 (1:3), 2002 (1:3), 2005 (1:2), 2008 (1:2) and 2013 (1:2). 1 EUR= 5.9 FIM; not adjusted to constant exchange rate. Additional extraordinary dividends: for 2009, a double dividend was paid; for 2011, an extraordinary dividend of EUR 0.75 was paid and for 2012 an extraordinary dividend of EUR 0.65 was paid. 16 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
How we drive KONE s profitable growth Solid balance sheet Long-term financial targets and outlook for 2014
Our long-term financial targets are intact Long-term financial targets Financial focus areas Growth Faster than market Market position and pricing Profitability EBIT margin of 16% Absolute EBIT growth over the long-term Cash flow Improved working capital rotation Receivable and inventory rotation 18 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
Market outlook 2014 (unchanged) New equipment markets The market in Asia-Pacific is expected to grow clearly. The market in China is expected to grow by approximately 10%. The market in the EMEA region is expected to grow slightly, with slight growth in Central and North Europe, a further slight decline in South Europe, and a growing demand in the Middle East. The market in North America is expected to continue to grow. Modernization markets The modernization market is expected to grow slightly. Maintenance markets The maintenance market is expected to develop rather well in most countries. 19 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation
Business outlook 2014 (unchanged) Sales KONE s net sales is estimated to grow by 6 9 % at comparable exchange rates as compared to 2013. Operating income The operating income (EBIT) is expected to be in the range of EUR 1,000 1,050 million, assuming that translation exchange rates do not materially deviate from the situation of the beginning of 2014. 20 September 26, 2014 Eriikka Söderström Capital Markets Day 2014 KONE Corporation