Annual Report 2007 Annual Report 2007

94 Pages·2008·3.1 MB·English

Annual Report

Contents
1 | Business Review 2007
KONE in Brief __________________________________2
To Our Shareholders ____________________________4
CEO’s Review __________________________________5
Year in Brief ____________________________________7
Main Events ___________________________________8
Business Review _______________________________10
Our People ___________________________________19
Eco-efficiency _________________________________22
Capital and Risk Management Principles _________24
2 | CoRpoRate GoveRnanCe
Corporate Governance _________________________26
Board of Directors _____________________________30
Executive Board _______________________________32
3 | FinanCial statements
Board of Directors’ Report ______________________36
Consolidated Financial Statements (IFRS) _________41
Board of Directors’ Dividend Proposal ____________78
Auditors’ Report _______________________________79
4 | Key FiGuRes (with pro forma comparison figures)
Quarterly Key Figures __________________________80
Summary in Figures 2003–2007 _________________81
5 | investoR inFoRmation
Investor Relations ______________________________82
Shares and Shareholders _______________________84
Information for Shareholders ____________________89
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Business review | Corporate governance | Financial statements | Key figures | Investor information
KONE in Brief
Vision and Strategy Market Position
KONE defined a vision and redefined its strategy at the end The market for elevator installation, maintenance, repair and
of 2007 to better respond to current changes in the business modernization was roughly EUR 33 billion in 2007. The cor-
environment and to deepen the customer focus in all opera- responding escalator market was around EUR 2 billion. The
tions. market for automatic building door service amounted to
KONE’s vision is to offer the best people flow experience roughly EUR 5 billion.
by developing and delivering solutions that enable people to KONE’s market share has increased for three years in a row.
move smoothly, safely, comfortably and without waiting from In 2007, KONE’s share of the elevator and escalator market
one place to another. reached 12 percent.
KONE’s strategy is to deliver a performance edge to its In mature markets, the role of modernization is increas-
customers by creating the best user experience with inno- ing continuously. The demand is strongly driven by new
vative people flow solutions. KONE’s people leadership and safety norms, new regulations and the need for upgrading.
processes enable operational excellence and cost competi- In emerging markets, new equipment demand is driven by
tiveness. rapid urbanization and economic growth. Simultaneously,
demand for space efficiency and smooth people flow in
Customers buildings as well as lower life-time costs increase the role of
KONE’s key customers are builders, building owners, facility advanced technology.
managers and developers. In addition, architects and consul-
tants are key parties in the decision-making process regarding Innovative R&D
elevators and escalators. KONE has segmented the markets One of KONE’s strengths is its open-minded and innovative
according to the purpose of the building. The main segments approach to research and development. R&D centers located
are categorized as residential, office and retail, as well as in China, India, Italy, Germany, Finland and the United States
public transportation and airports. In addition, KONE serves are responsible for the continuous development of solutions
hospitals, leisure centers, hotels and industrial properties. for elevators, escalators, maintenance and modernization. To
KONE has approximately 250,000 customers globally, of achieve the best solutions, work is carried out in cooperation
which the majority are maintenance customers. Maintenance with various customer groups, suppliers, strategic partners
contracts vary from one-elevator residential buildings with and research centers.
yearly contracts to large international accounts with long- In 2007, KONE’s research and development expenditures
term service agreements. totaled EUR 50.7 million or 1.2 percent of net sales.
KONE Facts
1. One of the world’s leading elevator and 7. Generates approximately 55% of the sales with
escalator companies. service and about 45% with new equipment sales.
2. Founded in 1910 and listed on the OMX 8. Maintains approximately 650,000 elevators
Nordic Exchange Helsinki in Finland since 1967*). and escalators.
3. Operates in around 50 countries. 9. Became the market’s innovation leader with the
4. Employs over 32,500 employees. introduction of the machine-room-less elevator in 1996.
5. Serves over 250,000 customers worldwide. 10. Provides safe and easy access for hundreds of millions
6. Recorded net sales of EUR 4.1 billion in 2007. of people daily in all parts of the world.
*) Following the demerger in 2005, KONE Corporation’s class B shares were listed on the Helsinki Stock Exchange on June 1, 2005.
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KONE is one of the world’s leading elevator and escalator companies. It provides customers with industry-leading eleva-
tors, escalators and innovative solutions for maintenance and modernization. KONE also provides maintenance services
for automatic building doors.
Present in All Main Markets
Hyvinkää
Head Office, Helsinki
Keighley
Essen
Ústí nad Labem
Pero
Moline, IL
McKinney, Texas
Kunshan
Torreón
Chennai
KONE is present
Head Office
Global R&D centers
Production units
Sales, % Sales by market, %
New equipment Europe, Middle East,
Service 14 Africa (EMEA)
Americas
45 Asia-Pacific
21
55
65
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Business review | Corporate governance | Financial statements | Key figures | Investor information
To Our
Shareholders
In 2007, KONE’s business performance development excelled.
This success stems from the development activities started in
2005, with a strong focus on profitable growth. KONE has a
clear strategic agenda of continuing its efforts to become an
even more customer-focused, globally aligned and produc-
tive company.
The stock market continued to show confidence in the
company’s performance and future prospects also in 2007.
Despite the turbulence in the US financial market, KONE’s
share performance clearly reflected confidence in its business
performance. KONE’s market capitalization more than dou-
bled during the last two-and-a-half years, from the demerger
until the end of 2007.
The only issues shadowing the otherwise excellent year
were the fines relating to the three-year investigation by the
European Commission and the local anticompetitive practices
in Austria. Since the beginning of the European Commission’s
investigation in 2004, KONE has taken rigorous actions within
the company to increase awareness and ensure compliance
with competition laws.
I look forward with confidence towards 2008 and would
like to take this opportunity to thank all our shareholders for
their trust and all the KONE employees for their excellent
commitment and outstanding job done.
January 2008
Antti Herlin
Chairman of the Board
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CEO’s Review
The 2007 result is burdened by fines relating to anticompeti-
tive practices in the past. Since the beginning of the investi-
gations in 2004, we have continued our work to ensure strict
compliance with competition laws at KONE.
Otherwise, 2007 was a very good year for KONE Corpora-
tion both in terms of financial performance and development
progress. We achieved higher growth than we expected at
this time a year ago both in sales and operating income.
Orders received growth continued to be solid in all main
markets. KONE’s business performance outperformed the
industry overall, which is a clear sign of our improving com-
petitiveness. This is in line with our long term goal, which is
to develop KONE into a very strong company in its industry
in terms of market position and operating income.
The good development was a result of the success of our
intensive work in transforming KONE. We started our devel-
opment program in 2005 with the aim of becoming a glob-
ally aligned, truly market-driven company. Our intensive work
has continued to bring results.
We have resegmented our customer base, put in place
new customer processes, taken into use a uniform Customer
Relationship Management (CRM) system, trained sales people
and sales managers and developed new e-business tools. As a
result, we know and listen to our customers better.
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Business review | Corporate governance | Financial statements | Key figures | Investor information
To serve our customers’ needs better, we have increased Our first three-year phase of development will continue to
the flexibility of our global product platforms. We have bring results, but now it is time to start our next phase of
become much more market driven in product and service change.
portfolio decisions. As a result, we are constantly getting We have carefully looked into the mega trends that drive
better in solving local market needs, while at the same time our market growth and provide new business opportunities.
increasing our economies of scale. Urbanization is the most significant mega trend of the next
decades in our industry. Whereas today some 3 billion people
live in urban areas worldwide, this number is expected to
The good development was grow to 5 billion by 2030. In many developing countries, suc-
cessful urbanization is a priority for the economy’s continu-
a result of the success of our
ing growth. This change will bring the need for sustainable
intensive work in transforming
development in urban areas. These growing urban environ-
KONE. ments need additional solutions to move even more people
smoothly, safely, comfortably and without waiting from one
place to another.
KONE’s newly defined vision reflects these growing oppor-
We have taken major steps in becoming a more glob- tunities: Our objective is for KONE to deliver the best people
ally aligned company. Our field people all around the world flow experience. This means that we want to be at least as
- around 21,000 maintenance and installation experts alto- good as the best competitor in all key areas, while devel-
gether - have taken into use new working methods. This has oping our solutions to give KONE a distinctive competitive
started to generate encouraging results in our productivity advantage in user experience. We want all KONE employees
and customer satisfaction. to increasingly look at our business from the customers’ and
In sourcing, the successful transformation has continued. users’ point of view. This will make it possible for us to develop
Our purchasing power has increased and we have constantly KONE into a truly market-driven company.
improved partnerships with our important suppliers. The I would like to thank all of our employees for their ener-
progress made in our demand-supply planning has improved gized efforts and excellent work so far. We are already looking
the flow of products to our customers. forward to the next phase of development!
In the Asia-Pacific region, our teams have done a great
job. During the past three years, we have almost doubled
our market share in the region. At the same time, we have
succeeded in strenghtening the profitability of our business
significantly in the Americas, and thus our geographical bal- January 2008
ance between Europe and the Middle East, Asia Pacific and
the Americas has become much better.
We are proud of our accomplishments and at the same
time, we see great potential to develop KONE further in order Matti Alahuhta
to fully exploit the changes in our operating environment. President & CEO
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Year in Brief
Competitiveness Improved Profitability Strenghtened
In 2007, KONE continued to carry out the development ini- KONE’s net sales grew by 13 percent, amounting to EUR 4,079
tiatives launched in 2005. The implementation of the new million. Throughout the year, the growth in net sales was
initiatives has already brought KONE significantly closer to strongest in the Asia-Pacific region and reached 18 percent.
becoming a truly global and more market-driven company. The corresponding increases in the Americas and in the EMEA
The development programs have increased KONE’s competi- region were 4 percent and 15 percent respectively.
tiveness and strong growth in sales and profits demonstrates Orders received increased by 18 percent in 2007 and
the achieved progress. the order book stood at EUR 3,282 million at the end of the
year. The fastest growth in orders received was seen in the
Demand for KONE’s Expertise Increased Asia-Pacific region, which was driven by KONE’s improving
Demand for KONE’s advanced high-rise solutions increased competitiveness, strong economic growth and rapid urban-
strongly in growing high-rise hubs. This was particularly true ization.
for the double-decker (DD) elevators with advanced desti- Continued increases in KONE’s productivity and net sales
nation control systems (DCS) that were requested in several resulted in a record high operating income (EBIT). With
major projects, proving KONE’s expertise in complex traffic EUR 473 million, the operating income was 11.6 percent of
calculations and people flow management. net sales, excluding the fines imposed on KONE by the Euro-
pean Commission and the Austrian cartel court, and the sales
Growth Continued profit for the sale of the KONE Building.
In 2007, most of KONE’s growth was organic. In addition,
KONE acquired 25 companies, which were mainly small
maintenance companies. The number of employees increased
by 11 percent and stood at 32,544 at the end of the year.
Key Figures
2007 2006
Sales MEUR 4,079 3,601
Orders received MEUR 3,675 3,116
Order book as of December 31 MEUR 3,282 2,762
Operating income MEUR 321 360
Operating Income 1) MEUR 473 360
Income before taxes MEUR 314 356
Net income MEUR 180 234
Total assets MEUR 2,360 2,292
Basic earnings per share EUR 1.44 1.86
Equity/share EUR 5.96 5.55
Return on equity % 24.9 34.3
Return on capital employed % 30.4 35.4
Total equity/total assets % 31.7 30.5
Gearing % 12.2 17.9
Market capitalization 2) MEUR 6,027 5,382
Number of employees as of December 31 32,544 29,321
1) Excluding the fines imposed on KONE by the European Commission
and the Austrian cartel court, and the sales profit for the sale of the
KONE Building.
MORE INFORMATION
2) Market capitalization is calculated based on both the unlisted class A
• The principles of calculating key figures can be
and the listed class B shares, excluding repurchased company shares.
found on page 76.
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Business review | Corporate governance | Financial statements | Key figures | Investor information
Main Events in 2007
April 13
KONE won a
contract to deliver May 15
February 19 the Middle East’s KONE won an June 18
January 12 Vance Tang was March 2 first double-deck order to supply KONE won
KONE acquired appointed EVP, KONE decided elevators for the elevators for The additional high-
the Canadian Area Director for to appeal the Capital Plaza MET, the tallest rise projects with
elevator company the Americas and European Com- multi-purpose residential build- KONE destination
MIRO Elevators joined KONE’s mission’s decision development in ing in Bangkok, control systems in
Limited. Executive Board. to impose a fine. Abu Dhabi, UAE. Thailand. Moscow, Russia.
JANUARY FEBRUARY MARCH APRIL MAY JUNE
January 26 February 21 March 7 April 24 June 18
KONE won an The European KONE signed a KONE signed its KONE announced that its sales
order to deliver Commission sponsorship agree- largest contract and operating income (EBIT)
all elevators and imposed a fine ment with Mikko ever for cruise in January-May 2007 had
escalators for the on KONE for Ilonen, a PGA ships with Aker increased more favorably than
Capital City twin- its subsidiaries’ European Tour Yards for Norwe- anticipated.
tower project in involvement in player. gian Cruise Line.
the Moscow Inter- local anticompeti- June 20
national Business tive practices in April 24 KONE won a major order for
Centre (MIBC) in Germany and the KONE secured the Delhi Metro in India.
Russia. Netherlands. its most valuable
escalator modern- June 27
ization order ever KONE won an order for the
for the McCarran new BP2 office building in the
International Canary Wharf financial district
Airport (MIA) in in London, England.
Las Vegas, USA.
June 29
KONE won several major orders
in the Middle East including
the world’s largest mosque, the
Holy Harram in Saudi Arabia.
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