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Development and Restructuring Program for KONE Elevators & Escalators

Stock Exchange Release Published 17/03/2005

KONE initiated preparations for a development and restructuring program in October 2004. The program, which is presented below, is aimed at securing long-term competitiveness and improving the profitability of KONE Elevators & Escalators, particularly in the new equipment business.
In order to improve the productivity of its production lines and the cost-competitiveness of its products, KONE is planning to relocate certain supply functions and concentrate production volumes in cost-effective locations. In addition, KONE will continue concentrating certain competencies globally in order to achieve benefits of scale.
The initiatives presented in this plan will be implemented in the new equipment business during 2005-2006 and are aimed at returning KONE to double-digit EBIT margin by 2007. In total, the plans affect almost 450 jobs globally in KONE’s elevator and escalator business. Some 300 of these positions - located in Hattingen, Germany - are affected by the plan to discontinue escalator manufacturing in Germany. The plan to concentrate production of electrification components in two locations would affect about 95 jobs in Bristol in the UK. The rest of the positions are located in production units in the U.S.A. and Finland, and in global KONE functions that are indirectly affected by the initiatives to be taken in the manufacturing functions.
The measures presented in this program target an annual positive impact on operating income of almost EUR 30 million with much of this effect being felt already in 2006.
The total one-time operating income impact of the program, including lay-offs, canceling of long term commitments, impairment losses, and write-offs of fixed assets will be nearly EUR 90 million.

Action Plan for the Escalator Business

To ensure long-term competitiveness globally and strengthen its position in the rapidly growing Chinese market, KONE intends to develop its escalator production as follows:

  • The production of commercial standard escalators for Asian and European markets will be concentrated in Kunshan, China. The Kunshan Escalator Factory’s extension will begin production during the first half of 2005, more than doubling capacity and making it one of the largest escalator factories in the world. The expanded Kunshan Factory will also supply heavy-duty transit escalators to China and the rest of Asia.
  • The production of escalators designed for public access or special applications as well as customer service support for European markets will be handled by KONE’s production unit in Keighley, United Kingdom. The escalator production unit in Coal Valley, Illinois will continue to supply the North American market. Efforts to reduce costs and improve productivity at both facilities will continue.
  • Escalator manufacturing at the Hattingen, Germany plant is planned to be discontinued in 2005. The closing will affect the employment of approximately 300 people. KONE has informed the employee representatives of the Hattingen workforce today and has initiated negotiations pursuant to implementing the restructuring plan.
  • After the proposed discontinuation of manufacturing at Hattingen, the facility will carry on as KONE’s Global Escalator Technology and Service Business Center, contributing to the technology leadership and quality of KONE products. The Center’s functions will include research and development for escalators, autowalks and ramps; escalator modernization business development; spare parts business support; and quality, sourcing and sales support.

Action Plan for the Elevator Business

The following changes in KONE’s global elevator manufacturing are designed to streamline the production and concentrate production competencies of electrification components in cost-efficient facilities. Additionally, certain engineering competencies will be concentrated to achieve scale advantages. KONE has informed the local employee representatives and initiated negotiations pursuant to implementing the plan:

  • The production of electrification components for standard elevators is planned to be concentrated at the Slimpa Factory in Italy; electrification for elevators requiring customized, extensive engineering is planned to be concentrated at the Hyvinkää Factory in Finland. Manufacturing operations of the Bristol electrification production facility in the U.K. will be transferred to these units. Bristol facility will carry on as KONE’s Global Modernization Electrification Competence Center. Implementation of this plan, involving about 95 jobs in Bristol, is planned for 2005.
  • Elevator door production from the Hyvinkää Factory in Finland, with the exception of special heavy-duty doors, will be transferred to the component factory in Ústí nad Labem, the Czech Republic by the end of 2005. The Ústí plant opened in December, 2004. Negotiations underway in Hyvinkää are estimated to lead to a reduction of 13 jobs.
  • Production of hoisting machines based on EcoDisc® technology will be moved within Finland from Hämeenlinna to Hyvinkää in order to reduce the number of plants and cut fixed costs. This move will not involve personnel changes as plans call for the Hämeenlinna work force to be transferred to Hyvinkää.
  • Plans are being made to start production of elevator doors for North America in a new purpose-built facility to be opened in Mexico in the beginning of 2006. The plan would affect about 10 jobs in KONE’s U.S. operations.
  • To ensure the maintenance of a leading market position in India, the capacity of the KONE India Elevator Factory in Chennai will be doubled during 2005 and 2006 in order to meet growing domestic demand.
  • Some of the engineering tasks involved in producing customized elevators will be transferred from KONE elevator production units in Hyvinkää, Finland and McKinney, Texas, U.S.A. to KONE India during 2005-2006, and the plan would affect about 20 jobs in KONE’s U.S. operations.

In addition to these initiatives presented in the plan, primarily concerned with elevator and escalator production-line restructuring, several development projects have been initiated to improve the long-term competitiveness of KONE products and services: product portfolio development to enhance competitiveness in Asia and in the U.S. market, intensified alignment of local and global activities, and concentration of certain key activities.

Press Conference

A press conference will be held Thursday, 17 March, 2005 at 4.00 p.m. Finnish time at the KONE Building, Keilasatama 3, Espoo. The presentation material will be available on the company website at www.konecorp.com at the same time.
Presentation material
Sender:
KONE Corporation
Aimo Rajahalme
Executive Vice President, Finance and Information Services
Minna Mars
Senior Vice President, Corporate Communications & IR

For further information, please contact:
Aimo Rajahalme, Executive Vice President, Finance and Information Services,
tel. +358 (0)204 75 4484
Minna Mars, Senior Vice President, Corporate Communications & IR,
tel. +358 (0)204 75 4501
www.konecorp.com