KONE is exposed to risks that may arisefrom its operations or changes in the business environment. The risk factors described  below  can

potentially  have an adverse effect on KONE’s business operations and financial position and, as a

result, on the value of the company. Other risks, which are currently either unknown or considered

immaterial to KONE may, however, become material in the future.

A weakening of the global economic environment or an increase in geopolitical tensions could result

in deterioration  of the market environment and the competitive situation in the global new

equip- ment and service markets. In particular, a disruption of the growth of the construction

market, in China or in other growing regions globally, could result in a decline of the global

market  for new  elevators and escalators. A weakening market environment could lead to a decrease

in orders received, cancellations of agreed deliveries, delays in the commencement of projects or

further intensified price competition, and, as a result, have a negative effect on KONE’s growth

and profitability. To counteract the pressures resulting from a possible deterioration of the

economic environment and its impact on the elevator and escalator markets, KONE strives to

continuously develop its competitiveness.

KONE operates in an industry with various local regulatory  requirements  in

both the new equipment and service businesses. Sudden or unanticipated changes in regulations, codes or standards may result in a need for

process or technology adjustments, which could adversely affect KONE’s profit development in

affected countries. In order to mitigate the risk of unanticipated changes in the regulatory

environment,  KONE is actively  involved in   the   development   of   regulations, codes and

standards that aim to further improve the safety and other technological features of elevators,

escalators and automatic doors.

KONE operates in certain high growth markets, where focused management of rapid business growth is

required. This applies in particular to the availability of skilled personnel and the adequate

supply of components and materials, as well as ensuring the quality of delivered products and

services. Failure to adequately manage resourcing, quality of delivery, or other aspects in

projects could result in delays in deliveries and increases in costs, which in turn could have an

adverse impact on the profitability of the company. KONE manages these risks through proactive

project and resource planning and strict quality control processes.

KONE introduces new technology and continuously develops the competitiveness of its existing

offering and solutions based on anticipated future developments in relevant technologies,

customer needs and market requirements. The development of new technology and execution of product

releases involve risks related to the uninterrupted functioning of the delivery chain, including

component supply from KONE’s large supplier base, as well as product integrity and quality.

Additionally, a failure to anticipate or address changes either in the industry, market and

competitive environment or in customer needs and behavior, or an incident causing reputational or

other damage to the company could result in a deterioration of KONE’s competitiveness, market share

or profitability. To mitigate these risks, KONE follows closely market and customer trends and has

defined processes for product design, supply, manufacturing, installation and maintenance

involving strict quality control.

KONE’s business activities are dependent on the uninterrupted operation, quality and reliability

of sourcing  channels,  production   plants,  and  logistics

processes. A significant part of KONE’s component suppliers and supply capacity is located in

China. The risks related to the supply chain are controlled by analyzing and improving the fault

tolerance of processes, diligent forecasting, by close cooperation with KONE’s suppliers and by

increasing the readiness for transferring the manufacturing of critical components from one

production line or supplier to another. KONE actively monitors the operations  and  financial

strength  of its key suppliers. The aim is also to secure the availability of alternative sourcing

chan- nels for critical components and services. Additionally, KONE has a global property damage

and business interruption insurance program in place.

KONE’s operations utilize information technology extensively. This may expose KONE to information

security violations, misuse of systems and/or data, viruses, malwares   and   to  such

malfunctions, which can result in system failures or disruptions in processes and therefore impact

KONE’s business. Clear roles and responsibilities have been defined to manage IT security risks to

ensure that adequate  security  is  inbuilt  within  the IT management processes according to

security policies, principles and guidelines.

Changes in raw material and component prices are reflected directly in the production costs of

elevators, escalators and automatic doors, and may therefore have an impact on KONE’s

profitability. In order to reduce the impact of mate- rial and sourcing price fluctuation, KONE

aims to enter into fixed-price contracts with its major suppliers for a significant part of its raw

material and component purchases.

KONE is exposed to counterparty risks related  to financial  institutions  through the significant

amounts of liquid funds deposited into financial institutions, financial investments  and in

derivatives. In order to diversify the financial credit risk, KONE deposits its funds into several

banks and invests a part of its liquidity into highly liquid money market funds. KONE also manages

its counterparty risk by accepting only counterparties with high creditworthiness. The size of each

counterparty limit reflects the creditworthiness  of  the  counterparty  and  KONE

constantly evaluates such limits.

KONE is also exposed to risks related to the liquidity and payment schedules of its customers,

which may lead to credit losses. To mitigate this risk, defined rules for tendering, levels of

approval authority, and credit control have been established. The risks related to accounts

receivable are minimized also through the use of advance  payments,  documentary  cred- its and

guarantees in KONE’s payment terms. KONE’s customer base consists of a large number of customers in

several market areas, with no individual customer representing a material share of KONE’s sales.

KONE operates internationally and is thus exposed to risks arising from foreign exchange rate

fluctuations related to cur- rency flows from revenues and expenses, as well as from the

translation of income statement and statement of financial position items of foreign subsidiaries

into euros. The KONE Treasury is responsible for the centralized management of financial risks in

accordance  with the KONE Treasury Policy approved by the Board of Directors.

For further information regarding financial  risks, please refer to note 2 in the consolidated

Financial Statements for

2014.

(Updated on February 4, 2015)