#1Pending#2CONTENTS KONE in brief KONE's strategy 13 Notes to the consolidated financial 47 5. Capital structure 73 statements 5.1 Capital management 74 5.2 Shareholders' equity 74 1. Basis of preparation 47 5.3 Financial risks and instruments 78 Board of Director's report LO 5 2. Financial performance 2.1 Sales 2.2 Costs and expenses 49 5.4 Shareholdings and other non-current financial assets 83 50 5.5 Deposits and loans receivable 83 51 5.6 Commitments 83 Shares and shareholders 35 2.3 Depreciation and amortization 54 5.7 Employee benefits 84 Key figures and financial development 39 2.4 Foreign exchange sensitivity 53 2.5 Financing income and expenses 55 6. Others Calculation of key figures 41 2.6 Income taxes 56 6.1 Management remuneration 2.7 Earnings per share 56 6.2 Share-based payments Consolidated financial statements 42 2.8 Other comprehensive income 57 6.3 Related party transactions 87 88 90 91 3. Net working capital 58 Parent company financial statements 92 3.1 Inventories 59 Consolidated statement of income 42 Consolidated statement of financial position 43 3.2 Accounts receivable and contract assets and liabilities 3.3 Deferred assets 60 Subsidiaries 107 62 Consolidated statement of changes in equity 44 3.4 Accruals 62 Consolidated statement of cash flows 46 3.5 Provisions 63 Board of Director's dividend proposal and signatures 110 3.6 Deferred tax assets and liabilities 64 4. Acquisitions and capital expenditure 65 4.1 Acquisitions 66 Auditor's report 111 4.2 Goodwill 68 4.3 Intangible assets 68 4.4 Tangible assets 71 Auditor's ESEF assurance 115 report Corporate governance 117 statement Corporate governance principles 117 Board of Directors 123 Executive Board 123#3KONE IN BRIEF At KONE, our mission is to improve the flow of urban life. As a global leader in the elevator and escalator industry, KONE provides elevators, escalators and automatic building doors, as well as solutions for maintenance and modernization to add value to buildings throughout their life cycle. Through more effective People FlowⓇ, we make people's journeys safe, convenient and reliable, in taller, smarter buildings. Sales MEUR We move over 10,907 in 2022 1 billion >550,000 people every day Operations in over countries customers 60 >60,000 employees >1,500,000 equipment in KONE'S maintenance base Authorized distributors and agents in close to 100 countries Hyvinkää Helsinki & Espoo Ústí nad Labem Cadrezzate Pero Coal Valley Allen Torreon Head office Global R&D site Production site KONE is present Divestment pending regulatory approval KONE collaborates with authorized distributors and agents in close to 100 countries Pune Chennai Kunshan Nanxun (GiantKONE) 1 KONE ANNUAL REVIEW 2022#4KEY FIGURES KEY FIGURES Sales by region 1-12/2022 1-12/2021 Change Orders received Order book MEUR 9,131.3 8,852.8 3.1% -2.5% MEUR 9,026.1 8,564.0 5.4% 5.4% Change at comparable exchange rates 41 % (44%) 39 % (38%) Sales MEUR 10,906.7 10,514.1 3.7% -1.8% Operating income MEUR 1,031.2 1,295.3 -20.4% Operating income margin % 9.5 Adjusted EBIT⭑* MEUR 1,076.6 12.3 1,309.8 -17.8% Adjusted EBIT margin* % 9.9 12.5 ■ EMEA Income before tax MEUR 1,028.4 1,320.8 -22.1% 21% (18%) ■ Americas 1-12/2022 (1-12/2021) Asia-Pacific Net income MEUR Basic earnings per share EUR 784.5 1.50 1,022.7 -23.3% Cash flow from operations (before financing items and taxes) Interest-bearing net debt MEUR MEUR 754.7 -1,309.0 1.96 1,828.7 -2,164.1 -23.6% Sales by business Equity ratio % Return on equity % 40.3 25.9 Net working capital (including financing items and taxes) Gearing MEUR % -903.9 -45.7 * KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January- December 2022, items affecting comparability amounted to EUR 45.4 million including a charge for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine, as well as costs for restructuring measures. In the comparison periods, items affecting comparability consisted of restructuring costs. 15% (14%) 0 36% (33%) 50 % (54%) ■New equipment ■ Maintenance 1-12/2022 (1-12/2021) 41.2 32.0 -1,468.2 -67.6 ■Modernization Orders received*, MEUR Sales, MEUR Adjusted EBIT, MEUR and adjusted EBIT margin, % Cash flow*, MEUR Earnings per share, EUR Dividend per class B share, EUR 10,000 8,853 9,131 12,000 10,514 10,907 1,500 8,185 9,939 1,251 1,310 20.0 1,908 1,829 1.96 2.25 2,000 2.10 1.81 2.40 2.10 8,000 10,000 1,250 1,077 16.0 1,750 1.80 1.50 2.10 1.75 8,000 1,000 1,500 1.80 6,000 1.50 12.0 6,000 750 12.6% 12.5% 1,250 1.50 1.20 4,000 9.9% 8.0 1,000 755 1.20 4,000 500 0.90 750 0.90 2,000 4.0 2,000 250 500 0.60 0.60 250 0.30 0.30 0 0 0 0.0 2020 2021 2022 2020 2021 2022 2020 2021 2022 0 0.00 0.00 2020 2021 2022 2020 2021 2022 2020 2021 2022* *) Orders received do not include maintenance contracts Adjusted EBIT *) Cash flow from operations before financing items and taxes Adjusted EBIT margin *) Board's proposal Dividend 2 Extraordinary dividend KONE ANNUAL REVIEW 2022#5STRATEGY KONE'S STRATEGY At KONE, our mission is to improve the flow of urban life. We understand urbanization and help our customers make the best of the world's cities, buildings and public spaces. Our vision is to create the best People Flow experience. We believe our vision can be best achieved by working together with our customers and partners in every step of the process. KONE's strategic phase 2021-2024 'Sustainable success with customers' focuses on increasing the value we create for our customers with new intelligent solutions and on embedding sustainability even deeper across all of our operations. The global elevator and escalator industry is shaped by three major megatrends: urbanization, sustainability and technology. Against this backdrop, 'Sustainable success with customers' addresses the needs of a digitally enabled world, in which the ways people live, work and commute continue to change. KONE will focus on developing smart and sustainable solutions that adapt to future needs, together with its customers and partners. By doing this, KONE will enable customers' facilities to function more effectively and deliver an improved user experience. CLEAR FOCUS AREAS FOR SUCCESS In order to bring clear direction to our strategy, KONE has defined four Where to Win areas, representing the biggest opportunities for profitable growth and differentiation: Core products and services: matching customer specific needs for a seamless experience through connectivity and adaptability. All products and services will be optimized for cost efficiency and sustainability. New solutions for customer value: developed and integrated with core products and services to create value for customers in new ways. Smart and sustainable cities: becoming the preferred partner for smart and sustainable city development. Service business in China: becoming a clear market leader in this fast-growing and fragmented market. In addition, the following Ways to Win are KONE-wide transformation and development initiatives which will enable us to create sustainable success with customers: " Empowered people: having the most capable and engaged team of professionals who succeed in a changing world and are able to develop with continuous learning opportunities. Marketing and sales renewal: creating a seamless, unified customer experience across multiple channels. Lean KONE: leveraging Lean skills, practices and leadership to eliminate waste and ensure continuous improvement. Digital + physical enterprise: having future-proof technology infrastructure, building the capabilities to use data and analytics and further developing the efficiency and resilience of our supply chain. KONE'S STRATEGIC AND FINANCIAL TARGETS We measure progress against five strategic targets: " Great place to work Most loyal customers Faster than market growth Best financial development Leader in sustainability Our long-term financial targets are: Growth: Faster than the market Profitability: To reach an EBIT margin of 16% Cash flow: Improved working capital rotation 3 KONE ANNUAL REVIEW 2022#6STRATEGY Sustainable success with customers MEGATRENDS URBANIZATION SUSTAINABILITY TECHNOLOGY market MISSION OUR MISSION IS TO IMPROVE KONE THE FLOW OF URBAN LIFE NOISIA WE CREATE THE BEST PEOPLE KONE FLOW™M EXPERIENCE M Dedicated to People Flow" KONE WHERE TO WIN We will lead the way in: Core products and services STRATEGIC TARGETS Great place to work Most loyal customers Faster than market growth Best financial development Leader in sustainability WAYS TO WIN We will ensure our success through: New solutions for customer value Empowered people Marketing and sales renewal KONE WAY Digital + physical enterprise Lean KONE Л Smart and sustainable cities CULTURE SAFETY QUALITY SUSTAINABILITY Service business in China RONE CARE CUSTOMER COLLABORATION COURAGE 4 KONE ANNUAL REVIEW 2022#7BOARD OF DIRECTORS' REPORT | KONE'S BUSINESS MODEL BOARD OF DIRECTORS' REPORT KONE's business model KONE provides value for customers during the whole life cycle of the building. In the new equipment business, we offer innovative, intelligent and sustainable elevators, escalators, automatic building doors and integrated access control solutions to deliver the best people flow experience. In maintenance, we ensure the safety and availability of the equipment in operation, and in modernization we offer solutions for aging equipment ranging from the replacement of components to full replacements. The key growth drivers of the new equipment business are urbanization and changing demographics. New equipment deliveries are the main growth driver of the maintenance business as the majority of units delivered will end up in KONE's maintenance base. In addition, KONE also maintains other OEMs' equipment. The main growth drivers for modernization are the aging installed base and increased requirements for efficient people flow, safety and sustainability. Having a strong maintenance base is crucial for the growth of the modernization. KONE also sees significant growth opportunities in increasing the value created for customers in all of its businesses with the help of new technologies and connectivity. Business characteristics KONE's business model is capital light as working capital is negative in all businesses and we work extensively with component suppliers to complement our own manufacturing capacity. The maintenance business is very stable due to high requirements for safety and reliability. Customer relationships are also typically long and stable (>90% annual retention rate). New equipment and modernization are more cyclical in nature and follow the construction cycles. Key value drivers KONE has identified the following strategic inputs that are crucial in creating value for customers, shareholders and the society: competent and engaged people and strong leadership; innovative, sustainable offering and global processes and systems; best partners; efficient manufacturing and delivery chain; solid financial position; environmentally sustainable operations as well as strong brand and solid reputation. In addition to these, KONE sees that the life cycle business model and the existing maintenance base of well over 1.5 million units have a crucial role in value creation. The different businesses support the growth of each other and together provide stability for the business. INPUTS PEOPLE AND LEADERSHIP ■>60,000 employees representing 151 different nationalities, ca. half of employees in the field Global diversity and inclusion strategy ■ Personnel voluntary turnover rate 7.9% ■ Wide development opportunities on all organizational levels around the world. ■Management systems and certificates (e.g. ISO 14001, ISO 9001, ISO 45001) ■ Governance structures, ethical business practices and compliance, 98% of employees who had been assigned the competition compliance training had completed the course, accounting for over 30,000 course completions INNOVATIONS, PROCESSES AND SYSTEMS ■ -4,800 different IPRs including patents, utility models and designs R&D spend 1.7% of sales, 8 global R&D units ■ -1,700 technology professionals in R&D, ca. half in software development ■ Global KONE Way processes and systems ■ Safe and efficient maintenance and installation methods BRAND AND REPUTATION ■ One of the leading brands in the elevator and escalator industry PARTNERING ■ Co-creation with customers ■ Partnering to co-develop new technologies and solutions Collaboration with universities and educational institutes ■ Dynamic network of innovative companies in different fields of technologies Distributors and agents important part of go-to-market MANUFACTURING AND DELIVERY CHAIN 10 manufacturing units in 7 countries -2,000 material and component suppliers and -8,000 installation suppliers ■ Optimized logistics network ■ Supplier sustainability assessment FINANCIAL Equity EUR 2.9 billion ■ Interest-bearing net debt EUR -1.3 billion ■Net working capital EUR -0.9 billion Capital expenditure 1.9% of sales NATURAL RESOURCES* ■ Materials used 1,795,400 tonnes Heating and vehicle fleet fuels 443,100 MWh ■ Electricity and district heat 86,100 MWh ■ Water consumption 328,000 m3 BUSINESS MODEL SUSTAINABLE SUCCESS WITH CUSTOMERS NEW EQUIPMENT 50% Share of sales OUTPUTS MOVING OVER 1 BILLION PEOPLE EVERY DAY ■-172,000 new elevators and escalators ordered in 2022 Trusted People FlowⓇ partner for >550,000 customers "Maintenance and modernization services, well over 1.5 million units in maintenance base IMPACT SHAREHOLDERS Operating income EUR 1,031 million Dividend proposal EUR 1.75 per class B share, total amount of proposed dividends MEUR 904.7 (incl. dividend proposal per class A share) ■Return on equity 25.9% Creating value for customers through the whole life cycle of the building MODERNIZATION 15% MAINTENANCE 36% THE MOST SUSTAINABLE OFFERING ■ Best in class energy efficiency, ISO 25745 A- class energy rating as the first elevator company ■ Up to 70% energy savings through modernization of elevators ■ Focus on safety and accessibility SOCIETY ■Recognized for our contribution to better societies and urban environment by several external parties, e.g. Corporate Knights, CDP, EcoVadis, FTSE4Good index as well as Forbes 2022 World's Best Employers ■ Wages, salaries, other employment expenses and pensions EUR 3.5 billion Industrial Injury Frequency Rate (IIFR) 1.4 ■81% of external hires into leadership positions from local communities ■ 23.5% of director level positions held by women ■ An increased amount of skilled labor ■ Direct purchases EUR 4.5 billion ■Income taxes EUR 244.0 million with effective tax rate 23.7% EMISSIONS AND WASTE* Carbon footprint from own operations 130,900 tCO2e ■ Waste 37,400 tonnes ■ Wastewater effluents 8 tonnes Carbon footprint from our products and value chain 15.6 MtCO2 ENVIRONMENT* ■15% reduction in absolute GHG emissions from our own operations (Scope 1 and 2) compared to 2018 ■ 0.4% increase in product-related GHG emissions (Scope 3) relative to ordered products compared to 2018 80% of green electricity ■ 91% of waste recycled or incinerated ■ Corporate units as well as all manufacturing and R&D units are ISO 9001 and ISO 14001 certified ■ 88% of key suppliers with ISO 14001 certification at the end of 2021 *2021 figures. 2022 figures will be published in the 2022 Sustainability Report in Q2 2023.#8BOARD OF DIRECTORS' REPORT KONE's operating environment In the new equipment market, the demand environment was favorable in many areas particularly during the first half of 2022. That said, global market activity declined due to the weak market conditions in China. The disruptions to global supply chains, which were amplified by the war in Ukraine, also affected sentiment as did rising interest rates and expectations for slower economic growth. In China, COVID- 19 lockdowns were a considerable disruption during the second quarter. Though less severe, restrictions continued to create uncertainty during the second half, as did the sharp rise in infections towards the end of the year. This, together with continued liquidity constraints, caused a significant decline in market activity. In the rest of Asia-Pacific, the market grew clearly, largely due to strong recovery in India. The markets in the EMEA region were mixed. Activity declined slightly in Central, North and South Europe, and grew slightly in the Middle East. In North America, the market grew slightly, thanks to strong activity in the residential and infrastructure segments in the first half of the year. The service market developed positively throughout the year, with broad-based growth in both maintenance and modernization. Elevator utilization rates recovered to pre- pandemic levels in nearly all customer segments, boosting activity in the maintenance markets. Activity in the modernization markets was driven by stimulus measures, infrastructure investments and office refurbishments. Although the pricing environment was adversely affected by intense competition, market prices improved outside China throughout the reporting period as a response to wide-spread cost inflation. Operating environment by region New equipment market in units 1-12/2022 Total market EMEA Central and North Europe South Europe Middle East North America Asia-Pacific China Rest of Asia-Pacific Maintenance market in units 1-12/2022 + Modernization market in monetary value 1-12/2022 +++ + +++ + +++ + +++ + ++ ++ + ++ ++ ++ ++ The table represents the development of the operating environment compared to the corresponding period last year. --- Significant decline (>10%), -- Clear decline (5-10%), - Slight decline (<5%), Stable, + Slight growth (<5%), ++ Clear growth (5-10%), +++ Significant growth (>10%) +++ + + ++ 6 KONE ANNUAL REVIEW 2022#9BOARD OF DIRECTORS' REPORT Orders received and order book Orders received grew by 3.1% as compared to January- December 2021 and totaled EUR 9,131.3 million. At comparable exchange rates, KONE's orders received declined by 2.5%. At comparable rates, orders received for the new equipment declined clearly with significant decline in the volume business and clear growth in major projects. The decline was due to the impact of liquidity constraints and the COVID-19 pandemic in China. In modernization, orders received grew significantly, supported primarily by pricing. Orders grew significantly in the volume business and grew significantly in major projects. Compared to the end of 2021, the margin on orders received improved. The improvement was driven by price increases in all regions except China where like-for-like new equipment prices declined slightly and mix was slightly negative. KONE's new equipment orders received in elevator and escalator units amounted to approximately 172,000 units (2021: approximately 196,000). Orders received in the EMEA region grew slightly at comparable exchange rates as compared to January- December 2021. New equipment orders declined clearly and modernization orders grew significantly. In the Americas region, orders received grew significantly at comparable rates as compared to January- December 2021. New equipment orders grew significantly and modernization orders grew significantly. Orders received in the Asia-Pacific region declined significantly at comparable rates as compared to January- December 2021. In China, new equipment orders declined significantly in units and declined significantly in monetary value. In the rest of Asia-Pacific, new equipment orders Orders received MEUR Orders received Order book 2022 2021 Change 9,131.3 9,026.1 8,852.8 8,564.0 3.1% 5.4% Change at comparable exchange rates -2.5% 5.4% Orders received consist predominantly of new equipment and modernization orders. Maintenance contracts are not included in orders received, but the figure includes orders related to the maintenance business, such as repairs. Orders received development by region* New equipment orders Modernization orders Total orders +++ +++ EMEA Americas Asia-Pacific China *) in monetary value at comparable exchange rates +++ +++ ++ - Significant decline (>10%), -- Clear decline (5-10%), - Slight decline (<5%), Stable, + Slight growth (<5%), ++ Clear growth (5-10%), +++ Significant growth (>10%) received grew slightly. Modernization orders received grew clearly in China and grew significantly in the rest of Asia- Pacific. The order book grew by 5.4% compared to the end of December 2021 and stood at a strong level of EUR 9,026.1 + +++ million at the end of the reporting period. At comparable rates, the order book grew by 5.4%. The order book margin continued to be at a healthy level. Customer cancellations remained at a low level. Terminology: Slight <5%, clear 5-10%, significant >10% 7 KONE ANNUAL REVIEW 2022#10BOARD OF DIRECTORS' REPORT Sales KONE's sales grew by 3.7% as compared to January- December 2021, and totaled EUR 10,906.7 million. At comparable exchange rates, KONE's sales declined by 1.8%. The sales consolidated from the companies acquired in 2022 had only a minor impact on KONE's sales for the financial period. New equipment sales declined by 10.0% at comparable exchange rates primarily due to the impact of liquidity constraints and the COVID-19 pandemic in China on new equipment deliveries. Service sales grew by 7.9% at comparable exchange rates. At comparable exchange rates, maintenance sales grew by 8.0%, thanks to maintenance base growth, improved pricing and continued momentum in value-added services. At comparable exchange rates modernization sales grew by 7.7%. KONE's elevator and escalator maintenance base continued to grow and was well over 1.5 million units at the end of 2022 (close to 1.5 million units at the end of 2021). The growth of the maintenance base was driven, in particular, by a continued good level of conversions of new equipment deliveries to the maintenance base. Acquisitions had a minor positive contribution to the growth. In 2022, the balance of maintenance contracts that were won from or lost to competition was slightly negative. The largest individual countries in terms of sales were China (~31%), the United States (17%), Germany (6%) and France (5%). Sales in the EMEA region grew by 5.0% and totaled EUR 4,237.7 million. At comparable exchange rates, sales grew by 4.3%. New equipment sales grew slightly, maintenance sales grew clearly and modernization sales grew slightly in the region. In the Americas, sales grew by 17.7% and totaled EUR 2,239.8 million. At comparable exchange rates, sales grew by 5.4%. New equipment sales declined slightly, maintenance sales grew clearly and modernization sales grew significantly in the region. In Asia-Pacific, sales declined by 3.2% and totaled EUR 4,429.2 million. At comparable exchange rates, sales declined by 9.9%. New equipment sales declined significantly, maintenance sales grew clearly and modernization sales grew clearly in the region. Terminology: Slight <5%, clear 5-10%, significant >10% Sales by region MEUR EMEA Americas Asia-Pacific Total sales Sales by business Change at comparable 2022 2021 Change exchange rates 4,237.7 4,036.9 5.0% 4.3% 2,239.8 1,902.9 17.7% 5.4% 4,429.2 4,574.3 -3.2% -9.9% 10,906.7 10,514.1 3.7% -1.8% Change at comparable MEUR 2022 2021 Change exchange rates New equipment sales Service sales 5,399.3 5,637.7 -4.2% -10.0% 5,507.4 4,876.4 12.9% 7.9% 3,890.4 3,450.6 12.7% 8.0% 1,616.9 1,425.9 13.4% 7.7% 10,906.7 10,514.1 3.7% -1.8% Maintenance Modernization Total sales Sales development by region and by business* EMEA Americas Asia-Pacific *) in monetary value at comparable exchange rates New equipment Maintenance Modernization + ++ + ++ +++ ++ ++ --- Significant decline (>10%). -- Clear decline (5-10%), - Slight decline (<5%), Stable, + Slight growth (<5%), ++ Clear growth (5-10%), +++ Significant growth (>10%) 8 KONE ANNUAL REVIEW 2022#11BOARD OF DIRECTORS' REPORT Financial result KONE's operating income (EBIT) was EUR 1,031.2 million or 9.5% of sales. The adjusted EBIT was EUR 1,076.6 million or 9.9% of sales. Profitability was burdened by cost headwinds and the decline in sales in China. Easing cost headwinds, better pricing on deliveries outside China and continued strong maintenance sales drove an improvement towards the end of the year. As a response to Russia's invasion of Ukraine, KONE suspended its deliveries to Russia in March and announced the divestment of its operations in Russia in June. The share purchase agreement is subject to approval by the relevant regulatory authorities in Russia. Items affecting comparability in January-December 2022 amounted to EUR 45.4 million including a charge for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine, as well as costs for restructuring measures. Further information can be found in the notes to the financial statements. In the comparison period, items affecting comparability consisted of restructuring costs. With comparable exchange rates, the translation impact on operating income for the comparison period was EUR 64.8 million. KONE's income before taxes was EUR 1,028.4 million. Taxes totaled EUR 244.0 (298.1) million. This represents an effective tax rate of 23.7% for the full financial year. Net income for the period was EUR 784.5 million. Basic earnings per share was EUR 1.50. Cash flow and financial position KONE's financial position was strong at the end of December 2022. Cash flow from operations (before financing items and taxes) during January-December 2022 declined from an exceptionally high level to EUR 754.7 million, due to the decline in operating income and increased net working capital. Net working capital (including financing items and taxes) was EUR -903.9 million at the end of December 2022. Working capital was affected by the decrease in accounts payable and the increase in accounts receivable, as well as by the decrease in advances received due to the decline in orders received in China. The decision to suspend deliveries Financial result Operating income, MEUR Operating income margin, % Adjusted EBIT, MEUR Adjusted EBIT margin, % Income before taxes, MEUR Net income, MEUR Basic earnings per share, EUR Cash flow and financial position Cash flow from operations (before financing items and taxes), MEUR Net working capital (including financing items and taxes), MEUR Interest-bearing net debt, MEUR Gearing, % Equity ratio, % Equity per share, EUR Jan 1-Dec 31, 2022 1,031.2 9.5 Jan 1-Dec 31, 2021 1,295.3 12.3 1,076.6 1,309.8 9.9 1,028.4 784.5 12.5 1,320.8 1,022.7 1.50 1.96 Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 1,828.7 754.7 -903.9 -1,468.2 -1,309.0 -2,164.1 -45.7 -67.6 40.3 41.2 5.49 6.13 9 KONE ANNUAL REVIEW 2022#12BOARD OF DIRECTORS' REPORT and divest our operations in Russia and higher than average inventories also impacted working capital. Interest-bearing net debt was EUR -1,309.0 million at the end of December 2022. KONE's cash and cash equivalents together with current deposits and loan receivables were EUR 1,970.4 (Dec 31, 2021: 2,885.1) million at the end of the reporting period. Interest-bearing liabilities were EUR 673.9 (Dec 31, 2021: 746.5) million, including a pension liability of EUR 140.0 (Dec 31, 2021: 194.3) million and leasing liability of EUR 324.0 (Dec 31, 2021: 343.6) million. Additionally, KONE had an asset on employee benefits, EUR 10.0 (Dec 31, 2021: 22.9) million. Gearing was -45.7% and the equity ratio was 40.3% at the end of December 2022. Equity per share was EUR 5.49. Capital expenditure & acquisitions MEUR Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 101.7 96.5 107.5 120.6 28.1 50.1 237.4 267.3 Capital expenditure and acquisition KONE's capital expenditure and acquisitions totaled EUR 237.4 million in January-December 2022. Capital expenditure excluding acquisitions was mainly related to equipment and facilities in R&D, IT and production. Capital expenditure on leases consists mainly of maintenance vehicles and office facilities. Acquisitions totaled EUR 28.1 million in January- December 2022. KONE completed acquisitions of small maintenance businesses in the EMEA region. On fixed assets On leasing agreements On acquisitions Total 10 10 KONE ANNUAL REVIEW 2022#13BOARD OF DIRECTORS' REPORT Research and development The objective of KONE's research and development is to drive differentiation by putting the needs of customers and users at the center of all developments. Our R&D activities focus on developing smart and sustainable solutions that adapt to future needs. By integrating elevators and escalators with digital systems, we enable an even smoother people flow and an improved user experience. Built-in connectivity in our KONE DX Class elevators provide a digital platform for various services and new business models. We support our customers in achieving their eco-efficiency goals throughout the building lifecycle, for instance by continuously developing the energy-efficiency of our solutions. Additionally, we continue to develop a variety of strategic partnerships to further enhance our customer focused solutions. Thanks to KONE's worldwide engagement with regulatory authorities and extensive contribution to standardization, we ensure regulatory conformity as well as cost competitive market access for our innovative solutions. Research and development expenditure totaled EUR 187.8 million, representing 1.7% of sales in January- December 2022. R&D expenditure includes the development of new products and service concepts as well as further development of existing solutions and services. R&D expenditure MEUR R&D expenditure As percentage of sales, % In March, KONE introduced a new range of products, solutions and services to help transform people and material flow on construction sites and provide new solutions for how buildings can become more flexible, adaptable and sustainable. Highlights consist of KONE Construction Time Use solutions including KONE 24/7 Connected Services for improved insights and uptime; a new, standardized version of KONE JumpLift for machine-roomless elevators; as well as the industry's first carbon-neutral elevator through the use of carbon offsetting and elevators that are fully compatible with wooden buildings. In addition, KONE DX Class elevators were launched in the United States and Canada. Offering updates introduced in the new equipment business during the first quarter included a renewed elevator car design, air purifiers, as well as convenient tools for calculating energy consumption data and finding the right design combinations for building designers. In June, KONE won three awards in the prestigious Red Dot Award: Product Design 2022 competition for a series of 187.8 Jan 1-Dec 31, 2022 1.7 Jan 1-Dec 31, 2021 188.8 1.8 culture-inspired elevator interiors, a voice-operated call system and an energy saving motor. During the third quarter, a cybersecurity certification was received for KONE DX class elevators. The IEC 62443-4-1 certification by TÜV Rheinland, a global provider of technical, safety, and certification services, demonstrates that cybersecurity is an essential element in KONE's product development. To protect the company and customers from the consequences of cyberattacks, KONE is committed to complying with the new ISO 8102-20 cybersecurity standard, published in August. KONE also continues to drive cybersecurity standardization together with peers and partners to ensure the safety of the entire industry. During the fourth quarter, two KONE leaders were recognized in the renowned loT (Internet of Things) Awards 2022 by CBT, an industry advisor and thought leader in the field of loT. 11 KONE ANNUAL REVIEW 2022#14BOARD OF DIRECTORS' REPORT Non-financial information Sustainability is a source of innovation and a competitive advantage for KONE. We want to be the most trusted partner to our customers throughout the building life cycle and help them achieve their sustainability objectives, creating better urban environments. At KONE, sustainability covers our offering, operations and culture and encompasses the environmental aspect, diversity and inclusion, safety, quality and ethics and compliance. Our strategy and values reflect our commitment to sustainable practices. KONE conducts its business in a responsible and sustainable way, and we expect the same commitment from all our partners. We are committed to complying with the laws and regulations of the countries in which we operate. KONE is a member of the UN Global Compact and dedicated to upholding its ten principles, which are aimed at promoting sustainability and fairness in the business environment. The principles are embedded in our strategy, policies and procedures, such as KONE's Code of Conduct, More information on KONE's approach to sustainability can be found in the Sustainability Report, which is prepared according to GRI Standards. KONE published its Sustainability Report for 2021 in the second quarter of 2022. KONE's Sustainability Report for 2022 will be published during the second quarter of 2023. Management and Board of Directors' oversight of sustainability KONE's Sustainability Report 2022 " Will be published during Q2 2023 In the report, you can find more detailed information about sustainability Human Rights Policy, Competition Compliance Policy, and Climate and Environmental Excellence Program, as well as in related processes. In addition, KONE supports the UN Sustainable Development agenda and its goals. KONE has also signed the Paris Pledge for Action climate initiative and, in 2020, set Science Based Targets for reducing emissions in its own operations, offering and the value chain by 2030, showing climate leadership and commitment to limiting global warming to 1.5 degrees celsius in accordance with the Paris Climate Agreement. KONE applies the Task Force on Climate-related Financial Disclosure (TCFD) reporting principles in order to report about climate-related financial risks and opportunities. The table on this text maps the pages of the report where disclosures according to TCFD requirements can be found. KONE's strategy and business model are described on pages 3-5 of KONE's Annual Review 2022. Risks and risk management related to the matters below are described in the section 'Risks and risk management related to the reporting of non-financial information'. KONE has integrated the management of non- financial matters and sustainability into operations throughout the organization. KONE'S management and supervisors work to ensure that employees are familiar with and comply with the legislation, regulations, and internal operating guidelines of their respective areas of responsibility, and that KONE's products and services are in full compliance with all codes and standards applicable to them. Ultimately, sustainability and its management are the responsibilities of KONE'S President and CEO and the Executive Board. KONE's Executive Board discusses sustainability topics, including e.g. environmental, social and compliance topics, in each meeting given the strong emphasis on sustainability in KONE's strategy 'Sustainable Success with Customers'. Furthermore, KONE has established forums where sustainability and climate-related topics are regularly discussed: The Quality and Environmental Board chaired by the Executive Vice President of Operations Development and the Offering and Technology Board chaired by KONE President and CEO. Both the Quality and Environmental Board and the Offering and Technology Board consists of Executive Board level members. KONE also has a Sustainability Board, a steering committee dedicated to sustainability topics, with climate and environment among the prioritized areas. Several members of KONE's Executive Board are members of the Sustainability Board, which is chaired by Executive Vice President of Operations Development. In 2022, KONE formed a separate sustainability reporting steering group focused on the development of KONE's sustainability disclosure practices. The group is chaired by the sustainability program lead, and members include Executive Vice President of Operations Development, Chief Financial Officer and General Counsel, as well as senior experts from the investor relations, assurance, environmental, communications and corporate controlling functions. KONE's Board of Directors is responsible for overseeing and supervising the implementation of KONE's strategy, including sustainability topics and climate change issues. The Board also reviews risks and risk management, including environmental, social and anti-corruption matters. In addition, the Board and its Nomination and Compensation Committee review and approve the sustainability related key performance indicator in the share-based long-term incentive plan and monitor KONE's progression against it. External recognitions KONE has received external recognition for its efforts to conduct business in a sustainable way. During 2022, KONE was informed that it would be ranked among Corporate Knights' 2023 100 Most Sustainable Corporations in the World. Global 100 companies represent the top echelon in the world on sustainability performance. Moreover, KONE was again included in the FTSE4Good index as well as in CDP's Climate Change A List 2021 among the top climate change performers. CDP is an international non-profit organization that drives engagement for climate action. This is the tenth consecutive year that KONE has achieved a leadership score of A or A- in the Climate Change rating, which demonstrates our long-term commitment to environmental work and sustainability. KONE was also awarded the best A grade in CDP's 2021 Supplier Engagement Rating, demonstrating leadership and best practice in engaging our suppliers on climate change issues. In addition, KONE was awarded Gold medal in the annual EcoVadis sustainability performance assessment covering environment, labor and human rights, ethics and sustainable procurement. This places KONE in the top 3% of all companies assessed in 2022. On top of the above, KONE was once again awarded as one of the best employers in the world by Forbes business magazine on their Forbes 2022 World's Best Employers list. 12 KONE ANNUAL REVIEW 2022#15BOARD OF DIRECTORS' REPORT Non-financial key performance indicators Environmental matters Personnel and social matters Human rights, anti-corruption & bribery Key performance indicator Greenhouse gas emissions from own operations (Scope 1 and 2) 1) Product-related greenhouse gas emissions (Scope 3) 1) Share of renewable electricity used in our facilities, % Share of key suppliers ISO 14001 certified, % Share of landfill waste at our manufacturing units, % Number of products covered by Environmental Product Declarations Industrial Injury Frequency Rate (IIFR) 2) Employee engagement 3) Personnel voluntary turnover rate, % 4) Share of women in director level positions, % Average learning hours per employee Target Long-term target (2030): 50% reduction in absolute emissions, carbon neutral operations 2022 target: 16% reduction in Scope 1 and 2 absolute carbon footprint from 2019 baseline Long-term target (2030): 40% reduction in product-related Scope 3 emissions relative to ordered products Long-term target (2030): 100% 2025 target: 80% 2022 target: 75% 100% 0% by 2030 17 by 2022 Zero injuries Maintain employee engagement on a strong level 2022 results Will be published in the Sustainability Report during Q2 2023 Will be published in the Sustainability Report during Q2 2023 Will be published in the Sustainability Report during Q2 2023 100% 2021 results 15% reduction KONE's product and value chain emissions (Scope 3) per products ordered decreased by 0.3% compared to 2020 and increased by 0.4% compared to 2018 80% 88% Will be published in the Sustainability Report during Q2 2023 0.4% 17 13 IIFR 1.4 Results remained clearly above the global norm IIFR 1.6 Slight decline. Remained above the external high-performance benchmark 7.8% % of total employees who have completed at least one ethics & compliance training during the year Maintain voluntary turnover below market level 35% of director level positions occupied by women by 2030 >40 hours per year 90% 7.9% 23.5% 21% 35 43 53% 96% % of KONE's overall external spend that is covered by KONE Supplier Code of Conduct or equivalent accepted by KONE 80% Planned global training was delayed due to Russian sanctions work and COVID-19 86% 80% % of distributors who have signed the Distributor Code of Conduct 100% 42% As of 2022, we track the share of distributors who have signed the 2018 or 2021 version of the Distributor Code of Conduct 100% of our distributors in China and 99% in the rest of the world Until 2021, we tracked the share of distributors who had signed the 2016 or 2018 version of the Distributor Code of Conduct 1) The greenhouse gas emissions from our own operations and value chain have been calculated in accordance with ISO 14064 and the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and Corporate Value Chain (Scope 3) Accounting and Reporting Standard. The Scope 2 emissions have been calculated according to the dual reporting principles of the GHG Protocol Scope 2 Guidance (market- and location-based method). 2) The number of lost time injuries of one day or more, per million hours worked 3) Not fully comparable due to new survey provider 4) Sum of voluntarily left employees (with permanent contract) over 12 months divided by average closing headcount over 12 months 13 KONE ANNUAL REVIEW 2022#16BOARD OF DIRECTORS' REPORT ENVIRONMENTAL MATTERS In line with KONE's strategic target of being a leader in sustainability, our environmental approach supports the ongoing green and digital transformation of the built environment into smart eco-cities, low-carbon communities, and net zero energy buildings. We have defined our environmental ambition and objectives as well as our commitment to environmental sustainability in all activities in our Environmental Policy, which is publicly available at kone.com. In 2022, we launched our new Climate and Environmental Excellence Program and started its implementation by publishing training materials for KONE employees. The new program covers four focus areas: partner with customer, offering, operations and mindset and behavior. In line with our Environmental Policy, we develop smart and sustainable technologies for People FlowⓇ and aim to be the preferred partner for environmentally sustainable urban environments. We drive transformation towards sustainable, circular and carbon neutral operations, and engage our employees, customers, suppliers and partners on climate and environmental action. The KONE Code of Conduct, the Supplier Code of Conduct, the Distributor Code of Conduct and the KONE Global Vehicle Fleet, Facility and Travel Policies also set out environmental requirements relevant to the operations of KONE or our partners. KONE has a climate pledge with science-based targets for significant greenhouse gas emissions reductions. We are committed to a 50% cut in the emissions from our own operations (scope 1 and 2 emissions) by 2030, compared to a 2018 baseline. This target is in line with limiting global warming to 1.5 C, which is currently the most ambitious criteria for setting science-based targets. On top of these ambitious emissions reduction targets, we aim to achieve carbon neutral operations by 2030 by offsetting the remaining emissions. In addition, we target a 40% reduction in the emissions related to our products' materials and lifetime energy use (scope 3 emissions) over the same period, relative to orders received. KONE was the first to validate its science- based targets against the latest climate science in the elevator and escalator industry and KONE's targets are among the most ambitious in the industry to date. With our climate pledge, we are taking even stronger action and leading the way in our industry to create more sustainable urban environments. KONE's climate related disclosures according to TCFD Governance Strategy Risk TCFD recommended disclosures Board's oversight of climate-related risks and opportunities Content in KONE's report Non-financial information / Management and Board of Directors' oversight of sustainability, p. 12 Management's role in assessing and managing climate-related risks and opportunities Non-financial information / Management and Board of Directors' oversight of sustainability, p. 12 Climate-related risks and opportunities over the short, medium and long term Impact of climate-related risks and opportunities on the organization's businesses, strategy and financial planning Resilience of strategy, taking into consideration different climate-related scenarios Non-financial information / Environmental matters, p. 14 Risks and risk management related to the reporting of non- financial information, p. 29 Strategy, p. 3 Risks and risk management related to the reporting of non- financial information, p. 29 Risks and risk management related to the reporting of non- financial information, p. 29 management Processes for identifying and assessing climate- related risks Processes for managing climate-related risks Risks and risk management related to the reporting of non- financial information, p. 29 Risks and risk management related to the reporting of non- financial information, p. 29 Metrics and targets How processes for identifying, assessing and managing climate-related risks are integrated into the organizations overall risk management Metrics used to assess climate-related risks and opportunities Scope 1, Scope 2 and Scope 3 emissions and the related risks Targets used to manage climate-related risks and opportunities and performance against targets Risks and risk management related to the reporting of non- financial information, p. 29 Non-financial information / Key performance indicators, p. 13 Non-financial information / Environmental matters, p. 14 Non-financial information / Key performance indicators, p. 13 Non-financial information / Environmental matters, p. 14 Non-financial information / Key performance indicators, p. 13 Non-financial information / Environmental matters, p. 14 14 KONE ANNUAL REVIEW 2022#17BOARD OF DIRECTORS' REPORT We are working ambitiously together with our suppliers to cut emissions, increase the use of sustainable materials and limit the use of hazardous substances. We screen our suppliers' performance in terms of their environmental and social responsibility with our Supplier Sustainability Assessment. The assessment includes the basic criteria that must be met in order to continue doing business with KONE, as well as other, more advanced criteria. Most of KONE's environmental figures for 2022 will be published in the Sustainability Report during the second quarter of 2023. KONE's sustainable offering Requirements for smart and sustainable materials, solutions and buildings are increasing. We see these shifts in demand as a growth opportunity and want to be the preferred partner for our customers. To further understand the emerging needs and technologies in sustainable, resilient urban environments and people's behavior in them, we actively participate in large- scale research projects and consortiums. Our innovations can have a significant role in advancing climate action. We support smart and sustainable construction through our energy-efficient and innovative offering, functional and sustainable materials, as well as transparent documentation about our products' environmental impacts. Lifetime energy consumption is one of the main considerations in green buildings and it is also the single most significant environmental impact of KONE's products overall. This underlines the importance of eco-efficient solutions. We currently have 31 best-in-class energy efficiency references for our elevator and escalator platforms according to the international ISO 25745 standard for the energy performance of lifts, escalators and moving walks. Several KONE solutions have received external recognition for their environmental performance. During 2022, we received Singapore Green Building Product (SGBP) certifications for KONE TravelMaster TM 110 and KONE TransitMaster™ 140 escalators and KONE N MonoSpace®, KONE N MiniSpace TM and KONE 3000S MonoSpaceⓇ elevators. KONE currently has seven SGBP certifications with the highest 'Leader' ratings. KONE is the first elevator and escalator company to achieve such top ratings in the vertical transportation category. The SGBP certified solutions are recommended for Green Mark certified buildings. In 2022, KONE also received approved Byggvarubedömningen (BVB) assessments for the KONE TransitMaster™ 120, KONE TravelMaster TM 110T and KONE TransitMaster TM 180 escalators. BVB is a nonprofit organization that evaluates solutions for buildings and drives the use of sustainable building materials. Furthermore, KONE MonoSpace®, one of the best-in-class rated elevators, received an additional China-mark certification for its superior energy efficiency. The recognition was certified by TÜV Rheinland, a global provider of technical, safety and certification services. Important achievements were also made in the transparent communication about the environmental and health impacts of our products with Environmental Product Declarations (EPD) published for four of our solutions. EPDS were published for KONE MonoSpace® 500 DX for North American markets and KONE MiniSpace TM High Rise with KONE UltraRope® elevators, as well as for KONE TravelMaster TM 110 and KONE TravelMaster TM 110T escalators. The year 2022 marks the 20th anniversary for the elevator industry's first published EPD by KONE. Since then, we have expanded the number of third party verified EPDS in line with EN15804. Our EPDs cover the most sold elevator platforms from low- to high-rise. In 2022, our sustainable offering was extended with the launch of the first carbon neutral elevator in the industry. Our customers now have the option to buy their highly energy efficient KONE DX Class elevator as carbon neutral, where embodied carbon emissions until the handover (including emissions from materials, manufacturing, logistics and installation) are compensated. We follow a three-step approach to reach carbon neutrality: measure, reduce, and compensate. We measure and communicate our product carbon footprint in our EPDs. We actively reduce our carbon emissions in line with KONE's Climate Pledge, KONE's Environmental guidelines and overall emission reduction targets. The remaining carbon emissions are compensated through a third party - South Pole. Own operations During the first quarter of 2022, we finalized the calculations of our 2021 carbon footprint. KONE's total carbon footprint data (Scope 1, 2 and 3 GHG emissions) have been externally assured. In 2021, KONE's target was to reduce its operational carbon footprint (Scope 1 and 2) by 7% compared to 2018. This target was exceeded as our overall operational carbon footprint decreased by 15% compared to 2018. To reflect the expansion of our operations, we also measure comparable carbon footprint scope which reduced by 20% in 2021 compared to 2019. The largest individual factor contributing to the reduction in Scope 1 and 2 greenhouse gas (GHG) emissions was the increasing use of renewable electricity in our facilities. In 2021, we exceeded our green electricity target of 50% set in 2017 and, simultaneously, reached our medium- term target of 80% green electricity by 2025 four years in advance. All our manufacturing units use only on-site or purchased renewable electricity, except India. Furthermore, many KONE subsidiaries are taking steps to electrify their vehicle fleets. As an example, nearly 30% of our car fleet in Norway and over 10% of our fleets in the Netherlands, Sweden and Israel are composed of electric vehicles. While the majority of Scope 1 and 2 GHG emission reductions were achieved through our own efforts, COVID-19 restrictions also contributed through their continued impact to business operations globally. Good progress was made in achieving our target to reduce GHG emissions in our own operations (Scope 1 and 2) during 2022. The vast majority of emissions associated with KONE'S activities are generated outside our immediate operations in the value chain, particularly by our products' lifetime energy consumption and material use. In 2021, our product and value chain related Scope 3 GHG emissions decreased by 0.3% compared to 2020 and increased by 0.4% compared to 2018, relative to ordered products. The major contributing factor to the decrease was the further improved energy efficiency of our products. We are constantly improving our product-related Scope 3 GHG emissions calculations as we work with our suppliers and partners for more transparent and efficient data collection. We have also set a separate target of 4% annual reduction in our Scope 3 logistics carbon footprint relative to units delivered. In 2021, our logistics GHG emissions decreased by 3.5% relative to units delivered as compared to the previous year. For waste, our long-term target of 0% landfill waste from our manufacturing units by 2030 remains in place. In 2021, we were already at a low level of 0.4% (2020: 0.6%). KONE has a long-term and annual biodiversity target stating that KONE manufacturing units must not be located in or near UNESCO Word Heritage sites, Nature 2000 or other conservation parks or biodiversity sensitive areas. In 2022, KONE fulfilled the target. We will publish the GHG emissions from 2022 in our Sustainability Report during the second quarter of 2023. KONE uses the ISO 14001 environmental management system to enhance its environmental performance. It covers our corporate units, including all R&D, manufacturing units, and 32 major country organizations. Three KONE 15 KONE ANNUAL REVIEW 2022#18BOARD OF DIRECTORS' REPORT manufacturing units have ISO 50001 energy management system certification. At the end of 2022, 100% (2021: 88%) of our key suppliers were ISO 14001 certified, our target being 100%. An increasing trend in customer demand is the focus on wooden buildings. To accommodate this, KONE'S manufacturing unit in Finland continues to hold the FSC® (Forest Stewardship Council) Chain of Custody certification, providing credible assurance that elevators manufactured in this unit come with wooden components from environmentally and socially responsible sources. KONE's subsidiaries in Great Britain and Ireland continue to hold the FSC® Chain of Custody certification, meaning that customers can now be provided this assurance for the full delivery chain for elevators installed in these countries. To our knowledge, KONE is the only elevator company to have received FSC® certifications. 16 KONE ANNUAL REVIEW 2022#19BOARD OF DIRECTORS' REPORT PERSONNEL AND SOCIAL MATTERS KONE's main goal is to have the most capable and engaged team of professionals, who succeed in a changing world. Great employee experience, a diverse and inclusive culture, continuous learning, flexibility, and wellbeing are the core elements in our Empowered People Way to Win, one of the four KONE-wide transformation and development initiatives, which enable us to succeed in our strategy. KONE's activities are all guided by ethical principles. Employee rights and responsibilities include the right to a safe and healthy working environment, fair and equitable labor conditions, personal wellbeing, freedom of association, collective bargaining, non- discrimination, and the right to a working environment in which harassment and bullying are not tolerated. Impact of COVID-19 on the way we work While the COVID-19 pandemic continued globally in 2022, its impact to how KONE people were able to work lessened in most parts of the world. In China, lockdowns continued during the second half of the year but their impact on our operations was clearly smaller than in the second quarter. At end of the year, China released all COVID-19 restrictions, which raised absenteeism levels in our organization. We were, however, able to continue operations without major disruptions. Our priority globally has been to serve our customers in the safest possible manner. We have supported our employees by offering protective equipment and flexibility where needed, as well as by ensuring easy access to information on how to enhance wellbeing. Diversity, equity and inclusion We actively encourage diversity at KONE, and our values guide us in upholding an inclusive culture. We follow diversity from several perspectives, including industry background, competence and gender. As one of the Diversity, Equity and Inclusion (DEI) specific goals, we have committed to making a step-change in the share of women at director level and increase it to 35% by 2030. In 2022, the share of women in director level positions increased to 23.5% (21%). Most of our employees are men representing 89% (88%) of our people globally. We continue our efforts towards achieving a more balanced gender split. During the reporting year, KONE's workforce included 151 (145) nationalities. To strengthen our global approach and deepen our customer and market Number of employees Number of employees at the end of period Average number of employees Jan 1-Dec 31, 2022 63,277 Jan 1-Dec 31, 2021 63,186 62,720 61,698 Geographical distribution of KONE employees Dec 31, 2022 23,628 Dec 31, 2021 23,669 7,442 7,258 32,208 31,792 63,277 62,720 EMEA Americas Asia-Pacific Total Personnel voluntary turnover rate was 7.9% (7.8%). Employee costs for the reporting period totaled EUR 3,533 (3,222) million. The geographical distribution of KONE employees was 37% (December 31,2021: 38%) in EMEA, 12% (12%) in the Americas and 51% (51%) in Asia-Pacific. insights, we also have goals to increase cultural diversity in our global teams. In 2022, we continued to engage our senior leaders in a DEI learning journey to pave the way for a more inclusive culture. We also continued to strengthen DEI maturity in our countries through various actions, from transparent communication to data driven decision making and more inclusive talent practices and culture. We launched two global Employee Resource Groups, the Women's Employee Resource Group (SPARK) and the LGBTIQ+ Employee Resource Group, with the aim to continuously improve our employees' inclusion experience through open discussion and positive actions. In November, we celebrated Inclusion week and conducted a global Inclusion survey to understand how our employees experience their daily work from an inclusion point of view. Our focus on driving DEI is visible also in KONE's share- based long-term incentive plan's sustainability metric, which includes diversity related targets. KONE culture & employee engagement During 2022, we continued developing KONE's culture to ensure that it supports our strategic targets. We focused on embedding cultural development into existing processes and transformational activities - our employee journey, programs, and leadership development. We also continued raising awareness of the role each employee plays in contributing to the success of our strategy with their actions and behaviors. A key highlight was the launch of the KONE Culture Playbook in the beginning of 2022. The playbook serves as an invitation for everyone at KONE to take part in developing our ways of thinking and working together. Making KONE a great place to work is KONE's number one strategic target and it is measured by employee engagement and a related Pulse employee survey. The survey offers employees an opportunity to give feedback and covers topics such as employee engagement, leadership, learning and growth, sustainability, customer centricity, innovation as well as diversity, equity and inclusion. KONE's 14th global Pulse survey was conducted during the year with 91% of all employees taking part. The results showed that we provide a positive employee experience and an inclusive working environment, and that our employees would recommend KONE as a great place to work. Despite a slight decline from the previous year, engagement continued to be on a high level. We also organized Pulse Talks across all teams at KONE with 94% of employees participating. The 17 KONE ANNUAL REVIEW 2022#20Pending#21BOARD OF DIRECTORS' REPORT solutions and processes to enable us to conduct our business in a safe and sustainable manner and consistently apply the KONE safety management system in all our activities. Managers perform regular audits to measure compliance with KONE's policies, processes and defined working methods. Corrective actions are taken if deviations are identified. KONE also conducts process audits to identify possible obstacles to work safely. If any are found, the work in question is stopped until a safe method is approved. Over the year, we have put effort on strategic longer-term plans for safety development, to support the transition to a more proactive approach when addressing safety topics. We constantly monitor our safety performance using several indicators, including Industrial Injury Frequency Rate (IIFR). In 2022, our IIFR was 1.4 (1.6). Our target is to reach IIFR 0.6 by 2030, and we continue to target zero injuries. As proactive indicators, we tracked for instance the number of management workplace visits and the number of customer and user safety promotion events. Monthly safety performance follow-up was carried out by every area, in global safety meetings, and by the Executive Board. We are determined to continue reducing the number of incidents and injuries and expect our years of favorable safety progress to continue with strong efforts on building a culture, supportive of psychological and physical safety. To enable learning from the past and avoid accidents in the future, all employees at KONE are encouraged to actively report safety occurrences and have access to our global safety incident reporting tool, KONE Safety Solution (KSS). The number of near misses recorded in KSS increased by 17% (22%) compared to 2021. As the quantity of the reported near misses is steadily on a good level, we continued driving the quality, investigation and analysis of our near miss and incident reports, as well as improving data utilization, transparency, and sharing lessons learned. Health and safety awareness at KONE is supported by dedicated communication campaigns and training. The global KONE Safety Week was organized in all KONE units in May 2022 with a theme of Human Factors. Various safety related activities were held during the week for both internal and external stakeholders. A global year-end safety campaign was also organized to raise safety commitment and awareness of our Core Safety Principles. All KONE employees are required to complete a general safety training related to our safety management framework and KONE's Health and Safety Policy. In addition, our employees receive health and safety training relevant to their work. To complement the existing safety promotion and training practices, monthly global toolbox talks were launched at the beginning of 2022 to support local safety units and drive consistent practices. The toolbox materials are available for all KONE employees. The safety of the people using elevators, escalators and automatic building doors involves everyone from technology and maintenance service providers to building owners and equipment users. Therefore, we work closely with our customers to help them recognize and deal with situations that could lead to safety risks. We communicate actively about safety, organize activities and provide training along with educational materials to our customers and the general public to help equipment users stay safe. HUMAN RIGHTS, ANTI-CORRUPTION AND BRIBERY KONE's Code of Conduct forms an integral part of our company culture and is the foundation of our ethical business practices. The Code sets out the responsible and ethical conduct expected of KONE employees and companies and is available in 33 languages on kone.com. The topics covered in the Code of Conduct include conflicts of interest, corruption, competition compliance, trade compliance, workplace well- being, health and safety, environmental compliance, human rights, privacy, fraud and theft, cybersecurity, intellectual property and confidentiality, external communications and insider trading. Also emphasized is KONE's non-retaliation policy which states that we do not tolerate any form of retaliation against anyone having made good faith compliance reports. Regular face-to-face compliance training is provided to employees. In 2022, 53% of KONE employees completed at least one compliance training. The lower than target level of completions was due to planned global training being delayed because of Russian sanctions work and COVID-19 pandemic. Dedicated compliance officers help employees comply with KONE's Code of Conduct, and our global and regional compliance committees advise and take decisions on compliance matters, including investigations into allegations of employee misconduct as well as human rights and corruption violations. All KONE employees are expected to understand and abide by the Code and to report any violations using the channels available for this purpose. Our internal reporting channels include reporting to management, HR, Legal or Compliance. We also have a confidential reporting channel for raising concerns, the Compliance Line, available for our employees, suppliers, distributors and the public at all times. It is operated by an independent third party and is accessible (anonymously, where permitted by local law) via phone and/or web in over 30 languages. Reports can be submitted on a range of topics including fraud and theft, fraudulent reporting, corruption, competition law, human rights, harassment and discrimination, data protection and confidentiality, environment and safety, trade compliance and conflicts of interest. All reports are handled by a dedicated impartial KONE Compliance team. In 2022, we received a total of 177 compliance reports, of which 32% were received through the Compliance Line. Of the total number of reports, 30% were fraud/corruption related, 34% were HR related, 14% related to conflicts of interest, and the remaining 22% fell under various other categories. In total 35% of the 159 cases closed in 2022 were either substantiated or partially substantiated, and disciplinary actions in those cases ranged from coaching discussions to termination of employment, with 27 employees who were dismissed or resigned as a result of compliance investigations. KONE's general Code of Conduct is complemented by our Supplier and Distributor Codes of Conduct. Our Supplier Code of Conduct is available in 30 languages and sets out the ethical business practice requirements that we expect from our suppliers. It covers areas such as legal compliance, ethical conduct, our zero tolerance for bribery and corruption, and the standards we require from our suppliers in terms of labor and human rights, health and safety, and environmental issues. KONE may terminate its contracts with suppliers for failure to adhere to the Code. KONE expects its suppliers to comply with the requirements of the Supplier Code of Conduct in all their dealings with KONE, as well as with their own employees and suppliers, and third parties including government officials. All our suppliers are expected to sign KONE's Supplier Code of Conduct. By the end of 2022, 86% (80%) of KONE's total spend was with suppliers and installation subcontractors who have signed KONE's Supplier Code of Conduct or equivalent. KONE's Distributor Code of Conduct covers similar topics as the Supplier Code of Conduct. It is available in 7 languages. As business partners, our distributors are expected to comply with the requirements of the Code in all their dealings with KONE, as well as in respect of their own employees, customers and suppliers, and third parties including government officials. We aim to have the Code 19 KONE ANNUAL REVIEW 2022#22BOARD OF DIRECTORS' REPORT signed by all our distributors. Starting from 2022, we track the share of distributors who have signed the 2018 or 2021 version of the Distributor Code of Conduct. By the end of 2022, 42% of our distributors had signed either the 2018 or 2021 version of the Distributor Code of Conduct. All the above Codes of Conduct are available on kone.com. Anti-corruption and bribery In 2022, we issued new instructions on gifts and corporate hospitality as part of our anti-bribery actions. Training on the instructions is being rolled-out to all key employee groups and this will continue in 2023. During the year, we updated KONE's Competition Compliance Policy and rolled out new training on this topic which was assigned to relevant employees (approximately 31,000 in total). The training was offered in 34 languages and by year end, 98% of KONE employees who were assigned the training had completed it. Respect for human rights In 2022, we issued a new Human Rights Policy which sets out our commitment to respect human rights. This policy complements KONE's Code of Conduct and related policies, including KONE's Supplier and Distributor Codes of Conduct. Our Human Rights Policy is available on kone.com and is reviewed annually. KONE's Global Compliance Committee, comprising four Executive Board members, Corporate Controller, and Head of Global Compliance, is accountable for human rights at KONE. A human rights working group reporting to the Global Compliance Committee began work in April 2022. The working group assists the Committee in ensuring that KONE has an effective human rights program and drives this program across KONE. Our human rights program focuses on: ☐ ☐ Governance and accountability for human rights Continual development of our supplier human rights assessment program Regular human rights impact assessments for our own operations and supply chain Increasing training and awareness on human rights for our employees and business partners Identifying and taking actions to meet regulatory requirements The human rights program is discussed and reviewed on a regular basis in the Global Compliance Committee and the Sustainability Board. Embedding human rights in KONE strategy, policies and processes We identify, assess and prioritize human rights impacts throughout our business and aim to prevent and mitigate those impacts in an on-going manner by embedding human rights in our strategy, policies and processes. Our human rights due diligence process consists of impact assessments, third party due diligence, supplier screenings and internal assessments and surveys. We continuously develop our human rights due diligence program in order to identify and address potential risks in our own operations and in our supply and delivery chain. In order to identify and address potential risks in our supply chain we continued to develop our supplier assessment program in relation to human rights. In 2022, we conducted both online and on-site human rights assessments. We received online survey responses from 171 suppliers covering 251 production sites early in the year. The online questionnaire was then revised and sent to over 200 suppliers in December 2022. A total of 10 on-site human rights assessments were conducted in 2022, with a large majority of them taking place in India. Our human rights impact assessment, conducted with assistance of an external party in 2019, has recognized our salient human rights as 1) health and safety, and 2) respect for individuals' labor rights (prohibiting forced or child labor, discrimination, harassment or bullying, and ensuring freedom of association, collective bargaining, and appropriate working conditions). Such assessments are reviewed regularly as a part of an on-going process to reflect changes in our operations and in the business environment. We will update the impact assessment in early 2023. We continued screening and monitoring relevant suppliers, customers and other third parties with whom we conduct business through a compliance screening solution covering international adverse media, sanctions and watchlists. We communicate internally and externally about our human rights program on a regular basis, including progress on our supplier human rights assessments, trainings, awareness activities, third-party due diligence and screenings. 20 20 KONE ANNUAL REVIEW 2022#23BOARD OF DIRECTORS' REPORT EU Taxonomy disclosure EU Taxonomy is a classification system for environmentally sustainable economic activities. It is a framework to redirect investments towards more sustainable activities through six environmental objectives, Do No Significant Harm (DNSH) criteria, minimum social safeguards, and the detailed technical screening criteria. KONE discloses information according to the Non-Financial Reporting Directive (NFRD) on the environmentally sustainable economic activities as defined in the EU Taxonomy. At this stage, only economic activities with the most significant need and potential to make substantial contribution to climate change mitigation and adaptation have been included within the scope of the Climate Delegated Act. The majority of KONE's business, i.e. the manufacturing, maintenance and modernization of elevators and escalators, does not currently fall within the scope of the Taxonomy because it is not among the most high-emitting industries. Nonetheless, KONE has identified certain taxonomy eligible and aligned activities within its business. KONE has reviewed the supplementary guidance provided by the EU Commission in December 2022. However, our interpretation on eligibility and alignment relies predominantly on the Taxonomy Regulation and Climate Delegated Act as KONE's Taxonomy disclosure preparation has been ongoing throughout the year. We support more sustainable urban environments and buildings with our energy-efficient and innovative offering and the use of healthy, functional, and sustainable materials. Furthermore, we have set ambitious science-based targets for significant reductions in our greenhouse gas (GHG) emissions by the year 2030. Read more about KONE's environmental sustainability in the section 'Non-financial information' of this report. Minimum Social Safeguards KONE has reviewed the Minimum Safeguards with respect to human rights, bribery and corruption, taxation and fair competition, which are laid out in the EU Taxonomy Regulation, as well as the final report on Minimum Safeguards published by the EU Platform on Sustainable Finance. Based on this review, KONE has determined its activities to be aligned. KONE's Code of Conduct, Human Rights Policy and other related policies set out the principles and standards expected from KONE employees, KONE companies, suppliers, distributors and other business partners. KONE is committed to respecting and endorsing internationally recognized labor and human rights standards. KONE has a human rights due diligence process, consisting of impact assessments, third-party due diligence, supplier screenings and internal assessments and surveys. Read more about human rights, bribery and anti-corruption in the section 'Non-financial information' of this report. Taxonomy-eligible and aligned turnover In the 2021 disclosure, we determined that manufacture of elevators with a regenerative drive could be considered Taxonomy-eligible based on the description of economic activity 3.5 'Manufacture of energy efficiency equipment for buildings' in Annex I. Following re-evaluation, the economic activity description for 3.6 'Manufacture of other low carbon technologies' was found to be more suitable for the activity. Thus, manufacture of elevators with regenerative drive has been recategorized under 3.6. The change of calculation method, as well as recategorization of the activity have resulted in higher reported turnover compared to the 2021 disclosure. When descending with a heavily loaded car or ascending with a lightly loaded car, elevators can recover energy by converting the stored mechanical energy into electrical energy in the motor, which acts as a generator. Elevators equipped with a regenerative drive can push the generated energy back into the electrical grid of the building, where it can be used by other building appliances, such as HVAC. While the regenerated energy varies according to the building type, the saving can potentially amount to 20-40% of the elevator consumption in mid-rise buildings, thereby demonstrating substantial lifecycle GHG emission savings compared to the best performing alternative solution available on the market, such as modern elevator drive technology without the ability to feed electricity back to the building network. The best available elevator technologies have been studied by EU Commission in 2019 as part of the Ecodesign Directive review. KONE has conducted third-party verified lifecycle assessments for its elevators which include carbon handprint data, as recommended in the elevator product category rules and EU Commission's general recommendations. The lifecycle GHG emission savings are calculated according to ISO standards. KONE has evaluated the DNSH criteria for economic activity 3.6 and has found its activities to be compliant. The pollution prevention and control DNSH criteria requires that 'the activity does not lead to the manufacture, placing on the market or use of substances, whether on their own, in mixtures or in an article, meeting the criteria laid down in Article 57 of Regulation (EC) 1907/2006 and identified in accordance with Article 59(1) of that Regulation, except where their use has been proven to be essential for the society'. KONE has systematic practices and code of conducts with environmental annex requiring that the substances, materials, components, parts, sub-assemblies, assemblies, products, labels affixed to products or used in the manufacturing of the products and their components do not contain harmful, hazardous or restricted substances as per required by EU Commission. Certain elevator components contain lead which is listed in REACH Candidate list. The use of lead is essential from a safety perspective, as the purpose of the elevator's safety relevant components like electrification and lead-acid battery is to ensure the safety of the passengers when the elevator is in use, also during possible power breaks. As stated above, KONE also fulfils the minimum social safeguards criteria. Consequently, elevators manufactured with a regenerative drive are considered as a Taxonomy- aligned activity. In addition to elevators and escalators, KONE's offering includes automatic building doors, and we have identified certain aspects of automatic door business as Taxonomy- eligible. The description of the economic activity 3.5 'Manufacture of energy efficiency equipment for buildings' includes NACE code C25.12, which comprises the manufacture of metal doors, windows and their frames, shutters and gates as well as metal room partitions for floor attachment. KONE's revenue related to manufacture of sliding doors, swing doors, revolving doors, turnstiles, overhead doors, roller shutters, high speed doors, garage doors and gates falls within this scope and is considered Taxonomy- eligible. The installation, maintenance, and repair of these door/gate solutions is also considered Taxonomy-eligible based on the description of activity 7.3 'Installation, maintenance and repair of energy efficiency equipment'. The revenue related to the manufacture, installation, maintenance and repair of doors that fulfils the substantial contribution criteria for activities 3.5 and 7.3 is not material; thus Taxonomy-alignment has not been pursued. 21 KONE ANNUAL REVIEW 2022#24BOARD OF DIRECTORS' REPORT Taxonomy-eligible CapEx and OpEx In the 2021 disclosure, we reported leasing costs for vehicles as Taxonomy-eligible operational expenditure. After re- evaluating the criteria, we have categorized vehicle fleet costs as capital expenditure according to the economic activity 6.5 'Transport by motorbikes, passenger cars and commercial vehicles' in Annex I. Based on the description of activity 6.5, we have concluded that the leasing costs of KONE's entire vehicle fleet are Taxonomy-eligible as related to category C 'Purchase of output from other companies' Taxonomy-eligible economic activities'. Taxonomy-alignment could not be determined, due to lacking information on the fulfilment of DNSH criteria. We did not identify any category A or B related capital expenditure. We did not identify any turnover related or standalone Taxonomy-eligible operational expenditure. KONE has defined the total operational expenditure (denominator), MEUR 252, based on the methodology specified in the Taxonomy Regulation. It includes research and development costs of KONE, in addition to cost related to maintenance and repair of the facilities and buildings, as well as short-term lease expenses. Prior year the total operational expenditure also included energy purchases and costs related to KONE's vehicle lease fleet which have been excluded from the denominator for 2022. 22 22 KONE ANNUAL REVIEW 2022#25B. TAXONOMY-NON ELIGIBLE ACTIVITIES Economic activities A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy- aligned) BOARD OF DIRECTORS' REPORT Turnover from products or services associated with Taxonomy- eligible and aligned economic activities Codes Absolute turnover MEUR Proportion of turnover Climate change mitigation Climate change adaptation Substantial contribution criteria Water and marine resources Circular economy Pollution Biodiversity and ecosystems Climate change mitigation Climate change adaptation Water and marine resources DNSH Manufacture of other low carbon technologies 3.6 1,539 14.1 % 100% 0% 0% 0% 0% 90 0% Y Y Y Y Y Y 14.1 % N/A E N/A Turnover of environmentally sustainable activities (taxonomy-aligned) (A.1) 1,539 14.1 % 100% 0% 0% 0% 0% 0% Y Y Y Y Y Y 14.1% N/A E N/A A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) Manufacture of energy efficiency equipment for buildings 3.5 18 0.2% Installation, maintenance and repair of energy efficiency equipment 7.3 69 0.6 % Turnover of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 87 0.8 % Total (A.1 A.2) 1,626 14.9 % Turnover of Taxonomy-non-eligible activities Total (A+B) 9,281 85.1 % 10,907 100% Total turnover as per KONE group reported figures. KONE's principles for defining turnover and capital expenditure can be found in sections 2.1., 4.3 and 4.4. in the Financial Statements. % % % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % % 23 KONE ANNUAL REVIEW 2022 Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy-aligned portion of turnover, year N Taxonomy-aligned portion of turnover, year N-1 m Category (enabling activity) Category (transitional activity)||#26Total (A + B) BOARD OF DIRECTORS' REPORT Capital expenditure from products or services associated with Taxonomy-eligible and aligned economic activities Economic activities A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy- aligned) CapEx of environmentally sustainable activities (taxonomy-aligned) (A.1) A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) Transport by motorbikes, passenger cars and commercial vehicles 6.5 63 26.5% CapEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) Total (A.1+A.2) B. TAXONOMY-NON ELIGIBLE ACTIVITIES CapEx of Taxonomy-non-eligible activities 63 26.5% 63 26.5 % 174 73.5 % 237 100% Codes Absolute CapEx MEUR Proportion of CapEx % % Climate change mitigation Climate change adaptation Total CapEx as per KONE group reported figures. KONE's principles for defining turnover and capital expenditure can be found in sections 2.1., 4.3 and 4.4. in the Financial Statements. Substantial contribution criteria Water and marine resources Circular economy Pollution Biodiversity and ecosystems Climate change mitigation Climate change adaptation 24 24 KONE ANNUAL REVIEW 2022 Water and marine resources Circular economy DNSH Biodiversity and ecosystems Y/N Y/N Y/N Y/N Y/N Y/N Y/N Pollution Minimum safeguards Taxonomy-aligned portion of CapEx, year N Taxonomy-aligned portion of CapEx, year N-1 Category (enabling activity) Category (transitional activity)#27BOARD OF DIRECTORS' REPORT Operational expenditure from products or services associated with Taxonomy-eligible and aligned economic activities Economic activities A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy- aligned) OpEx of environmentally sustainable activities (taxonomy-aligned) (A.1) A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) OpEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) Total (A.1A.2) B. TAXONOMY-NON ELIGIBLE ACTIVITIES OpEx of Taxonomy-non-eligible activities Total (A + B). Substantial contribution criteria DNSH MEUR % % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % E T 252 100% 252 100% 25 25 KONE ANNUAL REVIEW 2022#28BOARD OF DIRECTORS' REPORT Changes in the Executive Board In January-December 2022, KONE announced the following changes in the Executive Board. Karla Lindahl was appointed Executive Vice President, South Europe and Mediterranean and a member of the Executive Board at KONE as of April 1, 2022. She succeeds Thomas Hinnerskov, Executive Vice President for South Europe, Middle East and Africa who left KONE at the end of April. As of April 1, 2022, Samer Halabi, Executive Vice President for the Asia-Pacific region excluding China, also assumed the responsibility for the Middle East and Africa region. Joe Bao was appointed Executive Vice President, responsible for the Greater China region and member of the Executive Board as of October 8, 2022. He succeeds William B. Johnson who has retired from the Executive Board after serving as Executive Vice President, Greater China since 2012. On October 21, 2022, KONE announced that Karla Lindahl would be on maternity leave as of December 2022, returning to her position during the summer of 2023. Ilkka Hara, Chief Financial Officer, was named interim leader for the South Europe and Mediterranean region in addition to his current role. Other events In 2007, a decision was issued by the European Commission concerning alleged local anticompetitive practices before early 2004 in Germany, Luxembourg, Belgium and the Netherlands by leading elevator and escalator companies, including KONE's local subsidiaries. Also, the Austrian Cartel Court issued in 2007 a decision concerning anti-competitive practices that had taken place before mid-2004 in local Austrian markets by leading elevator and escalator companies, including KONE's local subsidiary. As previously announced by KONE, a number of civil damage claims by certain companies and public entities relating to the two 2007 decisions, are pending in related countries. The claims have been made against various companies concerned by the decisions, including certain KONE companies. All claims are independent and are progressing procedurally at different stages. The total capital amount claimed jointly and severally from all of the defendants together was EUR 81 million at the end of December 2022 (December 31, 2021: EUR 154 million). The total capital amount claimed decreased due to a settlement during the fourth quarter. KONE's position is that the claims are without merit. No provision has been made. Most significant risks KONE is exposed to risks that may arise from its operations or changes in the operating environment. The most significant 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. STRATEGIC RISKS The demand for KONE's products and services and the competitive environment are impacted by the general economic cycles and especially the level of activity within the construction industry. High inflation, rising interest rates and supply chain disruptions have weakened the global economic outlook which represents a risk to KONE's business and profitability. KONE aims to mitigate these risks with more dynamic pricing strategies and contract models as well as ongoing actions to improve productivity and lower product costs. Additionally, geopolitical tensions could impact KONE's global manufacturing footprint and capabilities. As China accounts for approximately one third of KONE's sales, a sustained market decline in the Chinese construction industry represents a risk for KONE's financial performance. Liquidity restrictions in the Chinese property markets continued in 2022 and the financing environment remained tight throughout the year. The resulting decline in construction activity has adversely affected KONE's growth and profitability. KONE's customer portfolio is well diversified, which limits individual customer risks. However, prolonged liquidity constraints among Chinese property developers could further impact construction activity and customers' payment discipline in China and, consequently, the demand and commercial terms for KONE's solutions. The war in Ukraine increased geopolitical risks, added to the disruption of global supply chains and increased uncertainty in the European energy markets during the reporting year. The resulting shortage of energy, materials and services, as well as rising costs, may expose KONE to business disruptions, rescheduling of orders and profitability risks. Global supply chains also suffered from governmental lockdowns in China due to COVID-19 outbreaks during 2022. The lockdowns had adverse impacts on the Chinese economy, construction activity, availability of workforce and thereby the demand for KONE's services and solutions. In addition to the level of market demand, the competitiveness of KONE's offering is a key driver for growth and profitability. A failure to anticipate or address changes in customer requirements and in competitors' offerings, ecosystems and business models or in the regulatory environment could result in a deterioration of the competitiveness of KONE's offering. Furthermore, structural changes in the competitive landscape of the elevator and escalator industry, such as increased competition and customer consolidation in China, could affect market dynamics and KONE's market share. OPERATIONAL RISKS Empowered employees with relevant competencies and skills are key to the successful execution of our strategy. With business models and ways of working changing in the elevator and escalator industry, KONE needs new organizational capabilities, as well as new competencies and talent on the individual employee level in the field of, for example, digitalization. At the same time, the competition over talent, such as skilled field workforce, is increasing. Securing the needed resources and their competence management is critical. A failure to develop and retain the required capabilities or obtain them through recruitment could have an adverse impact on KONE's growth and profitability. The majority of components used in KONE's supply chain are sourced from external suppliers, a significant number of which are located in China. KONE also subcontracts a significant amount of installation activity, outsources certain business support processes and works with partners in e.g. digital services and logistics. This exposes KONE to supply chain and logistics constraints, risks related to component and subcontracted labor availability and cost as well as to continuity risk in partnerships. A failure to secure the needed materials, components or resources, or quality issues within these, could cause business disruptions, rescheduling of orders and cost increases. Labor availability constraints may 26 KONE ANNUAL REVIEW 2022#29Pending#30BOARD OF DIRECTORS' REPORT Risk management Risks Weakening of the economic environment, particularly in China Geopolitical tensions impacting the competitiveness of KONE's supply chain, leading to increased costs or causing potential disruptions Changes in the competitive or customer landscape, customer requirements or competitors' offerings impacting KONE's competitiveness Increasing material, fuel and/or logistics costs weakening KONE's profitability A failure to secure and develop the needed organizational capabilities and competencies Risks related to component and subcontracted labor availability Product integrity, safety or quality issues as well as issues with reputation Interruptions to KONE's or its suppliers' operations IT system interruptions and cybersecurity risks Financial risks Mitigation actions KONE strives to continuously develop its competitiveness in all regions and businesses. KONE has a wide geographic presence, global manufacturing capabilities and supply network, as well as a balanced business portfolio with a high share of maintenance business. KONE actively monitors the development of the applicable and relevant regulations, policies and trade rules, prepares for alternative scenarios and evaluates the competitiveness and viability of KONE's supply chain and sourcing channels. KONE is taking actions to mitigate the impact of tariffs, for example by applying for tariff exemptions when applicable. KONE also applies increased scrutiny over business operations that may be affected by international trade restrictions or other geopolitical actions. KONE aims to be the industry leader with its competitive offering by investing in research and development and by taking an open innovation approach. KONE also closely follows emerging industry and market trends and actively monitors opportunities for industry consolidation. KONE aims to offset cost increases by improving the margin of orders received and adopting dynamic pricing and contract models which allow KONE to pass on increased supply costs. Improving pricing, securing productivity gains and lowering product costs remains high on KONE's agenda. KONE continuously evaluates the skills and competences required for the execution of the selected strategy and develops and/or acquires these from internal talent pools or externally. KONE also has extensive training programs in place to develop and retain critical talents. KONE's sourcing processes aim to identify critical suppliers and supply categories and implement alternative sources, long-term agreements, last-buy options and other measures to ensure the availability of the supply. KONE has also developed multinational subcontractor pools to ensure subcontractor capacity on a regional level. Subcontractors' competences and capabilities are monitored and developed continuously, similarly as with own employees. The semiconductor market is closely monitored, and the situation managed with detailed planning of delivery execution and active involvement of supply chain partners among other actions. To mitigate product risks, KONE has strict quality control processes for product design, supply, manufacturing, installation and maintenance. In addition, KONE aims for transparent and reliable communication, to prevent reputational risks and to manage potential incidents. KONE also has stringent corporate governance principles in place. KONE actively develops business continuity management capabilities to reduce the impact and likelihood of disruptions within its supply chain. Furthermore, KONE monitors the operations, business continuity management capabilities, financial strength and cybersecurity of its key suppliers. In addition, KONE aims to secure the availability of alternative sourcing channels for critical components and services. KONE also has a global property damage and business interruption insurance program in place. KONE's global supply chain helps mitigate the risk of interruptions. KONE has 10 manufacturing facilities in 7 countries, multiple distribution centers and a large supplier network across the globe, which helps to mitigate the impacts from potential disruptions in individual locations or countries. KONE's security policies define controls to safeguard premises, information and information systems which are both in development and in operation, in order to detect cybersecurity incidents and to respond and recover in a timely manner. KONE works with third-party security service providers and trusted, well-known technology partners to manage the risks through the control framework. KONE conducts tests, reviews and exercises to identify areas of risk and to ensure the appropriate preparedness. The company continues to invest in its cybersecurity capabilities based on these findings. KONE also has a global cyber insurance program in place. KONE applies centralized risk management in accordance with the KONE Treasury Policy. More information on financial risk management can be found in notes 2.4, 3.2 and 5.3 of KONE's Financial Statements 2022. 28 KONE ANNUAL REVIEW 2022#31BOARD OF DIRECTORS' REPORT RISKS AND RISK MANAGEMENT RELATED TO THE REPORTING OF NON-FINANCIAL INFORMATION The assessment and analysis of KONE's most significant risks also covers non-financial risks. In line with the requirements of the Finnish Accounting Act, KONE has identified the most significant non-financial risks regardless of their materiality for KONE. In addition, KONE applies the guidelines of the Task Force on Climate-Related Financial Disclosures (TCFD) on the reporting of climate-related risks. The typical effect of the non-financial risks materializing would be reputational damage to KONE or a negative impact on the surrounding society, the environment or individuals. In addition to the risk mitigation actions described below, KONE aims for transparent and reliable communication to prevent reputational risks and enable proactive management and learning from incidents, should they occur. Climate and environmental risks We recognize climate and environmental risks as having a potential negative impact on our business in the short to medium term. While the effect is not determined to be significant, we expect climate risks to increase in relevance and potential impact. Overall, we identify, assess and manage climate and environmental risks as an integral part of our company-wide business risk management process and ISO 14001 environmental management system. Certain KONE functions and locations, e.g. the Supply Chain function or selected operational sites, conduct detailed climate and environmental risk assessments according to relevant business requirements. Climate and environmental risks are classified as transition risks and physical risks as well as risks of KONE's business activities having negative impacts on the climate. Among the most relevant climate-related risks for KONE are acute physical risks, extreme weather events such as tornadoes, hurricanes, hailstorms and thunderstorms, which may cause disruptions in the delivery chain or interruptions in our own manufacturing, installation or maintenance activities. Similarly, chronic physical risks, such as heavy rain and floods, or extreme heat waves and droughts, may disrupt logistics routes. KONE's products are also exposed to physical risks and possible damages due to changing climate conditions and extreme weather events. To mitigate physical risks, KONE needs to be able to transfer procurement from its own or its supplier's manufacturing unit or distribution center to another location in order to back up supply chain and logistics routes in case of disruptive events. We actively develop our business continuity with regards to component availability and interruptions to our own or suppliers' operations, as described in the risk management table in this text. We use, for example, dedicated location-based software tools to regularly monitor our supply chain locations for risks related to extreme weather events such as fires, floods or hurricanes. In terms of our product development, we apply design specifications and specific procedures that aim to ensure product resilience even in harsh and changing environmental conditions. Rigorous environmental testing is a part of KONE's product development to ensure that our products sustain exceptional and changing weather conditions, such as temperature variations and moisture. Among KONE's most relevant transition risks are potential shifts in the supply and demand for low carbon materials, electricity and fuel, which may increase operating costs in the short to medium term. Also, the risk of not being able to provide technological improvements or innovations that support the transition to a lower-carbon, energy-efficient economy may impact KONE's competitiveness, customers' demand for KONE's solutions and services and thereby KONE's business detrimentally. On the other hand, moving to more expensive low carbon technology may negatively impact profitability in the short to medium term, should a significant number of customers prefer low-cost solutions. Emerging climate-related regulation may also impact our operations. For example, the need to transition towards more sustainable mobility solutions is evident for KONE's current fleet of over 18,000 service and benefit vehicles. To mitigate market transition risks, KONE evaluates plausible scenarios for market supply and demand, as well as the impact of emerging regulation in our high-level business plans. KONE is an active member in relevant industry forums and research consortiums and proactively monitors the regulatory landscape. To mitigate technology transition risk, KONE bases its innovation work on the needs of our customers and equipment users. All in all, KONE sees the transition towards sustainable solutions as a source of innovation and competitive edge rather than a threat. As part of KONE's climate pledge, we have set ambitious greenhouse gas reduction targets for our offering and operations and aim to have carbon neutral operations by 2030. The pledge will guide our work for more climate-friendly products, services and ways of working, and we actively collaborate with our suppliers and partners to achieve our targets. Climate change scenario analysis During 2022, KONE expanded its risk and opportunity assessment to include Climate Change Scenario Analysis, as recommended by TCFD, to help ensure that our strategy is resilient to climate change in a range of possible future states. In the first phase of the analysis, we focused on the qualitative implications of climate-related risks and opportunities in key strategic performance areas of our operations: direct material purchases, manufacturing operations, logistics and product and service design. The scenarios used in KONE's Climate Change Scenario Analysis are Shared Socio-economic Pathways (SSPs) SSP1, SSP2 and SSP3. The SSPs have been created by an international team of climate scientists, economists and energy system modelers. SSP scenarios characterize possible future development pathways, making assumptions on changes in socio-economic factors, together with assumptions about the ambition level for mitigating climate change. These are translated into respective scenarios of greenhouse gas emissions by the International Panel for Climate Change (RCP scenarios). The resulting climate change projections describe a range of plausible future climates and mean temperatures, from a pessimistic high- carbon scenario (4 C warming pathway) to a middle of the road scenario (2.7 C warming pathway), further to a low- carbon scenario (1.5 C warming pathway) that meets the ambitions of the 2015 Paris Agreement. KONE is committed to the 1.5 C pathway. In this scenario, climate change mitigating actions are strong, and the Paris Climate Agreement goals are met. Regulations are ambitious, globally consistent, and aiming at low-carbon economy. The demand for sustainable and climate resilient solutions, a full transformation to renewable energy and electrification as well as the focus on energy efficiency create opportunities for KONE. Even in the 1.5 C scenario, physical changes may cause occasional disruptions to KONE factories and supply chain. In the 2.7 C scenario, insufficient actions to stop climate change will, in the longer term, lead to major changes globally, causing disruptions in the availability of certain raw materials and increased price volatility. Global supply chains and logistic routes may face notable disruptions, affecting KONE's business. 29 KONE ANNUAL REVIEW 2022#32Pending#33BOARD OF DIRECTORS' REPORT Chairman of the Audit Committee: EUR 20,000 and members of the Audit Committee: EUR 10,000, and Chairman of the Nomination and Compensation Committee: EUR 20,000 and members of the Nomination and Compensation Committee: EUR 10,000. The annual compensation of the members of the board committees is paid in cash. In addition, it was resolved that compensation is not paid to a Board Member who is employed by the company. The General Meeting approved the authorization for the Board of Directors to repurchase KONE's own shares. Altogether no more than 52,930,000 shares may be repurchased, of which no more than 7,620,000 may be class A shares and 45,310,000 class B shares. The authorization will be valid until the conclusion of the following annual general meeting, however, at the latest until 30 June 2023. Furthermore, the General Meeting authorized the Board of Directors to decide on the issuance of shares as well as the issuance of options and other special rights entitling to shares referred to in Chapter 10, Section 1 of the Limited Liability Companies Act. The number of shares to be issued based on this authorization shall not exceed 7,620,000 class A shares and 45,310,000 class B shares. The Board of Directors decides on all the conditions of the issuance of shares and of special rights entitling to shares. The authorization concerns both the issuance of new shares as well as the transfer of treasury shares. The issuance of shares and of special rights entitling to shares may be carried out in deviation from the shareholders' pre-emptive rights (directed issue). The authorization will be valid until the conclusion of the following annual general meeting, however, at the latest until 30 June 2023. The audit firm Ernst & Young Oy was nominated as the auditor for the term 2022. On March 24, 2022, KONE announced Andreas Opfermann's decision to resign from his position as a member of the Board of Directors of KONE, effective March 31, 2022 due to the significant and increasing time demands in his role at Linde. Following his resignation, KONE's Board consists of the following ordinary members: Matti Alahuhta, Susan Duinhoven, Antti Herlin, liris Herlin, Jussi Herlin, Ravi Kant, Jennifer Xin-Zhe Li and Krishna Mikkilineni. Share-based incentive plans KONE has two separate share-based incentive plans, one performance share plan and one restricted share plan. In January 2021, KONE's Board of Directors decided on a new long-term share-based incentive plan, which replaced the existing share-based plans. The new long-term incentive plan continues to emphasize profitable growth and as a new measure sustainability. It consists of annually commencing individual share plans, each with a three-year rolling performance period. The plans vest and are delivered in one portion after the three years, based on accumulated outcomes for the three-year performance period. No shares are delivered in 2022 and 2023. If the participant's employment or service relationship with KONE Group terminates before the end of the performance period, the participant, as a rule, forfeits the share award without compensation. The number of shares earned by participants under the share-based incentive plans are determined on gross basis with deduction for taxes made when applicable before delivery of the shares to the participants. The arrangements initiated previous years included both cash and equity settled arrangements. Current arrangements are equity settled only. The target group and targets within the plan as well as possible rewards are decided upon annually by the Board. As part of the long-term incentive plan for the senior management, a long-term target for their ownership has been set. For the Executive Board members, the long-term ownership target is that the members have an ownership of KONE shares corresponding to at least five years' annual base salary. For other selected top management positions, the ownership target is at least two years' base salary. The 2022 long-term incentive plan is targeted to 55 members of top management, including the President and CEO, members of the Executive Board and other top management as well as to 525 other selected key personnel of KONE Group. The performance criteria applied to the 2022 long-term incentive plan are based on annual growth in sales, adjusted EBIT margin and improvements in sustainability. The sustainability performance condition is a combination of reductions in carbon footprint, diversity and inclusion as well as safety related targets. The restricted share plan serves as a complementary long-term share plan to be used as a commitment instrument for retention and recruitment purposes for top management (excluding the President and CEO) and other selected key persons. The restricted share plan does not have a performance condition. The plan has a commitment period up to three years, after which the potentially granted share awards will be paid to the participant, provided that their employment or service relationship with KONE Group is in force at the time of payment. 31 KONE ANNUAL REVIEW 2022#34BOARD OF DIRECTORS' REPORT Shares and share capital Share capital and market capitalization Number of class B shares Number of class A shares Total shares Treasury shares Share capital, EUR Market capitalization, MEUR* Dec 31, 2022 453,187,148 Dec 31, 2021 453,187,148 76,208,712 529,395,860 76,208,712 529,395,860 12,306,640 11,433,525 66,174,483 66,174,483 24,975 32,652 *Market capitalization is calculated on the basis of both the listed B shares and the unlisted A shares excluding treasury shares. Class A shares are valued at the closing price of the class B shares at the end of the reporting period. Treasury shares Treasury shares at the beginning of the period Changes in treasury shares during the period Treasury shares at the end of the period 1-12/2022 11,433,525 873,115 12,306,640 At the end of December 2022, the Group had 12,306,640 class B shares in its possession. The shares in the Group's possession represent 2.7% of the total number of class B shares. This corresponds to 1.0% of the total voting rights. During the fourth quarter, KONE completed the repurchase of the company's own class B shares, which started on November 3, 2022 and ended on November 15, 2022. A total of 1,083,500 own shares were repurchased for an average price of EUR 46.1051 per share. The shares were repurchased in public trading on Nasdaq Helsinki Ltd. at the market price prevailing at the time of purchase. The shares were repurchased on the basis of the authorization given by the Annual General Meeting on March 1, 2022 and will be used as a part of share-based incentive plans of KONE. 32 KONE ANNUAL REVIEW 2022#35BOARD OF DIRECTORS' REPORT Shares traded on Nasdaq Helsinki 1-12/2022 Shares traded on the Nasdaq Helsinki Ltd., million 236.7 Average daily trading volume 935,595 715,964 Volume-weighted average share price EUR 46.56 65.44 Highest share notation EUR 64.12 73.86 Lowest share notation EUR 36.72 55.48 Share notation at the end of the period EUR 48.30 63.04 Flagging notifications During January-December 2022, BlackRock, Inc. announced two notices in accordance with the Finnish Securities Market Act Chapter 9, Section 5. The notices were announced on March 7 and March 9. The notices have been released as stock exchange releases and are available on KONE Corporation's internet pages at www.kone.com. According to the latest notification, the total number of KONE Corporation shares owned by BlackRock, Inc. and its funds decreased to below five (5) per cent of the share capital of KONE Corporation on March 8, 2022. 1-12/2021 180.4 In addition to the Nasdaq Helsinki Ltd., KONE's class B share is traded also on various alternative trading platforms. The number of registered shareholders was 88,182 at the beginning of the review period and 110,592 at its end. The number of private households holding shares totaled 105,228 at the end of the period, which corresponds to approximately 12.6% of the listed B shares. At the end of December 2022, a total of 51.7% of the B shares were owned by nominee- registered and non-Finnish investors. 33 KONE ANNUAL REVIEW 2022#36BOARD OF DIRECTORS' REPORT Outlook NORTH AMERICA New equipment Slight decline Services Maintenance Slight growth Modernization Slight growth New equipment EMEA Stable Services ASIA-PACIFIC New equipment Services Maintenance Slight growth Modernization Clear growth China Significant decline Outside China Clear growth Maintenance Clear growth Modernization Significant growth Market outlook 2023 In China, the new equipment market is expected to decline by somewhat over 10% during 2023. Property developers' access to financing is likely to remain constrained especially during the first quarter of the year, but markets are expected to start to recover towards the end of the first half as a result of the broad stimulus measures that have already been announced. In the rest of the world, activity is expected to grow clearly in Asia-Pacific excluding China, be stable in the EMEA region and decline slightly North America from a high level Modernization markets are expected to grow in all regions supported by an aging equipment base as well as the focus on sustainability and adaptability of buildings. Economic uncertainty and rising interest rates may limit growth in construction activity, which could impact demand in the new equipment and modernization markets. Maintenance markets are expected to grow slightly in the more mature markets and grow clearly in Asia-Pacific. Business outlook 2023 KONE expects its sales at comparable exchange rates for the year 2023 to be at a similar level as in the previous year. The adjusted EBIT margin is expected to start to recover due to improved margins on orders received in 2022 and continued solid performance in the maintenance business. The business outlook assumes that construction activity in China starts to recover towards the end of the first half as a result of the measures introduced to create stability in the property sector. KONE has a positive outlook for services, a strong order book and improved margins on orders received in 2022. Easing commodity cost headwinds in Asia are also expected to support the results. Headwinds for the 2023 results include slower order book rotation, the anticipated decline in China's new equipment market, as well as wage inflation and increasing component costs. The Board's proposal for the distribution of profit The parent company's non-restricted equity on December 31, 2022 is EUR 1,926,632,335.19 of which the net income for the financial year is EUR 1,706,952,719.25. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.7475 be paid on the outstanding 76,208,712 class A shares and EUR 1.75 on the outstanding 440,880,508 class B shares, resulting in a total amount of proposed dividend of EUR 904,715,613.22. The Board of Directors further proposes that the remaining non- restricted equity, EUR 1,021,916,721.97 be retained and carried forward. The Board proposes that the dividends be payable from March 9, 2023. All the shares existing on the dividend record date are entitled to dividend for the year 2022 except for the own shares held by the parent company. Annual General Meeting 2023 KONE Corporation's Annual General Meeting will be held on Tuesday February 28, 2023 at 11.00 a.m. at Messukeskus Siipi, Rautatieläisenkatu 3, in Helsinki, Finland. Helsinki, January 26, 2023 KONE Corporation's Board of Directors 34 KONE ANNUAL REVIEW 2022#37BOARD OF DIRECTORS' REPORT | SHARES AND SHAREHOLDERS SHARES AND SHAREHOLDERS KONE share KONE has two classes of shares: A and B. Only B-class shares are listed on the Nasdaq Helsinki Ltd. Trading of the KONE class B shares started on January 2, 1967. VOTING RIGHTS Each KONE class A share is assigned one vote, as is each block of 10 class B shares, with the provision that each shareholder is entitled to at least one vote. Closing price (EUR) Share notations (EUR) December 31, 2022 December 31, 2021 48.30 High 63.04 Low Change -23.4 % DIVIDEND POLICY KONE has not adopted a specific dividend policy. In the case of a dividend distribution, the dividend paid on the class B share is higher than that on the class A share. The difference between the dividends is at minimum one (1) percent and at maximum two-and-a-half (2.5) percent, calculated from the accounting par value of the share. The accounting par value of the share is EUR 0.125. Volume-weighted average price 64.12 36.72 46.56 KONE Corporation's share capital consists of the following: Class A Class B Total Number of Par value, shares EUR 76,208,712 9,526,089 453,187,148 56,648,394 529,395,860 66,174,483 KONE class B dividend per share, 2005-2022, EUR 2.50 2.00 1.50 1.00 0.50 0.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022* Dividend I Extraordinary dividend *) Board's proposal for the 2022 dividend KONE class B shares Trading code, Nasdaq Helsinki Ltd. ISIN code Accounting par value KNEBV FI0009013403 EUR 0.125 Market capitalization on December 31, 2022 EUR 24,975 million Dividend proposal EUR 1.75 per class B share 35 KONE ANNUAL REVIEW 2022#38BOARD OF DIRECTORS' REPORT | SHARES AND SHAREHOLDERS KONE class B share price development Jan 1, 2013-Dec 31, 2022, EUR 80 70 60 50 40 30 20 IN WA 10 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 KONE class B share OMX Helsinki Cap Index Shareholders SHAREHOLDINGS ON DEC 31, 2022 BY NUMBER OF SHARES Class A shares, % C 92.6% Companies 7.4% Non-profit organizations Class B shares, % 0 0.0 % 51.7% Foreign / nominee registered shareholders *) 14.6% Companies 12.6% Financial institutions and insurance companies 12.6% Individuals ● 4.3% Public institutions 4.1% Non-profit organizations *) Includes foreign-owned shares registered by Finnish nominees Number of Percentage of Number of shares 1-10 owners 23,278 owners 21.0 % Number of shares 127,947 Percentage of shares 11 100 101 1,000 1,001-10,000 10,001 100,000 100,001 - Total 50,104 45.3 % 2,240,892 0.4% 29,793 26.9% 10,125,622 1.9 % 6,610 715 92 110,592 6.0% 0.6% 0.1 % 100.0 % 17,765,725 3.4 % 17,875,574 3.4 % 481,217,836 529,353,596 90.9 % 100.0 % Shares which have not been transferred to the paperless book entry system 42,264 0.0 % Total 529,395,860 100.0 % 36 KONE ANNUAL REVIEW 2022#39BOARD OF DIRECTORS' REPORT | SHARES AND SHAREHOLDERS MAJOR SHAREHOLDERS ON DEC 31, 2022 A-series B-series Total % of shares 1 Herlin Antti 70,561,608 51,180,608 121,742,216 23.0 % % of votes 62.3 % Holding Manutas Oy 1) 54,284,592 41,405,254 95,689,846 18.1 % 48.1% Security Trading Oy 2) 16,277,016 8,082,516 24,359,532 4.6% 14.1 % Herlin Antti 0 1,692,838 1,692,838 0.3 % 0.1 % 2 Polttina Oy 3 Wipunen Varainhallinta Oy 4 KONE Foundation 5 Heikintorppa Oy 0 17,271,928 17,271,928 3.3 % 1.4 % 0 16,350,000 16,350,000 3.1 % 1.3 % 5,647,104 9,859,632 15,506,736 2.9% 5.5 % 0 10,210,743 10,210,743 1.9 % 0.8 % 6 Varma Mutual Pension Insurance Company 0 7,751,222 7,751,222 1.5 % 0.6 % 7 Ilmarinen Mutual Pension Insurance Company 0 5,798,977 5,798,977 1.1 % 0.5% 8 Riikantorppa Oy 0 5,500,000 5,500,000 1.0% 0.5% 9 Blåberg Olli Edvard 0 5,120,000 5,120,000 1.0% 0.4% 10 Elo Mutual Pension Insurance Company 0 2,876,000 2,876,000 0.5% 0.2% 10 largest shareholders total 76,208,712 131,919,110 208,127,822 39.3 % 73.6% Foreign / nominee registered shareholders 3) Repurchased own shares 0 234,414,154 234,414,154 44.3 % 19.3% 0 12,306,640 12,306,640 2.3% 1.0% Others 0 76,208,712 74,547,244 74,547,244 453,187,148 529,395,860 14.1 % 6.1 % 100.0 % 100.0 % Total The list of ten major shareholders includes the major shareholders with a Finnish book-entry account. 1) Antti Herlin's ownership of Holding Manutas represents 1.1% of the shares and 12.8% of the voting rights. Together with the ownership of Security Trading Oy in which he exercises controlling power, his ownership represents 51.0% of the shares and 62.7% of the voting rights. 2) Antti Herlin's ownership of Security Trading Oy represents 56.4% of the shares and 57.5% of the voting rights. Together with the ownership of his children, Antti Herlin's ownership in Security Trading Oy represents 99.9% of the shares and 99.8% of the voting rights. 3) Foreign ownership including foreign-owned shares registered by Finnish nominees. + More information on the shareholdings of KONE's Board of Directors and Executive Board on Dec 31, 2022 and changes in shareholding during Jan 1 - Dec 31, 2022 are available on page 121 37 KONE ANNUAL REVIEW 2022#40BOARD OF DIRECTORS' REPORT | SHARES AND SHAREHOLDERS Key figures per share, Jan 1-Dec 31, 2022 KONE has adopted IFRS 16 standard effective January 1, 2019 using the modified retrospective approach and comparative figures have not been restated. Basic earnings per share, EUR Diluted earnings per share, EUR Equity per share, EUR 2022 2021 2020 2019 2018 1.50 1.96 1.81 1.80 1.63 1.49 1.96 1.81 1.80 1.63 5.49 6.13 6.12 6.13 5.94 Dividend per class B share, EUR ) 1.75 2.10 2.25 1.70 1.65 Dividend per class A share, EUR 1.7475 2.0950 2.2450 1.6975 1.6475 Dividend per earnings, class B share, % 117.0 107.3 124.0 94.2 101.0 Dividend per earnings, class A share, % 116.8 107.0 123.7 94.1 100.9 Effective dividend yield, class B share, % 3.62 3.3 3.4 2.9 4.0 Price per earnings, class B share 32.29 32.20 36.63 32.31 25.49 Market value of class B share, average, EUR 46.56 65.44 62.07 49.82 43.68 Market value of class B share at end of period, EUR 48.30 63.04 66.46 58.28 41.64 Market capitalization at the end of period, MEUR ' Number of class A shares at the end of period, (1,000s) Weighted average number of class A shares, (1,000s) Number of class B shares at the end of period, (1,000s) Weighted average number of class B shares, (1,000s) ' Weighted average number of shares, (1,000s)' 24,975 32,652 34,452 30,180 21,489 76,209 76,209 76,209 76,209 76,209 76,209 76,209 76,209 76,209 76,209 ) 453,187 441,632 517,841 441,754 442,181 441,634 439,852 441,847 442,055 440,897 439,875 518,055 518,264 517,105 516,084 › Board's proposal. Reduced by the number of repurchased own shares. Class A shares are valued at the closing price of the class B shares. Adjusted for share issue and share option and share-based incentive plan dilution, and reduced by the number of repurchased own shares 38 KONE ANNUAL REVIEW 2022#41Pending#42Pending#43BOARD OF DIRECTORS' REPORT | DEFINITIONS AND CALCULATION OF KEY FIGURES DEFINITIONS AND CALCULATION OF KEY FIGURES Basic earnings/share = Equity/share = II Dividend/share Net income attributable to the shareholders of the parent company Share issue and conversion-adjusted weighted average number of shares - own shares Total shareholders' equity Number of shares (issue adjusted) - own shares Dividend payable for the reporting period Share issue and conversion-adjusted weighted average number of shares - own shares Dividend/share Dividend/earnings (%) = 100 x Dividend/share Earnings/share Effective dividend yield (%) = 100 x Price/earnings Average price = Market value of all outstanding shares ။ Price of class B shares at end of reporting period Price of class B shares at end of reporting period Earnings/share Total EUR value of all class B shares traded Average number of class B shares traded during the reporting period The number of shares ' (A + B) at end of reporting period x the price of class B shares at end of reporting period Excluding own shares. Class A shares are valued at the closing price of the class B shares. Shares traded Number of class B shares traded during the reporting period Number of class B shares traded Weighted average number of class B shares The average employee count at the end of each calendar month during the reporting period Shares traded (%) = 100 x Average number of employees = Net income Return on equity (%) = 100 x Total equity (average during the reporting period) Net income + financing expenses = 100 x Equity + interest-bearing-debt (average during the reporting period) Return on capital employed (%) Equity ratio (%) = 100 x Gearing (%) = 100 x Assets employed Total equity Total assets - advance payments received and deferred revenue Interest-bearing net debt Total equity Net working capital + goodwill + intangible assets + tangible assets + investments in associated companies + shares and other non-current financial assets 41 KONE ANNUAL REVIEW 2022#44CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF INCOME CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME MEUR CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Jan 1-Dec 31, Note 2022 % Jan 1-Dec 31, 2021 % MEUR Note Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 Sales 2.1 10,906.7 Costs, expenses and depreciation 2.2, 2.3 -9,875.5 Operating income Financing income Financing expenses 10,514.1 -9,218.8 Net income 784.5 1,022.7 Other comprehensive income, net of tax: 2.8 2.5 2.5 1,031.2 51.2 -53.9 9.5 1,295.3 12.3 Translation differences 5.1 205.6 52.9 Hedging of foreign subsidiaries -21.2 -28.6 -27.4 Cash flow hedges 2.5 -2.1 Items that may be subsequently reclassified to statement of income -13.6 175.0 Income before taxes Taxes 2.6 1,028.4 9.4 -244.0 1,320.8 -298.1 12.6 Changes in fair value -20.8 0.6 Remeasurements of employee benefits 42.4 -6.7 Net income 784.5 7.2 1,022.7 9.7 Items that will not be reclassified to statement of income 21.6 -6.1 Total other comprehensive Net income attributable to: income, net of tax 8.0 168.9 Shareholders of the parent company Non-controlling interests 774.5 1,014.2 10.0 8.5 Total comprehensive income 792.5 1,191.5 Total 784.5 1,022.7 Total comprehensive income Earnings per share for income attributable to: attributable to the shareholders of the parent company, EUR Shareholders of the parent company 782.5 1,183.1 2.7 Non-controlling interests 10.0 8.5 Basic earnings per share, EUR 1.50 1.96 Total 792.5 1,191.5 Diluted earnings per share, EUR 1.49 1.96 42 KONE ANNUAL REVIEW 2022#45Pending#46CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY MEUR Jan 1, 2022 Note Share capital Share premium Paid-up Net income Non- account unrestricted equity reserve Fair value and Translation other reserves differences Remeasurements of employee benefits Own shares earnings Retained for the period controlling interests 66.2 100.3 374.0 40.2 166.1 -121.6 -198.6 2,747.6 Net income for the period Other comprehensive income: 2.8 Translation differences Hedging of foreign subsidiaries Cash flow hedges Changes in fair value Remeasurements of employee benefits Transactions with shareholders and non- controlling interests: Profit distribution Purchase of own shares Change in non-controlling interests Share-based compensation Dec 31, 2022 5.2 2.5 5.1 -21.2 -20.8 42.4 Total equity 25.0 3,199.2 774.5 10.0 784.5 5.1 -21.2 2.5 -20.8 42.4 -1,087.8 -50.0 -1,087.8 -50.0 -1.5 -5.0 -6.5 19.1 66.2 100.3 393.1 21.9 150.1 -79.3 12.0 -236.6 -12.0 19.1 1,646.4 774.5 29.9 2,866.5 44 KONE ANNUAL REVIEW 2022#47CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY MEUR Jan 1, 2021 Net income for the period Share Note Share capital premium account Paid-up unrestricted equity reserve Net income Non- Fair value and other reserves Translation differences Remeasurements of Own Retained employee benefits shares earnings for the period 66.2 100.3 345.7 41.7 -10.9 -115.0 -164.7 2,911.3 Other comprehensive income: 2.8 Translation differences Hedging of foreign subsidiaries Cash flow hedges Changes in fair value Remeasurements of employee benefits Transactions with shareholders and non- controlling interests: Profit distribution Purchase of own shares Change in non-controlling interests Share-based compensation Dec 31, 2021 5.2 -2.1 0.6 205.6 -28.6 -6.7 controlling Total interests equity 22.6 3,197.3 1,014.2 8.5 1,022.7 205.6 -28.6 -2.1 0.6 -6.7 -1,166.3 -45.8 -1,166.3 -45.8 0.3 -6.1 -5.8 28.3 66.2 100.3 374.0 40.2 166.1 -121.6 11.9 -198.6 -11.9 28.3 1,733.4 1,014.2 25.0 3,199.2 45 KONE ANNUAL REVIEW 2022#48CONSOLIDATED FINANCIAL STATEMENTS | CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS MEUR Cash receipts from customers Cash paid to suppliers and employees Cash flow from operations before financing items and taxes Interest received Interest paid Dividends received and capital repayments Other financing items Income taxes paid Cash flow from operating activities Reconciliation of operating income to cash flow from operations before financing items and taxes Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 MEUR Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 Operating income 1,031.2 1,295.3 10,666.7 -9,912.0 10,440.4 -8,611.7 Change in working capital before financing items and taxes Depreciation and amortization -535.8 289.4 259.3 244.0 754.7 49.4 1,828.7 Cash flow from operations before financing items and taxes 754.7 1,828.7 38.4 -15.5 -11.6 Change in interest-bearing net debt 0.0 18.3 5.7 51.8 MEUR -275.4 -328.3 531.5 1,584.8 -101.2 0.2 -31.6 -96.5 10.8 Interest-bearing net debt at beginning of period Interest-bearing net debt at end of period Change in interest-bearing net debt Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 -2,164.1 -1,309.0 855.1 -1,953.8 -2,164.1 -210.2 -34.5 14.2 -132.6 -106.0 Capital expenditure Proceeds from sales of fixed assets Acquisitions, net of cash Proceeds from sales of subsidiary shares Cash flow from investing activities Cash flow after investing activities 398.9 1,478.8 Change in deposits and loan receivables, net 913.1 -151.7 Change of current creditors -121.4 -278.1 Change in non-current liabilities -36.7 181.1 Purchase of own shares -50.0 -45.8 Profit distribution -1,087.8 -1,166.3 Changes in non-controlling interests -7.7 -1.2 Cash flow from financing activities -390.5 -1,462.0 Change in cash and cash equivalents 8.4 16.8 Cash and cash equivalents at beginning of period 490.4 457.9 Foreign exchange difference, net -3.3 15.6 Cash and cash equivalents at end of period 495.5 490.4 The impact of changes in exchange rates has been eliminated in the statement of cash flows by translating the opening balance sheet with the closing rates of the period. 46 KONE ANNUAL REVIEW 2022#49CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | BASIS OF PREPARATION KONE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Basis of preparation IN THIS SECTION Basis of preparation Consolidation principles Segment information Accounting estimates and management judgements Accounting principles are presented in connection with notes in sections 2-6 Basis of preparation KONE Corporation is a Finnish, public limited company domiciled in Helsinki, Finland. KONE Corporation and its subsidiaries together form the KONE Group ("KONE" or "the Group"). KONE is global leader in the elevator and escalator industry with a vision to make the world's cities better and more sustainable places to live. KONE provides elevators, escalators and automatic building doors, as well as solutions for maintenance and modernization to add value to buildings throughout their life cycle. Through more effective People Flow®, KONE's ambition is to make people's journeys safe, convenient and reliable, in taller, smarter buildings. KONE operates in more than 60 countries around the world, serving over 550,000 customers. Headquartered in Helsinki, Finland, we have eight global R&D units and 10 manufacturing units in seven countries, as well as a worldwide network of agents and authorized distributors. The consolidated financial statements of KONE Corporation have been prepared in accordance with the International Financial Reporting Standards (IFRS) as 47 KONE ANNUAL REVIEW 2022#50CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | BASIS OF PREPARATION adopted by the European Union, observing the standards and interpretations effective on December 31, 2022. KONE has adopted the new standards and interpretations that took effect during the accounting period and are relevant to its operations. The IFRS standards and amendments thereto that took effect in 2022 did not have a material impact on the result or the financial position of the Group or on the presentation of the financial statements. The consolidated financial statements have been prepared for the reporting period of 12 months from January 1 to December 31, 2022. The financial statements have been authorized for issue by the Board of Directors of KONE Corporation on January 26, 2023. According to the Finnish Companies' Act the Annual General Meeting has the right to approve, reject or make changes to the financial statements after the publication. The consolidated financial statements are presented in millions of euros and prepared under the historical cost convention except as disclosed in the accounting principles. Further, trade date accounting has been applied to all financial assets and liabilities. Amounts presented in these financial statements have been rounded from exact values and therefore the sum of amounts presented individually can deviate from the presented sum amount calculated based on the exact values. Key figures have been calculated using exact values. CONSOLIDATION PRINCIPLES The consolidated accounts include the parent company and those companies in which the parent company held, directly or indirectly, more than 50 percent of the voting power or had control through management agreements with shareholders holding the majority of the voting power at the end of the reporting period. In addition to these holdings, the consolidated accounts include possible holdings that are of a controlling-right nature (units/companies established for a specific reason). Subsidiaries acquired during the period were included in the consolidated financial statements from the date of acquiring the control, and divested subsidiaries up to the date of loss of control. The acquisition consideration, including deferred and contingent consideration, as well as the identifiable assets acquired and liabilities assumed, are measured at the acquisition date fair values. The acquisition- related costs are recognized as expenses in the period in which they are incurred. At the acquisition date, the non-controlling interests are valued either at the acquisition date fair values or at non- controlling interests' proportionate share in the recognized amounts of the identifiable net assets. Consolidated statement of income includes an allocation of net income between the shareholders of the parent company and the non-controlling interest. The allocation of the comprehensive income to the shareholders of the parent company and non-controlling interests is presented in the statement of comprehensive income. Non-controlling interests' share of total equity is presented separately under total consolidated equity. All inter-corporate transactions, receivables, liabilities and unrealized profits, as well as the distribution of profits within the Group have been eliminated in the consolidated financial statements. Inter-corporate shareholdings have been eliminated using the acquisition method. The results and financial position of foreign operations that have a functional currency different from the presentation currency of the Group, have been translated into the presentation currency as follows: assets and liabilities at the statement of financial position date closing rate, and income and expenses at average exchange rates of the reporting period. The resulting exchange rate differences have been recognized in other comprehensive income. HYPERINFLATION Following continued growth in inflation rate in 2022, the accounting firms and regulatory authorities have based on criteria set-out in IAS 29 classified Türkiye as a hyperinflationary economy for reporting periods ending on or after June 30, 2022. KONE is active in both new equipment as well as service business in Türkiye through its local subsidiary. KONE has assessed the impact of application of hyperinflationary accounting for the Group concluding that this would be immaterial. Consequently, the consolidated statement of income or statement of financial position does not reflect the impact arising from remeasurement of operations in Türkiye for hyperinflation. SEGMENT REPORTING The profitability of KONE is presented as a single entity. KONE's business concept is to serve its customers by providing solutions throughout the entire life cycle of the equipment, beginning from the installation of new equipment to the maintenance and modernization during their life cycle and the full replacement of the equipment. Most of the equipment that are delivered are converted into long-term KONE maintenance contracts. KONE's operating business structure is globally harmonized based on defined business processes. Material operative decisions are made by the Board of Directors of KONE. Such decisions are prepared and presented by the Chairman of the Board and the President and Chief Executive Officer. Due to the business model of KONE, the nature of its operations and its governance structure, the Group as a whole is considered the relevant operating segment to be reported. ACCOUNTING ESTIMATES AND MANAGEMENT JUDGEMENTS The preparation of the financial statements in accordance with the IFRS requires management to make judgements, estimates and assumptions that affect the measurement of the reported assets and liabilities and other information, such as contingent assets and liabilities and the recognition of income and expenses in the consolidated statement of income. Although these estimates and assumptions are based on the management's best knowledge of current events, actual results may differ from the estimates. For KONE the most significant judgements, estimates and assumptions made by the management relate to revenue recognition, especially to defining and determining principles for revenue recognition in project business, to project estimates for long-term major projects, assumptions used in impairment testing, valuation of accounts receivables and inventories, determining the lease term applied in the lease accounting and recognition of provisions and evaluation of uncertain tax positions. 48 KONE ANNUAL REVIEW 2022#51CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIALNATEMENTS | FINANCIAL PERFORMANCE Sales EBIT 2 Financial performance 10,907 1,031 MEUR MEUR IN THIS SECTION This section comprises the following notes describing KONE's financial performance: 2.1 Sales 2.2 Costs and expenses 2.3 Depreciation and amortization 2.4 Foreign exchange sensitivity 2.5 Financing income and expenses 2.6 Income taxes 2.7 Earnings per share 2.8 Other comprehensive income Financial targets KONE has defined long-term financial targets for its financial performance as follows: GROWTH: Faster than market growth PROFITABILITY: EBIT 16% CASH FLOW: Improved working capital rotation KONE has not defined a time frame for the achievement of these financial targets. Given the capital and asset structure of KONE, the aim is not to maximize the EBIT margin in the short term, but rather to grow the absolute EBIT in an optimal way over the long term and as a result maintain a strong return on capital employed. The relative EBIT margin target is relevant in ensuring that growth and productivity improve continuously. 49 KONE ANNUAL REVIEW 2022#521. China 2. USA 3. Germany 6 5 4. France C 5. Great Britain A 6. Italy w 7. Australia w 8. India w 9. Finland N 10. Canada N CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL PERFORMANCE 2.1 SALES Due to KONE's business model, the nature of its operations and its governance structure, KONE has one operating segment. Sales by customer KONE's customer base consists of a large number of customers in several market areas with no significant customer concentration. In 2022 the single biggest customer, residing in China, generated 0.9% of total revenue. Sales by business Jan 1-Dec 31, MEUR New equipment Services Maintenance Modernization Total 2022 % 5,399.3 50 5,507.4 50 3,890.4 36 1,616.9 15 10,906.7 Jan 1-Dec 31, 2021 % 5,637.7 54 4,876.4 46 3,450.6 33 1,425.9 14 10,514.1 Sales by geographical area MEUR EMEA) Americas Asia-Pacific Total Jan 1-Dec 31, 2022 % 4,237.7 39 2,239.8 21 4,429.2 41 Jan 1-Dec 31, 2021 10,906.7 % 4,036.9 38 1,902.9 18 4,574.3 44 10,514.1 EMEA = Europe, Middle East, Africa Top 10 countries by sales, % ~31 17 Accounting principles Revenue recognition Revenue from contracts with KONE's customers is recognized at an amount that reflects the consideration to which KONE expects to be entitled to in exchange for delivering promised goods or services to a customer. KONE recognizes revenue when or as it satisfies a performance obligation by transferring control on the promised goods or services (performance obligation) to a customer. A performance obligation is a distinct good or service within a contract that a customer can benefit from on a stand- alone basis. For KONE's new equipment and modernization contracts, a performance obligation typically means delivery and installation of a single unit, i.e. an elevator, an escalator or other People Flow™ solution. For KONE's maintenance contracts, maintenance of a single unit is considered as a distinct performance obligation and for repairs business, typically a service order is a performance obligation for KONE. In new equipment and modernization contracts, KONE transfers the control of a single unit to a customer over time and, therefore, satisfies the performance obligation and recognizes revenue over time. The percentage of completion method requires accurate estimates of future revenues and costs over the full term of the contracts. These significant estimates form the basis for the amount of revenue to be recognized and include the latest updated estimate of total revenue and costs, adjusted with risks based on historical experience on typical estimation revisions for similar types of contracts. These estimates may materially change due to the stage of completion of the contract, changes in the contract scope, cost estimates and customer's plans and other factors. Revenues from the rendering of maintenance services and repairs are recognized when the services have been rendered or over the contract term when the work is being carried out. For maintenance contracts the performance obligation is satisfied over time because the customer simultaneously receives and consumes the benefits provided as KONE performs the services. Most of KONE's revenue is derived from fixed-price contracts and, therefore, the amount of revenue to be earned from each contract is determined by reference to those fixed prices. KONE's customer contracts do not typically contain any significant financing components. In new equipment and modernization contracts payment terms are typically based on either specific contractual milestones or progress of work performed. In maintenance contracts customers generally pay based on fixed payment schedules. The transfer of control is initiated when ordered equipment is delivered to a customer site as then the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, a unit constructed by KONE. Upon this milestone and onwards up to the project handover, revenue is recognized under the percentage of completion method using a cost-to-cost input method. Based on KONE's assessment it best depicts the transfer of control on the deliverable to the customer. Percentage of completion is defined as the proportion of an individual performance obligation's cost incurred to date from the total estimated costs prices. Where these are not directly observable, they are for that particular performance obligation. When customer contracts contain multiple performance obligations, the transaction price is allocated to each performance obligation based on the standalone selling estimated based on estimated costs plus margin approach. 50 KONE ANNUAL REVIEW 2022#53CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL PERFORMANCE 2.2 COSTS AND EXPENSES Costs and expenses, MEUR Direct materials, supplies and subcontracting Wages, salaries, and other employment expenses including pensions (note 5.7) Other production costs Selling, administrative and other expenses Items impacting comparability Depreciation and amortization (note 2.3) Costs, expenses, depreciation and amortization Other income Jan 1-Dec 31, 2022 4,458.2 3,533.4 874.1 750.1 Jan 1-Dec 31, 2021 4,297.3 3,222.5 789.6 703.3 45.4 259.3 9,920.5 45.0 14.5 244.0 9,271.3 52.5 The majority of expenses of operations arise from direct materials and supplies, as well as cost of subcontracting. Other production costs comprise of logistics, tools and consumables, operative car fleet and traveling as well as other miscellaneous items of direct costs. Selling, administrative and other expenses include costs related to premises, consulting and external services, IT and traveling as well as other miscellaneous administrative costs. In 2022, items affecting comparability included charges for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine, as well as costs for restructuring measures. In the comparison periods, items affecting comparability consisted of restructuring costs. Other income comprises of rental income, received grants, interest on late payments, gains on sale of fixed assets and scrap as well as other miscellaneous income. Total costs, expenses, depreciation and amortization 9,875.5 9,218.8 In 2021, other income includes EUR 19.9 million net gain from the sale of Motala Hissar AB and land area and adjacent building in India. Expense arising from leases of low-value assets and short-term leases amounted to EUR 12.6 (11.7) million in 2022. Research and development costs, MEUR Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 187.8 1.7 188.8 1.8 R&D costs included in total costs As percentage of sales, % Auditors' fees, MEUR To member firms of Ernst & Young network Auditors' statements Tax services Other services Total Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 3.8 3.2 0.1 0.3 0.2 0.1 4.1 3.7 Accounting principles Research and development costs Research and development costs are expensed as they incur, because the future economic benefits of new products and development of existing products and services can only be proven after their successful introduction to the market. 51 KONE ANNUAL REVIEW 2022#54CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL PERFORMANCE 2.3 DEPRECIATION AND AMORTIZATION Depreciation and amortization, MEUR Intangible assets Maintenance contracts Other Buildings Machinery and equipment Total Accounting principles Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 39.5 36.4 10.0 11.3 78.8 74.6 Depreciation and amortization Depreciation and amortization are recorded on a straight- line basis over the economic useful lives of the assets, or over the lease contract periods, when applicable, if shorter. 131.0 121.8 Economic useful lives: 259.3 244.0 Maintenance contracts 10-15 years Other intangible assets Buildings 3-10 years 5-40 years Machinery and equipment Land is not depreciated. 4-15 years 42 52 KONE ANNUAL REVIEW 2022#55CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL PERFORMANCE 2.4 FOREIGN EXCHANGE SENSITIVITY Sales by currency 1-12/2022 Foreign exchange risks ■ EUR ■ CNY - USD ■ Other KONE operates internationally and is thus exposed to risks arising from fluctuations in foreign exchange rates related to currency flows of revenues and expenses (transaction risk) and from the translation of statement of income and statement of financial position of the foreign subsidiaries from respective functional currencies into euros (translation risk). Transaction risks A substantial part of KONE's operations are denominated in local functional currencies of the subsidiaries and do not therefore give rise to transaction risk. The sales of new equipment and modernizations, including installation, typically take place in the local currency of the customer. Component and material expenses may occur in other currencies than the sales currency, which exposes KONE to transaction risks. KONE policy is to substantially hedge the foreign exchange exposure of firm commitments and other highly probable future sales and purchases with foreign exchange forward contracts. The business units are responsible for evaluating and hedging the transaction risks in their operations according to the KONE treasury policy. The most significant transaction risk exposures arising from business operations are in the Chinese yuan, Canadian dollar, Saudi-Arabian rial, Australian dollar and British pound. The majority of the currency forward contracts expire within one year. Hedge accounting is applied in business units, where there are significant revenues or expenses in foreign currency. When hedge accounting is applied, the gains and A change of 10% in the annual average foreign exchange rates Impact on sales 6.9% change in consolidated sales in euros Impact on operating income (EBIT) Higher impact on operating income as compared to sales and some impact on relative operating income losses from the hedges are recognized in the statement of income at the same time as the exchange rate gains and losses for the hedged items are recognized. The financial assets and liabilities of KONE subsidiaries are in the local currencies of the subsidiaries whenever possible. In case a subsidiary company has a financial asset or liability in other than its local currency, these assets and liabilities are hedged with foreign exchange forward contracts whenever possible and required by the KONE Treasury Policy. KONE's internal loans and deposits are primarily initiated in the local currencies of the subsidiaries in which case the possible foreign exchange risks are hedged, by the parent company, using foreign exchange swap contracts. Translation risks Changes in consolidation exchange rates affect KONE's statement of income, statement of cash flows and statement of financial position, which are presented in euros. As approximately 69% of KONE's revenues occur in functional currencies other than euro, the translation risk is significant for KONE. A change of 10% in the annual average foreign exchange rates would have caused a 6.9% (7.7%) change in 2022 consolidated sales in euros. Such a change would have had a higher impact on KONE's operating income and therefore also some impact on KONE's relative operating income. The translation of the subsidiaries' balance sheets into euros caused translation differences of EUR 5.1 (205.6) million in 2022. The translation risk is not hedged as a rule as KONE's business consists of continuous operations in various currency areas. However, in individual cases, KONE can also hedge translation risk related to net assets of subsidiaries. The most significant translation risk exposures arising from Accounting principles Foreign currency transactions and translation The items included in the financial statements are initially recognized in the functional currencies, which are defined for each group subsidiary based on their primary economic environment. The presentation currency of the financial statements is the euro, which is also the functional currency of the parent company. The initial recognition of transactions denominated in foreign currencies in the functional currency takes place at the rate of exchange prevailing at the date of the individual transaction. Foreign currency denominated receivables and liabilities are translated using period end exchange rates. Foreign exchange gains and losses related to business transactions are treated as adjustments within operating income. Foreign exchange gains and losses associated with financing transactions are included in financing income and expenses. The statements of income of foreign subsidiaries, whose functional currency is not the euro, are translated into euros based on the average exchange rate of the accounting period. Items in the statement of financial position, with the exception of net income for the accounting period, are translated into euros at the closing date exchange rates. Exchange rate differences arising from net investments and associated companies in non- euro currency subsidiaries, as well as the exchange rate differences resulting from translating income and expenses at the average rates and assets and liabilities at the closing rate, are recorded in translation differences within equity. Respective changes during the period are presented in other comprehensive income. Exchange rate gains and losses resulting from financial instruments designated as hedges of net assets in foreign subsidiaries have been recognized as translation differences in other comprehensive income. The cumulative translation differences related to foreign operations are reclassified from equity to statement of income upon the disposal of the foreign operation. 53 KONE ANNUAL REVIEW 2022#56Pending#57CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL PERFORMANCE 2.5 FINANCING INCOME AND EXPENSES Financing income and expenses, MEUR Dividend income Interest income Change in fair value of interest Interest income on foreign exchange rate derivatives Interest income on loan receivables and financial assets Other financing income Exchange rate gains " Financing income Interest expenses Change in fair value of interest Interest expenses on other financial liabilities 4) Other financing expenses 5) Exchange rate losses) Financing expenses Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 0.0 5.7 2.9 26.1 25.7 17.4 18.1 0.2 0.2 4.6 3.2 51.2 52.9 -6.0 -5.2 -16.8 -15.8 -6.5 -5.8 -24.6 -0.7 -53.9 -27.4 Total 1) Primarily consists of dividend received from TELC. -2.7 2) Change in fair value of interest includes EUR -2.7 (-5.7) million relating to interest rate funds measured at fair value through the statement of income. 25.5 3) Exchange rate gains and losses include exchange rate differences on loans and other receivables of EUR -47.4 (-128.9) million and fair value changes of foreign exchange derivatives of EUR 27.4 (131.3) million. 4) Includes interest expenses on the lease liabilities amounting to EUR -10.2 (-8.9) million. 5) Includes commitment fees for undrawn revolving credit facilities EUR -0.8 (-0.8) million and banking charges and other expenses EUR -5.7 (-5.0) million. 55 KONE ANNUAL REVIEW 2022#58CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL PERFORMANCE 2.6 INCOME TAXES Taxes in the statement of income, MEUR Tax expense for current year Change in deferred tax assets and liabilities Tax expense for previous years Total Reconciliation of income before taxes with total income taxes in the statement of income, MEUR Income before taxes Tax calculated at the domestic corporation tax rate (20%) Effect of different tax rates in foreign subsidiaries Permanent differences Taxes from previous years and reassessment of deferred tax assets Remeasurement of deferred taxes - changes in corporate tax rates Deferred tax liability on undistributed earnings Other Total Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 272.2 310.0 -33.8 5.5 244.0 -17.6 5.7 298.1 Jan 1-Dec 31, 2021 1,320.8 264.1 Jan 1-Dec 31, 2022 1,028.4 205.7 6.9 4.1 6.5 -1.2 6.4 0.8 0.6 0.2 18.3 27.6 -0.4 244.0 2.5 298.1 23.7 22.6 Accounting principles Income tax The Group tax expense includes taxes of subsidiaries based on taxable income for the period, together with tax adjustments for previous periods and changes in deferred taxes. Deferred taxes are provided for temporary differences arising from difference between the tax bases of assets and liabilities and their carrying amounts in financial reporting and measured with enacted tax rates. Typical temporary differences arise from provisions, depreciation and amortization, inter-company inventory margins, defined benefit type post-retirement plans and tax losses carried forward. Deferred tax assets on unused tax losses and other temporary differences are recognized to the extent it is probable that taxable profit is available to offset losses in the future. A deferred tax liability is recognized on the undistributed profits of subsidiaries where such tax is applicable and it is expected to realize in the foreseeable future. The positions taken in tax returns are evaluated periodically by the management to identify situations in which applicable tax regulation is subject to interpretation. Based on the evaluation, adjustments for the uncertain tax positions are recognized when it is considered more likely than not that certain tax positions will be challenged by the tax authorities. The amounts recorded are based upon the estimated final taxes to be paid to the tax authorities. Effective tax rate, %) Tax rate of parent company, % 20.0 20.0 1) The effective tax rate from the operations for the financial year 2022 was 22.6% excluding prior year taxes and one-time items on Russia. 2.7 EARNINGS PER SHARE Jan 1-Dec 31, 2022 Net income attributable to the shareholders of the parent company, MEUR 774.5 Jan 1-Dec 31, 2021 1,014.2 Weighted average number of shares (1,000 shares) Basic earnings per share, EUR 517,841 518,055 1.50 1.96 Dilution effect of share-based incentive plans (1,000 shares) 323 578 Weighted average number of shares, dilution adjusted (1,000 shares) Diluted earnings per share, EUR 518,164 518,634 1.49 1.96 Accounting principles Earnings per share The basic earnings per share figure is calculated by dividing the net income attributable to the shareholders of the parent company by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated by adjusting the weighted average number of shares by the effect of potential diluting shares due to share-based incentive plans of the Group. KONE has two classes of shares that are both included in the calculation of earnings per share. 56 KONE ANNUAL REVIEW 2022#59CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FINANCIAL PERFORMANCE 2.8 OTHER COMPREHENSIVE INCOME Disclosure of components of other comprehensive income MEUR Translation differences Hedging of foreign subsidiaries Changes in fair value Remeasurements of employee benefits Cash flow hedges: Gains/losses incurred during the year Reclassifications included in profit or loss Cash flow hedges, net Income tax relating to components of other comprehensive income Other comprehensive income Disclosure of tax effects relating to components of other comprehensive income Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 5.1 205.6 -21.2 -28.6 -20.8 0.6 27.4 -3.3 6.4 -8.2 -5.8 8.6 0.6 0.4 16.9 8.0 -5.9 168.9 Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 MEUR Translation differences Gross amount Tax expense/ benefit 5.1 Hedging of foreign subsidiaries -21.2 Net-of-tax amount 5.1 -21.2 Gross amount Tax expense/ benefit Net-of-tax amount 205.6 205.6 -28.6 -28.6 Cash flow hedges 0.6 1.9 2.5 0.4 -2.5 -2.1 Items that may be subsequently reclassified to statement of income -15.5 1.9 -13.6 177.5 -2.5 175.0 Changes in fair value -20.8 -20.8 0.6 0.6 Remeasurements of employee benefits 27.4 15.0 42.4 -3.3 -3.4 -6.7 Items that will not be reclassified to statement of income 6.6 15.0 21.6 -2.7 -3.4 -6.1 Total other comprehensive income -8.9 16.9 8.0 174.8 -5.9 168.9 57 KONE ANNUAL REVIEW 2022#60Pending#61CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | NET WORKING CAPITAL 3.1 INVENTORIES Inventories, MEUR Raw materials, supplies and finished goods Work in progress Advance payments Total Dec 31, 2022 409.9 Dec 31, 2021 326.6 411.1 22.6 351.9 39.2 843.6 717.8 Accounting principles Inventories Inventories are valued at the lower of cost or net realizable value. Raw materials and supplies are valued based on weighted average cost method or at standard cost. Semi- manufactures are valued at production costs. Work in progress includes direct labor and material costs as of the consolidated statement of financial position date with a proportion of indirect costs related to manufacturing and installation allocated to the firm customer order when control has not yet transferred to the customer. Firm customer orders are mainly fixed price contracts with customers for the sale of new equipment or for the modernization of old equipment. An allowance is recorded for obsolete items based on management's estimate of expected net realizable value. 59 KONE ANNUAL REVIEW 2022#62CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | NET WORKING CAPITAL 3.2 ACCOUNTS RECEIVABLE AND CONTRACT ASSETS AND LIABILITIES Changes in contract assets and liabilities The order book representing the unsatisfied performance obligations with respect to new equipment and modernization contracts stood at EUR 9,026.1 (8,564.0) million as at Dec 31, 2022. The vast majority of the order book is expected to be recognized as revenue within the next 12 months from the end of the reporting period. However, lead-times especially in the long-term major projects are somewhat longer depending on the size and complexity of the projects. The changes in unbilled contract revenue, advance payments received and deferred revenue follow the developments in business but are also impacted by the normal fluctuation in project progress when applying percentage of completion method for recognition of revenue. Deferred income on maintenance contracts represents the unsatisfied part of transaction price invoiced for maintenance contracts. Typically this will be recognized as revenue within the next 12 months from the end of the reporting period. No material amounts of revenue were recognized during the reporting period due to changes in transaction prices or changes in estimates for performance obligations partially or fully satisfied in previous years. There were no significant impairment charges recognized during the reporting period for the contract assets. Customer credit risk management Customer credit risks relate to advance payments receivable from customers or to unbilled revenue and accounts receivable related to equipment deliveries or to services rendered. This risk is managed by defining the rules for tendering, payment terms, authorizations and credit control as well as project management controls. Advance payments, documentary credits and guarantees are used in payment terms to minimize customer credit risks. KONE proactively manages its accounts receivable in order to minimize the risk of customer defaults. KONE's customer base consists of a large number of customers in several market areas and geographic split of receivables and contract assets well mirrors distribution of sales. During the reporting period KONE Accounting principles Accounts receivable Accounts receivable are recognized when the right to consideration becomes unconditional and are measured at amortized cost. For KONE's new equipment and modernization contracts, a receivable is typically recognized upon invoicing when the goods are delivered and for KONE maintenance contracts upon invoicing according to customer contract terms and conditions. KONE applies the expected credit loss model to assess impairment loss for the doubtful accounts receivable since the accounts receivable do not contain a significant financing component. To measure the lifetime expected credit losses trade receivables have been grouped based on shared credit risk characteristics and aging category and measured based on historical loss rates adjusted by forward looking estimates and individual assessment. A final impairment loss is recognized when receivership or bankruptcy is confirmed or when it is otherwise obvious that the customer will be unable to meet its payment obligations. Changes in impairment loss for doubtful accounts receivable and final impairment losses are recognized under cost and expenses in the consolidated statement of income. Unbilled contract revenue Unbilled contract revenue relates to consideration for performance obligations satisfied over time in KONE's new equipment and modernization contracts. It is recognized when the revenue recognized exceeds the amounts billed to the customer and receipt of transaction price is considered to be conditional upon factors other than the passage of time. MEUR Accounts receivable Accrued income on maintenance contracts (note 3.3) Unbilled contract revenue (note 3.3) Assets related to contracts with customers Deferred income on maintenance contracts (note 3.4) Advance payments received and deferred revenue Liabilities related to contracts with customers Unbilled contract revenue is valued at net realizable value and is classified as contract asset and presented under deferred assets in the consolidated statement of financial position. An impairment loss for contract assets is estimated based on lifetime expected credit loss model and individual analysis. Deferred and accrued income on maintenance contracts When revenue recognized exceeds the amounts billed to the customer an accrued income on maintenance contracts is recognized. It is stated at net realizable value and classified as contract assets and presented under deferred assets in the consolidated statement of financial position. When the amounts billed to the customer exceed the recognized revenue deferred income on maintenance contracts is recognized. These balances are classified as contract liabilities and are presented under accruals in the consolidated statement of financial position. Advance payments received and deferred revenue Advance payments received and deferred revenue relates to payments received in advance of performance or billing in excess of revenue recognized under KONE's new equipment and modernization contracts. Advance payments received and deferred revenue are recognized as revenue as (or when) KONE performs under the contracts and are classified as contract liabilities. Dec 31, 2022 2,668.1 36.6 365.1 Dec 31, 2021 2,421.4 35.1 344.6 3,069.8 2,801.1 452.2 462.7 1,973.8 2,426.0 1,957.0 2,419.8 60 KONE ANNUAL REVIEW 2022#63Pending#64CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | NET WORKING CAPITAL 3.3 DEFERRED ASSETS Deferred assets, MEUR Deferred interests Accrued income on maintenance contracts (note 3.2) Unbilled contract revenue (note 3.2) Derivative assets (note 5.3) Value added tax assets Prepaid expenses and other receivables Total Dec 31, 2022 3.0 Dec 31, 2021 2.7 36.6 35.1 365.1 344.6 27.2 88.4 84.9 129.6 192.5 180.5 709.3 780.8 3.4 ACCRUALS Accruals, MEUR Dec 31, 2022 Dec 31, 2021 Accrued interests 1.0 2.2 Deferred income on maintenance contracts (note 3.2) Late cost accruals Accrued salaries, wages and employment costs Share-based payments Derivative liabilities (note 5.3) Value added tax liabilities Accruals on acquisitions Other accruals Total 452.2 462.7 302.3 342.7 570.0 551.0 9.9 22.5 32.6 42.3 86.1 122.6 17.0 21.2 581.2 570.0 2,052.2 2,137.4 Includes accrual for invoicing still pending to be received on completed new equipment and modernization contracts. 62 KONE ANNUAL REVIEW 2022#65CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | NET WORKING CAPITAL 3.5 PROVISIONS Jan 1-Dec 31, 2022, MEUR Total provisions at beginning of period Translation differences Increase Provisions used Reversal of provisions Companies acquired Total provisions at end of period Provision Provision Provision for business Provision for warranty for claims restructuring for loss contracts Other provisions 58.8 7.4 16.0 31.4 38.6 Total 152.3 -0.6 0.0 0.2 -0.3 0.1 -0.7 19.9 4.2 10.9 32.7 38.0 105.7 -11.8 -1.3 -10.7 -13.9 -8.5 -46.1 -1.5 -2.0 -1.5 -3.7 -25.8 0.6 64.8 8.4 14.9 46.2 43.0 -34.4 0.6 177.4 Non-current liabilities Distribution of provisions as of Dec 31, 2022 44.8 Current liabilities 132.6 Total 177.4 Accounting principles Provisions Provisions are recognized when KONE has a current legal or constructive obligation as a result of past event, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Recognition and measurement of a provision generally employs managerial estimates on the probability and the amount of the liability. Provisions for warranties cover the estimated liability to repair or replace products still under warranty at the statement of financial position date. This provision is calculated based on historical experience of levels of repairs and replacements. Provision for claims is recognized when the claim has been received and it is probable that it will be settled and the settlement amount can be estimated reliably. A provision for business restructuring is recognized only when a detailed and formal plan has been established, there is a valid expectation that such a plan will be carried out and the plan has been communicated. Provisions for onerous (loss) contracts are recognized when it is probable that the costs will exceed the estimated total revenue or other income arising from the contract. The probable loss is recognized as an expense immediately. Other provisions include for example provisions for contractual and other obligations arising from disputes, labor relations or other regulatory matters. Provision Provision Provision for business Jan 1-Dec 31, 2021, MEUR for warranty for claims restructuring Provision for loss contracts Other provisions Total provisions at beginning of period 67.4 6.3 18.1 28.3 34.5 Translation differences Increase Provisions used Reversal of provisions Companies acquired Total provisions at end of period 2.8 0.0 0.3 1.3 0.3 15.0 5.7 14.3 17.4 20.6 -21.7 -1.1 -10.5 -10.7 -3.5 -4.6 -3.5 -6.2 -5.2 -14.3 Total 154.7 4.7 73.0 -47.7 -33.8 0.1 0.4 0.9 1.4 58.8 7.4 16.0 31.4 38.6 152.3 Non-current liabilities Current liabilities Distribution of provisions as of Dec 31, 2021 101.4 50.9 Total 152.3 63 63 KONE ANNUAL REVIEW 2022#66CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | NET WORKING CAPITAL 3.6 DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets, MEUR Tax losses carried forward Provisions and accruals Post retirement obligations Dec 31, 2022 1.1 Dec 31, 2021 1.7 Dec 31, 2020 270.2 267.8 2.0 236.7 15.9 28.6 21.7 Inventory 23.9 23.5 24.5 Property, plant and equipment 13.2 16.0 14.7 Other temporary differences 90.0 42.8 42.6 Offset against deferred tax liabilities -106.7 -111.3 -99.8 Total 307.5 269.1 242.4 Total at beginning of period Translation differences Change in statement of income Charged or credited to equity Acquisitions, divestments and other Total at end of period Deferred tax liabilities, MEUR Property, plant and equipment Goodwill and intangible assets Other temporary differences Offset against deferred tax assets Total 269.1 242.4 -4.4 21.1 25.9 11.5 16.9 -5.9 0.1 0.1 307.5 269.1 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 21.5 29.3 29.0 85.3 72.2 72.0 84.7 96.7 89.3 -106.7 -111.3 -99.8 84.8 86.9 90.4 Total at beginning of period Translation difference 86.9 90.4 2.5 0.6 Change in statement of income -7.9 -6.1 Acquisitions, divestments and other 3.3 2.0 Total at end of period 84.8 86.9 Net deferred tax assets and liabilities 222.7 182.2 Accounting principles Deferred taxes Deferred taxes are provided for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in financial reporting, and measured with enacted tax rates. Typical temporary differences arise from revenue recognition, provisions, depreciation and amortization, inter-company inventory margins, defined benefit type post retirement plans, lease contracts and tax losses carried forward. Deferred tax assets on unused tax losses and other temporary differences are recognized to the extent it is probable that taxable profit is available to take advantage of the asset in the future. A deferred tax liability is recognized on the undistributed profits of subsidiaries where such tax is applicable and it is expected to realize in the foreseeable future. Deferred tax assets and liabilities are offset for presentation purposes when there is a legally enforceable right to offset income tax receivables against income tax payables and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority. 64 KONE ANNUAL REVIEW 2022#67Pending#68CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | ACQUISTIONS AND CAPITAL EXPENDITURE 4.1 ACQUISITIONS AND DISPOSALS Acquisitions KONE completed 17 (15) acquisitions during 2022 for a total consideration of EUR 28.1 (50.1) million. The acquired businesses are specialized in the elevator, escalator and automatic building door businesses and are all located in the EMEA region. The acquisitions completed during the financial period were not material individually or as a whole to KONE's 2022 financial statements. The sales consolidated from the companies acquired during 2022 had only a minor impact on KONE's sales for the financial period. Of the total consideration, based on provisional assessments, EUR 26.2 million was allocated to maintenance contracts in other intangible assets. Acquired maintenance contracts are typically amortized over ten years. Note 4.3 provides more detail on other intangible assets. The fair values of the acquired net assets, based on a provisional assessment, as well as the acquisition costs, are summarized in the adjacent table. The considerations were paid for in cash, except for certain deferred considerations, expected to be paid later. For most of the completed acquisitions, the acquisition cost includes a contingent consideration, which is typically determined by the financial performance of the acquired business after the date of the acquisition. Changes in the fair value of the contingent consideration after the acquisition date are recognized in the profit or loss. However, contingent considerations are typically realized in the amount initially recognized. KONE mostly acquired a 100% interest in all businesses acquired in 2022, except for one acquisition. Disposals In the comparison reporting period KONE sold its full ownership in Motala Hissar AB against cash consideration. The sale of the subsidiary did not have material impact on the assets or liabilities of the Group. A gain of EUR 13.9 million was recognized arising from the sale. Non-current assets held for sale and discontinued operations In June 2022 KONE announced decision to divest its business in Russia by selling it to local management. The share purchase agreement is subject to approval by the relevant regulatory authorities in Russia. As at December 31, 2022, operations in Russia are classified as held for sale. The assets and liabilities of the business have however not been presented separately from other assets and liabilities of the Group in the statement of financial position nor have results related to the business been presented as a separate component in the income statement as the impact is immaterial. The assets and liabilities of the business have been measured at the lower of their carrying amount or fair value less cost to sell resulting in recognition of loss of EUR 12.5 million. Accounting principles Acquisitions Businesses acquired during the period have been combined in the consolidated financial statements from the date when Group has obtained control of the business and divested businesses up to the date when control has ceased. The acquisition consideration, including deferred and contingent consideration, as well as the identifiable assets acquired, and liabilities assumed, are measured at the acquisition date fair values. The acquisition related costs are recognized as expenses for the period in which they are incurred. At the acquisition date, any non-controlling interest is measured either at the acquisition date fair value or at non- controlling interest's proportionate share in the recognized amounts of the identifiable net assets. Non-current assets held for sale and discontinued operations The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell 66 KONE ANNUAL REVIEW 2022#69CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | ACQUISTIONS AND CAPITAL EXPENDITURE Assets and liabilities of the acquired businesses, MEUR Maintenance contracts Other intangible assets Tangible assets Deferred tax assets Inventories Accounts receivables and other assets Cash and cash equivalents Total assets Employee benefit liabilities Interest-bearing loans Provisions Deferred tax liabilities Other liabilities Total liabilities Net assets Acquisition cost paid in cash Contingent and deferred consideration Acquisition cost at date of acquisitions Goodwill Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 26.2 22.7 0.0 0.2 0.4 0.2 0.1 0.1 1.5 0.8 2.6 4.9 2.4 8.2 33.1 37.2 0.2 0.1 2.5 0.2 0.6 1.4 3.3 2.0 2.2 3.6 8.9 7.3 24.2 30.0 19.1 36.4 9.1 13.7 28.1 50.1 4.0 20.1 Changes in the acquisition cost occurring after the acquisition date and recognized in the statement of income totaled EUR 0.7 (0.2) million. 67 KONE ANNUAL REVIEW 2022#70CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | ACQUISTIONS AND CAPITAL EXPENDITURE 4.2 GOODWILL Goodwill allocation Goodwill is allocated to cash-generating units (CGUS). A cash generating unit is typically defined as the country unit in which the acquired business operates in accordance with KONE's business model and organization structure. As at Dec 31, 2022 the carrying amount of goodwill is allocated to 23 different CGUS. The five largest CGUS carry 75% of the goodwill. The carrying amount of goodwill is below EUR 10 million for 9 CGUS. The geographical allocation of goodwill and the weighted average discount rates are presented in the adjacent table. Impairment testing The value-in-use calculations have been prepared utilizing cash flow projections that are based on CGU specific financial estimates approved by the Group management. The explicit forecast period covers the following three years for each CGU. The business growth, sales price and cost development assumptions embedded in the CGU specific cash flow projections are based on management assessment of the market demand and environment, which are examined against external information sources. The productivity and efficiency assumptions are based on internal targets, which are evaluated against actual performance. The cash flows for subsequent terminal year are assumed prudently without growth, except as stated below. The discount rates are based on the risk-free interest rates, risk factors (beta coefficient) and market risk premiums available on financial markets. The value-in-use calculations are validated against KONE's market capitalization. Compared to previous year, the most significant change affecting the cash flow projections has concerned the deterioration of new equipment market in China where goodwill is carried related to KONE's second brand business. The operating environment having seen big changes, assumptions specific to this CGU have been revised when estimating the value in use, including country risk premium and terminal growth rate that has been increased to better align with local inflation. As a result of the annual impairment test, the goodwill for one CGU in EMEA in the amount of EUR 1.0 million, was fully impaired. Additionally, EUR 2.8 million of goodwill attached to Accounting principles Goodwill Acquisitions are accounted for using the acquisition method. Goodwill is calculated as the excess of acquisition cost over the fair values of identified assets and liabilities acquired. Goodwill typically represents the value of the acquired market share, business knowledge and the synergies obtained in connection with the acquisition. The carrying amount of goodwill is not amortized, but is tested for impairment. Impairment testing The Group assesses the carrying amount of goodwill annually or more frequently if any indication of impairment exists. Goodwill is allocated to the cash generating units (CGUS) of the Group, which are identified according to the Goodwill, MEUR EMEA Americas Asia-Pacific Total Goodwill reconciliation Goodwill, MEUR Opening net book value Translation differences Increase Decrease Companies acquired (note 4.1) Closing net book value country of operation and business area at the level at which goodwill is monitored for internal management purposes. The recoverable amount of a CGU is determined by value-in-use calculations. In assessing the recoverable amount, estimated future cash flows are discounted to their present value. Cash flow estimates are based on management's estimates. The discount rate is the weighted average cost of capital (WACC) for the main currency area in the location of the CGU (country or business area), which reflects the market assessment of the time value of money and the risks specific in KONE's business. Any impairment loss of goodwill is recognized immediately as an expense and is not subsequently reversed. Dec 31, 2022 % Discount rates used (pre-tax), % 809.5 57 8.23 368.1 26 10.05 237.1 17 10.17 1,414.7 Dec 31, 2021 % 814.9 58 349.0 25 241.4 17 1,405.2 Discount rates used (pre-tax), % 5.52 7.22 8.91 Dec 31, 2022 1,405.2 Dec 31, 2021 1,327.0 58.6 8.2 3.5 -6.1 -0.9 4.0 20.5 1,414.7 1,405.2 68 KONE ANNUAL REVIEW 2022#71CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | ACQUISTIONS AND CAPITAL EXPENDITURE operations in Russia was impaired during 2022 when the business was reclassified as held for sale. The impairment testing process includes a sensitivity analysis in which the CGU specific cash flow estimates were reduced by 10-40 percent and the discount rates were increased by 1-4 percentage points. Based on the sensitivity analysis, the probability for material impairment losses was very low in all other CGUs, except for the second brand CGU in China where the value in use with the base scenario approximates the value of assets employed by the CGU. Even small deterioration in future cashflows or adverse change in calculation assumptions would result in recognition of impairment charge for the China second brand CGU. Due to this sensitivity, fair value less cost to sell analysis has further been prepared for the CGU to validate the outcome from value in use analysis. This analysis supports the recoverable value provided by the base scenario. On December 31, 2022 goodwill carried by respective CGU amounts to EUR 190.9 million. Under the basic scenario for other CGUs, the value-in-use calculations were on average 7.5 times higher than the value of CGUs' assets employed. The respective ratio for the five largest CGUS was 6.3; for the five smallest 12.2 and respectively for the other CGUS 9.7. 69 KONE ANNUAL REVIEW 2022#72CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | ACQUISTIONS AND CAPITAL EXPENDITURE 4.3 INTANGIBLE ASSETS Intangible assets, MEUR Opening gross acquisition cost Opening accumulated amortization and impairment Opening net book value Opening net book value Translation differences Increase Decrease Reclassifications Companies acquired (note 4.1) Amortization Closing net book value Closing gross acquisition cost Closing accumulated amortization and impairment Closing net book value Intangible assets, MEUR Opening gross acquisition cost Opening accumulated amortization and impairment Opening net book value Opening net book value Translation differences Increase Decrease Companies acquired (note 4.1) Amortization Jan 1-Dec 31, 2022 Maintenance contracts Other Total 471.6 260.1 731.7 -285.9 -229.0 -514.9 185.8 31.1 216.9 185.8 31.1 216.9 0.3 -0.5 -0.2 3.7 10.9 14.6 -0.2 0.0 -0.2 0.4 0.4 26.2 0.0 26.2 -39.5 -10.0 -49.5 176.3 31.9 208.2 501.6 -325.4 176.3 256.2 757.8 -224.2 -549.6 31.9 208.2 Jan 1-Dec 31, 2021 Maintenance contracts Other Total 439.5 261.8 -249.5 -228.6 190.0 33.2 701.3 -478.1 223.2 190.0 33.2 223.2 6.5 1.7 8.3 2.8 8.7 11.5 -1.4 -1.4 22.7 0.2 22.9 -36.4 -11.3 -47.7 185.8 31.1 216.9 Closing net book value Closing gross acquisition cost 471.6 260.1 731.7 Closing accumulated amortization and impairment -285.9 -229.0 -514.9 Closing net book value 185.8 31.1 216.9 Accounting principles Intangible assets Intangible assets identified in connection with acquisitions are amortized on a straight-line basis over their expected useful lifetime. KONE often acquires small elevator, escalator and door service companies, where the excess of consideration transferred over the net assets of the acquiree as at closing is allocated to the acquired maintenance contracts. The acquired maintenance contracts are typically amortized over ten years. Intangible assets also include expenditure on acquired patents, trademarks and licenses, including acquired software licenses. These assets are amortized on a straight-line basis over their expected useful lifetime, which does not usually exceed five years. Impairment of assets The carrying amounts of non-current intangible assets and tangible assets are reviewed for impairment at each reporting date or whenever there is indication of that the carrying value of the asset may not be recoverable. Impairment test involves estimating the recoverable amount of the asset, subject to testing. The recoverable amount is the higher of the asset's fair value less cost of disposal and the value in use. An impairment loss is recognized in the statement of income whenever the carrying amount exceeds the recoverable amount. A previously recognized impairment loss is reversed only if there has been a significant change in the estimates used to determine the recoverable amount, but not, however, to an amount higher than the carrying amount that would have been determined without the impairment loss recognized in prior years, deducted by accumulated depreciation. 10 70 KONE ANNUAL REVIEW 2022#73CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | ACQUISTIONS AND CAPITAL EXPENDITURE 4.4 TANGIBLE ASSETS Land Buildings Buildings, leased for own use Jan 1-Dec 31, 2022 Machinery & equipment Machinery & equipment, leased for own use Fixed assets under construction Advance payments Total Tangible assets, MEUR Opening gross acquisition cost 6.7 333.3 365.5 664.4 232.2 11.5 Opening accumulated depreciation -152.2 -154.1 -464.5 -109.6 Opening net book value 6.7 181.1 211.4 199.9 122.6 11.5 3.5 3.5 1,617.1 -880.4 736.7 Opening net book value 6.7 181.1 211.4 199.9 122.6 11.5 3.5 736.7 Translation differences 0.0 -1.6 1.9 -0.5 0.8 -0.4 0.0 0.2 Increase 7.0 44.5 58.9 62.9 23.3 1.6 198.4 Decrease -0.8 -2.1 -3.4 -1.5 -0.8 -0.1 -8.7 Reclassifications 2.7 0.0 9.3 0.0 -8.9 -3.6 -0.4 Companies acquired (note 4.1) 0.2 0.2 0.4 Depreciation 0.0 -15.0 -63.8 -68.1 -62.9 Closing net book value 5.9 172.1 190.8 198.3 122.8 25.3 1.6 -209.8 716.8 Closing gross acquisition cost 5.9 336.7 Closing accumulated depreciation -164.6 Closing net book value 5.9 172.1 403.6 -212.8 190.8 714.2 -515.9 198.3 249.5 25.3 1.6 -126.7 122.8 - 1,736.9 -1,020.0 25.3 1.6 716.8 During the period of Jan 1-Dec 31, 2022, capital expenditure on production facilities, installation equipment, R&D tools, as well as on information systems, including new assets recognized for lease agreements, totaled to EUR 209.2 (217.1) million. Capital expenditure on leases consists mainly of maintenance vehicles and office facilities. Lease payments in cash flow totaled to EUR -124.3 (-121.0) million. Accounting principles Property, plant and equipment Property, plant and equipment are measured at cost less accumulated depreciation and any impairment losses, when applicable. Depreciation is recognized on a straight-line basis over the economic useful lives of the assets or over the lease contract period, if shorter. Economic useful lives are as follows: Buildings Machinery and equipment Land is not depreciated. 5-40 years 4-15 years Expenditure on repairs and maintenance of property, plant and equipment is recognized as expense when incurred. The carrying amount of any tangible asset is impairment tested (see impairment of assets accounting principles) when an indication of impairment exists. Leases As a lessee, KONE recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments, amounting to the present value of the future lease payments. The value of right-of-use asset corresponds the value of future lease payments at the inception of the lease, discounted with the incremental borrowing rate. Right-of-use assets are depreciated over the contract period or over the useful life of the asset, which is the shorter. An option to extend or terminate the lease contract is included to the lease period when exercising such option is considered highly probable. The cost arising from short- term leases and leases of low value assets are recognized as an expense on a straight-line basis over the contract period. 71 KONE ANNUAL REVIEW 2022#74Tangible assets, MEUR Land CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | ACQUISTIONS AND CAPITAL EXPENDITURE Buildings Buildings, leased for own use Machinery & equipment Jan 1-Dec 31, 2021 Opening gross acquisition cost 6.7 317.3 321.6 602.2 208.6 10.6 3.2 1,470.3 Opening accumulated depreciation -137.7 -105.5 -427.6 -89.4 - -760.2 Opening net book value 6.7 179.6 216.1 174.7 119.2 10.6 3.2 710.0 Opening net book value 6.7 179.6 216.1 174.7 119.2 10.6 3.2 710.0 Translation differences 0.0 10.3 9.5 8.6 4.7 0.6 0.3 34.0 Increase 6.0 57.0 69.0 63.3 10.0 2.5 207.8 Decrease 0.0 -3.5 -10.5 -1.4 -3.1 -0.7 -19.2 Reclassifications 2.7 0.0 8.8 -9.0 -2.5 Companies acquired (note 4.1) 0.2 0.2 Depreciation 0.0 -14.0 -60.6 -59.9 -61.8 -196.4 Closing net book value 6.7 181.1 211.4 200.0 122.6 11.5 3.5 736.7 Closing gross acquisition cost 6.7 333.3 365.5 664.4 232.2 11.5 3.5 1,617.1 Closing accumulated depreciation -152.2 -154.1 -464.5 -109.6 -880.4 Closing net book value 6.7 181.1 211.4 200.0 122.6 11.5 3.5 736.7 72 KONE ANNUAL REVIEW 2022 equipment, leased for own use Machinery & Fixed assets under construction Advance payments Total#75CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE KONE's interest bearing net debt -1,309 MEUR Equity per share 5 Capital structure 5.49 EUR IN THIS SECTION This section comprises the following notes, which describe the capital structure of KONE: 5.1 Capital management 5.2 Shareholders' equity 5.3 Financial risks and instruments 5.4 Shares and other non-current financial assets 5.5 Deposits and loans receivable 5.6 Commitments 5.7 Employee benefits KONE'S CAPITAL STRUCTURE KONE's cash position is strong due to the cash- generative operating model including collection of significant advance payments in the new equipment business. KONE has not defined a specific target for its capital structure, but the aim is to ensure strong credit quality to provide for ample access to external funding sources to support the growth ambitions of the business. 73 KONE ANNUAL REVIEW 2022#76CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE 5.1 CAPITAL MANAGEMENT KONE aims to manage its capital in a way that supports the profitable growth of operations by securing an adequate liquidity and capitalization of the Group at all times. The target is to maintain a capital structure that contributes to the creation of shareholder value. The assets employed in KONE's business consist principally of net working capital, fixed assets, and financial investments which are funded by equity and net debt, as shown in the adjacent table. Due to the business model and the business processes of KONE, the level of total assets employed is relatively low. KONE aims to maintain a negative net working capital to ensure a healthy cash flow even when the business is growing and to maintain a high return on assets employed. Cash flow from operations is the principal source of KONE's financing. External funding, as well as cash and financial investments, are managed centrally by KONE Treasury according to the KONE Treasury Policy. Financial investments are made only with counterparties with high creditworthiness and mainly in short term instruments to ensure continuous liquidity. KONE has not defined a specific target for its capital structure, but the aim is to ensure strong credit quality to provide for ample access to external funding sources and to support the growth ambitions of the business. KONE considers its current capital structure to be a strength, as it allows for capturing potential value creating business opportunities, should such opportunities arise. In the event that significant attractive investment or acquisition opportunities were available, KONE could also utilize its borrowing capacity. In such cases, the level of debt and financial gearing could be higher for a period of time. At the end of 2022, the funding of KONE was guaranteed by existing committed credit facilities, cash and financial investments. KONE has not defined a specific target for dividends or share buy-backs. The dividend proposal by the Board of Directors is determined on the basis of the overall business outlook, business opportunities, as well as the present capital structure and the anticipated changes in it. In 2018-2022, the dividend payout ratio has been 94.2-124.0% for class B shares (2022 proposal by the Board of Directors of KONE Corporation). At the end of December 2022, KONE had 12,306,640 class B shares in its possession. Capital management, MEUR 2022 2021 2020 2019 2018 Assets employed: Goodwill and shares Other non-current assets Net working capital Total assets employed Capital: Equity Interest-bearing net debt Total capital Gearing Equity ratio 1,536 1,550 1,470 1,506 1,477 ) 925 954 933 990 658 -904 -1,468 -1,160 -856 -758 1,557 1,035 1,243 1,640 1,377 1) Tangible assets, acquired maintenance contracts and other intangible assets. 2,867 3,199 3,197 3,193 3,081 -1,309 -2,164 -1,954 -1,553 -1,704 1,557 1,035 1,243 1,640 1,377 -45.7% -67.6% -61.1% -48.6% -55.3% 40.3% 41.2% 45.5% 46.5% 49.9% KONE has adopted the IFRS 16 and IFRIC 23 effective January 1, 2019 using the modified retrospective approach and the comparative amounts have not been restated. To ensure an efficient internal allocation and utilization of its capital resources, KONE measures the financial results of its business activities after a capital allocation charge. The capital allocation charge is based on the assets employed in the business activity and the weighted average cost of capital (WACC). The WACC is also used as a hurdle rate when evaluating the shareholder value creation potential of new acquisitions, major capital expenditure and other investments. The valuation methods used are payback time, discounted cash flow as well as earnings and cash flow multipliers. Non-current assets by country MEUR USA Dec 31, 2022 Dec 31, 2021 477.0 441.8 China 466.4 482.5 Spain 244.1 240.9 Germany 212.8 219.6 France 201.5 206.1 Finland 167.2 146.9 Other 1,012.4 1,060.3 Total 2,781.3 2,798.0 74 KONE ANNUAL REVIEW 2022#77Pending#78Pending#79CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE Reconciliation of own shares, Dec 31, 2022 KONE Corporation and Group total Dec 31, 2021 February 03, 2022 February 03, 2022 Quantity Acquisition cost Average price 11,433,525 198,574,506.75 17.37 -218,091 -12,070,057.07 55.34 9,518 350,288.48 36.80 April 28, 2022 -7,664 -463,562.35 60.49 April 28, 2022 1,269 46,702.68 36.80 July 21, 2022 2,468 90,829.16 36.80 November 03, 2022 150,000 6,274,282.33 41.83 November 04, 2022 120,000 5,278,329.64 43.99 November 07, 2022 100,000 4,418,357.61 44.18 November 08, 2022 50,000 2,207,260.93 44.15 November 09, 2022 130,000 5,922,817.92 45.56 November 10, 2022 130,000 6,037,259.33 46.44 November 11, 2022 150,000 7,369,242.31 49.13 November 14, 2022 150,000 7,507,539.44 50.05 November 15, 2022 103,500 5,014,758.07 48.45 December 21, 2022 2,115 77,837.80 36.80 Dec 31, 2022 12,306,640 236,636,393.03 19.23 77 KONE ANNUAL REVIEW 2022#80Pending#81CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE KONE has a credit facility of EUR 200 (0) million and a loan of EUR 200 (200) million from the European Investment Bank (EIB) for R&D purposes. The fixed interest rate loan will mature in 2026. The fair value of the loan is estimated based on discounted cash flow method using a current borrowing rate (level 2 fair value hierarchy) as the discount rate. KONE has also an uncommitted commercial paper program of EUR 500 (500) million and a sustainability-linked revolving credit facility of EUR 850 (850) million to ensure sufficient liquidity. The sustainability targets included in the facility relate to KONE's decarbonization and gender diversity commitments. Interest rate risks KONE's cash and short-term investments were EUR 1,965.6 (2,884.1) million at the statement of financial position date. At the same time, KONE's interest-bearing debt was EUR 673.9 (746.5) million and consisted of EUR 532.6 (547.1) million of financial debt including lease liabilities, EUR 1.3 (5.1) million of option liabilities from acquisitions, and EUR 140.0 (194.3) million of employee benefit liabilities. Additionally, KONE had an asset on employee benefits of EUR 10.0 (22.9) million. As KONE's financial investments are mainly invested in tenors of less than one year, changes in the interest rates do not have any significant impact on their market values. Changes in the interest rates may however impact future interest income. When calculating the interest rate sensitivity analysis, the interest-bearing net financial debt, excluding foreign exchange forward contracts, is assumed to remain on the level of the closing balance of 2022 during the following financial period. The sensitivity analysis presents the impact of a 1 percentage point change in the interest rate level on the net interest income for the financial period by taking into account the net financial debt tied to interest periods of less than one year, EUR -1,854.5 (-2,768.5) million. For 2022 a 1 percentage point change in the interest rate level would mean a change of EUR -18.5 (-27.7) million in net interest income. The interest rate sensitivity is calculated before taxes. A change in interest rates does not have a material impact on the net interest on employee benefits, on financial debt or option liabilities from acquisition. Accounting principles Loans Loans payable are in the consolidated statement of financial position presented as part of other financial liabilities. They are measured initially at fair value net of directly attributable transaction costs incurred and are subsequently carried at amortized cost using the effective interest rate method. Lease liabilities are measured to the present value of future lease payments discounted with the incremental borrowing rate. Financial assets Financial assets are classified into three categories: measured at amortized cost, at fair value through other comprehensive income (FVOCI) and at fair value through profit or loss. The classification is made at the time of the original acquisition based on the objective of the business model and the characteristics of contractual cash flows of the investment. KONE assesses on a forward-looking basis the expected credit losses associated with its assets carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Derivatives Treasury policy for hedging purposes is applied to all derivative contracts. The majority of the foreign exchange forward contracts and swaps mature within a year. The fair values of foreign exchange forward contracts and swaps are measured based on price information derived from active markets and commonly used valuation methods (fair value hierarchy level 2). Financial contracts are executed only with counterparties that have high credit ratings. The credit risk of the counterparties and KONE is considered when assessing the fair values of outstanding financial assets and liabilities. The fair values of the derivatives are represented in the balance on a gross basis and can be set off on conditional terms such as breach of contract or bankruptcy. Derivative financial receivables from counterparties after set off would be EUR 4.0 (49.9) million and payables EUR 9.4 (3.9) million. All of these financial assets are considered to have low credit risk, and thus the impairment provision assessment is based on 12 months expected losses. Current deposits and loans receivable Current deposits and loans receivable are initially recognized at fair value and thereafter at amortized cost using the effective interest rate method except for interest rate funds which are classified and measured as investments at fair value through profit or loss. Only substantial transaction costs are considered for when measuring the acquisition cost. Investments in commercial papers, short-term bank deposits, interest rate funds and other money market instruments are included in deposits and loans receivable. Cash and cash equivalents Cash and cash equivalents include cash-in-hand and bank account balances. Bank overdrafts are included in other current liabilities. 79 KONE ANNUAL REVIEW 2022#82Pending#83CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE Values of financial assets and liabilities by categories Dec 31, 2022 Non-current assets Shares and other non-current financial assets Non-current loans receivable Employee benefits Current assets Measured at Measured at fair value through Notes profit or loss fair value Measured at through other amortized comprehensive cost income Total book Other value 5.4 5.5 | 5.7 121.7 2.5 121.7 2.5 10.0 10.0 Accounts receivable 2,668.1 2,668.1 Derivative assets 6.4 20.8 27.2 Current deposits and loans receivable | 5.5 820.8 654.1 1,474.9 Cash and cash equivalents I 495.5 495.5 Total financial assets 827.2 3,820.2 142.5 10.0 4,799.9 Non-current liabilities Loans > Employee benefits 5.7 200.0 217.9 417.9 140.0 140.0 Current liabilities Loans) I 106.1 106.1 Current loans and other liabilities | 8.6 8.6 Option liabilities from acquisitions I 1.3 1.3 Accounts payable 1,132.8 1,132.8 Derivative liabilities 17.3 15.4 32.7 Unpaid acquisition consideration 18.7 1,341.4 15.4 17.0 481.0 17.0 1,856.3 Total financial liabilities Includes lease liabilities of EUR 217.9 million. Includes lease liabilities of EUR 106.1 million. The fair values of the financial assets and liabilities are not materially different from their book values. Interest-bearing net debt comprises items marked with "I". 81 KONE ANNUAL REVIEW 2022#84CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE Measured at Measured at fair value through Notes profit or loss fair value Measured at through other amortized comprehensive cost Total book income Other value Dec 31, 2021 Non-current assets Shares and other non-current financial assets I 5.4 Non-current loans receivable 5.5 144.6 2.6 Employee benefits I 5.7 144.6 2.6 22.9 22.9 Current assets Accounts receivable 2,421.4 Derivative assets 88.4 2,421.4 88.4 Current deposits and loans receivable I 5.5 1,906.6 Cash and cash equivalents 488.1 490.4 2,394.7 490.4 Total financial assets 1,995.0 3,402.5 144.6 22.9 5,565.0 Non-current liabilities Loans) Employee benefits I I 5.7 200.0 235.4 435.4 194.3 194.3 Current liabilities Loans) 108.3 108.3 Current loans and other liabilities I 3.4 3.4 Option liabilities from acquisitions 5.1 5.1 Accounts payable 1,310.2 1,310.2 Derivative liabilities Unpaid acquisition consideration Total financial liabilities Includes lease liabilities of EUR 235.4 million. 3.8 38.5 42.3 9.0 1,513.6 38.5 21.2 559.2 21.2 2,120.3 Includes lease liabilities of EUR 108.3 million. The fair values of the financial assets and liabilities are not materially different from their book values. Interest-bearing net debt comprises items marked with "I". 22 82 KONE ANNUAL REVIEW 2022#85CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE 5.4 SHAREHOLDINGS AND OTHER NON- CURRENT FINANCIAL ASSETS On the date of the statement of financial position, shares and other non-current financial assets were EUR 118.8 (139.6) million and EUR 2.9 (4.9) million, respectively. The shares held include a 19.9% holding in Toshiba Elevator and Building Systems Corporation (TELC). TELC consists of an investment in equity instruments that does not have a quoted price in an active market. The fair value of TELC shares is estimated using a dividend discount model with the key inputs to the model including forecasted dividend and the discount rate. While the fair value of the investment is sensitive to changes in these two assumptions, there is no reasonably possible change that would result in significant impact on total assets or equity of KONE. Investment also includes other non-current financial assets which are investments in smaller holdings in other companies without public quotation. 5.5 DEPOSITS AND LOANS RECEIVABLE The fair values of deposits and loans receivable are not materially different from their carrying amounts. Current deposits mature within one year and consist of EUR 820.8 (1,906.6) million and EUR 649.3 (487.1) million of interest rate funds and short-term bank deposits, respectively. 5.6 COMMITMENTS Banks and financial institutions have guaranteed obligations arising in the ordinary course of business of KONE companies up to a maximum of EUR 1,802.9 (1,735.7) million as of December 31, 2022. Accounting principles Shares and other non-current financial assets Shares include long-term strategic investments, which are investments in equity instruments that do not have a quoted price in an active market. Other non-current financial assets include investments in smaller holdings in other companies without public quotation. Shares and other non-current financial assets are classified as investments measured at fair value Deposits and loans receivable, MEUR Non-current loans receivable Current loans receivable Current short-term deposits Total through other comprehensive income. The fair value is measured using income or market approach valuation techniques under fair value hierarchy level 3. Upon disposal of these investments, any balance within the fair value and other reserves for these investments is reclassified to retained earnings and is not reclassified to the statement of income. Dec 31, 2022 Dec 31, 2021 2.5 2.6 4.8 1.0 1,470.1 2,393.7 1,477.4 2,397.3 83 KONE ANNUAL REVIEW 2022#86CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE 5.7. EMPLOYEE BENEFITS KONE operates various employee benefit plans throughout its locations. These plans include both defined contribution and defined benefit schemes. The pension benefits provided by KONE to its employees are primarily organized through defined contribution plans. KONE's most significant funded defined benefit plans are in the United Kingdom and in the United States. Defined benefit pension plans are funded by KONE to satisfy local statutory funding requirements. The assets are managed by external fund managers. The funds are allocated between equities and fixed income instruments in order to provide return at target level and limited risk profile. The valuations of the obligations are carried out by independent qualified actuaries. The discount rates used in actuarial calculations of the employee benefit liabilities are adjusted to market rates. In the United Kingdom, the pension scheme is designed according to the Definitive Trust Deed and Rules and complies with the guidelines of the UK Pension Regulator. The pension scheme has been closed for new members as of March 2002 and is managed through KONE Pension Trustees Ltd. In the United States, a part of KONE's employees are members of the Employees' Retirement Plan, which is a funded defined benefit plan. The plan is managed by KONE Inc.'s Pension Committee. In addition to this pension plan, KONE also provides post-employment medical and life insurance benefits. These predominantly unfunded other post- employment benefit plans qualify as defined benefit plans under IFRS. KONE is also a participant in a multi-employer employee benefit plan in the United States. In this defined contribution plan KONE pays a contribution based on the hours worked by participating employees, KONE's obligation is limited to this payment. KONE's main unfunded defined benefit plans are in Germany, Italy (TFR Trattamento di Fine Rapporto, termination indemnity plan) and in Sweden. The pension schemes in Germany and the TFR plan in Italy are closed from new entrants. In Sweden, the pension cover is organized through defined contribution as well as unfunded defined benefit plans (ITP system, Industrins och handelns tilläggspension). KONE has defined contribution plans for pensions and other post-employment benefits in most countries. Under defined contribution plans KONE's contributions are recorded as an expense in the accounting period to which they relate. Recognition of a liability is not required because KONE's obligation is limited to the payment of the contributions into these plans or funds. The defined contribution pension plan in Finland is the statutory Finnish employee pension scheme (Finnish Statutory Employment Pension Scheme "TyEL"), according to which the benefits are directly linked to the beneficiary's earnings. TyEL is arranged through pension insurance companies. Defined benefit obligations expose KONE to various risks. Corporate bond yields are used as a reference in determining the discount rates used for calculation of defined benefit plan related obligations. A decrease in corporate bond yields hence will increase the present value of the defined benefit obligation. A plan deficit can occur if the performance of the plan assets is below the above-mentioned yield. These potential deficits may require further contributions to the plan assets by the Group. Some of the Group's defined benefit obligations are linked to general inflation and salary level development. Higher level of inflation and salary level will result in a higher present value of the benefit obligation. Some of the defined benefit plans obligate KONE to provide benefits to plan members for their lifetime. Therefore, any increase in life expectancy will increase defined benefit liability of these plans. Accounting principles Employee benefits The Group operates various employee benefit plans in accordance with local conditions and practices. The plans are classified as either defined contribution plans or defined benefit plans. The pension plans are generally funded by payments from employees and by the relevant KONE companies. The assets of these plans are generally held in separate insurance companies or trustee-administered funds. Pension costs and liabilities are based on calculations by the local authorities or independent qualified actuaries. Contributions to the defined contribution plans are charged directly to the statement of income in the year to which these contributions relate. For defined benefit plans, pension cost is determined based on the advice of qualified actuaries who carry out a full valuation of the plan on a regular basis using the projected unit credit method. Under this method, the costs of providing pensions are charged to the statement of income so as to spread the regular costs over the working lives of employees. KONE presents the service cost relating to defined benefit obligations in employment expenses while the net interest is presented in financing expenses. The liability arising from the defined benefit post- employment plans is the present value of the defined benefit obligation less the fair value of plan assets. The discount rates used in the actuarial calculations of employee benefits liabilities are adjusted to market rates. Obligations to pay long-term disability benefit, the level of which is dependent on the length of service of the employee, are measured to reflect the probability that payments will be required and the length of service for which it is expected to be made. 84 KONE ANNUAL REVIEW 2022#87CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE Defined benefit plan liability Other post-employment benefit liability Fair value of plan assets Net defined benefit balance MEUR Balance at beginning of period Dec 31, 2022 Dec 31, 2021 714.5 638.9 Dec 31, 2022 Dec 31, 2021 7.1 10.1 Dec 31, 2022 Dec 31, 2021 550.2 480.8 Dec 31, 2022 Dec 31, 2021 171.4 168.1 Current service costs 20.5 17.5 0.2 0.1 20.7 17.7 Interest expense 14.3 11.2 0.2 0.1 14.5 11.3 Interest income 11.6 8.8 -11.6 -8.8 Other -1.5 -0.6 -2.9 -2.0 1.5 1.3 Components of defined benefit costs recognized 33.4 28.1 0.4 0.2 8.7 6.9 25.1 21.5 in the consolidated statements of income Return on plan assets, excluding interest income -151.4 36.1 151.4 -36.1 Remeasurements -184.0 42.7 1.6 -3.4 -182.4 39.3 Remeasurements recognized in the consolidated statements of comprehensive income -184.0 42.7 1.6 -3.4 -151.4 36.1 -31.1 3.3 Employer contributions 29.0 13.0 -29.0 -13.0 Plan participants' contributions 1.9 0.4 0.2 0.2 2.2 0.6 Benefits paid -46.7 -29.3 -0.8 -0.7 -39.1 -23.1 -8.4 -6.9 Settlement payments -0.3 -0.3 Business combinations, disposals and other 0.2 -0.1 0.2 -0.1 Foreign currency translation effects 0.0 34.1 0.4 0.7 -1.4 36.0 1.8 -1.2 Other reconciling items -44.6 4.9 -0.1 0.1 -9.3 26.5 -35.4 -21.5 Balance at end of period 519.2 714.5 8.9 7.1 398.2 550.2 130.0 171.4 Present value of unfunded obligations 84.2 114.8 8.9 7.1 93.2 121.9 Present value of funded obligations Fair value of benefit plans' assets Total 435.0 599.7 435.0 599.7 398.2 550.2 -398.2 -550.2 519.2 714.5 8.9 7.1 398.2 550.2 130.0 171.4 The expected contributions to defined benefit type arrangements in 2023 are EUR 22.0 million. The actual return on defined benefit plans' assets was EUR -139.8 (44.9) million. 85 KONE ANNUAL REVIEW 2022#88Pending#89A5 Room 5001-5332 ^4 Room 4001-4332 A3 Room 3001-3332 A2 Room 2001-2324 Room 1001-1224 Meeting 1-9 Courtyards Cardio >0 Lobby Restaurant/Bar Conference A-B Meeting C-H Co-Work v-1 Lower Deck Parking 0000 6 Others IN THIS SECTION This section comprises the following notes concerning rewards and related parties to KONE: 6.1 Management remuneration 6.2 Share-based payments 6.3 Related party transactions 87 KONE ANNUAL REVIEW 2022#90CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | OTHERS 6.1 MANAGEMENT REMUNERATION The Vice Chair of the Board, Jussi Herlin has a separate employment contract for his role as Executive Vice Chair of the Board at KONE. The employment-based compensation for Jussi Herlin consists of a base salary and an annual bonus decided by the Board on the basis of the Group's financial result. The annual bonus may not exceed 100 percent of the recipient's annual base salary. In 2022, Jussi Herlin's base salary was EUR 125,600. In addition, he received a bonus of EUR 26,166, which was earned in 2021. There will be no bonus payout in 2023 as the performance criteria for 2022, tied to the Group's financial performance, were not met. Jussi Herlin's holdings of shares are presented in the table on page 121. The Executive Vice Chair's retirement age and pension are determined in accordance with Finland's Pensions Act. Statutory pension cost for the year 2022 was EUR 26,954. No separate agreement regarding early retirement has been made. The compensation for the President and CEO Henrik Ehrnrooth consists of a base salary and an annual bonus determined by the Board on the basis of the Corporation's key targets. The annual bonus may not exceed 150 percent of his annual salary. In 2022, Henrik Ehrnrooth's base salary was EUR 750,000. He also received a bonus of EUR 835,350, which was earned in 2021. His accrued bonus for 2022 totaled EUR 465,675. The performance criteria applied to this annual short-term incentive is based on financial, strategic and individual performance. The bonus will be paid in 2023. In addition, Henrik Ehrnrooth is included in the long-term share-based incentive plan for the Group's senior management. The maximum number of shares available for earning for the President and CEO for the 2021 long-term incentive plan is 53,541 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the long-term incentive plan for the year 2021 will be confirmed in January 2024, depending on the performance during the years 2021, 2022 and 2023. The maximum number of shares available for earning for the President and CEO for the 2022 long-term incentive plan is 58,243 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the long-term incentive plan for the year 2022 will be confirmed in January 2025, depending on the performance during the years 2022, 2023 and 2024. The performance criteria applied to the 2021 and 2022 performance years are based on a combination of annual The key management of KONE consists of the Board of Directors of KONE Corporation and the Executive Board. Compensation paid to the key management, MEUR 1 Salaries and other remunerations Share-based payments Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 10.1 9.1 0.0 10.1 12.9 22.0 Total Herlin Antti, Chairman of the Board Herlin Jussi, Vice Chair of the Board Ehrnrooth Henrik, President & CEO ' Alahuhta Matti Duinhoven Susan Herlin liris Compensation paid to the Board of Directors, the President and CEO (EUR, thousand) 3) Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 240.0 298.1 125.6 107.9 750.0 750.0 130.0 113.0 120.0 111.0 110.0 111.0 130.0 114.0 113.0 110.0 120.0 110.0 1.5 1.0 1,830.5 Kant Ravi Kaskeala Juhani* Mikkilineni Krishna Xin-Zhe Li Jennifer Brunila Anne** Pietikäinen Sirpa** Total * Board member until March 1,2022 ** Board member until March 2,2021 1,835.6 In addition, for the financial year 2022 Henrik Ehrnrooth's accrued bonus was EUR 465,675 (835,350), which is payable in 2023 (2022). In 2021, Jussi Herlin's accrued bonus was EUR 26,166 and Antti Herlin was paid EUR 74,600 in base salary and a bonus totaling EUR 290,462 which was earned in 2020. In April 2021, the share-based payments for the financial year 2020 received by Henrik Ehrnrooth was EUR 2,512,242. 2) Includes also the annual compensation of the Board which was performed by using shares of KONE Corporation decided by the Annual General Meeting held on March 1, 2022. sales growth and adjusted EBIT margin, as well as improvements in sustainability. The sustainability performance condition is a combination of reductions in carbon footprint, as well as diversity and inclusion and safety related targets. Henrik Ehrnrooth's holdings of shares are presented in the table on page 121. Henrik Ehrnrooth's retirement age and pension are determined in accordance with Finland's Pensions Act. Statutory pension cost for the year 2022 was EUR 281,558. No separate agreement regarding early retirement has been made. Should his employment contract be terminated before retirement, he has the right to the equivalent of 18 months' salary, which includes the salary for a six-month term of notice. The compensation for the members of the Executive Board comprises a base salary and an annual bonus, based on financial targets and strategy execution, as well as individual performance. The bonus amount is determined by 88 KONE ANNUAL REVIEW 2022#91CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | OTHERS the Nomination and Compensation Committee and may not exceed 75 percent of the annual salary. The members of the Executive Board are included in the long-term share-based incentive plan for senior management. The maximum number of shares available for earning for the Executive Board for the 2021 long-term incentive plan is 233,794 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the long-term incentive plan for the year 2021 will be confirmed in January 2024, depending on the performance during the years 2021, 2022 and 2023. The maximum number of shares available for earning for the Executive Board for the 2022 long-term incentive plan is 285,391 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the long-term incentive plan for the year 2022 will be confirmed in January 2025, depending on the performance during the years 2022, 2023 and 2024. The Executive Board members' holdings of shares are presented in the table on page 121. No separate agreement regarding early retirement has been made for the members of the Executive Board. The compensation for the termination of the employment contract prior to retirement is a maximum of 15 months' salary, which includes the salary for a six-month term of notice. The carrying value of the pension liability for Board Member Matti Alahuhta (served as President & CEO until March 31, 2014) included in the balance sheet is EUR 4.5 million at the end of 2022 and the monthly pension paid by KONE to him is EUR 23,069 (December 2022). 89 KONE ANNUAL REVIEW 2022#92CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | OTHERS 6.2 SHARE-BASED PAYMENTS Share-based incentive plans KONE has two separate share-based incentive plans, one performance share plan and one restricted share plan. In January 2021, KONE's Board of Directors decided on a new long-term share-based incentive plan, which replaced the existing share-based plans. The new long-term incentive plan continues to emphasize profitable growth and as a new measure sustainability. It consists of annually commencing individual share plans, each with a three-year rolling performance period. The plans vest and are delivered in one portion after the three years, based on accumulated outcomes for the three-year performance period. No shares are delivered in 2022 and 2023. If the participant's employment or service relationship with KONE Group terminates before the end of the performance period, the participant, as a rule, forfeits the share award without compensation. The number of shares earned by participants under the share-based incentive plans are determined on gross basis with deduction for taxes made when applicable before delivery of the shares to the participants. The arrangements initiated previous years included both cash and equity settled arrangements. Current arrangements are equity settled only. The target group and targets within the plan as well as possible rewards are decided upon annually by the Board. As part of the long-term incentive plan for the senior management, a long-term target for their ownership has been set. For the Executive Board members, the long-term ownership target is that the members have an ownership of KONE shares corresponding to at least five years' annual base salary. For other selected top management positions, the ownership target is at least two years' base salary. The 2022 long-term incentive plan is targeted to approximately 55 members of top management, including the President and CEO, members of the Executive Board and other top management as well as to 525 other selected key personnel of KONE Group. The performance criteria applied to the 2022 long-term incentive plan are based on annual growth in sales, adjusted EBIT margin and improvements in sustainability. The sustainability performance condition is a combination of reductions in carbon footprint, diversity and inclusion as well as safety related targets. The restricted share plan serves as a complementary long-term share plan to be used as a commitment instrument Accounting principles Share-based payments KONE share-based incentive plans are targeted to the senior management of KONE and other key personnel. Pursuant to the plan rules, the potential rewards are settled as a combination of KONE class B shares and/or cash when the criteria set in the terms and conditions for the plan are met. The fair value of the share-based payments settled with KONE class B shares has been determined at the grant date and will be recognized as an expense over the vesting period. The total amount to be expensed over the vesting period is determined based on the Group's estimate of the number of the shares that are expected to be vested by the end of the vesting period. The impact of any non-market vesting conditions have been excluded, but they are included in assumptions about the number of shares that are Share-based incentive plan expected to be distributed. At each statement of financial position date, the Group revises its estimates of the number of shares that are expected to be distributed. It recognizes the impact of the revision of original estimates in the statement of income. The fair value of the cash settled part of share-based payments reward has been determined so that it covers taxes and taxable benefit costs that are incurred. The liability shall be measured, initially and at each reporting date until settled, based on the fair value of the shares expected to be distributed and expensed based on the extent to which the employees have rendered service to date. KONE recognizes the impact of the revision of original estimates, if any, in the statement of income. Share-based payments recognized as an expense in the statements of income, MEUR To be paid in shares To be paid in cash for retention and recruitment purposes for top management (excluding the President and CEO) and other selected key persons. The restricted share plan does not have a performance condition. The plan has a commitment period up to three years, after which the potentially granted share awards will be paid to the participant, provided that their employment or service relationship with KONE Group is in force at the time of payment. The maximum number of shares to be delivered in the first quarter of 2025 as part of the 2022 long-term incentive plan is 788,768 KONE class B shares based on the performance period 2022-2024, reduced by an amount of shares equivalent to the taxes and similar charges that are incurred by the receipt of shares. As part of the restricted share plan, the maximum number of shares granted in 2022 and to be delivered in 2024 is 2,350 KONE class B shares (gross before deduction for applicable taxes) and 53,300 KONE class B shares (gross before deduction for applicable taxes) to be delivered in 2025. Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 18.8 3.8 28.0 11.4 As part of the previous long-term incentive plan a total of 218,091 KONE class B shares were delivered in January 2022 to KONE key personnel as a reward due to the achieved targets of the 2019 long-term incentive plan. During the year 2022, a total of 15,370 KONE class B shares, based on previous long-term incentive plans, were returned to KONE Corporation. 90 KONE ANNUAL REVIEW 2022#93CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | OTHERS 6.3 RELATED PARTY TRANSACTIONS KONE's related parties comprise its subsidiaries as well as the Board of Directors, the President & CEO, and the Executive Board including any companies controlled or significantly influenced by them. The Corporate Controlling function evaluates and monitors transactions between the Group and its related parties to ensure that any conflicts of interest are taken into account appropriately in KONE'S decision making process. Except for management remuneration there have not been any material transactions between KONE and its members of the Board of Directors, the President & CEO, the Executive Board including any companies controlled or significantly influenced by them. Information concerning management remuneration is disclosed in note 6.1 and shares held by the members of the Board of Directors, the President & CEO, the Executive Board is disclosed on page 121. KONE'S subsidiaries are disclosed on pages 107-109. 91 KONE ANNUAL REVIEW 2022#94CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | PARENT COMPANY STATEMENT OF INCOME PARENT COMPANY STATEMENT OF INCOME EUR Sales Other operating income Materials and services Personnel expenses Depreciation and amortization Other operating expenses Operating income 2 34 Note 1 Jan 1-Dec 31, 2022 593,741,411.36 26,965,034.76 -1,093,910.93 -143,337,927.51 Jan 1-Dec 31, 2021 705,519,412.07 16,925,994.41 -1,971,238.59 -142,660,363.96 -14,532,852.67 -367,618,687.27 -15,227,231.21 -395,350,143.35 94,123,067.74 167,236,429.37 Financing income and expenses 6 1,614,683,110.85 341,369,407.91 Income before appropriations and taxes 1,708,806,178.59 508,605,837.28 Appropriations 7 2,569,592.64 30,930,877.77 Income taxes Deferred taxes -24,043,190.36 19,620,138.38 -34,339,891.92 -3,439,629.27 Net income 1,706,952,719.25 501,757,193.86 92 KONE ANNUAL REVIEW 2022#95CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | PARENT COMPANY STATEMENT OF FINANCIAL POSITION PARENT COMPANY STATEMENT OF FINANCIAL POSITION Assets, EUR Non-current assets Note Dec 31, 2022 Dec 31, 2021 Equity and liabilities, EUR Equity Note Dec 31, 2022 Dec 31, 2021 Intangible assets 8 17,741,097.62 Tangible assets 9 39,297,950.85 16,116,546.21 40,178,708.16 Share capital Share premium account 66,174,482.53 100,328,064.58 66,174,482.53 100,328,064.58 Investments Other reserves Subsidiary shares 10 Other shares 11 2,049,869,305.70 2,002,366.43 2,051,871,672.13 2,050,333,523.58 2,460,845.44 2,052,794,369.02 Paid-up unrestricted equity reserve Retained earnings Net income Total equity 219,679,615.94 244,987,601.61 610,397,421.37 1,706,952,719.25 501,757,193.86 14 2,093,134,882.30 1,523,644,763.95 Total non-current assets 2,108,910,720.60 2,109,089,623.39 Current assets Non-current receivables Loans receivable Cumulative accelerated depreciation Appropriations 8,432,443.56 8,432,443.56 9,502,036.20 9,502,036.20 Current receivables 13 Accounts receivable Loans receivable Deferred tax assets Other receivables Deferred assets 82,812,950.27 1,026,181,242.70 19,636,536.51 6,908,396.93 173,782,768.28 1,309,321,894.69 111,349,087.72 941,765,351.84 12 309,099,768.53 309,099,768.53 192,328,791.72 192,328,791.72 Provisions 3,071,522.75 4,168,821.97 Liabilities Non-current liabilities Loans 15 299,390,065.18 299,390,065.18 507,058,858.40 507,058,858.40 16,398.13 11,821,982.98 326,391,045.80 1,391,343,866.47 Current liabilities Accounts payable Loans 16 Financial investments Cash and cash equivalents Total current assets 1,113,727,135.66 116,926,521.92 2,849,075,320.80 1,575,082,252.03 182,453,102.95 3,341,208,013.17 Other liabilities Accruals 86,155,463.23 2,244,490,091.12 7,653,093.31 215,658,479.95 2,553,957,127.61 85,284,752.45 3,130,795,115.29 7,890,923.91 181,952,364.39 3,405,923,156.04 Total liabilities 2,853,347,192.79 3,912,982,014.44 Total assets 4,957,986,041.40 5,450,297,636.56 Total equity and liabilities 4,957,986,041.40 5,450,297,636.56 93 KONE ANNUAL REVIEW 2022#96Pending#97CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS Accounting principles The parent company financial statements have been prepared according to the Finnish Accounting Standards. Financial statements have been prepared for the period of 12 months between January 1 and December 31, 2022. FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the individual transaction. Foreign currency denominated receivables and liabilities are translated using the period end exchange rates. Foreign exchange gains and losses associated with loans, deposits and other statement of financial position items are included under financing income and expenses. LOAN RECEIVABLES AND FINANCIAL INVESTMENTS Loan receivables are initially recognized at nominal values and subsequently measured at amortized cost. Management estimates that the fair values of the loan receivables do not materially differ from the carrying values at the statement of financial position dates. Financial investments in commercial papers, short-term bank deposits, interest rate funds and other money market instruments are initially recognized at fair value and thereafter at amortized cost using the effective interest rate method except for interest rate funds which are classified and measured as investments at fair value through profit or loss. DERIVATIVE INSTRUMENTS Derivative financial instruments are used to hedge currency and the interest rate risks. Derivatives are measured at fair value in accordance with Accounting Act 5:2a §. The fair values of foreign exchange forward contracts are estimated by discounting the future cash flows of the contracts with the relevant market interest rate yield curves on the valuation date and by calculating the difference between the discounted values as at the forward contract date and balance sheet date in euros. The fair values of derivative financial instruments are presented in note 18. Changes in the fair values of foreign exchange derivatives are recognized in financing income and expenses if the hedged item is a loan receivable, deposit or a financial asset or liability denominated in a foreign currency. REVENUE RECOGNITION Revenues related to the utilization of intangible property rights are recognized as sales on an accrual basis, according to the existing contracts. The sales of services are recognized as sales when the services have been rendered or when the work is being carried out. RESEARCH AND DEVELOPMENT COST Research and development costs of new products and services are expensed as they incur. PENSIONS An external pension insurance company manages the parent company statutory pension plan. Contributions to the pension plan are charged directly to the statement of income in the year to which these contributions relate. LEASES Leasing payments are charged to the statement of income on a straight-line basis over the leasing term. Remaining future leasing liabilities from existing contracts are presented in note 17. TAXES Tax expense includes taxes based on taxable income for the period, together with tax adjustments for previous periods and changes in deferred taxes. Deferred taxes are provided for temporary differences arising between the tax basis of assets and liabilities and their book values in financial reporting and measured with enacted tax rates. Deferred tax liabilities arising from temporary differences are fully recognized with prudency, whereas the deferred tax assets are recognized only to the extent of the probable future tax benefit. NON-CURRENT ASSETS Intangible assets and property, plant and equipment are stated at the cost less accumulated depreciation and amortization. Depreciation and amortization are recorded on a straight-line basis over the economic useful lives of the assets as follows: Buildings Machinery and equipment Other long-term expenditure Land is not depreciated. 5-40 years 4-10 years 4-10 years Investments in subsidiaries and other companies are measured at cost, or fair value in case the fair value is less than cost. PROVISIONS Future outflows of cash to which the parent company has committed to and which probably will not contribute in future revenues and unavoidable losses the occurrence of which are probable recognized in provisions. Parent company provisions consist of warranty provisions 95 KONE ANNUAL REVIEW 2022#98CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS FINANCIAL RISK MANAGEMENT Parent company business activities are exposed to financial risks such as foreign exchange risks, interest rate risks, liquidity risks and credit risks. These financial risks are managed in accordance with the KONE Treasury Policy. Parent company financials risks are not significantly different from the Group's financials risks, see notes 2.4 and 5.3 to the Group level financial statements. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash-in-hand and bank account balances. Used bank overdrafts are included in other current liabilities. SHARE-BASED PAYMENTS KONE has two separate share-based incentive plans, one performance share plan and one restricted share plan. The performance share plan is targeted to the President and CEO, members of the Executive Board and other top management as well as other selected key personnel of KONE Group. The restricted share plan serves as a complementary long-term share plan to be used as a commitment instrument for retention and recruitment purposes for top management (excluding the President and CEO) and other selected key persons. Pursuant to the share ownership plans, the reward to the management is either settled with KONE class B shares, or as a combination of KONE class B shares and cash when the criteria set in the terms and conditions of the plan are met. Number of shares earned by participants under the share- based incentive plans are determined on gross basis with deduction for taxes made when applicable before delivery of the shares to the participants. The shares to be transferred as part of the plans are obtained in public trading. The acquisition of shares is recognized as an increase of own shares, reducing equity, and transfer of shares as decrease in own shares and retained earnings within equity. The fair value of the share-based payments settled with cash has been determined so that it covers taxes and social security costs that are incurred. The cost arising from cash settled part of share-based payment rewards is recognized as an expense over the earnings period. The liability recognized is measured based on the fair value of the shares expected to be distributed. At each statement of financial position date, the company revises its estimates of the number of shares that are expected to be distributed. It recognizes the impact of the revision of original estimates in the statement of income. 96 KONE ANNUAL REVIEW 2022#99CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS Notes to the statement of income 1. SALES Sales primarily comprises of sales to subsidiaries, amounting to 593,741.4 (705,519.4) thousand euros, which relates to revenues for the utilization of intellectual property rights. 2. OTHER OPERATING INCOME EUR 1,000 Subsidies received Recharged energy Service charges Others Total 3. PERSONNEL EXPENSES EUR 1,000 Wages and salaries Pension costs Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 6,271.8 7,455.3 1,281.8 1,645.4 840.8 825.9 18,570.6 26,965.0 6,999.5 16,926.0 Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 118,711.9 119,058.4 Other employment expenses Total 21,169.8 3,456.2 143,337.9 20,395.3 3,206.6 142,660.4 In 2022, the salaries and fees paid to the President & CEO and to the Board of Directors were together 2,697.1 (5,126.6) thousand euros. Average number of staff employed by the parent company was 1,279 during the financial year (1,307) 97 KONE ANNUAL REVIEW 2022#100CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 4. DEPRECIATION AND AMORTIZATION EUR 1,000 Intangible rights Other long-term expenditure Buildings Machinery and equipment Total 5. AUDITORS' FEES EUR 1,000 Audit Tax advisory services Other services Total 6. FINANCING INCOME AND EXPENSES EUR 1,000 Dividend income from subsidiaries Other dividends received Interest income from subsidiaries Interest income from others Interest expenses to subsidiaries Interest expenses to others Other financing income and expenses Total Jan 1-Dec 31, 2022 Jan 1-Dec 31, 2021 292.4 270.2 5,965.8 7,235.2 1,357.7 1,342.8 6,916.9 6,379.0 14,532.9 15,227.2 Jan 1-Dec 31, 2022 833.4 Jan 1-Dec 31, 2021 639.0 13.0 58.7 892.1 65.0 717.0 Jan 1-Dec 31, 2022 1,672,908.6 Jan 1-Dec 31, 2021 387,900.8 0.9 4.2 11,759.6 29,475.3 6,741.7 21,089.0 -53,789.9 -34,557.6 -5,518.8 -1,205.8 -40,152.6 -38,602.9 1,614,683.1 341,369.4 7. APPROPRIATIONS EUR 1,000 Cumulative accelerated depreciation charge Group contributions received Total Jan 1-Dec 31, 2022 1,069.6 1,500.0 2,569.6 Jan 1-Dec 31, 2021 -569.1 31,500.0 30,930.9 98 KONE ANNUAL REVIEW 2022#101CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS Notes to the statement of financial position 8. INTANGIBLE ASSETS Jan 1-Dec 31, 2022, EUR 1, 000 Opening gross acquisition cost Opening net book value Intangible rights Other long-term expenditure Advance payments 5,216.9 126,282.0 Total 131,498.9 Opening accumulated amortization and impairment -4,398.7 -110,983.7 -115,382.4 818.2 15,298.4 16,116.5 Opening net book value Increase Decrease Amortization Closing net book value 818.2 251.2 15,298.4 16,116.5 6,106.1 1,747.1 8,104.4 -9.5 -212.1 -221.6 -292.4 -5,965.8 -6,258.2 777.0 15,429.2 1,534.9 17,741.1 Closing gross acquisition cost 5,468.1 120,118.9 1,747.1 127,334.1 Closing accumulated amortization and impairment -4,691.1 -104,689.8 -212.1 -109,593.0 Closing net book value 777.0 15,429.2 1,534.9 17,741.1 Other long-term Jan 1-Dec 31, 2021, EUR 1,000 Opening gross acquisition cost Intangible rights expenditure Advance payments Total 4,886.8 132,482.8 137,369.6 Opening accumulated amortization and impairment -4,128.5 -114,962.6 -119,091.1 Opening net book value 758.3 17,520.3 18,278.5 Opening net book value 18,278.5 Increase Decrease Amortization 758.3 17,520.3 330.1 6,152.4 6,482.5 -1,139.1 -1,139.1 -270.2 -7,235.2 -7,505.4 818.2 15,298.4 16,116.5 Closing net book value Closing gross acquisition cost 5,216.9 126,282.0 131,498.9 Closing accumulated amortization and impairment -4,398.7 -110,983.7 -115,382.4 Closing net book value 818.2 15,298.4 16,116.5 99 KONE ANNUAL REVIEW 2022#102CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 9. TANGIBLE ASSETS Fixed assets Jan 1-Dec 31, 2022, EUR 1, 000 Land Buildings Machinery & equipment under construction Opening gross acquisition cost 182.3 31,472.5 57,689.5 237.9 Opening accumulated amortization and impairment -12,358.1 -37,045.4 Total 89,582.2 -49,403.5 Opening net book value 182.3 19,114.3 20,644.1 237.9 40,178.7 Opening net book value Increase Decrease Reclassifications Depreciation Closing net book value 182.3 19,114.3 20,644.1 237.9 85.5 4,722.1 3,581.4 40,178.7 8,388.9 -338.7 -656.4 -995.0 183.2 -183.2 -1,357.7 -6,915.8 -8,273.5 182.3 18,025.3 18,111.7 2,979.7 39,299.0 Opening gross acquisition cost 182.3 31,741.1 60,853.4 Opening accumulated amortization and impairment Closing net book value 182.3 -13,715.8 18,025.3 -42,741.7 18,111.7 3,636.1 -656.4 2,979.7 96,412.9 -57,113.9 39,299.0 Fixed assets Machinery & under Jan 1-Dec 31, 2021, EUR 1,000 Land Opening gross acquisition cost 182.3 Buildings 31,468.7 equipment construction 49,729.0 216.3 Opening accumulated amortization and impairment -11,029.1 -32,820.8 Opening net book value 182.3 20,439.6 16,908.2 216.3 Total 81,596.3 -43,849.8 37,746.5 Opening net book value Increase Decrease Reclassifications 182.3 20,439.6 52.4 -34.8 16,908.2 10,487.8 -372.8 216.3 37,746.5 21.6 10,561.7 -407.6 Depreciation Closing net book value -1,342.8 182.3 19,114.3 -6,379.0 20,644.1 -7,721.8 237.9 40,178.7 Opening gross acquisition cost 182.3 31,472.5 Opening accumulated amortization and impairment -12,358.1 Closing net book value 182.3 19,114.3 57,689.5 -37,045.4 20,644.1 237.9 89,582.2 -49,403.5 237.9 40,178.7 100 KONE ANNUAL REVIEW 2022#103CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 10. SUBSIDIARY SHARES EUR 1,000 Acquisition cost, Jan 1 Increase Decrease Net book value, Dec 31 Dec 31, 2022 2,050,333.5 2.0 -466.2 2,049,869.3 Dec 31, 2021 2,627,011.3 4.9 -576,682.6 2,050,333.5 11. OTHER SHARES EUR 1,000 Acquisition cost, Jan 1 Increase Decrease Net book value, Dec 31 Dec 31, 2022 2,460.8 1.0 -459.5 2,002.4 Dec 31, 2021 2,460.8 2,460.8 12. NON-CURRENT RECEIVABLES EUR 1,000 Loans receivable from subsidiaries Loans receivable from externals Long-term receivables Dec 31, 2022 307,009.4 2,090.3 309,099.8 Dec 31, 2021 190,328.8 2,000.0 192,328.8 101 KONE ANNUAL REVIEW 2022#104CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 13. CURRENT RECEIVABLES Receivables from subsidiaries, EUR 1,000 Accounts receivables Loans receivable Deferred assets Total Receivables from externals, EUR 1,000 Accounts receivables Others Deferred assets Total Dec 31, 2022 Dec 31, 2021 110,692.2 941,765.4 81,366.4 1,026,181.2 91,257.5 1,198,805.1 Dec 31, 2022 1,446.6 6,908.4 82,525.3 90,880.3 161,440.2 1,213,897.8 Dec 31, 2021 656.8 11,822.0 164,950.8 177,429.6 Deferred tax assets Total short-term receivables 19,636.5 1,309,321.9 16.4 1,391,343.9 Deferred assets, EUR 1,000 Derivative assets Deferred income taxes Unbilled revenue Group contributions Others Total Dec 31, 2022 31,468.8 23,038.8 79,630.6 1,500.0 38,144.6 173,782.8 Dec 31, 2021 91,682.4 44,628.8 118,059.8 31,500.0 40,520.1 326,391.0 102 KONE ANNUAL REVIEW 2022#105CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 14. EQUITY AND CHANGES IN EQUITY Paid-up EUR 1,000 Book value Jan 1, 2022 Share capital 66,174.5 Share unrestricted premium account 100,328.1 equity reserve 244,987.6 Own shares -198,574.5 Profit distribution Purchase of own shares Share-based compensation Net income for the period Retained earnings 1,310,729.1 -1,087,777.9 Net income for the period Total 1,523,644.8 -1,087,777.9 -25,653.1 345.1 -24,376.8 11,968.0 -50,029.8 -11,968.0 345.1 Net book value Dec 31, 2022 66,174.5 100,328.1 219,679.6 -210,983.3 210,983.3 1,706,952.7 1,706,952.7 1,706,952.7 2,093,134.9 Non-restricted equity includes the paid-up unrestricted equity reserve, retained earnings deducted by own shares and the profit for the financial year. The non-restricted equity was EUR 1,926,632,335.19 (1,357,142,216.84) at the end of the period. Share EUR 1,000 capital Book value Jan 1, 2021 66,174.5 Share premium account 100,328.1 Paid-up unrestricted equity reserve 326,972.0 Own shares -164,662.0 Profit distribution Retained earnings 1,884,348.8 -1,166,345.1 Net income for the period Total 2,213,161.4 -1,166,345.1 Purchase of own shares Share-based compensation -81,984.4 -45,790.7 11,878.2 -45,790.7 90,968.3 20,862.1 Net income for the period Net book value Dec 31, 2021 66,174.5 100,328.1 244,987.6 -198,574.5 808,971.9 501,757.2 501,757.2 501,757.2 1,523,644.8 103 KONE ANNUAL REVIEW 2022#106CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 15. NON-CURRENT LIABILITIES Liabilities to subsidiaries, EUR 1,000 Liabilities falling due in 1-5 years Total Liabilities to externals, EUR 1,000 Liabilities falling due in 1-5 years Total Dec 31, 2022 99,390.1 Dec 31, 2021 99,390.1 Dec 31, 2022 200,000.0 200,000.0 307,058.9 307,058.9 Dec 31, 2021 200,000.0 200,000.0 Total non-current liabilities 299,390.1 507,058.9 104 KONE ANNUAL REVIEW 2022#107CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 16. CURRENT LIABILITIES Liabilities to subsidiaries, EUR 1,000 Accounts payable Loans Accruals Total Dec 31, 2022 30,097.2 2,244,490.1 123,306.5 2,397,893.8 Dec 31, 2021 26,935.9 3,130,795.1 75,744.4 3,233,475.4 Liabilities to externals, EUR 1,000 Accounts payable Other liabilities Accruals Total Dec 31, 2022 56,058.2 7,653.1 92,352.0 156,063.3 Dec 31, 2021 58,348.8 7,890.9 106,208.0 172,447.7 Total current liabilities 2,553,957.1 3,405,923.2 Accruals, EUR 1,000 Accrued wages, salaries and employment costs Derivative liabilities Others Total Dec 31, 2022 37,638.9 43,282.5 134,737.2 215,658.5 Dec 31, 2021 36,339.9 51,135.2 94,477.3 181,952.4 105 KONE ANNUAL REVIEW 2022#108CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 17. COMMITMENTS EUR 1,000 Guarantees For subsidiaries For others Leasing commitments Due next year Due over a year Other commitments Total 18. DERIVATIVES Dec 31, 2022 Dec 31, 2021 2,884,500.6 77.5 2,778,456.8 79.2 6,327.6 6,232.2 12,366.8 14,384.3 1,222.9 2,904,495.5 2,800,806.7 1,654.2 Fair values of derivative instruments, EUR 1,000 Foreign exchange forward contracts with external parties Foreign exchange forward contracts with subsidiaries Total Nominal values of derivative instruments, EUR 1,000 Foreign exchange forward contracts with external parties Foreign exchange forward contracts with subsidiaries Total Dec 31, 2022 -4,219.3 -7,594.3 -11,813.6 Dec 31, 2022 2,623,189.9 672,433.3 3,295,623.2 Dec 31, 2021 42,112.4 -1,565.2 40,547.1 Dec 31, 2021 3,278,646.5 623,535.1 3,902,181.6 Derivative contracts are entered for hedging purposes in line with KONE Treasury policy and are recognized at fair value. Derivatives are classified as financial assets at fair value through profit or loss. The majority of the foreign exchange forward contracts mature within a year. The fair values of the foreign exchange forward contracts are measured based on the price information derived from the active markets and commonly used valuation methods. More information about financial risks management is described in the notes 2.4 and 5.3 to the consolidated financial statements. 106 KONE ANNUAL REVIEW 2022#109CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES, DEC 31,2022 1) Shareholding % Shareholding % Country/Region Company Group Parent company Parent Country/Region Company Group company Andorra KONE Ascensors i Escales, S.A. 100 KONE Export Oy 100 Australia KONE Elevators Employee Benefits Pty Limited 100 KONE Hissit Oy 100 100 KONE Elevators Pty Limited 100 KONE Industrial Oy 100 100 KONE Holdings (Australia) Limited 100 Liftdev Oy 100 100 Austria KONE AG 100 100 France 2STP S.A.S. 100 Bahrain KONE Bahrain W.L.L. 0 Arcade Ascenseurs S.A.S 100 KONE Elevators W.L.L. 49 Ascenseurs et Automatismes de Gascogne S.A.S. 100 Belgium Bosnia and Herzegovina Bulgaria KONE Belgium S.A. KONE d.o.o. Sarajevo KONE EOOD Liftkom Service EOOD 100 99.99 Ascenseurs Portes Automatiques Arnaud S.A.S. 100 Ascenseurs Soulier S.N.C. 100 100 ATS-ATPE S.A.S. 100 100 100 Automatismes du Mont Blanc S.A.S. 100 100 Delta Ascenseurs S.A.S. 100 Canada KONE Inc. 100 49 KONE ATS S.A.S. 100 China mainland Giant Kone Elevator Co., Ltd. 100 40 KONE Développement S.N.C. 100 KONE Elevator (Shanghai) Co., Ltd. 100 KONE Holding France S.A.S. 100 100 KONE Elevators Co., Ltd. 100 KONE S.A. 99.99 Kunshan KONE Industrial Machinery Co., Ltd. 100 100 Liftman S.A.S. 100 Croatia KONE d.o.o. 100 100 Prokodis S.A.S. 100 Cyprus KONE Elevators Cyprus Limited 100 100 R.M.D. S.A.S. 100 Czech Republic KONE, a.s. 100 100 Technique & Mecanique des Elevateurs S.A.S. 100 KONE Industrial - koncern s.r.o. 100 100 Germany Alois Kasper GmbH 100 Denmark KONE A/S 100 100 Aufzugstechnik Rhein Ruhr GmbH 100 Egypt KONE LLC 100 KONE Automatiktüren GmbH 100 Estonia AS KONE 100 100 KONE Escalator Supply Service Center Europe GmbH 100 Finland Finescal Oy 100 100 KONE Garant Aufzug GmbH 100 KONE Digital Services Oy 100 100 KONE GmbH 100 107 KONE ANNUAL REVIEW 2022#110CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | SUBSIDIARIES Shareholding % Shareholding % Country/Region Company Group Parent company Country/Region Company Group Parent company KONE Montage GmbH 100 Nettuno S.r.l. 75 KONE Servicezentrale GmbH 100 Neulift S.p.A. 100 SK-Fördertechnik GmbH 100 Neulift Service Molise S.r.l. 51 Greece KONE S.A. 100 Neulift Service Triveneto S.r.l. 100 Hong Kong SAR Ben Fung Machineries & Engineering Limited KONE Elevator (HK) Limited 100 0.1 Rimma S.r.l. 60 100 Slimpa S.p.A. 100 Shan On Engineering Company Limited 100 Tecnocram S.r.l. 84 Hungary KONE Felvonó Kft. 100 100 Tosca Ascensori S.r.l. 66.67 Iceland KONE ehf 100 100 Unilift S.r.l. 78.54 India KONE Elevator India Private Limited 100 99.99 Kazakhstan KONE Kazakhstan LLP 100 Indonesia PT KONE Indo Elevator 100 1.04 Kenya KONE Kenya Limited 49 PT. Mitra Indo Utama 0 Latvia SIA KONE Lifti Latvija 100 0.5 Ireland Ennis Lifts Limited 100 Lithuania UAB KONE 100 100 KONE (Ireland) Limited 100 Luxembourg KONE Luxembourg Sàrl 100 Israel KONE LTD 100 100 Macedonia KONE Makedonija Dooel Skopje 100 Italy Ascensori & Ascensori S.r.l. 64 Cerqueti Servizi S.r.l. 100 Malaysia Mexico KONE Elevator (M) Sdn. Bhd. 29.88 29.88 KONE Industrial, S.A. de C.V. 100 Cofam S.r.l. 100 KONE Mexico, S.A. de C.V. 100 0.1 CRON.UP S.r.l. 80 Monaco S.A.M. KONE 99.87 Elevant Servizi S.r.l. 70 Montenegro KONE d.o.o. Podgorica 100 Elevatori Bari S.r.l. 89 Morocco KONE Elevators and Escalators Sàrl AU 100 100 Elevators S.r.l. 60 Netherlands Hissi B.V. 100 Ferrara Ascensori S.r.l. 60 KONE B.V. 100 Gianfranceschi Ascensori S.r.l. 97 KONE Deursystemen B.V. 100 GSB Ascensori S.r.l. 65 KONE Finance Holding B.V. 100 IMAL ascensori S.r.l. 100 KONE Holland B.V. 100 100 KONE Industrial S.p.A. 100 100 KONE Nederland Holding B.V. 100 KONE S.p.A. 100 26.86 Norway KONE Aksjeselskap 100 100 L.A.M. Lombarda Ascensori Montacarichi S.r.l. 70 KONE Rulletrapper AS 100 100 Mingot S.r.l. 100 Oman KONE Assarain LLC 70 Moraglia ascensori S.r.l. 100 Philippines Elevators Philippines Construction, Inc. 39.80 108 KONE ANNUAL REVIEW 2022#111CONSOLIDATED FINANCIAL STATEMENTS | PARENT COMPANY FINANCIAL STATEMENTS | SUBSIDIARIES Shareholding % Shareholding % Country/Region Company Group Parent company Country/Region Company Group Parent company KPI Elevators, Inc. 99.99 KONE Elevators Taiwan Co., Ltd 100 Poland KONE Sp.z o.o. 100 100 Thailand KONE Public Company Limited 84.08 Portugal KONE Portugal - Elevadores, Lda. 100 1 Qatar KONE Elevators W.L.L. 49 49 Romania KONE Ascensorul S.A. 100 99.99 Tunisia Russia LiftConnect JSC 100 100 Thai Elevators and Escalators Company Limited Thai Elevators Holding Company Limited KONE Elevators & Escalators Assembly KONE Elevators & Escalators Sarl 74 49 100 100 Saudi Arabia KONE Areeco Limited 50 10 Türkiye KONE Asansör Sanayi ve Ticaret A.S. 100 Serbia KONE d.o.o. Beograd-Novi Beograd 100 Uganda KONE Uganda Limited 100 Singapore KONE Pte Ltd 100 Ukraine KONE Lifts LLC 100 United Arab Slovak Republic KONE Business Services, s.r.o. 100 KONE s.r.o. 100 Slovenia KONE d.o.o. 100 ㅎㅎㅎ 100 KONE (Middle East) LLC 49 Emirates 49 49 100 United Kingdom KONE (NI) Limited 100 South Africa Addo Private Equity Fund 2 (Pty) Ltd 100 KONE Elevators South Africa (Pty) Ltd. 100 United Elevators (Pty) Ltd 100 Spain Ascensores Muguerza, S.A.U. 100 Ascensores Costa-Lift, S.L. 100 KONE Elevadores, S.A. 100 99.99 100 KONE Pension Trustees Ltd. 100 KONE PIC 100 100 USA ENOK Electrical Company, LLC 100 KONE Holdings, Inc. 100 KONE Inc. 100 Marine Elevators LLC 100 100 Técnicas Autocontrol, S.L.U. 100 Sweden KONE AB 100 Switzerland KONE (Schweiz) AG 100 100 Vietnam KONE Vietnam Limited Liability Company 1) Includes all companies where parent company KONE Oyj has control. Additional information included in note 1 of the consolidated financial statements. Taiwan, China Kang-En Taiwan Elevator Technology Service Co., 100 Ltd 109 KONE ANNUAL REVIEW 2022#112DIVIDEND PROPOSAL, SIGNATURES FOR THE BOARD OF DIRECTORS' REPORT AND FINANCIAL STATEMENTS AND AUDITOR'S NOTE DIVIDEND PROPOSAL, SIGNATURES FOR THE BOARD OF DIRECTORS' REPORT AND FINANCIAL STATEMENTS AND AUDITOR'S NOTE DIVIDEND PROPOSAL The parent company's non-restricted equity on December 31, 2022 is EUR 1,926,632,335.19 of which the net income for the financial year is EUR 1,706,952,719.25. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.7475 be paid on the outstanding 76,208,712 class A shares and EUR 1.75 on the outstanding 440,880,508 class B shares, resulting in a total amount of proposed dividend of EUR 904,715,613.22. The Board of Directors further proposes that the remaining non-restricted equity, EUR 1,021,916,721.97 be retained and carried forward. The Board proposes that the dividend payment date is March 9, 2023. SIGNATURES FOR THE FINANCIAL STATEMENTS AND BOARD OF DIRECTORS' REPORT Helsinki, January 26, 2023 Antti Herlin Jussi Herlin Matti Alahuhta Susan Duinhoven Henrik Ehrnrooth, President & CEO THE AUDITOR'S NOTE Our auditor's report has been issued today. Helsinki, January 26, 2023 Ernst & Young Oy Authorized Public Accountants liris Herlin Ravi Kant Krishna Mikkilineni Jennifer Xin-Zhe Li 110 KONE ANNUAL REVIEW 2022#113AUDITOR'S REPORT AUDITOR'S REPORT To the Annual General Meeting of KONE Oyj Report on the Audit of the Financial Statements OPINION We have audited the financial statements of KONE Oyj (business identity code 1927400-1) for the year ended 31 December, 2022. The financial statements comprise the consolidated statement of financial position, statement of income, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including summaries of significant accounting policies, as well as the parent company's statement of financial position, statement of income, cash flow statement and notes. In our opinion the consolidated financial statements give a true and fair view of the group's financial position as well as its financial performance and its cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. the financial statements give a true and fair view of the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report submitted to the Audit Committee BASIS FOR OPINION We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor's Responsibilities for the Audit of Financial Statements section of our report. We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 2.2 to the consolidated financial statements and note 5 to the parent company financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. 111 KONE ANNUAL REVIEW 2022#114AUDITOR'S REPORT We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud. Key Audit Matter Revenue recognition of new equipment and modernization sales and related accruals The accounting principles and disclosures about revenue recognition of new equipment and modernization sales and related accruals are included in notes 1 and 2.1. In accordance with its accounting principles KONE applies the percentage of completion (PoC) method for recognizing revenue over time from new equipment and modernization contracts. The percentage of completion is based on the cost-to-cost method. In year 2022, approximately 64 % percent of the KONE's sales of 10,9 billion euro were recognized under the PoC method. The recognition of revenue by applying PoC method and the estimation of the outcome of projects require significant management judgement in estimating the cost-to-complete. We assessed the risk to mainly relate to the stage of completion of projects, which were incomplete at 31 December 2022. The Group makes several types of accruals related to risks associated with revenue recognition by applying PoC method. These accruals require high level of management judgment. Based on above, revenue recognition based on PoC method, including related accruals, was a key audit matter. Revenue recognition based on PoC method was also a significant risk of material misstatement referred to in EU Regulation No 537/2014, point (c) of Article 10(2). Valuation of accounts receivable The accounting principles and disclosures relating to accounts receivable are included in notes 1 and 3.2. Valuation of accounts receivable was a key audit matter due to the significance of the account balance and because valuation requires management to make significant judgments especially due to uncertainties related to Chinese real estate market. Valuation of accounts receivable requires management to evaluate the probability of the recoverability of receivables and to record an impairment loss for doubtful accounts over the portion for which payment is unlikely. As of balance sheet date 31 December 2022, the carrying value of accounts receivable amounted to 2 668,1 million euros. The carrying value of account receivable shown in the balance sheet as of 31 December 2022 is a result of gross receivables deducted by reserve of expected credit losses which is based on management's judgment and amounting to 310,8 million euros as of 31 December 2022. How our audit addressed the Key Audit Matter Our audit procedures to address the risk of material misstatement in respect of the revenue recognition from new equipment and modernization projects and related provisions, included, among others: • . • • • Assessment of the Group's accounting policies over revenue recognition over time and recognition of project related accruals; Gaining an understanding of the revenue recognition process including related accruals; Inspecting on a sample basis the project documentation such as contracts and other written communication; Testing on a sample basis the percentage of completion and accrual calculations and the inputs of estimates in the calculations, as well as comparing the estimates to actuals; Analytical procedures; Evaluation of financial development and current status by о analyzing the changes in assumptions relating to estimated revenues, costs, and related accruals and receipts of project payments, and discussions with different levels of the organization including project level and financial organization; and Performing inquiries with management with regards to any significant events or legal matters that could affect the project estimates and provisions; Assessing the Group's disclosures in respect of revenue recognition and related accruals. We performed, among others, the following audit procedures: we evaluated the valuation methods applied on valuation of accounts receivable as well as performed quarterly analyses of overdue and undue gross receivable balance development and corresponding movement in expected credit loss reserve during the year. we sent receivable balance confirmation requests to counterparties and compared trade receivable balances to subsequent cash receipts. we analysed management's estimates of expected credit losses of the most significant aged and overdue receivables considering historical payment patterns as well as recent communications with the counterparties and dunning procedures. we considered the appropriateness of the Group's disclosures in respect of trade receivables. 112 KONE ANNUAL REVIEW 2022#115AUDITOR'S REPORT RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE MANAGING DIRECTOR FOR THE FINANCIAL STATEMENTS The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company's and the group's ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so. attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern. AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company's or the group's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of the Board of Directors' and the Managing Director's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company's or the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 113 KONE ANNUAL REVIEW 2022#116Pending#117AUDITOR'S ESEF ASSURANCE REPORT INDEPENDENT AUDITOR'S REPORT ON KONE OYJ'S ESEF CONSOLIDATED FINANCIAL STATEMENTS To the Board of Directors of KONE Oyj We have performed a reasonable assurance engagement on the iXBRL tagging of the consolidated financial statements included in the digital files 2138001CNF45JP5XZK38-2022- 12-31-Fl.zip of Kone Oyj for the financial year 1.1.-31.12.2022 to ensure that the financial statements are marked/tagged with iXBRL in accordance with the requirements of Article 4 of EU Commission Delegated Regulation (EU) 2018/815 (ESEF RTS). RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND MANAGING DIRECTOR The Board of Directors and Managing Director are responsible for the preparation of the Report of Board of Directors and financial statements (ESEF financial statements) that comply with the ESEF RTS. This responsibility includes: • preparation of ESEF financial statements in accordance with Article 3 of ESEF RTS tagging the consolidated financial statements included within the ESEF financial statements by using the iXBRL mark ups in accordance with Article 4 of ESEF RTS ensuring consistency between ESEF financial statements and audited financial statements The Board of Directors and Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of ESEF financial statements in accordance the requirements of ESEF RTS. AUDITOR'S INDEPENDENCE AND QUALITY CONTROL We are independent of the company in accordance with the ethical requirements that are applicable in Finland and are relevant to the engagement we have performed, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The auditor applies International Standard on Quality Control (ISQC) 1 and therefore maintains a comprehensive quality control system including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. AUDITOR'S RESPONSIBILITIES In accordance with the Engagement Letter we will express an opinion on whether the electronic tagging of the consolidated financial statements complies in all material respects with the Article 4 of ESEF RTS. We have conducted a reasonable assurance engagement in accordance with International Standard on Assurance Engagements ISAE 3000. The engagement includes procedures to obtain evidence on: • whether the tagging of the primary financial statements in the consolidated financial statements complies in all material respects with Article 4 of the ESEF RTS whether the tagging of the notes to the financial statements and the entity identifier information in the consolidated financial statements complies in all material respects with Article 4 of the ESEF RTS whether the ESEF-financial statements are consistent with the audited financial statements 115 KONE ANNUAL REVIEW 2022#118AUDITOR'S ESEF ASSURANCE REPORT The nature, timing and extent of the procedures selected depend on the auditor's judgement including the assessment of risk of material departures from requirements sets out in the ESEF RTS, whether due to fraud or error. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our statement. OPINION In our opinion the tagging of the consolidated financial statement included in the ESEF financial statements of KONE Oyj for the year ended 31.12.2022 complies in all material respects with the requirements of ESEF RTS. Our audit opinion on the consolidated financial statements of KONE Oyj for the year ended 31.12.2022 is included in our Independent Auditor's Report 26.1.2023. In this report, we do not express an audit opinion or any other assurance on the consolidated financial statements. Helsinki, 26 January, 2023 Ernst & Young Oy Authorized Public Accountant Firm Heikki Ilkka Authorized Public Accountant 116 KONE ANNUAL REVIEW 2022#119CORPORATE GOVERNANCE STATEMENT CORPORATE GOVERNANCE STATEMENT KONE'S GENERAL GOVERNANCE PRINCIPLES The duties and responsibilities of KONE Corporation's various governing bodies are determined by Finnish law and KONE's corporate governance principles. KONE complies with the Finnish Corporate Governance Code 2020 published by the Securities Market Association, with the exception of recommendations 17 (Independence of the company of the members of the remuneration committee) and 18 (Independence of the company of the members of the nomination committee). These exceptions are due to the company's ownership structure. The company's largest shareholder, Antti Herlin, controls 62 percent of the company's voting rights and 23 percent of its shares. The significant entrepreneurial risk associated with ownership is considered to justify the main shareholder serving as the Chairman of the Board of Directors and of its Nomination and Compensation Committee and, in this capacity, overseeing shareholders' interests. The Code in its entirety is available on the Internet at www.cgfinland.fi. KONE's administrative bodies and officers with the greatest decision-making power are the General Meeting of Shareholders, the Board of Directors of KONE Corporation, the Chairman of the Board and the President and CEO. At the Annual General Meeting of Shareholders, the shareholders approve the consolidated financial statements, decide on the distribution of profits, select the members of the Board of Directors and the auditors and determine their compensation. KONE Corporation's Annual General Meeting is convened by the Board of Directors. According to the Articles of Association, the Annual General Meeting of Shareholders shall be held within three months of the closing of the financial year on a date decided by the Board of Directors. BOARD OF DIRECTORS Duties and responsibilities The Board of Directors' duties and responsibilities are defined primarily by the Articles of Association and the Finnish Limited Liability Companies' Act. The Board's duties include: compiling of the Board of Directors' report, interim reports and financial statements ensuring the proper organization and surveillance of the accounting and asset management preparation of proposals for the General Meeting and the convocation of the General Meetings approval and confirmation of strategic guidelines and the principles of risk management ratification of annual budget and plans possible appointment of a full-time Chairman of the Board, executive Vice Chair of the Board and a President and CEO, and decisions on the terms and conditions of their employment decisions on the company's corporate structure decisions on major acquisitions and investments decisions on other matters falling under the Board's responsibility by law The Board has created rules of procedure stipulating the duties of the Board, its Chairman and its Committees. The Board of Directors holds seven regular meetings a year and additional meetings as required. The Board of Directors reviews its own performance and procedures once a year. Members of the Board The Annual General Meeting elects five to ten members and no more than three deputy members to the Board of Directors for one year at a time in accordance with KONE Corporation's Articles of Association. The Board of Directors elects a Chairman and Vice Chair among its members. The proposals for Board members are prepared by the Nomination and Compensation Committee under the steering of the Chairman of the Board. During the preparation and in the proposal to the General Meeting of Shareholders, attention is paid to the board candidates' broad and mutually complementary background, experience, expertise, age, gender and views of both KONE's business and other businesses so that the diversity of the board supports KONE's business and its future in the best available way. The independence of the members of the Board is assessed in line with the independence criteria of the Finnish Corporate Governance Code. Committees The Board of Directors has appointed two committees consisting of its members: the Audit Committee and the Nomination and Compensation Committee. The Board has confirmed rules of procedure for both Committees. The Secretary to the Board acts as the Secretary of both Committees. The Audit Committee monitors the Group's financial situation and supervises reporting related to the financial statements and interim reports. The Audit Committee monitors and assesses the adequacy and appropriateness of KONE's internal control and risk management, as well as the adherence to rules and regulations. It also deals with the Corporation's internal audit plans and reports. The Head of Assurance reports the internal audit results to the Committee. The Audit Committee also monitors and evaluates how agreements and other transactions between the company and its related parties meet the requirements relating to ordinary business operations and general market terms and monitors and oversees the financial statement and financial reporting process. In addition, the Audit Committee processes the description of the main features of the internal control and risk management systems pertaining to the financial reporting process included in the company's corporate governance statement. The Audit Committee evaluates the auditing of the Group's companies and the appropriateness of the related arrangements and auditing services and considers the auditors' reports. Furthermore, the Committee formulates a proposal to the Annual General Meeting regarding the auditors to be selected for the Corporation. The Nomination and Compensation Committee prepares proposals to be made to the Annual General Meeting regarding the nomination of Board members and their 117 KONE ANNUAL REVIEW 2022#120CORPORATE GOVERNANCE STATEMENT compensation, makes decisions regarding senior management appointments and compensation and oversees the succession planning of senior management, including the President and CEO. The Committee also decides on the compensation systems to be used, and prepares the remuneration policy and remuneration report for the company's governing bodies. MANAGEMENT Chairman of the Board, executive Vice Chair of the Board and the President and CEO KONE Corporation's Board of Directors appoints the Chairman of the Board, the possible executive Vice Chair of the Board and the President and CEO. The Board determines the terms and conditions of employment of the executive Vice Chair of the Board and the President and CEO, and these are defined in their respective written contracts. The Chairman of the Board and the Vice Chair of the Board prepare matters to be considered by the Board together with the President and CEO and the corporate staff. The Chairman of the Board, the Vice Chair of the Board and the President and CEO are responsible for the execution of the targets, plans, strategies and goals set by the Board of Directors within the KONE Group. The President and CEO is responsible for operational leadership within the scope of the strategic plans, budgets, operational plans, guidelines and orders approved by KONE Corporation's Board of Directors. The President and CEO presents operational matters to the Board and is responsible for implementing the decisions of the Board. Executive Board The Executive Board supports the President and CEO in executing the corporate strategy. The Executive Board follows business developments, initiates actions and defines operating principles and methods in accordance with guidelines handed down by the Board of Directors and the President and CEO. The Executive Board holds regular monthly meetings and additional meetings as required. RISK MANAGEMENT, INTERNAL CONTROL, RELATED PARTY TRANSACTIONS AND AUDIT KONE Corporation's Board of Directors has ratified the principles of risk management, internal control and internal auditing to be followed within the Group. Risk management KONE's Risk Management function coordinates and develops a systematic assessment of risks and opportunities within core business planning and decision-making processes together with the Strategy Development function. KONE's Risk Management function oversees and facilitates the assessment of risks and opportunities related to KONE's business environment, operations, assets and financial performance in order to limit unnecessary or excessive risks. KONE's business units are responsible for identifying, assessing and managing risks that can threaten the achievement of their business objectives as part of the strategic planning and budgeting processes. Key risks are reported to the Risk Management function, which consolidates the risk information to the Executive Board. The Board of Directors reviews the KONE risk portfolio regularly based on the Executive Board's assessment. The ownership of identified risk exposures is assigned to specific business units, and the Risk Management function facilitates and follows up the execution of the identified actions. Internal control The goal of KONE's internal control system is to ensure that the Group's operations are efficient and profitable, risks are managed, eliminated or mitigated to an acceptable level and that the financial and operational reporting is reliable and in compliance with the applicable regulations, policies and practices. The Board's Audit Committee monitors the efficiency and functioning of the internal control process. The management is responsible for establishing and maintaining adequate internal controls and for monitoring their effectiveness as part of operative management. This is supported by a dedicated Internal Controls function, which is responsible for facilitating and coordinating the internal control design, implementation and monitoring across the organization. The KONE internal control framework is built and based on corporate values, Code of Conduct, a culture of honesty and high ethical standards. Such framework is promoted by dedicated leadership, training programs, a positive and disciplined corporate culture and working environment as well as by attracting and promoting dedicated and competent employees. KONE's internal controls are designed to manage, eliminate and mitigate the relevant operational, financial, and compliance risks, and they are linked to KONE's processes and employee job roles. Controls are supported by global and local policies and principles, and control design is continuously maintained by incorporating changes and developments from the business operations and information systems. KONE's business units are responsible for implementing the control framework and for monitoring adherence of globally and locally agreed policies and principles. Global Finance and Control has the oversight responsibility of the overall framework. Internal control procedures over financial reporting Correct financial reporting in KONE's internal control framework means that its financial statements give a true and fair view of the financial performance of the operations and the financial position of the group and that such statements do not include intentional or unintentional misstatements or omissions both in respect of the figures and level of disclosure. Corporate-wide financial management and control of operations is coordinated by the Global Finance and Control function and implemented by a network of subsidiary and business entity Controllers within KONE. KONE's monthly business planning and financial reporting process represents a key control procedure within KONE in ensuring the effectiveness and efficiency of operations. This process includes in-depth analyses of deviations between actual performance, budgets, prior year performance and latest forecasts for the business on multiple levels of the organization. The process covers financial information as well as key performance indicators that measure the operational performance on a business unit and corporate level. The + More information The most significant risks and uncertainties related to KONE's business are described in the Board of Directors' Report. Financial risk management is described in note 2.4 and 5.3. 118 KONE ANNUAL REVIEW 2022#121CORPORATE GOVERNANCE STATEMENT process is designed to ensure that any deviations from plans in terms of financial or operating performance and financial management policies are identified, communicated and reacted upon efficiently, in a harmonized and timely manner. KONE's financial statements are based on this management reporting process. Financial control tasks are built into the business processes of KONE as well as into the management's ongoing business supervision and monitoring. KONE has established Financial Control Models for the new equipment and service businesses as well as for treasury and tax matters. The models have been defined to ensure that the financial control covers the relevant tasks in an efficient and timely manner. The interpretation, application and monitoring of the compliance of accounting standards is centralized in the Global Finance and Control function, which maintains, under the supervision of the Audit Committee, the KONE Accounting Standards. Reporting and forecasting contents are defined in the KONE Accounting and Reporting Instructions. These standards and instructions are maintained and updated centrally by the Global Finance and Control function and applied uniformly throughout KONE. KONE has a global enterprise resource planning (ERP) system which is built to reflect the KONE Accounting Standards and the KONE Accounting and Reporting Instructions. KONE applies a controlled change management process ensuring that no changes to the financial reporting logic of the ERP system can be made without approval from the Global Finance and Control function. Automatic interfaces between different systems are principally applied in the period-end financial reporting process of KONE. Transactional processing is increasingly automated and centralized in dedicated shared service centers. Effective internal control over record to report processes, from business processes and systems to the financial statements, is important in ensuring the correctness of financial reporting. This is driven by the identification of key data elements of the business and the quality of the data to ensure correct financial reporting and forecasting ability. Internal audit The Corporation has an internal audit function, which is separate from the management. The KONE Assurance function is responsible for auditing both the internal control system and the management of business risks. It reports its findings to the Audit Committee. The Head of Assurance reports to the Vice Chair of the Board. Related party transactions KONE evaluates and monitors related party transactions between the company and its related parties. KONE maintains a list of related parties. KONE's related parties comprise its subsidiaries as well as the Board of Directors, the President and CEO, the Executive Board including any companies controlled or significantly influenced by them. KONE's Board of Directors has approved guidelines for how to recognize, handle, approve, monitor and report related party transactions. According to the guidelines, the Corporate Controlling function follows and monitors related party transactions as part of KONE's normal reporting and control procedures and reports related party transactions to the Audit Committee annually. KONE's Board of Directors decides on any related party transactions which are not considered normal business activities or differ from market terms. KONE reports relevant and material related party transactions annually in the notes of consolidated financial statements. External audit The objective of a statutory audit is to express an opinion on whether the consolidated financial statements give a true and fair view of the financial position, financial performance and cash flows of the group, as well as whether the parent company's financial statements give a true and fair view of the parent company's financial performance and financial position. Statutory audit also encompasses the audit of the accounting and governance in the company. The auditor considers whether the information in the Board of Directors' report is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable legal requirements. According to the Articles of Association, the company must have a minimum of one and a maximum of three Auditors. The Auditors must be authorized public accountants or authorized public accounting firms. The Auditor is elected at the Annual General Meeting for a term that ends at the conclusion of the Annual General Meeting following the start of the term of the Auditor. INSIDERS KONE Corporation adheres to the insider guidelines of the Nasdaq Helsinki Ltd, which have been supplemented with internal insider guidelines approved by the Board of Directors. In compliance with the Market Abuse Regulation, the person discharging managerial responsibilities in KONE Corporation (managers) include the members and deputy members of the Board of Directors, the President and CEO and the members of the Executive Board. Managers are permitted to trade in KONE shares and other financial instruments of KONE during a six-week period after the release of interim reports and financial statements releases. KONE does not maintain a list of permanent insiders. KONE has resolved to maintain an insider list with respect to each quarter and year-end financial reporting. The company also maintains other project-specific insider lists when necessary. Project-specific insiders are prohibited from trading with financial instruments of KONE until the termination of the project. The person in charge of KONE's insider issues is the Secretary to the Board of Directors. CORPORATE GOVERNANCE IN 2022 Annual General Meeting The Annual General Meeting was held in Helsinki, Finland on March 1, 2022. The meeting was held based on the so-called temporary act so that shareholders participated in the meeting and exercised their shareholder rights only by voting in advance and by submitting counterproposals and asking questions in advance. Board of Directors and committees The Annual General Meeting elected nine members to KONE's Board of Directors: Antti Herlin (Chairman) Jussi Herlin (Executive Vice Chair), Matti Alahuhta, Susan Duinhoven, liris Herlin, Ravi Kant, Krishna Mikkilineni, Andreas Opfermann and Jennifer Xin-Zhe Li. On March 24, 2022, KONE announced Andreas Opfermann's decision to resign from his position as a member of the Board of Directors of KONE, effective March 31, 2022 due to the significant and increasing time demands in his role at Linde. Following his resignation, KONE's Board consisted of the following ordinary members: Matti Alahuhta, Susan Duinhoven, Antti Herlin, liris Herlin, Jussi Herlin, Ravi Kant, Krishna Mikkilineni and 119 KONE ANNUAL REVIEW 2022#122CORPORATE GOVERNANCE STATEMENT Number of Board and Committee meetings in 2022 and participant attendance: Antti Herlin Jussi Herlin Matti Alahuhta Susan Duinhoven liris Herlin Ravi Kant Krishna Mikkilineni* Jennifer Xin-Zhe Li Andreas Opfermann* Juhani Kaskeala* Nomination and Compensation Committee 7/7 3/3 7/7 3/3 7/7 1/2 Board 7/7 Audit Committee 7/7 7/7 6/7 7/7 7/7 3/3 6/6 5/7 0/1 1/1 4/4 3/3 *Juhani Kaskeala served as Board member until March 1, 2022. Krishna Mikkilineni and Andreas Opfermann were elected to the Board on March 1, 2022. On March 24, 2022, KONE announced Andreas Opfermann's decision to resign from his position as a member of the Board of Directors of KONE, effective March 31, 2022. Jennifer Xin-Zhe Li. Of the Board members, five are male and three are female. Of the Board members, Matti Alahuhta, Susan Duinhoven, liris Herlin, Ravi Kant, Krishna Mikkilineni and Jennifer Xin- Zhe Li are independent of the Corporation. With the exception of Antti Herlin, liris Herlin and Jussi Herlin, the other Board members are independent of the Corporation's significant shareholders. The Board of Directors convened seven times in 2022, with an average attendance rate of 93%. Johannes Frände, Executive Vice President, General Counsel, serves as Secretary to the Board and to its Committees. Audit committee The Board of Directors' Audit Committee comprises Ravi Kant (Chairman, independent member), Matti Alahuhta (independent member), Susan Duinhoven (independent member) and Jussi Herlin. The Audit Committee held three meetings in 2022, with an average attendance rate of 91%. Kristian Snäll serves as the Head of Assurance. Nomination and compensation committee The Nomination and Compensation Committee comprises Antti Herlin (Chairman), Matti Alahuhta (independent member), Jussi Herlin and Jennifer Xin-Zhe Li (independent member). The Nomination and Compensation Committee held seven meetings in 2022, with an average attendance rate of 100%. Compensation and other benefits of the Board of Directors The Annual General Meeting of KONE Corporation in March 2022 confirmed the fees of the members of the Board as follows (annual fees): Chairman of the Board: EUR 220,000 Vice Chair: EUR 125,000 Member: EUR 110,000 Of the remuneration, 40 percent was paid in class B shares of KONE Corporation and the rest in cash. In addition, the Annual General Meeting in March 2022 confirmed a separate annual compensation to the members of the board committees: " Chairman of the Audit Committee: EUR 20,000 Members of the Audit Committee: EUR 10,000 Chairman of the Nomination and Compensation Committee: EUR 20,000 " Members of the Nomination and Compensation Committee: EUR 10,000 The annual compensation of the members of the board committees is paid in cash. Annual board fees and annual compensation to the members of the board committees are not paid to a board member who is employed by the company with a separate employment contract. Board members' travel expenses and daily allowances are compensated in accordance with the company's travel expense policy. Compensation and other benefits of the Vice Chair The Vice Chair of the Board, Jussi Herlin has a separate employment contract for his role as Executive Vice Chair of the Board at KONE. The employment-based compensation for Jussi Herlin consists of a base salary and an annual bonus decided by the Board on the basis of the Group's financial result. The annual bonus may not exceed 100 percent of the recipient's annual base salary. In 2022, Jussi Herlin's base salary was EUR 125,600. In addition, he received a bonus of EUR 26, 166, which was earned in 2021. There will be no bonus payout in 2023 as the performance criteria for 2022, tied to the Group's financial performance, were not met. Jussi Herlin's holdings of shares are presented in the table on page 121. The Executive Vice Chair's retirement age and pension are determined in accordance with Finland's Pensions Act. No separate agreement regarding early retirement has been made. President and CEO Henrik Ehrnrooth serves as KONE Corporation's President and CEO. Compensation and other benefits of the President and CEO The President and CEO's compensation consists of a base salary and an annual bonus determined by the Board on the basis of the Corporation's key targets. The annual bonus may not exceed 150 percent of the recipient's annual salary. Henrik Ehrnrooth's annual base salary is EUR 750,000. In addition, he received a bonus of EUR 835,350, which was 120 KONE ANNUAL REVIEW 2022#123CORPORATE GOVERNANCE STATEMENT earned in 2021. His accrued bonus for 2022 totaled EUR 465,675. The performance criteria applied to this annual short-term incentive is based on financial, strategic and individual performance. The bonus will be paid in 2023. Henrik Ehrnrooth is included in the long-term share-based incentive plan for the Group's senior management. The maximum number of shares available for earning for the President and CEO for the 2021 share-based incentive plan is 53,541 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the share-based incentive plan for the year 2021 will be confirmed in January 2024, depending on the performance during the years 2021, 2022 and 2023. The maximum number of shares available for earning for the President and CEO for the 2022 share-based incentive plan is 58,243 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the share-based incentive plan for the Shareholdings of KONE Board and Management on Dec 31, 2022 and changes in shareholding during the period Jan 1-Dec 31, 2022 Alahuhta Matti Bao Joe Berkling Axel Delval Hugues Duinhoven Susan Ehrnrooth Henrik Frände Johannes Halabi Samer Hara Ilkka Herlin Antti Herlin liris year 2022 will be confirmed in January 2025, depending on the performance during the years 2022, 2023 and 2024. The performance criteria applied to the 2021 and 2022 performance years are based on a combination of annual sales growth and adjusted EBIT margin, as well as improvements in sustainability. The sustainability performance condition is a combination of reductions in carbon footprint, as well as diversity and inclusion and safety related targets. Henrik Ehrnrooth's holdings of shares are presented in the adjacent table. Henrik Ehrnrooth's retirement age and pension are determined in accordance with Finland's Pensions Act. No separate agreement regarding early retirement has been made. Should his employment contract be terminated before retirement, he has the right to the equivalent of 18 months' salary, which includes the salary for a six-month term of notice. Executive Board In 2022, KONE's Executive Board consisted of the President and CEO and 13 members. Henrik Ehrnrooth serves as President and CEO. The other members of the Executive Board were Joe Bao (as of October 8, 2022), Axel Berkling, Hugues Delval, Johannes Frände, Samer Halabi, Ilkka Hara, Thomas Hinnerskov (until April 30, 2022), William Johnson (until October 8, 2022), Mikko Korte, Maciej Kranz, Karla Lindahl (as of April 1, 2022), Tomio Pihkala, Ken Schmid, Susanne Skippari and Tricia Weener. Compensation and other benefits of the Executive Board Class A share Change Class B shares 755,875 0 Change +958 0 68,974 0 54,602 0 2,762 +958 385,014 0 1,303 +351 32,111 0 55,329 0 70,561,608 51,180,608 +1,231,416 136,922 +958 109,667 0 4,075 +958 67,256 0 7,063 -38,000 9,939 0 958 +958 1,581 +958 113,658 0 The members of the Executive Board are included in the long-term share-based incentive plan for senior management. Schmid Ken 24,516 0 Skippari Susanne Weener Tricia 26,391 -6,507 0 0 + More information The shares owned by companies in which a Board or Management member exercises controlling power are also included in these shareholdings. This statement is available on the company's web pages at www.kone.com and it has been given separately of the Board of Directors' report. Herlin Jussi Kant Ravi Korte Mikko Kranz Maciej Lindahl Karla Mikkilineni Krishna Xin-Zhe Li Jennifer Pihkala Tomio The compensation for the members of the Executive Board comprises a base salary and an annual bonus, based on financial targets and strategy execution, as well as individual performance. The bonus amount is determined by the Nomination and Compensation Committee and may not exceed 75 percent of the annual salary. 121 KONE ANNUAL REVIEW 2022#124CORPORATE GOVERNANCE STATEMENT The maximum number of shares available for earning for the Executive Board for the 2021 share-based incentive plan is 233,794 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the share-based incentive plan for the year 2021 will be confirmed in January 2024, depending on the performance during the years 2021, 2022 and 2023. The maximum number of shares available for earning for the Executive Board for the 2022 share-based incentive plan is 285,391 KONE class B shares (gross before deduction for applicable taxes). The final outcome and any potential share awards under the share-based incentive plan for the year 2022 will be confirmed in January 2025, depending on the performance during the years 2022, 2023 and 2024. No separate agreement regarding early retirement has been made for the members of the Executive Board. The compensation for the termination of the employment contract prior to retirement is a maximum of 15 months' salary, which includes the salary for a six-month term of notice. The Executive Board members' holdings of shares are presented in the table on the previous page. Auditing KONE Corporation's Auditor is audit firm Ernst & Young Oy. The auditor-in-charge is Heikki Ilkka. The fees paid to Ernst & Young Oy during 2022 were EUR 3.8 million for auditing and EUR 0.3 million for tax and other services. Insiders The shareholding of the members of the Board of Directors, the Management of KONE and the corporations under their control amounted to 123,600,212 shares on December 31, 2022, which represents 23.3 % of total shares and 62.4% of voting rights. Antti Herlin's ownership is 121,742,216 shares and 75,679,667 votes. The individual holdings of the members of the Board of Directors and Management of KONE, and the changes occurred in them during the financial year, are presented on the previous page. Related party transactions Except for management remuneration, there have not been any material transactions between KONE and its members of the Board of Directors, the President & CEO or the members of the Executive Board including any companies controlled or significantly influenced by them. More information As of July 3, 2016, the trades of KONE Board and Management are published as stock exchange releases. + 122 KONE ANNUAL REVIEW 2022#125CORPORATE GOVERNANCE STATEMENT BOARD OF DIRECTORS Antti Herlin Chairman of the Board b. 1956, D.Sc. (Econ.) h.c., D.Arts h.c., D.Sc. (Tech) h.c. Member of the Board since 1991. Has served as Chairman of the Board since 2003. Previously served as Executive Chairman of the Board of KONE 2006- 2021, as CEO of KONE 1996-2006, and as Deputy Chairman 1996-2003. Current key positions of trust are Chairman of the Board of Security Trading Oy, Chairman of the Board of Holding Manutas Oy, and Chairman of the Board of the Tiina and Antti Herlin Foundation. Jussi Herlin Vice Chair of the Board b. 1984, M.Sc. (Econ) Member of the Board since 2012. Serves as Executive Vice Chair of the Board of KONE since 2021 and Vice Chair of the Board since 2014. Previously served as Senior Business Analyst and Strategy Development Manager at KONE 2016-2020, as Consultant at Accenture 2012-2014, and as Deputy Member of the Board of KONE Corporation 2007-2012. Current key positions of trust are Member of the Board of Security Trading Oy, Member of the Board of Holding Manutas Oy, Member of the Board of the Tiina and Antti Herlin Foundation, Member of the Board of Kaskas Media Oy, Member of the Board of the Confederation of Finnish Industries, Member of the Board of Technology Industries of Finland, and Member of the Board of the Finnish Foundation for Share Promotion. Matti Alahuhta b. 1952, D. Sc. (Tech.), D.Sc. (Tech.) h.c. Member of the Board since 2003. Previously served as President and CEO of KONE 2006- 2014, as President of KONE 2005-2006, as Executive Vice President of Nokia Corporation 2004, as President of Nokia Mobile Phones 1998-2003, and as President of Nokia Telecommunications 1993-1998. Current key positions of trust are Chairman of the Board of DevCo Partners Corporation and Member of the Board of AB Volvo. Susan Duinhoven b. 1965, Ph.D. (Physical Chemistry), B. Sc. (Physical Chemistry) Member of the Board since 2020. Serves as President and CEO of Sanoma Corporation since 2015. Previously served as CEO of Koninklijke Wegener N.V. 2013-2015, as CEO of Western Europe / CEO Netherlands at Thomas Cook Group Plc 2010-2013, as Managing Director of Benelux & New Acquisitions Europe at Reader's Digest 2008- 2010, and as CEO at De Gule Sider A/S 2005-2007. Started her career at Unilever in 1988. liris Herlin b. 1989, M.Soc.Sc., Bachelor of Natural Resources Member of the Board since 2015. Previously served as Deputy Member of the Board 2013- 2014. Current key positions of trust are Member of the Board of Security Trading Oy and Member of the Board of the Tiina and Antti Herlin Foundation. Ravi Kant b. 1944, B.Tech. (Hons.), M.Sc., D.Sc. (Hon) Member of the Board since 2014. Previously served in different positions at Tata Motors 1999- 2014 (as Managing Director and CEO 2005-2009 and after that as the Vice Chairman of the Board of Directors until 2014). Prior to that, he served as Director, Consumer Electronics at Philips India, as Director (Marketing) at LML Ltd., and as Vice President (Marketing) at Titan Watches Ltd. Current key positions of trust are Member of the Board of Hawkins Cookers Ltd and Chairman of the Advisory Board of both MedTherapy India and Akhandjyoti Eye Hospital. Krishna Mikkilineni b. 1959, Ph.D. (Electrical and Computer Engineering), B.Tech. (Electronics and Communications Engineering). Member of the Board since 2022. Previously served in different positions at Honeywell International Inc. both in the U.S.A. and India 1985-2019 (latest positions were Chief Technology Officer, Chief Information Officer, Chief of Integrated Supply Chain & Customer Service globally across the Honeywell Corporation). Prior to that, he was President of Honeywell Technology Solutions. Current key positions of trust are Senior Advisor for various start-ups, General Partner in a Venture Capital fund, and Member of the Board of a Private Equity firm. He actively manages a private philanthropic foundation focused on education and elderly care. Jennifer Xin-Zhe Li b. 1967, MBA Member of the Board since 2021. Previously served as CEO of Baidu Capital, China 2017- 2018, CFO of Baidu, China 2008-2017, and in different positions at General Motors (GM) 1994–2008 (as Controller, North American Operations, GMAC U.S. 2005-2008, as CFO, GM China 2004-2005, as Controller and Treasurer, GM China 2001-2004, as Corporate Finance Member, GM Singapore 1999-2001, and as Senior Financial analyst, both at GM U.S. and at GM Canada 1994-1999). Current key positions of trust are Member of the Board of ABB Ltd, Member of the Supervisory Board of SAP SE, and Member of the Board of Full Truck Alliance Co. Ltd (Cayman Islands / P.R. China). Juhani Kaskeala served as a Board member until March 1, 2022. Krishna Mikkilineni and Andreas Opfermann were elected to the Board on March 1,2022. On March 24, 2022, KONE announced Andreas Opfermann's decision to resign from his position as a member of the Board of Directors of KONE, effective March 31, 2022. 123 KONE ANNUAL REVIEW 2022#126Pending#127CORPORATE GOVERNANCE STATEMENT Current key position of trust: Member of the Board of loTecha Corporation and Finabro Corporation. Karla Lindahl South Europe and Mediterranean (on maternity leave as of December 2022) b. 1981, LL.M., M.A. (EC Competition Law) Member of the Executive Board since April 2022. Employed by KONE since 2004. Previously served at KONE as Managing Director, KONE Finland and Baltics 2017-2022, as Vice President, Strategy Development and Market Intelligence 2016-2017, as Vice President, Strategy Development and Investor Relations 2014-2016, as Director, Investor Relations 2010-2014, as Legal Counsel 2005-2010, and as Assistant Legal Counsel 2004-2005. Current key position of trust: Member of the Board of NKT A/S. Tomio Pihkala New Equipment Business b. 1975, M.Sc. (Mechanical Engineering) Member of the Executive Board since 2013. Employed by KONE since 2001. Previously served at KONE as Executive Vice President, Chief Technology Officer 2015-2019, as Executive Vice President, Operations Development 2013-2015, as Vice President, Technology Finland 2011-2013, as Director, Service Equipment Business, KONE China 2009-2010, and as Director, Product Strategy and Marketing, KONE China 2007-2008. Current key positions of trust: Member of the Board of Toshiba Elevator and Building Systems Corporation, and Member of the Board of Vexve Armatury Group. Ken Schmid Americas b. 1963, B.A. (History), MBA (Business Administration) Member of the Executive Board since 2020. Employed by KONE since 1986 (Montgomery Elevator Company until 1994). Previously served at KONE as Senior Vice President, Finance, KONE Americas 2005-2020, as Senior Vice President, Global Information Services 2003-2005, as Senior Vice President, Chief Information Officer, KONE Americas 1998-2003, as Vice President, Quality 1995-1998, and in various new equipment sales roles in multiple branch offices. Current key positions of trust: Member of the Board of National Elevator Industry, Inc. (NEII), and Member of the Board of Advisory Board to Invest in Finland, USA. Susanne Skippari Human Resources b. 1974, M.Sc. (Econ.) Member of the Executive Board since 2017. Employed by KONE since 2007. Previously served at KONE as Head of Human Resources, New Equipment Business 2015-2017, as Head of Talent Management 2007-2008 and 2011-2015, and as Area Human Resources Director, Europe, Middle East and Africa 2009-2011. Prior to joining KONE, she served at Nokia in various Human Resources roles in Finland and in Argentina 1999-2006. Current key position of trust: Member of the Board of Uponor Corporation. Tricia Weener Marketing and Communications b. 1970, B.A. Business studies Member of the Executive Board and employed by KONE since 2021. Previously served at HSBC as Chief Marketing Officer, Commercial & Global Banking & Markets 2019-2020 and Commercial Banking 2016-2020, as Group Head of Brand Partnerships 2017-2019, as Asia Head of Marketing, Commercial & Global Banking & Markets 2013-2019, as Head of Integrated Marcoms 2011-2013, and as Europe Head of Marketing and Comms, Commercial Bank 2009-2011. Prior to HSBC, she served at Intelligent Marketing & Communications Ltd as CEO and Founder 2003-2009, at The Marketing Partnership Ltd 1997-2003, at ALPHA Airports Group 1996- 1997 and at British Aerospace Defence Ltd 1989-1994. Thomas Hinnerskov served as Executive Vice President responsible for South Europe, Middle East and Africa until April 30, 2022. William B Johnson served as Executive Vice President, Greater China until October 8, 2022. More information Shareholdings of KONE Corporation's public insiders are available on page 121 + 125 KONE ANNUAL REVIEW 2022#128CORPORATE GOVERNANCE STATEMENT INFORMATION FOR SHAREHOLDERS Annual General Meeting KONE Corporation's Annual General Meeting will be held on Tuesday February 28, 2023 at 11.00 a.m. at Messukeskus Siipi, Rautatieläisenkatu 3, in Helsinki, Finland. Further instructions and schedules for shareholders can be found on KONE's website at kone.com and in the Notice to the General meeting. At general meetings, each KONE class A share is assigned one vote, as is each block of 10 class B shares, with the provision that each shareholder is entitled to at least one vote. Payment of dividends The Board of Directors proposes to the Annual General Meeting that for the financial year 2022 a dividend of EUR 1.7475 be paid for each class A share and a dividend of EUR 1.75 be paid for each class B share. All shares existing on the dividend record date, March 2, 2023 are entitled to the dividend. The dividend is proposed to be paid on March 9, 2023. Listing of KONE securities KONE Corporation has two classes of shares: the listed class B shares and the non-listed class A shares. The KONE class B shares are listed on the Nasdaq Helsinki Ltd. and are registered at Euroclear Finland Ltd. More information The Board of Directors' proposal for the distribution of profit, page 110 Shares and shareholders, page 35 + 126 KONE ANNUAL REVIEW 2022#129CORPORATE GOVERNANCE STATEMENT INVESTOR RELATIONS Investor relations policy KONE strives to offer liquid shares that present an attractive investment alternative to domestic and foreign investors. The primary task of KONE's Investor Relations is to ensure that the market has correct and sufficient information at its disposal in order to determine the value of the KONE share at all times. The aim of KONE's written communications, such as the financial statements and interim reports, the sustainability report, stock exchange and press releases, the internet pages as well as that of all other communication with investors and analysts is to accomplish this task. In all of its communications, KONE complies with the requirements for listed companies as defined by EU legislation, the Finnish Securities Markets Act, the rules of the Nasdaq Helsinki Ltd. and any other applicable regulation concerning prompt and simultaneous disclosure of information. Silent period KONE observes a period of silence prior to releasing its financial results. This means that there are no discussions regarding financial issues with the capital markets or the financial media during the three-week period preceding the publication of interim results and the four-week period preceding the publication of the annual financial statements. This applies to meetings, telephone conversations and other means of communication. Contact information Natalia Valtasaari Head of Investor Relations Tel. +358 (0)204 75 4705 [email protected] KONE's financial reporting schedule 2023. Financial Statement Bulletin and Financial Statements for 2022 Interim Report for January 1-March 31, 2023 Half-year Financial Report for January 1-June 30, 2023 Interim Report for January 1-September 30, 2023 Thursday, January 26, 2023 Wednesday, April 26, 2023 Thursday, July 20, 2023 Wednesday, October 25, 2023 KONE will publish its Sustainability Report for the year 2022 during the second quarter of 2023. 127 KONE ANNUAL REVIEW 2022#130This report contains forward-looking statements that are based on the current expectations, known factors, decisions and plans of the management of KONE. Although the management believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. Accordingly, results could differ materially from those implied in the forward-looking statements as a result of, among other factors, changes in economic, market and competitive conditions, changes in the regulatory environment and other government actions as well as fluctuations in exchange rates. 128 KONE ANNUAL REVIEW 2022#131Front and back cover reference images At the Zuidas financial district in Amsterdam, The Valley is the ultimate integration of living and working in an urban environment. Spanning over 75,000 m2 of floor space, there is ample room for offices, retail, catering, a total of 196 apartments, an underground 375-car parking garage and a dedicated parking space for 1,850 bicycles. In this project, smooth people flow is delivered by 21 KONE MonoSpace® 700 elevators, reaching a speed of three meters per second, and two KONE TravelMaster TM 110 escalators located on the ground floor of the 3-tower building. Maximum equipment uptime will be ensured by the predictive maintenance concept KONE 24/7 Connected Services. KONE CORPORATION Corporate Offices Keilasatama 3 P.O. Box 7 FI-02150 Espoo Finland Tel. +358 (0)204 751 www.kone.com For further information please contact: Natalia Valtasaari Head of Investor Relations Tel. +358 (0)204 75 4705 KONE