Financial Statement Bulletin of KONE Corporation for January-December 2016

KONE Corporation, stock exchange release, January 26, 2017 at 12.30 p.m. EET

Financial Statement Bulletin of KONE Corporation for January-December 2016

October-December 2016: Solid profit development continued

-In October-December 2016, orders received totaled EUR 1,839 (10-12/2015: 1,947) million. Orders received declined by 5.5% at historical exchange rates and by 2.9% at comparable exchange rates.

-Net sales grew by 1.2% to EUR 2,593 (2,562) million. At comparable exchange rates, net sales grew by 3.6%.

-Operating income (EBIT) was EUR 392.2 (378.5) million or 15.1% (14.8%) of net sales.

-Cash flow from operations (before financing items and taxes) was EUR 409.8 (403.5) million.

January-December 2016: All businesses contributed to the growth in operating income

-In January-December 2016, orders received totaled EUR 7,621 (1-12/2015: 7,959) million. Orders received declined by 4.2% at historical exchange rates and by 1.6% at comparable exchange rates. The order book stood at EUR 8,592 (December 31, 2015: 8,210) million at the end of December 2016.

-Net sales grew by 1.6% to EUR 8,784 (8,647) million. At comparable exchange rates the growth was 3.9%.

-Operating income (EBIT) was EUR 1,293 (1,241) million or 14.7% (14.4%) of net sales.

-Cash flow from operations (before financing items and taxes) was EUR 1,509 (1,474) million.

-In 2017, KONE's net sales is estimated to grow by -1% to 3% at comparable exchange rates as compared to 2016. The operating income is expected to be in the range of 1,180-1,300 million, assuming that translation exchange rates would remain at approximately the average level of January 2017.

-The Board proposes a dividend of 1.55 per class B share for the year 2016.

Henrik Ehrnrooth, President and CEO, in conjunction with the Financial Statements Bulletin

"I am pleased with the good ending to the year. Our execution remained strong in the final quarter of 2016, and I was particularly satisfied with the healthy growth in the operating income and the accelerated growth in our services business. Orders received stayed at a good level at EUR 1,839 million, although they declined by 5.5% at historical and by 2.9% at comparable currencies. The marked decline of orders received in China was largely compensated by growth in all other regions. Sales reached a record level of EUR 2,593 million growing by 1.2% at historical and by 3.6% at comparable currencies. The operating income reached an all-time-high of EUR 392 million driven by positive development in all businesses. The relative operating income improved to 15.1% of net sales. In addition, our cash flow remained strong at EUR 410 million.

During the fourth quarter, market trends remained varied. The new equipment market in China continued to be challenging. In monetary value, the market declined clearly due to the intense price pressure as well as the continued shift in customer preferences towards lower-specification products. In unit terms, the market declined slightly. In the EMEA region and North America, new equipment markets developed more positively. The service markets continued to grow across regions.

Our development programs launched in 2014 were successfully completed during the fourth quarter of 2016. I am pleased with our solid development towards our strategic targets during this three-year-period. One of the highlights was the development in our customer loyalty, which improved clearly. Thanks to the continued trust from our customers and partners, we also continued to grow profitably and faster than the market in all businesses. In addition, I am satisfied that our employee engagement continued to develop positively during the three-year period. I would like to express my thanks to all our employees for their commitment and actions in making KONE an even more competitive company. With the completion of the development programs, KONE enters a new strategic phase for 2017-2020 called "Winning with Customers". The objective is to drive differentiation further by putting the needs of our customers and users at the center of all development.

Looking ahead into 2017, the market environment is expected to remain varied. The new equipment market in China has been declining for two years already. In 2017, we expect the market to decline by 0-5% in unit terms and the competition to remain intense. However, we expect to see slight growth in the new equipment market in all other regions and continued positive development in the service markets. In 2017, our sales is expected to grow by -1% to 3% at comparable rates. The operating income is expected to be in the range of EUR 1,180-1,300 million, assuming that the translation exchange rates would remain at the average level of January 2017. Despite some of the headwinds we are seeing in many large markets, I am confident that we can continue to improve our overall competitiveness and execution in the coming year."

Operating environment in October-December 2016

In the fourth quarter of 2016, the global new equipment market volumes were rather stable compared to the previous year's corresponding period. The new equipment market in China declined slightly in units and clearly in monetary value. The new equipment market in the Europe, Middle East and Africa (EMEA) region was rather stable, while the market in North America continued to grow slightly. Modernization demand continued to see growth across regions. Also the maintenance market continued to grow globally, with the strongest rate of growth seen in the Asia-Pacific region and more moderate development in Europe and North America.

Operating and market environment in January-December 2016

In 2016, the global new equipment market declined slightly due to a decline in the large Chinese new equipment market. Of the other markets, the new equipment markets in the EMEA region saw slight growth, and also the new equipment demand in North America grew slightly from a high level. The modernization market grew globally with positive development across regions. Also the maintenance market continued to grow globally. The fastest rate of growth was seen in Asia-Pacific, while the growth rate was lower in the more mature markets.

Market outlook 2017

In new equipment, the market in China is expected to decline by 0-5% in units ordered and also the competition to continue intense. In the rest of Asia-Pacific, the market is expected to grow. The market in North America and Europe, Middle East and Africa region is expected to grow slightly.

The modernization market is expected to grow slightly in Europe and in North America, and to develop strongly in Asia-Pacific.

Maintenance markets are expected to see the strongest growth rate in Asia-Pacific, and to grow slightly also in other regions.

Business outlook 2017

KONE's net sales is estimated to grow by -1% to 3% at comparable exchange rates as compared to 2016.

The operating income (EBIT) is expected to be in the range of EUR 1,180-1,300 million, assuming that translation exchange rates would remain at approximately the average level of January 2017.

The sales outlook is based on KONE's maintenance base and order book as well as the market outlook.

KONE's operating income outlook is based on the current sales forecast combined with factors impacting profitability. In 2017, profitability is expected to be impacted by factors such as improved quality and productivity, pricing and business mix, a slight decrease in the margin of orders received in 2016 as well as cost pressures resulting from increased material costs and R&D and IT spend.

The Board's proposal for the distribution of profit

The parent company's non-restricted equity on December 31, 2016 was EUR 1,896,466,275.82 of which the net profit for the financial year is EUR 870,373,574.84.

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.5475 be paid on the outstanding 76,208,712 class A shares and EUR 1.55 on the outstanding 437,076,029 class B shares, resulting in a total amount of proposed dividends of EUR 795,400,826.77.

The Board of Directors further proposes that the remaining non-restricted equity, EUR 1,101,065,449.05 be retained and carried forward.

The Board proposes that the dividends be payable on March 9, 2017. All the shares existing on the dividend record date are entitled to dividend for the year 2016 except for the own shares held by the parent company.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Thursday, January 26, 2017 at 2:15 p.m. EET.

A meeting for analysts, conducted in English, will begin at 3:45 p.m. EET and will be available as a live webcast on www.kone.com. An on-demand version of the webcast will be available on www.kone.com later the same day. The meeting can also be joined via a telephone conference.

US callers: +1 719 325 2202  
UK callers: +44 (0)330 336 9105
Finnish callers: +358 (0)9 7479 0361  
Participant code: KONE

Both meetings will take place in KONE Building, located at Keilasatama 3, Espoo, Finland.

For further information, please contact:
Sanna Kaje, Vice President, Investor Relations, tel. +358 204 75 4705

Sender:

KONE Corporation

Henrik Ehrnrooth
President and CEO 

Ilkka Hara
CFO

About KONE

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. In 2016, KONE had annual net sales of EUR 8.8 billion, and at the end of the year over 52,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.

www.kone.com