Interim Report of KONE Corporation for January-March 2019

KONE Corporation, stock exchange release, April 25, 2019 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-March 2019

January-March 2019: Good start to the year with strong orders received and cash flow

-       Orders received grew by 9.7% to EUR 2,094 (1–3/2018: 1,909) million. At comparable exchange rates, orders grew by 8.0%.

-       Sales grew by 9.5% to EUR 2,199 (2,008) million. At comparable exchange rates, sales grew by 7.6%.

-       Operating income (EBIT) was EUR 215.4 (211.5) million or 9.8% (10.5%) of sales. The adjusted EBIT was EUR 228.4 (218.3) million or 10.4% (10.9%) of sales.*

-       Cash flow from operations (before financing items and taxes) was EUR 377.6 (179.0) million.

KONE has adopted the new IFRS 16 and IFRIC 23 effective January 1, 2019 using the modified retrospective approach and the comparative figures have not been restated.

Business outlook (specified)

In 2019, KONE’s sales is estimated to grow by 3–7% at comparable exchange rates as compared to 2018. The adjusted EBIT is expected to be in the range of EUR 1,160–1,260 million, assuming that foreign exchange rates would remain at the April 2019 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 30 million.

KONE previously estimated its sales to grow by 2–7% at comparable exchange rates compared to 2018. The adjusted EBIT was expected to be in the range of EUR 1,120–1,240 million, assuming that foreign exchange rates would have remained at the January 2019 level. Foreign exchange rates were estimated to impact EBIT positively by less than EUR 10 million.

Key figures

1–3/2019 1–3/2018 Change 1–12/2018
Orders received MEUR 2,094.1 1,908.7 9.7% 7,797.0
Order book MEUR 8,454.7 7,786.6 8.6% 7,950.7
Sales MEUR 2,198.8 2,008.0 9.5% 9,070.7
Operating income (EBIT) MEUR 215.4 211.5 1.8% 1,042.4
Operating income margin % 9.8 10.5 11.5
Adjusted EBIT* MEUR 228.4 218.3 4.6% 1,112.1
Adjusted EBIT margin* % 10.4 10.9 12.3
Income before tax MEUR 220.4 223.7 -1.5% 1,087.2
Net income MEUR 169.8 172.2 -1.4% 845.2
Basic earnings per share EUR 0.33 0.33 -2.1% 1.63
Cash flow from operations (before financing items and taxes) MEUR 377.6 179.0 1,150.1
Interest-bearing net debt MEUR -837.3 -1,001.3 -1,704.0
Equity ratio % 39.4 43.9 49.9
Return on equity % 24.8 25.6 27.7
Net working capital (including financing items and taxes) MEUR -938.5 -735.9 -757.8
Gearing % -34.7 -42.5 -55.3

* In September 2017, KONE introduced a new alternative performance measure, adjusted EBIT, to enhance comparability of the business performance between reporting periods during the Accelerate program. Restructuring costs related to the Accelerate program are excluded from the calculation of the adjusted EBIT.

Henrik Ehrnrooth, President and CEO:

“With the first quarter results, we are on track to meet the full year targets. Our orders received grew strongly, in Europe and China in particular, and the maintenance business continued to develop well in all regions. Furthermore, our cash flow was strong in the first quarter. The adjusted EBIT has returned to growth, and although the margin showed a slight year-on-year decline in the first quarter, we expect better development in the coming quarters and are confident that we are going in the right direction with the actions we have taken.

We saw positive development in two of our important strategic targets. Firstly we have continued to grow faster than the market. Based on our estimates of the elevator and escalator market development in 2018, we increased again our market share in the new equipment business. To me this is a clear sign of having improved our differentiation. Secondly, we have also made good progress in our target of being the leader in sustainability. During the quarter, we got results of our 2018 carbon footprint and I am pleased that it decreased by 4% compared to the previous year exceeding our target of 3% annual reduction. We have also continued our work in developing the sustainability of our offering and new products were again classified best in class in eco-efficiency. External recognitions, such as being included in the Global 100 Most Sustainable Corporations in the World as the only elevator and escalator company, also highlight our committed work in sustainability.

We continue to drive further differentiation with our Winning with Customers strategy. In addition to introducing new solutions and services, we are changing our ways of working in many ways. We have for example established new competence hubs and we are changing our sales approach to be able to serve our customers in a way that supports better their differing needs. We can already see that these actions are clearly contributing to our differentiation.

With one quarter now behind us, we have specified our business outlook for 2019. We expect sales growth to be 3-7% and adjusted EBIT in the range of EUR 1,160-1,260 million. We expect the headwinds burdening our EBIT to ease towards the end of the year. Overall, we are again well on track towards growing in a profitable way.“

Operating environment in January-March 2019

The global new equipment market grew slightly in units compared to the first quarter of 2018. In Asia-Pacific, the new equipment volumes grew slightly. In China, the new equipment market grew slightly in units. Infrastructure segment developed positively while residential segment was rather stable and non-residential segment declined. Government restrictions across city tiers continued to have a cooling effect on the overall markets. In the rest of Asia-Pacific, the new equipment markets were stable with growth in South East Asia and India and a decline in Australia. In the EMEA region, the new equipment market grew slightly. The new equipment market in Central and North Europe grew slightly from a high level. Also in South Europe, the market continued to see slight growth but from a lower level. In the Middle East, the market decline continued due to market uncertainty across the region. In North America, the new equipment market was stable on a high level.

Global service markets continued to develop positively. Both the maintenance and the modernization markets saw growth across the regions, with the strongest rate of growth seen in Asia-Pacific and a more moderate development in Europe and North America.

Pricing trends remained varied during January–March. In China, competition remained intense but pricing was rather stable in the new equipment market. In the EMEA region, the pricing environment continued to be characterized by strong competition, particularly in the South Europe and Middle East region. In Central and North Europe, there were some signs of improving pricing environment in the new equipment market. In North America, prices continued to increase, but simultaneously cost pressures became more intense.

Market outlook 2019

The new equipment market is expected to be relatively stable overall. In China the market is expected to be relatively stable in units ordered, while in the rest of the Asia-Pacific, the market is expected to grow slightly. The new equipment markets in North America and the Europe, Middle East and Africa region are expected to be rather stable.

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

The modernization market is expected to be stable in the Europe, Middle East and Africa region, to grow slightly in North America and to develop strongly in Asia-Pacific.

Business outlook 2019 (specified)

In 2019, KONE’s sales is estimated to grow by 3–7% at comparable exchange rates as compared to 2018. The adjusted EBIT is expected to be in the range of EUR 1,160–1,260 million, assuming that foreign exchange rates would remain at the April 2019 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 30 million.

The outlook is based on KONE’s maintenance base and order book as well as the market outlook. KONE has a solid order book for 2019 in the new equipment business and the service business is expected to continue to grow. Targeted pricing and productivity improvement actions are expected to support profitability together with the savings from the Accelerate program. High component and labor costs together with trade tariffs are the main headwinds for the adjusted EBIT in 2019. The impact of high raw material prices and trade tariffs is estimated to be less than EUR 50 million.

KONE previously estimated its sales to grow by 2–7% at comparable exchange rates compared to 2018. The adjusted EBIT was expected to be in the range of EUR 1,120–1,240 million, assuming that foreign exchange rates would have remained at the January 2019 level. Foreign exchange rates were estimated to impact EBIT positively by less than EUR 10 million.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Thursday, April 25, 2019 at 2:15 p.m. EEST.

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

U.S.: +1 323-701-0225
UK: +44 (0)330 336 9105
Finland: +358 (0)9 7479 0361
Participant code: 7350012

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 2018, KONE had annual sales of EUR 9.1 billion, and at the end of the year over 57,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.

www.kone.com

About Us

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 2018, KONE had annual sales of EUR 9.1 billion, and at the end of the year over 57,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland. www.kone.com

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