Interim Report of KONE Corporation for January-September 2013

KONE Corporation, stock exchange release, October 22, 2013 at 12:30 p.m. EET

KONE's Q3: Good development on a broad basis led to strong results

July-September 2013

• In July-September 2013, orders received totaled EUR 1,327 (7-9/2012: 1,296) million. Orders received grew by 2.4% at historical exchange rates and by 7.0% at comparable exchange rates. 

• Net sales grew by 6.5% to EUR 1,739 (1,634) million. At comparable exchange rates the growth was 10.1%.  

• Operating income was EUR 257.5 (226.4) million or 14.8% (13.9%) of net sales. 

• Cash flow from operations was EUR 349.0 (355.8) million. 

• KONE reiterates its business outlook for 2013. 

January-September 2013

• In January-September 2013, orders received totaled EUR 4,678 (1-9/2012: 4,175) million. Orders received grew by 12.0% at historical exchange rates and by 13.5% at comparable exchange rates. The order book stood at EUR 5,642 (Dec 31, 2012: 5,050) million at the end of September 2013. 

• Net sales grew by 10.9% to EUR 4,900 (4,419) million. At comparable exchange rates the growth was 12.4%. 

• Operating income was EUR 660.7 (571.3) million or 13.5% (12.9%) of net sales
  (1-9/2012 figures exclude a one-time cost of EUR 37.3 million related to the support function development and cost adjustment programs). 

• Cash flow from operations was EUR 972.2 (804.2) million. 

Key Figures

Comparative figures for 2012 have been restated according to the revised IAS 19 'Employee benefits'.

1) Excluding a MEUR 37.3 one-time cost related to the support function development and cost adjustment programs.

Matti Alahuhta, President & CEO, in conjunction with the review:

"Our business continued to develop well in the third quarter of the year. Orders received grew by 2.4% at historical and by 7.0% at comparable exchange rates. The level of orders received was impacted by delays in many construction projects in the major projects segment in Europe. Orders received grew the strongest in Asia-Pacific, where India and Australia had the highest growth rates. Order growth continued strong also in China, where our order intake grew substantially faster than the market. Sales grew by 6.5% at historical and by 10.1% at comparable exchange rates.

I am particularly pleased with the growth of our operating income and with the strong cash flow in the quarter. Operating income (EBIT) grew by 13.7% to EUR 258 million driven by continued strong progress in the new equipment business in Asia-Pacific and a good development in the service business globally. Also our relative operating income developed exceptionally well this quarter despite the clear increase in the share of the new equipment business of total sales. This good development was due to a strong operational performance on a broad basis as well as a positive impact from the pricing actions we have been taking during the past couple of years. In addition, the product mix within new equipment deliveries had a positive impact on the relative operating income; we had clearly more standard volume than major project deliveries in new equipment due to delays in project completions particularly in Europe. We expect to see a higher proportion of large project deliveries in the last quarter of the year, although we expect the general economic and market weakness in Europe to continue to have an impact on many projects. Cash flow was strong at EUR 349 million. I want to once again thank our people for a job well done.

Our operating environment remained mixed during the third quarter. In Asia-Pacific, new equipment market growth continued at a good level, although as expected at a lower rate than in the first half of the year. The growth of the market in North America continued both in new equipment and modernization. New equipment and modernization demand in Europe continued to decline. Maintenance markets grew in most countries, but the growth rate was low in such countries, where new equipment activity has been weak in the past years.
  
During the quarter, KONE was ranked for the third consecutive year among the top 50 most innovative companies in the world by the business magazine Forbes. Passion for innovation is an integral part of our culture - I am very excited about our new products and solutions and on-going R&D efforts, as the constant development of our offering allows us to even better respond to our customers' and end-users' needs going forward."

Operating environment in July-September 2013

In the third quarter of 2013, the new equipment market in Asia-Pacific continued to grow, but as expected, growth slowed down clearly from the high level seen in the first half of the year. In other regions, market development was largely unchanged. New equipment demand in the Europe, Middle East and Africa (EMEA) region declined in both Central and North Europe and South Europe. In North America, market growth continued. The major projects segment remained active in Asia-Pacific, whereas in Europe the weak economic environment resulted in delays in decision-making and the progress of projects. The modernization market developed positively in North America and Asia-Pacific, but declined in the EMEA region. Maintenance markets grew in most countries, although at low rates in such countries, where new equipment activity has been weak for the past years. Price competition remained very intense, particularly in regions where the overall market was at a low level.

Operating environment in January-September 2013

During January-September 2013, the new equipment market declined somewhat in Central and North Europe and weakened further in South Europe. In North America, market growth continued. In Asia-Pacific, demand continued to grow. The Chinese market grew rapidly, but in line with expectations, the growth rate decelerated gradually during the reporting period. The development of modernization markets varied between regions, with growth in North America and Asia-Pacific and a decline in the EMEA region. The maintenance market continued to grow. The pricing environment was challenging in all businesses, in particular in markets suffering from a prolonged weakness in the new equipment market.

Market outlook 2013

In new equipment, the market in Asia-Pacific is expected to grow clearly in 2013. The new equipment market in China is expected to grow by 10-15% in 2013. The market in Central and North Europe is expected to decline, and the market in South Europe to further decline from an already weak level. The market in North America is expected to continue to grow.

The modernization market is expected to be at about the same level as in 2012 or decline slightly.

The maintenance market is expected to continue to develop rather well in most countries.

Business outlook 2013

KONE reiterates its business outlook, which was upgraded on September 11, 2013.

KONE's net sales is estimated to grow by 11-14% at comparable exchange rates as compared to 2012.

The operating income (EBIT) is expected to be in the range of EUR 920-955 million, assuming that translation exchange rates do not materially deviate from the situation of the beginning of September 2013.
Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Tuesday, September 22, 2013 at 2:15 p.m. EET.

A meeting for analysts, conducted in English, will begin at 3:45 p.m. EET. The meeting will be available as a live webcast on KONE's investor website. The meeting participants can also join a telephone conference that will be arranged in conjunction with the meeting. The telephone conference details can be found below.

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

Telephone conference numbers:

US callers: +1 334 323 6203  
UK callers: +44 (0)207 1620 177
Finnish callers: +358 (0)9 2313 9202  
Participant code: KONE

An on-demand version of the webcast will be available on www.kone.com later during the same day.

For further information, please contact:

Karla Lindahl, Director, Investor Relations, tel. +358 (0) 204 75 4441

Sender:

KONE Corporation

Henrik Ehrnrooth                      
CFO

Anne Korkiakoski
Executive Vice President
Marketing & Communications

About KONE

KONE is one of the global leaders in the elevator and escalator industry. The company has been committed to understanding the needs of its customers for the past century, providing industry-leading elevators, escalators and automatic building doors as well as innovative solutions for modernization and maintenance. The company's objective is to offer the best People Flow® experience by developing and delivering solutions that enable people to move smoothly, safely, comfortably and without waiting in buildings in an increasingly urbanizing environment. In 2012, KONE had annual net sales of EUR 6.3 billion and approximately 40,000 employees. KONE class B shares are listed on the NASDAQ OMX Helsinki Ltd in Finland.

www.kone.com