Interim Report of KONE Corporation for January-September 2015

KONE Corporation, stock exchange release, October 22, 2015 at 12.30 p.m. EET

Interim Report of KONE Corporation for January-September 2015

KONE's Q3: Profitable growth and strong cash flow

July-September 2015

• In July-September 2015, orders received totaled EUR 1,764 (7-9/2014: 1,577) million. Orders received grew by 11.9% at historical exchange rates and 3.6% at comparable exchange rates.
• Net sales grew by 16.3% to EUR 2,184 (1,878) million. At comparable exchange rates the growth was 7.7%.
• Operating income was EUR 325.9 (277.5) million or 14.9% (14.8%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 432.0 (372.1) million.
• KONE specifies its business outlook for 2015. In 2015, KONE's net sales is estimated to grow by 6-8% at comparable exchange rates as compared to 2014. The operating income (EBIT) is expected to be in the range of EUR 1,200-1,250 million, assuming that translation exchange rates would remain at approximately the average level of January-September 2015. KONE previously estimated its net sales to grow by 6-8% at comparable exchange rates as compared to 2014. KONE's previous outlook for its operating income (EBIT) was EUR 1,190-1,250 million, assuming that translation exchange rates would have remained at approximately the average level of January-June 2015.

January-September 2015: Strong development on a broad basis

• In January-September 2015, orders received totaled EUR 6,012 (1-9/2014: 5,109) million. Orders received grew by 17.7% at historical exchange rates and by 5.2% at comparable exchange rates. The order book stood at EUR 8,351 (September 30, 2014: 6,996) million at the end of September 2015.
• Net sales grew by 17.7% to EUR 6,085 (5,169) million. At comparable exchange rates the growth was 7.2%.
• Operating income was EUR 863.0 (720.4) million or 14.2% (13.9%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 1,070 (977.6) million.

             
Key Figures

Henrik Ehrnrooth, President and CEO, in conjunction with the review:

"I am pleased that we have continued to perform strongly in a market environment that is challenging in many areas. It shows that our strategy and strong execution continue to bring results. Orders received totaled EUR 1,764 million, growing by 11.9% at historical and by 3.6% at comparable exchange rates. Sales was EUR 2,184 million and saw an acceleration from previous quarters with a growth of 16.3% at historical and 7.7% at comparable rates. Operating income grew to EUR 326 million, and the relative operating income improved to 14.9% of net sales. Cash flow was strong in the quarter at a level of EUR 432 million. Translation exchange rates continued to have a positive impact on our reported figures.

There were no major changes in the market environment during the third quarter. The new equipment market in China declined slightly from a high level. In North America, new equipment and modernization demand developed very positively. In Europe, Central and North Europe saw a positive development and South Europe continued to stabilize from a weak level. Maintenance markets grew globally, with continued strong growth in Asia-Pacific.

Looking at our own development, our orders grew in North America, Central and North Europe, as well as Asia-Pacific outside of China, with these regions compensating for a slower development in China. Sales growth was driven by our new equipment and maintenance businesses. Regionally, both Asia-Pacific and North America saw clear growth in sales. I would like to thank all of our employees for the good progress that we have made and for a job well done.

During the quarter, we announced the establishment of a new Technology & Innovation unit, which will be operational from the beginning of next year. This new unit brings together several teams, including R&D, IT and Partnership Development, to accelerate innovation and capture new, exciting business opportunities. Given the increasing pace of digitalization, our goal with the new organization is to further strengthen our ability to differentiate in the market and improve both the user and customer experience as well as the productivity of our operations.

We have slightly adjusted our business outlook following our good performance in the third quarter."

Operating environment in July-September 2015

In the third quarter of 2015, the global new equipment market volumes weakened marginally due to a slight decline in China. In the Europe, Middle East and Africa (EMEA) region, new equipment demand grew slightly, and in North America, the market continued to see clear growth. The major projects segment saw a slowdown in the quarter. The modernization market grew strongly in North America, and was on a slightly positive trend in Europe driven by Central and North Europe. Maintenance markets grew globally, although at low rates in such countries, where new equip­ment activity has been weak for the past years.

Operating environment in January-September 2015

During January-September 2015, the new equipment market volumes were globally on a marginally decreasing trend with a slight decline in market volumes in the large Chinese market. In the EMEA region, market volumes grew in Central and North Europe and stabilized in South Europe at a weak level. In the Middle East, the market volumes saw some growth. In North America, good development in new equipment demand continued. In modernization, the large European market developed favorably in the Central and Northern parts of the continent, but remained weaker in South Europe. In North America, modernization demand grew, and markets in Asia-Pacific also showed some modernization opportunities.  The maintenance market continued to grow globally, with volume growth driven by Asia-Pacific following the positive development of the new equipment market in the region. The pricing environment was challenging in all businesses, in particular in countries suffering from a prolonged weakness in the new equipment market.

Market outlook 2015

In new equipment, the market in Asia-Pacific is expected to slightly decline in 2015, due to a slight decline in China. In the Europe, Middle East and Africa region, the market is expected to grow slightly. In Central and North Europe, the market is expected to grow slightly, and the market in South Europe to continue to gradually recover. In the Middle East, the market is expected to see some growth. The market in North America is expected to continue to grow.

The modernization market is  expected  to  remain  rather stable in Europe, but to continue  to grow in North  America and Asia-Pacific. This is expected to result in a rather stable or slightly growing market globally.

The maintenance markets are expected to develop rather well in most countries.

Business outlook 2015

KONE specifies its business outlook for 2015.

KONE's net sales is estimated to grow by 6-8% at compa­rable exchange rates as compared to 2014.

The operating income (EBIT) is expected to be in the range of EUR 1,200-1,250 million, assuming that translation exchange rates would remain at approximately the average level of January-September 2015.

Previous business outlook

KONE's net sales is estimated to grow by 6-8% at compa­rable exchange rates as compared to 2014.

The operating income (EBIT) is expected to be in the range of EUR 1,190-1,250 million, assuming that translation exchange rates would remain at approximately the average level of January-June 2015.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Thursday, October 22, 2015 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 www.kone.com. 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: +1 646 254 3363  
UK callers: +44 (0)20 3427 1911
Finnish callers: +358 (0)9 2310 1621  

Participant code: KONE

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

For further information, please contact:
Katri Saarenheimo, Director, Investor Relations, tel. +358 204 75 4705

Sender:

KONE Corporation

Henrik Ehrnrooth
President and CEO

Eriikka Söderström
CFO

About KONE
KONE is one of the global leaders in the elevator and escalator industry.  KONE'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. KONE provides industry-leading elevators, escalators, automatic building doors and integrated solutions to enhance the People Flow in and between buildings.  KONE's services cover the entire lifetime of a building, from the design phase to maintenance, repairs and modernization solutions. In 2014, KONE had annual net sales of EUR 7.3 billion, and at the end of the year over 47,000 employees. KONE class B shares are listed on the NASDAQ OMX Helsinki Ltd. in Finland.

www.kone.com