Interim Report of KONE Corporation for January-September 2016

KONE Corporation, stock exchange release, October 26, 2016 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-September 2016

July-September 2016: Solid development on a broad basis

• In July-September 2016, orders received totaled EUR 1,772 (7-9/2015: 1,764) million. Orders received grew by 0.4% at historical exchange rates and by 3.3% at comparable exchange rates.
• Net sales declined by 0.6% to EUR 2,170 (2,184) million. At comparable exchange rates, net sales grew by 1.9%.
• Operating income (EBIT) was EUR 331.1 (325.9) million or 15.3% (14.9%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 400.6 (432.0) million.
• KONE specifies its business outlook for 2016. In 2016, KONE's net sales is estimated to grow by 3-5% at comparable exchange rates as compared to 2015. The operating income (EBIT) is expected to be in the range of EUR 1,260-1,320 million, assuming that translation exchange rates would remain at approximately the average level of January-September 2016. KONE previously estimated its net sales to grow by 2-6% at comparable exchange rates as compared to 2015. KONE's previous outlook for its operating income (EBIT) was EUR 1,250-1,330 million, assuming that translation exchange rates would have remained at approximately the average level of January-June 2016.

January-September 2016: Continued good operating performance

• In January-September 2016, orders received totaled EUR 5,782 (1-9/2015: 6,012) million. Orders received declined by 3.8% at historical exchange rates and by 1.2% at comparable exchange rates. The order book stood at EUR 8,699 (September 30, 2015: 8,351) at the end of September 2016.
• Net sales grew by 1.7% to EUR 6,191 (6,085) million. At comparable exchange rates the growth was 4.0%.
• Operating income was EUR 901.1 (863.0) million or 14.6% (14.2%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 1,100 (1,070) million.

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

"I am pleased with our continued solid performance in the third quarter. Orders received grew by 0.4% at his­torical and 3.3% at comparable rates to EUR 1,772 million thanks to strong development in many countries. Sales was EUR 2,170 million, declining by 0.6% at historical rates but growing by 1.9% at comparable rates. I am particularly satisfied with the continued positive development in profitability despite the new equipment market having remained challenging already for some time. The relative operating income increased to 15.3% of net sales, and operating income grew to EUR 331 million driven by the good development in the service busi­ness. Also our cash flow remained strong at EUR 401 million.

During the third quarter, global market trends continued to be mixed. Overall, new equipment market volumes were rather stable following a stabilization in China. We have updated our market outlook, and now expect the Chinese market to decline by around 5% in units this year. However, price pressure and the shift in customer preferences towards lower specification products continue to put pressure on the monetary value of the Chinese market. During the quarter, the global service market continued to offer growth opportunities in all regions.

Our third quarter performance demonstrates our ability to find opportunities also in challenging markets. The clear growth in our orders received in both EMEA and the Americas is a good example of this. In China, our third quarter orders received developed slightly better than the Chinese market overall. In the service business, we have been successful in accelerating the growth and are excited about the additional potential going forward.

Over the past years, we have focused on understanding the needs of our customers even better. Based on the findings, we have piloted and introduced new service concepts to our customers with very encouraging results. We aim to accelerate the development of new services and solutions, and have therefore decided to increase our investment into R&D and IT. I would like to thank everyone at KONE for their commitment to develop our business further in order to serve our customers even better.

With three quarters of the year now behind us, we have further specified our business outlook for 2016. We now expect sales growth of 3-5% at comparable exchange rates and an operating income in the range of EUR 1,260-1,320 million, assuming that translation exchange rates would remain at the average level of January-September 2016."

Operating environment in July-September 2016

In the third 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. The market in the Europe, Middle East and Africa (EMEA) region was rather stable, while the market continued to grow in North America. Modernization demand continued to see growth across all 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 environment in January-September 2016

During January-September 2016, the new equipment mar­ket volumes in the Asia-Pacific region weakened compared to the previous year's corresponding period due to a decline in the significant China market. In the EMEA region, market vol­umes saw slight growth in Central and North Europe. In South Europe, the new equipment market was rather stable and continued to show positive signs in demand. The market in the Middle East was stable. In North America, the new equip­ment market continued to grow slightly from a high level. The large European modernization market grew clearly in Central and North Europe and showed early signs of recovery in South Europe. In North America, the modernization market contin­ued to grow slightly, and also the markets in the Asia-Pacific region continued to offer increasing modernization opportu­nities. The maintenance markets continued to grow globally, with the fastest rate of growth seen in the Asia-Pacific region. The pricing environment remained challenging in many mar­kets, with the new equipment market in China seeing the most intense pricing competition.

Market outlook 2016

In new equipment, the market in China is expected to decline by approximately 5% in units ordered. Competition is expected to continue intense. In the rest of Asia-Pacific and in North America, the market is expected to see some growth. Also the market in Europe, Middle East and Africa region is expected to grow slightly with slight growth in Europe and a more stable development in the Middle East.

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

Maintenance markets are expected to see the strongest growth rate in Asia-Pacific, but to develop rather well also in other regions.

Business outlook 2016

KONE slightly specifies its business outlook for 2016.

KONE's net sales is estimated to grow by 3-5% at comparable exchange rates as compared to 2015.

The operating income (EBIT) is expected to be in the range of EUR 1,260-1,320 million, assuming that translation exchange rates would remain at approximately the average level of January-September 2016.

Previous business outlook

KONE's net sales is estimated to grow by 2-6% at comparable exchange rates as compared to 2015.

The operating income (EBIT) is expected to be in the range of EUR 1,250-1,330 million, assuming that translation exchange rates would remain at approximately the average level of January-June 2016.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Wednesday, October 26, 2016 at 2:15 p.m. EEST.

A meeting for analysts, conducted in English, will begin at 3:45 p.m. EEST. 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: +1 719 325 4756  
UK callers: +44 (0)203 043 2003
Finnish callers: +358 (0)9 7479 0361  
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:
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 2015, KONE had annual net sales of EUR 8.6 billion, and at the end of the year close to 50,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.

www.kone.com