Interim Report of KONE Corporation for January-March 2016

KONE Corporation, stock exchange release, April 21, 2016 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-March 2016

January-March 2016: Strong operating performance; orders declined from a high level

• In January-March 2016, orders received totaled EUR 1,942 (1-3/2015: 2,054) million. Orders received declined by 5.4% at historical exchange rates and by 4.3% at comparable exchange rates. The order book stood at EUR 8,530 (March 31, 2015: 8,530 million) at the end of March 2016.
• Net sales grew by 3.4% to EUR 1,748 (1,691) million. At comparable exchange rates the growth was 4.2%.
• Operating income was EUR 221.4 (211.9) million or 12.7% (12.5%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 305.7 (212.2) million.

             
Key figures

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

"We continued our strong operating performance in the first quarter of the year. Orders received declined, but they remained at the good level of EUR 1,942 million. Orders declined by 5.4% at historical and 4.3% at comparable rates. Orders declined in China, while the Europe, Middle East and Africa region as well as North America saw growth. Sales grew by 3.4% at historical and 4.2% at comparable rates, reaching EUR 1,748 million. Sales growth was the strongest in North America, whereas the development in Asia-Pacific as well as the EMEA region was more stable after a strong fourth quarter last year. Operating income grew and was EUR 221.4 million. The relative operating income improved to 12.7% of net sales. Cash flow was strong at EUR 305.7 million, highlighting the good fundamentals in our business.

In a market situation that saw a declining new equipment market in China, we did not seek to maximize growth from our already strong position as the largest company in the market. The market decline in China was in the first quarter at the weaker end of our expected range of a 5-10% decline for the full year. In Europe and North America, we continued to see opportunities in both the new equipment and modernization markets during the quarter. The global maintenance market continued to grow, particularly strongly in the Asia-Pacific region. We have been successful in capitalizing on these opportunities. With our strong competitiveness, we are confident in our ability to continue to perform well also in a changing market environment.

I would like to extend my thanks to all our employees for their commitment and effort. We are off to a solid start into another year of improving our execution and productivity. This year will be the last one for the current development programs. With the roadmap they provide, we will continue investing into the development of our product competitiveness, our customer service and communication, and the use of new technologies in our operations and solutions. We took an important step during the quarter by beginning co-operation with IBM. With their cloud-based platform, we will bring a step change in our abilities in remote equipment monitoring and diagnostics as well as in providing added value and new services to our customers. This will enable us to further strengthen our service business in the coming years.

We have maintained our market and business outlooks intact. We continue to expect sales growth of 2-6% at comparable rates in 2016, and to reach a level of operating income in the range of EUR 1,220-1,320 million, assuming that translation exchange rates would remain at the average level of January-March 2016."

Operating environment in January-March 2016

In the first quarter of 2016, the global new equipment market volumes weakened as compared to the previous year, following a clear market decline in China. In the Europe, Middle East and Africa (EMEA) region as well as in North America, demand in both new equipment and modernization grew somewhat. The maintenance market continued to grow globally, with a strong growth rate in Asia-Pacific and more moderate development in Europe and North America.

Market outlook 2016

In new equipment, the market in China is expected to decline by 5-10% in units ordered and also the price competition 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 growth in Central and North Europe and a more stable development in South Europe and 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, and to develop rather well also in other regions.

Business outlook 2016

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 1,220-1,320 million, assuming that translation exchange rates would remain at approximately the average level of January-March 2016.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Thursday, April 21, 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: +1 646 254 3387   
UK callers: +44 (0)20 3427 1933   
Finnish callers: +358 (0)9 2310 1619     
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

KONE as a company

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