Interim Report of KONE Corporation for January-June 2015

KONE Corporation, stock exchange release, July 17, 2015 at 12.30 p.m. EET

Interim Report of KONE Corporation for January-June 2015

KONE's Q2: Strong performance on a broad basis

April-June 2015

• In April-June 2015, orders received totaled EUR 2,193 (4-6/2014: 1,802) million. Orders received grew by 21.7% at historical exchange rates and by 6.3% at comparable exchange rates.
• Net sales grew by 19.5% to EUR 2,210 (1,849) million. At comparable exchange rates the growth was 6.8%.
• Operating income was EUR 325.2 (263.2) million or 14.7% (14.2%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 426.0 (280.2) 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. 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. KONE previously estimated its net sales to grow by 6-9 % at comparable exchange rates as compared to 2014. KONE's previous outlook for its operating income (EBIT) was EUR 1,140-1,230 million, assuming that translation rates would have remained at approximately the average level of January-March 2015.

January-June 2015

• In January-June 2015, orders received totaled EUR 4,247 (1-6/2014: 3,532) million. Orders received grew by 20.3% at historical exchange rates and by 5.9% at comparable exchange rates. The order book stood at EUR 8,627 (June 30, 2014: 6,537) million at the end of June 2015.
• Net sales grew by 18.6% to EUR 3,901 (3,291) million. At comparable exchange rates the growth was 6.9%.
• Operating income was EUR 537.1 (442.9) million or 13.8% (13.5%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 638.2 (605.6) million.

Key Figures

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

"Our performance in the second quarter was strong. We achieved solid growth in orders received, which totaled EUR 2,193 million, amounting to a growth of 21.7% at historical and 6.3% at comparable exchange rates. Sales was EUR 2,210 million, with a growth of 19.5% at historical and 6.8% at comparable rates. Sales growth was particularly strong in the Americas region and accelerated slightly in the service business. Our profitable growth continued and our operating income grew to EUR 325 million. The relative operating income improved from 14.2% to 14.7% of sales. Cash flow was very strong at a level of EUR 426 million. Favorable translation exchange rates continued to have a significantly positive impact on our reported figures.

I am very pleased with our good performance, which was broad-based both geographically and across the businesses. This reflects the strong engagement of our employees and their commitment to achieve results. I want to thank everyone for their great contribution.

Trends in the global market were varied during the second quarter. In China, the new equipment market declined slightly from a high level. In North America, both new equipment and modernization markets continued to grow. In the EMEA region, sentiment in the market improved slightly. Opportunities in South Europe in particular improved compared to previous quarters. In modernization, the best development in Europe was seen in Central and North European markets. Maintenance market trends saw no major changes globally during the quarter, with the highest rates of growth seen in Asia-Pacific.

While competition remained intense in many markets, our active work to maintain the competitiveness of our offering continued to bring good results. Looking forward, we are optimistic about our opportunities to grow and improve our execution globally. The solid second quarter combined with a record-high order book supports this confidence. Having half of the year now behind us, we have specified our market and business outlook. In our market outlook for China, our base case is a stable new equipment market or a slight decline for the full year following the slight decline in the second quarter. In our business outlook for the full year, we now expect a sales growth of 6-8% at comparable rates. Operating income is expected to reach EUR 1,190-1,250 million for the full year, which also includes a favorable translation rate impact."

Operating environment in April-June 2015

In the second 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, the market was rather stable. In North America, the market continued to grow. The major projects segment slowed down somewhat in the quarter. The modernization market saw some growth in North America, and was on a more stable trend overall in 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-June 2015

During January-June 2015, the new equipment market volumes in Asia-Pacific were on a marginally decreasing trend, driven by a slight decline in market volumes in China. In the EMEA region, market volumes were rather stable in Central and North Europe, stabilized in South Europe from a weaker level, and saw some growth in the Middle East. In North America, good development in new equipment demand continued. In modernization, the large European market developed positively in the Central and Northern parts of the continent and remained weaker in South Europe. In North America, modernization demand grew, and markets in Asia-Pacific also showed 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 be rather stable in 2015. The market in China is expected to remain at the good level of 2014 or slightly decline. 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 be stable or grow slightly, and the market in South Europe to start recovering. 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 1,190-1,250 million, assuming that translation exchange rates would remain at approximately the average level of January-June 2015.

Previous business outlook

KONE's net sales is estimated to grow by 6-9% at comparable exchange rates as compared to 2014.

The operating income (EBIT) is expected to be in the range of EUR 1,140-1,230 million, assuming that translation exchange rates would remain at approximately the average level of January-March 2015.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Friday, July 17, 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 3368  
UK callers: +44 (0)20 3427 1923
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

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

KONE Q2 2015 Interim Report