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Interim Report of KONE Corporation for January-March 2017

Stock Exchange Release Published 27/04/2017

KONE Corporation, stock exchange release, April 27, 2017 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-March 2017

January-March 2017: Continued sales growth in a mixed operating environment

-Orders received declined by 1.5% to EUR 1,913 (1-3/2016: 1,942 million). At comparable exchange rates, the decline was 1.2%.

-Net sales grew by 3.5% to EUR 1,810 (1,748) million. At comparable exchange rates, the growth was 3.3%.

-Operating income (EBIT) was EUR 217.7 (221.4) million or 12.0% (12.7%) of net sales.

-Cash flow from operations (before financing items and taxes) was EUR 305.3 (305.7) million.

-KONE specifies its business outlook for 2017. In 2017, KONE's net sales is estimated to grow by 0-3% at comparable exchange rates as compared to 2016. The operating income (EBIT) is expected to be in the range of EUR 1,200-1,290 million, assuming that translation exchange rates would remain at approximately the average level of January-March 2017.

KONE previously estimated its net sales to grow by -1-3% at comparable exchange rates as compared to 2016. KONE's previous outlook for its operating income (EBIT) was EUR 1,180-1,300 million, assuming that translation exchange rates would have remained at approximately the average level of January 2017.

Key figures 1-3/
2017
1-3/
2016
Change1-12/
2016
 
Orders receivedMEUR 1,913.0 1,942.3 -1.5% 7,621.0 
Order bookMEUR 9,129.0 8,529.7 7.0% 8,591.9 
SalesMEUR 1,810.3 1,748.3 3.5% 8,784.3 
Operating income (EBIT)MEUR 217.7 221.4 -1.7% 1,293.3 
Operating income (EBIT) margin% 12.0 12.7 14.7 
Income before tax  243.7 242.70.4%1,330.3 
Net incomeMEUR 187.7 188.1-0.2%1,022.6 
Basic earnings per shareEUR 0.36 0.37-1.3%2.00 
Cash flow from operations
(before financing items and taxes)
MEUR 305.3 305.7   1,509.5 
Interest-bearing net debtMEUR -1,182.8 -1,037.6   -1,687.6 
Total equity/total assets% 40.7 38.6   46.8 
Return on equity% 30.1 33.1   38.1 
Net working capital (including financial items and taxes)MEUR -1,148.0 -1,107.9   -1,054.8 
Gearing% -53.9 -52.7   -60.4 
             

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

"I am pleased with the solid start to the year in a mixed operating environment. Our performance was strong on a broad basis although the result was burdened by price pressures seen in 2016 and by increasing raw material costs. I am also happy that the active development of our services business is delivering continued good growth. Our cash flow remained strong, which shows that we have maintained healthy business fundamentals and strong execution throughout our businesses. We saw good developments in the new equipment business in many regions. In the Americas, the new equipment orders grew significantly supported by the well-received 2016 product launches and positive development continued also in EMEA. In China, our sales and orders continued to decline year-on-year. However, order volumes were stable year-on-year and prices started to stabilize after having declined throughout 2016.

The new phase in our strategy has begun with good momentum. It is still early days in the new strategic phase, but so far our Winning with Customers strategy has been well received by both the customers and KONE's employees. During the quarter, we launched new ground-breaking services for elevators and escalators. Our new KONE Care(TM) service offering is an improved way of bringing value to our customers. It provides the ability to tailor services to the individual needs of customers. We also launched our new 24/7 Connected Services, which utilize the IBM Watson IoT platform. With these launches, we started a new era in services by bringing intelligence and predictability to the maintenance business. For our customers, it means a significant improvement in safety, transparency and predictability. These are some of the first steps that we are taking to drive even stronger differentiation in the service business. Thanks to the encouraging results of our new services and product launches, we continue to increase our development activity throughout KONE.

For 2017, we have specified our business outlook as the first quarter of the year is now behind us. We now expect sales growth of 0-3% at comparable rates, and the operating income to be in the range of EUR 1,200-1,290 million, assuming that the translation exchange rates would remain at the average level of January-March 2017. I am convinced that as a result of our development actions and strong execution, we will continue our solid performance in the coming quarters despite the headwinds we are facing this year."

Operating environment in January-March 2017

The global new equipment market was rather stable compared to the first quarter of 2016 when measured in units. In Asia-Pacific, the new equipment volumes were stable. The new equipment market in China was stable in units, but continued to decline year-on-year in monetary value. The residential segment in China was impacted by the government's housing restriction measures, while the development in the commercial segment was slightly better. The infrastructure segment continued to grow driven by stimulus measures. Demand remained relatively stable in the higher-tier cities despite restrictions and there were some signs of improving demand in the lower-tier cities. In the rest of Asia-Pacific, the new equipment markets declined slightly. In the EMEA region, the new equipment market developed positively. New equipment demand in Central and North Europe grew with the residential segment continuing to see the most positive development. In South Europe, the market continued to see slight growth from a low level, whereas the picture remained mixed in the Middle East. In North America, the new equipment market growth was driven by the U.S., which saw a positive development across segments and areas.

Global service markets continued to grow. In modernization, the large European and North American modernization markets continued to see slight growth, while the smaller Asia-Pacific market grew significantly. Also the maintenance market continued to see growth across regions, with the strongest rate of growth seen in the Asia-Pacific region and slight growth in Europe and North America.

Pricing trends remained varied during the first quarter. In China, competition remained intense in new equipment, but pricing stabilized compared to the previous quarter. In the EMEA region, pricing in new equipment remained rather challenging in the South European markets in particular. In North America, new equipment pricing continued to develop positively. In services, the pricing environment continued to be characterized by strong competition in the EMEA region, particularly in South Europe and also in some of the Central and North European markets. In North America, pricing competition also remained rather intense in maintenance but continued to develop positively in modernization.

Market outlook 2017

In new equipment, the market in China is expected to decline by 0-5% in units ordered and also the competition to continue intense. In the rest of Asia-Pacific, the market is expected to grow. The market in North America and Europe, Middle East and Africa region is expected to grow slightly.

The modernization market is expected to grow slightly in Europe and 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 grow slightly also in other regions.

Business outlook 2017 (specified)

KONE's net sales is estimated to grow by 0-3% at comparable exchange rates as compared to 2016.

The operating income (EBIT) is expected to be in the range of EUR 1,200-1,290 million, assuming that translation exchange rates would remain at approximately the average level of January-March 2017.

The sales outlook is based on KONE's maintenance base and order book as well as the market outlook.

KONE's operating income outlook is based on the current sales forecast combined with factors impacting profitability. In 2017, profitability is expected to be impacted by factors such as improved quality and productivity, pricing and business mix, a slight decrease in the margin of orders received in 2016 as well as cost pressures resulting from increased material costs and R&D and IT spend. The negative factors are expected to be more pronounced in the coming quarters than during the first quarter.

Previous business outlook

KONE's net sales is estimated to grow by -1-3% at comparable exchange rates as compared to 2016.

The operating income (EBIT) is expected to be in the range of EUR 1,180-1,300 million, assuming that translation exchange rates would remain at approximately the average level of January 2017.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Thursday, April 27, 2017 at 2:15 p.m. EEST.

A meeting for analysts, conducted in English, will begin at 3:45 p.m. EEST and will be available as a live webcast on www.kone.com. An on-demand version of the webcast will be available on www.kone.com later the same day. The meeting can also be joined via a telephone conference.

US: +1 719 325 4759  
UK: +44 (0)330 336 9412
Finland: +358 (0)9 7479 0404  
Participant code: KONE

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

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 2016, KONE had annual net sales of EUR 8.8 billion, and at the end of the year over 52,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.

www.kone.com

KONE Q1 2017 Interim Report


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