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KONE Corporation's Financial Statement Bulletin 2011

Stock Exchange Release Published 26/01/2012

KONE Corporation, stock exchange release, January 26, 2012 at 12:30 p.m. EET

October-December 2011: Good development in a challenging environment

  • In October-December 2011, orders received totaled EUR 1,099 (10-12/2010: 1,006) million. Orders received increased by 9.2% at historical exchange rates and by 9.3% at comparable exchange rates.
  • Net sales increased by 6.7% to EUR 1,589 (1,489) million. At comparable exchange rates the increase was 6.9%
  • Operating income was EUR 233.0 (227.3) million or 14.7% (15.3%) of net sales.
  • Cash flow from operations was EUR 212.5 (195.1) million.

January-December 2011: Record year in orders received and good overall performance in an uncertain environment

  • In January-December 2011, orders received totaled EUR 4,465 (2010: 3,809) million. Orders received increased by 17.2% at historical exchange rates and by 17.8% at comparable exchange rates. The order book stood at EUR 4,348 (Dec 31, 2010: 3,598) million at the end of 2011.
  • Net sales increased by 4.8% to EUR 5,225 (4,987) million. At comparable exchange rates it increased by 5.4%.
  • Operating income was EUR 725.1 (696.4) million or 13.9% (14.0%) of net sales.
  • The basic earnings per share was EUR 2.52. The basic earnings per share excluding the one-time gain relating to the revaluation of the previously held 40% interest in GiantKONE was EUR 2.30.
  • Cash flow from operations was EUR 819.8 (857.2) million.
  • In 2012, KONE's net sales is estimated to grow by 8-13% at comparable exchange rates as compared to 2011. The operating income (EBIT) is expected to be in the range of EUR 730-790 million, assuming that translation exchange rates do not materially deviate from the situation of the beginning of 2012.
  • The Board proposes a dividend of EUR 1.40 per class B share for the year 2011.

Key Figures

10-12/
2011
10-12/
2010
Change %1-12/
2011
1-12/
2010
Change %
Orders receivedMEUR1,098.81,006.39.24,465.13,809.017.2
Order bookMEUR4,348.23,597.820.94,348.23,597.820.9
SalesMEUR1,588.81,488.86.75,225.24,986.64.8
Operating incomeMEUR233.0227.32.5725.1696.44.1
Operating income%14.715.313.914.0
Cash flow
from operations
(before financing
items and taxes)
MEUR212.5195.1819.8857.2
Net incomeMEUR246.5173.8644.4535.9
Total
comprehensive
income
MEUR267.7190.1669.5577.6
Basic earnings
per share
EUR0.960.682.522.10
Interest-bearing
net debt
MEUR-829.1-749.8-829.1-749.8
Total equity/
total assets
%54.049.354.049.3
Gearing%-40.8-46.8-40.8-46.8

Matti Alahuhta, President & CEO, in conjunction with the review:

"During 2011 our operating environment remained challenging outside Asia-Pacific. In South Europe and North America, construction activity was at a low level throughout the year. In Central and North Europe, the markets recovered in the first half of the year with the growth levelling off towards the end of the year.

Our objective has since the spring of 2008 been to take the prevailing difficult market environment as an opportunity. This mindset together with our active sales efforts, good product competitiveness and strong position in the key growth markets led to a strong growth in orders received during the past year. Our orders received grew by 9% in the last quarter and by 17% during the full year 2011.

During the year, we continued to grow rapidly in the key growth markets in Asia, and Asia-Pacific's share of our sales grew to 27%. One of the highlights of the year was the increase of KONE's ownership of GiantKONE to 80%. This move increased KONE's market share remarkably both in China and globally.

The development of our operating income was burdened by increased raw material costs, labor costs in Asia as well as price pressures especially in the weakest geographical markets. Despite this our operating income was record high at EUR 725 million. Cash flow was strong at EUR 820 million. I want to again thank our employees for their good efforts.

The market outlook for 2012 is rather stable. The general economic uncertainty in the European and North American markets has decreased, but is still substantial. However, we look forward to 2012 with confidence thanks to our high order book, strong financial position, our continuous development drive as well as our strong positions in the key growth markets in Asia-Pacific."

Operating environment in October-December 2011 (Q4 2011)

In the last quarter of 2011, KONE's operating environment remained divided between the rapidly growing Asia-Pacific region and the European and North American regions where new equipment markets remained at a weak level in many countries. In the Europe, Middle East and Africa (EMEA) region, the new equipment market in Central and North Europe was stable at a relatively good level, while the South European market remained weak. The new equipment market in the Americas region continued to gradually recover. In Asia-Pacific, rapid growth continued in all markets albeit at a lower rate than during the first three quarters of the year. The major projects segment remained active, in particular in Asia-Pacific and the Middle East. The modernization markets grew slightly although with regional variations. Maintenance markets continued to develop favourably in all regions. The prolonged weakness in the new equipment markets in particular in South Europe and North
America has resulted in an intense price competition in all businesses.

Operating environment in January-December 2011

In 2011, KONE's operating environment remained mixed throughout the year. The markets in Asia-Pacific grew strongly, while new equipment markets remained at a weak level in many countries in Europe and North America. In the Europe, Middle East and Africa (EMEA) region, activity in most new equipment markets in Central and North Europe grew, while South European markets remained stable at a weak level. The new equipment market in the Americas region recovered gradually but was still at a low level at the end of the year. The new equipment markets in Asia-Pacific grew rapidly. Activity in major projects was at a high level, in Asia-Pacific and the Middle East in particular. Modernization markets grew slightly but with regional variations. Maintenance markets continued to develop favourably in all regions. The prolonged weakness in the new equipment markets in particular in South Europe and North America has further intensified price competition in all businesses during the year.

In the EMEA region, the new equipment market in Central and North Europe grew during the first half and levelled off during the second half of the year. The new equipment market in Germany grew throughout the year driven by the residential segment. The markets in the Nordic countries, excluding Denmark, grew during the first half of the year with the growth levelling off towards the end of the year. The new equipment market in the United Kingdom was twofold with the greater London area developing positively throughout the year but with the rest of the market being clearly weaker. The markets in the Netherlands and Denmark were weak. In Belgium, the new equipment market grew in the first three quarters and showed signs of a slight decline in the last quarter of the year. Activity in France grew driven by the residential segment. The new equipment markets in Italy and Spain were weak throughout the year and declined further towards the end of the year. In many South European countries, the office segment was burdened by high vacancy rates, while the infrastructure, hotel, medical and educational segments offered selected opportunities. In the Middle East, the new equipment market grew strongly in Saudi Arabia. Market activity in Russia increased throughout the year. The modernization markets developed positively in Central and North Europe, but declined in South Europe due in particular to a decline in the market in France. Maintenance markets continued to develop well in the EMEA region, but price competition became increasingly intense.

In the Americas region, the new equipment market recovered gradually from a low level. The gradual recovery of the new equipment market in the United States continued throughout the year, but the market remained at a low level. There were significant regional variations in the market situation across the United States. The East and West Coast and Texas markets developed the most favorably. Activity in the infrastructure segment was at a low level in the United States. Activity in the new equipment market in Canada was at a good level and the recovery of the new equipment market in Mexico progressed throughout the year. Modernization markets grew slightly. Maintenance markets in the Americas developed well, but price competition remained intense.

In the Asia-Pacific region, the new equipment markets grew rapidly in 2011, although the growth rate declined towards the end of the year. The new equipment market in China grew strongly in particular during the first three quarters of the year. The growth rate declined towards the end of the year as a result of the Chinese government's measures to reduce the real estate market's growth rate and overall inflation, but activity remained at a high level. The fastest growing segment in China was the affordable housing segment. All other segments except for the infrastructure segment also grew rapidly, in the inland lower-tier cities in particular. The retail, office, hotel and medical segments developed well, while the public transport segment was negatively impacted in the second half of the year by the re-evaluation of high-speed rail investments. In India, the new equipment market grew strongly in the first half followed by a lower growth rate in the second half of the year due to financing constraints. In Australia, the new equipment market developed positively in the first three quarters of the year, but declined in the last quarter of the year as a result of longer lead times in decision-making due to a weakened general economic sentiment. The modernization market in Australia grew throughout the year. The Southeast Asian new equipment markets were strong throughout the year, in Malaysia, Singapore and Indonesia in particular. The growth was primarily driven by the residential, multiuse building and office segments. Maintenance markets in Asia-Pacific developed favorably. The pricing environment remained challenging in all markets.

Market outlook 2012

The new equipment markets in Asia-Pacific are expected to continue to grow, but at a clearly lower rate than in 2011. In new equipment, the markets in Central and North Europe are expected to remain relatively stable or decline slightly, and the markets in South Europe are expected to decline from an already weak level. The new equipment market in North America is expected to gradually recover from a low level. The modernization markets are expected to be at about the same level as in 2011 or grow slightly. The maintenance markets are expected to continue to develop well.

Business outlook 2012

KONE's net sales is estimated to grow by 8-13% at comparable exchange rates as compared to 2011.

The operating income (EBIT) is expected to be in the range of EUR 730-790 million, assuming that translation exchange rates do not materially deviate from the situation of the beginning of 2012.

The Board's proposal for the distribution of profit

The parent company's non-restricted equity on December 31, 2011 is EUR 2,036,713,931.63 of which the net profit for the financial year is EUR 492,628,306.08.

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.395 be paid on the outstanding 38,104,356 class A shares and EUR 1.40 on the outstanding 217,469,588 class B shares. Under the proposal, the total amount of dividends will be EUR 357,612,999.82. The Board of Directors further proposes that the remaining non-restricted equity, EUR 1,679,100,931.81 be retained and carried forward.

The dividend is proposed to be paid on March 15, 2012. All the shares existing on the dividend record date are entitled to dividend for the year 2011, except for the own shares held by the parent company.

Disclosure procedure

KONE Corporation follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its Financial Statement Bulletin for 2011 enclosed to this stock exchange release. KONE Corporation's Financial Statement Bulletin for 2011 is attached to this release in pdf format and is also available on the company's website at www.kone.com.

Analyst and media meeting and conference call

A meeting for the press, conducted in Finnish, will be held on Thursday, January 26, 2012 at 2:15 p.m. EET.

A telephone conference and a meeting for analysts, conducted in English, will begin at 3:45 p.m. EET. The meeting can also be followed as a webcast on www.kone.com.

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

Telephone conference numbers:

Finnish callers: +358 923 101 527
US callers: +1 866 458 4087
Non-US callers: +44 203 043 2436
Participant code: KONE

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

About KONE

KONE is one of the global leaders in the elevator and escalator industry. The company has been committed to understanding the needs of its customers for the past century, providing industry-leading elevators, escalators and automatic building doors as well as innovative solutions for modernization and maintenance. The company's objective is to offer the best People Flow(TM) experience by developing and delivering solutions that enable people to move smoothly, safely, comfortably and without waiting in buildings in an increasingly urbanizing environment. In 2011, KONE had annual net sales of EUR 5.2 billion and on average 35,000 employees. KONE class B shares are listed on the NASDAQ OMX Helsinki Ltd in Finland.

www.kone.com

For further information please contact:
Henrik Ehrnrooth, CFO, tel. +358 (0) 204 75 4260
Karla Lindahl, Director, Investor Relations, tel. +358 (0) 204 75 4441

Sender:

KONE Corporation

Henrik Ehrnrooth
CFO

Anne Korkiakoski
Executive Vice President,
Marketing and Communications

KONE 11Q4 Financial Statement Bulletin


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