KONE Corporation’s Interim Report for January-June 2011

KONE’s Q2: Record high order intake and solid growth in operating income

April-June 2011

• In April–June 2011, orders received totaled EUR 1,226 (4–6/2010: 1,043) million. Orders received increased by 17.6% at historical exchange rates and by 21.0% at comparable exchange rates.
• Net sales increased by 2.2% to EUR 1,286 (1,259) million. At comparable exchange rates the increase was 4.8%.
• Operating income was EUR 184.5 (175.7) million or 14.3% (14.0%) of net sales.
• Cash flow from operations was EUR 129.9 (201.7) million.
• KONE reiterates its outlook for 2011.

January-June 2011

• In January–June 2011, orders received totaled EUR 2,271 (1–6/2010: 1,938) million. Orders received increased by 17.2% at historical exchange rates and by 17.5% at comparable exchange rates. The order book stood at EUR 3,948 (Dec 31, 2010: 3,598) million at the end of June 2011.
• Net sales increased by 3.5% to EUR 2,340 (2,262) million. At comparable exchange rates it increased by 3.8%.
• Operating income was EUR 303.2 (284.3) million or 13.0% (12.6%) of net sales.

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

“I am very pleased with the development of our business in the second quarter of the year. Particularly delightful is the good development in our order intake, which was at a record level. Orders received grew both in the new equipment and modernization businesses. Orders received grew the fastest in Asia-Pacific, but our progress was good also in Central and North Europe. The good development in our operating income continued regardless of a situation, where the new equipment markets outside of Asia are still rather weak in many markets. Our operating income, which was 14.3 percent of sales, was at a higher level than in any other previous year’s second quarter. I want to thank all of our people, who have again done an excellent job!

The market situation in Asia-Pacific remained very strong, and our good progress in Asia continued during the second quarter of the year. The growth in orders received was the fastest during the second quarter in India. India is the world’s second largest new equipment market. Market growth in India is expected to accelerate as a result of urbanization. Our progress was strong also in China, where market growth has increasingly moved to the mid-sized cities of the central parts of China. Asia’s share of our sales increased to 29 percent during the second quarter of the year and to 26 percent during the first half of the year.

There is continued uncertainty or weakness in many markets outside of Asia-Pacific. The new equipment markets in the Central and North Europe are in most countries at a good level, but the situation is weak in most Southern European markets. There is still significant uncertainty in the North American markets despite the gradual, slight recovery of these markets.

The growth of our operating income in the past quarter is due particularly to the continued strong sales growth in Asia-Pacific. Our quarterly result was burdened to some extent by increases in material costs and an unfavorable development in translation exchange rates. Especially material costs are increasingly presenting challenges to the improvement of our result going forward. In addition, we have further increased growth expenditure in Asia-Pacific as well as R&D and process development expenditure in order to be able to take advantage of market growth opportunities in the best possible way. Entering the second half of the year, our order book is strong and I am confident that we can make this year again a good one for KONE.”

Operating environment in April-June

The development of the operating environment was in line with KONE’s expectations and no substantial changes in the overall market trends were seen in the second quarter of 2011. In the new equipment markets, rapid growth in the Asia-Pacific region continued. In the Europe, Middle East and Africa (EMEA) region, activity in Central and North Europe improved and was at a good level, while South European markets were stable at a low level. The slight recovery of the new equipment markets in the Americas region continued. Activity in major projects grew in particular in Asia-Pacific, Central and North Europe and the Middle East. Modernization markets grew slightly but with regional variations. Maintenance markets continued to develop favourably in all regions. The overall pricing environment remained intense in all businesses.

In the EMEA region, the development in the new equipment markets was good in many Central and North European countries, in particular due to growth in the residential segments and good major project activity. Markets grew in Germany, the United Kingdom, Belgium and the Nordic countries. The market in the Netherlands stabilized during the second quarter. The new equipment markets in South Europe remained stable at a low level. The office segment remained burdened by high vacancy rates, while the infrastructure, hotel and medical segments developed more positively in some southern European markets. Markets in the Middle East were mixed with high activity level in Saudi Arabia and Qatar. Market activity in Russia continued to increase. Modernization markets developed positively in Central and North Europe. The modernization markets in South Europe were stable except for the market in France, which continued to weaken. Maintenance markets continued to develop well in the EMEA region, but price competition remained strong.

In the Americas region, the slight recovery seen in the new equipment markets since the end of 2010 continued. The gradual recovery of other than the infrastructure segment continued in the new equipment market in the United States, but uncertainty in the market increased. Tendering activity in the office segment was growing in select markets within the United States. The decrease of activity in the infrastructure segment continued. Activity in the modernization market increased. In Canada, the new equipment market remained active, and the modernization market continued to develop well. The growth of the new equipment market in Mexico continued to be driven by the residential and commercial segments. Maintenance markets in the Americas developed well. The pricing environment remained challenging.

In the Asia-Pacific region, the rapid growth in the new equipment markets continued during the second quarter. In China, all segments continued to grow. The residential segment grew rapidly with the affordable housing segment growing the fastest despite a partial delay in the government’s affordable housing construction plan. The overall new equipment market growth in India remained strong, in the residential segment in particular. In Australia, the new equipment market continued to develop well and the modernization market grew strongly. The Southeast Asian markets remained strong with the Malaysian and Indonesian new equipment markets growing the fastest. Maintenance markets in Asia-Pacific continued to develop favorably. The pricing environment remained intense in all markets.

Market outlook 2011

The new equipment markets in Asia-Pacific are expected to continue to develop positively, albeit at a lower rate than during the first half of the year. The good activity level in the new equipment markets in Central and North Europe is expected to continue in most countries, whereas most markets in South Europe are expected to be relatively stable at the current low level. The new equipment markets in North America are expected to recover modestly, although the outlook has become more uncertain as compared to the first half of the year. The modernization markets are expected to grow slightly. The maintenance markets are expected to continue to develop well.

Outlook 2011

KONE’s net sales is estimated to grow by 0–5% at comparable exchange rates as compared to 2010.

The operating income (EBIT) is expected to be in the range of EUR 700–750 million, assuming that translation exchange rates do not deviate materially from the situation of the beginning of 2011.

Disclosure procedure

KONE Corporation follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its Interim Report for January-June 2011 enclosed to this stock exchange release. KONE Corporation’s Interim Report for January-June 2011 is attached to this release in pdf format and is also available on the company’s web site at www.kone.com.

KONE Q2 2011 Interim Report

Analyst and media meeting and conference call

A meeting for the press, conducted in Finnish, will be held on Tuesday, July 19, 2011 at 2:15 p.m. Eastern European Time.

A telephone conference and a meeting for analysts, conducted in English, will begin at 3:45 p.m. Eastern European Time. 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.

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™ 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 2010, KONE had annual net sales of EUR 5 billion and approximately 33,800 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 & Communications