KONE Corporation's Interim Report for January-September 2011

KONE’s Q3: Continued positive development

July-September 2011

• In July–September 2011, orders received totaled EUR 1,095 (7–9/2010: 865.2) million. Orders received increased by 26.6% at historical exchange rates and by 28.7% at comparable exchange rates.
• Net sales increased by 4.9% to EUR 1,296 (1,236) million. At comparable exchange rates the increase was 6.7%.
• Operating income was EUR 188.9 (184.8) million or 14.6% (15.0%) of net sales.
• Cash flow from operations was EUR 240.1 (242.8) million.
• KONE specifies its outlook for 2011. KONE’s net sales is estimated to grow by 3–6% at comparable exchange rates as compared to 2010. The operating income (EBIT) is expected to be in the range of EUR 710–740 million, assuming that translation exchange rates do not deviate materially from the situation of the beginning of 2011. KONE previously estimated its net sales to grow by 0–5% at comparable exchange rates as compared to 2010. The previous operating income (EBIT) outlook was EUR 700–750 million, assuming that translation exchange rates do not deviate materially from the situation of the beginning of 2011.

January-September 2011

• In January–September 2011, orders received totaled EUR 3,366 (1–9/2010: 2,803) million. Orders received increased by 20.1% at historical exchange rates and by 20.9% at comparable exchange rates. The order book stood at EUR 4,143 (Dec 31, 2010: 3,598) million at the end of September 2011.
• Net sales increased by 4.0% to EUR 3,636 (3,498) million. At comparable exchange rates it increased by 4.8%.
• Operating income was EUR 492.1 (469.1) million or 13.5% (13.4%) of net sales.

KONE Q3 2011 Interim Report

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

“The development in our markets is divided to the strongly growing Asia-Pacific region and to the European and North American regions where new equipment markets remain at a weak level in many countries. In this situation, I am very satisfied with the 27 percent growth in our order intake in the third quarter of the year. This has been made possible by the active work of our salespeople, the competitiveness of our products and the strong market positions we have built in the key growth markets in the past years. The development was clearly positive in all geographic areas.

Growth in our operating income continued. However, in line with what we forecasted already in the beginning of the year, the growth has been slower than last year. The growth in operating income was burdened by increased raw material costs, wage and salary costs in Asia as well as price pressures. In addition, we have continued to increase fixed costs in areas that support growth, in particular in Asia, research and development, and process development.

Cash flow returned to a very good level, and overall KONE’s situation in the current very uncertain economic environment is strong. Our objective is again to take this difficult market situation as an opportunity. We continue our active work with our development programs in order to continuously improve our competitiveness.”

Operating environment in July-September

In the third quarter of the year, KONE’s operating environment remained divided to the strongly growing Asia-Pacific region and to 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, activity in the new equipment markets in Central and North Europe declined slightly from a relatively good level, while South European markets remained stable at a weak level. The new equipment market in the Americas region continued to gradually recover but remained at a low level. In Asia-Pacific, rapid growth continued in all markets. Activity in major projects was at a high level in Asia-Pacific and the Middle East. 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 the Americas has further intensified price competition.

In the EMEA region, the overall new equipment market declined slightly in many Central and North European countries and remained weak in South Europe. The new equipment markets developed favourably in Sweden, Germany and Belgium. Activity in France grew slightly. In many South European markets, the office segment remained burdened by high vacancy rates, while the infrastructure, hotel, medical and educational segments offered selected opportunities. The overall activity in the Middle East was at a good level but the market situation varied across the region. The new equipment market grew the fastest in Saudi Arabia driven primarily by major projects in the infrastructure, medical and educational segments. The new equipment market in Russia continued to grow driven by the residential and office segments. Modernization markets developed positively in Central and North Europe with the highest activity level in the office segment and with growing modernization activity also in the residential segment. The modernization markets in South Europe were stable. Maintenance markets continued to develop well in the EMEA region, but the pricing environment remained challenging.

In the Americas region, the new equipment market continued to gradually recover from a low level. The overall new equipment market in the United States remained at a low level although it has gradually recovered. The market situation varied significantly across the United States. The development was the most favorable on the East and West Coast as well as in Texas. Tendering activity in the office segment continued to grow in select markets. The infrastructure segment’s activity remained at a low level in most parts of the United States. In Canada, the new equipment market remained stable at a good level. The growth of the new equipment market in Mexico was driven by the residential, office and multi-use building segments. Modernization markets grew slightly. Maintenance markets in the Americas developed well. Price competition remained intense.

In the Asia-Pacific region, the rapid growth in the new equipment markets continued during the third quarter. In China, all segments except the infrastructure segment continued to grow strongly. The residential segment grew rapidly driven by the affordable housing segment as well as the other residential segments in the inland lower-tier cities. The retail, office, hotel and medical segments continued to develop well, while the public transport segment was impacted negatively by the re-evaluation of high-speed rail investments. The overall new equipment market activity in India remained at a good level, in particular in the residential and hotel segments, but due to financing constraints the market growth rate was not as high as during the first half of the year. In Australia, the new equipment market remained active and the positive development of the modernization market continued. The Southeast Asian markets remained strong with the new equipment markets in Malaysia, Singapore and Indonesia growing the fastest. The growth was primarily driven by the residential and multi-use building segments. 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 January–September 2011. The overall activity level in the new equipment markets in Central and North Europe is expected to remain relatively stable. Markets in South Europe are expected to remain weak. The new equipment markets in North America are expected to continue to gradually recover from a low level, but the outlook remains uncertain. The modernization markets are expected to grow slightly. The maintenance markets are expected to continue to develop well.

Outlook 2011

KONE specifies its outlook for 2011.

KONE’s net sales is estimated to grow by 3–6% at comparable exchange rates as compared to 2010.

The operating income (EBIT) is expected to be in the range of EUR 710–740 million, assuming that translation exchange rates do not deviate materially from the situation of the beginning of 2011.

Previous outlook

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-September 2011 enclosed to this stock exchange release. KONE Corporation’s Interim Report for January-September 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, October 20, 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.

About KONE

KONE is one of the global leaders in the elevator and escalator industry. The company is committed to understanding the needs of its customers for 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.

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