KONE Corporation's Interim Report for January-June 2012

July 19, 2012

KONE Corporation, stock exchange release, July 19, 2012 at 12:30 p.m. EET

KONE's Q2: Continued strong progress

April-June 2012
-In April-June 2012, orders received totaled EUR 1,513 (4-6/2011: 1,226) million. Orders received grew by 23.4% at historical exchange rates and by 16.1% at comparable exchange rates.
- Net sales grew by 20.0% to EUR 1,544 (1,286) million. At comparable exchange rates the growth was 13.6%.
- Operating income excluding one-time costs was EUR 208.5 (184.5) million or 13.5% (14.3%) of net sales. The operating income, including the one-time cost of EUR 37.3 related to the support function development and cost adjustment programs, was EUR 171.2 million.
- Cash flow from operations was EUR 192.4 (129.9) million.
- Plans for the support function development and cost adjustment programs have now been defined and KONE has decided to proceed with the plans. The target of the programs is to increase competitiveness through improved quality and productivity of KONE's support functions and appropriate resourcing for each market. The programs are expected to bring annualized cost savings of approximately EUR 35 million. The corresponding run rate for the cost savings will be achieved by the end of 2013. The total one-time cost relating to these programs, EUR 37.3 million, was booked in the second quarter of 2012.
- KONE upgrades its outlook slightly for 2012. KONE's net sales is estimated to grow by 12-17% at comparable exchange rates as compared to 2011. The operating income (EBIT), excluding one-time costs, is expected to be in the range of EUR 760-820 million. The upgrade of the outlook is due to stronger than expected orders received and sales growth in Asia-Pacific, and with regard to the operating income outlook also due to favorable translation exchange rate movements. KONE previously estimated its net sales to grow by 10-15% at comparable exchange rates as compared to 2011. The previous operating income (EBIT) outlook was EUR 750-800 million, assuming that translation exchange rates do not materially deviate from the situation of the beginning of 2012.

January-June 2012

- In January-June 2012, orders received totaled EUR 2,879 (1-6/2011: 2,271) million. Orders received grew by 26.8% at historical exchange rates and by 21.1% at comparable exchange rates. The order book stood at EUR 5,305 (Dec 31, 2011: 4,348) million at the end of June 2012.
- Net sales grew by 19.0% to EUR 2,785 (2,340) million. At comparable exchange rates the growth was 14.3%.
- Operating income excluding one-time costs was EUR 341.2 (303.2) million or 12.2% (13.0%) of net sales. The operating income, including the one-time cost of EUR 37.3 related to the support function development and cost adjustment programs, was EUR 303.9 million.

Key Figures

4-6/
2012
4-6/
2011
1-6/
2012
1-6/
2011
1-12/
2011
Orders received MEUR 1,513.4 1,226.2 2,879.3 2,270.9 4,465.1
Order book MEUR 5,305.3 3,947.7 5,305.3 3,947.7 4,348.2
Sales MEUR 1,544.1 1,286.4 2,785.4 2,340.2 5,225.2
Operating income (EBIT) MEUR 208.5 1) 184.5 341.2 1) 303.2 725.1
Operating income (EBIT) % 13.5 1) 14.3 12.2 1) 13.0 13.9
EBITA MEUR 217.1 1) 188.0 358.5 1) 310.1 741.2
EBITA % 14.1 1) 14.6 12.9 1) 13.3 14.2
Cash flow from operations
(before financing items and taxes)
MEUR 192.4 129.9 440.7 367.2 819.8
Net income MEUR 134.0 142.7 243.5 241.7 644.4
Basic earnings per share EUR 0.52 0.56 0.94 0.94 2.52
Interest-bearing net debt MEUR -805.1 -715.6 -805.1 -715.6 -829.1
Total equity/total assets % 49.9 48.5 49.9 48.5 54.0
Gearing % -41.7 -45.4 -41.7 -45.4 -40.8

1) Excluding a MEUR 37.3 one-time cost related to the support function development and cost adjustment programs.

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

"Our business progressed well in the second quarter of the year. Orders received growth was strong in particular due to our continued good development in Asia-Pacific. Order intake grew by 23% at historical rates and 16% at comparable rates. I am particularly pleased with the continued improvement of the orders received margins. Sales grew in all businesses. The growth was 20% at historical rates and close to 14% at comparable rates. New equipment sales grew very rapidly, as a result of which the share of new equipment sales grew to 51% of total sales. Asia-Pacific accounted for 36% of our total sales in the second quarter.

In April we communicated that we would commence the planning of two programs. The target of the first program is to improve the quality and productivity of our support functions through the clarification of roles and simplification of processes, and the target of the second program is to adjust our resourcing in some countries, where the markets have dropped to a clearly lower level in the past years. The plans for these programs have now been defined. We expect these programs to reduce approximately 550 jobs globally during the next 18 months. Our objective is to manage this change through natural attrition and reduced temporary labor to the largest extent possible. We expect to get annualized cost savings of approximately EUR 35 million. The corresponding run rate for the cost savings will be achieved by the end of 2013. The total one-time cost relating to the programs, which was booked in the second quarter, is EUR 37.3 million.

Our operating income for the April-June 2012 period excluding the one-time cost totaled EUR 208.5 (184.5) million or 13.5% (14.3%) of net sales. Operating income grew as a result of continued strong new equipment sales growth in Asia-Pacific and a good development in the maintenance business. In addition, the favorable development of translation exchange rates as compared to the prior year contributed to the improvement. The growth of the operating income remained burdened by intangible asset amortizations resulting from the consolidation of GiantKONE as a subsidiary, intense price competition, increased labor costs inAsiaand higher raw material costs. Cash flow was strong at EUR 192.4 (129.9) million. I am very pleased with the development of our business, and I want to thank all of our people, who have again done a good job.

We announced in June the introduction of a new innovative global volume elevator offering. This is KONE's most important product launch in 16 years. We expect this new offering to cover a very significant part of KONE's new elevator and full elevator replacement volumes in the coming years. We will start selling the new elevator offering in Europe and Asia-Pacific during the second half of 2012 and in theAmericasin the first half of 2013. With the new offering, we take major steps forward in the areas of eco-efficiency, ride comfort, visual design and space efficiency. We are very excited about this development, in particular as we are introducing these new elevators while our current product competitiveness is already strong.

We have upgraded our business outlook slightly for 2012 due to stronger than expected orders received and sales growth in Asia-Pacific as well as favorable translation exchange rate movements. While we look forward with confidence thanks to our competitiveness and strong order book, the uncertainty in the development of the global economy has clearly increased during the last few months. We have to be prepared for increasingly challenging market scenarios. We aim to again take the difficult market situation as an opportunity - as we did already in 2008-2009."

Operating environment in April-June

The development of the operating environment was largely in line with KONE's expectations and no substantial changes in the overall market trends were seen in the second quarter of 2012. In the Europe, Middle East and Africa (EMEA) region, the new equipment market declined somewhat in Central andNorth Europe, but remained at a relatively good level. The new equipment market declined further from an already weak level inSouth Europe. The new equipment market in theAmericas region continued to gradually recover. The market in Asia-Pacific continued to grow, although the growth rate slowed down somewhat as compared to the first quarter of 2012. The major projects segment remained active, in particular in Asia-Pacific and theMiddle East. The global modernization market declined slightly, although with regional variations. Maintenance markets continued to develop favorably in all regions. The pricing environment continued to be challenging in all businesses, in particular in markets suffering from a prolonged weakness in the new equipment market.

Operating environment in January-June

During January-June 2012, the new equipment market declined slightly in Central and North Europe but remained at a relatively good level, whereas the market situation inSouth Europeweakened further. The gradual recovery of the new equipment market in theAmericascontinued to progress. The growth of the new equipment markets in Asia-Pacific continued, albeit at a clearly lower rate than in the previous year. Modernization markets declined slightly. Maintenance markets continued to grow. The pricing environment was challenging in all businesses, in particular in markets suffering from a prolonged weakness in the new equipment market.

Market outlook 2012

In new equipment, the markets in Asia-Pacific are expected to be relatively stable or grow somewhat as compared with the second half of 2011. The markets in Central and North Europe are expected to decline slightly, and the markets in South Europe are expected to further decline from an already weak level. The market in North America is expected to continue to gradually recover from a low level. The modernization markets are expected to be at about the same level or decline slightly as compared to the second half of 2011. The maintenance markets are expected to continue to develop well.

Business outlook 2012

KONE upgrades its outlook slightly for 2012. The upgrade of the outlook is due to stronger than expected orders received and sales growth in Asia-Pacific, and with regard to the operating income outlook also due to favorable translation exchange rate movements.

KONE's net sales is estimated to grow by 12-17% at comparable exchange rates as compared to 2011.

The operating income (EBIT), excluding one-time costs, is expected to be in the range of EUR 760-820 million.

Previous business outlook 2012

KONE's net sales is estimated to grow by 10-15% at comparable exchange rates as compared to 2011.

 

The operating income (EBIT) is expected to be in the range of EUR 750-800 million, assuming that translation exchange rates do not materially deviate from the situation of the beginning of
2012.

Analyst and media meeting and conference call
A meeting for the press, conducted in Finnish, will be held on Thursday, July 19, 2012 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 theKONEBuilding, 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 the same day.

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

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® 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 inFinland.

www.kone.com

Sender:

KONE Corporation

Henrik Ehrnrooth                      
CFO

Anne Korkiakoski
Executive Vice President
Marketing & Communications