KONE Oyj - Interim report (Q1 and Q3)

Interim Report of KONE Corporation for January-September 2017

KONE Corporation, stock exchange release, October 26, 2017 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-September 2017



January-September 2017: Orders back to growth, profitability continued to be
under pressure

July-September 2017

  * Orders received declined by 1.8% to EUR 1,739 (7-9/2016: 1,772) million. At
    comparable exchange rates, orders grew by 2.1%.
  * Net sales grew by 0.9% to EUR 2,191 (2,170) million. At comparable exchange
    rates, the growth was 4.4%.
  * Operating income (EBIT) was EUR 307.3 (331.1) million or 14.0% (15.3%) of
    net sales. The adjusted EBIT was EUR 310.6 million or 14.2% of net sales.*
  * Cash flow from operations (before financing items and taxes) was EUR 302.7
    (400.6) million.


January-September 2017

  * Orders received declined by 1.3% to EUR 5,708 (1-9/2016: 5,782) million. At
    comparable exchange rates, orders grew by 0.6%. The order book stood at EUR
    8,703 million at the end of September 2017 (September 30, 2016: 8,699).
  * Net sales grew by 1.5% to EUR 6,286 (6,191) million. At comparable exchange
    rates the growth was 3.1%.
  * Operating income (EBIT) was EUR 851.4 (901.1) million or 13.5% (14.6%) of
    net sales. The adjusted EBIT was EUR 854.7 million or 13.6% of net sales.*
  * Cash flow from operations (before financing items and taxes) was EUR 928.4
    (1,100) million.


Business outlook for 2017 (unchanged)

KONE's net sales is estimated to grow by 1% to 3% at comparable exchange rates
as compared to 2016. The adjusted EBIT is expected to be in the range of EUR
1,200-1,250 million, assuming that translation exchange rates would remain at
approximately the end of September 2017 level for the remainder of the year.



Key figures       7-9/2017 7-9/2016  Change 1-9/2017 1-9/2016 Change 1-12/2016
-------------------------------------------------------------------------------
Orders       MEUR
received          1,739.0  1,771.7  -1.8 %  5,708.2  5,781.8  -1.3 %  7,621.0

Order book   MEUR 8,703.0  8,699.0   0.0 %  8,703.0  8,699.0  0.0 %   8,591.9

Sales        MEUR 2,190.8  2,170.2   0.9 %  6,285.5  6,191.1  1.5 %   8,784.3

Operating
income       MEUR
(EBIT)             307.3    331.1   -7.2 %   851.4    901.1   -5.5 %  1,293.3

Operating
income       %
(EBIT)
margin              14.0     15.3             13.5     14.6            14.7

Adjusted     MEUR
EBIT               310.6    331.1   -6.2 %   854.7    901.1   -5.2 %  1,293.3

Adjusted     %
EBIT margin         14.2     15.3             13.6     14.6            14.7

Income       MEUR
before tax         319.6    337.5   -5.3 %   900.4    941.0   -4.3 %  1,330.3

Net income   MEUR  246.1    259.9   -5.3 %   693.3    724.6   -4.3 %  1,022.6

Basic
earnings per EUR
share               0.48     0.52   -7.4 %    1.34     1.42   -5.4 %   2.00

Cash flow
from
operations
             MEUR
(before
financing
items and
taxes)             302.7    400.6            928.4   1,099.6          1,509.5

Interest-
bearing net  MEUR
debt              -1,464.9 -1,368.7         -1,464.9 -1,368.7        -1,687.6

Total
equity/total %
assets              46.2     44.0             46.2     44.0            46.8

Return on    %
equity              34.2     38.6             34.2     38.6            38.1

Net working
capital

(including   MEUR
financial
items and
taxes)             -933.3  -1,052.8          -933.3  -1,052.8        -1,054.8

Gearing      %     -56.0    -56.2            -56.0    -56.2            -60.4






* In September 2017, KONE introduced a new alternative performance measure,
adjusted EBIT, to enhance comparability of the business performance between
reporting periods during the Accelerate program. Restructuring costs related to
the Accelerate program are excluded from the calculation of the adjusted EBIT.





Henrik Ehrnrooth, President and CEO:

"We saw positive development on many fronts in the third quarter although we
continued to also face several headwinds. I'm happy that in China, our orders
received returned to growth and that good growth in orders continued in Americas
and EMEA. Sales growth was also at a healthy level driven by continued solid
development in Services. Higher raw material prices, price pressure witnessed in
our Chinese new equipment business and increased R&D and IT spend continued to
burden our operating income in the third quarter. The solid development in EMEA
and Americas contributed positively to the EBIT. We cannot be satisfied with the
recent EBIT development, and we continue to take firm action to compensate for
these pressures. We are already seeing positive impact from the focused pricing
actions in China and the continuous work to improve productivity.

What I'm especially happy about, is the good progress we've made in executing
our new strategy. Roll-out of the new services we introduced earlier this year
has gained momentum, and the recently launched Residential Flow solution has
raised a great amount of interest. Our customer-centric thinking is uncovering
new ways to add value to our customers and to generate profitable growth for us,
and we expect to bring many new services and solutions to the market in the
coming years. I am happy to see that our employees have strongly embraced an
even more customer-centric mindset and are constantly striving to better
understand our customers' needs.

To capture the full potential of our innovation pipeline in a fast moving
environment, we need new competences and ways of working, and we also need to be
faster. In the third quarter, we launched an Accelerate Winning with Customers
program to enable our people in the frontlines to focus on customers by giving
the area and global functions a bigger role in supporting the countries. This is
how we create a faster-moving, customer-centric organization that leverages our
scale more efficiently.

The near-term market outlook remains mixed. We expect the Chinese new equipment
market to be relatively stable for the full year 2017 in units ordered. However,
we continue to see risk that the government restrictions in the Chinese
residential market will have a negative impact on new equipment demand still
during the final months of 2017 and the early part of 2018. At the same time the
outlook remains positive for services and many other new equipment markets. KONE
is in a good position to capture the opportunities in the markets and we will
continue the work to improve our competitiveness further."

Operating environment in July-September 2017

The global new equipment market was stable in units ordered compared to the
third quarter of 2016. In Asia-Pacific, the new equipment volumes declined
slightly. In China, the new equipment market was rather stable in units but
declined slightly in monetary value. Both the residential and commercial
segments were relatively stable, while the infrastructure segment continued to
grow clearly driven by government stimulus measures. The market decline in the
higher-tier cities continued due to the government housing restriction measures.
The market in the lower-tier cities grew slightly. In the rest of Asia-Pacific,
the new equipment markets continued to decline driven by the Indian market in
particular. The Indian market continued to be impacted by the implementation of
reforms in the market. In the EMEA region, the new equipment market grew
slightly. New equipment market in Central and North Europe was rather stable at
a high level, while in South Europe, the market continued to see slight growth
from a low level. In the Middle East, the market grew despite uncertainty in the
region. In North America, the new equipment market continued to grow driven by
the United States.

Global service markets developed positively in most regions. The modernization
market continued to grow slightly in North America and significantly in Asia-
Pacific, whereas the market declined in Central and North Europe due to a
decline in Great Britain. In South Europe, the modernization market grew
slightly. The maintenance market continued to see growth across regions, with
the strongest rate of growth seen in the Asia-Pacific region and a more stable
development in Europe and North America.

Pricing trends remained varied during the third quarter. In China, competition
remained intense in new equipment, and pricing was rather stable compared to the
previous quarter. 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 remained rather intense in maintenance but continued to develop
positively in modernization.

Operating environment in January-September 2017

The global new equipment market was stable compared to January-September 2016.
The new equipment market volumes in Asia-Pacific declined slightly. In China,
the market was stable in units, but declined slightly year-on-year in monetary
value. In the rest of Asia-Pacific the market declined driven by India in
particular. In the EMEA region, market volumes were stable in Central and North
Europe compared to the comparison period. The new equipment market developed
positively in South Europe and the Middle East. In North America, the new
equipment market continued to grow from a high level.

Global service markets continued to develop positively. The large European
modernization market declined slightly in Central and North Europe and grew
slightly in South Europe. In North America, the modernization market continued
to see slight growth, and also the smaller Asia-Pacific market continued to
grow. The maintenance markets continued to see growth globally, with the fastest
rate of growth seen in the developing Asia-Pacific markets.

The pricing environment was varied and remained challenging in many markets.

Market outlook 2017

In new equipment, the market in China is expected to be relatively stable in
units ordered and the intense competition is expected to continue. In the rest
of Asia-Pacific, the market is expected to decline slightly in 2017, but to
return to growth towards the end of the year. 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 (unchanged)

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

The adjusted EBIT is expected to be in the range of EUR 1,200-1,250 million,
assuming that translation exchange rates would remain at approximately the end
of September 2017 level for the remainder of the year.

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.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Thursday, October
26, 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.

U.S.: +1 719 325 2213
UK: +44 (0)330 336 9105
Finland: +358 (0)9 7479 0361
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




[]

Attachments:

KONE_Q3_2017_Interim_Report.pdf