Half-year Financial Report of KONE Corporation for January-June 2022

KONE Corporation, stock exchange release, July 20, 2022 at 12.30 p.m. EEST

Half-year Financial Report of KONE Corporation for January-June 2022

Second quarter strongly impacted by China COVID-19 lockdowns, favorable development in other regions

April-June 2022

• Orders received grew by 8.2% to EUR 2,609.0 (4-6/2021: 2,410.7) million. At comparable exchange rates, orders grew by 0.6%.
• Sales declined by 9.1% to EUR 2,555.1 (2,810.8) million. At comparable exchange rates, sales declined by 15.2%.
• Operating income (EBIT) was EUR 189.0 (367.1) million or 7.4 % (13.1 %) of sales. The adjusted EBIT was EUR 209.3 (374.0) million or 8.2 % (13.3 %) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 166.6 (513.2) million.

January-June 2022

• Orders received grew by 12.1% to EUR 5,031.7 (1-6/2021: 4,486.6) million. At comparable exchange rates, orders grew by 5.2%.
• Sales declined by 2.7% to EUR 4,997.0 (5,137.3) million. At comparable exchange rates, sales declined by 8.5%.
• Operating income (EBIT) was EUR 360.2 (616.9) million or 7.2 % (12.0 %) of sales. The adjusted EBIT was EUR 405.8 (623.9) million or 8.1 % (12.1 %) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 385.3 (938.6) million.

Business outlook for 2022 (revised)

KONE estimates that in 2022, its sales growth will be in the range of -1 to +3% at comparable exchange rates as compared to 2021. The adjusted EBIT is expected to be in the range of EUR 1,130-1,210 million, assuming that foreign exchange rates would remain at the July 2022 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 80 million.

KONE previously estimated its sales growth would be in the range of 2% to 5% at comparable exchange rates as compared to 2021. The adjusted EBIT was expected to be in the range of EUR 1,180-1,280 million, assuming that foreign exchange rates would remain at the April 2022 level. Foreign exchange rates were estimated to impact EBIT positively by around EUR 70 million. The outlook was dependent on the COVID-19 restrictions in China being lifted during the second quarter and a rapid recovery thereafter.

KEY FIGURES		4-6/2022	4-6/2021	Change	1-6/2022	1-6/2021	Change	1-12/2021
Orders received	MEUR	2,609.0	2,410.7	8.2 %	5,031.7	4,486.6	12.1 %	8,852.8
Order book	MEUR				10,000.4	8,272.5	20.9 %	8,564.0
Sales	MEUR	2,555.1	2,810.8	-9.1 %	4,997.0	5,137.3	-2.7 %	10,514.1
Operating income	MEUR	189.0	367.1	-48.5 %	360.2	616.9	-41.6 %	1,295.3
Operating income margin	%	7.4	13.1		7.2	12.0		12.3
Adjusted EBIT*	MEUR	209.3	374.0	-44.0 %	405.8	623.9	-35.0 %	1,309.8
Adjusted EBIT margin*	%	8.2	13.3		8.1	12.1		12.5
Income before tax	MEUR	180.1	372.1	-51.6 %	350.9	624.3	-43.8 %	1,320.8
Net income	MEUR	138.7	288.3	-51.9 %	270.2	483.8	-44.2 %	1,022.7
Basic earnings per share	EUR	0.26	0.55	-52.7 %	0.51	0.92	-44.8 %	1.96
Cash flow from operations (before financing items and taxes)	MEUR	166.6	513.2		385.3	938.6		1,828.7
Interest-bearing net debt	MEUR				-1,263.4	-1,501.4		-2,164.1
Equity ratio	%				35.3	38.4		41.2
Return on equity	%				19.0	33.3		32.0
Net working capital (including financing items and taxes)	MEUR				-1,308.1	-1,311.0		-1,468.2
Gearing	%				-51.0	-57.3		-67.6

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January-June 2022, items affecting comparability included a charge of EUR 45.6 million for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine, as well as for restructuring measures. In the comparison periods, items affecting comparability consisted of restructuring costs.

Henrik Ehrnrooth, President and CEO:

"The business environment in the second quarter was mixed. We had another excellent quarter in the services business with strong growth in maintenance sales and modernization orders driven by both pricing and volume. Pricing developed favorably in the new equipment business outside China and market activity was on a healthy level. In China, however, COVID-19 lockdowns were a considerable disruption. Although we successfully ramped up our operations to normal levels in June, factory closures in April and low delivery volumes in May resulted in a significant decline in KONE's new equipment sales. This, together with continued headwinds from input costs, burdened our operating result. I am however, encouraged by the initial signs of global supply chain disruptions easing.

As a result of the significant impact China's lockdowns had on our sales, we revised our outlook for 2022. We now expect sales growth of -1 to +3% and adjusted EBIT to be in the range of EUR 1,130-1,210 million. The margin pressure we have seen is expected to start to ease towards the latter part of the year as delivery volumes recover. To further improve profitability, we have taken strong action in increasing prices in all businesses, improving productivity and changing our contract models. We can see good progress in each of these areas.

Success in a rapidly changing environment requires a differentiated, value-adding offering. In this context, the continued strong growth of our 24/7 connected services is positive as is the initial feedback on the solutions we launched in our new equipment business earlier this year which focus on supporting our customers' productivity on construction sites. Equally important is a motivated and resilient team. I am very pleased that the results of our annual employee engagement survey showed a high level of engagement among our employees. The great work that the KONE team has been doing can clearly be seen in the continued improvement in our Net Promoter Score and in our customers' positive feedback on the quality of our products and services and the relationships we have with them.

We continue to see attractive opportunities in many areas despite the uncertain geopolitical environment and slowing economic development. I am confident that our industry leading service business growth, as well as our actions to improve our profitability and resilience, strengthens our competitive positioning in an evolving business context."

Operating environment in April-June 2022

The demand environment remained healthy in most areas during the second quarter of the year, despite concerns over continued supply chain disruptions and labor availability constraints.

Demand in the new equipment market increased in all regions except China, where COVID-19 lockdowns and continued liquidity constraints caused market activity to decline significantly. In the rest of Asia-Pacific, activity grew significantly primarily due to strong recovery in India. In the EMEA region, activity was mixed. The war in Ukraine impacted demand in Central and North Europe, while activity grew slightly in South Europe and clearly in the Middle East. In North America, the market grew clearly thanks to continued good activity in the residential segment and growth in infrastructure investments.

The service market developed positively with broad based growth in both maintenance and modernization.

Although the pricing environment remained adversely affected by intense competition, market prices continued to improve outside China as a response to wide-spread cost inflation. 

Operating environment January-June 2022

Although the demand environment was favorable in many areas during the first half of the year, market activity was impacted by measures taken to contain the spread of COVID-19 infections in China. The disruptions to global supply chains, which were amplified by the war in Ukraine, also weakened sentiment.

In the new equipment market in China, COVID-19 lockdowns were a considerable disruption in the second quarter. This, together with continued liquidity constraints, caused a significant slowdown in activity. In the rest of Asia-Pacific, the market recovered strongly. In the EMEA region, increased uncertainty due to the war in Ukraine resulted in stable activity in North and Central Europe, while activity grew slightly in South Europe and in the Middle East. In North America, the market grew significantly, thanks to strong activity in the residential and infrastructure segments.

The service market developed positively with broad-based growth in both maintenance and modernization. Utilization rates recovered to pre-pandemic levels in most customer segments during the first half, while modernization market activity was driven by stimulus measures, infrastructure investments and office refurbishments.

Although the pricing environment remained adversely affected by intense competition, market prices improved outside China throughout the first half as a response to wide-spread cost inflation. 

Market outlook 2022 (updated)

The Chinese new equipment market is expected to decline significantly due to the tightened liquidity situation in the property markets and the impact of COVID-19 related restrictions. In the rest of the world, activity in the new equipment markets is expected to increase, with slight growth in the EMEA region, clear growth in North America and significant growth in Asia-Pacific, excluding China.

Modernization markets are expected to grow across regions supported by an aging equipment base, stimulus measures, and the emphasis on the adaptability of buildings.

Maintenance activity is expected to return to pre-pandemic growth trajectory with slight growth in the more mature markets and clear growth in Asia-Pacific.

Supply chain constraints may limit growth in construction activity, which could impact demand in the new equipment and modernization markets. COVID-19 related lockdown measures in China and the war in Ukraine are adding to global supply chain disruptions and increasing uncertainty in the demand environment.

Business outlook 2022 (revised)

KONE estimates that in 2022, its sales growth will be in the range of -1 to +3% at comparable exchange rates as compared to 2021. The adjusted EBIT is expected to be in the range of EUR 1,130-1,210 million, assuming that foreign exchange rates would remain at the July 2022 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 80 million.

KONE has a positive outlook for services and a solid order book. Furthermore, the effect of product cost, productivity and pricing actions are expected to support the results towards the latter part of the year.

Headwinds for the 2022 results include increased material, component and logistics costs and further disruptions to global supply chains. Other key headwinds are the competitive dynamics, liquidity constraints and COVID-19 related restrictions in China.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Wednesday, July 20, 2022 at 2:15 p.m. EEST. Journalists are kindly asked to sign up to [e-mail], and they will receive a link to the call upon registration.

A webcast for analysts, conducted in English, will begin at 3:45 p.m. EEST and will be available on www.kone.com/investors. An on-demand version of the webcast will be available on www.kone.com later the same day. The event can also be joined via a telephone conference.

U.S.: [phone]
UK: [phone]
Finland: [phone]
Participant code: 5908380

For further information, please contact:

Natalia Valtasaari, Head of Investor Relations, KONE Corporation, tel. [phone] 

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 2021, KONE had annual sales of EUR 10.5 billion, and at the end of the year over 60,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.

www.kone.com

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