Financial Statement Bulletin of KONE Corporation for January-December 2019

KONE Corporation, stock exchange release, January 28, 2020 at 12.30 p.m. EET

Financial Statement Bulletin of KONE Corporation for January-December 2019

January-December 2019: Solid sales growth in all businesses and profitability improved in Q4

October-December 2019

• Orders received grew by 2.6% to EUR 1,988 (10–12/2018: 1,938) million. At comparable exchange rates, orders received grew by 0.7%.
• Sales grew by 9.9% to EUR 2,685 (2,443) million. At comparable exchange rates, sales grew by 7.9%.
• Operating income (EBIT) was EUR 356.4 (292.5) million or 13.3% (12.0%) of sales. The adjusted EBIT was EUR 367.5 (319.6) million or 13.7% (13.1%) of sales.* IFRS 16 had a positive impact of EUR 0.1 million on the operating income.
• Cash flow from operations (before financing items and taxes) was EUR 385.7 (331.6) million. IFRS 16 had a positive impact of EUR 32 million to the cash flow from operations (before financing items and taxes).

January-December 2019

• Orders received grew by 7.7% to EUR 8,400 (1–12/2018: 7,797) million. At comparable exchange rates, orders received grew by 5.9%.
• Sales grew by 10.0% to EUR 9,982 (9,071) million. At comparable exchange rates, sales grew by 8.2%.
• Operating income (EBIT) was EUR 1,192 (1,042) million or 11.9% (11.5%) of sales. The adjusted EBIT was EUR 1,237 (1,112) million or 12.4% (12.3%) of sales.* IFRS 16 had a positive impact of EUR 6 million on the operating income.
• Cash flow from operations (before financing items and taxes) was EUR 1,550 (1,150) million. IFRS 16 had a positive impact of EUR 119 million to the cash flow from operations (before financing items and taxes).
• The Board proposes a dividend of EUR 1.70 per class B share for the year 2019.

KONE has adopted a new IFRS 16 and IFRIC 23 effective January 1, 2019 using the modified retrospective approach and the comparative figures have not been restated.

Business outlook for 2020

In 2020, KONE sales is estimated to grow by 0–6% at comparable exchange rates as compared to 2019. The adjusted EBIT is expected to be in the range of EUR 1,250–1,400 million, assuming that foreign exchange rates would remain at the January 2020 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 15 million.

* 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:

“Solid earnings growth was the key highlight of the Q4 results. Our good sales growth in all of our businesses continued, with strongest growth in the quarter in the modernization business. Orders received grew slightly as a result of continued good growth in the volume business despite fewer major project orders booked in the quarter. What I am especially happy about is that our adjusted EBIT margin improved as a result of consistent pricing and productivity actions and savings from the Accelerate program. This has resulted in a positive development in the margin of orders received. I would like to thank everyone in the KONE team for their commitment in making 2019 a successful year of profitable growth.

We are differentiating by creating more value for customers. During the current strategy period we have focused on how to create value for customers in new ways. The aim of all of our development is to help our customers succeed in their business. We have rolled out our new services, improved our sales approach in modernizations and most recently launched an exciting new elevator offering, KONE DX Class elevators. Our renewed portfolio of services and solutions helps our customers develop, construct and maintain competitive buildings that are easily upgradeable to fulfill the latest user requirements now and in the future. It is our customers who daily judge our differentiation in relation to our competition. Here we can see very encouraging results. The value per service contract and the average price of new equipment sold has started to increase – this demonstrates the success of our approach. The improved differentiation together with our reputation as a reliable partner is what has driven this. I am also happy that we have again been externally recognized for the work we have done to be the leader in sustainability in our industry. Sustainability is an increasingly important focus area for our customers and also a source of differentiation for us.

We enter the year 2020 in a good position. Our competitiveness is strong, we have a solid order book and the outlook for services continues to be positive. We expect KONE’s sales to grow by 0–6% at comparable exchange rates in 2020. Earnings growth is expected to continue with the adjusted EBIT expected to be between EUR 1,250 and 1,400 million. We will continue to invest in renewing ourselves to be able to deliver better outcomes to our customers every day. I am confident that we can continue our strong development in 2020.”

Operating environment in October-December 2019

The global new equipment market grew slightly in units compared to the fourth quarter of 2018. In Asia-Pacific, the new equipment market grew slightly. In China, infrastructure and residential segments developed positively, while non-residential segment declined. Government continued to balance between supporting the economic activity and restricting the residential market. Overall, the Chinese new equipment market grew slightly in units. In the rest of Asia-Pacific, the new equipment market returned to slight growth with slight growth in some Southeast Asian countries, stable development in India and Australian market bottoming out. In the EMEA region, the new equipment market grew slightly. The new equipment market in Central and North Europe grew slightly. In South Europe, the market grew slightly with growth in most of the countries in the area. In the Middle East, the market declined due to continued uncertainty in the area. In North America, the new equipment market was stable on a high level.

Global service markets continued to develop positively. Both the maintenance and the modernization markets saw growth across the regions, with the strongest rate of growth seen in Asia-Pacific.

Pricing trends remained varied during October–December. In China, competition remained intense but pricing was rather stable in the new equipment market. In the EMEA region, the pricing environment improved slightly. In North America, competition continued to be intense.

Operating environment in January-December 2019

The global new equipment market grew slightly in units compared to the previous year. In Asia-Pacific, the new equipment market grew slightly. In China, infrastructure and residential segments developed positively, while non-residential segment declined. Government continued to balance between supporting the economic activity and restricting the residential market. Overall, the Chinese new equipment market grew slightly in units. In the rest of Asia-Pacific, the new equipment markets were stable. In the EMEA region, the new equipment market grew slightly. The market grew slightly both in Central and North Europe as well as in South Europe. In the Middle East, the market continued to decline. In North America, the new equipment market was stable on a high level.

Global service markets continued to develop positively. Both the maintenance and the modernization markets saw growth across the regions, with the strongest rate of growth seen in Asia-Pacific.

Pricing trends remained varied during January– December 2019. In China, competition remained intense but pricing was rather stable in the new equipment market. In the EMEA region, the pricing environment improved gradually. In North America, competition intensified somewhat.

Market outlook 2020

The new equipment market is expected to be relatively stable or to grow slightly. However, the coronavirus outbreak creates uncertainty to the outlook. In China the market is expected to be relatively stable or to grow slightly in units ordered, while in the rest of the Asia-Pacific, the market is expected to grow slightly. The new equipment markets in North America and the Europe, Middle East and Africa region are expected to be rather stable.

Maintenance markets are expected to see the strongest growth rate in Asia-Pacific and to grow slightly in other regions.

The modernization market is expected to grow slightly in North America and in the Europe, Middle East and Africa region and to develop strongly in Asia-Pacific.

Business outlook 2020

In 2020, KONE’s sales is estimated to grow by 0–6% at comparable exchange rates as compared to 2019. The adjusted EBIT is expected to be in the range of EUR 1,250–1,400 million, assuming that foreign exchange rates would remain at the January 2020 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 15 million.

The outlook is based on KONE’s maintenance base and order book as well as the market outlook. KONE has a solid order book for 2020 and the service business is expected to grow driven by KONE’s growing and aging installed base and overall positive market outlook. Targeted pricing and productivity actions, which have impacted the margin of orders received positively, are expected to support profitability together with around EUR 50 million of savings from the Accelerate program. Increasing labor and subcontracting costs as well as the investment in building our capability to sell and deliver digital services and solutions are the main headwinds for the adjusted EBIT in 2020. Furthermore, the recent coronavirus outbreak creates additional uncertainty.  KONE is also expecting to have around EUR 40 million of restructuring costs related to the Accelerate program in the final year of the program. These costs are excluded from the adjusted EBIT.

The Board's proposal for the distribution of profit

The parent company’s non-restricted equity on December 31, 2019 was EUR 2,508,732,086.60 of which the net profit for the financial year is EUR 846,898,465.29.

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.6975 be paid on the outstanding 76,208,712 class A shares and EUR 1.70 on the outstanding 441,633,543 class B shares, resulting in a total amount of proposed dividends of EUR 880,141,311.72.

The Board of Directors further proposes that the remaining non-restricted equity, EUR 1,628,590,774.88 be retained and carried forward. The Board proposes that the dividends be payable on March 5, 2020. All the shares existing on the dividend record date are entitled to dividend for the year 2019 except for the own shares held by the parent company.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Tuesday, January 28, 2020 at 2:15 p.m. EET.

A meeting for analysts, conducted in English, will begin at 3:45 p.m. EET 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.

US callers: +1 323-794-2551
UK callers: +44 (0)330 336 9105
Finnish callers: +358 (0)9 7479 0361 
Participant code:  5050285

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 2019, KONE had annual sales of EUR 10 billion, and at the end of the year approximately 60,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.

www.kone.com