Financial Statement Bulletin of KONE Corporation for January–December 2022

KONE Corporation, stock exchange release, January 26, 2023 at 12.30 p.m. EET

Financial Statement Bulletin of KONE Corporation for January–December 2022

Strong growth in services, new equipment business impacted by considerable changes in market conditions

October–December 2022

• Orders received declined by 9.8% to EUR 1,944.2 (10–12/2021: 2,155.1) million. At comparable exchange rates, orders declined by 11.2%.
• Sales grew by 5.2% to EUR 2,911.5 (2,766.8) million. At comparable exchange rates, sales grew by 2.9%.
• Operating income (EBIT) was EUR 367.1 (351.9) million or 12.6 % (12.7 %) of sales. The adjusted EBIT was EUR 365.0 (359.4) million or 12.5 % (13.0 %) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 33.3 (525.0) million.

January–December 2022

• Orders received grew by 3.1% to EUR 9,131.3 (1–12/2021: 8,852.8) million. At comparable exchange rates, orders declined by 2.5%.
• Sales grew by 3.7% to EUR 10,906.7 (10,514.1) million. At comparable exchange rates, sales declined by 1.8%.
• Operating income (EBIT) was EUR 1,031.2 (1,295.3) million or 9.5 % (12.3 %) of sales. The adjusted EBIT was EUR 1,076.6 (1,309.8) million or 9.9 % (12.5 %) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 754.7 (1,828.7) million.
• The Board proposes a dividend of EUR 1.75 per class B share for the year 2022.

Business outlook for 2023

KONE expects its sales at comparable exchange rates for the year 2023 to be at a similar level as in the previous year. The adjusted EBIT margin is expected to start to recover due to improved margins on orders received in 2022 and continued solid performance in the maintenance business.

The business outlook assumes that construction activity in China starts to recover towards the end of the first half as a result of the measures introduced to create stability in the property sector.

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January–December 2022, items affecting comparability amounted to EUR 45.4 million including a charge for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine, as well as costs for restructuring measures. In the comparison periods, items affecting comparability consisted of restructuring costs.

Henrik Ehrnrooth, President and CEO:

”2022 was once again a year characterized by considerable changes in our market environment. Inflation rose, the war in Ukraine created further uncertainty and in China, our largest market, the activity declined significantly due to widespread difficulties in the property sector. At the same time, service market activity was robust, providing good opportunities for growth. In this environment, we prioritized increasing prices to drive recovery in the margin of our orders received, accelerating the growth of our services business, as well as improving both product costs and productivity. I am very pleased with the progress we made in each of these areas. Our achievements would not have been possible without a motivated and engaged team. I would like to express my sincere appreciation to everyone at KONE for your commitment and outstanding work.

From a financial perspective, our full year performance was impacted by the prevailing market conditions, but we ended the year largely in line with our expectations. The market backdrop in China caused our fourth quarter orders to decline and significantly weakened our cash flow. Our sales on the other hand, were somewhat above last year’s level thanks to a strong focus on delivery execution and robust growth in both maintenance and modernization sales. While we cannot be pleased with the development of our profitability, we did see an improvement in the fourth quarter thanks to the strong growth in maintenance sales, declining material costs in China and better pricing on deliveries outside China.

We continued to execute well on our ‘Sustainable success with customers’ strategy, which builds on increasing the value we create for our customers with new intelligent solutions and embedding sustainability even deeper across our operations. During the year, we consistently increased the share of our maintenance base covered by our flagship digital service platform, 24/7 Connected Services, and introduced DX class elevators in North America making them available in all regions. We also launched a number of new products and services addressing customers need for sustainable, productivity enhancing solutions. I am confident that these developments will ensure that we remain our customers’ partner of choice.

To drive our strategy forward with even greater efficiency, we have announced plans to renew our operating model. We intend to build on our existing strengths of decentralization and local accountability by providing our Areas even stronger responsibility for their direction and commercial strategy in order to better capture growth opportunities which are likely to differ regionally. By simplifying our organizational structure and processes, we will enable faster response to local customer needs in a more cost-efficient manner, while maintaining the strong competitiveness of our global offering platforms and supply chain.

Looking into 2023, we see good opportunities for growth in the service markets, whereas regional variations in new equipment markets are expected to be significant. Activity is expected to develop positively in Asia-Pacific ex China and in the Middle East but be more muted in Europe and North America. In China, we expect markets to start to recover towards the end of the first half as a result of the broad stimulus measures that have already been announced.

We expect our sales in 2023 to be at a similar level as in the previous year and profitability to start to recover thanks to successful pricing actions and solid services performance. This outlook is highly dependent on the effectiveness of the measures introduced to stabilize the property markets in China. Looking beyond 2023, I am confident that our strong team, competitive offering and the steps we are planning to further strengthen our customer focus will secure our progress towards our long-term financial and strategic targets.”

Operating environment in October–December 2022

The global new equipment market declined significantly in units during the fourth quarter of 2022, largely due to China where market conditions remained weak. In the more mature markets, sentiment was impacted by rising interest rates and expectations for slowing economic growth. In China, continued liquidity constraints and the sharp rise in COVID-19 infections caused activity to decline significantly. In the rest of Asia-Pacific, activity declined slightly. In the EMEA region, activity declined clearly in Central, North and South Europe. Market activity grew slightly in the Middle East. In North America, the market declined clearly.

The service market continued to develop 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 in January–December 2022

In the new equipment market, the demand environment was favorable in many areas particularly during the first half of 2022. That said, global market activity declined due to the weak market conditions in China. The disruptions to global supply chains, which were amplified by the war in Ukraine, also affected sentiment as did rising interest rates and expectations for slower economic growth. In China, COVID-19 lockdowns were a considerable disruption during the second quarter. Though less severe, restrictions continued to create uncertainty during the second half, as did the sharp rise in infections towards the end of the year. This, together with continued liquidity constraints, caused a significant decline in market activity. In the rest of Asia-Pacific, the market grew clearly, largely due to strong recovery in India. The markets in the EMEA region were mixed. Activity declined slightly in Central, North and South Europe, and grew slightly in the Middle East. In North America, the market grew slightly, thanks to strong activity in the residential and infrastructure segments in the first half of the year.

The service market developed positively throughout the year, with broad-based growth in both maintenance and modernization. Elevator utilization rates recovered to pre-pandemic levels in nearly all customer segments, boosting activity in the maintenance markets. Activity in the modernization markets was driven by stimulus measures, infrastructure investments and office refurbishments.

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

Market outlook 2023

In China, the new equipment market is expected to decline by somewhat over 10% during 2023. Property developers’ access to financing is likely to remain constrained especially during the first quarter of the year, but markets are expected to start to recover towards the end of the first half as a result of the broad stimulus measures that have already been announced. In the rest of the world, activity is expected to grow clearly in Asia-Pacific excluding China, be stable in the EMEA region and decline slightly North America from a high level

Modernization markets are expected to grow in all regions supported by an aging equipment base as well as the focus on sustainability and adaptability of buildings.

Economic uncertainty and rising interest rates may limit growth in construction activity, which could impact demand in the new equipment and modernization markets.

Maintenance markets are expected to grow slightly in the more mature markets and grow clearly in Asia-Pacific.

Business outlook 2023

KONE expects its sales at comparable exchange rates for the year 2023 to be at a similar level as in the previous year. The adjusted EBIT margin is expected to start to recover due to improved margins on orders received in 2022 and continued solid performance in the maintenance business.

The business outlook assumes that construction activity in China starts to recover towards the end of the first half as a result of the measures introduced to create stability in the property sector.

KONE has a positive outlook for services, a strong order book and improved margins on orders received in 2022. Easing commodity cost headwinds in Asia are also expected to support the results.

Headwinds for the 2023 results include slower order book rotation, the anticipated decline in China’s new equipment market, as well as wage inflation and increasing component costs.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Thursday, January 26, 2023 at 2:15 p.m. EET. Journalists are kindly asked to sign up to media@kone.com, 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. EET 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.: +1 786 697 3501
UK: +44 (0) 33 0551 0200
Finland: +358 (0)9 2319 5437
Participant code:  181982

For further information, please contact:

Natalia Valtasaari, Head of Investor Relations, KONE Corporation, 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 2022, KONE had annual sales of EUR 10.9 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