Half-year Financial Report of KONE Corporation for January–June 2021

KONE Corporation, stock exchange release, July 20, 2021 at 12.30 p.m. EEST

Half-year Financial Report of KONE Corporation for January–June 2021

Orders and sales grew in all regions, margin expansion continued

April–June 2021

• Orders received grew by 16.2% to EUR 2,410.7 (4–6/2020: 2,075.4) million. At comparable exchange rates, orders grew by 17.2%.
• Sales grew by 11.0% to EUR 2,810.8 (2,532.1) million. At comparable exchange rates, sales grew by 12.7%.
• Operating income (EBIT) was EUR 367.1 (315.5) million or 13.1% (12.5%) of sales. The adjusted EBIT was EUR 374.0 (324.6) million or 13.3% (12.8%) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 513.2 (592.3) million.

January–June 2021

• Orders received grew by 7.2% to EUR 4,486.6 (1–6/2020: 4,184.7) million. At comparable exchange rates, orders grew by 9.3%.
• Sales grew by 8.6% to EUR 5,137.3 (4,730.3) million. At comparable exchange rates, sales grew by 11.0%.
• Operating income (EBIT) was EUR 616.9 (512.7) million or 12.0% (10.8%) of sales. The adjusted EBIT was EUR 623.9 (530.2) million or 12.1% (11.2%) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 938.6 (939.2) million.

Business outlook for 2021 (specified)

In 2021, KONE's sales growth is estimated to be in the range of 4% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin is expected to be in the range of 12.4% to 13.0%. Assuming that foreign exchange rates remain at the July 2021 level, the impact of foreign exchange rates on the adjusted EBIT would be limited.

KONE previously estimated its sales growth to be in the range of 2% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin was expected to be in the range of 12.4% to 13.2%. Assuming that foreign exchange rates would have remained at the April 2021 level, the impact of foreign exchange rates on the adjusted EBIT would have been limited.

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of the business performance between reporting periods. Restructuring costs related to significant restructuring programs are excluded from the calculation of the adjusted EBIT. In January–June 2021, the adjusted EBIT excluded costs of EUR 7.0 million related to restructuring measures in KONE’s global business lines and functions. During 2017–2020, all restructuring costs excluded from adjusted EBIT related to the Accelerate program.

Henrik Ehrnrooth, President and CEO:

“The second quarter was characterized by strong financial performance and solidifying market recovery. Activity remained high in China, and business conditions improved elsewhere with the US being a clear highlight. Our orders received grew strongly in the quarter, which shows that our efforts to capture recovery driven opportunities have proven successful. Sales growth was also robust, with all regions and businesses contributing to the increase. I was especially pleased to see our maintenance business rebounding with discretionary activity increasing to well above pre-pandemic levels. Cash flow was yet again on an exceptionally high level, and margins have continued to expand. This is a clear demonstration of the strength of both our operations and our business model. While we expect recovery to continue, the global supply chain environment remains challenging. Material costs are at a high level, sea freight costs have risen dramatically, and the shortage of semiconductors is impacting every business using advanced electronics. That said, we expect logistics and component availability constraints to start easing towards the beginning of next year. At the same time, price increases have started to materialize in the Elevator and Escalator market. The way KONE’s employees have dealt with these challenges and constantly ensured that we deliver on our promises to our customers has been exemplary. I would like to extend my thanks to everyone involved for their continued great work and adaptability throughout these exceptional times.

Developing smart and sustainable solutions that adapt to future needs is central to ensuring that we remain our customers’ partner of choice. The DX class elevator rollout is progressing well, and we have actively introduced enhancements to the related offering for both new equipment and modernization. The momentum for 24/7 Connected services continued to improve, with strong growth in all regions during the quarter. To ensure that we remain competitive in the eyes of our customers, we will continue to invest into connecting new solutions and services to our elevators and escalators. These solutions can cost-efficiently be tailored to the specific needs of our customers thanks to our digital platform and application programming interfaces. An example of this is the connected wheelchair concept - a solution, which provides wheelchair users with improved access and better mobility.

Ensuring the success of our ‘Sustainable success with customers’ strategy requires empowered people and loyal customers. During the quarter we conducted our annual employee engagement and customer loyalty surveys. The results for both were positive. Our employees continue to see KONE as a great place to work with a healthy company culture. Customer loyalty improved again, and we received positive feedback especially for the quality of our products and services, as well as the level of cooperation we provide.

With six months behind us we have specified our business outlook for the year. Thanks to strong sales momentum, we now expect full year to sales to grow by 4–6%. However, the effects of the inflationary cost environment will be increasingly visible in the coming quarters. Consequently, we expect the adjusted EBIT margin to be 12.4–13.0%. We have initiated actions to raise prices in several markets to counteract the margin headwinds we face, and I am encouraged to also see broader signs of improving market prices. This, together with our continuous focus on productivity and differentiation through value adding solutions, provides a solid foundation for future performance.”

Operating environment in April–June 2021

Recovery continued in the global elevator and escalator market during the second quarter of 2021. Activity was strongest in the residential segment.

Demand in the new equipment market increased all around the world from a comparison period which was strongly impacted by the COVID-19 pandemic. In Asia-Pacific, the new equipment markets grew significantly. In China, the markets grew from an already high level whereas in the rest of Asia-Pacific, the new equipment markets witnessed strong recovery compared to the previous year. Across the EMEA region, the new equipment market grew slightly. In North America, the market grew clearly.

In the service market, maintenance activity started to normalize and demand picked up also in modernization.

The pricing environment continued to be adversely affected by intense competition. That said, market prices started to improve towards the end of the quarter.

Operating environment in January–June 2021

Although the global elevator and escalator market continued to be impacted by the COVID-19 pandemic during the first half of 2021, the signs of recovery seen in the early part of the year solidified during the second quarter. In the residential segment, activity was supported by the demand for affordable housing, while stimulus measures boosted sentiment in the infrastructure segment. Activity in the commercial segment remained limited.

Demand in the new equipment market increased clearly. In Asia-Pacific, new equipment volumes grew significantly with China growing strongly in both quarters and the rest of Asia-Pacific recovering in the second quarter. In the EMEA region, the new equipment market was stable. The new equipment market in Central and North Europe and Middle East was stable, whereas in South Europe the market declined slightly. In North America, the new equipment market grew slightly.

In the service market, maintenance activity was resilient and started to normalize towards the end of the first half. In modernization, markets were still impacted by delayed decision-making in the first quarter, but demand started to pick up in the second quarter.  

The pricing environment continued to be adversely affected by intense competition. That said, market prices started to improve towards the end of the period.

Market outlook 2021 (updated)

In China, the new equipment market is expected to grow clearly compared to 2020, which was already a very strong year in terms of market activity. In the rest of the world, the new equipment markets are expected to grow from a low comparison period. In Asia-Pacific, excluding China, the new equipment market is expected to grow significantly. In North America, the new equipment market is expected to grow clearly. The new equipment market in the Europe, Middle East and Africa region is expected to grow slightly.

With normalizing maintenance activity around the world, the maintenance markets are expected to grow clearly in Asia-Pacific and grow slightly in other regions.

Similarly, the modernization markets are expected to grow across all areas with the strongest growth in Asia-Pacific.

Business outlook 2021 (specified)

In 2021, KONE's sales growth is estimated to be in the range of 4% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin is expected to be in the range of 12.4% to 13.0%. Assuming that foreign exchange rates remain at the July 2021 level, the impact of foreign exchange rates on the adjusted EBIT would be limited.

KONE has a solid order book and maintenance base for 2021. Continual improvements in quality and productivity are expected to support profitability.

The key headwinds for 2021 results are the increased component and logistics costs. KONE also continues to invest actively in building the capability to sell and deliver digital services and solutions.

KONE previously estimated its sales growth to be in the range of 2% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin was expected to be in the range of 12.4% to 13.2%. Assuming that foreign exchange rates would have remained at the April 2021 level, the impact of foreign exchange rates on the adjusted EBIT would have been limited.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Tuesday, July 20, 2021 at 2:15 p.m. EEST. 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. 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.: +1 323-701-0225
UK: +44 (0)330 336 9105
Finland: +358 (0)9 7479 0361
Participant code: 1989111

For further information, please contact:

Natalia Valtasaari, Vice President, 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 2020, KONE had annual sales of EUR 9.9 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