Interim Report of KONE Corporation for January–March 2023

KONE Corporation, stock exchange release, April 26, 2023 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January–March 2023

Good start to the year with sales growth and improved profitability 

January–March 2023

• Orders received declined by 6.6% to EUR 2,263.1 (1–3/2022: 2,422.6) million. At comparable exchange rates, orders declined by 5.1%.
• Sales grew by 4.7% to EUR 2,556.6 (2,441.9) million. At comparable exchange rates, sales grew by 5.9%.
• Operating income (EBIT) was EUR 238.3 (171.1) million or 9.3% (7.0%) of sales. The adjusted EBIT was EUR 241.9 (196.5) million or 9.5% (8.0%) of sales. ¹
• Cash flow from operations (before financing items and taxes) was EUR 456.0 (218.7) million.

Business outlook for 2023 (specified)

KONE expects its sales at comparable exchange rates for the year 2023 to be somewhat above 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 service 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 previously expected 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 was expected to start to recover due to improved margins on orders received in 2022 and continued solid performance in the maintenance business.
 

¹ KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January–March 2023, items affecting comparability amounted to EUR 3.6 million, including a positive effect from remeasurement of the net assets of operations in Russia and costs recognized on restructuring measures. In the comparison period, items affecting comparability included a charge for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine as well as restructuring costs. 

² To improve the comparability of net working capital across the quarters, the definition of net working capital has been revised to exclude dividend withholding tax payable. Comparative periods have been restated accordingly.

Henrik Ehrnrooth, President and CEO:

”We started the year on a good note, with growth in sales and improved profitability. Order momentum was solid considering the market backdrop, supported by strong demand in our modernization business. Orders for new equipment remained burdened by the low activity levels in China. That said, sentiment in China has turned more positive as a result of policy measures, and we continue to expect the property market to start recovering towards the end of the first half of the year. The services business had yet another excellent quarter. Our maintenance base grew strongly, we continued to increase the share of 24/7 Connected Services within the maintenance base and pricing provided a further boost to growth. I was particularly pleased to see margins expanding, thanks to increased maintenance sales and the actions we have taken to improve profitability. I would like to extend my sincere thanks to the KONE team for their excellent work in driving our financial performance.

The plans we announced earlier this year to renew our operating model have progressed well during the quarter, putting us on track to implement the new model as of July 1st and achieve the targeted EUR 100 million annual savings. I am confident that this change will strengthen our customer focus and competitiveness in a changing operating environment.

A differentiated, sustainable and cost competitive offering is central to success as we enter a period of slower economic growth. During the quarter, we conducted our annual market development estimates which showed that we have maintained our strong position in new equipment and market leading growth in maintenance and modernization. This is a great achievement considering our focus on increasing prices in all of our businesses. It is also a clear endorsement of the value our customers see in our solutions and services. Sustainability has clearly become a central design principle across the world, and we have an important role to play in helping our customers to meet their sustainability targets. KONE’s own development in this field has been positive. Our carbon footprint calculations for 2022 demonstrated good progress towards our emission reduction targets and we have seen a positive trend towards greater gender diversity. In the current uncertain environment, cost competitiveness is critical. We have raised productivity and made significant product cost improvements in many of our key offerings, which, together with the improved pricing over the past years, is central to our margin improvement ambitions.

We continue to see compelling growth opportunities in our business environment. While the economic environment and challenges in the Chinese property markets are headwinds, I am optimistic about the overall outlook for our industry due to the positive outlook for services and strong activity in Asia and the Middle East. We are well positioned to capture growth in these businesses and markets.”

Operating environment in January–March 2023 
 
Regional differences in demand trends were apparent in the global new equipment market during January–March. In the more mature markets, sentiment was impacted by rising interest rates and slowing economic growth, while demand in many emerging markets was strong. Activity declined significantly in China, as property developers’ access to financing remained constrained. However, the pace of decline in key construction market indicators moderated during the quarter thanks to a number of supportive policies. In the rest of Asia-Pacific, activity grew significantly, supported by strong development in India and recovery in South-East Asia. In the EMEA region, activity declined significantly in Central and North Europe and slightly in South Europe mainly due to weaker sentiment in the residential segment. In the Middle East, activity grew significantly. In North America, the market declined significantly.

The service market developed positively. The maintenance market grew in all regions. Activity in the modernization market was robust in all regions except China where decision-making continued to be slow. 

The pricing environment remained affected by intense competition in China, whereas elsewhere pricing was more favorable. 

Market outlook 2023 (updated)

In China, the new equipment market is expected to decline by close to 10% during 2023. Activity is 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 and decline slightly in both the EMEA region and in North America.

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 (specified)

KONE expects its sales at comparable exchange rates for the year 2023 to be somewhat above 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 service 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.

The anticipated decline in China’s new equipment market, increased component costs outside China and wage inflation are expected to burden performance. The softer market environment in Europe and North America is also a headwind.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Wednesday, April 26, 2023 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 can be followed at https://cloud.webcast.fi/kone/kone_2023_0426_q1. 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: 128128

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