Interim Report of KONE Corporation for January–September 2023

KONE Corporation, stock exchange release, October 25, 2023 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January–September 2023

Solid development in the third quarter

July–September 2023

• Orders received declined by 7.7% to EUR 1,989.9 (7–9/2022: 2,155.5) million. At comparable exchange rates, orders grew by 0.3%.
• Sales declined by 8.3% to EUR 2,749.9 (2,998.2) million. At comparable exchange rates, sales declined by 1.4%.
• Operating income (EBIT) was EUR 316.5 (303.9) million or 11.5% (10.1%) of sales. The adjusted EBIT was EUR 315.9 (305.8) million or 11.5% (10.2%) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 342.1 (336.1) million.

January–September 2023

• Orders received declined by 9.2% to EUR 6,528.5 (1–9/2022: 7,187.1) million. At comparable exchange rates, orders declined by 4.6%.
• Sales grew by 1.8% to EUR 8,142.4 (7,995.2) million. At comparable exchange rates, sales grew by 6.5%.
• Operating income (EBIT) was EUR 837.9 (664.0) million or 10.3% (8.3%) of sales. The adjusted EBIT was EUR 889.8 (711.6) million or 10.9% (8.9%) of sales.
• Cash flow from operations (before financing items and taxes) was EUR 1,104.1 (721.4) million

Business outlook for 2023 (reiterated)

KONE expects its sales growth at comparable exchange rates for the year 2023 to be in the range of 3–6%. The adjusted EBIT margin is expected to be in the range of 11.0–12.0%. Assuming that foreign exchange rates remain at the October 2023 level, the negative impact of foreign exchange rates on the adjusted EBIT is expected to be approximately EUR 40 million.

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January–September 2023, items affecting comparability amounted to EUR 51.9 million including EUR 54.8 million costs recognized on restructuring measures and a slight positive effect from remeasurement of the net assets of operations in Russia. 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.

Henrik Ehrnrooth, President and CEO:

”Our third quarter was solid. I was especially pleased with the continued excellent performance in the Service and Modernization businesses and with the strong momentum in China orders. From regional perspective, India and the Middle East were the highlights. These are both regions with significant growth potential and we have been successful in capturing market opportunities thanks to our strong competitive position. As a result, orders received were stable, which I consider a good achievement given the soft overall New Business Solutions market. Sales came in somewhat shy of last year, impacting fixed cost absorption. Despite this headwind, profitability improved supported by a more favorable sales mix and better pricing on deliveries.

Our new operating model has now been effective for a few months, and it has been great to see the positive energy it has created within the company. I would like to take this opportunity to express my appreciation for the enthusiasm with which our teams globally have taken onboard the changes. Their dedication to continuously improving our customer focus and competitiveness in a changing operating environment is admirable.

While the economic environment is uncertain in many parts of the world, we continue to have good growth prospects particularly in our Service and Modernization businesses. Our ability to improve customer outcomes while achieving a clear leap in productivity is particularly exciting as we continue to increase the penetration of our 24/7 Connected Services. This is clearly one of the most attractive opportunities for KONE. I am also pleased that we continue to lead the way in sustainability. Demonstrating this was the milestone we reached in the quarter, when our manufacturing units globally were the first in our industry to achieve carbon neutrality. I remain convinced of the rising importance of sustainable development to competitiveness as sustainability related considerations increasingly influence our customers’ decision-making.

I recently announced that I will step down from my role as President and CEO during the first half of 2024. I remain fully focused on finishing this year strongly and developing KONE forward. I will share more thoughts about my tenure once the handover process with my successor has started.

Our financial performance thus far this year puts us well on track to deliver on our guidance of 3-6% sales growth and 11.0–12.0% adjusted EBIT margin. Looking further ahead, our competitive offering, strong customer relationships and renewed operating model provide a strong foundation for continued profitable growth.”

Operating environment in July–September 2023

The global New Building Solutions market declined significantly during the third quarter as a result of high interest rates and slowing economic growth in the more mature markets combined with continued challenging market dynamics in China. In Asia-Pacific, weak consumer sentiment weighed on demand in China. Elsewhere in the region, activity grew clearly with continued strong demand in India and Southeast Asia. Activity was mixed also in the EMEA region. Weakness in the residential markets drove a significant decline in Europe, while activity was on a high level in the Middle East. In North America, the market declined significantly from a high base.

Both the Service and Modernization markets developed positively with growth across all regions.

Intense competition continued to impact the New Building Solutions pricing environment in China, while elsewhere pricing stabilized. In the Service and Modernization markets, the pricing environment remained favorable.

Operating environment in January–September 2023

Regional differences in demand trends were apparent in the global New Building Solutions market during January–September. In the more mature markets, sentiment was impacted by rising interest rates and slowing economic growth, while activity in many emerging markets was more favorable. In China, the focus on completing unfinished projects was strong throughout the period. New construction related key indicators saw some policy driven improvement in the first quarter but weakened thereafter. Property developers’ access to financing remained constrained and consumer sentiment was poor. In the rest of Asia-Pacific, activity grew clearly, supported by strong development in India and recovery in Southeast Asia. In the EMEA region, activity declined significantly in Europe due to weakness in the residential segment and grew significantly in the Middle East and Africa. In North America, the market declined significantly from a high base.

Both the Service and Modernization markets developed positively with growth across all regions.

Competition remained intense in China, while outside China the pricing environment was more favorable.

Market outlook 2023 (unchanged)

In China, the New Building Solutions market is expected to decline by approximately 10–15% during 2023. Policy actions are central to market recovery. In the rest of Asia-Pacific, activity is expected to grow clearly thanks to a continued positive outlook in India and Southeast Asia. Economic uncertainty and rising interest rates are impacting activity in the European and North American construction markets. In the EMEA region, activity is expected to decline clearly. In North America, activity is expected to decline significantly.

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.

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

Business outlook 2023 (reiterated)

KONE expects its sales growth at comparable exchange rates for the year 2023 to be in the range of 3–6%. The adjusted EBIT margin is expected to be in the range of 11.0–12.0%. Assuming that foreign exchange rates remain at the October 2023 level, the negative impact of foreign exchange rates on the adjusted EBIT is expected to be approximately EUR 40 million.

KONE has a positive outlook for Service and Modernization, a strong order book and improved margins on orders received. Declining commodity costs are also expected to support the results.

The anticipated decline in China’s New Building Solutions market and persistent inflation are expected to burden performance. The softer New Building Solutions 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, October 25, 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 will be available on https://cloud.webcast.fi/kone/kone_2023_1025_q3. 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:  251023

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 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