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Q&A on the impacts of the COVID-19 on KONE’s operations

Updated on June 23, 2020.

  • Governments across the world have been taking significant measures to contain the COVID-19 outbreak by restricting the movement of people. In many places, this has also resulted in measures that have impacted KONE’s business such as closing down construction sites, limiting manufacturing operations and in some cases even limiting the maintenance activities. The extent of the measures has varied from one country to another and the situation continues to be fluid. In Q1, the restrictions were strictest in China, but there KONE saw quick recovery and activity has been at a high level in April and May. In the rest of the world, the restrictions increased towards the end of March had a significant impact on KONE in April and were gradually eased in some countries in May while some countries continue to be more impacted.

    Our priority is to ensure the health and wellbeing of our people and to support our customers in the challenging situation. At the same time, we are investing in the future and even accelerating some development initiatives.

    Our robust global supply chain and global product platforms have been the key enablers in mitigating the impacts to our customers. We have altogether 13 manufacturing units in nine countries and multiple distribution centers and suppliers across the globe. Overall, our delivery capability remains good and all our manufacturing units are operational.

    Despite the short-term disruptions to its business, KONE expects to come out of the demanding situation in a position of strength. KONE’s competitiveness is solid and the balance sheet is strong. KONE also has a solid order book and the fundamental growth drivers for the service business are intact.

  • KONE has a solid order book for 2020. However, the COVID-19 related restrictions introduced in several countries have included closing down construction sites, limiting manufacturing operations and limiting the movement of people. These measures have had an impact on KONE’s ability to deliver and install elevators and escalators as planned and thus KONE’s new equipment sales.

    In China, KONE’s factories in Kunshan and Nanxun were closed for around three weeks around the Chinese New Year instead of the planned 2-week holiday shutdown. Since the second week of February, we gradually ramped up production and the activity level has been high at our Chinese manufacturing units in April and May. The level of activity has recovered also at customer sites. China is the largest new equipment market for KONE accounting for roughly half of KONE’s new equipment sales.

    In Europe and North America, the situation became more difficult towards the end of March. Some construction sites were closed and there was also some pressure to limit manufacturing activities. For the moment, the factory capacity is not limiting KONE’s delivery capability. The restrictions at construction sites have also been gradually eased in several countries since May.

    Elsewhere in Southeast Asia, Australia and in the Middle East and in African countries, increasingly strict restrictions were implemented by several countries towards the end of March and many countries continue to have strict restrictions in place. This applies for example to India, where customer sites have been closed and KONE’s factory in Chennai has only gradually ramped up production since early May.

    Overall, the above mentioned measures to contain the COVID-19 outbreak have impacted the timing of KONE’s deliveries and pace of installation in many markets and thus KONE’s new equipment sales.

    Demand for KONE’s solutions is also expected to be impacted by the prevailing uncertainty.

  • The maintenance business is by nature very stable and resilient through cycles. During the actions to contain the COVID-19 outbreak, elevator and escalator maintenance has been deemed an essential service in most countries and allowed with some limitations. However, also the maintenance business is impacted to some extent. Some customer sites have been closed and although call-outs and other mandatory maintenance visits have continued in most places, there has been less discretionary activity such as repairs.

    In 2019, maintenance contracts accounted for around three quarters of KONE’s maintenance sales whereas one quarter came from repairs orders.

    The modernization business is impacted in a fairly similar way as the new equipment business (see previous question).

  • KONE has a global network of approx. 2,000 component suppliers across the globe. In China, KONE’s suppliers were also impacted by the actions to contain the COVID-19 outbreak and their manufacturing units remained closed after the Chinese New Year. However, the suppliers are now delivering at good capacity. In Europe, we have suppliers in multiple countries and some flexibility from having alternative sources for different components. The lockdown in India applied also to KONE’s suppliers in the country.

    Some of KONE’s European installation subcontractors are impacted by the limitations on movement of people across borders.

  • KONE estimates that in 2020, its sales will decline or be stable at best at comparable exchange rates as compared to 2019. The rate of decline in sales will depend on the duration and severity of the government measures and the pace of recovery.

    • Stable sales would require a relatively brisk recovery in the second half of 2020 and sustained positive progress in KONE’s largest market China.
    • KONE’s sales are expected to decline by less than 5% in case the restrictive measures would impact KONE’s business mainly in the first half of 2020 and there would be a gradual recovery in the second half.
    • Should the broad and strict government measures continue to impact KONE’s operations well into the second half of 2020, KONE’s sales are expected to decline by 5-10%.

    The adjusted EBIT margin is expected to decline somewhat or to be stable at best.

    Profitability is expected to be burdened by weaker fixed cost absorption due to lower sales, the costs related to the measures to ensure the safety and wellbeing of KONE’s employees, suppliers and customers and the costs related to the actions in the supply operations to ensure solid delivery capability among other things. Excluding the COVID-19 related factors, KONE’s profitability outlook has been positive.

    In Q1 KONE’s sales and orders received were stable y/y, but adjusted EBIT margin declined by 1 percentage point due to COVID-19 related items. In connection to the Q1 results announcement, KONE commented that the worst is still expected to be ahead of us.

    Demand for KONE’s solutions and services is also expected to be impacted by the prevailing uncertainty.

    Despite the short-term disruptions to its business, KONE expects to come out of the demanding situation in a position of strength. KONE’s competitiveness is solid and the balance sheet is strong. KONE also has a solid order book and the overall outlook for the service business is positive.

  • We ensure the health and wellbeing of our employees, support our customers and will find opportunities to become even stronger.

    The focus areas in current environment are:

    • Safe working and business continuity
    • Wellbeing, engagement and care for our people
    • Cost containment and financial risk management
    • Customer activity and sales
    • Mid- and long-term opportunities to drive differentiation
  • Residential >50%, office >15%, infrastructure and medical >10%, hotels, leisure and retail >10%, other ~5%

  • In 2019, the top 10 countries for KONE by sales were: China (<30%), USA (>15%), Germany (6%), France (~5%), Great Britain (~4%), Australia (~3%), Italy (~3%), Finland (~3%), India (~2%), Sweden (~2%).

    New equipment business represents over 80% of KONE’s sales in China and the rest comes from maintenance and modernization. In Europe and North America, services account for roughly two thirds of sales and new equipment one third.

  • KONE has a very strong balance sheet with EUR -1,553 million interest bearing net debt at the end of 2019. KONE doesn’t have any loans maturing in 2020. The company has an undrawn revolving credit facility of around EUR 800 million and an undrawn loan facility of EUR 200 million that can be drawn until spring 2021 and would then have a maturity of up to seven years.

Questions on KONE’s business

  • KONE manufactures, installs and services elevators, escalators and automatic building doors and integrated solutions to enhance the People Flow in and between buildings. Elevators and escalators make up the majority of KONE’s sales. KONE’s service business can be divided into maintenance and modernization services. KONE operates in all customer segments in the elevator and escalator industry, such as the residential, commercial, infrastructure and special buildings as well as the marine and offshore segments.

    More information on the solutions offered by KONE

  • In 2019, new equipment accounted for 53%, maintenance for 32%, and modernization for 15% of KONE’s total sales. By region, sales in EMEA accounted for 41%, in Americas for 21%, and in Asia-Pacific for 39% of KONE's 2019 total sales.

  • KONE operates through more than 1,000 offices around the world in over 60 countries. It has authorized distributors and agents in close to 100 countries. KONE has 13 manufacturing units and nine global R&D centers.

    More information on KONE’s global presence and production

  • In 2019, the sales in China was <30% and in the United States >15% of the Group’s total sales. KONE’s ten biggest geographical market areas in terms of sales (in addition to the aforementioned) included Germany, France, Great Britain, Australia, Italy, Finland, India and Sweden.

  • The ten largest countries, measured by number of personnel, are China, the United States, India, France, Finland, Germany, Italy, the United Kingdom, Australia and Canada.

  • Every day, around 200,000 people move into cities across the globe. At KONE, our mission is to improve the flow of urban life. We understand People Flow in and between buildings, and we aim to make people’s journeys safe, convenient and reliable. Our vision is to deliver the best People Flow® experience, by providing Ease, Effectiveness and Experiences to users and customers over the full life-cycle of the buildings. Our strategy guides us towards our vision.

    To bring the strategy to life, we have introduced four Ways to Win with our customers. Each of the Ways to Win has a number of development programs within them, which will be the practical way to make progress in our daily work.

    More information on KONE’s strategy.

  • There are four global large elevator and escalator companies. These are, in addition to KONE: Otis (part of the United Technologies group), Schindler, and ThyssenKrupp Elevator (part of the ThyssenKrupp group). There are also many more local competitors. The new equipment business has a much higher degree of consolidation than the service business.

  • KONE’s management consists of a Board of Directors and an Executive Committee. KONE’s operations are organized in a matrix organization, with two business lines (New Equipment Business and Service Business), five areas (Central and North Europe, West and South Europe, North America, Asia-Pacific and the Middle East, Greater China) and support functions (Installation, Quality and Safety, Finance, Marketing and Communications, Human Resources, Legal and Alliances & Acquisitions). KONE applies the Finnish Corporate Governance Code.

    More information on KONE’s organization
    More information on KONE’s governance

  • KONE provides solutions and services to approximately 500,000 customers.

    New equipment: Developers, builders, consultants, architects, building owners

    Maintenance: Building owners, housing corporations, facility managers

    Modernization: Building owners, housing corporations, facility managers

  • Measured by new elevator and escalator units, KONE estimates its market share to have been around 18% in 2019. KONE estimates the market size and KONE's market share annually in the first quarter of the year.

    KONE’s estimate of the size of the global market

  • The raw materials with the most significant financial impact for KONE are steel, stainless steel, copper, aluminium and rare earths, which are used in elevator and escalator parts. Fuel prices have an impact on KONE as well, with KONE’s large service fleet of service vehicles.

Questions on KONE shares & shareholders

  • KONE's Extraordinary General Meeting on 2 December, 2013 approved the proposal by the Board of Directors on a share issue without payment and an extraordinary dividend. In the share issue without payment, the number of shares in the company is increased by issuing new shares to the shareholders without payment in proportion to their holdings so that one class A share will be given for each class A share and one class B share will be given for each class B share. The company’s share capital does not change following the share issue.

    The share issue will be implemented in the book-entry system and does not require measures by the shareholders. Shareholders who are registered in the company’s shareholder register on the record date, December 5, 2013, are entitled to the shares. New shares will produce shareholder rights as of the registration of the share issue; however, the new shares will not entitle their holders to the dividend approved by the Extraordinary General Meeting on December 2, 2013.

  • The share issue without payment will be implemented in the book-entry system and does not require any measures from the shareholder.

  • KONE has two classes of shares, of which class B shares are publicly traded. At shareholders’ meetings, each class A shares yields one vote. Ten class B shares yield one vote, with the provision that all shareholders have at least one vote.

  • KONE is listed on the Nasdaq Helsinki Ltd. Stock Exchange in Finland. KONE has been listed since 1967. KONE’s shares are also traded on various alternative trading platforms.

    More information on KONE's shares

  • A monthly updated table on KONE’s largest shareholders is available here. Please note that the table excludes foreign nominee registered shareholders. You can also see flagging notifications here.

  • Information about KONEes shareholders can be found here.

  • KONE does not have a specific dividend policy. The dividend proposal by the Board is determined on the basis of the overall business outlook, business opportunities, as well as the present capital structure and the anticipated changes in it.

    More information on KONE's dividend history

  • All shareholders on the dividend record date are entitled to a dividend.