A weakening of the global economic environment could result in deterioration of the market environment and the competitive situation in the industry. More specifically, a material decline or prolonged weakness within the construction industry could result in a significant decline for the new equipment market and a more challenging environment for services. In particular, a sustained market decline in China, which accounts for over 25% of KONE’s sales, could have an adverse effect on KONE’s growth and profitability.
Digitalization, and, as a result, new customer requirements, potential new competition, ecosystems, business models and structural changes in key markets, could have a significant impact on the elevator and escalator industry. Failure to anticipate or address changes in the external market environment could result in a deterioration of KONE’s growth, competitiveness, market share or profitability.
KONE operates in an industry with various local regulatory requirements. Sudden or unforeseen changes in regulations, or a further increase in geopolitical tensions or regulatory protectionism could result in more challenging market conditions in affected countries. Such developments could have an adverse impact on KONE’s operations.
A significant portion of KONE’s component suppliers and global supply capacity is located in China, for both the elevator and escalator businesses. Therefore, KONE’s operations may be adversely impacted by changes in trade agreements or by the introduction of trade restrictions.
As one of the leading companies in the industry, KONE has a strong brand and reputation. Issues that impact the company’s reputation or brand could have an effect on KONE’s business and financial performance. Such reputational risks could materialize; for example, in the case of an incident, a major delivery issue or a product quality issue. Matters concerning product integrity or quality could also have an impact on KONE’s financial performance.
KONE operates in a changing market environment that requires balancing rapid business growth with transformation. This applies, in particular, to the availability of skilled personnel, the adequate supply of components and materials, and the ability to ensure the quality of products and services which are delivered. Failure to adequately manage resourcing, quality and the timeliness of delivery, or other critical aspects in projects, could have an adverse impact on KONE’s profitability.
The majority of components used in KONE’s supply chain are sourced from external suppliers, which exposes KONE to component price and availability risk as well as raw material price risk. Therefore, stronger than anticipated increases in prices for raw materials and components may have a significant impact on KONE’s profitability.
Hazard, security and incidental risks
KONE’s business activities are dependent on the uninterrupted operation, quality and reliability of its manufacturing facilities, sourcing channels, operational service solutions and logistics processes. In addition, KONE’s operations extensively utilize information technology and its business is dependent on the quality, integrity and availability of information. Thus, in addition to physical risks, KONE is exposed to cyber security risks, as operational information systems and products may be vulnerable to interruption, loss or manipulation of data, or malfunctions which can result in disruptions in processes and equipment availability and therefore impact KONE’s business. Any breach of sensitive employee or customer data may also result in significant penalties as well as reputational damage. Such cyber incidents could be caused by, including but not limited to, cybercrime, cyber-attacks, computer malware, information theft, fraud, misappropriation, or inadvertent actions from our employees and vendors.
The majority of KONE’s sales are denominated in currencies other than the Euro, which exposes KONE to risks arising from foreign exchange-rate fluctuations. KONE is also exposed to counterparty risks related to financial institutions, through the significant amounts of liquid funds deposited with financial institutions, in the form of financial investments and in derivatives. Additionally, KONE is exposed to risks related to the liquidity and payment schedules of its customers, which may impact cash flow or lead to credit losses. Significant changes in local financial or taxation regulation could also have an impact on KONE’s financial performance.