Half-year Financial Report of KONE Corporation for January–June 2023

KONE Corporation, stock exchange release, July 20, 2023 at 12.30 p.m. EEST

Half-year Financial Report of KONE Corporation for January-June 2023

Continued sales growth and improved profitability in a mixed operating environment

April-June 2023

Orders received declined by 12.8% to EUR 2,275.5 (4-6/2022: 2,609.0) million. At comparable exchange rates, orders declined by 8.1%.
Sales grew by 11.0% to EUR 2,835.9 (2,555.1) million. At comparable exchange rates, sales grew by 16.1%.
Operating income (EBIT) was EUR 283.2 (189.0) million or 10.0% (7.4%) of sales. The adjusted EBIT was EUR 332.0 (209.3) million or 11.7% (8.2%) of sales.*
Cash flow from operations (before financing items and taxes) was EUR 306.1 (166.6) million.

January-June 2023

Orders received declined by 9.8% to EUR 4,538.6 (1-6/2022: 5,031.7) million. At comparable exchange rates, orders declined by 6.6%.
Sales grew by 7.9% to EUR 5,392.5 (4,997.0) million. At comparable exchange rates, sales grew by 11.1%.
Operating income (EBIT) was EUR 521.5 (360.2) million or 9.7% (7.2%) of sales. The adjusted EBIT was EUR 573.9 (405.8) million or 10.6% (8.1%) of sales.*
Cash flow from operations (before financing items and taxes) was EUR 762.0 (385.3) million.

Business outlook for 2023 (specified)

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 July 2023 level, the negative impact of foreign exchange rates on the adjusted EBIT is expected to be approximately EUR 50 million.

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

KEY FIGURES		4-6/2023	4-6/2022	Change	1-6/2023	1-6/2022	Change	1-12/2022
Orders received	MEUR	2,275.5	2,609.0	-12.8%	4,538.6	5,031.7	-9.8%	9,131.3
Order book	MEUR				9,041.9	10,000.4	-9.6%	9,026.1
Sales	MEUR	2,835.9	2,555.1	11.0%	5,392.5	4,997.0	7.9%	10,906.7
Operating income	MEUR	283.2	189.0	49.8%	521.5	360.2	44.8%	1,031.2
Operating income margin	%	10.0	7.4		9.7	7.2		9.5
Adjusted EBIT*	MEUR	332.0	209.3	58.6%	573.9	405.8	41.4%	1,076.6
Adjusted EBIT margin*	%	11.7	8.2		10.6	8.1		9.9
Income before tax	MEUR	284.7	180.1	58.0%	525.8	350.9	49.9%	1,028.4
Net income	MEUR	221.8	138.7	59.9%	407.5	270.2	50.8%	784.5
Basic earnings per share	EUR	0.43	0.26	65.1%	0.79	0.51	53.9%	1.50
Cash flow from operations (before financing items and taxes)	MEUR	306.1	166.6		762.0	385.3		754.7
Interest-bearing net debt	MEUR				-640.9	-1,263.4		-1,309.0
Equity ratio	%				34.5	35.3		40.3
Return on equity	%				32.0	19.0		25.9
Net working capital (including financing items and taxes)	MEUR				-948.7	-1,308.1		-903.9
Gearing	%				-28.8	-51.0		-45.7

*) KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January-June 2023, items affecting comparability amounted to EUR 52.4 million including EUR 54.7 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:

"I am very pleased with the strong growth in sales during the second quarter driven by good development in all areas and businesses. This, together with better pricing on deliveries and a focus on costs resulted in a clear improvement in profitability. Orders received, on the other hand, declined in the quarter. While modernization continued to grow at a good rate, new equipment orders were impacted by the market dynamics in China. Following a promising start to the year, consumer confidence weakened causing activity in China's property market to soften during the second quarter. Policy actions remain central to market recovery.

We continue to place strong emphasis on margin improvement. Trends in the operating environment are varied in our regions and businesses. In this environment, our priority is to grow in services globally as well as in selected new equipment markets. I am extremely happy with the consistently strong performance of our service businesses. The phenomenal second quarter sales growth of 24.8% shows the strength of our modernization business. Our focus has been on developing a more targeted commercial approach and ensuring a superior customer experience from tendering to delivery. This has improved both sales execution and profitability. In maintenance, we had another excellent quarter with sales growing by 9.8%. Our service base has consistently grown at a healthy pace. It exceeded 1.6 million units under maintenance in the second quarter. Pricing has further accelerated sales growth and the offering developments we have introduced in the areas of digital and sustainability have resonated well with our customers. This is visible in both improved retention rates and the positive development seen in the Net Promoter Score for our service businesses in our recently conducted customer loyalty survey.

Our new operating model was implemented as of July 1st, putting us on track to reach the targeted EUR 100 million annual savings. The changes we have made will further increase local accountability, thereby enabling faster decision-making closer to the customer interface. I am proud of the KONE team for their customer focus and the strong development of our business throughout the implementation of the changes to our organization. My heartfelt thanks to all our employees for their continued great work.

With six months behind us, we specify our business outlook for the year. We now expect sales to grow 3-6% and the adjusted EBIT margin to be within the 11.0-12.0% range. In the longer-term, I am confident that our industry leading service business growth, further enhanced local accountability, and the strength of our customer relationships position us well to develop towards our strategic and financial targets."

Operating environment in April-June 2023

The global new equipment market declined during the second quarter as a result of higher interest rates and slowing economic growth in the more mature markets combined with challenging market dynamics in China. In Asia-Pacific, weak consumer sentiment weighed on demand in China while elsewhere in the region activity grew slightly with continued strong demand in India and Southeast Asia. In the EMEA region, activity declined significantly across Europe. In the Middle East and Africa, activity declined clearly. In North America, the market declined significantly from a high base.

The service market developed positively with broad-based growth in both maintenance and modernization activity.

The pricing environment was favorable outside China. In China, competition remained intense.

Operating environment in January-June 2023

Regional differences in demand trends were apparent in the global new equipment market during January-June. In the more mature markets, sentiment was impacted by rising interest rates and slowing economic growth, while demand in many emerging markets was on a healthier level. In China, the focus on completing unfinished projects was strong through the first half, but new construction related key indicators weakened during the second quarter following some policy driven improvement in the first quarter. 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 Central and North Europe and clearly in South Europe mainly due to weaker sentiment in the residential segment. In the Middle East and Africa, activity was stable. In North America, the market declined significantly from a high base.

The service market developed positively with broad-based growth in both maintenance and modernization activity.

The pricing environment was favorable outside China. In China, competition remained intense.

Market outlook 2023 (updated)

In China, the new equipment 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 following a weak first half.

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.

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

Business outlook 2023 (specified)

KONE has a positive outlook for services, a strong order book and improved margins on orders received in 2022. Easing commodity cost headwinds are also expected to support the results.

The anticipated decline in China's new equipment market and wage inflation are expected to burden performance. The softer new equipment 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 Thursday, July 20, 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_0720_q2. 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: 200723

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

KONE Half-year Financial Report 2023