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Interim Report of KONE Corporation for January–March 2022

Stock Exchange Release Published 27/04/2022

KONE Corporation, stock exchange release, April 27, 2022 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-March 2022

Strong growth in orders received, operating income burdened by supply chain constraints 

January-March 2022

  • Orders received grew by 16.7% to EUR 2,422.6 (1-3/2021: 2,075.9) million. At comparable exchange rates, orders grew by 10.6%.
  • Sales grew by 5.0% to EUR 2,441.9 (2,326.4) million. At comparable exchange rates, sales declined by 0.4%.
  • Operating income (EBIT) was EUR 171.1 (249.8) million or 7.0% (10.7%) of sales. The adjusted EBIT was EUR 196.5 (249.8) million or 8.0% (10.7%) of sales.* 
  • Cash flow from operations (before financing items and taxes) was EUR 218.7 (425.5) million.

Business outlook for 2022 (specified)

KONE estimates that in 2022, its sales growth will be in the range of 2% to 5% at comparable exchange rates as compared to 2021. The adjusted EBIT is expected to be in the range of EUR 1,180-1,280 million, assuming that foreign exchange rates would remain at the April 2022 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 70 million.

The outlook is dependent on the COVID-19 restrictions in China being lifted during the second quarter and a rapid recovery thereafter.

KONE previously estimated that in 2022, its sales growth will be in the range of 2% to 7% at comparable exchange rates as compared to 2021. The adjusted EBIT was expected to be in the range EUR 1,180-1,330 million, assuming that foreign exchange rates would remain at the January 2022 level. Foreign exchange rates were estimated to impact EBIT positively by around EUR 50 million.

KEY FIGURES1-3/20221-3/2021Change1-12/2021
Orders receivedMEUR2,422.62,075.916.7%8,852.8
Order bookMEUR9,255.48,180.413.1%8,564.0
SalesMEUR2,441.92,326.45.0%10,514.1
Operating incomeMEUR171.1249.8-31.5%1,295.3
Operating income margin%7.010.712.3
Adjusted EBIT*MEUR196.5249.8-21.4%1,309.8
Adjusted EBIT margin*%8.010.712.5
Income before taxMEUR170.7252.2-32.3%1,320.8
Net incomeMEUR131.5195.5-32.7%1,022.7
Basic earnings per shareEUR0.250.37-32.9%1.96
Cash flow from operations (before financing items and taxes)MEUR218.7425.51,828.7
Interest-bearing net debtMEUR-1,451.2-1,375.3-2,164.1
Equity ratio%32.636.641.2
Return on equity%19.128.232.0
Net working capital (including financing items and taxes)MEUR-1,657.0-1,467.7-1,468.2
Gearing%-63.1-58.6-67.6

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of the business performance between reporting periods. In January-March 2022, items affecting comparability included costs of EUR 25 million relating to the impairment of assets and recognition of provisions for commitments in Russia and Ukraine. In the comparison periods, items affecting comparability consisted of restructuring costs.

Henrik Ehrnrooth, President and CEO:

"The year started with strong growth in orders received.The demand environment was favorable in all regions except for the new equipment market in China, where liquidity constraints resulted in a decline in activity. The positive market sentiment was overshadowed by Russia's devastating attack on Ukraine. With local organizations in both countries, our priority has been to ensure the safety of our people. On March 3, we also decided to cease taking new orders and suspend deliveries to Russia. The measures taken to contain the spread of COVID-19 infections in China has further increased market uncertainty.

From a financial perspective, I was pleased to see our orders received growing strongly in all businesses. The progress we have made in increasing prices, lowering product costs and securing improvements in quality and productivity is also encouraging. Illustrating this is the clear contribution of pricing to the growth in our maintenance business as well as the second consecutive quarter of sequential improvement in the margin of orders received. Sales was broadly in line with last year's level, thanks to strong growth in both maintenance and modernization. The decline in our operating income margin on the other hand, while anticipated, is clearly a concern. As sanctions imposed on Russia and COVID-19 related restrictions in China intensify the strain on global supply chains, taking further actions to clearly improve our margins remains our top priority. Based on the progress we have made, I am confident that we can overcome these headwinds. I am very proud of the entire KONE team, who has both navigated unexpected market developments admirably and continued to secure our ability to capture future growth opportunities.

Our Sustainable Success with Customers strategy is creating tangible competitive advantage.Sustainability, adaptability and productivity have become even more critical aspects for our customers after multiple years of significant changes in the external environment. Our DX class elevators, which together with connected services proactively help our customers adapt and improve People Flow, are now available in all regions. We also introduced the industry's first carbon-neutral elevator using carbon offsetting, as well as a new range of solutions to improve our customers' and our own productivity. Highlights includednew KONE Construction Time Use solutions with KONE 24/7 Connected Services for improved insights and uptime, as well as a standardized version of KONE JumpLift, available for buildings of all heights, which has the potential to clearly reduce construction time. 

With the first quarter behind us, we have specified our business outlook for 2022 as a result of increased pressure in the cost environment and the impact of liquidity constraints and COVID-19 lockdowns in China. We now expect sales to grow by 2-5% and adjusted EBIT to be in the range of EUR 1,180-1,280 million. Our full year outlook is dependent on the restrictions on operations in China being lifted during the second quarter and rapid recovery thereafter. Although market uncertainty has increased, we continue to see attractive growth opportunities in several areas and remain well positioned to capture these as they materialize."

Operating environment in January-March 2022

The demand environment was favorable in many areas during the first quarter or the year, although the war in Ukraine and the measures taken to contain the spread of COVID-19 infections in China weakened market sentiment and further disrupted global supply chains.

Demand in the new equipment marketincreased in most parts of the world, with the exception of China, where liquidity constraints caused market activity to decline.In the rest of Asia-Pacific, the market continued to recover strongly.In the EMEA region, activity was mixed with growth in Europe and stable development in the Middle East.In North America, the market grew significantly, thanks to strong activity in the residential and infrastructure segments.

The service market developed positively with broad-based growth in bothmaintenanceandmodernization

Although the pricing environment remained adversely affected by intense competition, market prices continued to improve in several areas as a response to wide-spread cost inflation.

Market outlook 2022 (updated)

The Chinese new equipment market is expected to decline significantly due to the tightened liquidity situation in the property markets and the impact of COVID-19 related restrictions. In the rest of the world, activity in the new equipment markets is expected to increase, with clear growth in North America, slight growth in the EMEA region, and significant growth in Asia-Pacific, excluding China.

Modernization markets are expected to grow across regions supported by pent-up demand and stimulus measures.

Maintenance activity is expected to return to pre-pandemic growth trajectory with slight growth in the more mature markets and clear growth in Asia-Pacific.

Supply chain constraints may limit growth in construction activity, which could impact demand in the new equipment and modernization markets. COVID-19 related lockdown measures in China and the war in Ukraine are adding to global supply chain disruptions and increasing uncertainty in the demand environment.

Business outlook 2022 (specified)

KONE estimates that in 2022, its sales growth will be in the range of 2% to 5% at comparable exchange rates as compared to 2021. The adjusted EBIT is expected to be in the range of EUR 1,180-1,280 million, assuming that foreign exchange rates would remain at the April 2022 level. Foreign exchange rates are estimated to impact EBIT positively by around EUR 70 million.

The outlook is dependent on the COVID-19 restrictions in China being lifted during the second quarter and a rapid recovery thereafter.

KONE has a positive outlook for services and a solid order book. Furthermore, the effect of product cost, productivity and pricing actions are expected to support the results towards the latter part of the year.

Headwinds for the 2022 results include increased material, component and logistics costs and further disruptions to global supply chains. Other key headwinds are the competitive dynamics, liquidity constraints and COVID-19 related restrictions in China.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Wednesday, April 27, 2022 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 www.kone.com/investors. 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.: +1 323-701-0160
UK: +44 (0)330 165 4012
Finland: +358 (0)9 7479 0574
Participant code: 3868555

For further information, please contact:
Natalia Valtasaari, Head of Investor Relations, KONE Corporation, tel. +358 (0)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 2021, KONE had annual sales of EUR 10.5 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 Q1 2022 Interim report


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