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Interim Report of KONE Corporation for January–September 2021

Stock Exchange Release Published 28/10/2021

KONE Corporation, stock exchange release, October 28, 2021 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-September 2021

Strong growth in orders received, supply chain environment remains challenging 

July-September 2021

  • Orders received grew by 14.5% to EUR 2,211.1 (7-9/2020: 1,931.7) million. At comparable exchange rates, orders grew by 10.9%.
  • Sales grew by 0.9% to EUR 2,610.0 (2,587.0) million. At comparable exchange rates, sales declined by 1.3%.
  • Operating income (EBIT) was EUR 326.5 (333.1) million or 12.5% (12.9%) of sales. The adjusted EBIT was EUR 326.5 (339.8) million or 12.5% (13.1%) of sales.* 
  • Cash flow from operations (before financing items and taxes) was EUR 365.1 (600.2) million.

January-September 2021

  • Orders received grew by 9.5% to EUR 6,697.7 (1-9/2020: 6,116.4) million. At comparable exchange rates, orders grew by 9.8%.
  • Sales grew by 5.9% to EUR 7,747.3 (7,317.3) million. At comparable exchange rates, sales grew by 6.6%.
  • Operating income (EBIT) was EUR 943.4 (845.8) million or 12.2% (11.6%) of sales. The adjusted EBIT was EUR 950.4 (869.9) million or 12.3% (11.9%) of sales.*
  • Cash flow from operations (before financing items and taxes) was EUR 1,303.7 (1,539.4) million.

Business outlook for 2021 (specified)

In 2021, KONE's sales growth is estimated to be in the range of 4% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin is expected to be in the range of 12.4% to 12.8%. Assuming that foreign exchange rates remain at the October 2021 level, the impact of foreign exchange rates on the adjusted EBIT would be limited.

KONE previously estimated its sales growth to be in the range of 4% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin was expected to be in the range of 12.4% to 13.0%. Assuming that foreign exchange rates would have remained at the July 2021 level, the impact of foreign exchange rates on the adjusted EBIT would have been limited.

KEY FIGURES7-9/20217-9/2020Change1-9/20211-9/2020Change1-12/2020
Orders receivedMEUR2,211.11,931.714.5%6,697.76,116.49.5%8,185.1
Order bookMEUR8,436.97,914.46.6%7,728.8
SalesMEUR2,610.02,587.00.9%7,747.37,317.35.9%9,938.5
Operating incomeMEUR326.5333.1-2.0%943.4845.811.5%1,212.9
Operating income margin%12.512.912.211.612.2
Adjusted EBIT*MEUR326.5339.8-3.9%950.4869.99.3%1,250.5
Adjusted EBIT margin*%12.513.112.311.912.6
Income before taxMEUR336.4339.2-0.8%960.7851.812.8%1,224.2
Net incomeMEUR260.7262.9-0.8%744.5660.112.8%947.3
Basic earnings per shareEUR0.500.50-0.6%1.431.2712.5%1.81
Cash flow from operations (before financing items and taxes)MEUR365.1600.21,303.71,539.41,907.5
Interest-bearing net debtMEUR-1,820.0-1,732.7-1,953.8
Equity ratio%40.742.245.5
Return on equity%32.428.829.7
Net working capital (including financing items and taxes)MEUR-1,356.9-1,200.3-1,160.1
Gearing%-62.2-59.4-61.1

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of the business performance between reporting periods. Restructuring costs related to significant restructuring programs are excluded from the calculation of the adjusted EBIT. In January-September 2021, the adjusted EBIT excluded costs of EUR 7.0 million related to restructuring measures in KONE's global business lines and functions. During 2017-2020, all restructuring costs excluded from adjusted EBIT related to the Accelerate program.

Henrik Ehrnrooth, President and CEO:

"The third quarter saw continued demand recovery across several markets, which contributed to the strong growth in our orders received. I was pleased to see our orders increase also in China from a high comparison. That said, activity in the Chinese property sector showed signs of tempering, as uncertainty around liquidity constraints increased in the quarter. While visibility is likely to be lower in the near term, I expect the ongoing deleveraging efforts to strengthen industry fundamentals and remain confident in future growth opportunities. 

Sales was broadly stable compared to the previous year.Momentum in our maintenance business was strong in all areas and we continued to deliver on our promises to customers despite the increasingly challenging supply chain environment. The cost environment did, however, start to impact our earnings and we expect continued headwinds in the coming quarters. In response, we have taken actions to reduce our product cost, improve productivity, and are highly focused on pricing improvements across our businesses. I am encouraged by the progress we are making in several parts of the market and would like to extend a heartfelt thank you to everyone in our organization for their commitment and great work. The spirit and intensity with which our employees are tackling the challenges we face is admirable.

Strengthening our positioning to capture future growth opportunities is of utmost importance. We have made good progress in driving differentiation with our value-added solutions and services. The results of our efforts to enhance our offering by developing solutions that are tailored to individual customer needs are visible in improved loyalty. Furthermore, we have succeeded in accelerating KONE 24/7 Connected Services sales throughout the year and in growing the penetration of these services in our maintenance base to 10%. I see this as a compelling demonstration that the investments in our digital offering are paying off. We will continue to build our portfolio of digital solutions and services to further strengthen our differentiation and ensure that we remain our customers partner of choice. 

Our business outlook for 2021 has been specified to reflect the increased headwinds in the cost environment. While our sales growth guidance of 4-6% is unchanged, our adjusted EBIT margin is now expected to be in the range of 12.4-12.8%. Looking further ahead, I am confident that the strong engagement of our people and the competitiveness of our offering will support us in achieving our target of faster than market profitable growth."

Operating environment in July-September 2021

Recovery continued in the global elevator and escalator market during July-September. However, the pace of recovery varied and was slower than expected in certain regions due to global supply chain constraints. Activity was the strongest in the residential segment across regions. 

Demand in the new equipment market was rather stable overall.In Asia-Pacific, the new equipment market was stable.In China, the market remained on last year's high level, but tightened liquidity started to impact activity in the property sector during the quarter. In the rest of Asia-Pacific, the market continued to recover strongly. In the EMEA region, the new equipment market was stable. The market in Central and North Europe grew slightly whereas in South Europe and in the Middle East the markets were stable. In North America, the market grew significantly.

The service market developed positively with broad based growth inboth maintenance and modernization. 

The pricing environmentcontinued to be adversely affected by intense competition. That said, market prices have started to improve in several markets as a response to the increased component and logistics costs.  

Operating environment inJanuary-September 2021

Activity in the global elevator and escalator markets was somewhat affected by the COVID-19 pandemic in the early part of the year but recovered thereafter. The demand for affordable housing supported activity in the residential segment, while stimulus measures boosted sentiment in the infrastructure segment. Activity in the commercial segment remained limited throughout the period.

Demand in the new equipment marketincreased clearly.In Asia-Pacific, new equipment volumes grew clearly withChinagrowing strongly in the first half andthe rest of Asia-Pacificrecovering as of the second quarter.In the EMEA region, the new equipment market was stable. The new equipment market grew slightly in Central and North Europe whereas in South Europe and in the Middle East the markets were stable.In North America, the new equipment market grew clearly.

In the service market, maintenance developed positively. Activity picked up in the second quarter and growth continued thereafter. Similarly, demand has rebounded in modernizationafter a slow start to the year.  

The pricing environment continued to be adversely affected by intense competition. That said, market prices have started to improve in several markets as a response to the increased component and logistics costs.  

Market outlook 2021 (updated)

In China, the new equipment market is expected to grow clearly from a high level thanks to strong activity in the first half of the year. In the rest of the world, the new equipment markets are expected to recover from a low comparison period. In Asia-Pacific, excluding China, and in North America the new equipment markets are expected to grow significantly. The new equipment market in the Europe, Middle East and Africa region is expected to be stable with growth in Central and North Europe and stable development in South Europe and in the Middle East.

With normalizing maintenance activity around the world, the maintenance markets are expected to grow clearly in Asia-Pacific and grow slightly in other regions.

Similarly, the modernization markets are expected to grow across all regions.

Business outlook 2021 (specified)

In 2021, KONE's sales growth is estimated to be in the range of 4% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin is expected to be in the range of 12.4% to 12.8%. Assuming that foreign exchange rates remain at the October 2021 level, the impact of foreign exchange rates on the adjusted EBIT would be limited.

KONE has a solid order book and maintenance base for 2021. Continual improvements in quality and productivity are expected to support profitability.

The key headwinds for 2021 results are the increased component and logistics costs. KONE also continues to invest actively in building the capability to sell and deliver digital services and solutions.

KONE previously estimated its sales growth to be in the range of 4% to 6% at comparable exchange rates as compared to 2020. The adjusted EBIT margin was expected to be in the range of 12.4% to 13.0%. Assuming that foreign exchange rates would have remained at the July 2021 level, the impact of foreign exchange rates on the adjusted EBIT would have been limited.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Thursday, October 28, 2021 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.: +1 323-701-0225

UK: +44 (0)330 336 9105

Finland: +358 (0)9 7479 0361

Participant code: 4180629

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 2020, KONE had annual sales of EUR 9.9 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 Q3 2021 Interim Report


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