KONE Corporation, stock exchange release, January 24, 2019 at12.30 p.m. EET
Financial Statement Bulletin of KONE Corporation forJanuary-December 2018
January-December 2018: Orders received and sales grew inall regions, adjusted EBIT returned to growth in Q4
October-December 2018
- Orders received grew by 5.0% to EUR 1,938 (10-12/2017: 1,846)million. At comparable exchange rates, orders grew by 5.9%.
- Sales grew by 5.9% to EUR 2,443 (2,306) million. At comparableexchange rates, sales grew by 6.5%.
- Operating income (EBIT) was EUR 292.5 (292.8) million or 12.0%(12.7%) of sales. The adjusted EBIT was EUR 319.6 (302.6) millionor 13.1% (13.1%) of sales.*
- Cash flow from operations (before financing items and taxes)was EUR 331.6 (335.0) million.
January-December 2018
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Orders received grew by 3.2% to EUR 7,797 (1-12/2017: 7,554)million. At comparable exchange rates, orders grew by 6.6%.
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Sales grew by 3.1% to EUR 9,071 (8,797) million. At comparableexchange rates, sales grew by 6.3%.
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Operating income (EBIT) was EUR 1,042 (1,192) million or 11.5%(13.6%) of sales. The adjusted EBIT was EUR 1,112 (1,206) millionor 12.3% (13.7%) of sales.*
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Cash flow from operations (before financing items and taxes)was EUR 1,150 (1,263) million.
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The Board proposes a dividend of EUR 1.65 per class B sharefor the year 2018.
KONE has adopted the new IFRS 15 and IFRS 9 effective January 1,2018. In this Financial Statement Bulletin all 2017 financials arerestated applying the standards retrospectively.
Business outlook for 2019
In 2019, KONE's sales is estimated to grow by 2-7% at comparableexchange rates as compared to 2018. The adjusted EBIT is expectedto be in the range of EUR 1,120-1,240 million, assuming thatforeign exchange rates would remain at the January 2019 level.Foreign exchange rates are estimated to impact EBIT positively byless than EUR 10 million.
| KEY FIGURES | 10-12/2018 | 10-12/2017 | Change | 1-12/2018 | 1-12/2017 | Change | |
| Orders received | MEUR | 1,937.9 | 1,845.8 | 5.0% | 7,797.0 | 7,554.0 | 3.2% |
| Order book | MEUR | 7,950.7 | 7,357.8 | 8.1% | 7,950.7 | 7,357.8 | 8.1% |
| Sales | MEUR | 2,443.4 | 2,306.3 | 5.9% | 9,070.7 | 8,796.7 | 3.1% |
| Operating income (EBIT) | MEUR | 292.5 | 292.8 | -0.1% | 1,042.4 | 1,192.3 | -12.6% |
| Operating income margin (EBIT margin) | % | 12.0 | 12.7 | 11.5 | 13.6 | ||
| Adjusted EBIT* | MEUR | 319.6 | 302.6 | 5.9% | 1,112.1 | 1,205.5 | -7.8% |
| Adjusted EBIT margin* | % | 13.1 | 13.1 | 12.3 | 13.7 | ||
| Income before tax | MEUR | 301.2 | 301.8 | -0.2% | 1,087.2 | 1,250.4 | -13.1% |
| Net income | MEUR | 232.2 | 231.7 | 0.2% | 845.2 | 960.2 | -12.0% |
| Basic earnings per share | EUR | 0.45 | 0.45 | -0.7% | 1.63 | 1.86 | -12.3% |
| Cash flow from operations (before financing items andtaxes) | MEUR | 331.6 | 335.0 | 1,150.1 | 1,263.3 | ||
| Interest-bearing net debt | MEUR | -1,704.0 | -1,690.2 | -1,704.0 | -1,690.2 | ||
| Equity ratio | % | 49.9 | 50.0 | 49.9 | 50.0 | ||
| Return on equity | % | 27.7 | 32.1 | 27.7 | 32.1 | ||
| Net working capital (including financing items andtaxes) | MEUR | -757.8 | -772.6 | -757.8 | -772.6 | ||
| Gearing | % | -55.3 | -55.8 | -55.3 | -55.8 |
* In September 2017, KONE introduced a new alternativeperformance measure, adjusted EBIT, to enhance comparability of thebusiness performance between reporting periods during theAccelerate program. Restructuring costs related to the Accelerateprogram are excluded from the calculation of the adjustedEBIT.
Henrik Ehrnrooth, President and CEO:
"We saw positive developments on manyfronts in the final quarter of 2018. What I'm especiallypleased with is that our adjusted EBIT returned to growth afterseveral tough quarters. This was driven by solid sales growth inboth new equipment and services and the actions we have taken tooffset the margin headwinds. Our orders received continued to growin all regions with stabilized margins as in the previousquarters.
Winning with Customers strategy is taking us towards ourstrategic targets. We are now half way through thestrategic period and we are seeing good progress towards most ofour strategic targets. Our customer loyalty has continued toimprove and our employee engagement has remained on a high level.However, the adjusted EBIT margin development has beenunsatisfactory in the past two years. What I find encouraging isthat we have started to concretely see the impacts of our improveddifferentiation and this is key in improving our profitability. Weare also creating demand for new kinds of services and solutions ina way that has not been done in our industry before. I would liketo extend my thanks to our employees for their commitment and hardwork in this changing environment.
We have already achieved a lot but at the same time werecognize that we are only at the beginning of thejourney. Our approach to provide comprehensive People Flowsolutions that meet building users' individual needs is clearlyappreciated by our customers. We will continue to invest in R&Dand importantly, our people, to support them in building newcompetences and ways of working to succeed in the transformation weare undergoing. The Accelerate program plays a crucial role inspeeding up the execution of our strategy. Through the program, wewill improve our capability to execute on new services andsolutions that truly help our customers succeed and to bring thesefaster to the markets. By harmonizing the way we work we aim to bemore efficient and improve our profitability. We expect to seecontinued progress and concrete benefits of these efforts in2019.
Looking ahead at 2019, there are both tailwinds andheadwinds. We expect a lower growth environment in theelevator and escalator market as a result of a slowdown in theglobal economic growth and general geopolitical uncertainty.However, with our solid order backlog and a continued growthoutlook for services, we expect KONE's sales to grow by 2-7% atcomparable exchange rates. We also expect our adjusted EBIT toreturn to growth and to be between EUR 1,120 and 1,240 million. Thedirection is now right, but our ambitions are clearly higher. I amconfident that we can make good overall progress in 2019 given theactions that we have taken and the commitment of our team.
Operating environment in October-December2018
The global new equipment market grew slightly in units comparedto the fourth quarter of 2017. In Asia-Pacific, the new equipmentvolumes grew slightly. In China, the new equipment market grewslightly in units driven by the residential segment and theinfrastructure segment. Government restrictions across city tierscontinued to have a cooling effect on the overall markets. In therest of Asia-Pacific, the new equipment markets grew slightly withclear variation between countries. In the EMEA region, the newequipment market was rather stable. The new equipment market inCentral and North Europe was rather stable at a high level, whilein South Europe, the market continued to see slight growth from alow level. In the Middle East, the market continued to decline dueto uncertainty across the region. In North America, the newequipment market continued to grow slightly from a high level.
Global service markets continued to develop positively.Maintenance continued to see growth across the regions with thestrongest rate of growth seen in Asia-Pacific and a more moderatedevelopment in Europe and North America. Modernization markets weremore varied with strong growth in Asia-Pacific and a decline insome European countries.
Pricing trends remained varied during October-December. Acrossthe regions, cost increases, both for material and labor drove aneed to increase prices. In China, competition remained intense butpricing was rather stable in the new equipment market. In the EMEAregion, the pricing environment continued to be characterized bystrong competition, particularly in the South Europe and MiddleEast region. In North America, competition increased in somesegments but the overall pricing environment was more favorablethan in some other regions.
Operating environment in January-December2018
In 2018, the global new equipment market grew slightly in unitscompared to the previous year. In Asia-Pacific, the new equipmentvolumes grew slightly with slight growth in both China and in therest of Asia-Pacific driven by the Indian market and South-EastAsia. In the EMEA region, the new equipment market was ratherstable. New equipment market in Central and North Europe was ratherstable at a high level, while in South Europe, the market continuedto see slight growth from a low level. In the Middle East, themarket grew in the first half of the year, but declined in thesecond half due to increased uncertainty across the region. InNorth America, the new equipment market continued to grow slightlyfrom a high level.
Global service markets continued to develop positively. Both themaintenance and the modernization markets continued to see growthacross the regions, with the strongest rate of growth seen inAsia-Pacific and a more moderate development in Europe and NorthAmerica.
Pricing trends remained varied during January-December. Acrossthe regions, cost increases, both for material and labor drove aneed to increase prices. In China, competition remained intense butpricing was rather stable in the new equipment market. In the EMEAregion, the pricing environment continued to be characterized bystrong competition, particularly in the South Europe and MiddleEast region. In North America, competition increased in somesegments but the overall pricing environment was more favorablethan in some other regions.
Market outlook 2019
The increased uncertainty in many major markets impacts thevisibility of the overall market development for 2019. The newequipment market is expected to be stable or to decline slightly.In China the market is expected to decline slightly or to be stablein units ordered, while in the rest of the Asia-Pacific, the marketis expected to grow slightly. A more stable development is expectedin North America and the Europe, Middle East and Africa region.
Maintenance markets are expected to see the strongest growthrate in Asia-Pacific and to grow slightly in other regions.
The modernization market is expected to be stable in the Europe,Middle East and Africa region, to grow slightly in North Americaand to develop strongly in Asia-Pacific.
Business outlook 2019
In 2019, KONE's sales is estimated to grow by 2-7% at comparableexchange rates as compared to 2018. The adjusted EBIT is expectedto be in the range of EUR 1,120-1,240 million, assuming thatforeign exchange rates would remain at the January 2019 level.Foreign exchange rates are estimated to impact EBIT positively byless than EUR 10 million.
The outlook is based on KONE's maintenance base and order bookas well as the market outlook. KONE has a solid order book for 2019in the new equipment business and the service business is expectedto continue to grow. Targeted pricing and productivity improvementactions are expected to support profitability together with thesavings from the Accelerate program. High component and labor coststogether with trade tariffs are the main headwinds for the adjustedEBIT in 2019. The impact of high raw material prices and tradetariffs is estimated to be approximately EUR 50 million.
The Board's proposal for the distribution ofprofit
The parent company's non-restricted equity on December 31, 2018was EUR 2,453,122,735.36 of which the net profit for the financialyear is EUR 1,067,984,631.14.
The Board of Directors proposes to the Annual General Meetingthat a dividend of EUR 1.6475 be paid on the outstanding 76,208,712class A shares and EUR 1.65 on the outstanding 439,852,141 class Bshares, resulting in a total amount of proposed dividends of EUR851,309,885.67.
The Board of Directors further proposes that the remainingnon-restricted equity, EUR 1,601,812,849.69 be retained and carriedforward.
The Board proposes that the dividends be payable on March 7,2019. All the shares existing on the dividend record date areentitled to dividend for the year 2018 except for the own sharesheld by the parent company.
Press and analyst meetings
A meeting for the press, conducted in Finnish, will be held onThursday, January 24, 2019 at 2:15 p.m. EET.
A meeting for analysts, conducted in English, will begin at 3:45p.m. EET and will be available as a live webcast on www.kone.com.An on-demand version of the webcast will be available onwww.kone.com later the same day. The meeting can also be joined viaa telephone conference.
US callers: +1 323-794-2093
UK callers: +44 (0)330 336 9125
Finnish callers: +358 (0)9 7479 0361
Participant code: 7881144
Both meetings will take place in KONE Building, located atKeilasatama 3, Espoo, Finland.
For further information, please contact:
Sanna Kaje, Vice President, Investor Relations, tel. +358 204 754705
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 aglobal leader in the elevator and escalator industry, KONE provideselevators, escalators and automatic building doors, as well assolutions for maintenance and modernization to add value tobuildings throughout their life cycle. Through more effectivePeople Flow®, we make people's journeys safe, convenient andreliable, in taller, smarter buildings. In 2018, KONE had annualsales of EUR 9.1 billion, and at the end of the year over 57,000employees. KONE class B shares are listed on the Nasdaq HelsinkiLtd. in Finland.
www.kone.com
KONE Financial Statement Bulletin 2018