KONECorporation, stock exchange release, July 18, 2019 at 12.30 p.m.EEST
Half-year Financial Report of KONE Corporation forJanuary-June 2019
Continued strong orders received, well on track to meetfull-year targets
April-June 2019
- Orders receivedgrew by 9.0% to EUR 2,310 (4-6/2018: 2,119) million. At comparableexchange rates, orders grew by 8.1%.
- Sales grew by9.0% to EUR 2,541 (2,331) million. At comparable exchange rates,sales grew by 7.9%.
- Operating income(EBIT) was EUR 306.5 (280.5) million or 12.1% (12.0%) of sales. Theadjusted EBIT was EUR 319.6 (300.4) million or 12.6% (12.9%) ofsales.* IFRS 16 had a positive impact of EUR 2 million to theoperating income.
- Cash flow fromoperations (before financing items and taxes) was EUR 323.5 (366.2)million. IFRS 16 had a positive impact of EUR 29 million to thecash flow from operations.
January-June 2019
- Orders receivedgrew by 9.4% to EUR 4,404 (1-6/2018: 4,027) million. At comparableexchange rates, orders grew by 8.0%.
- Sales grew by9.2% to EUR 4,740 (4,339) million. At comparable exchange rates,sales grew by 7.7%.
- Operating income(EBIT) was EUR 521.8 (492.0) million or 11.0% (11.3%) of sales. Theadjusted EBIT was EUR 548.0 (518.7) million or 11.6% (12.0%) ofsales.* IFRS 16 had a positive impact of EUR 4 million to theoperating income.
- Cash flow fromoperations (before financing items and taxes) was EUR 701.1 (545.2)million. IFRS 16 had a positive impact of EUR 58 million to thecash flow from operations.
KONE hasadopted the new IFRS 16 and IFRIC 23 effective January 1, 2019using the modified retrospective approach and the comparativefigures have not been restated.
Business outlook (specified)
In 2019,KONE's sales is estimated to grow by 4-7% at comparable exchangerates as compared to 2018. The adjusted EBIT is expected to be inthe range of EUR 1,170-1,250 million, assuming that foreignexchange rates would remain at the July 2019 level. Foreignexchange rates are estimated to impact EBIT positively by aroundEUR 20 million.
KONEpreviously estimated its sales to grow by 3-7% at comparableexchange rates as compared to 2018. The adjusted EBIT was expectedto be in the range of EUR 1,160-1,260 million, assuming thatforeign exchange rates would have remained at the April 2019 level.Foreign exchange rates were estimated to impact EBIT positively byaround EUR 30 million.
Keyfigures
| Keyfigures | 4-6/2019 | 4-6/2018 | Change | 1-6/ 2019 |
1-6/ 2018 |
Change | 1-12 /2018 |
|||||||||
| Orders received | MEUR | 2,310.1 | 2,118.6 | 9.0% | 4,404.1 | 4,027.2 | 9.4% | 7,797.0 | ||||||||
| Order book | MEUR | 8,407.1 | 7,915.3 | 6.2% | 8,407.1 | 7,915.3 | 6.2% | 7,950.7 | ||||||||
| Sales | MEUR | 2,540.8 | 2,330.6 | 9.0% | 4,739.6 | 4,338.6 | 9.2% | 9,070.7 | ||||||||
| Operating income (EBIT) | MEUR | 306.5 | 280.5 | 9.3% | 521.8 | 492.0 | 6.1% | 1,042.4 | ||||||||
| Operating income margin (EBITmargin) | % | 12.1 | 12.0 | 11.0 | 11.3 | 11.5 | ||||||||||
| Adjusted EBIT* | MEUR | 319.6 | 300.4 | 6.4% | 548.0 | 518.7 | 5.6% | 1,112.1 | ||||||||
| Adjusted EBIT margin* | % | 12.6 | 12.9 | 11.6 | 12.0 | 12.3 | ||||||||||
| Income before tax | MEUR | 310.2 | 290.5 | 6.8% | 530.6 | 514.1 | 3.2% | 1,087.2 | ||||||||
| Net income | MEUR | 238.8 | 223.7 | 6.8% | 408.6 | 395.9 | 3.2% | 845.2 | ||||||||
| Basic earnings per share | EUR | 0.46 | 0.43 | 5.8% | 0.78 | 0.77 | 2.3% | 1.63 | ||||||||
| Cash flow fromoperations(before financing items andtaxes) | MEUR | 323.5 | 366.2 | 701.1 | 545.2 | 1,150.1 | ||||||||||
| Interest-bearing net debt | MEUR | -973.3 | -1,254.8 | -973.3 | -1,254.8 | -1,704.0 | ||||||||||
| Equity ratio | % | 42.2 | 45.5 | 42.2 | 45.5 | 49.9 | ||||||||||
| Return on equity | % | 28.6 | 28.0 | 28.6 | 28.0 | 27.7 | ||||||||||
| Net working capital (including financingitems and taxes) | MEUR | -805.4 | -725.7 | -805.4 | -725.7 | -757.8 | ||||||||||
| Gearing | % | -36.6 | -47.7 | -36.6 | -47.7 | -55.3 | ||||||||||
* InSeptember 2017, KONE introduced a new alternative performancemeasure, adjusted EBIT, to enhance comparability of the businessperformance between reporting periods during the Accelerateprogram. Restructuring costs related to the Accelerate program areexcluded from the calculation of the adjusted EBIT.
Henrik Ehrnrooth, President and CEO:
"Inthe second quarter, we had a good performance on manyfronts. I'm especially pleased that our orders receivedcontinued to grow at a very good rate and that the margin of ordersis now improving. Sales growth was balanced with all businesses andregions contributing to the positive development. We have returnedto a solid growth path in adjusted EBIT this year and the actionswe have taken to improve our margins are starting to produceresults. While our adjusted EBIT margin was still slightly belowthat of last year, we are going in the right direction. Overall,our results were in line with our expectations and consistent withour full-year targets.
Thesolid growth in orders received, combined with the improving marginof orders received, is a demonstration of our overallcompetitiveness. We have continued to make good progressin driving improved differentiation with our solutions andservices. In addition to our strong offering, one of ourcompetitive edges continues to be consistent project execution aswell as the service mindset of our people. We have continued tobuild on these capabilities with the objective to be the preferredpartner for our customers. This year, we have focused among otherthings on further improving the quality of our field operations. Wehave developed our installation resource and project management,processes and tools to ensure that we can consistently do what wepromise for our customers with improved quality and productivity.We have also continued to strengthen our network of trainingfacilities, so that our employees have the necessary competences todeliver increasingly complex projects. I want to thank all KONEemployees, for their hard work and accountability in strengtheningthese competitive advantages.
Wehave now half a year behind us with strong development in bothorders received and sales. As a result, we can specify ourfull year guidance. We expect sales to grow by 4-7% at comparableexchange rates and the adjusted EBIT to be in the range of EUR1,170-1,250 million in 2019. Our industry has faced severalheadwinds over past years. Our industry has faced several headwindsover past years. I'm pleased that the actions that we have takenand our strategic direction have strengthened us in thisenvironment, and our result is again improving."
Operating environment in April-June 2019
Theglobal new equipment market grew slightly in unitscompared to the second quarter of 2018. InAsia-Pacific, the new equipment market grew slightly.In China, infrastructure segment developedpositively while residential segment was rather stable andnonresidential segment declined. Government continued to balancebetween supporting the economic activity and curbing speculation inthe residential market. Overall, the Chinese new equipment marketgrew slightly in units. In the rest ofAsia-Pacific, the new equipment markets were stable withgrowth in some Southeast Asian countries and in India and a declinein Australia. In the EMEA region, the newequipment market was stable. The new equipment market in Centraland North Europe grew slightly from a high level. In South Europe,the market declined slightly with varying development among thecountries. In the Middle East, the market declined driven byTurkey, in particular. In North America, the newequipment market was stable on a high level.
Global service markets continued to developpositively. Both the maintenance and the modernization markets sawgrowth across the regions, with the strongest rate of growth seenin Asia-Pacific and a more moderate development in Europe and NorthAmerica.
Pricing trends remained varied during April-June.In China, competition remained intense but pricing was ratherstable in the new equipment market. In the EMEA region, the pricingenvironment was mixed. The Middle East region continued to becharacterized by intense competition, while there were some signsof improving pricing environment in Europe. In North America,competition intensified somewhat.
Operating environment in January-June 2019
Theglobal new equipment market grew slightly in unitscompared to the first half of 2018. InAsia-Pacific, the new equipment market grew slightly.In China, infrastructure segment developedpositively while residential segment was rather stable andnon-residential segment declined. Government continued to balancebetween supporting the economic activity and curbing speculation inthe residential market. Overall, the Chinese new equipment marketgrew slightly in units. In the rest ofAsia-Pacific, the new equipment markets were stable withgrowth in some Southeast Asian countries and in India and a declinein Australia. In the EMEA region, the newequipment market was stable. The new equipment market in Centraland North Europe grew slightly from a high level. In South Europe,the market was stable. In the Middle East, the market continued todecline. In North America, the new equipmentmarket was stable on a high level.
Global service markets continued to developpositively. Both the maintenance and the modernization markets sawgrowth across the regions, with the strongest rate of growth seenin Asia-Pacific and a more moderate development in Europe and NorthAmerica.
Pricing trends remained varied duringJanuary-June. In China, competition remained intense but pricingwas rather stable in the new equipment market. In the EMEA region,the pricing environment was mixed. The Middle East region continuedto be characterized by intense competition, while there were somesigns of improving pricing environment in Europe. In North America,competition intensified somewhat.
Market outlook 2019
The newequipment market is expected to be relatively stable or to growslightly. In China the market is expected to be relatively stableor to grow slightly in units ordered, while in the rest of theAsia-Pacific, the market is expected to grow slightly. The newequipment markets in North America and the Europe, Middle East andAfrica region are expected to be rather stable.
Maintenancemarkets are expected to see the strongest growth rate inAsia-Pacific and to grow slightly in other regions.
Themodernization market is expected to grow slightly in North Americaand in the Europe, Middle East and Africa region and to developstrongly in Asia-Pacific.
Business outlook 2019 (specified)
In 2019,KONE's sales is estimated to grow by 4-7% at comparable exchangerates as compared to 2018. The adjusted EBIT is expected to be inthe range of EUR 1,170-1,250 million, assuming that foreignexchange rates would remain at the July 2019 level. Foreignexchange rates are estimated to impact EBIT positively by aroundEUR 20 million.
The outlookis based on KONE's maintenance base and order book as well as themarket outlook. KONE has a solid order book for 2019 in the newequipment business and the service business is expected to continueto grow. Targeted pricing and productivity improvement actions areexpected to support profitability together with the savings fromthe Accelerate program. High component and labor costs togetherwith trade tariffs are the main headwinds for the adjusted EBIT in2019. The impact of high raw material prices and trade tariffs isestimated to be less than EUR 50 million.
KONEpreviously estimated its sales to grow by 3-7% at comparableexchange rates as compared to 2018. The adjusted EBIT was expectedto be in the range of EUR 1,160-1,260 million, assuming thatforeign exchange rates would have remained at the April 2019 level.Foreign exchange rates were estimated to impact EBIT positively byaround EUR 30 million.
Pressand analyst meetings
A meeting forthe press, conducted in Finnish, will be held on Thursday, July 18,2019 at 2:15 p.m. EEST.
A meeting foranalysts, conducted in English, will begin at 3:45 p.m. EEST andwill be available as a live webcast on www.kone.com/investors. Anon-demand version of the webcast will be available later the sameday. The meeting can also be joined via a telephone conference.
U.S.: +1323-794-2551
UK: +44 (0)330 336 9105
Finland: +358 (0)9 7479 0361
Participant code: 9926738
Both meetingswill take place in KONE Building, located at Keilasatama 3, Espoo,Finland.
Forfurther information, please contact:
Sanna Kaje,Vice President, Investor Relations, tel. +358 204 75 4705
Sender:
KONECorporation
HenrikEhrnrooth
President and CEO
IlkkaHara
CFO
AboutKONE
At KONE, ourmission is to improve the flow of urban life. As a global leader inthe elevator and escalator industry, KONE provides elevators,escalators and automatic building doors, as well as solutions formaintenance and modernization to add value to buildings throughouttheir life cycle. Through more effective People Flow®, we makepeople's journeys safe, convenient and reliable, in taller, smarterbuildings. In 2018, KONE had annual sales of EUR 9.1 billion, andat the end of the year over 57,000 employees. KONE class B sharesare listed on the Nasdaq Helsinki Ltd. in Finland.
www.kone.com
KONE H1 2019 Half-year Financial Report