KONE Corporation,stock exchange release, April 22, 2020 at 12.30 p.m.EEST
Interim Report ofKONE Corporation for January-March2020
January-March 2020:Resilient sales and orders in an exceptional operatingenvironment
- Orders received grewby 0.7% to EUR 2,109.3 (1-3/2019: 2,094.1) million. At comparableexchange rates, orders grew by0.3%.
- Sales were stable atEUR 2,198.3 (2,198.8) million. At comparable exchange rates, salesdeclined by 0.5%.
- Operating income(EBIT) was EUR 197.2 (215.4) million or 9.0% (9.8%) of sales. Theadjusted EBIT was EUR 205.6 (228.4) million or 9.4% (10.4%) ofsales.*
- Cash flow fromoperations (before financing items and taxes) was EUR 346.9 (377.6)million.
Business outlook for2020(unchanged)
KONE estimates thatin 2020, its sales will decline or be stable at best at comparableexchange rates as compared to 2019. The rate of decline in saleswill depend on the duration and severity of the COVID-19 relatedgovernment measures and the pace ofrecovery.
- Stable sales wouldrequire a relatively brisk recovery in the second half of 2020 andsustained positive progress in KONE's largest marketChina.
- KONE's sales areexpected to decline by less than 5% in case the restrictivemeasures would impact KONE's business mainly in the first half of2020 and there would be a gradual recovery in the secondhalf.
- Should the broad andstrict government measures continue to impact KONE's operationswell into the second half of 2020, KONE's sales are expected todecline by 5-10%.
The adjusted EBITmargin is expected to decline somewhat or to be stable atbest.
Profitability isexpected to be burdened by weaker fixed cost absorption due tolower sales, the costs related to the measures to ensure the safetyand wellbeing of KONE's employees, suppliers and customers and thecosts related to the actions in the supply operations to ensuresolid delivery capability among other things. Excluding theCOVID-19 related factors, KONE's profitability outlook has beenpositive.
| KEYFIGURES | 1-3/2020 | 1-3/2019 | Change | 1-12/2019 | |
| Ordersreceived | MEUR | 2,109.3 | 2,094.1 | 0.7% | 8,399.8 |
| Orderbook | MEUR | 8,386.4 | 8,454.7 | -0.8% | 8,051.5 |
| Sales | MEUR | 2,198.3 | 2,198.8 | 0.0% | 9,981.8 |
| Operating income(EBIT) | MEUR | 197.2 | 215.4 | -8.4% | 1,192.5 |
| Operating incomemargin (EBIT margin) | % | 9.0 | 9.8 | 11.9 | |
| AdjustedEBIT* | MEUR | 205.6 | 228.4 | -10.0% | 1,237.4 |
| Adjusted EBITmargin* | % | 9.4 | 10.4 | 12.4 | |
| Income beforetax | MEUR | 197.2 | 220.4 | -10.5% | 1,217.5 |
| Netincome | MEUR | 152.8 | 169.8 | -10.0% | 938.6 |
| Basic earnings pershare | EUR | 0.29 | 0.33 | -9.4% | 1.80 |
| Cash flow fromoperations (before financing items andtaxes) | MEUR | 346.9 | 377.6 | 1,549.6 | |
| Interest-bearing netdebt | MEUR | -970.2 | -837.3 | -1,552.9 | |
| Equityratio | % | 39.4 | 39.4 | 46.5 | |
| Return onequity | % | 21.6 | 24.8 | 30.1 | |
| Net working capital(including financing items andtaxes) | MEUR | -964.3 | -938.5 | -856.0 | |
| Gearing | % | -39.2 | -34.7 | -48.6 |
* KONE presentsadjusted EBIT as an alternative performance measure to enhancecomparability of the business performance between reporting periodsduring the Accelerate program. Restructuring costs related to theAccelerate program are excluded from the calculation of theadjusted EBIT.
Henrik Ehrnrooth,President and CEO:
"During the firstquarter, we faced challenges that were unimaginable at thebeginning of the year.While the firstoutbreaks of COVID-19 took place in January, the scale of theglobal impact could not be seen until March. At KONE, we have beenable to successfully overcome significant challenges brought to usby the pandemic. Our robust supply chain has continued to deliverto customer needs with minimal interruptions across the world andour maintenance operations have continued to ensure that people canmove safely in buildings. All this with safe working practices.This has been possible because of the phenomenal commitment of ourpeople and the collaboration within KONE and with our customers,suppliers and partners. I am immensely proud of the entire KONEteam. I would also like to thank our suppliers and partners whohave also incredibly well risen to thechallenge.
KONE's first quarterresults were clearly impacted by the COVID-19crisis.The biggest impactscame from China, India and South Europe as a result of wide-rangingrestrictions. Our performance in Central and North Europe and theAmericas was very strong on all fronts in Q1. I consider theoverall outcome a good achievement in this environment. Our salesand orders received were stable at comparable exchange rates. I ampleased that service sales continued to grow at a good rate. Newequipment sales declined by 5% as a result of the February lockdownin China that halted KONE's new equipment business in the country.Orders received grew in Americas and Asia-Pacific driven by Chinaand declined slightly in EMEA. Adjusted EBIT margin declined by 1percentage point as a result of COVID-19 related extra costs andweaker fixed cost absorption. Looking ahead, it is clear that interms of results development, the worst is still ahead of us inmost parts of the world. The impacts of COVID-19 will besignificant in the coming months on our business in Europe,Americas and many parts of Asia-Pacific. On a positive note, ourChina business has recovered rapidly, and the current level ofcustomer deliveries is veryhigh.
We have takendecisive actions to mitigate the impacts of the current crisis andto find new opportunities.Our priorities arevery clear. First, we ensure the health and wellbeing of ouremployees. Second, we support our customers; and third, findopportunities to become an even stronger company. Simultaneously toworking on business continuity plans we have continued activedevelopment of our offering and the roll-out of our new solutionssuch as the DX Class Elevators. While taking many actions tocontain our costs, we have accelerated some of our investments innew services and solutions and in training and developing ouremployees. Our clear objective is to emerge as an even strongercompany following this crisis. The strength and motivation of ourteam, our strong balance sheet and market positions put us in astrong position in this difficulttime."
Operatingenvironment in January-March2020
In the first quarterof 2020, also the global elevator and escalator market was impactedby the COVID-19 outbreak. Governments across the world were takingsignificant measures to contain the outbreak by restricting themovement of people. In many places, this resulted in actions suchas closing down construction sites and limiting manufacturingoperations. In most countries, maintenance has been deemed anessential service which was allowed with some limitations. Duringthe first quarter, COVID-19 had the biggest impact in China, wherethe outbreak began in January, whereas in other countries aroundthe world the impact started to be more visible towards the end ofthe quarter.
Despite the COVID-19outbreak, demand in the new equipment market wasstill fairly resilient in many parts of the world. However, therestarted to be signs of increasing uncertainty towards the end ofthe quarter. In Asia-Pacific, the new equipmentvolumes declined significantly. In China, the newequipment market declined significantly in units as a result of theCOVID-19 outbreak but started to recover in March. Also inthe rest of Asia-Pacific, the new equipment marketsdeclined significantly. In the EMEA region, thenew equipment market was rather stable. The new equipment market inCentral and North Europe grew slightly from a high level, where asin South Europe, the market declined slightly. In the Middle East,the market was stable. In North America, the newequipment market was stable on a highlevel.
Global servicemarketscontinued to developpositively, but uncertainty increased towards the end of thequarter especially inmodernization.
Pricingenvironmentremained relativelystable in January-March. However, there were signs of some pricingpressure towards the end of thequarter.
Market outlook 2020(updated)
The new equipmentmarket is expected to decline across regions as a result of theincreased uncertainty related to the COVID-19 outbreak. The Chinesemarket started to recover inMarch.
The maintenancemarkets are expected to be resilient, excluding the direct impactsof the lockdown measures.
In the modernizationmarkets, the fundamental growth drivers are intact, but uncertaintycould delay decision-making in modernizationprojects.
Business outlook2020 (unchanged)
KONE estimates thatin 2020, its sales will decline or be stable at best at comparableexchange rates as compared to 2019. The rate of decline in saleswill depend on the duration and severity of the COVID-19 relatedgovernment measures and the pace ofrecovery.
- Stable sales wouldrequire a relatively brisk recovery in the second half of 2020 andsustained positive progress in KONE's largest marketChina.
- KONE's sales areexpected to decline by less than 5% in case the restrictivemeasures would impact KONE's business mainly in the first half of2020 and there would be a gradual recovery in the secondhalf.
- Should the broad andstrict government measures continue to impact KONE's operationswell into the second half of 2020, KONE's sales are expected todecline by 5-10%.
The adjusted EBITmargin is expected to decline somewhat or to be stable atbest.
Profitability isexpected to be burdened by weaker fixed cost absorption due tolower sales, the costs related to the measures to ensure the safetyand wellbeing of KONE's employees, suppliers and customers and thecosts related to the actions in the supply operations to ensuresolid delivery capability among other things. Excluding theCOVID-19 related factors, KONE's profitability outlook has beenpositive.
KONE has a solidorder book and maintenance base for 2020. Targeted pricing andproductivity actions, which have impacted the margin of ordersreceived positively, are expected to support profitability togetherwith around EUR 50 million of savings from the Accelerate programand other cost containment actions. Increasing subcontracting costsas well as the investment in building our capability to sell anddeliver digital services and solutions are the main headwinds forthe adjusted EBIT in 2020 in addition to the COVID-19 relateditems. KONE is also expecting to have around EUR 40 million ofrestructuring costs related to the Accelerate program in the finalyear of the program. These costs are excluded from the adjustedEBIT.
Press and analystmeetings
A Microsoft Teamscall for the press, conducted in English, will be held onWednesday, April 22, 2020 at 2:15 p.m. EEST. Journalists arekindly asked to sign up to media@kone.com, and they will receive alink to the call uponregistration.
An audiocast foranalysts, conducted in English, will begin at 3:45 p.m. EEST andwill be available on www.kone.com/investors. An on-demand versionof the audiocast will be available on www.kone.com later the sameday. The event can also be joined via a telephoneconference.
U.S.: +1929-477-0630
UK: +44 (0)330 336 9104
Finland: +358 (0)9 7479 0360
Participant code: 746643
For furtherinformation, please contact:
Sanna Kaje,Vice President, Investor Relations, tel. +358 204 754705
Sender:
KONECorporation
Henrik Ehrnrooth
President and CEO
Ilkka Hara
CFO
AboutKONE
At KONE, our missionis to improve the flow of urban life. As a global leader in theelevator 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 2019, KONE had annual sales of EUR 10 billion, and atthe end of the year approximately 60,000 employees. KONE class Bshares are listed on the Nasdaq Helsinki Ltd. inFinland.
www.kone.com