2020-10-22 Interim Report of KONE Corporation for January-September 2020

KONE Corporation, stock exchange release, October 22, 2020 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-September 2020

Earnings growth in a challenging operating environment

July-September 2020

Orders received declined by 3.8% to EUR 1,931.7 (7-9/2019: 2,007.3) million. At comparable exchange rates, orders grew by 0.4%.
Sales grew by 1.1% to EUR 2,587.0 (2,557.6) million. At comparable exchange rates, sales grew by 4.9%.
Operating income (EBIT) was EUR 333.1 (314.2) million or 12.9% (12.3%) of sales. The adjusted EBIT was EUR 339.8 (321.9) million or 13.1% (12.6%) of sales.*
Cash flow from operations (before financing items and taxes) was EUR 600.2 (462.9) million.

January-September 2020

Orders received declined by 4.6% to EUR 6,116.4 (1-9/2019: 6,411.5) million. At comparable exchange rates, orders declined by 3.2%.
Sales grew by 0.3% to EUR 7,317.3 (7,297.2) million. At comparable exchange rates, sales grew by 1.7%.
Operating income (EBIT) was EUR 845.8 (836.1) million or 11.6% (11.5%) of sales. The adjusted EBIT was EUR 869.9 (869.9) million or 11.9% (11.9%) of sales.*
Cash flow from operations (before financing items and taxes) was EUR 1,539.4 (1,163.9) million.

Business outlook for 2020 (unchanged)

In 2020, KONE's sales growth is estimated to be in the range of -1% to 2% at comparable exchange rates as compared to 2019. The adjusted EBIT margin is expected to be in the range of 12.1% to 12.7%. Assuming that foreign exchange rates would remain at the October 2020 level, foreign exchange rates are estimated to impact the adjusted EBIT negatively by around EUR 40 million.

KEY FIGURES		7-9/ 2020	7-9/ 2019	Change	1-9/ 2020	1-9/ 2019	Change	1-12/ 2019
Orders received	MEUR	1,931.7	2,007.3	-3.8%	6,116.4	6,411.5	-4.6%	8,399.8
Order book	MEUR				7,914.4	8,399.8	-5.8%	8,051.5
Sales	MEUR	2,587.0	2,557.6	1.1%	7,317.3	7,297.2	0.3%	9,981.8
Operating income (EBIT)	MEUR	333.1	314.2	6.0%	845.8	836.1	1.2%	1,192.5
Operating income margin (EBIT margin)	%	12.9	12.3		11.6	11.5		11.9
Adjusted EBIT*	MEUR	339.8	321.9	5.5%	869.9	869.9	0.0%	1,237.4
Adjusted EBIT margin*	%	13.1	12.6		11.9	11.9		12.4
Income before tax	MEUR	339.2	320.9	5.7%	851.8	851.5	0.0%	1,217.5
Net income	MEUR	262.9	247.1	6.4%	660.1	655.7	0.7%	938.6
Basic earnings per share	EUR	0.50	0.48	5.3%	1.27	1.26	0.5%	1.80
Cash flow from operations (before financing items and taxes)	MEUR	600.2	462.9		1,539.4	1,163.9		1,549.6
Interest-bearing net debt	MEUR				-1,732.7	-1,276.9		-1,552.9
Equity ratio	%				42.2	44.1		46.5
Return on equity	%				28.8	29.1		30.1
Net working capital (including financing items and taxes)	MEUR				-1,200.3	-871.5		-856.0
Gearing	%				-59.4	-43.3		-48.6

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of the business performance between reporting periods during the Accelerate program. Restructuring costs related to the Accelerate program are excluded from the calculation of the adjusted EBIT.

Henrik Ehrnrooth, President and CEO:

"We continued our strong performance in a challenging and unpredictable environment. Throughout this year, the commitment and efforts by the entire KONE team have been outstanding. I could not be prouder of our people. I am also very grateful for the trust our customers have shown us and in developing new opportunities in this environment.

Our third quarter results were overall strong although mixed across the different regions and businesses. China developed extremely well both in terms of sales and orders. Other parts of the world saw improved momentum, but continued to be impacted by the COVID-19 pandemic with increasing uncertainty again towards the end of the quarter. The clear highlights of the quarter were the improvement in our adjusted EBIT margin and the exceptionally strong cash flow.

Our customer loyalty has trended positively, giving us confidence in our strategic direction. In the recent customer survey, our net promoter score improved. Our aim is to become an even more impactful partner for our customers, and we have been developing our capabilities and offering with this in mind. This year we have rolled out our new future-proof DX Class elevators both for new equipment and modernization with good results. We continued to see improving momentum in our intelligent 24/7 Connected Services and we have introduced a new add-on to the service, 24/7 Planner for facility managers.

We are also raising our ambitions in sustainability. Being the leader in sustainability has already for many years been one of KONE's strategic targets. Over the years, we have significantly improved the energy efficiency of our elevators and reduced the carbon footprint of our own operations. Tackling climate change is one of the most important challenges of our time, and we have a role in making urbanization more sustainable. We have now set more ambitious, Science Based Targets to reduce our GHG emissions and pledged to have carbon neutral operations by 2030. Setting ambitious climate targets is the right thing to do and it provides attractive additional growth opportunities.

We expect solid results in 2020 despite the high level of uncertainty. The year has posed plenty of challenges, but the business outlook for 2020 is currently better than what we expected a quarter ago. I am confident that we can navigate the worsening COVID-19 situation in many parts of the world and deliver a solid result for the full year. Although the market outlook remains uncertain, we are in a strong position going into 2021."

Operating environment in July-September 2020

In the third quarter of 2020, the global elevator and escalator market continued to be impacted by the COVID-19 pandemic. Governments across the world continued to take measures to contain the outbreak by restricting the movement of people. In most countries, maintenance has been deemed an essential service which has been allowed with some limitations even during lockdowns. During the third quarter, COVID-19 had the biggest impacts in Asia-Pacific outside China and in North America.

As a result of the increased uncertainty related to the COVID-19 pandemic, demand in the new equipment market decreased in most parts of the world. In Asia-Pacific, the new equipment volumes grew clearly as a result of high level of activity in China. In the rest of Asia-Pacific, the new equipment markets declined significantly. In the EMEA region, the new equipment market declined clearly. The new equipment market in Central and North Europe declined slightly while in South Europe, the market declined significantly. In the Middle East, the market declined clearly. In North America, the market declined significantly.

Global maintenance market was relatively resilient. The increased uncertainty had a significant impact on the modernization markets, which declined in all regions outside China.

Intensifying competition affected the pricing environment adversely in July-September.

Operating environment in January-September 2020

During January-September, the global elevator and escalator market was impacted by the COVID-19 pandemic. Governments across the world were taking significant measures to contain the outbreak by restricting the movement of people. In many places, this resulted in actions such as closing down construction sites and limiting manufacturing operations. In most countries, maintenance has been deemed an essential service which was allowed with some limitations even during lockdowns.

In the new equipment market, demand decreased in most parts of the world. In Asia-Pacific, the new equipment volumes grew slightly as a result of high level of activity in China after the challenging first quarter. In the rest of Asia-Pacific, the new equipment markets declined significantly. In the EMEA region, the new equipment market declined clearly. The new equipment market in Central and North Europe declined slightly, whereas in South Europe, the market declined clearly. In the Middle East, the market declined slightly. In North America, the new equipment market declined clearly.

Global maintenance market was relatively resilient. The increased uncertainty had a bigger impact on the modernization markets, which declined in all areas outside Asia-Pacific.

Intensifying competition affected pricing environment adversely in January-September.

Market outlook 2020 (unchanged)

The new equipment market is expected to grow in China and to decline in other regions as a result of the increased uncertainty related to the COVID-19 pandemic.

The maintenance markets are expected to be resilient, excluding the direct impacts of the lockdown measures.

In the modernization markets, the fundamental growth drivers are intact, but uncertainty could delay decision-making in modernization projects.

Business outlook 2020 (unchanged)

In 2020, KONE's sales growth is estimated to be in the range of -1% to 2% at comparable exchange rates as compared to 2019. The adjusted EBIT margin is expected to be in the range of 12.1% to 12.7%.Assuming that foreign exchange rates would remain at the October 2020 level, foreign exchange rates are estimated to impact the adjusted EBIT negatively by around EUR 40 million.

KONE has a solid order book and maintenance base for 2020. Excluding the COVID-19 related factors, KONE's profitability outlook has been positive. Targeted pricing and productivity actions, which have impacted the margin of orders received positively, are expected to support profitability together with around EUR 50 million of savings from the Accelerate program and other selective cost containments.

Profitability is expected to be burdened by COVID-19 related extra costs and inefficiencies. Increasing subcontracting costs as well as the investment in building our capability to sell and deliver digital services and solutions are also headwinds for the adjusted EBIT in 2020 in addition to the COVID-19 related items.

KONE is expecting to have around EUR 40 million of restructuring costs related to the Accelerate program in the final year of the program. These costs are excluded from the adjusted EBIT.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Thursday, October 22, 2020 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.: +1 646-828-8143
UK: +44 (0)330 336 9105
Finland: +358 (0)9 7479 0361
Participant code: 4187973

For further information, please contact:
Sanna Kaje, Vice President, Investor Relations, 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 2019, KONE had annual sales of EUR 10 billion, and at the end of the year approximately 60,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.
www.kone.com

KONE Q3 2020 Interim Report