KONE Oyj: Half-year Financial Report of KONE Corporation for January-June 2024

KONE Corporation, stock exchange release, July 19, 2024 at 8.30 a.m. EEST

Half-year Financial Report of KONE Corporation for January-June 2024

Solid order growth in three of the four geographical Areas, margin improvement continued

April-June 2024

• Orders received grew by 2.3% to EUR 2,327.6 (4-6/2023: 2,275.5) million. At comparable exchange rates, orders grew by 3.6%.
• Sales declined by 1.2% to EUR 2,801.0 (2,835.9) million. At comparable exchange rates, sales declined by 0.1%.
• Operating income (EBIT) was EUR 334.7 (283.2) million or 11.9% (10.0%) of sales. The adjusted EBIT was EUR 334.7 (332.0) million or 11.9% (11.7%) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 312.6 (306.1) million.

January-June 2024

• Orders received grew by 0.5% to EUR 4,563.3 (1-6/2023: 4,538.6) million. At comparable exchange rates, orders grew by 2.6%.
• Sales declined by 0.4% to EUR 5,369.3 (5,392.5) million. At comparable exchange rates, sales grew by 1.2%.
• Operating income (EBIT) was EUR 597.0 (521.5) million or 11.1% (9.7%) of sales. The adjusted EBIT was EUR 597.0 (573.9) million or 11.1% (10.6%) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 710.8 (762.0) million.

Business outlook for 2024 (specified)

KONE expects its sales to grow 0-4% at comparable exchange rates in 2024. Adjusted EBIT margin is expected to be in the range of 11.5%-12.2%. Assuming that foreign exchange rates remain at the July 2024 level, the negative impact of foreign exchange rates on the adjusted EBIT would be approximately EUR 10 million.

KONE previously expected its sales to grow 0-5% at comparable exchange rates in 2024. Adjusted EBIT margin was expected to be in the range of 11.5%-12.3%. Assuming that foreign exchange rates remain at the April 2024 level, the impact of foreign exchange rates on the adjusted EBIT was expected to be limited.

Key figures		4-6/2024	4-6/2023	Change	1-6/2024	1-6/2023	Change	1-12/2023
Orders received	MEUR	2,327.6	2,275.5	2.3%	4,563.3	4,538.6	0.5%	8,577.7
Order book	MEUR				9,326.6	9,041.9	3.1%	8,715.7
Sales	MEUR	2,801.0	2,835.9	-1.2%	5,369.3	5,392.5	-0.4%	10,952.3
Operating income	MEUR	334.7	283.2	18.2%	597.0	521.5	14.5%	1,200.1
Operating income margin	%	11.9	10.0		11.1	9.7		11.0
Adjusted EBIT*	MEUR	334.7	332.0	0.8%	597.0	573.9	4.0%	1,248.4
Adjusted EBIT margin*	%	11.9	11.7		11.1	10.6		11.4
Income before tax	MEUR	336.8	284.7	18.3%	602.5	525.8	14.6%	1,206.1
Net income	MEUR	261.0	221.8	17.6%	466.9	407.5	14.6%	931.6
Basic earnings per share	EUR	0.50	0.43	15.8%	0.89	0.79	13.4%	1.79
Cash flow from operations (before financing items and taxes)	MEUR	312.6	306.1		710.8	762.0		1,485.2
Interest-bearing net debt	MEUR				-417.7	-640.9		-1,013.4
Equity ratio	%				36.2	34.5		40.9
Return on equity	%				36.2	32.0		33.0
Net working capital (including financing items and taxes)	MEUR				-782.8	-948.7		-861.2
Gearing	%				-17.6	-28.8		-36.4

* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January-June 2024, there were no items affecting comparability. In the comparison period, items affecting comparability included restructuring costs and a positive effect arising from the revaluation of operations in Russia classified as held for sale.

Philippe Delorme, President and CEO:

"I am very pleased that our focus on accelerating Service and Modernization paid off again in Q2. For me, the standout of the quarter was the double-digit growth in orders in three of our four Areas at comparable exchange rates. This was driven by all-time high Modernization orders, a result of our relentless focus on making modernizing elevators easier for our customers in the aging installed base. Another highlight was the strong 9% growth in Service sales at comparable exchange rates. We will continue to drive a higher share of the resilient Service and Modernization businesses also going forward.

Also in China, we are driving a more balanced business mix in the tough operating environment. The property market in China remained very challenging in Q2. This led to a significant decline in both our orders and sales in China New Building Solutions. Our priority is to ensure solid cash flow and to achieve a more balanced business mix in the Area. Service and Modernization now account for around a third of our sales in China and these businesses grew well also in Q2.

Importantly, we improved our profitability for the sixth quarter in a row. Our adjusted EBIT margin improved by 20 basis points year-over-year. This was driven by improved margin in our New Building Solutions and Modernization deliveries outside China as well as better business mix. On the negative side, we saw a decline in our margin in China and cost increases driven by inflation. We specify our guidance for the year, and now expect sales to grow by 0 to 4% at comparable exchange rates and the adjusted EBIT margin to be between 11.5% and 12.2%.

We also got valuable feedback from both our employees and customers in our annual surveys. I am very happy that our employee engagement improved during a period of many changes and continued to be well above the global benchmark. We saw strong results in wellbeing, inclusion and intent to stay with KONE. In the customer loyalty survey, we improved on many aspects, and our Modernization net promoter score, for example, continued to improve. We also learned that there are areas where we need to work hard to improve customer experience. I would like to extend a huge thank you to both our employees and customers for taking the time to provide this feedback, which will enable us to improve further."

Operating environment in April-June 2024

The global New Building Solutions market declined clearly during the second quarter with regional differences in demand. In North America, the market declined slightly. In Europe, the market grew slightly with growth in Southern and Eastern parts of Europe, and weaker activity in the Western parts and Nordics. In Asia-Pacific, Middle East and Africa, activity grew clearly, supported by strong development especially in the Middle East. Market remained weak in China.

Both Service and Modernization markets developed positively with continued growth across all regions.

Intense competition impacted the New Building Solutions pricing environment in China, while elsewhere pricing was more stable. In the Service and Modernization markets, the pricing environment was favorable.

Operating environment in January-June 2024

Regional differences in demand trends were apparent in the global New Building Solutions market during the first half of 2024. In the more mature markets, activity was impacted by high interest rates and slow economic growth, while in many emerging markets activity was more favorable. In China, activity continued to decline due to property market downturn. In Asia-Pacific, Middle East and Africa, activity grew significantly, supported by strong development especially in India and the Middle East. In Europe, market was stable with continued mixed regional activity levels. In North America, the market declined slightly.

Both the Service and Modernization markets developed positively with growth across all regions.

Intense competition impacted the New Building Solutions pricing environment in China, while elsewhere pricing was more stable. In the Service and Modernization markets, the pricing environment was favorable.

Market outlook 2024 (updated)

In the New Building Solutions market, activity is expected to be stable both in North America and in Europe. In Asia-Pacific, Middle East and Africa activity is expected to grow clearly. In China, market is expected to decline over 10% in units and price pressure to continue.

Modernization markets are expected to grow in all regions supported by an aging equipment base as well as the focus on sustainability and adaptability of buildings.

Service markets are expected to grow slightly in the more mature markets and grow clearly in Asia-Pacific, Middle East and Africa and in China.

Business outlook 2024 (specified)

KONE expects its sales to grow 0-4% at comparable exchange rates in 2024. Adjusted EBIT margin is expected to be in the range of 11.5%-12.2%. Assuming that foreign exchange rates remain at the July 2024 level, the negative impact of foreign exchange rates on the adjusted EBIT would be approximately EUR 10 million.

Key drivers for sales growth are positive outlook for Service and Modernization and the strong order book. Declining New Building Solutions market in China is a headwind.

The key profitability drivers are sales growth in Service and Modernization, improved margin coming through in deliveries outside China and savings from the operating model renewal. Persistent cost inflation and decision to slightly increase investments in R&D and IT are expected to impact profitability negatively.

Press and analyst meetings

A Microsoft Teams call for the press, conducted in English, will be held on Friday, July 19, 2024 at 9:00 a.m. EEST. Journalists are kindly asked to sign up to [e-mail], and they will receive a link to the call upon registration.

A webcast for analysts, conducted in English, will begin at 10:30 a.m. EEST and will be available on https://join.rajucast.tv/KONE-2024-0719-Q2. 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.: [phone]
UK: [phone]
Finland: [phone]
Participant code: 190724

For further information, please contact:

Sanna Kaje, Vice President, Investor Relations, KONE Corporation, tel. [phone]

Sender:

KONE Corporation

Philippe Delorme
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 2023, KONE had annual sales of EUR 11.0 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