KONE Corporation, stock exchange release, October 24, 2024 at 8.30 a.m. EEST
Interim Report of KONE Corporation for January-September 2024
Continued strong growth in Service and Modernization
July-September 2024
- Orders received grew by 4.4% to EUR 2,076.6 (7-9/2023: 1,989.9) million. At comparable exchange rates, orders grew by 5.5%.
- Sales grew by 0.1% to EUR 2,753.6 (2,749.9) million. At comparable exchange rates, sales grew by 1.1%.
- Operating income (EBIT) was EUR 319.4 (316.5) million or 11.6 % (11.5 %) of sales. The adjusted EBIT was EUR 319.4 (315.9) million or 11.6 % (11.5 %) of sales.*
- Cash flow from operations (before financing items and taxes) was EUR 344.8 (342.1) million.
January-September 2024
- Orders received grew by 1.7% to EUR 6,640.0 (1-9/2023: 6,528.5) million. At comparable exchange rates, orders grew by 3.5%.
- Sales declined by 0.2% to EUR 8,122.8 (8,142.4) million. At comparable exchange rates, sales grew by 1.2%.
- Operating income (EBIT) was EUR 916.5 (837.9) million or 11.3 % (10.3 %) of sales. The adjusted EBIT was EUR 916.5 (889.8) million or 11.3 % (10.9 %) of sales.*
- Cash flow from operations (before financing items and taxes) was EUR 1,055.6 (1,104.1) million.
Business outlook for 2024 (specified)
KONE expects its sales to grow 0-3% at comparable exchange rates in 2024. Adjusted EBIT margin is expected to be in the range of 11.5%-11.9%. Assuming that foreign exchange rates remain at the October 2024 level, the negative impact of foreign exchange rates on the adjusted EBIT would be approximately EUR 10 million.
Previously KONE expected its sales to grow 0-4% at comparable exchange rates in 2024. Adjusted EBIT margin was expected to be in the range of 11.5%-12.2%. Assuming that foreign exchange rates remained at the July 2024 level, the negative impact of foreign exchange rates on the adjusted EBIT was expected to be approximately EUR 10 million.
| Key figures | 7-9/2024 | 7-9/2023 | Change | 1-9/2024 | 1-9/2023 | Change | 1-12/2023 | |
| Orders received | MEUR | 2,076.6 | 1,989.9 | 4.4 % | 6,640.0 | 6,528.5 | 1.7 % | 8,577.7 |
| Order book | MEUR | 9,001.2 | 8,839.5 | 1.8 % | 8,715.7 | |||
| Sales | MEUR | 2,753.6 | 2,749.9 | 0.1 % | 8,122.8 | 8,142.4 | -0.2 % | 10,952.3 |
| Operating income | MEUR | 319.4 | 316.5 | 0.9 % | 916.5 | 837.9 | 9.4 % | 1,200.1 |
| Operating income margin | % | 11.6 | 11.5 | 11.3 | 10.3 | 11.0 | ||
| Adjusted EBIT* | MEUR | 319.4 | 315.9 | 1.1 % | 916.5 | 889.8 | 3.0 % | 1,248.4 |
| Adjusted EBIT margin* | % | 11.6 | 11.5 | 11.3 | 10.9 | 11.4 | ||
| Income before tax | MEUR | 322.1 | 319.7 | 0.8 % | 924.6 | 845.5 | 9.4 % | 1,206.1 |
| Net income | MEUR | 249.6 | 247.8 | 0.8 % | 716.6 | 655.3 | 9.4 % | 931.6 |
| Basic earnings per share | EUR | 0.48 | 0.47 | 0.4 % | 1.37 | 1.26 | 8.5 % | 1.79 |
| Cash flow from operations (before financing items and taxes) | MEUR | 344.8 | 342.1 | 1,055.6 | 1,104.1 | 1,485.2 | ||
| Interest-bearing net debt | MEUR | -560.1 | -794.4 | -1,013.4 | ||||
| Equity ratio | % | 39.1 | 37.9 | 40.9 | ||||
| Return on equity | % | 35.5 | 32.3 | 33.0 | ||||
| Net working capital (including financing items and taxes) | MEUR | -720.4 | -872.6 | -861.2 | ||||
| Gearing | % | -21.5 | -31.2 | -36.4 |
* KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January-September 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:
"We launched our new strategy, 'Rise', in the third quarter with strong support and excitement from our employees and customers. Our ambition is to be the number one choice for employees and customers and to lead the industry in sustainability, innovation, growth and profitability. We see exciting growth opportunities ahead of us and believe we can reach mid-single-digit annual sales growth in the next three years. We also target to lift our adjusted EBIT margin to 13-14% by the end of 2027.
We are executing the strategy already at full speed with focus on transforming KONE into an even more resilient business with Service and Modernization as the key drivers of earnings growth. I am very pleased that we delivered in line with this ambition also in the third quarter. Our Service sales grew by 9.6% at comparable exchange rates driven both by unit growth and pricing. In Modernization, sales grew by 10.5% and orders very strongly by around 20% at comparable exchange rates. We made great progress also in innovation and digitalization. We launched our new high-rise offering to market with very positive feedback from customers and rolled-out our solutions for digitally enabled service to new countries to drive both customer value and productivity.
Another highlight for me was that three of our four Areas saw double digit order growth in the quarter. Our growth was fastest in the Middle East, South-East Asia, India and North America, but also in Europe orders grew by over 10% at comparable currencies. In China, the challenges in the property market intensified, and we continue to adapt to the harsh market reality with a focus on cash flow and driving more balanced business mix in the Area.
Our adjusted EBIT margin improved by 10 basis points year-on-year in the quarter. We are launching performance initiatives to accelerate the margin improvement. The positive development in adjusted EBIT margin was driven by improved margin in our deliveries outside China as well as better business mix. On the negative side, we saw a decline in our margin in China, increase in bad debt provisions and cost increases driven by inflation. While we are making good progress on many fronts, we have also identified points of attention where we need to improve our performance. We are launching programs to address for example sales and operations excellence and procurement efficiency and expect to start seeing results from these gradually during next year. We specify our guidance for the year, and now expect sales to grow by 0 to 3% at comparable exchange rates and the adjusted EBIT margin to be between 11.5% and 11.9%. With strong attention to detail in strategy execution and relentless focus on driving a culture of courage, speed and simplicity, I'm optimistic and excited about our direction and outlook."
Operating environment in July-September 2024
The global New Building Solutions market declined slightly during the third quarter with regional differences in demand. In North America, the market grew clearly. In Europe, the market was stable with growth in the Southern and Eastern parts of Europe, and weaker activity in the Western parts and Nordics. In Asia-Pacific, Middle East and Africa, activity grew significantly. The market weakened further in China.
Service and Modernization markets continued to offer the best growth opportunities. Both 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 more favorable.
Operating environment in January-September 2024
Regional differences in demand trends were apparent in the global New Building Solutions market during January-September 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. In Europe, the market was stable with continued mixed regional activity levels. In North America, the market was also stable.
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 (unchanged)
In the New Building Solutions market, activity is expected to be stable in both in North America and 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 0-3% at comparable exchange rates in 2024. Adjusted EBIT margin is expected to be in the range of 11.5%-11.9%. Assuming that foreign exchange rates remain at the October 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 Thursday, October 24, 2024 at 9:00 a.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 10:30 a.m. EEST and will be available on https://rajucast.tv/en/kone/kone-2024-1024-q3/. 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.: +1 786 697 3501
UK: +44 (0) 33 0551 0200
Finland: +358 (0)9 2319 5437
Participant code: 241024
For further information, please contact:
Sanna Kaje, Vice President, Investor Relations, KONE Corporation, tel. +358 204 75 0031
Sender:
KONE Corporation
Philippe Delorme
President and CEO
Ilkka Hara
CFO
About KONE
At KONE, our purpose is to shape the future of cities. As a global leader in the elevator and escalator industry, we move two billion people every day, making their journeys safe, convenient, and reliable with smart and sustainable People Flow®. In 2023, KONE had annual sales of EUR 11.0 billion, and at the end of the year over 60,000 employees in more than 60 countries. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.
www.kone.com
