Kone Oyj : Half-year financial report January-June 2023

KONE H1 2023

Half-year Financial report

2 | H1

KONE's January-June 2023 review:

Continued sales growth and improved profitability in a mixed operating environment

April-June 2023

• Orders received declined by 12.8% to EUR 2,275.5 (4-6/2022: 2,609.0) million. At comparable exchange rates, orders declined by 8.1%.
• Sales grew by 11.0% to EUR 2,835.9 (2,555.1) million. At comparable exchange rates, sales grew by 16.1%.
• Operating income (EBIT) was EUR 283.2 (189.0) million or 10.0% (7.4%) of sales. The adjusted EBIT was EUR 332.0 (209.3) million or 11.7% (8.2%) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 306.1 (166.6) million.

January-June 2023

• Orders received declined by 9.8% to EUR 4,538.6 (1-6/2022: 5,031.7) million. At comparable exchange rates, orders declined by 6.6%.
• Sales grew by 7.9% to EUR 5,392.5 (4,997.0) million. At comparable exchange rates, sales grew by 11.1%.
• Operating income (EBIT) was EUR 521.5 (360.2) million or 9.7% (7.2%) of sales. The adjusted EBIT was EUR 573.9 (405.8) million or 10.6% (8.1%) of sales.*
• Cash flow from operations (before financing items and taxes) was EUR 762.0 (385.3) million.

Business outlook for 2023 (specified)

KONE expects its sales growth at comparable exchange rates for the year 2023 to be in the range of 3-6%. The adjusted EBIT margin is expected to be in the range of 11.0-12.0%. Assuming that foreign exchange rates remain at the July 2023 level, the negative impact of foreign exchange rates on the adjusted EBIT is expected to be approximately EUR 50 million.

KONE previously expected its sales at comparable exchange rates for the year 2023 to be somewhat above the previous year. The adjusted EBIT margin was expected to start to recover due to improved margins on orders received in 2022 and continued solid performance in the service business.

• KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January-June 2023, items affecting comparability amounted to EUR 52.4 million including EUR 54.7 million costs recognized on restructuring measures and a slight positive effect from remeasurement of the net assets of operations in Russia. In the comparison period, items affecting comparability included a charge for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine as well as restructuring costs.

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Key figures
		4-6/2023		4-6/2022	Change	1-6/2023		1-6/2022	Change	1-12/2022
Orders received	MEUR	2,275.5		2,609.0	-12.8%	4,538.6		5,031.7	-9.8%	9,131.3
Order book	MEUR					9,041.9		10,000.4	-9.6%	9,026.1
Sales	MEUR	2,835.9		2,555.1	11.0%	5,392.5		4,997.0	7.9%	10,906.7
Operating income	MEUR	283.2		189.0	49.8%	521.5		360.2	44.8%	1,031.2
Operating income margin	%	10.0		7.4		9.7		7.2		9.5
Adjusted EBIT ¹⁾	MEUR	332.0		209.3	58.6%	573.9		405.8	41.4%	1,076.6
Adjusted EBIT margin ¹⁾	%	11.7		8.2		10.6		8.1		9.9
Income before tax	MEUR	284.7		180.1	58.0%	525.8		350.9	49.9%	1,028.4
Net income	MEUR	221.8		138.7	59.9%	407.5		270.2	50.8%	784.5
Basic earnings per share	EUR	0.43		0.26	65.1%	0.79		0.51	53.9%	1.50
Cash flow from operations (before	MEUR	306.1		166.6		762.0		385.3		754.7
financing items and taxes)
Interest-bearing net debt	MEUR					-640.9		-1,263.4		-1,309.0
Equity ratio	%					34.5		35.3		40.3
Return on equity	%					32.0		19.0		25.9
Net working capital (including financing	MEUR					-948.7		-1,308.1		-903.9
items and taxes)
Gearing	%					-28.8		-51.0		-45.7

• KONE presents adjusted EBIT as an alternative performance measure to enhance comparability of business performance between reporting periods. In January-June 2023, items affecting comparability amounted to EUR 52.4 million including EUR 54.7 million costs recognized on restructuring measures and a slight positive effect from remeasurement of the net assets of operations in Russia. In the comparison period, items affecting comparability included a charge for the impairment of assets and recognition of provisions for commitments in Russia and Ukraine as well as restructuring costs.

4 | H1

Henrik Ehrnrooth, President and CEO:

"I am very pleased with the strong growth in sales during the second quarter driven by good development in all areas and businesses. This, together with better pricing on deliveries and a focus on costs resulted in a clear improvement in profitability. Orders received, on the other hand, declined in the quarter. While modernization continued to grow at a good rate, new equipment orders were impacted by the market dynamics in China. Following a promising start to the year, consumer confidence weakened causing activity in China's property market to soften during the second quarter. Policy actions remain central to market recovery.

We continue to place strong emphasis on margin improvement. Trends in the operating environment are varied in our regions and businesses. In this environment, our priority is to grow in services globally as well as in selected new equipment markets. I am extremely happy with the consistently strong performance of our service businesses. The phenomenal second quarter sales growth of 24.8% shows the strength of our modernization business. Our focus has been on developing a more targeted commercial approach and ensuring a superior customer experience from tendering to delivery. This has improved both sales execution and profitability. In maintenance, we had another excellent quarter with sales growing by 9.8%. Our service base has consistently grown at a healthy pace. It exceeded 1.6 million units under maintenance in the second quarter. Pricing has further accelerated sales growth and the offering developments we have introduced in the areas of digital and sustainability have resonated well with our customers. This is visible in both improved retention rates and the positive development seen in the Net Promoter Score for our service businesses in our recently conducted customer loyalty survey.

Our new operating model was implemented as of July 1st, putting us on track to reach the targeted EUR 100 million annual savings. The changes we have made will further increase local accountability, thereby enabling faster decision-makingcloser to the customer interface. I am proud of the KONE team for their customer focus and the strong development of our business throughout the implementation of the changes to our organization. My heartfelt thanks to all our employees for their continued great work.

With six months behind us, we specify our business outlook for the year. We now expect sales to grow 3-6%and the adjusted EBIT margin to be within the 11.0-12.0%range. In the longer-term,I am confident that our industry leading service business growth, further enhanced local accountability, and the strength of our customer relationships position us well to develop towards our strategic and financial targets."

Key Figures

Orders received (MEUR)

Sales (MEUR)

Sales by region

1-6/2023(1-6/2022)

5 | H1

• In April-June2023, orders received declined by 12.8% (at comparable exchange rates, orders received declined by 8.1%).
• At comparable rates, new equipment orders received declined significantly with significant decline in the volume business and slight decline in major projects. The decline was driven by the challenging market conditions in China and the impact of increased interest rates and slowing economic growth in Europe and North America. In modernization, orders received grew clearly with clear growth in the volume business and significant growth in major projects.
• The margin of orders received improved year-on-year thanks to lower commodity costs in China and favorable pricing development in other regions. Compared to the previous quarter, the margin on orders received was stable.
• In January-June2023, orders received declined by 9.8% (declined by 6.6% at comparable exchange rates).
• In April-June2023, sales grew by 11.0% (grew by 16.1% at comparable exchange rates). All regions and businesses contributed to the growth in sales.
• New equipment sales grew by 11.2% (grew by 18.5% at comparable exchange rates). Service (maintenance and modernization) sales grew by 10.8% (grew by 14.1% at comparable rates). Maintenance sales grew by 6.7% (grew by 9.8% at comparable rates) and modernization sales grew by 21.3% (grew by 24.8% at comparable rates).
• Sales in the EMEA region grew by 9.6% (grew by 13.0% at comparable rates). In the Americas region, sales grew by 10.8% (grew by 12.6% at comparable rates). In the Asia-Pacific region, sales grew by 12.6% (grew by 21.6% at comparable rates).
• In January-June2023, sales grew by 7.9% (grew by 11.1% at comparable exchange rates).

Sales by business

1-6/2023(1-6/2022)