China property developers’ cash squeeze drags down elevator-maker Kone

Logo is displayed in an elevator at the KONE Academy of Finish elevators and escalators manufacturer KONE in Hanover, Germany, February 6, 2020. REUTERS/Fabian Bimmer

HELSINKI, Feb 2 (Reuters) – Reduced liquidity in the Chinese property sector and rising supply chain costs are expected to weigh on 2022 profits, elevator maker Kone (KNEBV.HE) said on Wednesday, as it reported a year-on-year fall in fourth-quarter core earnings.

The Finnish company’s share price fell by as much as 3% before recovering to trade 0.9% lower in afternoon trade, underperforming the wider index, which was slightly higher.

Kone, which relies on China for approximately 35% of its sales, gave a first estimate for its 2022 profits, expecting its adjusted operating income to be 1.18-1.33 billion euros ($1.33-$1.50 billion), slightly down from 1.31 billion in full-year 2021.

“We expect the (new equipment) markets in China this year to remain on a solid level, although to decline somewhat compared to 2021. And that’s of course because of the liquidity situation in the property markets,” Chief Executive Henrik Ehrnrooth told reporters.

“We can see that land sales, new construction starts are both down,” he said.

Ehrnrooth said Kone expected the Chinese new equipment market would return to its 2019 level in 2022 and the business sector would grow outside China.

It also predicted its services business would continue to perform well.

“The adjusted EBIT margin, on the other hand, is expected to decline due to lower margins on orders received in 2021 and continued challenges in the cost environment,” Ehrnrooth said in a statement.

Global supply chain challenges were also showing no sign of going away, Ehrnrooth said, adding sea freight charges were five to six times higher than before the pandemic.

Already, October-December operating profit was reduced by global supply chain distruptions and fell to 351.9 million euros from 367 million a year earlier, missing the 356-million estimate of nine analysts polled by Refinitiv.

Kone’s board of directors proposed a dividend of 1.75 euros per class B share plus an extraordinary dividend of 0.35 euros per class B share.

($1 = 0.8849 euros)

Reporting by Anne Kauranen; Editing by Louise Heavens and Barbara Lewis

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