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Governments across the world are taking significant and increasing measures to contain the COVID-19 outbreak by restricting the movement of people. In some places, this has also resulted in measures such as closing down construction sites, limiting manufacturing operations and limiting maintenance activities which impact also KONE's business. The extent of the measures varies from one country to another, and the situation changes on a daily basis. In Q1, the restrictions have been the most severe in China, but there KONE has already seen significant recovery after the loosening of the restrictions since end of February. In the rest of the world, the measures are currently increasing significantly.
KONE's priority is to ensure the health and wellbeing of our people and to minimize impact to customers. We are taking strong actions to manage the situation both at the local and global levels and following the instructions from the local governments and health authorities.
KONE's ability to deliver has remained overall on a good level considering the demanding operating environment. However, KONE expects the abovementioned measures to increasingly impact the timing of KONE's deliveries and pace of installation in many markets and thus KONE's new equipment and modernization sales.
KONE's maintenance business is by nature very stable and resilient through cycles. During the actions to contain the COVID-19 outbreak, elevator and escalator maintenance has also typically been considered as critical service and allowed with some limitations. However, in several countries, also the maintenance business is impacted to some extent. Some customer sites are closed and although call-outs and other mandatory maintenance visits continue, there is less discretionary activity such as repairs.
BUSINESS OUTLOOK FOR 2020:
KONE now estimates that in 2020, its sales will decline or be stable at best at comparable exchange rates as compared to 2019. The rate of decline in sales will depend on the duration and severity of the government measures and the pace of recovery.
* Stable sales would require a relatively brisk recovery in the second half of 2020 and sustained positive progress in KONE's largest market China.
* KONE's sales are expected to decline by less than 5% in case the restrictive measures would impact KONE's business mainly in the first half of 2020 and there would be a gradual recovery in the second half.
* Should the broad and strict government measures continue to impact KONE's operations well into the second half of 2020, KONE's sales are expected to decline by 5-10%.
The adjusted EBIT margin is expected to decline somewhat or to be stable at best.
Profitability is expected to be burdened by weaker fixed cost absorption due to lower sales, the costs related to the measures to ensure the safety and wellbeing of KONE's employees, suppliers and customers and the costs related to the actions in the supply operations to ensure solid delivery capability among other things. Excluding the COVID-19 related factors, KONE's profitability outlook has been positive.
Demand for KONE's solutions and services is also expected to be impacted by the prevailing uncertainty. KONE will give an updated market outlook in connection to the Q1 interim report.
Despite the short term disruptions to its business, KONE expects to come out of the demanding situation in a position of strength. KONE's competitiveness is solid and the balance sheet is strong. KONE also has a solid order book and the overall outlook for the service business is positive.
_Previous business outlook: KONE previously estimated its sales to grow by 0-6% in 2020 at comparable exchange rates as compared to 2019. The adjusted EBIT was expected to be in the range of EUR 1,250-1,400 million, assuming that foreign exchange rates would have remained at the January 2020 level. Foreign exchange rates were estimated to impact EBIT positively by around EUR 15 million.
