KION Group results for first Nine Months of 2022 impacted by sharp increase in project business costs in Third Quarter

Posted on Oct 27, 2022 in Nuts & Bolts

• KION Group’s third-quarter adjusted EBIT for 2022 at the higher end of the expected range communicated in September

• Q1–Q3 2022 order intake at €9.172 billion above the previous year (+2.0%) – considerable order deferrals by customers in the project business in the third quarter

• Q1-Q3 2022 revenue increases by 9.4 % to €8.243 billion driven by a strong Industrial Trucks & Services segment

• Q1-Q3 2022 adjusted EBIT of €210.6 million significantly below the previous year (€691.1 million)
  – affected by ongoing disruptions in supply chains and further increases in costs for materials, energy, and logistics

• Q1-Q3 2022 free cash flow of -€971.9 million (€134.7 million) clearly negative as a result of a significant increase in net working capital

• KION Group intends to withdraw completely from Russian business

• Full-year 2022 outlook presented in September 2022 confirmed

KION Group ended the first nine months of the 2022 financial year with a solid order intake and strong revenue, driven in particular by the Industrial Trucks & Services (ITS) segment. Free cash flow and adjusted EBIT were under significant strain.

High inflation and increasing economic uncertainties continued to have a serious impact on the KION Group’s business activities in the third quarter of 2022. The continuing unfavorable development of costs coupled with supply chain disruptions also had an increasingly negative effect. The inefficiencies due to a lack of availability of important parts at project locations led to project delays and therefore higher overall project costs in the Supply Chain Solutions segment. The extremely volatile macroeconomic environment also exacerbated internal inefficiencies in project management and implementation. Sharply rising costs for materials, energy, and logistics, as well as ongoing bottlenecks for supplier parts and components also negatively impacted the Industrial Trucks & Services segment and thereby the Group’s results.

The adjusted EBIT of KION Group of -€101.1 million (previous year: €228.9 million) for the third quarter of 2022 is at the higher end of the expected range of -€140 to -€100 million communicated in September 2022.

“In a market environment that remains volatile, KION Group has intensified its measures to reduce costs and improve project management processes. The Group also continues to focus on strengthening its supplier network and on implementing agile price adjustments,” says Rob Smith, CEO of KION GROUP AG. “During the third quarter, we also developed a roadmap of targeted measures to increase our profitability, particularly in the project business, which we are now implementing consistently.” Among other things, this includes risk reduction in all project contracts through price adjustment clauses and a general optimization of bid preparation and solution design at the start of projects. Further, procurement processes will be improved, the supplier network expanded, and risk mitigation across the entire portfolio intensified.

The order intake of KION Group after nine months of 2022 was at €9.172 billion, 2.0 percent higher than the strong 2021 comparative value. The Industrial Trucks & Services segment increased order intake in the reporting period by 17.5 percent to €6.732 billion (prior year: €5.731 billion), despite a market environment affected by macroeconomic uncertainties. A substantial part of the increase is attributable to previous price increases, particularly in the EMEA region. In the third quarter of 2022, the order intake of €1.905 billion was 11.4 percent higher than in the prior-year quarter. The Supply Chain Solutions segment recorded a decrease of 24.1 percent in order intake in the nine-month comparison, down to €2.480 billion (prior year: €3.267 billion). In the third quarter of 2022, order intake decreased by 56.1 percent to €614 million compared to the record third quarter of the previous year. Whilst in the prior year, the order book was filled with several large contracts, the lower order volume in the reporting period was also impacted by customers deferring considerably orders. In addition, slowing demand from e-commerce customers as well as the cancellation of two significant orders by customers also impacted order intake.

By September 30, 2022, the Group order book increased accordingly to €7.697 billion (end of 2021: €6.658 billion).

After nine months of 2022, Group revenue totaled €8.243 billion, exceeding the prior year’s value (€7.534 billion) by 9.4 percent. Revenues grew by 5.5 percent in the third quarter to €2.706 billion. Total revenue in the Industrial Trucks & Services segment in the reporting period was up 11.3 percent to €5.288 billion (prior year: €4.750 billion). Due to extended delivery times, the increase in revenue was largely based on the order book from the previous year. As a result, the dynamic price increases for industrial trucks in the first nine months have not yet had a tangible impact on revenue for the Industrial Trucks & Services segment. High deliveries of trucks at the end of the third quarter, however, led to a significant increase in revenue compared to the prior-year quarter. Total revenue in the Supply Chain Solutions segment increased by 6.3 percent to €2.970 billion (previous year: €2.794 billion), mainly driven by strong growth in the service business.

KION Group’s adjusted EBIT fell to €210.6 million in the reporting period (prior year: €691.1 million). The adjusted EBIT margin, therefore, dropped significantly to 2.6 percent (previous year: 9.2 percent).

The adjusted EBIT in the Industrial Trucks & Services segment decreased to €300.4 million in the nine-month comparison (prior year: €423.1 million). In the third quarter of 2022, adjusted EBIT was €102.6 million, 29 percent lower than in the same quarter of the previous year (Q3 2021: €144.5 million). The higher costs were so far barely offset by increases in sales prices in the first nine months of the year 2022, as mainly orders received before the price adjustments were being processed. The adjusted EBIT margin in the first nine months of 2022 was 5.7 percent (prior year: 8.9 percent), a slight improvement compared to the previous quarter. As a result of higher sales volumes, the adjusted EBIT margin in the third quarter of 2022 improved by around 0.8 percentage points compared to the previous quarter.

The adjusted EBIT for the Supply Chain Solutions segment in the first nine months of 2022 was -€32.2 million, significantly below the prior year’s value (€336.6 million). In the third quarter of 2022, adjusted EBIT decreased significantly to -€182.0 million as a result of the aforementioned effects. Therefore, the negative adjusted EBIT margin dropped to -1.1 percent in the nine-month comparison (prior year: 12.0 percent).

At €66.9 million, Group net income in the reporting period was significantly down from the previous year
(€430.8 million). This includes negative extraordinary effects from the Russian business (after tax) of approximately
€34 million.

At -€971.9 million, free cash flow was clearly negative (prior year: €134.7 million). The main driver here was the significant increase in net working capital.

KION Group has secure funding, allowing it to meet the expected financing requirements at all times. Therefore, the Group considers itself to be in a solid position in terms of its future financing capabilities.

KION Group Intends to Withdraw Completely from Russian Business

KION Group reacted immediately to the war in Ukraine and has upheld and will continue to uphold all sanctions. In the meantime, the Executive Board of KION GROUP AG has decided to withdraw entirely from Russian business and different options to this effect are being examined. Less than 1 percent of the global revenue of the KION Group were generated in Russia and Belarus in 2021.

Outlook

The Executive Board of KION GROUP AG presented new outlook for the 2022 financial year on September 13, 2022. The Executive Board expects the key performance indicators for KION Group and its operating segments in the 2022 financial year to be within the following ranges:

In view of the continued deterioration of the macroeconomic environment and lingering uncertainty in the sales markets, combined with the escalating energy crisis, persistent disruption in the supply chains, and risks associated with further rises in procurement costs, the predictions for the business performance of the Group and the operating segments in the remainder of the year continue to be subject to significant uncertainty.
Key Figures for KION Group and Both Operating Segments for the First Nine Months of 2022 and the Third Quarter Ending September 30, 2022

[1] Value on closing date 9/30/2022 compared with balance sheet date 12/31/2021

[2] Adjusted for effects of purchase price allocations as well as one-time and special effects

[3] Free cash flow is defined as cash flow from ongoing business activity plus cash flow from investment activity

[4] Number of full-time equivalents on 9/30/2022 compared with balance sheet date 12/31/2021