KION Group AG expects a substantial impact to its third quarter 2022 earnings due to intensifying supply chain shortages, as well as significantly higher cost increases for materials, energy and logistics.
Based on most recent estimates for the period from July to September 2022, the KION executive board anticipates a significant slump in earnings, while the order intake is also expected to be significantly below last year’s levels.
For the Supply Chain Solutions (SCS) segment, KION notes that supply chain disruptions continue to cause delays and reduce the availability of critical parts on project sites. This results in labour inefficiencies and significantly higher total project costs. As more new projects are ramping up in parallel, the availability of skilled labour, especially in North America, has increasingly become a limiting factor due to high demand from other industries.
Together, these effects are expected to have a significant negative impact on the financial results of the third quarter 2022.
In the Industrial Trucks & Services (ITS) segment, third quarter 2022 earnings are expected to be close to the prior quarter. Here too, shortages of parts and components are expected to continue, while the segment also deals with the impact of a cyberattack on one of the key electronics suppliers in the third quarter 2022. At the same time, the company has been successful in reducing the number of at-risk suppliers in its portfolio as well as reducing the inventories in semi-finished trucks in the quarter to date.
“The disruptive macro-economic situation has revealed substantial challenges within our internal processes, and we are analysing these thoroughly. We are taking decisive action to lead the company back to profitable growth,” says group chief executive officer Rob Smith.
He adds that existing measures like agile pricing, strengthening the supplier network as well as establishing alternative supply channels, have already started to show effect.
“We are acting with urgency to overcome the challenges we are facing. In the second quarter of this year, we introduced price adjustment clauses in our project contracts, allowing us to more effectively pass through cost increases to our customers. We are also working with our suppliers to lock costs in early in the project lifecycle. These steps will allow us to respond flexibly to cost changes during our usual six- to 24-month project schedules,” explains Hasan Dandashly, member of the KION executive board and president of the supply chain solutions segment. “Additionally, we are enhancing our project management processes to be more agile and robust in a volatile macro-economic environment. We will continue to build on the great innovative power of SCS and implement our state-of-the-art supply chain solutions and technologies to the benefit of our diverse customer base.”
Looking ahead, KION Group expects to return to a profitable growth path in the medium term. “Our business model is intact. We operate in attractive market segments where we benefit from a number of megatrends including automation, urbanisation , sustainability and e-commerce,” says Smith.