Kone Oyj B

Good morning and welcome to KONES Q3 24 results announcement. I'm Sanna Kae, head of KONES Investor Relations. I have here with me today our president and CEO, Philip Delorme.

Good morning.

And CFO Ilkka Hara. Philip will first go through the highlights of the quarter and say a couple of words on the strategy. And Ilkka will then talk more about the market development and financials.

Philip, please. Thank you, Sana. Good morning, everyone. So as usual, I'll start by summarizing the highlights from the quarter, which was in many ways an important and exciting one, but it didn't come without some challenges too. The big highlight for us was the launch of our new strategy in September, which was very well received by both our employees and customers and gives a clear midterm direction for our business. I'm also very happy to share that the strong momentum we've seen in service and modernization continued also in Q3. We saw again a close to 10% service sales growth and around 20% growth in modernization orders at comparable currencies. From a geographic perspective, we made really good progress in Americas, Europe, Asia Pacific, Middle East and Africa, with a combined sales growth of around 10% and comparable currencies. Unfortunately, the headwinds in China intensified and our sales declined by 20% in the area and profitability declined as well. With that, we specified again our business outlook for 2024 and expect now sales to grow by 0 to 3% as comparable exchange rates and adjusted EBIT margin to be within a range of 11.5 to 11.9%. Now let's take a look at all of this in more detail. And let's start with the financial highlights. Firstly, I'd like to say that we had a pretty good development in our orders received with 5.5% growth at comparable exchange rates. I'm especially happy, similarly to Q2, that we had double digit growth in orders in three of our four areas. In China, as I said, the market became increasingly difficult and our orders declined by over 20%. Our sales grew by 1.1% at comparable currencies in a quarter. On a positive note, service continued to grow strongly at close to 10% rate and modernization by over 10%. However, the challenging situation in China was also reflected in sales, and there our sales declined by 20%. If we look at EBIT, our adjusted EBIT margin improved by 10 basis points from the previous year. There was positive progress on many fronts, but the difficult market conditions in China impacted us negatively. We have also identified points of attention where we need to improve our performance and have launched performance improvements initiative to accelerate profitability improvement. We are specifically executing pricing task forces, sales and operations excellence at branch level, and amplification of procurement efficiency. And Ilka will elaborate more on the financial in this part. As said, one of the big highlights for us in the quarter was the launch of our new strategy. I've been extremely happy and energized by all the excitement around the launch and the eagerness of people to start executing on the strategy from day one. I won't go through the detail of the strategy now, as we discussed it at our investor day, but I wanted to repeat a couple points on what we are after. So firstly, we want to have a simple, a simple strategy that drives scalable growth. And Ilka will recap what it means financially. We also want to transform KONE into a more resilient business with service and modernization as a key driver of our earning growth. And hopefully, what we're showing here is demonstrating this. And finally, we believe that an important lever for succeeding in the execution of the strategy is to adapt our culture towards more courage, speed, and simplicity, which is a very high point of attention for the executive team. An important part of our strategic ambition is to lead the industry in innovation and sustainability, and here we have some great news to share on our progress. In September, we had an important launch for the taller building, KONE High-Rise Minispace DX. This new offering is valid for both new building and modernization. and is the result of a significant hardware and software innovation combined. The product is extremely energy efficient and enables more rentable floor space in the building as well as a longer lifecycle. It has also in-built connectivity with advanced predictive analytics for smart maintenance. We have also been actively rolling out our innovation for digitally enabled services. We have now reached 35% of connectivity in our service based and have rolled out dynamic maintenance, which is a key enabler for productivity to eight countries and remote service to 10 countries. And we'll continue to push for higher connectivity penetration and roll out of the digital enablers at speed also in the coming quarter. I would like also to share again a few exciting customer references as we do every time. Firstly, I want to share a new building solution example from the residential segment. We tend to talk a lot about the large project, but there is actually a lot of exciting things happening also in the smaller projects. This specific case is a wooden building project from the Netherlands, where we are providing prefabricating elevators for these sustainable buildings. The total lead time for the project is less than a year, so faster lead time, and the installation time is also half, almost half of what's typical, resulting in significant productivity at the site. The second reference is a high-rise project from Australia that actually I could witness. I was in Australia two weeks ago where ground was broken this summer. The residential tower will feature the new KONE high-rise mini-space DX with ultra-rope as the first customer project for the new offering. So a great success here. The customer was impressed by our unique innovation capabilities and I must say I'm very happy to see the traction of this new innovation. The two other references represent different types of modernization. In the US, KONE will modernize 40 elevators and 2 escalators at the Harry Reid International Airport in Las Vegas, which ranks one of the busiest airports in the country. KONE's well-established relationships through an existing maintenance contract was key to helping us understand and meet the customer needs. The final case is from China, where we upgraded 20-year-old non-KONE elevators with KONE half-replacement solution. We retained some of the existing structure and focused on efficient project management, which brought both sustainability and fast installation time. The building users benefit from the increased elevator capacity, improved ride comfort, and with KONE 24x7 connected services, it also improves the safety of the elevators. We also received some delighting external recognition in the quarter. KONE SiteFlow, which is a digital innovation, was recognized for innovation excellence at the 2024 Council for Tall Buildings and Urban Habitats. And in the same event, KONE was also recognized for equity, diversity and inclusion best practices. And we were again also on Forbes World's Best Employers list, which is in line with our strategic ambition to be the number one choice for both our employees and customers. Now I will hand over to Ilka, who will go through the market development and financials.

Thank you, Filip. And also welcome on my behalf to this result announcement webcast. Let's next look at how our markets are developing in Q3. In the third quarter, the market actually was quite similar to what we saw in the first quarters with a couple of things to highlight. In the new billing solutions, the market stabilization in Americas and in Europe solidified with even some pickup in activity in Americas. On the other hand, in China, the market weakened further. Consumers continue to be hesitant to buy new apartments, and the prolongation of this is making the liquidity situation of the project property developers increasingly difficult. In services and modernization, the markets continue to develop positively across all areas. Overall, the Asia-Pacific Middle East Africa market continues to face the most positive market environment with plenty of opportunities in all businesses. Then let's look at the Q3 financials. And I'll start with orders received. As Filip already highlighted, our orders grew at the double digit rate in three of our four areas at the comparable exchange rates. Overall, our orders received grew by 5.5% in the quarter, which to me was a good achievement given the market environment. We had strong orders in modernization, with growth of 20%, but also very good progress in new building solutions in most parts of the world. In China, the new building solutions orders declined by over 15% in units and significantly more in monetary value. Our margin of orders received declined slightly, driven by China. In the rest of the world, we saw slight improvement in the margins. Then let's look at sales. Overall, our sales grew 1.1% at the comparable currencies in Q3. Our new billing solution sales declined by 9.3% as a result of the slow construction market in China. On the positive side, we saw again strong development in services with 9.6% growth and in modernization with 10.5% growth. Geographically, we saw strong growth in Americas at 11.6%, 6.3% growth in Europe, and 15.8% growth in Asia-Pacific, Middle East, and Africa at the comparable currencies. Altogether, these three areas grew by around 10% at the comparable extremes, which to me was one of the highlights for the quarter. In China, we saw slow order book rotation due to the slowness in the construction market, but also because we continued to manage the deliveries very tightly to ensure cash flow. As a result, our sales declined by 19.7% at the comparable currencies in Greater China. The services and modernization sales have continued to develop positively also in that part of the world. Then let's move to adjusted EBIT and profitability. Our adjusted EBIT margin continued to develop positively and improved 10 basis points compared to a year ago. And our adjusted EBIT was 319 million euros. The positive drivers for profitability were better margin in our new billing solutions and modernization deliveries outside of China, as well as the favorable business mix. On the negative side, we continued to face broad-based inflation, but the single biggest headwind for us was the margin decline in China. In China, we continued to be strongly focused on product cost reductions and overall adjusting to this harsh market reality. We also increased our provisions for bad debt, and this had a negative impact of around 20 million euros on our adjusted EBIT in the quarter. As Filip mentioned, we're also launching global performance improvement initiatives to accelerate the margin improvement going forward. Then finally, our most important metric, cash flow. We had a solid cash flow from operations in the quarter at 345 million euros, which was a bit above last year's level. Year to date, our cash flow is slightly down from previous year, Our working capital continues to be strongly negative, although now slightly less negative than in the beginning of the year. We've seen positive development in our accounts payable, while our inventories have increased somewhat. Also, our accounts receivables have increased slightly outside of China. Then let's look at the market and business outlook for the year. Our market outlook for 24 remains unchanged, and for 11 out of our 12 markets, the outlook continues to be positive or stable. Modernization markets are expected to remain very active, and the outlook is positive also in services. In new building solutions, the market continues to be mixed with stable outlook for North America and Europe, growth expected in Asia Pacific, Middle East and Africa, and China market to remain difficult. Then to our business outlook. As Filip said, we have specified our guidance for the year slightly after we have three quarters behind us. We now expect our sales to grow by 0 to 3% at comparable exchange rates in 24, while previously the range was from 0 to 4. The adjusted EBIT margin is now expected to be in the range of 11.5 to 11.9, while previously the range was from 11.5 to 12.2. The key reason for us lowering the guidance range from the top end is the increasingly difficult market environment we're facing in China. Overall, the drivers supporting our performance are the continued strong growth in both services and modernization, improved margins coming through in deliveries outside of China, the strong order book, and the savings from operating model renewal, which we saw in the first half of the year. The drivers burdening our performance are declining new billing solutions market in China and globally the persistent cost inflation we're facing. To close my part, I wanted to recap the new mid-term targets that we introduced for 27 in our Capital Markets Day. And to say a couple of words of the 25 outlook. So first for the period of 25 to 27, we're targeting mid single digit annual sales growth driven by close to 10% growth in services and a double digit growth in modernization. In the new billing solutions, we expect low single digit growth outside of China. And in China, we expect the market to decline further. For profitability, our target is to reach 13 to 14% adjusted EBIT margin by 2027. In 2025, we expect services and modernization businesses to continue to develop positively. And we have a solid order book now of our new building solutions in most parts of the world. We also expect to start to see the first results from the performance improvement initiatives towards the end of 2025. However, there are some headwinds as well, with the Chinese New Billing Solutions market expected to continue to be difficult and wage inflation to persist. Overall, we target a margin improvement also next year, but the margin improvement is expected to accelerate towards 27, as the impact of the performance improvement initiatives fully kicks in and the negative impact from China gradually fades. I would next like to hand over back to Filip to summarize our presentation. Please, Filip. Thank you, Ilka.

So to summarize, we are now getting into full swing with our new strategy, which has created a lot of excitement among our stakeholders. We are happy to show another quarter of strong growth in the resilient service and modernization businesses, and we expect that to continue also in the coming quarters, in line with our new strategy. When we look at our markets, the outlook is mostly positive, while the Chinese new building solution market continues to be increasingly difficult. we are ramping up clear and focused performance initiatives to support delivery of our 13% to 14% adjusted EBIT margin by 2027. I would like again to say a big thank you to everyone at KONE for their hard work demonstrated in the third quarter. And with that, we are ready for your questions.

Thank you very much, sir. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. Please also ensure your mute function is not activated in order to let your signal reach your equipment. Also, in order to let the maximum amount of people ask their question, please limit yourselves to one question and one follow-up question. This first question will be coming from Andre Cookman calling from UBS. Please go ahead.

Good morning. Thank you for taking my question and follow-up. Maybe I'll start with a follow-up. Just on the backlog margin evolution, you commented that it's down slightly year-on-year. Could you comment on how it's developed sequentially in Q3?

Can you repeat the beginning? You were talking about orders margin, or what did you ask?

Sorry, order intake margin. Yeah, you said it's down slightly year-on-year. Could you comment on how it's developed sequentially quarter-on-quarter And how is the backlog margin developing, please?

So sequentially, it's slightly down as well as we've commented in the past and driven by China, where we see continued pressure on margins, despite the actions we're taking on the product cost side that Philip was talking about. And on order book, as I've said before, the order book, of course, fluctuates quite a bit depending on the contracts that you're signing, whether they're major projects or more quicker rotating. But it is on a good level in order book. And outside of China, we continue to book slightly higher margins in orders than we are delivering. In China, it's the opposite.

Thank you very much. And if I may, just briefly a question on your comment on the pickup and activity in America. Could you elaborate on that in terms of whether this is the U.S. or Canada? I guess South America is not relevant to you. And where are you seeing that and whether that is indicative of a trend or just a quarterly phenomenon?

Yeah. So it's good. So first, we are commenting the markets where we are active. So it's a comment about Canada, U.S. and Mexico. And given the size, it's a lot of the comment is really mainly about U.S. And second, which is good to remember, that the volumes in U.S. are quite low, although the value per unit is quite high. So the swings in the market when we comment the market activity in units can be fluctuating. And in the third quarter, we did see fluctuations. positive development in the market. Also part of the impact was coming from few larger major projects where there were quite a few units being ordered. So overall market continues to be stabilizing and this quarter was very good, but for the full year our outlook was on the market to be stable. I consider that to be a start. Then let's see how it develops, where there are many moving parts still.

And maybe to build on your answer, so just stating maybe one thing that's obvious, but I'll make it clear, which is now the Americas is our second area. It has taken the space of China. And when you look over a longer period of time, there's been an amazing job to drive the margin up and to drive... a superior growth compared to market. So we are very proud of our team in Americas. We are supporting them fully, and we see actually very good output out of now the second geography for Coney.

That's actually a good point. That's a big milestone for the team in Americas to be the second biggest area for us in terms of sales. That's really helpful. Thank you very much to both of you. Thanks. Thanks, André.

Thank you. Our next question will be coming from Daniela Costa of Goldman Sachs. Please go ahead.

Hi, good morning. I have two questions. I'll ask them one at a time. The first one sort of like relates to China, basically. And can you comment on that China is still profitable? And given the pricing trends that you and your peers have been flagging in China and the situation, do you see a possible outcome that maybe next year China will not be profitable? Or do you have actions that you can take immediately now to prevent that situation?

So maybe I can start with this. Yes, China is profitable, but it's lower than the company average. And we clearly see the mix of the business shifting. So we see services and modernization growing on average quite close to double digits, while actually we've been pretty explicit on growth. are trends in new building solution, but the three business lines are profitable. And maybe you want to compliment on the actions going forward.

Yes, and definitely in this market environment, we continue to take actions in our cost base as well, aligned with the market, and aim is definitely to be profitable. And I think we have good actions to support that. Maybe on top of what Philip was saying that, of course, in this type of markets, what's really important is the structure, how you operate, but especially on the product cost to really be ruthless in driving product cost reductions. and really look at it from a perspective of what the customer needs are. And what I'm very happy about with our team in China, who, by the way, does a great job in this market environment, is that the product cost reductions that we've seen have been 3x of what we've seen in the past, and we continue to see opportunities for that going forward. So that's also one part of the actions that we're taking in this market environment. Thank you, Max.

And cash is our guiding principle. I mean, you know this, but Coney has a very strong cash culture. But I would say I'm impressed every time I engage with the China team on the discipline we have in cash in tough market conditions. So we are prudent. We always privilege cash to anything else. And we intend to keep doing that going forward.

Thank you. My second question may be related to some of the things that Ilko was also talking about, but just going back to the CMD, where you had the bridge to get to the 13% to 14% margin, and also tying that up with the 2025 commentary that you just gave, the bridge had three parts, basically. It had the ones related to product costs and digitization and modularity in the individual business units. Had the business mix, which you just gave a comment on that, that will take time, that it's time to shift. And then had the big bar that was 100 base points of performance initiatives. Can you give us a little bit more color exactly on what those performance initiatives are and whether they're more back-end loaded, they're more linear through the period, just trying to tie up how you get to the 2027 given the commentary on 25? Sure.

Yeah, and I actually gave a bigger expectation than that. I think it was 150 basis points for the performance initiatives. And then, of course, we have a choice then to reinvest some of the benefits back to the business if we so decide. So that's then the net 100 that you're referring to. But on the initiatives, Philip talked about them. I'm sure he's going to comment next. It's quite passionate about them. They will take some time to have impact. So we expect to start to see the impacts towards the end of 2025. And then throughout the period to 27, the strategy, if you think about the performance initiatives, they will continue to deliver positively, as well as then some of the things like the mix change, digitalization, providing improvement in profitability for services and so forth. they continue to ramp up with accelerating speed towards the end of the 27. That was my main message on that one. But I think, Filip, if you want to comment a bit about the performance initiative.

So the performance initiative, we gave some details in the Capital Market Day. There are nothing fancy, but we know things that work and that work in a playbook of driving efficiency. So pricing, there is an opportunity to do a better job, more data-driven on pricing. sales and operational excellence at branch level, we think that we can drive a better discipline across the board to excel better on execution at the elementary unit of KONE, which is a branch. So a team of 20, 30 people following a region, a district. There are tons of best practices across Coney, but we are not always very good to document them and make sure that we do execute systematically and have a passion of excellence and execution. And the last one is procurement. And procurement, we've launched a work on procurement that we call Fuel for Growth Project. A little more than a year ago, we think we have an opportunity to accelerate this in China, but also out of China. And these three, on top of a very strong attention on our global cost, we believe can yield into the 150 basis point opportunity. Some of it would then be reinvested into the growth because we need to invest in digital, but We want to have this space so that we can also adapt and maneuver with market conditions that we know will be changing.

Thank you for that.

Thank you, man. We'll now move to Vlad Ergievski of Barclays. Please go ahead.

Good morning. Thank you for taking my question. I'll start with free cash flow, if I may. Equity free cash flow conversion below 100% this quarter. which leaves room for historical standards, I would say. Do you think you will be able to make progress to improve cash conversion in Q4 2025 to 100% or maybe above where it's historically been for KONE before 2021? So that's the first question.

To simplify the question, can we improve and are we aiming to do? Definitely so. And on cash flow, we don't guide quarters. And I think actually on a quarterly level, there's always fluctuations. But definitely that is focused, as Philip was referring, context of China, but also outside of China. So definitely that's the goal.

Hans, maybe I can follow up on that. What would be the key levers for you to pull to actually improve?

Well, of course, the main lever is to make more profits. So that's why we want to grow and grow profitability. But also equally in the working capital, we see opportunities to improve. And I guess I was commenting them also in CMD and they haven't changed. So we see opportunities in finance. in extending our payables, where there's clearly opportunities. The collection outside of China, we have large businesses with opportunities to collect faster. And there we see the biggest opportunities on customer payment terms. We have a quite a good payment terms across all businesses. So maybe less improvement opportunity there. And then lastly, I guess on the other items on CapEx and M&A. On CapEx, we are quite low CapEx. If you look at the pure CapEx, around 1%. It fluctuates a bit, but not much, and that's been enough for the business. We don't see, other than the investments that we're making for CapEx in terms of optionality in manufacturing footprint, which is already included in the actuals and continues on that speed, to be major differences. And in M&A, we are... then if opportunities come to consolidate to these Baltan acquisitions and good opportunities that we want to continue, lately we've actually had quite a lot of positive opportunities there. Market looks promising, but that's, of course, a choice that we make based on what's available. And value creation. Yeah, definitely.

Excellent. Thanks very much. And if I can follow up on another follow-up, the second question will be on modernization. Would you be able to comment on modernization? Would you be able to comment what volume and pricing development separately are you seeing in China modernization market? And whether you think modernization will continue to be your most profitable business in China over the medium term, maybe long term? Yeah.

Maybe I'll take in the reverse order the questions, because I think Philip will want to comment on the modernization opportunity, which was the first part. So modernization continues to be the most profitable business we have in China. more stable business in terms of profitability while it is growing. And then from a unit and price perspective, that's something that I very seldomly comment when it comes to modernization, because there's many things in modernization. So starting from partial modernization to more a full replacement of elevators so it makes less sense on a pricing environment of course china continues to be quite competitive overall but in modernization i would say that the pricing environment has been more stable definitely than in nbs lately but maybe you want to comment on the monetization just bigger picture context which is

There are 10 million elevators in China out of 25 million in the world, of which, in China, 1.2 million are more than 15 years old. This 1.2 million elevator, by 2030, will become more than 3 million. So you make the mass of the unit number growth, and you look at how the market is being addressed, there is ample opportunity for everyone. We think China actually will also be a market where the agility and the capacity to respond to real customer needs will be tested. In that context, we believe Chinese being very pragmatic and maybe being a bit more ruthless on cost Partial modernization would be more important. And we think that we actually, on that front, have a pretty good way of addressing the market, which maybe explains why we have been so consistent to delivering modernization well in China.

Hey, maybe, Vlad, I still summarized my answer because I realized that I was quite lengthy. So we talk about China margins overall have come down and are below group average. That's a comment we made earlier. But it is not because of modernization. That margin is stable. It's because of NBS, both the volume as well as the profitability coming down. Just to be clear. Good catch.

Excellent. Thanks very much for all the details, Edmund.

Happy to do so. Thank you very much for your question, sir. Sorry to interrupt you, sir. Our next question will be coming from Miguel Borega, colleague from BNP Paribas. Please go ahead. Your line is open.

Hi. Good morning, everyone. Thanks for taking my questions. The first one is just around China. I remember you having very strong order growth in Q4 of last year. When would you expect that to flow through the P&L since China's sales over Q2 and Q3 are still down 20%? So would you still dare to come through over the next coming quarters and to boost growth in China or not really? And then I can ask the second question. On the full year guidance, you mentioned the reason for the cut was an increasingly difficult China market. But the reality is the cut is the same as the bad debt provision in Q3. So in other words, have you changed your expectations for Q4? Thank you very much.

That's a good question. I'll start with China orders development in last year and what we see in deliveries. China market is very dynamic. And what we see is that order book rotation is slowing down, and that's been consistently happening now for some time. But equally, we are selective and prudent, focusing on cash. As customers place orders, we do continue to make checks during the time of getting to the delivery to manage credit risk. And in some cases, more cash basis, but in most cases... You need to make prepayments before we deliver. And as the liquidity is constrained, then of course that slows down further or makes us more selective in which orders we're delivering. So there's maybe less correlation than in the past on this order rotation.

as such and that's where prudence is could be apparently impacting our pnl but we are back to the square rule of cash versus kind of visible short-term volume that actually would not deliver the cash so i think this point of behavior is very important and we are very very attached to it

Then the second part was that, hey, why and how did we change and what the impact is on the fourth quarter? So, of course, there are many moving parts in the business. And this time it happened to be similar numbers and clearly the driver for the change. cutting the top end of the guidance range was the continued weakness in the NBS market. But I would not have a direct causality on how you proposed.

Thank you for your question, sir. We'll now move to Rizk Maidi of Jefferies. Please go ahead.

Yes, thanks for your time and for taking the questions. I'll have to pick them one at a time. So maybe just on, again, on China, I know it's a smaller part of the business, but sorry to come back to this. Price mix drop in excess of 10% in a quarter where you've actually underperformed the market when it comes to volumes. I rarely see sort of this sort of situation, I think. This downturn compared to the previous ones, I think you always said that your competitors have actually less levers to be more aggressive on pricing, just because they're not making as much margins as they've done before. Can you just maybe talk about this overall sort of pricing dynamics? And just maybe to link this with a previous question, we've seen it in other markets. When new equipment becomes weak for an extended period of time, we see price deceleration spreading into markets. other segments, maintenance and modernization. What makes you think this is not going to happen this time?

Well, if I start and then maybe you continue from there. So I would, and I've said this before, that on orders particularly, single quarters can fluctuate. And if you look at the nine months of the year, the picture in terms of us and the market fluctuates. is much more stable as a result. So in single quarters, we can be above or below the market development in terms of volume. But your comment in terms of price pressure in the market and also mix contributing negatively. So it depends what's being constructed and now it's more the low end. So it is true. So it is very competitive and challenging market right now. And that's visible in our orders received in the quarter. Then on the pricing pressure in China, it's been always the most competitive market when it comes to pricing across all businesses. Of course, in the past, the NBS business has been the larger part of our commentary because of its size. But now increasingly, we see the impact of services and modernization as they're growing fast to be part of the commentary. And both businesses have always been competitive in pricing, but I think from a pricing pressure perspective, we've seen more stability in those two businesses so far.

Maybe to illustrate, I was mentioning on modernization the fact that we are on partial modernization, talking about smaller projects. Given the size of the opportunity in modernization, there are less people. I mean, people in context of market tension will tend to look at the big price. And actually when you go after the smaller project where there are less people watching and it's also more about customer intimacy where we have actually a pretty large service base that allow us to have those leads on this elevator that's kind of getting old and there is a partial modernization opportunity where actually we have the service contract, we have the relationship and therefore the competitive intensity is less. Now, I think Ilka said it, it's a competitive market. And on your point on NBS and orders and so on, we are clearly given the market trend and the liquidity tension. We are being more intentional with our team to say we want to put somewhat of a floor on our profitability and we'll privilege profit to volume. So we are adapting ourselves in market conditions with, again, prudence and cash as the guiding principle to make sure that we protect the interests of the company.

Thank you very much. This is very helpful. The second one, and again, thank you for giving us a little bit of an early comment on 2025 because that's really the main debate, I guess, for us this morning. Just maybe if I could ask you on some of the items in the EBIT that you actually know from today. I know you don't have a crystal ball on a lot of things, and a lot of things can change between now and then. But can you give us an assessment of roughly how much savings, when you think about those performance initiatives that you talked about, you're estimating to achieve basically next year?

So first, I think we've been now working with a new strategy, what, three, four weeks? A long time. A long time. No, but seriously speaking, of course, we've been preparing for this, but it's not been out there within the company or externally for a long time. So there's a lot of work we need to still do to both. We know what we want to do, but how we do it and how quickly can we get it done? And it will always take time to work, for example, the sales and operational excellence to work branch by branch or region by region through it. So we expect the savings to be starting towards the end of 25. And of course, as we mature, we'll give more details about those initiatives in the coming quarters.

Perfect. Thank you.

Thank you, sir. The next question will be coming from Klaas Bergelind of Citi. Please go ahead.

Thank you. Hi. I was a bit late on the call, so maybe you covered some of this already. First, on the modernization business in China, it's the best margin in China at the moment, but We're hearing of incremental price pressure also in mod. You've obviously done a great job in improving the mod margin since 2020 for the group, and you want to improve it further. It would require sort of a pretty good step up. China is obviously with that $1 billion of growth ambition that you have, if this margin would be under pressure. Or do you think you can keep the margin there at the current level in China mod, despite a very competitive market? That's my first one.

Well, I guess there is a lot on modernization. I think we tried to explain that in a capital market there, but there are two types. There is one which is a full modernization, which the attributes of that business are not too far from NBS, from the new construction, and then the partial mode. I think in both, but especially in partial mode, We want to standardize and come with this concept of packs or kits or whatever you call it, but go with very standardized value proposition that takes a part of the value proposition of the full modernization, but make it standard. And by doing this, we believe we can execute better, be actually more cost competitive, more replicable, and therefore hold our margin to be easier to sell for our sales force and therefore be more efficient from a cost standpoint, but from a cost to deploy standpoint. And I think also on pricing here, having in mind that these smaller projects are indeed, there are a lot linked with customer intimacy and so on. For us to be able to evidence a value-based pricing is probably also an opportunity in China and outside of China where we've not totally maxed out our potential.

And I already, Klaas, if you were late, I was expecting your question, but now it's here. I already commented to a question that our decline in margins in China is not because of modernization. It's because of NBS volumes and margin coming down. And despite China always been challenging on pricing, we've seen more stable margins in modernization side and pricing support in that.

Yeah, and this is a good bridge into my second question on modernization and the offering. You had a very good impression at the Katamakis Day that you, or at least I felt it, that you're relatively unique in terms of the increased standardization, partial modernization, all these kits. There are some peers, though, that are reporting very strong growth. It's very similar to you this quarter. And they're talking about that they've introduced these standardized kits also into the market. So could you just remind us again, and you were leading in the whole sort of standardization and equipment 20, 25 years ago. I think you have a strong position. And I'm still curious to hear your sort of USP versus some of the competition out there on the mod business. Thank you.

I'm not sure I get the question. So how do you compare us versus competition in terms of modularity and modernization? Maybe I may first. So I think it's good to remember, if you remember the blue dot and the huge box of pink around it, that there's ample opportunity. None of us are modernizing or the industry as such is not modernizing nearly enough. And of course, there's a competition, but it's also demand generation. So it's a bit of both. And the main opportunity for us is actually to generate the demand.

But maybe you want to comment on... you you you challenge them on that one but what's clear is that this modernization transformation has not started this year it has started actually many years ago and i think we got momentum because we've been working on it for quite some time and really we have seen some acceleration is more on the partial modernization where i mean we are always watching competitors we do believe that actually we are doing pretty well here But I think we could do better, and we should do better. So we are doing well, but the reason why we make it a shift and say it's a big priority is actually we think we can be even more focused and even better, and we are determined to be better.

Thank you. Thank you very much, sir. We'll now move to Nick Houston of RBC. Please go ahead. Your line is open.

Hi, thank you for taking my questions. They're both on the service business. Firstly, how much did M&A contribute to the 9.6% service growth in Q3? And then secondly, can you just comment on whether you're seeing any pricing pressure on services in China and maybe just quantify that for us? Thank you.

So in the services growth, out of close to 10% growth, our unit growth was roughly 7%, including M&A. M&A had positive impact, but still the organic growth was the main driver for the growth. And then to China. So, of course, the market continues to be challenging from a pricing perspective, as I said earlier. But I think from our perspective, the service prices have been definitely more stable than we've seen in, for example, NBS business. So, yes, there's pressure because the economy is weak, but we can also have been able to sustain quite well the margins.

Okay, thank you very much.

Thank you, sir. We do not appear to have any further questions at this time, and I turn the call back over to Sanna for any additional or closing remarks.

Thank you. Thank you. Thanks, Philippe. Thanks, Ilkka. And thank you for all of the great questions again. And if there's any more questions, please reach out to us at Investor Relations. But with that, I think we're ready to close. So have a lovely rest of the day.

Thank you so much.