Kone Oyj B

Good morning, everybody, and welcome to Kone's fourth quarter earnings call. My name is Natalia Valdesari. I'm head of investor relations here at Kone, and I'm very pleased to be joined by our CEO, Philippe Delors, and our CFO, Ilka Hara. So, as usual, Philippe will start by talking through the highlights of the year and about our strategic developments, and then Ilka will continue going through the markets and the financials. With that, Philippe, please.

Thank you, Natalia, and welcome back on board the IR team. A very good morning, everyone. I'm very pleased to be here today presenting our results for 2024. So let me start again, as usual, by summarizing the highlights this time focusing on the full year 2024. It goes without saying that one of our most important achievements last year was the launch of our new strategy, RISE. And I'm really pleased that we've gotten off to such a fantastic start in terms of strategy execution. Another key highlight was the excellent momentum that we had in service and modernization throughout 2024. Together, these two businesses account for 90% of our profits, so the strong sales growth we've seen makes KONE a more resilient company than ever. From a geographical perspective, we saw good order growth in Americas, Europe, Asia Pacific, Middle East and Africa. In China, as mentioned before, the construction markets have been under significant pressure and this has impacted our new building solutions business while the service and modernization continue to make good progress there. As you know, profitable growth is very high on our agenda. So it has been very good to see that our disciplined approach to driving financial performance has resulted in the eighth consecutive quarters of profitability improvement. So based on Codate's performance, the board is proposing to the annual general meeting a dividend of 1.8 euros per B-class shares, which represents a dividend yield of 3.8%. Now let's have a look at all of this in more detail in the context of Q4. So in terms of orders received, we had a solid quarter. Outside China, order growth was over 10% and it was especially good to see modernization order growing nicely in all areas. The headwinds in China continued, which was visible in both orders and sales. Orders received declined by over 20% in China and sales by nearly 15%. Despite this, our overall sales increased by 5.1% at comparable currencies. Here, of course, the highlight was again our double-digit growth in both service and modernization. This gave us a more favorable business mix, which was a key driver of the 20 basis point improvement of our adjusted EBIT margin. And finally, as usual, cash generation in the fourth quarter was very strong. As we discussed in previous quarters, cash flow has been an area of particular focus this year, and it was very good to see this paying off very well. So all in all, I would say that we had a great finish of the year. Now, probably my favorite page, which is customer exciting reference with you. So starting with services this time, where we recently won a contract to maintain the elevators at the Intercontinental Hotel in Madrid. I actually had the opportunity to sit down with the hotel manager last week, and it was great to hear that he highlighted our reputation and our digital offering as the key reason they opted to partner with us. Second reference is the Henry B. Gonzalez Convention Center modernization in San Antonio, Texas. We've been maintaining the elevators and escalators at this site since 2012 and have completed another modernization project for the same customer a few years back. So this is a great example of how important longstanding customer relationships are. are for winning in modernization. And finally, and I find this one really exciting, new building solution will be supplying our next generation high rise technology to the world tallest residential only building in Dubai. Actually, if we look at the top 10 tallest buildings currently under construction, 5 out of 10. I repeat, 5 out of 10 are going to features, Kone's equipment. And I think it's something we can be very proud about in terms of our leadership in the most demanding applications. Hopefully, this slide should look quite familiar to you by now, but let me just take a short moment to remind you about our ambition, which is very simply to lead the industry by being the number one choice for our employees and our customers, by leading in innovation, leading in innovation and sustainability, and by leading in growth and profitability. Since its launch, I've visited many KONE locations all over the world, and it has been really great to see how well this ambition resonates with our employees and also with our customers and other external stakeholders. There is a lot of excitement in the air. Despite being early days, we have excellent progress to report in each of our four strategic shifts. In digital, approximately 35% of our service base is now connected, and we've done really well in rolling out solutions for smarter service operations to new countries. In modernization, we are focused on enhancing our offering, particularly within partial modernization, and continue to work on industrializing our value proposition. We have also successfully accelerated the sales of our regenerative drives, which help customers to cut carbon by raising the energy generated when the elevator breaks. We haven't talked so much about wind residential before, so let me share an example with you which I really find exciting. We've recently launched the renewed Monospace 100 DX in Europe to improve our positioning in the low-rise residential market, which is a very important segment. It leverages our global supply chain operations to improve cost competitiveness without compromising, of course, on quality and reliability. And I'm especially proud of the speed with which we were able to bring this solution to the market with only 3%. six months from initial decision to deployment, and I'm glad that we really see a good commercial traction here. Now, moving on to my last slide, sustainability, we made great progress toward our sustainability target in most areas last year. I would like to especially highlight the reduction in scope three emissions, which accelerated visibly last year. A big driver of this improvement was the increased share of regenerative drive sales, which I mentioned actually in the previous slides. I was also happy to see over two percentage point improvement in the share of women at director level, our key diversity metric. Unfortunately, we didn't make progress towards our safety targets, and this is something we'll be paying special attention to in 2025. Then, a new development to share with you as of this year, we'll start to measure our performance with the KONE Sustainability Index. It builds on many familiar elements with the addition of cybersecurity, which is very important. She is really about simplifying how we track and report performance to create better clarity on how we are progressing vis-à-vis our ambitions. I'm glad now to hand over to Ilka, who will go through the market development and financial. Ilka, the floor is yours. Thanks.

Thank you, Philip, and warm welcome on my behalf to this fourth quarter result webcast. Let's start by taking a look at how our markets have developed during the past few months. Market trends in the fourth quarter were quite similar to what we've seen previously in the year. In the new building solutions, as already mentioned by Filip, the construction market in China continued to be very difficult, declining again significantly in the fourth quarter. In the other regions, activity was more stable or growing. In services and modernization, the market environment was very positive and we saw growth in all areas. From geographical perspective, Asia-Pacific, Middle East and Africa continues to stand out with a strong demand in all businesses. Let me next go through our financials in a bit more detail and I have some good news to be shared. Starting with our orders received, we were very pleased to see again orders growing three of our four areas. Overall, our orders received grew by 2.6% at the comparable currencies in the fourth quarter. Modernization grew at a healthy pace, while new building solutions came down slightly due to the significant decline in market in China. Our margin of orders received was slightly down year on year, with a decline in China and a more stable development in the rest of the world. Then to sales. We had a very good end to the year. Our sales grew overall by 5.1% at the comparable currencies in the court. From business perspective, new building solutions declined by 2.9%. This was very much driven by China, where delivery volumes continued to be low. On the positive side, services sales grew by staggering 10.5%. A key driver was the growth of our service space, which now stands at well over 1.7 million units. Pricing and value-added services also contributed to sales growth. In modernization, sales started to reflect the strong orders received in previous quarters. and grew at a very good rate of 12.8%. Geographically, our sales in Greater China decreased by 14.8%. The order book rotation continues to be slow, which of course relates to the challenging market conditions. But we also continue to manage deliveries tightly to secure cash flow. Outside of China, we grew our sales by over 10% of the comparable currencies. This is a very good outcome in the quarter. Then moving to adjusted EBIT and profitability. Our adjusted EBIT margins continue to develop positively. And in this quarter, we improved 20 basis points year on year. This took our adjusted EBIT to 387 million euros. Our operating income was 333 million euros in the quarter. The difference here mainly relates to restructuring costs booked in China, where we have taken more meaningful actions to adjust to the weak market conditions. Looking at the profitability improvement more closely, the main driver continues to be favorable business mix. We also did see contribution from improved margins in the modernization business. On the negative side, the inflation was a challenge. But as in previous quarters, the biggest headwind for us was the margin decline in China. So overall, as highlighted by Philip, it is really good to see the consistent profitability improvement. And we have actions in place to secure continued progress going forward towards our mid-term targets. Finally, to our cash flow. So let me start by saying that while one quarter is a short time to measure cash flow, our cash generation in the fourth quarter was a particular highlight for me. Cash flow increased to 534 million euros in the quarter, mainly driven by working capital and also the profit improvement. We actually saw quite a broad-based improvement in various working capital items, but I was especially pleased to see collections contributing positively, as this has been a particular focus area for us. The strong end So the year brought the full year cash flow to a healthy level of 1,589,000,000 euros. Let's then look at how we're thinking about year 25. Starting with market perspective, demand trends are overall very much in line with what we saw in the fourth quarter. we continue to see interesting opportunities in all parts of the world with stable or positive outlook in 11 of our 12 end markets. Modernization markets are expected to remain very active and we expect services markets to continue to grow in all regions. In the new building solutions markets, we expect conditions in China to remain difficult. Elsewhere, we expect stable development in Europe and a slight growth in North America. And in Asia-Pacific, Middle East and Africa, we continue to see very good opportunities also in 2025. Then to our business outlook. We enter into the year with a healthy order book, and we expect strong growth to continue in both services and in modern sales. Also, the ramp-up of our performance initiatives will also start to contribute to our performance. China continues to be the main headwind. Here, as said, markets remain under pressure and we will be delivering orders which were booked at the lower margins. So with this in mind, our guidance for the 25 is for sales to grow slightly at the comparable currencies and we expect profitability improvement to continue. This puts us on track to meeting our mid-term financial targets. Let me now hand back over to Philippe to close the presentation before going into a Q&A.