Kone Oyj B

Good morning, and welcome to KONE's first quarter results webcast. My name is Natalia Valdesari. I'm head of investor relations here at KONE, and I'm very pleased to be joined by Philippe Delorne, our CEO, and Ilka Hara, our CFO. So, as usual, Philippe will start by giving you an overview of the key developments in the quarter, focusing on business highlights, financials, and strategy execution. And then Ilka will take over, talk you through what we're seeing in the markets, a bit more detail on the financials and our outlook for this year. And then we'll move on to your questions. And I would like to ask you at this point already to please limit yourself to one question, one follow-up, and then rejoin the queue in case you have any follow-ups after that. But with that, please.

Thank you, Natalia. And good morning, everyone. I'm glad to be here today presenting our results for the first quarter of 2025. Let me start by saying that we had a very good start of the year, both in terms of financial performance and strategy execution. And of course, the things come together. We delivered strong growth again in both service and modernization. Modernization in particular had an outstanding quarter, with both orders and sales growing by nearly 20%. From a geographical perspective, we saw good momentum in the Americas, Europe, and Asia-Pacific, Middle East, and Africa. In China, orders declined by approximately 15%. New building market conditions remains very difficult there. But we did see some signs that activity could start to bottom out towards the end of the year. As you know, profitable growth is at the top of our agenda. So I'm pleased to share that Q1 marked the ninth consecutive quarter of margin expansion. And last but certainly not the least, we continue to steadily execute on our strategy RISE. And I will share a few examples of recent developments a bit later on. But first, let's look more closely at our financial developments. Overall, it was great to see growth in all our key metrics. Number one, orders. So order received increased by 5% in a quarter and over 10%, including China. These are good numbers in my mind. And the increase was mainly driven by, again, modernization. But actually, new building solution had also some good wins, for instance, in Europe. If we look at sales, our sales increased by 2.8% at comparable currencies. Modernization was again the key driver, and to repeat, but service also developed very well. We actually had double digit service growth outside China, which is really an excellent achievement. As said, we continue to deliver consistent profitability improvements. So thanks to a favorable business mix, our adjusted EBIT margin improved by 25 basis points in a quarter. And finally, we got off a very good start in terms of cash generation, with an operating cash flow increasing by approximately 90 million euros year over year, and you see the total of 487 million euros. As always, I want to share a few exciting customer references from the quarter. And this time, we're going to focus on modernization, which is really a great growth engine for the company. First, a very impressive win in China, where we have received an order from the government of Suzhou for partial modernization for over 2,000 elevators. I repeat, 2,000 elevators. The project is linked to the government effort to support urban renewal, and most of the units will include regenerative drives, those hybrid systems that drive energy efficiency. And so there are clear environmental benefits, and most of these units are equipped with 24-7 connected services. Then, another interesting case in Europe, where we have recently finalized the first stage of a partial modernization project for Prague, TOLUS Skycrapper. I was there, actually, very impressive project. And also here, there is a strong environmental angle as energy efficiency was a key driver of the decision to modernize. Turning now to the U.S., which is our second geography now, where we will be participating in the revitalization of the Capital One Arena in Washington, D.C. Our scope covers both delivering new units and modernizing existing ones, and we will also continue to provide service for the facility. Very nice to be strengthening our relationship with this long-time customer. Now let's look at some business highlights which really shows the execution of our strategy. Let's start with services. I'm happy to see that after a few quarter of very dedicated focus, connectivity has started to move up with 36% of the service base now connected. We have also been putting a lot of effort into developing and deploying solutions that will transform how we perform field service. Let me take for instance remote service. So today we are able to perform an even broader variety of tasks remotely and we've made this offering available in 15 countries now. Servicing equipment remotely enables us to react to issues with more speed, which is great for customers and also makes our work a lot more efficient. Turning next to modernization, where we've made very good progress in driving partial modernization during the quarter. I want to highlight Europe as a region where we had particularly good traction. We saw nearly 30% growth in orders for our Monospace DX upgrade package in Q1, and tethering is even more up in several countries. We also receive an A-class energy efficiency rating for this upgrade package, which really validates the positive environmental impact we can achieve with modernization. Finally, in new building solution, our new elevator for the low-rise market, our Monospace 100DX, was rolled out to several new countries in Europe during the quarter. The feedback we have received from our customers is very promising and tendering activity has gotten off to a very good start. Let's now move to a topic that's close to my heart, which is sustainability. As you may remember, at the beginning of the year, we introduced our new sustainability index, which tracks how we are performing against our longer-term ambition in various areas of sustainability. This year, we targeted an improvement of nearly 20 points from the 2024 baseline, and we've gotten off to quite a good start during Q1. The highlight was a remarkable step-up in regenerative drive sales. This technology helps our customers to improve energy efficiency and reduce carbon footprint by reducing the energy generated when an elevator breaks. It's also a key enabler for our Scope 3 emission reduction target. So the fact that over half of the elevators sold in Q1 were equipped with regenerative drives is really a great achievement. We also received some important recognition for our sustainability work. We were once again included in the CDPA list for climate change, where we were the only company in our industry to be placed on the Clean 200 list, which ranks the largest companies by their clean revenue. Last but not the least, some people-related developments. In February, we announced that Nicolas Alcal will take over as EVP of Commercial and Operations, and that Kaori Uigashi will continue as EVP for Strategy and Transformation on a more permanent basis. I'm glad to be continuing to work with both of them on the Executive Board. One of my personal goals is also to ensure that KONE has a leadership team that is distributed and even closer to our customers. So for this reason, Nicolas and Kaori will be based in Middle East, a region that offers very exciting growth opportunities for us. And also, of course, a warm welcome back to Carla Lindahl, who has returned from parental leave to a role as EVP for Europe. Now, let me hand over to Ilka, who will go through the market development and financials in more details. Thank you, Philip.

And also one welcome on my behalf to this first quarter results webcast. I'd like to start by taking a step back and talking about how we saw markets and Kone's position developing in 24 based on our most recent market sizing exercise. In 24, the global install base grew in line with our expectations to approximately 25 million units. New building solutions contributed to this growth with approximately 900,000 units, of which half came from China and half from the rest of the world. In value, the services market was the largest last year at over 36 billion euros. Overall market value, including services, modernization, and NBS, was over 85 billion euros. Modernization was the fastest growing market, increasing by 9% in 24. Today, approximately 10 million units are over 15 years old. So we continue to see an aging elevator base representing a great opportunity. Then let's look at Kone's performance. Based on our estimates, we grew our market share in all modernization markets globally. We also gained share in services markets outside of China and maintained our position in China. In new building solutions, our market share declined in North America, but grew in all other areas. So all in all, faster than market growth on a broad basis and a very good development in the important services and modernization markets. Then turning to the market activity during the first quarter of this year. In new billing solutions, as already mentioned by Philip, market conditions in China remained very difficult. Activity declined also in North America. Here, uncertainty related to tariffs had some impact towards the end of the quarter. On a more positive note, demand improved slightly in Europe and activity in Asia Pacific, Middle East and Africa continued to grow clearly. Services and modernization markets also continued to develop well with a growth in all areas. Let me next go through the financials in a bit more detail. And I'll start with orders received. Orders received grew overall by 5.1% at the comparable currencies in the first quarter and grew over 10% outside of China. This is a very, very good outcome. The 20% increase in modernization orders was the main driver of the positive development. I was especially pleased to see the modernization growth was broad-based with a strong development in all areas. New building solutions came down slightly, mainly due to a significant decline in China, where property market conditions are still very difficult. As you know, in this environment, our focus is on securing healthy business in China, and this was visible in the Q1 order development. China also resulted in the margin of orders received being slightly down year on year. In the rest of the world, the margin on orders was more stable. Then to sales. We had a solid start with 2.8% growth at the comparable currencies in the quarter. From a business perspective, new billing solutions declined by 10.7%. This was mostly driven by China, where delivery volumes continued to be low. Modernization was again the highlight, with nearly 20% growth. Services also developed very well, growing by 8.5%. Both maintenance base and the value component contributed to this good growth. And with value, I mean pricing, repairs, and digital. Looking at services in our different geographies, we saw over 10% growth outside of China. This was very good performance. In China, we have focused on cash and profit over volume, also in the services business, and this impacted our growth rate in the quarter. Then moving to adjusted EBIT and profitability. As Filip already said, it was great to see yet another quarter of profitability improvement. Margin expansion in the quarter was 25 basis points year on year, and this took adjusted EBIT to 280 million euros. Looking at the profitability more closely, the margin decline in China was again the biggest challenge. We also had some negative impact from fixed cost absorption due to a lower seasonal quarter. These headwinds were more than offset by positive mixed impact from over 10% growth in services and modernization sales. Our performance initiatives are moving forward at a good pace, and some first results are already visible in our numbers. Procurement savings have, for instance, helped a bit, new building solutions. And as we have previously indicated, we expect these efforts from the initiatives to ramp up as we go through the year. Then turning finally to cash flow. As I always say, one quarter is a short time, but still it is very good to see the cash flow progressing steadily in the beginning of the year. Our cash flow from operations increased to 487 million with the support from both operating income as well as working capital improvement. Looking at the working capital, the improvement was mainly related to services invoicing cycle, but order growth also contributed to increase in advance payments. And both NBS and modernization contributed to that. Importantly, we've been able to manage our accounts receivable in China well. Then looking more forward and for the full year 25. So from market perspective, our growth outlook for the service and modernization is unchanged, and we continue to see interesting opportunities in all areas. We have made some small adjustments to our outlook for the new building solutions markets. We now expect market activity in North America to decline slightly as a result of the increased uncertainty. On the other hand, we are more positive on the outlook for Europe and expect a slight growth this year. Elsewhere, our outlook remains unchanged. Then let's look at our business outlook. With one quarter behind us, we have quantified our guidance. We expect our sales to grow by 1 to 6% at the comparable exchange rates and the adjusted EBIT margin to be in the range of 11.8 to 12.4 this year. FX is expected to be a headwind. If rates remain at the April level, we estimate a roughly 50 million negative impact to EBIT. China continues to be the main challenge for both volumes and margin. That said, performance will be supported by services and monetization also in the coming quarters, as well as by the ramp up of the performance initiatives. Now, I know you're all going to ask about tariff impact. So let me try to preempt some of the questions. First of all, let's keep in mind that we operate a very local business. Approximately one-third comes from services, and we have highly localized manufacturing and production setup. We do import certain goods and components to the U.S., mainly in the new building solutions. The value of these imports is less than 10% of our U.S. sales, so around 200 million, and approximately 25% of this comes from China. So what does this mean for our financials this year? There will be a cross-impact, but our main aim is to recover most of this. And I think we are in a good place to do so. Mitigation actions like protective contract language and using exemptions available under USMCA are already ongoing. We're also adjusting our sourcing and manufacturing footprint to be even more local. So net-net, limited impact, and this is considered in our guidance. Let me now hand back over to Philippe and to close the presentation before going into Q&A. So it was time.