Kone Oyj B

Good morning and welcome to KONE's fourth quarter results call. My name is Natalia Valtasari. I'm head of investor relations here at KONE. I'm joined today by Filip Delorme, our president and CEO, and our CFO Ilkka Hara. So as usual, Filip will start by talking about the highlights of the quarter of the year, particularly focusing on what's going on in terms of strategy execution and our progress there. Ilkka will then continue by running through the financials and the outlook, both market and business outlook for the full year. And then Filip will wrap up and we'll be ready for your questions. So in the Q&A, just a reminder for me at this point, please do limit yourself to one question, one follow-up. Hopefully we'll get very active dialogue and that will enable as many people as possible to participate. With that, Filip, please.

thank you Natalia and good morning everyone i'm very pleased to be here today presenting our full year results let me start by saying that our success in 2025 was a result of determined and disciplined strategy execution order growth was one of the key highlights of the year our ability to capture the modernization opportunity together with our focused efforts to grow in the residential space were important contributors. We also delivered consistently on our profitable growth ambition. Central to this was the continuous strength and improved performance of our service business. This year, service became our largest business at over 40% of sales, making KONE more resilient than ever. Supported by our solid operational performance and strong cash generation, the board is proposing a dividend of 1.80 euro per Class B share, which represents a dividend yield of nearly 3%. Last but not least, I'm very pleased to report tangible results of our work in all our strategy shifts. I will share some more concrete examples in a moment, but let's first look at our financial performance in more detail. Let's start with orders. So I said growth momentum was strong throughout the year and Q4 was no exception. Comparable growth of 12% is a very good outcome. I'd like also to take a moment to highlight Asia Pacific, more specifically India and the Middle East. The team has done an excellent job positioning KONE as the leader in these markets, capturing growth opportunities while also driving meaningful operational improvements. Turning to sales, we grew just over 4% at comparable currencies, supported by roughly 10% combined growth in service and modernization. Modernization continued its strong trajectory with growth of around 15%. Service growth was somewhat moderated by the action we are taking to strengthen performance and margin in China. And with that in mind, 6% growth is a good outcome. Our adjusted EBIT margin expanded by 60 basis points thanks to a richer sales mix. And finally, cash generation in the fourth quarter was solid, though lower than the exceptionally strong comparison period in 2024. So all in all, we had a good finish to the year, very much in line with our expectations. Let's now look at our strategy execution as progress this year. First, I want to highlight the excellent progress we've made in accelerating our digital transformation. The share of connected units in our maintenance base now exceeds 40%, up 7 percentage points from the previous year. For me, this step change in pace reflects our ability to better articulate the value of transparency and real-time data to our customers and their growing recognition of the benefits. We also significantly expanded the reach of our productivity enhancing tools. With the US about to go live, dynamic maintenance planning is effectively covering two-thirds of our install base. This is starting to deliver measurable improvements in field efficiency, which can be seen in the expansion of our service margin. It has also supported service growth, particularly through increased repair sales. Moving now to modernization, I'm really pleased with a great customer response to our partial modernization offering. This is clearly visible in its rapid growth, now making it the largest part of our modernization portfolio. The modular concept resonates strongly with customers because it directly addresses their biggest concern, minimizing disruption to daily life during the elevator upgrade. Commercial traction in the residential market has also been very strong this year, and this reflects the success of our efforts to improve offering competitiveness, especially from a cost perspective. Achieving double-digit residential order growth in all regions except China, where market challenges are well known, is a very strong accomplishment. And we all know why this matters. Strong residential orders today secure future service business, and residential is a highly attractive service market for us. Now let's take some examples of our strategy in action with customers. Let's start with China, where we are providing a full scope of digital service solution to Nanjing Golden Eagle World, a landmark multi-use complex in East China. Transparency, actionable insights, and the ability to elevate tenant experience with proactive communication were cited by the customer as a key benefit. Turning to the Americas, we have recently won a partial modernization project for 22 units at the American Airlines Center, a premier sports and entertainment arena in Dallas, Texas. Our ability to adapt the installation work to minimize disruption during the busy game season was key in the world. So staying with modernization and turning to Europe, where we have a great example of our sustainability influencing customer decision. In this project, the original plan was a full-scale modernization. However, by highlighting the opportunity to reduce emissions and energy use by grading only the outdated components, the customer chose a partial modernization instead. And last but not the least, India, where, as mentioned, the team has delivered an outstanding quarter, very much supported by our focus on driving growth in residential. We have one particular prestigious win with the order to supply a wide range of equipment to DLF Premium Residential Development, Privana, under construction in Gorgon, near New Delhi. Let's now turn to sustainability, where we have a lot to be proud of. As you know, we track our performance with a sustainability index, and I'm happy to share that we exceeded our targets in 2025. A key driver was a stronger-than-anticipated increase in regenerative drive sales, which contributed to a reduction of nearly 13% in scope 3 emissions from the previous year. Another important contributor was a step up in cybersecurity performance, a core strategic priority as digitalization accelerates across our products and services. One measure of our progress is our BitSight rating, which this year placed us in the top 1% of our global engineering peer group of over 24,000 companies. This is a fantastic achievement and testament to the dedicated work of our cybersecurity team. I'm also very pleased with the external recognition we have received, most notably our inclusion in the corporate night ranking of the world's most sustainable companies. I want to highlight that sustainability is not just a set of commitments for KONE, it directly drives our business performance. Our impact revenue grew over 20% last year, and today it represents over half of our overall sales. This is an excellent indicator of how our strategy is progressing. Digital service solutions, partial modernization and regenerative drives all contribute to climate impact mitigation and thereby to our impact revenue. So I said we have a lot of great examples of strategy progress from 2025. And now, of course, our focus is on maintaining this momentum. Let me next hand over to Ilka, who will go through the market development and financials.

Thank you, Philip, and also a 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. The elevator and escalator markets were again resilient in the fourth quarter. In services and modernization, the market environment was very positive and we saw growth in all areas. In new building solutions, the picture is more polarized. The well-known challenges in China construction once again drove significant decline in elevator and escalator market activity. In contrast, activity increased in all other regions. Looking at the chart, America's growth stands out. This is largely due to last year's relatively low comparison point. What is more relevant is the sequential trend, which remained quite stable, a solid outcome given the broader geopolitical environment. Let me next go through our financials in more detail, starting as usual with our orders receipt. As Filip highlighted, the positive momentum seen in previous quarters continued in the fourth quarter. Overall, the orders receipt increased by 12.2% at the comparable currencies, and growth was broad-based across the portfolio. With the exception of new building solutions in China, all business lines and regions contributed. We also had a very strong quarter in major projects across several geographies. From a geographical perspective, growth was strong in Asia-Pacific, Middle East and Africa, The over 20% growth in both modernization and NBS in this area highlights our ability to effectively capture opportunities in this rapidly expanding market. From business line perspective, modernization continued to grow at the healthy double digit rate. New building solutions followed the market trends with pressure in China and growth elsewhere. Our orders receipt margin remained stable year on year. Pricing conditions in China continued to be challenging, but this was offset by more stable orders margin in other regions and our product cost reductions. In terms of sales, we had a good end to the year with a 4.3% comparable growth in the fourth quarter. Looking at the development by business, continued good order book rotation in modernization was the highlight. This delivered 15% sales growth in the quarter. In new billing solutions, China remained a drag, although this was partly offset by growth in other regions. Service sales grew by 6%. Outside of China, growth was in line with our targets. While in China, sales were slightly below last year. We also saw some negative impact from separation of our doors business. Shortly on China. As discussed in previous quarter, our priority there is to safeguard margin and cash flow across all of our businesses. In service, this has meant reassessing our contract base and taking targeted actions to strengthen the performance. I'm pleased that these actions have delivered the intended results. Looking at growth tailwinds, our maintenance base continued to expand and pricing developed favorably. Here we saw support from sales and operational excellence performance initiative, where we have focused on professionalizing our pricing and driving repair sales. This is closely linked to our digital transformation. As Filip explained, by improving field efficiency, we free up time that can be proactively directed towards repairs. For me, this is an excellent example of tangible benefits of digitalization. Then moving to adjusted EBIT and profitability. Let me start by saying that I'm pleased that we have continued to consistently deliver profitability improvement. moving steadily toward our mid-term target of 13 to 14% adjusted EBIT margin. Our margin expanded by 60 basis points in the quarter, taking adjusted EBIT to 402 million euros. Looking into details, our biggest headwind continued to be margin pressure in China. On the positive side, the business mix continued to be favorable. What I'm happy about is that service margins continue to improve, supported by repairs growth and our efforts to take more strategic approach to pricing. Product cost reductions has also contributed to profitability and will continue to be supportive in the coming year. Then turning finally to cash flow. We had a strong year in terms of cash generation, supported by growth in operating income and changes in working capital. For the full year, cash flow from operations rose to nearly 1.8 billion, with a solid quarter by quarter development. Looking at the working capital in more detail, FX swings had a bigger than normal impact to this year. If we adjust for negative currency impact of approximately 60 million, working capital improved moderately. A key driver was the increase in advances, and I'm also pleased with the work the teams have done in driving collections. Then let's look at how we're thinking about 26, starting with market environment. Our outlook for the year is very consistent with how activity developed in 25. We see attractive opportunities in all parts of the world, This is particularly true in modernization and services, where we expect markets to remain very active in every region. In new billing solutions, we expect the decline to continue in China. The lower rate of decline is mainly due to the comparison period, rather than the meaningful easing of the underlying pressures. Outside of China, we expect growth slight in Europe and North America, and clearly stronger in Asia-Pacific, Middle East and Africa. So overall, operating environment looks to be favorable this year. Of course, the geopolitical environment continues to be a risk, and we're keeping a close eye on how this could be reflected into market activity and potentially our financial performance. That's a good bridge to our business outlook for the year. Let's start by going through the headwinds and tailwinds. As mentioned, the market conditions in China remain under pressure, so this is burdening our performance, as is the wage inflation. At the same time, our order book, combined with a strong outlook for service and modernization, provides a healthy foundation for growth. Beyond the resulting positive mix effect, we also expect tailwinds from increased contribution from our performance initiatives and from the product cost reductions achieved during 25. So with all this in mind, our guidance for 26 is for the sales to grow 2 to 6% at the comparable currencies and adjust the debit margin to be in range of 12.3 to 13%. This keeps us firmly on track towards achieving our mid-term financial targets. With that, let me hand back to Filip to close the presentation and open the Q&A.