Kone Oyj B

Good morning, everyone. My name is Natalia Vazasari. I'm head of investor relations here at Kone. And I want to start by apologizing for the delay to start this webcast. We have some network issues here on our end. I would suggest that everyone who is only following on the webcast also dial in. The number should be visible to you. Just in case this is not smooth sailing going forward, which I very much hope it will be. So that's that. Let's get started. I'm very pleased to be joined today by our CEO, Philippe Delorme, and our CFO, Ilsa Hara. As you know, we published our Q1 results today, but clearly today's big news is our announcement that we plan to combine with TKE. Very exciting. And this will, of course, be the main focus of the webcast. Once you have heard from our speakers, we'll be opening the lines for Q&A. I expect an active session, so please limit yourself to one question, one follow-up, and then you're, of course, welcome to rejoin the queue. We'll address any further questions within the limits of time. So with that, please.

Thank you, Natalia, and welcome, everyone. This is indeed an exciting day for Kone, and I'll come back shortly to why the combination with TK is so compelling. But let me first set the scene with a brief look at our first quarter performance. So we had a solid start of the year with in-line results and good progress in strategy execution. Two things stand out. First, sales grew by nearly 7%. Second, service and modernization increased to 67% of sales. This mix supported margin extension, but more importantly, underscores the resilience of our business, a key strength in the current geopolitical environment. Importantly, we continued to execute steadily on our strategy. And one key example is a continued increase in productivity of our maintenance base, which has now reached over 42%. Now, let me hand over to Ilka to give you some backgrounds on the financials.

Thank you. And welcome also from my side as well. Let's start with orders where growth of 3.9% of the comparable currencies is a solid outcome. Modernization increased modestly from a strong comparison base, while new billing solutions delivered a good quarter, particularly in Europe and Middle East and Africa. Sales growth was broad-based, 6.9% in the quarter with contributions from all businesses and all regions. As Filip mentioned, a favorable mix supported the market expansion to 10.8%, further helped by the fixed cost leverage. Foreign exchange, on the other hand, was a headwind, with an impact of approximately 15 basis points on the margin. We expect this to ease in the coming quarters. Cash flow improved to 500 million euro in the quarter, and cash conversion was helped. Then turning to our market outlook, which we have kept unchanged. We continue to see growth opportunities in all regions, especially in services and modernization, despite increased uncertainty related to the war in the Middle East. Let me pause here for a moment to discuss what we are seeing in the region. Our first priority is to ensure the safety of our people and our customers. The resilience they have shown is admirable, and the business disruptions have so far been limited and mainly related to logistics of getting material to the site. So far, we have seen very little financial impact, but if the conflict prolongs, we will face more cost pressure, which we would look to mitigate as far as possible. Then to our business outlook. Following the strong Q1 performance, we have specified our sales growth guidance to 3% to 6%, while our EBIT guidance remains unchanged at 0.3% to 13%. Headwinds and tailwinds remain broadly unchanged, with the exception of increased geopolitical risks, which have already resulted in increased transport and fuel costs. That said, we are confident in our ability to deliver margins within the guidance. That's the short summary of our results. So, back to you, Philippe.

Thank you, Ilka. So, turning now to today's announcements, our plan to combine with TKE to create a world-class player in our industry. This is a rare opportunity to bring together two exceptional and highly complementary businesses, redefining the industry and creating meaningful value for our customers, our people, and our shareholders. Both companies have proud histories stretching back to the turn of the century. We share a deep passion for customers, engineering excellence, and an entrepreneurial spirit. At the same time, we each bring distinct strengths. By combining them, we can drive greater growth, resilience, and performance. Together, we are laying the foundation for an even more innovative company. We also accelerate the shift to service and modernization, which is fundamental to our strategic ambition. The transaction will be funded in cash and shares. Importantly, there will be continuity in ownership as Antti Erlin retains over 50% of the voting rights. At the same time, TKA shareholders becoming shareholders in the combined company reflect their confidence in the value we can create together. The cash and share transaction structure preserves our financial flexibility, allowing us to continue investing in accelerating our rise to lead strategy. So now a few words on RISE. As many of you know, our strategy focuses on strengthening resilience and performance by capturing opportunities in service and modernization. It deals on clear market trends with digital services, modularity, and sustainability as the cornerstones of customer value creation and growth. We've made excellent progress since its launch and are well positioned to continue executing successfully on our own. That said, we have always been clear that M&A could act as a catalyst. And today, we have a truly unique opportunity to accelerate momentum. Together with TKE, I'm confident that we'll rise faster. This means that we can achieve our ambition of being number one for our customers and our people and becoming an industry leader in growth and profitability significantly sooner. So let me say a few words about TKE. Up here, I hold in very high regards. Since it carved out from T-Cent Group, TKE has gone through a very strong transformation. The TKE team has successfully pivoted the company towards a more service-focused, agile, and customer-centric model, at the same time establishing a clear performance culture. This transformation is clearly visible in their financial results, the strong growth in service and modernization, and impressive EBIT margin progression. I have great respect for what they have accomplished, and I'm confident that together, we can create something truly exceptional. So, why does this combination make such strong sense? The industrial logic is very straightforward. Geographically, our complementarity means we are very well matched. KONE has a strong presence in Asia with attractive exposure to structural growth markets, such as India. TK, in turn, has a sizable footprint in the U.S. and meaningful presence in regions where we do not operate today, including South America and Korea. Both companies have a strong track record of bringing breakthrough technologies to market. By combining our capabilities, we create a powerful platform to accelerate technology development and scale digital innovation to the benefit of our customers. Fundamental to the strategic rationale is the combination of our service networks. With roughly twice as many elevators under maintenance, we gain exceptional service coverage. For customers, this density means faster response time and higher reliability. At the same time, the digital value proposition becomes stronger. The more units we maintain, the smarter our service becomes, while data-enabled service delivery drives productivity gains. At the same time, we unlock significant growth opportunities in modernization. A larger install base means more units entering prime modernization age. Together, we are uniquely positioned to serve them with a high-quality and highly complementary offering. Ilkka.

My turn. This strong strategic rationale turns into a substantial value creation as well. We estimate 700 million of synergies broadly evenly split across three areas. is the service density effect, which drives higher field productivity and scalable growth. Second, are product-related synergies, including platform simplification, benefits from pooled R&D resources, and procurement efficiencies. And the third relates to SG&A, particularly improved fixed cost absorption, optimized IT spend, and other non-personal cost efficiencies. Overall, Synergies represent approximately three to 4% of our illustrative combined sales, with a full P&L impact expected by the end of year three, post-closing. The related one-off costs are estimated to be approximately one to 1.2 times expected synergies incurred over two years. Let's look at what we look like as a combined entity. On an illustrative basis, using the reported numbers for 25, the combined group would generate over 20 billion in sales and more than 2.7 billion in adjusted EBIT, implying an adjusted EBIT margin of approximately 13.4%. This demonstrates the robust financial profile of the combined business, even without taking into account the value of the integration and synergies. Together, we would have more than 100,000 experts across over 100 countries. I'm truly excited by these capabilities, reach, and depth we will have to serve our customers consistently across the regions and segments and to compete at the very highest level in our industry. In terms of business mix and geographic reach, we would have approximately 45% of the sales come from the recurring services business, with further nearly 20% for modernization. Both are attractive, structurally growing markets, and as noted when running through our Q1 results. Geographically, the combined group would be more balanced across regions, with increased exposure to attractive U.S. markets. This creates more resilient profit pools, supporting our long-term growth and profitability ambitions.

So turning to stakeholder benefits and starting with customers, where the value is very clear. By combining the innovation strength of both companies, we can deliver an even stronger offering, better tailored to customers. Let me share a few practical examples. In the volume segment, particularly entry-level solutions, we see clear opportunities to combine the strength of the EUX platform from TKE and Monospace platform to increase, to improve cost competitiveness for our customers. In the high-rise segment, the combination of KONE's ultra-road technology with TKE-proven twin solution where you have two cars in the same shaft is truly game-changing. In home lifts, a niche but fast-growing segment driven by accessibility needs, our geographical complementarity creates additional growth potential. And in modernization, our modular approach, optimizing cost and minimizing downtime, will be highly attractive for TKE's customer base. And at the same time, we gain access to solutions for hydraulic elevators, which continue to play an important role, particularly in the U.S. install base. And finally, service underpins everything. So with more than 3 million units under service, we can leverage our combined firepower to accelerate IoT innovation and roll out productivity-enhancing digital tools at scale. So this will translate into higher service quality and reliability and ultimately stronger, longer-lasting customer relationship. Now let's talk about people. So while our culture are distinct, we share strong common foundation built on safety and integrity. TKE has excelled in empowering the field while our strength lies in a highly structured and scalable operating model. We share a deep passion for customers and a strong commitment to building a high-performance culture. We have exceptional talents, across both organizations, and I'm confident that our people will benefit from the broader opportunities the combined group can offer.

More value for customers and a stronger, more diverse team ultimately means more value for our shareholders as well. This transaction clearly resets our financial ambition. We will be better positioned to capture industry growth and synergies alone support the adjusted EBIT margin moving substantially beyond our current 16% target. The return profile is attractive. Adjusting for PPA and one-off transaction and integration costs, the EPS accruition is expected in the first full year post-closing and will accelerate thereafter. On leverage, we target a solid investment-grade profile supported by synergy realisation and our cash generative business model. Deleveraging will be a clear priority. At the same time, we're proud of our dividend track record and are committed to paying out at least 50% of net income over the cycle. The dividend per share is expected to be stable in the initial years following the closing with progression thereafter.

So turning now to leadership and governance. Both companies brings proven leaders and the leadership team led by NIA's CEO will reflect the strengths of both organizations. In terms of ownership, Antti Erlin will remain the principal shareholder. He has committed to purchasing shares to the amount of 1 billion euro from TK shareholders at market price immediately after the transaction is completed. And irrespective of this additional share purchase, his ownership will continue to represent over 50% of the votes. This ownership continuity is important and supports a long-term focus. Now, PKE shareholders have a customary lockup period, but more importantly, their ownership in the combined groups reflect strong conviction in the combined company potential. At board level, Auntie Erlin will continue as chair, while TKE shareholders will have the right to appoint two board members. A new strategy and integration committee will be established to ensure appropriate board level oversight.

As said, a significant part of today's story is about value creation. To realize the value, integration execution will be critical. We will place a strong emphasis on clarity, discipline, and attention to detail. A dedicated integration team will manage planning and execution. This allows the rest of the organization to remain fully focused on running the business and serving our customers without disruption. Let me briefly cover the key transaction terms. As mentioned, this is a cash and share transaction. whereby TKE shareholders will receive $5 billion in cash and up to $270 million newly issued Class B shares, including TKE's $9.2 billion of net debt at the year end of 2025. This implies an enterprise value of 29.4, reflecting a significant value creation potential of the combination. We have fully committed financing from Bank of America and BND Paribas in place. Together with cash on our balance sheet, this will fund the cash consideration and be used to refinance TKE's existing net debt. And as mentioned earlier, our aim is for the combined group to have a solid investment grade profile. So what happens next? An EGM is planned for June, where we will seek shareholder approvals. A notice to convene will follow with all relevant details. Regulatory filings will commence in parallel, and we are confident in securing the required approvals. We will work constructively with regulators through the process, which we expect to take approximately 12 to 18 months. This implies closing will take place earliest in Q2 next year. During this period, we will further detail our integration plans to ensure that we are ready to hit the ground running from day one.

Thank you. So, let's wrap up. This transaction represents a unique opportunity to redefine the future of our industry. Together with CK, we are exceptionally well positioned to leverage our combined innovation capabilities, accelerate digitalization and sustainability, and create substantial long-term value for the benefit of our customers. By combining, we significantly accelerate our journey towards industry-leading growth, profitability, service, and innovation. Thank you for your attention. I suggest now we now move to questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press spell 1 on your telephone keypad. Please limit yourself to only one question and one follow-up to allow everyone the opportunity to ask a question. We'll pause for a brief moment. Thank you. We'll now take our first question from Phil Biller of J.B. Morgan. Your line is open. Please go ahead.

Hello. Good morning. Thank you for the question and obviously congratulations on the field. This has been expected for a long time. The key questions have always been around those antitrust hurdles. Any talk for this 12 to 18-month period of dribbles. Can you help us perhaps region by region or country by country where the potential obstacles are that you see for those approvals, and what proportion of TKE do you see presenting those obstacles, just to try and scale the remedies. And the follow-up question is in relation to the conversations that you may have already had with regulators and perhaps even your competitors. Can you share any colour on when those conversations started and how they've progressed, please? Thanks.

So I would say repeat what Ilka said, which is, so first of all, we've done a lot of work and we are confident the transaction will receive all the necessary regulatory approval while preserving the strategic rationale of the combination. We are prepared to work constructively with regulators to ensure full compliance. And I guess you will probably understand that we cannot go any further and we cannot speculate any further.

That's understood. Just in terms of the scale of where you would imagine those points of contention would be, is it? I'm assuming that the work that you've done would imply that it's a relatively small minority component of PTE at this point. Just to get us straight. Thanks.

I think Philip already answered that question, so we'll work with authorities on this one.

Constructively.

Okay, thank you very much.

Thank you.

We'll now take our next question from Vivek Mida of CTE. Your line is open. Please go ahead.

Thank you very much, everyone, and good morning. My question is on the synergy view. The target for synergies with CTE are quite substantial, 700 million pre-tax. You've identified several areas, but for taking a step back, as you've rightly pointed out, TK Elevator has already made substantial progress on margin realization under the current owners, perhaps suggesting that the low-hanging fruit in optimizing their business has been taken already. Could you perhaps, I don't know, rank the synergy buckets in terms of your degree and confidence in achieving them and give us more color there? Thank you.

So, first of all, what I can say that we've been working quite a lot with clean teams and with people from both sides. So we have quite a high level of preparation. So when we quote a figure like this, it's not coming in the air. It's a result of a big amount of work assessing the synergies on the combined business. These are cost synergies. I think we've detailed the three categories, the field. where I repeat, but when you combine service team and get better density and get more efficient, there is clearly some opportunity here. And we've seen it in many previous cases. Second one is when you combine product platform, you can actually get more scale, get better condition with your suppliers, which is something you cannot do alone. And third, there are SG&E opportunities. there are SGN opportunities at KONE, there are still SGN opportunities at TKI, and when you combine things, you need, I mean, you have one rule instead of two, and it's a pretty simple principle. So we feel confident, we feel very confident in this figure. We've made a lot of work around that, and we understand it's an important figure in how to assess a transaction, but we've done our homework very much in detail.

Much appreciated. Thank you.

Thank you.

Thank you. And we'll now take our next question from Vlad Sergiski of Barclays. Your line is open. Please go ahead.

Yes, good morning. Thank you very much for taking the time. My first question is related to synergies again. Is your synergy scenario assumes full combination without any asset sale at all? And also, would you be able to let us know Is there any break-up fee that Kone committed to pay in the scenario when this deal doesn't happen?

On the first question, on the synergies, that's what we estimate to be achievable for the combined entity. So that's our best estimate for that. And on break-fee, yes, there is a customary break-fee in place, which is not difficult, as it's a... agreement between two parties, but I would characterize that as a customer to this type of transaction.

Absolutely. And maybe my follow-up will be on pro forma net debt. Would you be able to give some color on what you expect it to be post-closing and all payments in the context of your target seems to be disclosing about 13 billion euros of net debt in the recent results?

Like I said, so first, 9.2 billion of debt on the pro forma figures is the number I used. And we are targeting to be an investment-grade company, both closing on an ongoing basis. And our target is also to be able to leverage the company and that priority with our cash-generative business model and the synergies enabling that.

And I guess we've shown a pretty strong discipline on cash generation, right, Ilka? Okay. Thanks very much. Thank you.

Thank you. And we'll now take off. Next question from Andre Cookman of UBS. Your line is open. Please go ahead.

Hi, good morning. Thank you very much for taking my questions. Yeah, clearly monumental day for the whole industry. I wanted to just talk about synergies a bit more, and could you give us some color on phasing? Is it right to think about SG&A coming through first, then product, then service? And within that kind of, within the service synergies in particular, I would expect that to be a bit bigger proportion than just one-third of the total. But what would be the cadence of, like, combining the service and maintenance bases versus kind of standardizing the connectivity, because you are on obviously different individual tools? How will you manage that, please?

Maybe I'll start, and then you can continue. So if you look at the synergies, first, when we talk about service density, The first is about route optimization. It's pretty simple. You have less driving time between your two sites. And that's something that we do on an ongoing basis with all of the teams, optimize the routes. Now we have on each of the teams, we need to do it in a broader scale. And, yes, digital will have an opportunity and so on on the services. But I think at the end, we have fairly simple synergies around the services, which are similar to us making small acquisitions for the local team. It just happens in a broader scale. And, yes, there are synergies that are more driven by decisions. So, for example, SG&A and organizational combinations And, yes, there is also the product synergies that we're looking for, which likely will take more time as there's a commitment on both sides of the company to deliver certain projects. So that's the rough description, but we will certainly come back with more details. This is now a start of the project, start planning the integration, and as part of that, then fine-tuning the plans. We know what to look for now. How do we go after is the next step.

And a few things I would add is because the regulatory process is going to take some time, actually this offers a window of opportunity, especially on the product convergence, to have even more detailed conversation than what we've had so far so that day one we are ready to act. And we really want to go in a mindset where day one after closing is going very, very fast in terms of executing what we want to do. That's one thing. And that's very true for Category 2 and 3, let's say product convergence and SG&A. Now, on the first one, there is one thing we've seen with digital, which is another engine of driving productivities. Let's say when we are growing our service, let's say around 8%, that means that if we were growing with no efficiency, we'd have to hire 8% more people, which of course is not what we want to do because we want to be more efficient. What we've seen is that actually when we built in better productivity because we have better coverage, all digital or both, actually it helps people to grow faster because they're not busy hiring people. They're just busy growing the business with the base, which is more efficient. And that's the base is more efficient, you're more competitive with your customer, and that helps you to grow faster. So some people might ask us later, but you're gonna find a lot of people in the field actually, if we do nothing growing as we grow, the biggest constraint is actually hiring people. So when we get more efficient, we get on one side more competitive with customer and on the other side, it's helping us to be more nimble with the growth we need. So I'm not saying all of this is easy, it's gonna require hard work, we are prepared for that, but we've seen that case before and therefore we're confident we can execute.

Got it, got it. Effectively acquiring capacity for future. And if I may, just to follow up on the deal structure and the issues of 270 million shares, which is worth 15 billion currently, how should we think about this? Is this a commitment to issue shares that would be worth 15 billion to the TKE top code, or is it 270 million shares of whatever price it will be at the time? How do we balance these things?

Up to 270 million shares, so it's a number of shares commitment.

And it would not change even if your share price is substantially higher than it is right now, and hence that number becomes substantially higher than 15 billion?

That potentially could happen.

Got it. Thank you very much.

Thank you. We'll now take our next question from Rizk Mehdi of Jefferies. Your line is open. Please, go ahead.

Yes, good morning. I'll stick to two as well. Congrats on the transaction. Just maybe perhaps on the leverage. I get to four times sort of leverage at closing. It's very difficult to reconcile that with an investment grade. Is there a plan to issue more equity at closing, and how are you planning to get this leverage sort of lower, even by 2030, struggle to get it to the X?

So, first, as I said, we are committed to having a solid investment grade rating, and we are now refinancing the debt, which TK has, as well as financing the cash payment. And at the end, we believe that we will have an investment-grade rating. I am at this stage not prepared to go through in terms of more details, as we only can represent on the pro forma financials as they report.

Okay, understood. And then perhaps just going back to the synergies, thank you for splitting them up in terms of source. Would it be possible to have just a flavor of, you know, the weighting between sort of America's Asia and Europe, just for us to get a rough sense?

I think the best way to think about it is that it's roughly split according to the business in terms of the synergies. And, of course, as I said, we'll come back with more details planned, but service size of the business is determinant than the size of the synergies in business in its respective area and so on.

Okay. Thank you very much. Thank you.

Thank you. And then I'll take our next question from Alexander Virgo of Evercore ISI. Your line is open. Please go ahead.

Yeah. Thanks very much. Good morning, gentlemen, and I appreciate you taking my questions. I wondered if you could just talk a little bit to the confidence that you've now got in the transaction. And what I mean by that, if I could, I'll spin into two parts. So last time around you went in with a partner. This time you don't. So just wondering if we can read anything into that and what that might or might not mean. And the second question or second part of the question is how do you manage the uncertainty in the business both from an employee standpoint and a customer standpoint while the transaction is being reviewed. Because I think, you know, if it's 12 to 18 months, then, you know, that would be a very successful timeline. The risk is, of course, it's longer than that. And that likely is to end up having a detrimental impact on the underlying business, particularly at TKE. So just wondering if you could comment a little bit on that. And then if I could just follow up with a final sort of housekeeping question. What sort of transaction costs are you assuming which you're then excluding from the EPS comments? Thank you.

The first one, let's say, if I would look at the major difference between the trial last time and this time, I would say this time we've been able to work very constructively with the other party. Of course, we've cleaned him and respecting all the competition laws and stuff like this, but I think we have a much better understanding of the company, and we've done this, I wouldn't say amicably, but in a very good way, and we understand much better. So when we are in front of you talking about all of this, and these plans and all the execution that is in front of us. We feel confident because we know precisely what needs to be done, and we are aligned with the leaders on the other side with respect and with a good spirit to make things work together. It might look like a detail, but it's very, very important. So that's the first one. Second question was?

Second was how to run the .

It's very simple. We are actually, and we started this morning, and Uday is going to do the same. In this time period, we're going to compete with each other, and we are telling both teams, you need to do your job, and you serve your customer, point. The rest, let some team that will prepare the conversion, that's not your topic. And then we are taking care of retention topics and stuff like this, and we feel pretty strong on both sides that people will have the work ethics, and the clear understanding and trust support system to make things work in that fashion.

And the last question was on transactions. I said transaction including integration costs. We estimate those to be 1 to 1.2 times the synergies and incur mainly in the first two years. Okay.

Sorry. Okay. So just to be clear, the 700 to 900 or, you know, rounded numbers, costs is included, including the costs to go through the competition review, the costs to integrate, and the synergy costs. So it's all in.

That's our best estimate right now. Okay. Thank you very much.

Thank you very much. Thank you. We'll now take our next question from Tommy Raylow of BNB Carnegie. The line is open. Please go ahead.

Hello, this is from DMT Carnegie. Short question, would you consider the synergies to be gross or net?

Simple answer, more net. So there are cost synergies and net basis. That's what we assume that we will achieve for this combined end.

Thank you.

Thank you. And we'll now take our next question from Nick Hall of RBC. Your line is open. Please go ahead.

Yes, hi, it's Mick Housden from RBC. Thanks for taking my questions. Firstly, on the refinancing of the TKE net debt, Are you anticipating any sort of additional savings there not captured in the $700 million of synergies? And can you also comment on any of the interest costs associated with the $5 billion cash component of the deal? Thank you.

Yes, so we have financing in place for the transaction, and I'm very glad you asked about the synergies in financing. So basically you're taking a company, Kone, with a very strong balance sheet, one could even say inefficient in that respect, and then a company which is clearly quite levered. When you combine them, yes, you will get benefits in terms of the spread's been much tighter than they are. And we estimate those costs, benefits to be in a range of 200 million for the combined entity at that stage. And on the interest rate, so let's come back to that at a closer date to closing when that's relevant.

Okay. And that, to be clear, 200 million of combined financing synergies above and beyond the 700 million. Is that correct?

Yes. That's the spread difference that we estimate to get when combining the two balance sheets. Okay, great.

And then just quickly, you mentioned your ambition to get the combined adjusted EBIT margins significantly above 16%. Any comments, A, on the drivers of that, and B, any kind of rough indication of the timeline? Is that sort of a 2030s ambition, or could we see it sooner than that?

So, naturally, we will come back in more detail when we are actually working together as two companies to set targets and with more clear plans how we work going forward. But along the synergies will mean that we substantially need to reset our ambition in terms of profitability. So that's what's behind the comments. Both weaknesses have actually improved their profitability on an underlying basis as well. So all of those three components actually contribute to that comment.

Great. Thank you very much.

Thank you. And we'll now take our next question from Martin L. Yeah, thanks so much.

Morning gentlemen, morning Natalia. Just two questions. Firstly, we've been talking about cost synergies and financing synergies so far, but we haven't heard anything about your expectations with regards to revenue synergies and potential dis-synergies. If you could elaborate on those two items, that would be very helpful. And my follow-up question is on the integration costs, which you, Ilke, have stated to be around 1 to 1.2 times of the total synergies. Can you, over the next two years, can you just provide a little bit more detail with regard to the phasing, year one and year two, for those things? Okay.

We'll come back with the details first. We'll need to work with authorities to get first the EGM, then the closing, and fine tune in between our integration plans, which are then driving the cost assumption and the timing of that. But what I did say is that they are mostly incurring in the first two years of post-closing.

And on revenue synergies, we've taken a more cautious stance not to include them. I mean, for anyone that has gone through significant deal and have done a few of them, I think it's good to have a prudent approach. There might be some, I mean, we'll work on this one, but we don't want to put that, to factor that in that business case.

But clearly, our ambition is to grow faster than the industry, so that means that we need to be able to continue to gain share.

Okay, and in terms of dis-synergies, there's nothing to point out?

Not really, no.

Thanks.

Thank you. And we'll now take our next question from John Hume of Deutsche Bank. Your line is open. Please go ahead. John, would you like to confirm if your line is muted from your end? John, can you hear me? Oh, this line dropped. I will now proceed to take the next question from Penu Leitenmecke of Danske Bank. Your line is open. Please go ahead.

Are you still there?

Sorry about this. So I wanted to ask about the synergies and the remedies. So you commented that 700 million is your view on synergies for the whole company, but is there a risk that the number could change if you would need to make substance or remedies, or have you kind of calculated this conservatively that even if you would need to sell something, this is that you would get achieved?

Well, as I said, synergies are based on our best estimate of what's achievable for the combined company. So that's what we're committing to when looking forward.

Thank you. I actually had a follow-up related to your Q1 results today. So interestingly, China, revenue was up modestly, but it was up for the first time in four or five years. Just curious, do you think this was the inflection point where the service and modernization growth is now offsetting the declining in recruitment, or was this just one quarter of more positive development?

Well, first of all, thank you for also paying attention to our Q1 results. We're very proud of them. And like you said, so we are seeing the market to be over 50% of the value is in services and modernization. And our business is not quite there yet, and we want to get there as fast as possible. That's the priority. And now in the first quarter, we indeed were able to grow slightly the business as both services contributed to it, but most importantly, we saw very good growth in the modernization business.

Okay. Thank you.

Thank you. And we will now take our next question from Andre Kutnein of UBS. Your line is open. Please go ahead.

Oh, hi. Thanks very much for taking the follow-up. I've got a couple. Firstly, in terms of how will you treat the cash generated by TKE in the meanwhile while you're closing the deal? And related to that, do you still intend to pay dividends for 2026? Obviously, seeing the deal, as you said, only close due to next year. So, would you still pay the dividend, or would you contribute that cash towards the deal and the leverage?

On the first part, so there's a lock-lock mechanism that is in place. So part of the combined entity, that's how the agreement has been agreed. On second, yes, I think I also said in my notes that we aim to have a stable dividend in the coming years. And, of course, then later on see do the synergies. and the development and growth of the business that we can then be progressive about increasing the dividend going forward. So, yes, definitely we're aiming to pay dividend in early part of 27 for the year 26.

Okay, great. Sorry to labor, but I'm just getting quite a lot of incoming on the kind of questioning how would you remain investment grade with 13 billion of net debt and the sort of sub-4 billion combined with the DA on the closing. Is there anything we're missing here, Ilko, that you could help us with?

Like I said, we'll come back to that in more detail towards the closing. but we feel confident that we will have a solid investment credit rating for the company, and with both our business model as well as for us to then execute on the synergies on an ongoing basis to have that solid credit rating.

Okay, and if I may, on antitrust, when you have experience of doing deals and in your conversations with authorities, will they look at combined new equipment or new installations business and service for the HHI calculations, or will they look at them separately and would each one of them become kind of a gate for that country to go ahead or not, i.e., do you need to clear it on a combined basis, or would not clearing it on either of the two, of either service or new build concentration, would be an issue?

I don't think I can speak for the authorities, so we'll work constructively with authorities, and then we expect that process to take 12 to 18 months.

And from past experience. Okay.

Yeah.

I think we're not going to go any further.

Fair enough.

Fair enough. Thank you. Good try. Good try. Thank you.

That's all the time we have for Q&A. I will now hand it back to the host for closing remarks.

So thank you, everyone online. And thank you also for your patience through our issues in the beginning. I hope that you got the answers, your questions answered well. We're here with the team to answer anything further. So please do reach out to me. Yeah, exciting day, as said. So looking forward to continued discussions as we go through the quarter.

Thank you. Thank you.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.