Kone Oyj Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Kim - Deutsche Bank - Analyst : Could I ask you to clarify your comment on the recovery in the Chinese markets? Are you speaking specifically to NBS solutions by the end of the year? Or should we think of it more as your revenue and production footprint in the country?

Question: John Kim - Deutsche Bank - Analyst : Brilliant. And just a quick follow-on. Can you give us any color on competitive behavior in that market?

Question: Michael Harleaux - Morgan Stanley - Analyst : I have just one on Modernization. Would it be possible for you to give us some color on how you see your competitive advantage in this segment against other big four OEMs and against independent service providers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 7:30AM, KNEBV.HE - Q1 2025 Kone Oyj Earnings Call

Question: Michael Harleaux - Morgan Stanley - Analyst : Yes. Yes. Absolutely. That's correct.

Question: Daniela Costa - Goldman Sachs - Analyst : I'll have one and a quick follow-up afterwards. On -- the first question is actually following up on the debate we are having right now in terms of Modernization and you're very clear on the -- how growth is developing. Any ambitions there? Is it fair to assume that profitability in Modernization on orders is also kind of evolving in line with improving in line with how growth is improving? If you can talk through that. I know you comment on order specifically on OE in the release, but if you could also comment on Modernization margins on orders? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 7:30AM, KNEBV.HE - Q1 2025 Kone Oyj Earnings Call

Question: Daniela Costa - Goldman Sachs - Analyst : Got it. And then just back to the tariff commentary on all the estimates and the color, thank you for that. Was sort of raw materials considered into that and thinking about steel and the movements and how much of raw material lag we could see in the coming quarters or not? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region Yeah. So the tariffs regarding the steel and aluminum were included in my comments. Otherwise, we expect raw materials to be more stable for this year. So not a big impact.

Question: Vivek Midha - Citi - Analyst : My question is also on Modernization. And in this case, the very strong comparable revenue growth you saw in the quarter, that's an acceleration on the rate you've seen in 2024. So were there any steps you took to accelerate the execution of the backlog in Modernization? Or is it just a reflection of historical orders or from rising share of partial mod versus full mod? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region So we actually had very good quarters of growth in Modernization last year. So we're now seeing that to come into sales. So that's number one. But then strategically, yes, we do want to continue to improve the Modernization order book rotation because it's right thing to do for our customers, but it's also good for the business. We see opportunities there.

Question: Ben Heelan - Bank of America - Analyst : I wanted to ask a question on the North American changes to the outlook and the lowering of the guide there. Could you just talk a little bit about what you've seen in Q1 that's driven you to make that change? And then as a quick follow-up on the European side, what's driven that improvement? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region Maybe I'll take that first. So first, I think in the first quarter, we mostly saw the decline due to a high comp last year. And then a limited impact from decisions being delayed due to the changes in tariffs and the volatility that, that creates. I would not say that it's a big change. We saw a slight growth in the market beforehand. Now we expect that to be a slight decline. So it is our best view on the market. And of course, overall, this uncertainty does not improve the likelihood that projects go forward, and that's included in our change in the expectations. In Europe, on the other hand, we see South Europe being fairly similar, positive market development overall, where we start to see now more improvement and also impacting our change towards the slight growth in NBS is more the Central Europe starting to see improvement in the market. Nordics continue to be quite difficult market still. So a bit of shift in the outlook.

Question: Jonathan Day - HSBC - Analyst : I was just wondering if you could talk a bit -- you said that cancellation rates were quite low. I was wondering if there was any variation in that by region at all? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region The cancellations actually are very low and there's not much of a variation there. So they tend to be a low in general in this industry. So I don't think I have much more to comment on that. They're quite consistent. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 7:30AM, KNEBV.HE - Q1 2025 Kone Oyj Earnings Call

Question: Delphine Brault - ODDO - Analyst : First, can you remind us and maybe be a bit more specific on the components of your bridge for your margin? And what do you need to reach the upper end of your range this year? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region Thanks, Delphi. So clearly, as we said already in the CMD, they are the same components that are also driving our long-term ambition and midterm targets. So clearly, number one, we want to grow our Services and Modernization business and clearly outgrow the company in those businesses. That has a positive impact through mix. Then secondly, in terms of our profitability, we have very focused efforts on these performance initiatives: procurement, fuel for growth as well as then the sales and operational excellence that Philippe was already talking about. Those will have a less of an impact this year, but we expect those to ramp up and contribute more towards the midterm targets. And then, of course, in terms of the guidance range. So the more we can grow and be closer to the top end, we expect, of course, fixed cost absorption to be better at that end and vice versa is true also on the other end.

Question: Vlad Sergievskii - Barclays - Analyst : On the margin guidance side, last year, you seem to have a material margin headwind from write-downs of receivable, I think you even met particularly in the Q3 last year. Does this 2025 guidance assume lower write-downs in '25? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region So first, I just wanted to correct. So we called it out as one special item in Q3. Actually, the situation improved quite a bit in Q4. So it was more in line with what we've seen in general. And it is -- the guidance is including our best expectation of how we're able to also collect the money and, therefore, for the bad debt costs. And actually, the start of the year in China has been quite good. We've seen the liquidity developing well, more in line with Q4 and our receivables in China are actually coming down. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 7:30AM, KNEBV.HE - Q1 2025 Kone Oyj Earnings Call

Question: Vlad Sergievskii - Barclays - Analyst : That's great. If I can -- just a quick follow-up. The EUR50 million FX impact you are guiding on the EBIT level, is it mostly translation or you also have part in transaction as well? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region So transaction, we hedge and it's not material. This is all translation.

Question: Rizk Maidi - Jefferies - Analyst : I'll just stick to one and a follow-up. But maybe just to elaborate a bit on the tariffs. Thanks for sharing the different figures. Can I just ask you about what do you think the sort of gross impact versus the net impact sort of would be and how you -- that 25% coming from China, where do you expect it to be in the next, call it, sort of 12 months? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region Well, of course, the picture actually is quite rapidly changing constantly, both on the tariff side, but of course, we're taking actions internally as well. So we have a modular supply chain, so we can use different sources for component-making and delivery to the US. So to me, the main message that we want to come across is, number one, it's a limited amount of the business impacted. And then second, our main aim is to be able to limit the impact to our profits to a small amount. And it's due to our actions that we take, but also we took good care in the previous time having our contractual language with our customers, including language for changes in tariffs. So we're then able to transfer the cost to our customers in many cases.

Question: Mikael Doepel - Nordea - Analyst : Just a quick question on the Service sales in the quarter. So it was quite good, 8.5%, sorry, at comparable FX. Just wondering if you could give any indication on how that is split between pricing and acquisitions and volumes. Any indication of what kind of the impact was from price, in particular, but also acquisitions? Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region Yeah. Certainly. So out of the 8.5%, we had more than 4% growth in units. Actually, acquisitions this quarter did not have a big impact and that's included in the units I just said. So more than 4% from units out of the 8.5%. Then the rest actually is the value component. And to me, it is about pricing, which has progressed quite well and it's also linked to this sales and operational excellence. Second, it's actually spare parts, and spare parts are something where we see a good growth opportunity going forward. And then thirdly, it's about digital. So roughly speaking, close to half is the value component to that.

Question: John Kim - Deutsche Bank - Analyst : He literally just took my question. I withdraw. Ilkka Hara - Kone Oyj - Chief Financial Officer, Member of the Executive Board, Interim leader for the South Europe and Mediterranean region There are no further questions on the line. So I'll now hand you back to your host for closing remarks.