Kone Oyj Q3 2024 Earnings Press Conference Transcript

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

Question: Andre Kukhnin - UBS Limited - Analyst : Good morning. Thank you for taking my question and follow-up. Maybe I'll start with a follow-up. Just on the backlog margin evolution, you

Question: Andre Kukhnin - UBS Limited - Analyst : Sorry, order intake margin. You said it's down slightly year-on-year. Could you comment on how it's developed sequentially quarter-on-quarter? And how is the backlog margin developing, please?

Question: Andre Kukhnin - UBS Limited - Analyst : Thank you very much. And if I may, just briefly question on your comments on the pickup in activity in Americas, could you elaborate on that in terms of whether this is US or Canada? I guess South America is not relevant for you. And where are you seeing that and whether that is indicative of a trend or just a quarterly phenomenon? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 6:00AM, KNEBV.HE - Q3 2024 Kone Oyj Earnings Press Conference

Question: Daniela Costa - Goldman Sachs International - Analyst : Hi. Good morning. I have two questions. I'll ask them one at a time. The first one is like relates to China, basically. And can you comment on if China is still profitable? And given the pricing trends that you and your peers have been flagging in China and the situation, do you see a possible outcome that maybe next year, China will not be profitable? Or do you have actions that you can take immediately now to prevent that?

Question: Daniela Costa - Goldman Sachs International - Analyst : My second question may be related to some of the things that Ilkka was also talking about. But just going back to the CMD where you had the bridge to get to the 13% to 14% margin and also tying that up with the 2025 commentary that you just gave. The bridge had three parts basically, had the ones related to life product costs and what digitization and modularity in the individual business units, had the business mix which you just gave a comment on that will take time. Does it's time to shift? And then have the big bar that was 100 basis points of performance initiatives. Can you give us a little bit more color exactly on what those performance initiatives are and whether they're more back-end loaded, they're more linear through the period? Just trying to tie up how you get to the 2027, given the commentary on '25?

Question: Vlad Sergievskiy - Barclays Investment Bank - Analyst : Good morning. Thank you for taking my question. I'll start with free cash flow, if I may. Equity free cash flow conversion below 100% this quarter which leaves room for improvement from the historical standards, I would say. Do you think you will be able to make progress to improve cash conversion in Q4 2025 to 100% or maybe above where it's historically been for KONE before 2021? So that's the first question.

Question: Vlad Sergievskiy - Barclays Investment Bank - Analyst : Maybe I can follow up on that. What would be the key levers for you to pull to actually improve?

Question: Vlad Sergievskiy - Barclays Investment Bank - Analyst : Excellent. Thank you very much. And if I can follow up -- another follow-up. The second question will be on modernization. Would you be able to comment what volume and pricing development separately, are you seeing in China Modernization market? And whether do you think modernization will continue to be your most profitable business in China over the medium term, maybe long term?

Question: Miguel Borrega - Exane BNP Paribas - Analyst : Hi. Good morning, everyone. Thanks for taling my questions. The first one just around China. I remember you having a very strong order book in Q4 of last year. When would you expect that to flow through the P&L since China sales over Q2 and Q3 are still down 20%. So would you expect that to come through over the next coming quarters and to boost growth in China or not really? And then, I can ask the second question. On the full year guidance, you mentioned the reason for the cut was an increasingly difficult China market. But the reality is the cut is the same as the bad debt provision in Q3. So in other words, have you changed your expectations for Q4? Thank you very much.

Question: Rizk Maidi - Jefferies LLC - Analyst : Yeah. Thanks for your time and thanks for taking the questions. I'll have two and take them one at a time. So maybe just again on China. I know it's a smaller part of the business, but sorry to come back to this. Price mix drop in excess of 10% in a quarter where you've actually underperformed the market when it comes to volumes. I rarely see this sort of situation. I think this downturn compared to the previous ones, I think you always said that you competitors have actually less levers to be more aggressive on pricing just because they're not making as much margin as they've done before. Can you just maybe talk about this overall pricing dynamics? And just maybe to link this with the previous question. We've seen it in other markets when new equipment becomes weak for an extended period of time, we see price deceleration spreading into other segments, maintenance and modernization. What makes you think this is not going to happen this time?

Question: Rizk Maidi - Jefferies LLC - Analyst : The second one and again, thank you for giving us a little bit of an early comment on 2025 because that's really the main debate, I guess, for us this morning. Just maybe if I could ask you on some of the items in the EBIT that you actually know from today. I know you don't have a crystal ball on a lot of things and a lot of things can change between now and then. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 6:00AM, KNEBV.HE - Q3 2024 Kone Oyj Earnings Press Conference But can you assess, I want you to give us an assessment of roughly how much savings when you think about those performance initiatives that you talked about, you're estimating to achieve basically next year?

Question: Klas Bergelind - Citi Investment Research - Analyst : Thank you. Hi. I was a bit late on the call, so maybe you covered some of this already. First, on the modernization business in China. It's the best margin in China at the moment. But we're hearing of incremental price pressure also in mod. You've obviously done a great job in improving the mod margin since 2020 for the group and you want to improve it further. It would require a pretty good step up -- in China, it's obviously with that EUR1 billion of growth ambition that you have, Philippe, if this margin will be under pressure? Or do you think you can keep the margin there at the current level in China mod despite a very competitive market? That's my first one.

Question: Klas Bergelind - Citi Investment Research - Analyst : Yeah. And this is a good -- Philippe, this is a good bridge into my second question on modernization and the offering. We have a very good impression at the Capital Markets Day that you or at least I felt that you're relatively unique in terms of the increased standardization, partial modernization, all these kits. There are some peers though that are reporting very strong growth. It's very similar to you this quarter and are talking about that they have introduced the standardized kits also into the market. So could you just remind us again and you were leading in the whole standardization on equipment 20, 25 years ago. I think you have a strong position. But I'm still curious to hear your USP versus some of the competition out there on the mod business. Thank you.

Question: Nick Housden - RBC Capital Markets - Analyst : Hi. Thank you for taking my questions. I have them on the service business. Firstly, how much did M&A contribute to the 9.6% service growth in Q3? And then secondly, can you just comment on whether you're seeing any pricing pressure on services in China and you maybe just quantify that for us? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 6:00AM, KNEBV.HE - Q3 2024 Kone Oyj Earnings Press Conference