Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KONE Oyj (KNYJF, Financial) launched a new strategy in September, which was well-received by employees and customers, providing a clear midterm direction for the business.
- The company experienced strong momentum in service and modernization, with close to 10% service sales growth and around 20% growth in modernization orders at comparable currencies.
- Sales growth was robust in the Americas, Europe, Asia Pacific, Middle East, and Africa, with a combined growth of around 10% at comparable currencies.
- KONE Oyj (KNYJF) improved its adjusted EBIT margin by 10 basis points from the previous year, showing positive progress despite challenges.
- The company is leading in innovation and sustainability, with the launch of KONE High-Rise MiniSpace DX, which is energy-efficient and offers advanced predictive analytics for smart maintenance.
Negative Points
- Sales in China declined by 20%, and profitability was negatively impacted due to intensified market headwinds.
- The market in China became increasingly difficult, with orders declining by over 20%, affecting overall sales growth.
- The adjusted EBIT margin improvement was limited due to broad-based inflation and margin decline in China.
- KONE Oyj (KNYJF) increased provisions for bad debt, which negatively impacted adjusted EBIT by around EUR20 million in the quarter.
- The company's business outlook for 2024 was revised downwards, with expected sales growth now at 0% to 3% at comparable exchange rates, reflecting challenges in the Chinese market.
Q & A Highlights
Q: Can you comment on the order intake margin and how it has developed sequentially in Q3?
A: Sequentially, the order intake margin is slightly down, primarily due to continued pressure in China. Outside of China, we are booking slightly higher margins in orders than we are delivering, while in China, it's the opposite. - Ilkka Hara, CFO
Q: Is China still profitable, and do you foresee a scenario where it might not be next year?
A: Yes, China is still profitable, though below the company average. We are taking actions to maintain profitability, focusing on product cost reductions and cash management. - Philippe Delorme, CEO
Q: Can you elaborate on the performance initiatives contributing to the 13% to 14% EBIT margin target by 2027?
A: The initiatives include pricing improvements, sales and operational excellence at the branch level, and procurement efficiency. These are expected to start impacting towards the end of 2025 and continue through 2027. - Ilkka Hara, CFO
Q: What are the key levers for improving cash flow conversion in the coming quarters?
A: The main levers include increasing profitability, extending payables, and improving collections outside of China. We aim to improve cash flow conversion to historical levels. - Ilkka Hara, CFO
Q: How is the Modernization business performing in China, and do you expect it to remain the most profitable segment?
A: Modernization remains the most profitable segment in China, with stable margins despite competitive pressures. We see significant growth opportunities in partial modernization. - Ilkka Hara, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
