Kone Aktie

Good morning, everyone. My name is Natalia Valtasaari. I'm Head of Investor Relations here at KONE. And I want to start by apologizing for the delay to start of this webcast. We had 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 said, let's get started. Very pleased to be joined today by our CEO, Philippe Delorme, and our CFO, Ilkka 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 key speakers, we'll be opening the lines for Q&A. I expect an active session. [Operator Instructions] So with that, Philippe, 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 TKE 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 expansion, 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 clear example is continued increase in connectivity of our maintenance base, which has now reached over 42%.

Now let me hand over to Ilkka to give you some background on the financials.

Thank you, Philippe, and welcome also from my side as well. Let's start with orders where growth of 3.9% at comparable currencies is a solid outcome. Modernization increased modestly from a strong comparison base while New Building 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 Philippe mentioned, a favorable mix supported adjusted EBIT margin 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 EUR 500 million in the quarter and cash conversion was healthy.

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 uncertainties related to 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 sites.

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 12.3% 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, Ilkka. 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 Herlin retains over 50% of the voting rights. At the same time, TKE shareholders becoming shareholder 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 focused on strengthening resilience and performance by capturing opportunities in Service and Modernization. It builds 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 #1 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, a peer I hold in very high regard. Since its carve out from thyssenkrupp, 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. TKE 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 a 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 installed base means more unit 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 EUR 700 million of synergies, broadly evenly split across 3 areas.

First 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 nonpersonnel cost efficiencies.

Overall, synergies represent approximately 3% to 4% of our illustrative combined sales, with a full P&L impact expected by the end of year 3 post closing. The related one-off costs are estimated to be approximately 1 to 1.2x expected synergies incurred over 2 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 EUR 20 billion in sales, and more than EUR 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. market. 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 customer needs. Let me share a few practical examples.

In the volume segment, particularly entry-level solution, we see clear opportunities to combine the strength of the EOX 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 UltraRope technology with TKE proven TWIN solution, where you have 2 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 get access to solutions for hydraulic elevators, which continue to play an important role, particularly in the U.S. installed 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 cultures are distinct, we share a 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 strong commitment to building a high performance culture. We have exceptional talent across both organizations, and I'm confident that our people will benefit from the broader opportunities to combine group -- 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 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 accretion 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 realization 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 me as CEO, will reflect the strengths of both organizations.

In terms of ownership, Antti Herlin will remain the principal shareholder. He has committed to purchasing shares to the amount of EUR 1 billion from TKE 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, TKE shareholders have a customary lockup period, but more importantly, their ownership in the combined group reflect strong conviction in the combined company potential.

At Board level, Antti Herlin will continue as Chair, while TKE shareholders will have the right to appoint 2 Board members. A new Strategy and Integration Committee will be established to ensure appropriate Board level oversight.

As I 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 key transaction terms. As mentioned, this is a cash and share transaction, whereby TKE shareholders will receive EUR 5 billion in cash and up to 270 million newly issued class B shares. Including TKE's EUR 9.2 billion of net debt at the year-end of '25, this implies an enterprise value of EUR 29.4 billion, reflecting a significant value creation potential of the combination.

We have fully committed financing from Bank of America and BNP Paribas in place. Together with the 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 to be -- 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 approval. 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 1.

Thank you. So let's wrap up. This transaction represents a unique opportunity to redefine the future of our industry. Together with TKE, 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.

[Operator Instructions] We'll now take our first question from Phil Buller of JPMorgan.

Obviously, congratulations on the deal. This has been expected for a long time. The key questions have always been around those antitrust hurdles and, you talked, this 12- to 18-month period of approvals.

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 color on when those conversations started and how they've progressed, please?

So I would say, repeat what Ilkka 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 approvals, 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 the work that you've done would imply that it's a relatively small minority component of TKE at this point, just a bit of scale.

I think Philippe already answered to that question. So we'll work with the authorities on this one.

Constructively.

We'll now take our next question from Vivek Midha of Citi.

My question is on the synergy view. Your target for synergies with TKE are quite substantial, EUR 700 million pretax. You've identified several areas. But taking a step back, as you 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 rank the synergy buckets in terms of your degree and confidence in achieving them and give us more color there?

So first of all, what I can say is 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 3 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&A opportunities. There are SG&A opportunities at KONE, there are still SG&A opportunities at TKE. And when you combine things, you need -- I mean, you have one role 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 the transaction, but we've done our homework very much in detail.

And we'll now take our next question from Vlad Sergievskii of Barclays.

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 breakup fee that KONE committed to pay in a 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 disclosed as is agreement between two parties, but I would characterize that as a customary to this type of transaction.

Understood. 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 EUR 13 billion of net debt in their recent results.

Like I said, so first, EUR 9.2 billion of net debt on the pro forma figures is the number I used. And we are targeting to be an investment-grade company, post-closing on an ongoing basis. And our target is also to be able to deleverage the company, and that's 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, Ilkka?

Okay.

And we will now take our next question from Andre Kukhnin of UBS.

Clearly, a 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 and service?

And within that kind of -- within the service synergies, in particular, I would expect that to be a bit bigger proportion than just 1/3 of the total. But what would be the cadence of like combining the service and maintenance basis 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 you can continue. So if you look at the synergies, first, when we talk about service density, there's a 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 team 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 a 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 then product synergies that we're looking for, which likely will take more time. There is 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 to 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 the 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 1, we are ready to act.

And we really want to go in a mindset where day 1 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 productivity. 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'll 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 or digital or both, actually it helps people to grow faster because they are not busy hiring people. They're just busy growing the business with a base which is more efficient. And as 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 going to fire 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, we get -- 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 going to require hard work. We are prepared for that. But we've seen that case before. And therefore, we are confident we can execute.

Got it, got it. Effectively acquiring capacity for future growth. And if I may, just a follow-up on the deal structure and the issuance of 270 million shares, which is worth EUR 15 billion currently. How should we think about this? Is this a commitment to issue shares that would be worth EUR 15 billion to the TKE Topco? Or is it 270 million shares at whatever price it will be at the time? How do we balance these 2?

It is 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 EUR 15 billion?

That potentially could happen.

We'll now take our next question from Rizk Maidi of Jefferies.

I'll stick to 2 as well. Congrats on the transaction. Just maybe perhaps on the leverage. I get to 4x sort of leverage at closing. It's very difficult to reconcile that with 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 2x?

So first, as I said, we are committed to having a solid investment-grade rating. And we are now refinancing the debt, which TKE 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 reported.

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 the weighting between sort of Americas, 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 each respective area and so on.

And we'll now take our next question from Alexander Virgo of Evercore ISI.

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 split it into 2 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 if it's 12 to 18 months, then that would be a very successful time line.

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?

The first one on, 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, with clean team and respecting all the competition laws and stuff like this. But one, 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 sit in -- when we are in front of you talking about all of these 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 at detail, but it's very, very important. So that's the first point. Second question was?

Second was how to run during the uncertainty.

Uncertainty -- 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 teams that will prepare the convergence, that's not your topic. And then we are taking care of retention topics and stuff like this that -- and we feel pretty strong on both sides that people will have the work ethic and a clear understanding and trust support system to make things work in that fashion.

And the last question was on transactions. So I'd say transaction, including integration costs, we estimate those to be 1 to 1.2x the synergies and incur mainly in the first 2 years.

Okay. So just to be clear, so the EUR 700 million to EUR 900 million rounded numbers cost included -- is included -- including the costs to go through the competition review, the cost to integrate and the synergy costs? So that's all in?

That's our best estimate right now.

We'll now take our next question from Tomi Railo of DNB Carnegie.

This is Tomi from DNB Carnegie. Short question, would you consider the synergies to be gross or net?

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

And we'll now take our next question from Nick Hall (sic) [ Nick Housden ] of RBC.

It's Nick Housden from RBC. Firstly, on the refinancing of the TKE net debt. Are you anticipating any sort of additional savings that are not captured in the EUR 700 million of synergies? And can you also comment on any of the -- or the interest costs associated with the EUR 5 billion cash component of the deal?

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 spreads being much tighter than they are. And we estimate those cost benefits to be in a range of EUR 200 million for the combined entity at that stage. And on the interest rates, so let's come back to that at a closer date to closing when that's relevant.

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

Yes. That's the spread difference that we estimate to get when combining the 2 balance sheets.

Okay. Great. And then just quickly, you mentioned your ambition to get the combined adjusted EBIT margin significantly above 16%. Any comments, a, on the drivers of that? And b, any kind of rough indication of the time line? 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 2 companies to set targets and with more clear plans how we work going forward. But along the synergies will mean that we substantially will need to reset our ambition in terms of profitability.

So that's what's behind the comment. Both businesses have actually improved their profitability on an underlying basis as well. So all of those 3 components actually contribute to that comment.

And we'll now take our next question from Martin Flueckiger of Kepler Cheuvreux.

Just 2 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. So if you could elaborate on those 2 items, that would be very helpful.

And my follow-up question is on the integration costs, which you, Ilkka, have stated to be around 1x to 2x of the total synergies. Could you -- over the next 2 years, can you just provide a little bit more detail with regards to the phasing year 1 and year 2 for those?

We'll come back with the details. First, we'll need to work with authorities to get first 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 2 years of -- post the 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 I've 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.

And we'll now take the next question from John Kim of Deutsche Bank.

His line dropped. I will now proceed to take the next question from Panu Laitinmaki of Danske Bank.

So I wanted to ask about the synergies and the remedies. So you commented that EUR 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 substantial remedies? Or have you kind of calculated this conservatively that even if you would need to sell something, this is -- that you would achieve?

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.

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 4 or 5 years. So just curious, do you think this was the inflection point where the Service and Modernization growth is now offsetting the decline in new equipment? 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 that.

Someone has been paying attention. That's...

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 our both services contributing to it, but most importantly, we saw very good growth in the Modernization business.

And we will now take our next question from Andre Kukhnin of UBS.

I've got a couple. Firstly, in terms of how will you treat the cash generated by TKE in the meanwhile, while you closing the deal? And related to that, do you still intend to pay dividend for 2026? Obviously, assuming the deal, as you said earlier, close Q2 next year. So do you -- would you still pay the dividend or would you contribute that cash towards the deal and deleverage?

On the first part, so there's a locked box 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 due to 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 EUR 13 billion of net debt and the sort of sub EUR 4 billion combined EBITDA on the closing. Is there anything we're missing here, Ilkka, 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 credit -- solid investment grade credit rating for the company, and with both our cash-generative business model as well as for us to then execute on the synergies on an ongoing basis to have that solid credit rating.

Okay, okay. And if I may, on antitrust, when you had 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's calculations?

Or will they look at them separately and will 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 2 of either service or new build concentration would be an issue?

I don't think I can speak for the authorities. So we work...

Constructively.

Constructively with authorities and then we expect that process to take 12 to 18 months.

And we've done the homework.

And from past experience...

Well, I guess...

We're not going to go any further, Andre. Good try, good try.

Thank you. That is 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. Yes, exciting day, as I 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.

Good morning, and welcome to KONE's fourth quarter results call. My name is Natalia Valtasaari. I'm Head of Investor Relations here at KONE. I'm joined today by Philippe Delorme, our President and CEO; and our CFO, Ilkka Hara. So as usual, Philippe 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 Philippe will wrap up, and we'll be ready for your questions. [Operator Instructions] Hopefully, we'll get very active dialogue, and that will enable as many people as possible to participate.

With that, Philippe, 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 EUR 1.80 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 example in a moment, but let's first look at our financial performance in more detail.

Let's start with orders. So as 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 a 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 actions 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 expectation.

Let's now look at our strategy execution has progressed 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 U.S. about to go live, dynamic maintenance planning is effectively covering 2/3 of our installed 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 the 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, 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 example 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 how sustainability is 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 grinding 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 Gurgaon 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 the 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 emission 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 Knights 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 as said, we have a lot of great example of strategy progress from 2025. And now, of course, our focus is on maintaining this momentum.

Let me next hand over to Ilkka, who will go through the market development and financials.

Thank you, Philippe, 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 contracts, the activity increased in all other regions.

Looking at the chart, Americas growth stands out. This is largely due to the 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 received. As Philippe highlighted, the positive momentum seen in previous quarters continued in the fourth quarter. Overall, the orders received 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 a business line perspective, modernization continued to grow at a healthy double-digit rate. New Building Solutions followed the market trends with pressure in China and growth elsewhere. Our orders received 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 growth -- good order book rotation in modernization was the highlight. This delivered 15% sales growth in the quarter. In New Building 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 Philippe 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 midterm target of 13% to 14% adjusted EBIT margin. Our margin expanded by 60 basis points in the quarter, taking adjusted EBIT to EUR 402 million. 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 continued to improve, supported by repairs growth and our efforts to take more strategic approach to pricing. Product cost reductions has also continued to -- 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 EUR 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 EUR 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 are thinking about '26, starting with the 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 Building 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 adjusted EBIT margin to be in the range of 12.3% to 13%. This keeps us firmly on track towards achieving our midterm financial targets.

With that, let me hand back to Philippe to close the presentation and open the Q&A.

Thank you, Ilkka. So before I move to the summary, let me take a few moments to highlight our priority for 2026. First, we will continue driving the excellent progress we've made in digital. We'll push for even higher maintenance-based connectivity and focus on further leveraging the productivity gain we are seeing in the field. In modernization, it will be important to build on this year's strong momentum in partial modernizations with a particular emphasis on reducing installation time. We've made very good progress in our initiative to drive performance through sales and operational excellence and improved procurement efficiency.

The first results are already visible in our financials, as you heard from Ilkka, now we must maintain and, in some way, accelerate this momentum to ensure we deliver the intended bottom line. And finally, to support all of these priorities, we will continue to strengthen a high-performance culture across the organization. This will help us drive greater precision and discipline as we drive our business transformation forward.

So to wrap up, we can be pleased with what we achieved in 2025. For me, most important was the great progress we've made in strategy execution. This was especially visible in the acceleration of our transformation to an even more service and modernization-driven KONE, supporting our performance and further strengthening our resilience.

Finally, both last year's results and our guidance for 2026 show that we are advancing well towards our midterm financial targets. So a big thank you to all KONE teams for an outstanding commitment once again. Thank you all for your attention, and I suggest we now move on to your questions.

[Operator Instructions] We will now take our first question from Daniela Costa of Goldman Sachs.

But maybe we can start, you talked about the tailwinds from the operational actions that you're doing. Can you help us out thinking in 2026, the balance between how much should we expect in savings versus what we will have in, for example, raw materials? Will that be a headwind? Where -- how should we think about that balance? That's the first one, and then I'll ask a quick one afterwards.

Okay. Maybe I'll take at least the start of it, and Philippe is quite excited about this, so I think you will add. So we are expecting a slight headwind from raw materials in '26. And -- then separately, so we have, as we said, been pleased how we've been able to now get both the performance initiatives ongoing. So the focus on purchasing as well as on the sales and operational excellence. And actually, in '25, we did see both contributing positively. But like we said already when we started the new strategy that we expect an increasing impact from the performance initiatives through '25, '26 and '27 contributing increasingly in those years. And we are guiding for improvement in profitability. So it's also visible in our guidance.

Okay. So we will exceed any raw material. And then the second question is, why haven't you increased the dividend this year given you obviously have earnings growth, you have strong balance sheet. Can you elaborate a bit on how you're thinking about shareholder payback and priorities there and yes.

Well, first, it is, in my mind, a strong dividend that the Board decided for the year or a suggestion for dividend for the AGM. And we've had a strong performance, and we also do value a strong balance sheet. So at the end, this was a decision this year. And I think it's a strong dividend and a good yield as a dividend yield as well.

Nick your line is open.

The first one is just some clarification on the guidance. I mean the low end of the growth guidance is at 2%, and we had 4% growth in 2025. And this year, it feels like you've got some very good growth tailwinds, modest, very strong and a bigger share of sales. NBS outside of China looks good. NBS in China is an ever-declining share of sales. Service growth is strong. So it just seems very unlikely that you would kind of end up anywhere near that 2% growth number. So I was just hoping you could maybe give some comments and some sensitivity around the growth guidance there, please.

So of course, like I said already in my remarks on the guidance that the uncertainty in geopolitics continues to be high. Then if I look at KONE business, we have a good order book in our NBS business, like you said. Uncertainty is more around how our customers are taking the projects forward. And it's good to note that one part of the good growth in '25 was related to major projects, which clearly have a lower order book rotation than the volume business. In modernization, we still are accumulating orders throughout the first half that we will deliver in the year. So it's more a question of how good are we executing against our target of more than 10% growth in modernization. And indeed, in services, it's more of a consistent good growth business. So those are the moving parts in the guidance as we see it. It's early in the year, and we see that this is a good range of outcomes for the business.

And it's aligned with our long-term targets -- or midterm targets, sorry.

Great. And then just a related follow-up regarding service growth. So 6% in the quarter, still a solid number, but a little bit slower than the dynamics that we've been seeing before. So I was hoping you could, a, just comment on what you're seeing in the quarter; and b, obviously, you've done a really good job over the past couple of years of aligning pricing with the customer value that you've been delivering. So I'm just curious to hear your thoughts about how you see this pricing dynamic going forward and whether there was almost a one-off element in the past couple of years as you sort of raise prices on existing contracts and whether it might be a little bit less of a tailwind over the next 2 to 3 years?

I'll try to comment on all of the components. But first, on the growth of services. So we target close to 10% growth in services business. And if you look at the full year, we're actually quite well in line with what we have guided. Then in the fourth quarter and maybe also in the second half, we had an impact from actions we took in China. As I said, we are prioritizing all of the businesses around cash flow profitability. And we reassessed our service base based on those priorities. And that's something where we saw a good impact to our performance, but it did slow our service growth as an overall down.

And we also have been very explicit that we want to separate our doors business to a separate business. And as that separate doors business is reported under the services. And during the separation, of course, it takes some management bandwidth as well as system changes, which impacted the growth as well. So all in all, I think it's quite in line what we targeted, excluding these 2 actions we've taken. Then on pricing, so I'm actually very pleased that we've now been able to take much more strategic, much more analytical approach to pricing. And we've seen both pricing as well as our repair volumes growing very nicely as a result. And I don't see that this work has been done yet. I think there's further opportunities going forward. I don't know if you want to comment on services more.

No, I would say more broadly on services, there is no reason for us to change the strategic direction we're having, which is we want to differentiate with digital, both on the efficiency side and the customer value. We see it working very well. We were planning -- we are growing very well in 3 of our 4 areas. We made a choice in '25 to prioritize differently in China to privilege cash margin. And then picking the right customers. We've done exactly what we wanted. We were expecting this pruning of the portfolio and therefore, the impact on the top line. We see a very strong momentum in the 4 other area. Now we are back in China much more on the growth side, but growth and profit, and we've delivered better profit in China in service. So we are sticking to the plan, and we are very confident in where we want to go.

And we'll now take our next question from Vivek Midha of Citi.

Hope you can hear me well. My question is really following up on the China service story. Within the slight decline you have in the fourth quarter in China, would you be able to indicate whether you saw units under service still growing in the quarter with the decline driven by price mix? Or did you see a decline in the quarter in units under service?

And the follow-up is you commented that the actions in China have seen the intended results. I'm curious to understand, should that effect then not continue in 2026 and onwards? Or given that you took the actions in the second half, should we expect some carryover effect on the China service growth rates in the first half of '26 before the comps ease up a bit again?

Do you want to start?

I can start. So in services in China, so there's 2 things that you need to take into account. One, yes, there is still an add-on. The market is growing as we -- as there are NBS units being installed and that's adding to the maintenance base. And we take a fair share of that with our good NBS business there. At the same time, we really took these targeted actions to look at our customer base with these 2 targets. And we continue to do so, but I don't expect a similar one-off impact going forward. It is more about working with each of the customers like we've done in other regions to find the right strategic pricing approach, drive repairs and so forth. So it is more of a one-off impact. But then as we see the market in NBS declining, so that is having an impact on the growth rate of the service unit base in the market.

And just to complement, every time you think about our service business, it's not as simple as number of LIS x the price. So that's one part of the business. The other part is really the repair business everywhere, including in China. And we believe that in China, specifically, we can do much better when it comes to our spare and our repair business. And we are working on packaging repair that will feed the customer demand, plug this with much more digital marketing to be responding to our customer request, and we see actually a very good traction here. So it's -- and for the rest, I would not repeat what Ilkka said on doing 1 year of really pruning our portfolio, which was much needed and which we believe has been largely done.

One more addition. So if I still take a larger content -- context, and it's also true in China, the modernization as a source of new elevators, the maintenance base is increasing its impact. So the more we go, especially on the parcel modernization, modernized equipment, which is not in our elevator base. It is maintained by somebody else. Those units actually then convert to our maintenance base with a very high conversion as a result. And as we grow the modernization business, this will be more and more important source of new elevators to the maintenance base compared to the NBS business.

I don't know whether I might be able to do a quick follow-up on that. But just on that last point, we know that there's been some pressure on conversion rates in China given the competitiveness of the market. Within the modernization business that you had in China and the growth there, is the conversion rate on those modernizations still holding up relatively well?

Yes. Yes. Simple answer.

And we'll now take our next question from Vlad Sergievskii.

If I can follow up on service growth. Would you be able to give us some idea of what your 2026 growth guidance implies in terms of service growth? Does it imply an acceleration versus 7.6% growth you did last year? And also, how should we think about this 10% -- or close to 10% growth over the strategy period? Does it mean that to achieve this growth, you would need to go to low double-digit growth in 2027?

Sorry, Vlad, can you repeat the last sentence? I failed to capture that.

Absolutely, Ilkka. In terms of your target for the strategy to grow that close to 10% your service business, does it imply that 2027 number should then be low double digits to achieve this close to 10% growth?

Got it. So first, I think this close to 8% rate that we got for the '25 year is actually a good number. We took some targeted actions and -- but in other areas, we actually saw the growth to be very much in line with targets. Then going forward, we don't give guidance by business line, but we repeat what we've said, we target to grow on close to 10% rate in services. And for example, this China action, we don't expect that to continue as one-off impact. So maybe that's implicit answer to your question.

Or the best answer we have.

And we'll now take our next question from Andre Kukhnin of UBS.

Can we start with just helping us to size the China business in terms of profit contribution? Could you give us some idea where it sits overall now versus the group or where the kind of margin level is for China? And within that, clearly, New Building Solutions margin has declined. Are we kind of still positive over around mid-single digits? If you could help with that, that would be great.

So indeed, I think the first comment is that the contribution of China is declining as the revenue has declined last year and also margin declined slightly last year -- declined further slightly in last year. And our NBS business in China continues to be profitable, and we aim to continue that. At the same time, we see the movement to services and modernization, which is now 40% of the business, continuing to happen. And the target is to get to 50-50 as soon as possible. And both services and modernization are with a higher profitability than NBS in China. And that's why the move -- strategically, that's a growing market, but also it has a positive impact to our mix -- profitability mix.

Sorry, but is that service and modernization of China has a positive mix effect to the group?

So I was talking -- you asked about China and about China. So in China profitability, the move to services and modernization has a mix -- positive profitability mix impact for China.

Got it. And if I may just follow up on the pricing questions that have been asked specifically for the, I think, price increases that you're seeing from suppliers that are based on copper and silver and a few other component inflation. Do you have price escalation clauses that you can action to pass that through on the new equipment? Or does that require a specific kind of pricing action one by one with the customers?

So now we see a slight headwind in our raw materials, and it's those base metal copper being the #1 for the year '26. And it's not a bigger headwind, and that's why I'm not calling out the number. It's a slight -- some tens of millions of headwind. And then -- it is, of course, relevant information when we price our new orders for our customers, and we take it into account. And with some of the contracts, we have escalation clauses for bigger raw material swings. I would not say that in the grand scheme of things, this is a bigger swing and would trigger those clauses.

And a material part of our orders that we have booked don't have those clauses in place. But right now, I think the mix between product cost actions as well as the raw material impacts is something that is still a positive. So we are able to see more product cost reductions than the raw material increases. And I said orders that we booked in fourth quarter had stable margins more because of the price impact in China versus the product cost. In other places, it was more neutral.

And we'll now take our next question from Delphine Brault of ODDO BHF.

We'll go one by one. First, in your comment, you said that partial modernization now represents the majority of your modernization activity and that it grew twice the rate of full replacement. Can you help us understanding by how much this mix contributed to your margin improvement? And are we right in assuming that the modernization margin is not that far away from the group margin?

Before I let you go on partial modernization, just on the fact. So yes, the movement to partial modernization has a positive impact to our profitability within modernization. And the aim for modernization is to continue improving its profitability. And as I said in the strategy, the aim is that it's not dilutive to our margins while it grows and becomes a bigger and bigger business. But do you want to comment the partial modernization?

Yes. It's -- I mean I'm somewhat new to this industry. I've been only 2 years in this industry, but I'm fascinated to see that actually the industry was not responding to the customer needs, which is when you have a running building, the first point that matters is time. And what we are doing is just responding to customer needs and say, you know what, instead of having this project in 3 months, we are going to make that project in 1 to 2 weeks. We are not going to do everything, but we're going to do what matters. And once that work is done, the elevator is connected, and we can actually guide for the coming 5 years what really will be essential for you, Mr., Mrs. customers.

This value proposition is working very well. By the way, from a financial standpoint, the other benefit is that it brings a very good order book rotation, fast order book rotation and the conversion rate to service is very good. So from a model standpoint, it's a great business. And what I like is that it's a business that corresponds to what our customers are asking for. So we are pushing as fast as we can to really organize ourselves to be extremely efficient in delivering this so that we -- success drives success, and we really make our name, and this has been working very well in the past 2 years as being the best company to drive fast and partial modernization.

And then it's now -- no, coming back on your margin guidance. What do you need to reach the upper end of your range this year? What are the main assumptions between your 12.3% and your 13%?

Of course, a big part of the margin is related to the revenue guidance as well. So the more we are able to deliver the revenue on the top end, the more we will get also leverage on the profitability part. Then second part is around the revenue mix. So again, the more services contribute, the higher end we are at the guidance and modernization will help. And of course, the mix is more on NBS, then it is something we need to tackle. And -- that's number one.

Number two is related to our performance initiatives that are, of course, contributing positively to our margins. And I would want to emphasize the fact that in sales and operational excellence, really what we're looking for is the lowest level, the branch, the region that is close to our customer, how they're able to deliver to our customer needs and how are they able to manage the business to produce profitability, pricing going forward. And I think there, we are seeing very good -- the best branches that have really adopted it first, very good outcomes. So that's naturally contributing to the profitability positively. Maybe those are the key variables, I would say.

So the question is how fast we can strike on all these cylinders to make them all align and contribute to the upper part of our guidance.

And we'll now take our next question from James Moore of Rothschild & Co Redburn.

I wondered if I could circle back to Andre's question about Chinese profitability. Would it be possible to quantify where we really are on the overall Chinese margin now or the difference versus the group and to try to quantify the difference between NBS and service and maintenance numerically so we can think about, a, the effect to the group that is now less as China declines; and b, the impact of the positive mix within China? That's really the first question.

Well, first, over 90% of our profits are services and modernization. So it is really if you -- we look at the profitability of the company, it is how we are able to grow and manage those businesses. And that's really why we talk so much about services and modernization. So that's a big change in the last years. In China, now the share of revenue has declined for the total company and its profitability is below the group average. And I said already that it declined further in '25. And the more we can make services and modernization be a bigger part of the revenue in China, that's the way for us to then turn the margin also towards stable and growing again going forward.

And we don't do segment reporting. So it's more the qualitative comments we're giving, but it's clearly below. And NBS is the lowest margin business we have in China and services and modernization are not that different in margin in China.

And the last point I would complement is our cash generation is China is extremely healthy, which is a point where we think we really stand out competition, which is a point that actually leads us to move away from customers. But in the end, we believe cash is key. And we want to make sure that we translate all the hard work we are doing on the ground to money in the bank or in our bank. And we are actually on that side, looking at profitability and EBIT level, but also in cash generation. And that part is actually very, very healthy.

Maybe I could just go back to the service growth and say it, I didn't really understand the answer you gave earlier about the pruning being a single quarter impact, having covered companies for 30 years. Typically, when revenues drop on pruning, you've got 4 quarters of impact before it comps out. Can you help me understand why that's not the case? And is it possible to talk about what the speed of asset under management percentage growth in units was in the quarter, please?

That's not what I said. So I said -- so I think Ilkka and I said that we worked in 2025 on pruning our portfolio, but we worked on the full year 2025. So we started in Q1, and we've seen the impact coming as we were working on it. But -- and we think we've done the essential work to move away from customer either would have low profitability or negative profitability or customers where we believe we had no chance to be paid. So we think we've done the biggest chunk of the work that's needed. Then we've worked within our pricing priorities everywhere in the company looking at our lower profit margin risk profile on cash, but we think that the biggest chunk of the cleaning work that needs to be done in China has been done.

That's great. And anything on the asset unit growth speed in maintenance?

So we see in maintenance, the growth. So I've said it earlier. So we have 3 components when we look at the growth. First is really the repair volumes. How can we continue to drive repair volumes. And that's why the digital part is so important that we can free up capacity to drive that repair volumes to be both sold and installed. Second is related to pricing and value. And value to me is including the digital offering we have facing our customers. So how do we differentiate to get the maximum price and actions we take. And then third one is the units. In units, last year, we had lower growth mainly due to China. In other regions, we've actually seen quite a good development. And we don't see that our strategic direction in terms of unit growth is changing.

The only thing we could say as a change is stronger contribution coming from mold and partial mod and a bit less coming from NBS. So in that regard, the whole model of our business, which was a lot of selling elevators and driving the service is changing a bit to actually trying to get a better retention with digital and moving actually a part of our modernization business towards lift in service and expanding our service base.

And then lastly, I just wanted to comment because we started with China. You see that China service market is growing at a low single-digit speed. It is also a good signal that we are seeing and are expecting going forward that our service growth is higher in the 3 other areas as a result. And yes, we will grow in China as well, but really the growth rate is higher in the 3 others given the dynamics.

And we'll now take our next question from Tomi Railo of DNB Carnegie.

This is Tomi from DNB Carnegie. Two questions, if I may. Coming back to the NBS profit contribution, you mentioned over 90%. Any further comment? Is it 95% or is NBS contribution, how much less than 10%, if I can formulate it that way?

It's less than 10%. That's -- I won't go to more details, but it's less than 10% and it's -- the modernization service is more than 90%.

And then another follow-up. If you could just still state clearly if China NBS is lower than global or above than elsewhere?

It's slightly above elsewhere.

And we'll now take our next question from Aron Ceccarelli of Bank of America.

I have a question on modernization, specifically in Europe. At your CMD in 2024, you highlighted the European market for modernization to be probably the largest opportunity in terms of units. And I think today, you're guiding for slower growth compared to other regions. So I was wondering why that. And also if you can discuss a little bit the role of subcontractors in modernization business as the modular strategies speeds up would be useful. And I will go with a follow-up after your answer.

I just clarify before you take the modernization. So we said the market is expected to be growing at 5% to 10%. It does not mean that we could not grow faster than that, and that's what...

Then I mean, we are -- in Europe, as everywhere, we are ramping up our actions on modernization. We are doing actually pretty well on at this point, full modernization and partial modernization of our own installed base. And now we need to do better on partial modernization on our -- not on our installed base. So the market -- we have a lot of questions like what is the limit of the modernization market. And my answer is always the same. There is -- frankly, at this point, it's such a big ocean that there is very little limit.

Now on your point about subcontractors/ISPs, independent service providers, we see them, frankly, as much as competitors and in some case, partners because actually, they cover markets that we don't always very well covered. So we actually see an opportunity to work with them in a targeted manner in places where we don't have the geographic coverage to actually bring our technology. Very often, these companies are not very good in digital, where actually we bring the whole digital gear very well. So we still see an opportunity of plenty of new business model, leveraging more companies that are not strictly KONE to address much better this very vast market.

And my follow-up would be on your cost structure. Clearly, when I look at one of your competitors have done a very remarkable job on cutting costs. And I believe you have a fairly new head of procurement. And when I look at your SG&A on the other hand, you also have higher SG&A as a percentage of sales compared to other peers. I was wondering, could you perhaps provide a little bit more granularity on what you can actually do on the procurement side now and what opportunities are on SG&A as well.

Well, I think on procurement, indeed, we have a new -- not so new. Michelle has been with us now for 6 months. But clearly, what we see is we have an opportunity to professionalize our teams, upskill our team and put purchasing at the right level of attention within the company, which is exactly what we are doing. We actually started this work like before Michelle came in, but we see now an acceleration. And therefore, there is an opportunity to drive better purchasing productivity. On SG&A, you're right. We are -- we have more costs relative to sales than many of our competitors, and we have to do a stronger job of driving efficiency, and we are working on it.

And we'll now take our next question from Antti Kansanen of SEB.

It's Antti from SEB. I have 2 questions, both on the service growth. So I'll start with the mention that the modernization, partial modernization is emerging as a driver to the maintenance base growth taking over from the NBS. Is this something that you have already been [indiscernible] on a significant manner in, let's say, '24, '25? Or was this a question more going forward that it will start to accelerate as an impact? And how does it work? Is it elevators that are too old to be relevant in your maintenance space? Or are you converting non-KONE brands through this modernization?

Maybe I can take it. So just correction, I've not said that partial mod is taking over NBS. I'm saying, I love competition, and I'm telling to the modernization team, raise the bar so that you become a stronger contributor to service. Now in size, today, this is already significant to very significant. Now are we at the level of what's coming from our NBS business? No. But when you look at the big parameters, if we keep doing the good job we are doing on partial modernization, this indeed will become very mainstream into driving more LIS.

And on your question, is it more KONE unit, non-KONE units? My assessment today that we do a decent job on our KONE units. Are we perfect? No. So it's okay to be perfect and raise the bar. On non-KONE units, we can really do much better. And by the way, I don't think the industry is very good overall. So the point about responding with time to do the job and really compress the time by being very optimized is one thing where the industry is average. It's up for us to be very good.

Would you guys say that in the past few years, which of the contribution has been, let's say, more relevant on offsetting the decline impact from NBS, your increased acquisitions or conversions from the modernization side?

I don't -- so we'll come back to this partial modernization in more detail, but it is starting to be more and more relevant. And of course, for us, it is very compelling. So we don't put capital in play and actually get a modernized -- modern digital elevator as a result of the partial modernization. And actually, it's quite a fast turnaround business. So it is -- from that perspective, return on capital is very good.

Okay. And then the second was just a clarification on the pruning work you talked about in China having been over. So do I understand correctly that starting from Q1 this year, there will not be any more negative sales growth headwind in terms of the actions have done and the impacts have already been seen on the P&L?

So we took the actions throughout the year. And I said it was more visible, and that's why I called it out in second half of last year. And we expect now a more normal business. It doesn't mean that we would not be focused on profitability and cash flow going forward as well. But I think this was more of a targeted action.

And we'll now take our next question from Rizk Maidi of Jefferies.

I just want to go back to this modernization conversion into sort of new installed base, I think, was the previous question. I was wondering if you could -- I thought this was a '27, '28 sort of impact, but you start to see it in China, if I heard you correctly. Maybe can you help us sort of quantify this perhaps in the last few quarters, when you look at your modernization sort of growth, how much was it on KONE units on non-KONE service units or perhaps even on the installed base growth, whether you could actually have a contribution from modernization conversion, if I could call it this way, I'll stop here.

So first, the conversion rate of modernization is actually very high. So that's why it's such a compelling place.

And maybe to explain why because when you sell a new construction elevator, you sell it to the contractor. And then the building goes on, there is all kind of things that can happen up to someone who is now in charge of dealing with elevator, which is very often not the contractor. When you deal with the modernization and even more a partial modernization, the person who is buying the partial modernization is a person very often will operate the service. So if you do a good job and actually, if you really go beyond what's possible in terms of time and customer satisfaction, there is little reason that, that customer is not going to stay with you for service, especially when we at KONE bring in the package the connectivity that gives transparency, predictive, remote capabilities. So sorry, close the bracket, but I think it's important for all of us to really understand what's going on here. Sorry I cut you.

That's fine. And then it's -- we've increased our modernization business, grown it. We've also increased the proportion of partial modernization. So it's in China, but also outside of China, more and more meaningful contributor. But still NBS is a bigger contributor. But in the future, it could be other way around.

But at this stage, you're not willing to quantify how much of your mod growth is on KONE units versus now?

Most of them are still KONE units at this stage.

I think it's -- I'm repeating on modernization. It's a blue ocean. So it's a place where -- I mean, there are 10 million units in front of us, and the industry is modernizing a fraction of this, a real fraction. If we look at the number of -- I think we've released that figures, a couple tens of thousands of units every year. So we are -- every time the team is coming saying, "Oh, we are so happy we did that grow, yes, you can -- I mean, we can do better. And it starts by listening to our customers and responding to their needs.

The second one is we've seen -- if you think about connectivity, it started quite slow, I think, back in 2015, '16. Then you ramped it up quite quickly. I think the number this morning was above 40% of the installed base being connected and you improved that by 7 percentage points. Just thinking what's the blue sky here? How we should we think about this improvement over the coming years? The installed base is still quite old and my understanding, if you want to have good readership or good value from connectivity, you have to force modernization or partial modernization. Just thinking about the blue sky here, basically. And the benefits as well to your business.

It's one of my favorite topics. But when you say, okay, we started, we increased and then we plateaued and now we are reincreasing. What has been the difference, focus and leadership. And very easy to say, very hard to do. And I think where I'm very happy with the team is we've managed to mobilize the company and make it clear for everyone in the company that this thing is a game changer and therefore, a sense of urgency. It's very hard to copy. And I think we've managed to bring that focus in mind. So what is our ambition to have all our elevators and escalators connected.

So is it possible tomorrow next quarter? No. But I think everyone at KONE understand that this becomes the norm that we want to be digitally enabled on the field with apps that make us more efficient and that once an elevator is connected, it brings transparency, meaning everyone knows and is on equal base to understand what's going on. We get predictive. We get 800,000 elevators connected where our AI is scrolling and sending service need to our field technician to correct the problem before they will happen.

We think we can filter up to 80% of the issues before they would happen. And then when the code allows us, we can actually remote rescue people who are being entrapped, which is a big difference. So where is the limit? At 100%. Are we going there next quarter? No. Is it hard to do? Absolutely, yes, because it touches the DNA and the culture of the company, but I'm really happy to see that step up, and we are very committed to that transformation.

And we'll now take our next question from Martin Flueckiger of Kepler Cheuvreux.

I've got 2, and I'll start off with the U.S. According to your assessment, market in the Americas was up significantly in Q4, which seems counterintuitive given the fact that we had the longest U.S. government shutdown in history, but also if you look at indicators like ABI and so on, I was just wondering -- and also, by the way, your outlook for 2026 is still positive, but clearly much slower than it was in Q4. Just wondering what the issue was or what the narrative was for the strength in Q4? That's my first question, and I'll come back with the second one.

Yes. So as I said, Q4 market in the U.S. was impacted by the low comparison point the previous year. If you look at it sequentially, it's more stable and the full year is a slight growth for the market. We're expecting similar environment to continue in '26. And yes, there are many uncertainties also in U.S., also outside of U.S., but that's our best forecast for the market activity.

Great. And then my second question is on some of the financials. I guess that's for you, Ilkka. I was just wondering, net financial results seemed weaker than expected. Is that FX related? And what is the reason for what seems to be a higher-than-expected income tax provision in Q4?

Yes. Thanks for asking. So we actually had a one-off item in taxes in the fourth quarter related to our intercompany legal structuring. And we don't expect that to repeat. So it's -- the expected tax rate is fairly similar, this 23.5% going forward. So it is a one-off impact that caused it.

Okay. And in the net financial result, how large was the FX impact?

The FX impact -- let Natalia come back to you on that. I think we have it also in the deck -- behind the deck, so I don't say incorrectly.

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

Excellent. So thank you, Philippe. Thank you, Ilkka. A special thanks to everybody who followed us online. Great questions, lots of interaction there. So we appreciate that, your interest and your time. And if there are follow-ups, I'm happy to answer them. I will certainly come back to you, Martin. And with that, yes, have a great rest of the day and weekend ahead.

Thank you, everyone.

Thank you.

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

Good morning, everyone, and welcome to KONE's Third Quarter Results Webcast. My name is Natalia Valtasaari. I head up the IR function here at KONE, and I'm very pleased to be joined by our President and CEO, Philippe Delorme...

Good morning, everyone.

And our CFO, Ilkka Hara. As usual, we'll start by walking you through the financial highlights of the quarter, what we're seeing in the business and what we're seeing in the markets, then we'll move on to your questions. [Operator Instructions] but with that, over to you, Philippe.

Thank you. Thank you, Natalia, and good morning, everyone. I'm very pleased to be presenting our third quarter results today. And let me start by saying that Q3 was, in many ways, a strong quarter. Order development was, of course, a key highlight. Nearly 8% growth is an excellent achievement, and I'm happy that growth was broad-based. We delivered again on our target to consistently improve profitability towards our midterm margin corridor. Not only did we grow earnings, but we also had healthy cash conversion in the quarter.

For me, a key point worth emphasizing is that over 60% of our sales is today coming from service and modernization. This shows that our pivot towards a more resilient business model is proving successful. And last but not least, we continue to drive our strategy forward with precision and speed. I will share a few concrete examples of strategy progress, but let's first take a look at our financial performance in more detail.

So as just mentioned, order growth was strong this quarter. We saw over 10% growth in all areas except China. The biggest driver was modernization, where orders were up double digits. And I'm also pleased that our efforts to strengthen competitiveness in the residential segment paid off. This supported good momentum in New Building Solutions, especially in Europe and in the Americas. Sales grew by 3.9% at comparable currencies. Modernization delivered another excellent quarter with sales up 15.5%. Our Service business also performed well outside China, while in China, development was more stable.

Adjusted EBIT margin expanded by 75 basis points from a low base. And the main driver was the growth in our largest profit pools, service and modernization. And finally, cash generation was strong with operating cash flow increasing by roughly EUR 100 million year-over-year. Let me now share some highlights from the quarter. The first one, and you see the smile on my face, is a very exciting milestone where we secured the contract to equip the Jeddah Tower in Saudi Arabia, rising to over 1,000 meters. This will be the world's tallest building once completed. It will be equipped with solutions from KONE next-generation high-rise offering, including our superlight UltraRope hoisting technology.

I'm very proud of this win. It showcases not only our unique innovations, but also our capacity to deliver highly complex projects in a reliable way. With this win, 5 of the world's 10 tallest building will feature KONE technology. I see this as an excellent recognition of the work we've done to reinforce our leadership in the high-rise segment. As you know, our strategy focuses on making KONE an even more resilient business with service and modernization as the key drivers of growth. And I'm pleased with the progress we've made in accelerating this shift during the year.

Let's start with services. We began the year with roughly 35% of our maintenance base connected, and we are now approaching 40%. At the same time, our field service technicians are leveraging productivity tools in 41 countries, and we're enabling remote service in 35. These advancements are critical to deliver greater transparency, improved predictability and more efficient service for our customers. Let's now turn to modernization, where customer response to our partial modernization offering has been very positive. This is the fastest-growing segment within modernization and accounts for the largest share of modernized units. For KONE, partial modernization provides scalable growth and enable us to address market opportunities more broadly.

For customers, it offers easier installation and improved energy efficiency at a more attractive cost. I see this as a true win-win. Let's now move on to sustainability, where we have lots of good news to share. Let me highlight a few components of our sustainability index, where we've made particularly strong progress. First, we have continued to scale our solution to drive energy efficiency. A good example is the growth of our partial modernization business and the fact that regenerative drives are now included in more than 60% of our deliveries. We have also improved our [indiscernible] rating, which is how we measure progress in cybersecurity, a key priority for us.

We're actually now in the top 10 percentile of the engineering peer group. On the people side, I'm proud to share that KONE was recognized for the 6 years in a row on Forbes and Statista's list in the World's Best Employer. This is a fantastic acknowledgment of our commitment to being the #1 choice for employees, fully aligned with our strategic ambition. Finally, we announced a partnership with UNIDO. Together, we will conduct training programs for our suppliers to promote sustainable practices and human rights across the supply chain.

Now let me hand over to Ilkka, who will go through the market development and financial in more details. The floor is yours.

Thank you, Philippe. And also a warm welcome on my behalf to this third quarter result webcast. As usual, let me start talking about how we are seeing the markets developing in the different regions over the past 3 months. Overall, the trends were broadly similar to what we've seen earlier this year. In terms of New Building Solutions, as I'm sure you are well aware, market conditions continue to be difficult in China. In all other areas, we actually saw increasing market activity. If we move East to West, demand continued to be strong in Asia Pacific, Middle East and Africa.

In Europe, activity picked up from Q2, growing slightly compared to last year, and we also saw some growth year-on-year in North America, despite trade policy-related uncertainty. Then looking at Service and Modernization, we continue to see healthy growth in all regions. Next, let's go through our financial development in the quarter in more detail. As usual, I'm starting with orders received, which, as Philippe mentioned, was a highlight of this quarter. 7.8% growth at the comparable currencies is a great achievement.

Interestingly, China New Building Solutions was the only soft spot. Modernization continued to grow strongly in all areas, and we had a good quarter also in New Building Solutions outside of China, both in volume business as in the major projects as well. Order margins were stable overall with China still under pressure and more stable development in other areas. Turning into the sales, which grew 3.9% at the comparable currencies in the quarter. Looking at the development by business, it was great to once again see the strong order book rotation in modernization. Sales increased by 15.5% overall. And more importantly, all areas contributed with double-digit growth.

In New Building Solutions, continued low delivery volumes in China was the main driver behind the 5% decline. In Service, we grew by 7.3%. Outside of China, growth was very much in line with our targets. In China, we have taken deliberate actions to prioritize margin and cash flow over volume in all of our businesses, including service. This means being selective and sometimes walking away from contracts that are not meeting our performance criteria. Pricing and revenue uplift from digital services solutions continued to contribute positively to service growth.

The repair business also performed well in the quarter. This is actually a great example of the benefits of accelerating digital. As Philippe said, connectivity enables productivity. And when we perform service more efficiently, we release time that we can use, for instance, more proactively drive repair sales. Then moving to adjusted EBIT and profitability. Margin expansion in the quarter was 75 basis points year-on-year, which is a good outcome despite the lower -- low comparison point. This took adjusted EBIT to EUR 341 million. Looking into the details, we saw again some negative impact from higher investments into R&D and our strategic growth areas. That said, the main headwind continued to be the new equipment market in China, more than offsetting was the positive mix impact of services and modernization growth.

So overall, good delivery of our 11th consecutive quarter of profitability improvement and especially good to see also sequential improvement, which is not always the case for Q3. Then turning to cash flow, one of my favorite metrics. Cash generation was strong in the quarter, supported by growth in operating income and by changes in working capital. Cash flow from operations increased to EUR 364 million, bringing year-to-date cash flow to EUR 1.3 billion. The contribution from working capital came mainly from advances received, which, of course, related to a strong growth in orders.

And although not a big contributor this quarter, our focus on collections continues and it's progressing well. Then looking at the whole year '25. First, we have made a small update on our market outlook. We now expect the New Building Solutions market in North America to grow slightly, as activity continued to trend upward in Q3. Of course, the business environment in the U.S., in particular, remains fluid. Our view on other areas is unchanged. China continues to be the main challenge. In Europe, we expect some growth. And in Asia Pacific, Middle East and Africa, we expect clear growth. For Services and Modernization, our outlook continues to be positive with growth opportunities in all areas.

Then to our business outlook. With 3 months left in the year, we have specified our guidance slightly. We now expect sales to grow 3% to 5% at the comparable exchange rates and the adjusted EBIT margin to be in the range of 11.9% to 12.3% this year. FX is expected to be a headwind. If it remains at the October levels, we estimate a roughly EUR 30 million negative impact to EBIT. China continues to be burden to both volumes and margin. We also expect some small impact from tariffs. But as we discussed already previously, most of the impact is recoverable in our view. We have already made good progress in mitigation actions. In terms then on tailwinds, service and modernization growth is the main positive. We also expect some support from the ramp-up of performance initiatives.

Then Finally, let's look at how we're currently thinking about year '26, starting with challenges. China construction market is not yet showing any signs of leveling out. So this will continue to be a burden, less than in '25 as our exposure continues to come down. We also expect similar inflationary pressure on wages, as we have seen this year. On the positive side, we continue to see opportunities to grow our service and modernization business, which will contribute positively to the earnings mix. We also expect meaningful contribution from our performance improvement measures. And we have made it very -- and we have made very good progress in our product cost reductions this year, which will also be supportive.

So those are our initial thoughts. And of course, we will provide more color when we report the Q4. Let me now hand back to Philippe to close the presentation before going to the Q&A.

Thank you, Ilkka. So to wrap it up, let's make -- sorry, changing slides. So let me first take the opportunity to thank all the KONE teams for their great achievements and for delivering a strong Q3. We had yet another quarter of good momentum in service and modernization, which shows that the transformation we are driving is well underway. I'm also very happy with the progress we are making in executing our Rise strategy, and we continue to move full steam ahead.

And finally, our performance this quarter shows that we are on track to delivering on expectations for 2025 and building solid momentum towards reaching our midterm financial targets. Thank you all for your attention, and I suggest now we move on to your questions.

[Operator Instructions] The first question comes from the line of Andre Kukhnin from UBS.

Maybe actually, I'll start with a quick follow-up on what you mentioned on China exposure coming down during this year. Maybe could you help us to calibrate that a little bit? I think we talked about China New Equipment margin being clearly below group average in 2024. Is it fair to assume that it has come down substantially further in 2025 in sort of more mid- to low single-digit range?

It's always difficult with these objectives substantially, like you said, but what I would say that our margins in China in New Building Solutions have come down in '25 further.

Got it. And the main question really for me is on the performance improvement initiatives that you talked about and we've been kind of tracking and talking about since the Capital Markets Day last year. Can you just walk us through what has been done during 2025 and what will be delivering those kind of meaningful contribution, as you mentioned, in 2026? And is there any way we can start sort of quantifying that already for 2026?

Well, if I start, I think you're quite passionate about this, Philippe, yourself. So what we outlined in Capital Markets Day is that we see an opportunity for us to improve our profitability by 150 basis points by year '27. And then, of course, we need to make a decision that we invest some of that back to growing the business further. In that progress, we have started to now execute those programs. The largest ones which are contributing to the profitability are focus on our procurement, how we source both at the factories as well as in the local operations and as well as how we perform at the regional level or the lowest level where the KONE teams come together, and we call it sales and operational excellence.

On sourcing, I'm very happy how we've been able to drive our product cost down this year. We have yet another record in terms of product cost reductions as a result. We have more work to be done on the local sourcing part, and that's because it's touching more teams, and we need to then just lower to get that executed. So good progress in where it's more centralized, more work to be done and good opportunities in there. And then sales and operational excellence, we are seeing that the teams are really now able to drive better and better outcomes, and we have more and more consistent execution. But also there, we have plenty of work to be done on that one. Maybe you want to comment?

Yes. I mean those things take time. I'm rather impatient as a person, but you -- I mean, you don't -- the company is not a light switch. So when you drive things at a branch level with much stronger sense of execution, timely, weekly, tactical and things like this, it takes some time to spread within the company. I think we've said during the Capital Market Day that we would start to see the impact of most of these actions by the end of 2025. Nothing has changed on that front.

The only thing I can say that we've been extremely diligent in '25 to ramp up our actions, be extremely systematic. And I feel much better about, let's say, the level of detail and scrutiny and capacity to execute we have on this work. And I would say on procurement, the arrival of Michelle Wen, who came with a very strong automotive background, and she just came in actually in August. So it's not yesterday, but it's a few weeks away, is giving me confidence that we can actually intensify the work we want to do on the procurement side.

The next question comes from the line of James Moore calling from Rothschild.

I wondered if I could talk about your service growth. Would it be possible just to give us a flavor for the speed of the unit growth in maintenance base versus the price behind that and other topics is the first question. Just to understand whether the speed of maintenance base growth is broadly stable or accelerating or slowing for any reason and whether price is broadly the same behind that?

Yes. So overall, on the LIS growth, and I guess I commented that already during the presentation. So the LIS component of that is growing in Q3 a bit less than we've seen as a trend line. And the main reason for that is 2 things. One, which is that in China, we clearly focused more on lining up the business to focus on cash flow and profitability. And in some cases, also in the service business, we've actually decided to let go some of the customer contracts, as they're not meeting our performance criteria.

And then it's more of a quarter-by-quarter, there's fluctuations. So it happened to be that in Q3, we had a bit less acquisitions than we've seen in the recent quarters as a result. The good thing is that both pricing including digital as well as repair sales are actually progressing quite well. So in that sense, we are making very good progress on that front. And then lastly, I think it's also that given what I said, so we had very close to the targeted level of 10% growth or close to 10% growth in services in 3 of the areas, whereas really the slowdown in sales was more related to China actions we've taken.

Which is a clear choice. And actually, I'm very happy to see the result, which is our cash generation in China and our profit improvement in China on that front is according to plan. So I would say we are executing what we want to execute. And it's a bit of 2 way of doing things, which is China on one side, where we've always said cash margin and moving to more service and modernization versus elsewhere where clearly our -- the way we are executing is different because the markets are different.

Could I just follow up on that? I mean, over time, I felt that the maintenance base grows with a lag after the first service period from the unit deliveries, but also your win-loss ratio and your conversion ratios. And you always had a very high U.S., European conversion ratio, 80%, 90% and a more muted 50%, 60% conversion ratio in China. I'm just trying to understand, is it that the conversion ratios are broadly staying the same across the 3 regions and that it's the active choice on the win-loss ratio to effectively proactively lose? And is the intensity of this change, which slows your maintenance base growth at the moment? Is that something that's going to intensify yet further going into '26, if you like, with more proactive contract management?

No, I don't think that's something which will continue going forward. It's been more of a targeted efforts right now. And it's good to note, so first, your comments on conversions as well as retention. So they are quite stable. And for example, in Europe, where the NBS market has been now for a few years, been down, we've been able to actually quite nicely grow the services business, as I've noted in previous quarters. So we've been able to mitigate with good retention, win-loss ratios improving and some acquisitions as well to drive growth in a market where there's less conversions.

And talking about our service business, we -- you've probably noticed that we talk quite a bit about our repair business. Actually, we've done quite some work to make sure that we would optimize that part of the business. It's actually significant in our service figures, both top line and profit. And when trying to understand how the service business work, I would encourage you to really look at, yes, the pricing and the service base but also the repair business, which for us, at least is very important.

And actually, the repair business grew really nicely, almost double the speed of our service business in the quarter.

Yes, absolutely.

The next question comes from the line of Daniela Costa calling from Goldman Sachs.

I'll ask just one and it's regarding modernization, obviously, very strong 10% organic order growth there. Can you give us some light on how sort of your installed base age has evolved? I know you talked about the mono elevators being very important for that modernization. So can we see this 10% plus as sustainable going forward when you look at sort of how the curve of age of installed base is? Any light there would be helpful.

Well, I guess, first, good to note that the modernization growth was actually on a quite close to the 15% target that we talked about in the quarter. So very good numbers. Then on this aging of the portfolio, so I think there's 2 topics I would highlight. So first, there are so many elevators in the world that need to be modernized that we're not yet making a dent onto the aging as a whole. And most of the elevators that are old are actually outside of our own LIS base.

So for us, the growth opportunity, we've been working and targeting previously our own service base. But really, the big blue ocean is the elevators that are not in KONE maintenance. And there, I think we're increasingly making good progress in identifying those and having the right go-to-market to really get to those customers. So at this rate, we're still -- the elevator base is aging more than we're able to modernize as an industry and also, I guess, for KONE as well.

Maybe to illustrate a bit more, Daniela, the topic, and I'm going to quote some figures that I think I have listed in the Capital Market Day, but there is 25 million elevators in front of us, of which 10 million are more than 15-year-old total in the world. This 10 million will become 13 million by 2030. So whatever happens every year, whatever happens to real estate market in China, outside of China, there is growth because elevators are aging, whether our elevators or the elevators of competition.

With that in mind, today, when I look at our figures -- and we are happy with our figures, and we'll try to do our best to sustain that growth. We are actually modernizing tens of thousands of units versus 10 million units in front of us. So we've said it many times, but we'll repeat and we'll repeat and will repeat, this market is growing structurally because elevators are aging. And today, we have good figures, but we are not -- I mean, there is still a lot more that could be done with innovation, with better execution and so on. So we are confident in our capacity to drive scalable growth in that field.

The next question comes from the line of John Kim calling from Deutsche Bank.

Could we just go back to wage inflation for a second. Can you give us a sense of quantum of growth there as a growth rate and how that compares to what you maybe were seeing earlier in the year? And how should we think about the cadence of the price ups that are in the contracts versus this inflation?

So twofold. We are seeing -- I guess, I've said also earlier that our wage inflation this year is around about 5% on average for KONE as a whole. And yes, our escalation in contract prices for services have actually been quite close to the inflation level. So we've been able to continuously now drive not only the CPI level inflation, which is continuously coming down, but actually representing the inflation we are seeing and then we have the productivity as a separate item. So pricing, yes, we can escalate service contracts. But of course, then also we see broadly outside of the service operatives, also the wage inflation impacting our cost base as such.

Super helpful. One follow-on, if I may. Can you give us any color on how you're driving better penetration of connectivity?

I think that's for you.

Discipline. Discipline and it looks like -- it's not easy. I mean, in every, let's say, original industrial company, I think it takes some time to make sure that our people understand the value of connectivity. And on the few things that I'm really happy with, when I look at the step-up that has happened in the company for every one of us to understand, especially in our service business that service will have to be digital. I think we've been good at discipline. And we'll be even better at discipline.

And we've been -- I've been very clear to the people in KONE. We want by 2030, 100% of our installed base to be connected. And we're going to be very disciplined and focused on driving that goal and it makes sense for customers. And actually, I've been on the road for 3 weeks in North America, meeting many, many customers. The great news is -- the feedback from our customers is we execute well. They see the value of our connectivity around transparency, around predictive capabilities, around from time to time remote services, and they really like it. And the feedback we get is we seem to be executing pretty well on that front. So we'll keep doing that.

We are now going to take a question coming from Martin Flueckiger calling from Kepler Cheuvreux.

Two questions. The first one is on China and particularly the property market there, where July, August data seemed to suggest that there was a steepening of the decline. And yet when I look at your data on the Chinese property market, it looks like NBS orders were relatively -- in real terms were relatively stable in terms of dynamics. So just wondering, is that because of rounding? Or -- what do you see on the ground in the field? Was there a worsening in the NBS market actually maybe towards the end of Q3? That would be my first question.

The second question, if I just may add on, is on the financial income that you've reported for Q3. If I saw this correctly, you've posted a negative financial income for Q3. If you could just elaborate on the reasons for that, that would be helpful.

Okay. I'll take them in reverse order. So the financial income is related to hedging. And if you look at the 9 months year-to-date, that gives you a better picture. So Q2, Q3, you see the opposite direction there. So in 9 months, you see the real underlying performance there. Then on China, so I think as I've said during the last few years that a lot of the KPIs fluctuate somewhat. And whether it's better or worse around that volatility, our view of the market has not changed. So we are seeing the market to decline this year in units and value double digit and more in value than in units.

And I would say that during Q2 Q1, Q2, there was a bit some signals that were better, but I would not say that the Q3 has been something where we've seen a big change overall. And it's important for us to also note that, yes, we want to be a meaningful player in China and want to go after the service and modernization opportunity. But as Philippe already said, and I said, I guess, as well that we are optimizing the business to cash flow, profitability and the pivot to services and modernization. So we'll take the business that we see supporting those priorities in NBS then in the market. But I don't see that the market has dramatically -- or there's been a bigger shift during the Q3.

And the repeat on the China market, maybe it's clear for everyone, but I will repeat. The market today is 50 NBS, 50 modernization and service. So if there is any change, that is that over multiple years, what was NBS-dominated market, now it's coming 50-50. I'm not having any crystal ball, but it's pretty obvious that, that trend will continue, meaning the share of modernization and service will likely keep increasing if we see what's happening because the country is aging.

We see growth and actually pretty healthy growth in modernization. We are driving our service mix first with cash and margin, but there are still opportunity in service. And we are clearly adapting our forces in NBS to take into account that market reality. And I would say on that front, I want to compliment the team for reducing their cost very aggressively, both product cost and the fixed cost we have to adapt ourselves to a market reality, which indeed is going down, on NBS.

The next question comes from the line of Vlad Sergievskii calling from Barclays.

Two questions from me. Can I please start with the follow-up on modernization growth opportunity ahead? To what extent it is driven by the market growing? Or it is actually KONE creating the market for itself by addressing installed base, perhaps in a more proactive way or opening new market niches for themselves? Because I hear your comment that fleet -- the installed base is aging, but it probably has been aging for forever. And KONE modernization growth was almost never as impressive as it is today.

I think it's a mix of both. The market is growing, and you have the data on our assumption of the market, but the market growth is good. And we believe that we are gaining market share in that space because we are focused and because we try to drive the right innovation and be customer-centric, which is when you have an elevator in your premise, the last thing you want is having any OEMs coming and say, okay, for months, your elevator is not going to work. So what we are doing is we are listening to our customers and say, you know what, we are going to make it shorter, simpler so that actually we do what's strictly necessary to start with, which very often is electrification upgrade. And then we'll go in a life cycle discussion with you to make that improvement over multiple years with smaller chunk that will be less risky.

That's not -- I'm not reinventing the wheel here, but we are executing in a very focused manner, trying to have modular offers in front of this, and it's working very well. So we are gaining share in that regard, and we're really trying to push our team to be very customer-centric on a growing market. And the result is a double-digit growth, which is very consistent, which is driving value for the company, and we are very happy with that.

That's great. And a quick housekeeping question, if I may, to Ilkka. Interest income line was negative about EUR 15 million this quarter, which I think is almost the first time ever when this line was actually negative. Is there something to do with hedging practices? Has any hedging practices changed to drive this change? And where in the P&L, there could be an offset to this line if there is one?

So actually, the previous question was on the same one. I said, yes, it's on hedging. And the year-to-date picture gives a better picture of the real underlying income and expenses. So between Q2 and Q3, we had an opposite development on there.

The next question comes from the line of Panu Laitinmäki calling from Danske Bank.

I have 2 questions. Firstly, on China NBS, just on the margin. So was it still positive in Q3? And going forward, do you expect to kind of protect the margin with the actions you mentioned reducing fixed costs and so on. So that is why you gave the comment that it's a smaller headwind going into '26.

Well, yes, on both of the questions. And I guess I was also in the smaller headwind, meaning that the size of the business relative to the size of the rest of the business is smaller.

Okay. That's clear. Then the second question is on modernization. So how much is parcel modernization out of orders and sales roughly? And then how has the margin of modernization developed? I mean, a year ago, you said at the CMD that it's close to the group average. So is it still there? Or has there been changed so far?

We see on the parcel modernization, it continues to be a bigger and bigger part of the modernization. I don't think we've been very clear on exactly how big part of that is. And on modernization, we continue to see, as it has been during the last years that the profitability continues to be improving as we are scaling up the business on modernization.

Okay. And is it fair to assume that the parcel modernization is more profitable for you than the kind of traditional modernization?

Yes, it is. It is focused on the most important components of the elevator and there's less construction work related to that as well.

That's what we call the benefit of being modular and standardizing work, which actually for the customer is better value for money. And for us, it's better execution, less time lost in the field. So it's a win-win for everybody.

The next question is from Ben Heelan calling from Bank of America.

I just had one, which was on M&A. Now you've obviously said in the past that you want to be a consolidator of the industry. I just wondered if you -- is that still where your minds in terms of the future of the business? You see consolidation as a focus? And when we think about leverage ratios, is there any sort of framework that you can give us in terms of the leverage that KONE would be willing to go up to? And any framework there? Is it based on credit rating, et cetera?

I don't think the comment on the consolidation making sense in the industry has changed. We've said it for a very, very long time. Lately, actually, we've been doing consolidation more on the smaller maintenance companies on an increasing speed. So that's also then that we want to be a driver of the consolidation. Then on leverage, so I guess we don't -- we're net debt negative right now. So it's not been an issue. But I've said previously that we want to continue to be an investment-grade -- strong investment-grade company going forward.

The next question is from Rizk Maidi calling from Jefferies.

Just to follow up on M&A and more specifically transformational M&A. Can we maybe just chat around whether you would be considering issuing equity, if you were to pursue a larger acquisition? And then maybe geographically, what are the regions where you feel you have a little or perhaps where we would like to add sort of more exposure? I'll start there.

Well, I guess on the first one, so I wake up every morning, and I guess, Philippe as well as somebody who sees that there are bigger companies in the industry. So we're a challenger. We want to grow faster to be the leader in the industry. So that's clear. I don't think it's one geography per se. I think it's a general statement where we want to grow faster than our competitors to make that happen. And as such, then on other things on capital structure, capital raising, I don't think it makes much sense to speculate on that.

Okay. And then the second one that I had is just covering the industry for quite some time, and this question is specifically on China maintenance. I think we've seen historically that whenever new equipment business being weak for an extended period of time, we saw that basically spread to the maintenance side of things. I'm just wondering why this should not be applicable. I mean I remember this happening to Europe back in 2013, '14 after the European debt crisis. Just wondering why you think this should not happen in China, whether it's -- you compete with different players, structure of the market different and whether the slowdown in maintenance has anything to do with this?

Well, first on China maintenance, I don't think I've ever said it's easy or something where there's not a competition. It is like we see it it's -- half of the market is service and modernization. So of course, everybody knows the same thing. And among the world's fragmented, so i.e. most competitive market in service is China by far. So I think that's a starting point. And then when you have less new elevators enter into the market, then, of course, it makes it tougher. What I'm very happy about is that how our team has been able to address it. And now I call it out because we made conscious decisions now in Q3 that impact the outcomes. And it's not a market-wide comment. It's rather our focus on profitability and cash flow.

And maybe to build on your point on China market. When we benchmark across the world, clearly, the China market is more fragmented. And we see at the lower part of the market, companies that are doing the very minimum of what they should do in terms of safety. We see on the other side, the China government being conscious that safety standards should move up, also seeing an opportunity with digital. So my point is not about next quarter, but when I look at a longer time period, I would expect some further concentration because on one side, the lower part of the market would have a hard time to survive with a standard that I would expect would increase with more digital technology that would make it less accessible for, let's say, lower cost, low-value player to deliver a value, which is more and more essential in a country that's being more and more modern and more and more asking for top safety standards.

And we have work to do as an industry to help the industry move to a higher level of digital safety and so on. So this is upside. How fast it will materialize, we'll see. We have our role to play here. We are very active on digital to be a digital driver in China. It's taking some time.

Perfect. And I promise the very last one, so apologies if this was tackled before because I joined late. Section 232 and its extension to more than 400 products in August, maybe how you're thinking about the direct, but also more importantly, the indirect impact on the business.

It is first question on tariffs, and I think there is a reason for it because we don't see that meaningfully impacting our results. We are, number one, of course, working with our own supply chain on what we produce in U.S. and what do we ship to U.S. And actually, the export -- sorry, import to U.S. is less -- about 10% of our business. So it's actually quite small. And then secondly, we're protected by our contracts. So we are actually moving the cost of tariffs largely to our customers. And then, of course, we need to continue to drive product cost actions and efficiency in our supply chain going forward.

Moving on to our next question from John Kim calling from Deutsche Bank.

He just took my question. Someone was strong.

Okay. That's good efficiency in action.

And the next question is from Vivek Midha calling from Citi.

Hope you can hear me. I just have one follow-up really on the questions around service growth with one eye on the quite ambitious aims for midterm growth here and the building blocks there. Is there also any material contribution at all from the strong modernization growth that you've been seeing in adding to the service installed base? Is there expected to be some over the midterm, helping you achieve your targets there?

You're seeing me smiling because that's actually a really important topic. And I was talking about the modernization. So the focus and the volume of the opportunities outside of our own maintenance space. And indeed, once we partially modernize an elevator, it becomes a digital modern elevator for us to maintain. So increasingly, that will be a driver for unit growth. And of course, already now with this modernization growth, we're starting to see increasing impact coming from that. And the more mature the markets are the bigger driver for unit growth is modernization in the long run.

And those, as you call, modernized connected elevators, actually, we are more efficient in delivering the right output with our customers because we use all our capabilities. So it's playing very positively in the mix. But that's a great point.

Understood. Just a quick follow-up -- as a quick follow-up on that -- I don't know if you have data, but in terms of the conversion rate of, say, one of these partial mods, for example, compared to NBS, I mean, how does it compare in terms of driving the service there?

Well, twofold. So the relative conversion rate is quite high. So it's a very good level. Then still on the absolute volumes, it's still a smaller contributor. So we need to scale up the business, but it's a very good way to increase our LIS base.

There is a follow-up question from Andre Kukhnin from UBS.

So firstly, on the service adjustment in China that where you decided to let go some customer contracts, can you just confirm that, that's a one-off? Or should we think about that for Q4 and then maybe into 2026 as well?

I guess I already said it's not a long-term action. But of course, we continue to monitor the business. So let's see now how Q4 develops, but it's not something we expect to continue for years. The priorities don't change, but I think it's more of a discrete focus on this.

Got it. And if I were to think about it, I'd probably think about it being more margin focused than cash as such, as probably some of these units are in fairly sort of spot locations, not really helping density. Is that the right sort of avenue? Or is it cash driven as well?

I think it's both, but it's driven by margin, but we've been really very clear with our China team, cash, margin rebalance the business. And there -- I mean, China is seeing some cash tension across the board. So how much is margin and cash? Usually, the 2 are related actually, but it's a bit of both.

And if I may, just one more on China...

A follow-up on follow-up.

Yes. Triple follow-up. Is modernization still the highest margin business for you in China? And is there -- well, I think there is scope, but are you also implementing a kind of modular approach there given that you've got a substantial and sort of broader universal installed base there?

Yes. So we plan to drive this more modular approach in China as well. And if you think about the size of the buildings, the time to execute the modernization is even more critical for the customers. And we have actually progressed really well be, I guess, fastest in the world in China in terms of driving modernization, is a fair statement. So kudos to the team on that one. And yes, modernization continues to be a good margin business for us in China.

There is another follow-up question coming from James Moore from Rothschild.

I just wanted to follow up on service and NBS margins at a global level. You mentioned that China's margin is now in a loss in NBS in new equipment. Is that such a loss that the whole global NBS profitability is now a negative one? And the second question is on service margins. Are we at an all-time high in terms of service profitability? And if not, could you say when that was and how many bps or percentage we are below the all-time high?

On the first comment, I absolutely did not say that we are making a loss in China in NBS, neither did I say that we're making a loss in NBS globally. So it is clearly a lower-margin business compared to the other 2, but I have not said that we're making a loss. Then second, on services, I'm sure that in the history of 115 years, we've had margins that are peaking due to many reasons in services as well. But I would say that directionally, we continue to see margins improving in services, as we're digitalizing the business and driving productivity and the actions we talked about in pricing and more repair work. So it's directionally continuing to develop quite positively.

Well, ladies and gentlemen, there are no further questions so I will hand you back to your host to conclude today's conference. Thank you.

Thank you, and thank you, Philippe and Ilkka, for the answers. Thanks, everyone, online for the plentiful questions, lots of varied ones. Really good to have active dialogue. Thanks for everyone who just listened in as well. I know it's a busy results today, so we appreciate the time. And as usual, if you do have any follow-ups, please reach out to me or the team. We're here for you. With that, have a great day.

Have a great day. Thank you so much.

Thank you.

Good morning, and welcome to KONE's Second Quarter Results Call. My name is Natalia Valtasaari. I'm Head of Investor Relations here at KONE. I'm very pleased to be joined today by our President and CEO, Philippe Delorme; and our CFO, Ilkka Hara.

So as usual, Philippe will start by talking us through the highlights of the quarter, where we are in terms of our strategy execution. Ilkka will then go through the market situation, the financials in a bit more depth, and then Philippe will summarize before we move into Q&A. [Operator Instructions]

With that, Philippe?

Thank you, Natalia, and good morning, everyone. I'm very pleased to be presenting our second quarter results today. We have good news again to share this quarter with positive development in both financial and strategic metrics. And I'm proud of the KONE team and what we have accomplished, especially when considering the global environment, which, as you know, it's quite complex at the moment.

For me, a highlight was the continued strength in Service and Modernization, where our focus on customer value and field execution has paid off. I see this as a clear proof of the resilience of our model. And as you know, we are dedicated to delivering profitable growth. With this in mind, our 12th consecutive quarter of margin expansion is a great achievement, and we have good levers also going forward. And last but not least, we are seeing the results of our dedicated focus on strategy execution. I'll spend more time speaking about this in a moment, but let's first start by looking more closely at our financial development in the quarter.

So overall, it was great to see broad-based growth in the quarter. Order received increased by 3% and high single digit outside China. The main contributor was Asia Pacific, Middle East and Africa, but we had some quite sizable new Building solution order wins also in Americas. In China, construction market conditions remain very difficult, and we continue to see the effects in our business.

Our sales increased by 4.9% at comparable currencies. And as mentioned, we had another outstanding quarter in Modernization with nearly 20% sales growth. Service also developed very well, especially outside China. And from a margin perspective, this resulted in a favorable business mix visible in the 25 basis point improvement in adjusted EBIT margin for Q2. And finally, we had good cash generation in the quarter with operating cash flow increasing by approximately EUR 50 million year-over-year.

So as usual, let me share a few exciting customer reference from the quarter. Starting with the recently completed Modernization in Europe, actually one of the largest we've had in the region. This was part of a complete refurbishment of a residential complex in Switzerland. A successful project with downtime pushed down to only 4 weeks per elevator in a country where we see scope for market share expansion.

Then a great win in Service where we have entered a new contract with Hong Kong Metro to provide maintenance both for KONE and non-KONE elevators and escalators. This is a long-term and digitally savvy customers. So we are very happy to see them choosing us as a partner again.

And finally, in New Building Solutions, we are excited about our first UltraRope project in Indonesia. So this super light hoisting technology is part of our next-generation high-rise offering. Always good to see our innovation gaining foothold in new markets. We have actually seen traction for UltraRope acceleration very nicely in the high-end high-rise segment.

So let's talk about strategy. We're now 6 months into the first full year of our Rise strategy. And I want to share a more detailed picture of our progress. And here, momentum is very good. Let's start with digital.

We have successfully accelerated both the pace at which we are connecting our maintenance base and the deployment of field productivity tool. This is very important to me as I'm a firm believer in the value of data and transparency as a driver of customer experience. Feedback from our annual customer loyalty survey really confirms this.

Second point, in Modernization, we are delivering high double-digit growth in line with our target. We're also putting more focus on innovation on this business, specifically in relation to partial modernization. It's easy to see why partial modernization is so appealing. It is quicker and easier to install. It drives energy efficiency gains and enable customers to tap into the benefits of connectivity. Approximately 30% growth in order for KONE MonoSpace upgrade year-to-date show that this value proposition is resonating.

Number 3, innovation is also an important success driver in Win Residential. And here, our recent offering enhancements such as the cost competitiveness MonoSpace 100 are key to making sure that the positive trend in NBS market share continues.

Number 4. With regard to cut carbon, 60% of our equipment deliveries are now equipped with our regenerative drives. This is a key enabler for our Scope 3 emission reduction, which reinforce my confidence that we will continue to make good progress towards our long-term commitments.

Turning finally to our core processes and culture. While there is more work to be done, we've gotten off to a good start, especially in our sales and operational excellence and pricing-related initiatives. Some first results are already visible in our numbers, and we expect more meaningful contribution starting next year. We also continue to perform well against the global benchmark in employee engagement, which is a key measure of the strength of our culture.

Now let's move on to sustainability. And let me start by sharing that we are tracking very well against this year's sustainability index target. While there is good development in all index components, the strong increase in regenerative drive sales really stands out. And we received on top of that, several great recognitions for our sustainability work during the quarter. And here, I'm especially proud that we ranked 15th in Corporate Knights inaugural list of the most sustainable companies in Europe.

Last but not least, some people-related news to share. So last month, we announced the appointment of Michelle Wen as our EVP of Procurement, a new position in the Executive Board. So Michelle has a strong track record in the field of procurement, mainly coming from the auto industry. Most recently, she was the Head of Procurement and Supply Chain at Stellantis. I'm certain that she will bring a lot of learnings as we double down on driving procurement efficiency.

Now let me hand over to Ilkka, who will go through the market development and financials in more details. Ilkka, the floor is yours.

Thank you, Philippe, and also warm welcome on my behalf to this second quarter result webcast. Let me start by talking about how we see the markets developing in the different regions over the past 3 months.

Generally, I would say that the trends were broadly similar to what we saw in quarter 1. In terms of New Building Solutions, the market conditions continue to be difficult in China and activity in Europe came down a bit in the quarter. Demand in North America saw a strong rebound in the quarter with customer decisions making ramp up towards the end of the quarter. Demands for New Building Solutions was strong in Asia Pacific, Middle East and Africa. Service and modernization markets continued to develop well with growth in all areas.

Let's next go through our financials and development there in more detail, starting with orders received, which increased by a solid 3% at the comparable currencies in the quarter. Order margins in total were stable. Pricing continues to be under pressure in China, but in other regions margins were more stable.

Looking at the development by business. We saw orders in New Building Solutions slightly up in the quarter. This was mainly due to [ good ] development in the major products, while the volume business was more stable. Modernization orders grew low single digits from a high comparison point. There are excellent opportunities in all regions, and I'm confident in our ability to drive double digit growth in this business going forward.

In terms of sales we grew by 4.9% at the comparable currencies in the quarter. It was great to see again, a strong development in services and Modernization. Interestingly, this year, Services has become our largest business. In New Building Solutions, continued low delivery volumes in China was the main reason for the 5.2% sales decline. In Modernization, we delivered one of the highest sales quarters ever, increasing by nearly 19.9%. Growth was broad-based. All regions increased double digit.

Services grew by 8.6% overall, a very good outcome. This quarter, the key growth driver was actually the value component, so pricing, digital and repair sales. Our maintenance sales base increased by 3%. Here, we see effects of our focus on margin and cash flow over volume in China. Outside of China, we continue to deliver very good performance in services with over 10% growth.

In line with our Rise strategy, Q2 shows that we are transitioning towards becoming a Service and Modernization-driven business. Nearly 65% of our sales today come from these businesses, thanks especially the strength outside of China. This increases our resilience and is a great foundation for continued profitable growth going forward.

Then moving to adjusted EBIT and profitability. Margin expansion in the quarter was 25 basis points year-on-year. This took adjusted EBIT to EUR 347 million. Looking at the profitability more closely, the margin decline in China was again the biggest challenge, but we also invested more into R&D, which is visible in the numbers.

More than offsetting was the positive development in sales mix. I was also pleased to see services margin improving in the quarter. So overall, a very good delivery, yet another quarter of profitability improvement. And as mentioned by Philippe, we continue to be moving forward with our performance initiatives. Some results of this are visible this year, and we expect more meaningful contribution starting year '26.

Let me take this opportunity to provide an updated view on the tariffs. First of all, just a reminder that our business is highly local in nature, which limits the potential impacts. Of course, our U.S. team has had to deal with increased business complexity. Tariffs have impacted costs for imported goods and components. For us, the imports to U.S. amount to less than 10% of our U.S. sales. From results perspective, there was no impact yet in Q2, and we are very much committed to recovering most of the gross impact currently forecasted for the year. And we have a variety of mitigation actions already in place to ensure that we do so.

Then turning to my favorite topic, cash flow. We had steady progress in the second quarter. Cash flow increased to EUR 364 million (sic) [ EUR 364.4 million ], bringing the year-to-date cash flow to EUR 851 million (sic) [ EUR 851.1 million ]. Working capital improved moderately from the beginning of the year, despite a roughly EUR 70 million negative impact from FX. The Service invoicing cycle contributed positively, and more importantly, our focus on collections continues to pay off.

Then let's look at how we think about the year '25. We have slightly updated our market outlook. We now expect the New Building Solutions market in North America to be stable following the strong activity rebound in Q2. Our view in other areas is unchanged. China continues to be the main challenge. In Europe, we continue to expect some growth. And in Asia Pacific, the Middle East and Africa, we expect clear growth. Our outlook for Service and Modernization markets continue to be positive in all areas.

Then to our business outlook. With 6 months behind us, we have specified our sales guidance and now expect growth of 2% to 5% at the comparable currencies. Our guidance for adjusted EBIT margin range is unchanged at 11.8% to 12.4%. FX is expected to be a headwind. And if the rates remain at July levels, we estimate a roughly EUR 50 million negative impact to our EBIT. China continues to be burdening on both volumes and margin. That said, performance will be supported by Service and Modernization also in the coming quarters as well as by the ramp-up of our performance initiatives.

With that, let me now hand back over to Philippe to close the presentation before going into Q&A.

Thank you, Ilkka. So to wrap it up, let me first take the opportunity to thank all the KONE teams for delivering a solid Q2. It was great to report another quarter of strong growth in the resilient Service and Modernization businesses. We are fully focused on executing our strategy with speed and precision. And I'm very happy to see the progress we've made. And finally, with the first half performance, we are well on track to delivering on our growth and profitability expectation for the year. Thank you all for your attention, and I suggest that we now move on to your questions.

[Operator Instructions] We will now take our first question from Andre Kukhnin of UBS.

Could I just start with the Service margin question? You said that it improved in Q2, and I think that has been the trend. Could you talk about what is driving the improvement in Service margins? And could you give us some idea of where are we on that journey? Is this something that you expect to continue to happen in this year and next year and maybe beyond?

Is this kind of a catching up to where best-in-class are? Or is this establishing kind of new high margins? I know you don't disclose the numbers exactly, but I'd just be quite keen to understand where are we in that journey.

Want to start?

Maybe I'll start then. So I think we have good margins in services, but also a lot of potential to improve. And where we have seen a good development in improving Service margins is what we talked about sales and operational excellence initiative, this performance initiative. And namely driving pricing forward, where we've seen the early part of the impact in services.

And then also when we talk about digital, so we are seeing the digital enabling us to be better at serving our customers, but also making it a better business for us as a result of predictability and also remote services. So I think in that journey of improving margins in services, we have a lot of potential going forward, but it also takes time to really drive these initiatives forward. So I expect the tailwind from that in the coming quarters and years to come.

I would just say we are now extremely clear on what needs to be done. We know it works. It's a matter of indeed taking the time to scale things between pricing and more what we call the Service ops, which would be the leveraging digital technology to be more efficient on the field, delivering the value that our customer ought to get. Great question.

Great. Can I just -- as a follow-up, can I just ask a quick one on regenerative drive? You mentioned that a couple of times. And I was just wondering, is that a kind of ASP opportunity for you as you shift towards more units regenerative drives? You get basically higher value per unit on things? Or is it just [indiscernible]

Well, I think -- so Philippe probably will start talking about regenerative drives because he's quite passionate about it. So we saw that now at 58% of our shipments now are with regenerative drives. And of course, it's right thing to do for the environment. So we're actually contributing to that. But of course, it is also a value-add to our customers. And it is improving our competitiveness. Then at the end, you need to win deal by deal and then you see the outcome how you can differentiate with your competitors.

But for customers who care about energy efficiency and there are plenty. The regenerative drives an immediate benefit of, say, 30% energy efficiency. So it's a very clear value prop. Now how the pricing goes depends actually quite a bit of market segment, geographies, but it's a clear market advantage, which, by the way, comes with quite a bit of R&D investment.

It's one thing where we believe we are extremely competitive from a cost standpoint, leveraging the sourcing footprint we have in China, especially. So we feel very strong about that. And last but not the least, it directly contributes on our Scope 3, which is a hard commitment we've made to the outside, and we are very committed to deliver what we've said we would deliver.

We will now move on to our next question from Michael Harleaux of Morgan Stanley.

I just have one on Modernization. If my memory serves me well, in Q1, you reported a 20% growth in orders as well as sales, and growth was perhaps a bit lower this quarter.

If you could give us some color as to why that is, if there are economic factors to consider or seasonality or anything else, that would be very helpful.

So if your memory is good, and I'm sure your memory is good, we reported actually in Q2 last year, a very, very high growth. So our base of reference in Modernization Q2 last year was pretty high, number one.

Number two, in our modernization business, as in our NBS business, we always have some major projects and some volume business. And whether one project goes left or right at the end of the quarter actually impacts in the end, the order rate where actually the sales is much more steady in terms of quarter after quarter. So the bottom line is we are very optimistic and very upbeat with the potential first with the market potential that we see in Modernization, whatever cycle.

Second, we are very confident in our capacity to drive superior growth in that market, as you can see in our 20% growth in Modernization. So for us, there are some, let's say, seasonality/one project going left and right at the end of the quarter, but very, very confident in executing our strategy, both with Service and Modernization growth.

We will now move on to our next question from Meihan Yang of Goldman Sachs.

It's actually Daniela here. And I have 2 follow-ups.

First, I guess, on the North America on you increasing the guidance, that looks also better than sort of what one of your peers today is seeing. Can you talk through -- is it market share gains, your end market mix or just your more confidence on the macro outlook?

And my question -- second question just goes towards, can you talk a bit about pricing environment outside of China given all the moving parts of tariffs and rates and everything?

Maybe I'll start, so first on North America. So yes, if you -- the early part of the year, there was clearly more impact on the uncertainty in the market than Q1, we saw the market being down. But in Q2, the market activity rebounded strongly, especially towards the end of the quarter. And we expect now stable for the full year. So I think it's more -- it's not as big change, as you said. But clearly, even in this complex market environment, we see good activity with our customers, and that's the outlook.

Then when it comes to pricing, I would actually comment it based on the businesses. So when it comes to Modernization, we continue to see a big opportunity, and it is for us to grab. And I think the pricing has been something where it's more stable, and it's really about executing against that huge 10 million unit market opportunity.

And also in NBS, we've seen pricing being more stable outside of China. So contributing to the stable margins in the quarter. And like I said earlier, in services across the globe, we see good opportunities for further pricing increases.

And this is about really understanding our customers, understanding how we can contribute value. And this is something that we follow under this performance initiative, sales and performance excellence. So that's something where we see good opportunities going forward.

And we will now take our next question from Marianne Bulot of Bank of America.

The first one is on China. I was wondering if you could provide a little bit of an update on what's happening in the country and where you're currently seeing on the ground?

And the second one is on the margin bridge to the 2025 guidance. I was wondering if you could provide a little bit of details on the building blocks from the current H1 margin to the guidance that you have?

So maybe I'll take the first one. I'll leave you the second one.

So on China, a bit of repeat, but just to make sure we are all clear. So the China market is divided into two parts. The new construction and the Modernization and Service. And somewhat what's -- I wouldn't say new, but different compared to 5 years ago is that now it's a 50-50 market. 50 new construction, 50 mod and services. And every time we get question on China market, we talk actually about half of the market, which is a new construction.

So on the new construction, what do we see? We see a market down, and I think we've quantified that for 2025. At the end of the year, we shall see. While actually, we see opportunity in Modernization and Service. In Service, actually, we are working more on our margin, not on the growth to also help with the margin increase that we want to have overall in Service. And in Modernization, we are very happy with the growth we are seeing.

So I think when you look about China, you really have to look at all the submarkets to be much more precise on what's happening. And I would just say that in that context, we have a team that is extremely disciplined, that is outstanding, I repeat outstanding, in delivering cash. And when we do benchmark with others, we think we are the most disciplined and the best-in-class in delivering cash in China, margin and then rebalancing our business to more Modernization and Service versus new construction. And we are executing on those lines. And I would say in that context, I'm very proud and happy with the performance of our China team.

Second question.

Yes. So on the margin bridge. So first, of course, we have a top line, which is 2% to 5% in terms of top line guidance for the year. And depending on where we end up, the higher we are, the more we will get fixed cost leverage as a result. And the moving parts for the top line really are -- we mostly have the NBS order book already in our orders. So it's only about how the customer sites are progressing for the rest of the year.

In Modernization, we will see still some orders being booked that we will deliver this year. So that's uncertainty around that. And then services, very consistent execution in terms of the Service growth. So those are the top line impacts to the margin.

Then for the margin bridge, we continue to see services and Modernization contributing positively as the mix continues to be positive. We mentioned that we slightly took up the R&D as a percentage of sales. So we control the other costs, but we do want to invest to R&D in line with our strategy. And as a result, then we are also guiding to an increased EBIT margins compared to last year with this guidance. So those to me would be the biggest moving parts in that bridge.

We'll take our next question from Miguel Borrega of BNP Paribas Exane.

I wanted to understand the stable margin on orders. So essentially, what changed compared to the last couple of quarters of declines? Was it pricing in China that was less negative? Was it cost takeout that became more aggressive? Was it margin outside of China that completely offset the China margin declines? Any color here would be great.

So first, a general comment when it comes to product costs. We continue to see now an increasing product cost reductions, particularly in China. So we are at a record high level, double-digit declines in our product cost. Very happy about that. And of course, with China supply serving also other markets, we get the benefit out of that in Asia, in Europe mainly.

Then when it comes to pricing. So clearly, pricing environment in China continues to be very, very competitive. And despite the product cost reductions, we do see margins of orders, particularly in NBS declining. And while the margins are now stable, it is actually because the impact of China is smaller. So we see the business growing outside of China and being stable, and somewhat positive as well. At the same time, the margins in China are declining. But as a result, the total is actually then stable. So it is really the China being a smaller part of the business at this stage.

And then as a follow-up, I wanted to ask about the Modernization margin because growth is obviously very strong at 20%.

Can you give us some direction of travel on Modernization margin? In other words, if your margin is not improving on 20% top line growth, what is preventing that from happening?

Well, first, and I would go back to what I presented, or we presented, in CMD last September. We have seen a continuous, very steady growth in Modernization margins. As we're scaling up the business, we've also been able to get scale over our fixed costs as a result of that. And we expect that to continue going forward as we scale the Modernization business up. Then, of course, quarter-by-quarter, there are variances, but we see good opportunities for growth in profitability in Modernization, and that hasn't changed anywhere.

We will now take our next question from Delphine Brault of ODDO BHF.

I have one and one follow-up. First, on Modernization, what volume and pricing development are you seeing in China specifically? Does it continue to be your most profitable business in China, the Modernization part?

So for China, we actually saw a record growth in Modernization for both orders as well as sales in Modernization. And it continues to be the most profitable business. But here, the nuances and precision is important.

Where we see a big opportunity in China is in partial modernization. It is -- China is similar to rest of the world. And of course, like rest of the world, the partial modernization is also a higher-margin business for us. And China is no different in modernization than it is for rest of the businesses. It's a very competitive market, but we've been able to, in that market, develop quite positively when it comes to margins.

And we are really very intentional strategically -- back to the point, cash margin, rebalancing of the business. So we've really switched our attention from new construction to Modernization. And as Ilkka said, really very happy to see such a great performance in Modernization growth in China. It's really impressive.

And the second question, Philippe, it's also on China. How much was NBS in China in H1? You said that the market is 50-50, 50 NBS, 50 mod and ser. And for you, how much is it? And is it still a profitable business, NBS in China?

So on the profitability, yes, it is. And then second, when we look at the proportion, as said, we want to be to the 50-50 as soon as we can. Now NBS today is 60% of the business and 40% is the Service and Modernization. So we're not quite there, but pivoting as quickly as we can based on those priorities.

Which also shows because also relatively the size of China on our total P&L is approaching 20%. So 60% of 20%, I'll let you do the math. But that means that the weight in the P&L of China NBS is really decreasing more and more. And we are strategically reallocating our resource to the priorities of strategy, modernization and service.

So we are doing what we say. And in the end, it's producing. It's helping us with where we want to go, which is being resilient and consistent in delivering our P&L.

[Operator Instructions] And we will now move on to our next question from Vlad Sergievskii of Barclays.

First one would be a follow-up on Modernization order growth. You mentioned, obviously, it could be lumpy with larger projects happening or not. Would you be able to give us some context on this specifically second quarter of how volume business and major projects contributed to Modernization order growth?

And maybe give us some color on the regional mix. What regions are still growing strongly? What regions are facing a bit more tougher comparable?

Actually, so I would not say that the differences in regions are the driver for this. We actually had a very good high comparison point in all regions last year, very good contribution from all regions to this outcome. And both -- so both volume as well as then major projects were impacted by the high comparison point from last year.

But like I said, revenue, much more stable continuous development when it comes to executing the projects, that's growing 20%. And then in orders, it's quite normal that the quarters actually, there's much more volatility in the quarter-by-quarter in orders. And we are now double digit for the first half. So it's actually quite good development at the end.

If I can also ask on the China construction market. Last quarter, about 3 months ago, you highlighted some signs of stabilization in it. Would you be able to update your comments from that? Have those signs of stabilization developed into something more positive since then?

Well, I guess the data from China, when you look at the leading indicators is quite volatile. And there are some that had developed better, some that are more negative. We expect for this year, the market to be down double digits. So that hasn't changed. And when it comes to then outlook for '26, we'll come back to that when we are closer to '26 as normal.

And again, this is half of the China market. Just to repeat.

And we'll now take our next question from Tomi Railo of DNB.

It's Tomi from DNB Carnegie. Very simple. Can you comment how much modernization orders were out of the total order intake in the quarter?

I guess we haven't been very specific by business on the orders. But if you look at the sales, you can get quite a good. So mainly in orders, we have NBS and Modernization orders and then the repair business of services. So it gives you a split if you look at the services and -- sorry, if you look at NBS and Modernization and the recent development in the last quarter.

And it's not an answer to the question, but I would just also repeat one point which is very important in our business mix, which is service in H1 is becoming our first business, which to me, I mean, there are time in strategy execution where there are switches that are important to notice. That one, in my view, is very important.

Just a follow-up. Is Modernization already 50% of the orders, or still below?

Well, if you look at the sales split, then -- and a few quarters behind, but it's not quite there yet.

Working on it.

There are no further questions in queue. I will now hand it back to the host for closing remarks.

Thank you. Thanks, Ilkka and Philippe, and thank you, everyone, who's been on the lines, asking questions, listening in. We always value that. We're here. The IR team is here in case you have any follow-ups along this day or in the coming days. Please feel free to reach out. And with that, I wish you a lovely rest of the day and a lovely summer.

Thank you very much.

Thank you.