What is Growth Strategy and Future Prospects of Kone Company?

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What is KONE's Growth Strategy and Future Prospects?

KONE, a global leader in elevators and escalators, has launched its 'Rise' strategy for 2025-2030. This plan focuses on digital transformation, modernization, residential market growth, and reducing carbon emissions to enhance customer value and experience.

Founded in 1910, KONE has evolved from a machine repair shop into a multinational corporation. The company's journey, controlled by the Herlin family since 1924, highlights a consistent commitment to innovation and market adaptation.

With over 60,000 employees across nearly 70 countries, KONE reported EUR 11 billion in annual sales for 2024. The company leads the New Building Solutions market with a global share of approximately 20% and is a growing challenger in the Service market with a share of about 10%. This strategic positioning supports its expansion, innovation, and future growth plans, including advancements in areas like Kone PESTEL Analysis.

KONE's 'Rise' strategy, spanning 2025-2030, is designed to accelerate business expansion through a multi-faceted approach. This strategy emphasizes digital services, modernization efforts, and targeted growth in the residential sector, all while focusing on reducing carbon emissions.

Service and Modernization Focus

The company is prioritizing its Service and Modernization segments as key drivers for future growth. In the first quarter of 2025, Modernization experienced robust growth, with orders and sales both increasing by approximately 20%.

Service Segment Performance

The Service segment also demonstrated strong performance, with sales growing by 8.5% at comparable exchange rates during Q1 2025. This indicates a healthy demand for ongoing maintenance and support services.

Modernization Market Outlook

The modernization markets are projected to expand across all regions in 2025. This growth is underpinned by an aging equipment base and a heightened emphasis on sustainability and building adaptability.

Geographic Diversification

Geographic diversification is a cornerstone of the company's expansion strategy. In Q1 2025, orders outside Greater China grew by over 10%, with notable strength in the Americas and APMEA regions.

Regional Growth and Product Innovation

The Americas region has seen its sales contribution rise to 26% in Q1 2025, up from 24%. New product introductions, such as the KONE MonoSpace 100 DX for low-rise residential buildings, are now available in 19 countries and have received positive customer reception, reflecting the company's Growth Strategy of Kone.

• Focus on digital services and modernization.
• Expansion in Service and Modernization segments.
• Growth in regions outside Greater China, including the Americas and APMEA.
• Introduction of new products like the KONE MonoSpace 100 DX.

The company actively pursues mergers and acquisitions to strengthen its market position, focusing on 'bolt-on' opportunities. Recent acquisitions in 2024, such as Orbitz Elevators Pty Ltd in Australia and New Zealand (May 2024) and PACA Ascenseurs (February 2024), underscore this commitment to inorganic growth as part of its overall Kone business strategy.

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The company's innovation and technology strategy is central to its growth, focusing on digitalization and sustainability to redefine its service delivery model. This approach aims to leverage connectivity and data for smarter, more efficient servicing, with a goal of up to 30% productivity gains through digitally enabled technicians.

Digital Transformation

Accelerating digital transformation is a core element of the company's strategy, aiming to fundamentally alter its service delivery. Connectivity and data are key enablers for this shift.

Digitally Enabled Technicians

The company is focusing on digitally enabled technicians to enhance service delivery. This initiative has the potential to improve technician productivity by as much as 30%.

Connectivity in Service

The company has already implemented remote services and achieved a connectivity rate of nearly 35% in its service business. This demonstrates a tangible commitment to technological integration.

AI and IoT Integration

Cutting-edge technologies such as Artificial Intelligence (AI) and the Internet of Things (IoT) are recognized as transformative forces in elevator and escalator servicing.

Sustainability Focus

Sustainability is deeply integrated into the innovation strategy, with a specific focus on reducing carbon emissions to create customer value and market differentiation.

Carbon Emission Targets

Ambitious, science-based targets are in place for greenhouse gas emissions reduction. These include a 40% cut in emissions related to materials and product lifetime energy use by 2030.

Commitment to Carbon Neutrality

The company is committed to achieving carbon-neutral operations by 2030, with a 50% reduction in emissions from its own operations. Notably, all manufacturing units achieved carbon neutrality in June 2023, ahead of schedule.

• Offers carbon-neutral KONE DX Class elevators.
• Provides carbon-neutral KONE Care DX maintenance services.
• Recognized with an EcoVadis Gold medal for sustainability efforts.
• Maintains a top 'A' score on the CDP Climate list for the 12th consecutive year.
• Ranked 15th most sustainable company in Europe in 2025 by Corporate Knights.
• Included in Forbes' world's most innovative companies list for 2024.

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KONE has outlined a clear financial outlook for 2025, projecting sales growth between 2% and 5% at comparable exchange rates. The company anticipates an adjusted EBIT margin for 2025 to fall within the range of 11.8% to 12.4%.

2025 Financial Projections

KONE expects sales to grow by 2-5% at comparable exchange rates in 2025. The adjusted EBIT margin is targeted between 11.8% and 12.4% for the same year.

Foreign Exchange Impact

The company anticipates a negative impact of approximately EUR 50 million on its adjusted EBIT due to foreign exchange rate fluctuations. This estimate is based on rates remaining at July 2025 levels.

In the first quarter of 2025, KONE demonstrated robust performance with orders received reaching EUR 2.4 billion, a 6.4% increase year-over-year. Sales for the same period were EUR 2.7 billion, up 4.1% compared to the previous year. The adjusted EBIT margin saw an improvement, rising by 25 basis points to 10.5% in Q1 2025 from 10.2% in Q1 2024, largely attributed to a favorable business mix. Cash flow from operations experienced a significant surge of 22.2%, reaching EUR 487 million.

Q1 2025 Performance

Orders received grew by 6.4% to EUR 2.4 billion, and sales increased by 4.1% to EUR 2.7 billion. The adjusted EBIT margin improved to 10.5%.

First Half 2025 Results

For the first half of 2025, orders received were EUR 4,694.6 million (+2.9%) and sales reached EUR 5,522.4 million (+2.9%). Adjusted EBIT was EUR 626.7 million, representing 11.3% of sales.

Cash Flow Strength

Cash flow from operations in Q1 2025 increased by 22.2% to EUR 487 million, and for the first half of 2025, it reached EUR 851.1 million.

Long-Term Financial Goals

KONE's long-term financial objectives remain consistent: to grow faster than the market, achieve an EBIT margin of 16%, and enhance working capital turnover.

Mid-Term Targets

By the end of 2027, the company aims for mid-single digit sales growth and an adjusted EBIT margin of 13-14%.

2024 Annual Sales

In 2024, KONE reported total annual sales of EUR 11 billion, indicating a solid foundation for its future growth strategies.

The consistent improvement in profitability, even amidst market challenges, highlights the effectiveness of KONE's Kone growth strategy. The company's focus on high-growth and higher-margin segments, such as Service and Modernization, is clearly contributing to positive financial outcomes. This strategic direction aligns with KONE's ambition to achieve its long-term vision and capitalize on its competitive advantages and growth opportunities, as further detailed in the Marketing Strategy of Kone.

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The company's ambitious growth plans face several strategic and operational hurdles. A significant concern is the projected decline in the New Building Solutions market in China, with anticipated double-digit decreases expected in 2025. This market softness, coupled with intensifying local competition, could affect revenue stability and profit margins, especially given China's substantial contribution to the company's global performance. In the first quarter of 2025, Greater China's share of the company's order book fell to approximately 30% from around 40% in the first quarter of 2024, and its sales contribution decreased from about 30% to 19%. The company's 2024 annual review also highlighted restructuring costs of EUR 36 million, primarily linked to its China operations.

Chinese Market Volatility

The New Building Solutions market in China is expected to see significant declines in 2025. This downturn, alongside increased local competition, presents a considerable challenge to revenue and profit margins.

Foreign Exchange Fluctuations

Currency exchange rate volatility poses a risk, with an estimated negative impact of around EUR 50 million on adjusted EBIT in 2025. This underscores the importance of hedging strategies.

Supply Chain and Cost Pressures

Ongoing global supply chain disruptions, rising raw material costs, and tariff-related issues can increase production expenses. These factors may lead to operational inefficiencies and impact net margins.

Digital Transformation Pace

The industry's move towards servitization and new technologies requires significant investment and swift execution. Delays in digital transformation could result in a loss of market share.

Competitive Landscape

Rising local competition, particularly in key markets like China, presents a challenge to maintaining market share and pricing power. This necessitates continuous innovation and strategic positioning.

Operational Efficiency

Maintaining operational efficiency amidst global economic uncertainties and supply chain complexities is crucial. Inefficiencies can directly impact profitability and the ability to meet customer demand.

Mitigation Strategies

The company is actively addressing these risks through strategic diversification, focusing on higher-margin segments like Service and Modernization. These areas are demonstrating robust growth and are expected to counterbalance challenges in new building solutions.

Strategic Initiatives

Management is implementing structural cost-saving measures and pursuing geographic diversification to strengthen the company's position. These efforts are designed to enhance resilience against market fluctuations and competitive pressures.

Focus on Service and Modernization

The company's Kone growth strategy includes a strong emphasis on its Service and Modernization businesses. These segments are vital for offsetting the slowdown in new building projects and contribute to a more stable revenue stream, aligning with its Brief History of Kone.

Adapting to Industry Trends

The company's Kone business strategy involves adapting to the industry's shift towards servitization and digital solutions. This requires ongoing investment in innovation and technology to maintain a competitive edge and drive future prospects.

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