HS Vision|Market analysis
Many consider Konetta to be the best company on the Helsinki Stock Exchange. However, the reputation is based on old screens from a decade ago. Kone’s operating profit has stagnated during CEO Henrik Ehrnrooth’s era, writes HS Vision’s Alex af Heurlin.
Helsinki The elevators of the housing association located in Kalasatama are constantly out of order, reports More than last week.
Traveling elevators are always annoying, but especially so in this case. The Kone elevators in question are in the 31-story, 121-meter Lumo One tower block. More than thirty flights of stairs is a difficult journey even for a fit person.
According to a resident interviewed by Yle, the biggest problem is that people get stuck in elevators. Sometimes even the lights go dark. One or two of the three elevators are always out of order.
“We’ve gotten used to it, it’s the new normal,” the resident said.
I will live the comment could just as well have applied to Kone’s results published on Wednesday. The result exceeded analysts’ expectations, but when you compare Kone’s recent figures with the company’s peak years, the difference is very clear. The number of orders is decreasing. Growth is slower and profitability weaker than before. But we’re already used to it.
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Stable profit development is Kone’s new normal.
For a long time, Kone was known as the star company of the Helsinki Stock Exchange.
The machine’s turnover grew by more than 200 percent during the years 1999–2014. At the same time, the operating profit increased almost ninefold and rose to more than one billion euros. Investors celebrated and Finns felt national pride.
The growth of the machine has indeed continued even after that. In the years 2014–2022, Kone’s net sales increased by almost half. The company’s operating profit, on the other hand, has been stagnant for eight years. While in 2014 the operating profit was 1,036 million euros, last year it was 1,077 million euros. The profit development of the machine in place is, to quote a resident of Kalasatama, the “new normal”.
Kone’s operating profit margin has dropped from 14.1 percent to less than ten percent in eight years. Profitability has therefore collapsed, when you take into account Kone’s reputation as a steady performer.
Major China is the single reason for Kone’s sluggish results. China’s economy grew at a ferocious pace for a long time, but there is no going back. Now China is trying to manage its real estate bubble that has reached unimaginable proportions. It means less construction, fewer elevators and escalators, and ultimately less euros in Kone’s coffers.
Henrik Ehrnrooth started as Kone’s CEO in 2014, i.e. at the same time as Kone’s profit pace started to wane.
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Looking at the profitability figures, Kone may look like a former quality company.
The slow development of the machine cannot be completely blamed on Ehrnrooth, because the big lines in China are not in his hands. On the other hand, Ehrnrooth has not been able to pull a rabbit out of the hat and find a new market to replace the fading China.
Kone’s worst competitor, the American Otis, has been able to keep its profitability significantly higher than during Kone Ehrnroot’s reign.
The machine seems to have understood that all is not well. In January, the company announced that it would restructure the organization and cut about a thousand jobs around the world. The marketing director who sat in the management group Tricia Weener and CTO Maciej Kranz was moved aside.
Profitability figures looking at it, Kone may look like the former quality company, but it can always be worse.
The relationship between China and the United States has been getting tighter every year. The countries have already come together in many areas of the economy: raw materials, 5g technology and semiconductors. In the wildest speculations, a complete rift is already painted between China and the West.
Because of this, China is not just a declining market for Kone. It’s a risk. When investors look at the geographical distribution of Kone’s turnover, they grimace. About a third of sales come from China.
Machine elevators and escalators are not the most obvious pieces in a geopolitical game. On the other hand, elevators if any are critical infrastructure. That was already proven by the traveling elevators of Kalasatama last weekend.
Kone’s largest owner, Antti Herlin, is the second largest owner of the Sanoma Group, which publishes Helsingin Sanom.
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