Kone CEO Says Focus Shifts to Services as China Growth Slowsby
Leader forecasts slight decline in Chinese elevator market
Kone shares have declined on concerns about China exposure
Finnish elevator maker Kone Oyj will shift its focus to services in coming years, as it believes the days of rapid growth in the market for new elevators and escalators in China are over.
“We’ve had a situation where the Chinese market has grown at about 20 percent per annum in the last 10 years,” Chief Executive Officer Henrik Ehrnrooth said at Kone’s Capital Markets Day in Shanghai. “It’s evident to all of us that we won’t see that going forward.”
Ehrnrooth chose to hold Kone’s investor presentation in Shanghai as attention focuses on the economic slowdown in China and the impact it could have on sales in the world’s largest market for new elevators. China accounted for more than a third of Kone’s sales in the second quarter.
The company’s shares have lost more than 20 percent of their value since the beginning of April amid concern about the effects of slowing growth in China. Economists surveyed by Bloomberg News expect China to further cut its growth target for next year as excess capacity, sluggish investment and weaker manufacturing weigh on the world’s second-largest economy. Kone shares fell 3.7 percent Thursday to 32.36 euros.
Kone has relied heavily on expansion in China to outpace rivals like Switzerland’s Schindler Holding AG. It’s currently the largest supplier of elevators and escalators in China, with an 18 percent share of new installations, according to Bloomberg Intelligence.
With the number of installed escalators and elevators in China expected to double in the next 15 years, Kone is investing in its service business to meet anticipated maintenance needs. Digitalization also opens up new business opportunities, Ehrnrooth said.
“The past 10 years have been about Asia-Pacific growth, and we’ve been able to capitalize on that better than anyone else,” Ehrnrooth said. “Now we see growth in the service business, and we’re committed to do the same there as well.”
Ehrnrooth said Kone now expects the market for new equipment in China to decline slightly this year. That comes after Kone surprised investors with the optimistic tone of its second-quarter report, which said the market for elevators and escalators in China may remain stable this year despite a slowdown in the real-estate industry.