Good afternoon, welcome to KONE's first-ever virtual Capital Markets Day. I'm Sanna Kaje, the head of KONE's investor relations. Let's first look at the agenda for today. We have altogether four presentations, short pre-recorded videos from the heads of our different geographic areas. The event will altogether take around three hours, a little bit more than that, we have one 10-minute break in between. We have now been executing our Winning with Customers strategy for four years, this is the final year of the strategy phase. The presentations will be focusing on what we have achieved in terms of mindset, ways of working, and offering during this strategy phase, what will be the next steps going forward. You will have an opportunity to ask questions during the event.
You can do that by submitting questions through the form at the bottom of the page during the presentations, and at the end, we will open the telephone lines for more questions. I will now invite on stage our President and CEO, Henrik Ehrnrooth, for the first presentation. Henrik, please.
Thank you, Sanna. A warm welcome also on my behalf. Great to have all of you online. Of course, we would have much preferred to see you all in person, but let's make the best out of this situation. I think we have an interesting afternoon or morning together, depending where you are. As Sanna mentioned already, we started executing our Winning with Customers strategy back in 2017, and we made some good progress since. The purpose of today is to review what progress we have made, but also to talk about how do we see our markets developing in the coming years, and how are we planning to capture that opportunity by driving further differentiation. Those are some of the key themes you will hear from my colleagues and from myself today.
Let's start with looking at what we have achieved during the past almost four years since we started to work on our Winning with Customers strategy, and then I will talk about how are we building on the strengths that we have for the next phase in our development, very much as we have done consistently over many years. 2017 was the start of the current strategy phase. When we looked at the world in 2017, we could see many attractive changes happening that were positive for our industry. We could see that by further differentiating and bringing solutions to our customers that actually helps them succeed in their business, we can create additional profitable growth. That's what we set out to do, is to build an even more customer-centric organization.
Capabilities of really deeper understanding our customers' businesses, and that way, being more consequential to their success. Of course, developing our offering to add more value to our customers. That way, also create additional revenue streams for KONE. Perhaps the biggest mindset change for us was one to create a truly outside-in mindset. Outside-in means that we start always from whatever needs our customers have, and that's how we develop everything at KONE. Those were some of the things that we set out to do almost four years ago. What I'll talk about next is how have we developed there. Let's start with a few highlights. What have we accomplished? I mentioned already mindset, very important. That's always at the heart of everything.
How we think about how we serve our customers, how we think about how we develop our company, and how we work with our customers. It's been a lot about creating customer centricity and capabilities around that. Again, we have continued to train actively our people. When I look at the progress here, I think we made some really nice progress. You will hear much more from my colleagues of how we created capabilities or developing together with our customers for their benefit. I think we actually made a big step forward here. Mindset alone is, of course, not going to be enough. We need to have an offering for our customers to deliver value add to them.
I think what is familiar to quite many of you is that we have had a very active phase of bringing new value-added services, solutions, and products to our customers. I'll talk about those a little bit more. That has been really a key to this phase, is actually we have brought total new types of services to bring new values to our customers and actually generate revenues that didn't exist in this industry before. That I'm very pleased about. Also, been a lot about new ways of working to have a smarter, more efficient organization. A lot about the Accelerate program, also how we have further developed our KONE Technology and Innovation organization. Let me take glimpse into our new equipment business, our services business, what we have done there.
In our new equipment business, we're building on the very strong foundation we already had. I think as everyone knows, we have a very strong basic product competitiveness in our industry, that has been the basis of what we have done. In this period, we have again shown the direction innovation in our industry. One of the signs of that was that we brought the DX Class elevators to the market in November last year. They bring a new era in elevators. Also we have improved the basic competitiveness of our products, both on elevators and escalators.
To bring new value-added solutions to our customers and improve our capabilities in sales and pricing, we have developed a lot our sales capabilities, both pricing excellence, where I think we made a good progress and that we can see from the outcomes, and also developed solution selling capabilities, where we sell whole system solutions and outcomes to our customer rather than products only. We have also strengthened our delivery chain to ensure that we constantly deliver on our customers' promises. That is a big value for us to do it, and also to improve our productivity. If we look at the outcomes, as you know, that we have gained market share again throughout this period, particularly the past two and a half years, even more so, we have improved our margins of orders received.
We can see that we have provided more value add and improved our pricing. The outcomes are quite good. In services, I think that's familiar to many people that about five years ago, we set out, actually a bit more than five years ago, we set out to differentiate even stronger in services. Actually we felt that there was in general lack of differentiation. One of the first things we concluded, and we always have had as a basis, is that services are very much about people. People is the number one differentiator. How you make sure that they have the best service mindset, the best capabilities to serve our customers, to focus on right outcomes for our customers. We brought a lot of new value-added solutions to our customers.
We've talked a lot about our 24/7 Connected Services, and also the adaptable service offering, our new KONE Care, as well as most lately, also our DX Class solutions to the modernization business. Again, a lot of new solutions and value for our customers. Much has been about capturing the digital opportunity, which is very significant in services. We very much looked at that from two perspectives. That how do we have a platform so we can actually add value to our customers? That's really the principle focus. At the same time, we want to have the best tools for our field technicians, for our people who work and serve our customers, to have the best information for them constantly and improve productivity. I think we're actually in quite good shape here. What is the outcome?
We are the fastest growing in services of the major players in our industry. We have increased the value per unit, if you look at maintenance. That's a big change to history. That shows that we are adding value. Also modernization, we have improved our margins in our orders received. I would claim that the outcomes are pretty positive. Let's take a sneak peek into our 24/7 Connected Services, how we're developing them. We all know that this is really our flagship service. We can see that momentum is building very nicely here. The idea with our 24/7 Connected Services is of course to add clear value to our customers. At the same time when we do that, we can create additional growth for KONE. We can see it is driving growth for us.
Already, if you look at this year, it is contributing about 1 percentage point to our maintenance growth. It's actually quite meaningful in my view, because if you think about our maintenance business, that has been continuously and constantly compounding at between 5%, 6%, or sometimes up to 7%. If we can add one, two percentage points of growth through value-added services in the compounding, it is actually meaningful over time. That is what we're doing, and growth is actually accelerating here. Our penetration is still only a bit over 5%, but we have a number of countries that are already over 10% of our contracts covered by this, and by the end of the year, we expect a lot of our big countries be over 10%. What is perhaps even more important is that this is not a static service.
The more customers we have, the more we learn and the better service needs and outcomes we can create. This is something that when you only have 1,000 or 2,000, 3,000 units connected, you will actually not have sufficient data to create really the best outcomes and the service needs. When you start to have, like us, a very significant base connected, you actually learn all the time. That helps us bring the new services to our customers constantly. Like we recently brought 24/7 Planner. That's again, a new element, new feature to our service, where we can create long-term asset management plans for the next two, three years for our customers to help them plan, what do I need to repair? What do I need to upgrade? Predictability to this.
This is a huge thing for our customers, and we've seen very positive feedback as a result of that. Those are really highlights for our new equipment business, our services business, and a little bit of a look into 24/7. What I think is familiar to most people is that the way we measure our success is through our five strategic targets. Here we have our five strategic targets, and we can see actually a good development in most of them throughout this period. Let me actually dive a little bit deeper into each of them, how we create the most loyal customers, KONE being a great place to work. Have we grown faster than the market? What about best financial development and being a leader in sustainability? Those are the five ways how we measure our longer term success.
Let's start with most loyal customers, which is a clear objective of ours. The key way how we measure that is through our Net Promoter Score. We again recently did our annual survey, and we've seen over the strategy period a good development in both our New Equipment Business and our services business. Latest survey was now in the spring and summer of 2020. Again, we had a slight uptick in that and had an all-time high now Net Promoter Score. We are at a good level here. Customers continue to appreciate us for our quality, our focus on them, and delivering on what we promise. Many also talk about our innovations. We do have an opportunity to improve in how responsive we are to a very broad and diverse customer base.
That is something that we are working a lot on, how we can be much more responsive to really meet, help our customers be served even better than they do today. We have some good fundamentals, but as always, good opportunities to improve. KONE being a great place to work is really, I would say, fundamental to everything. By having skilled, motivated, and engaged employees, it's clear with that we can serve our customers like no one else. We talked in connection with our Q2 results about the results of our employee engagement survey of this year, and the results were just incredibly strong. First, 92% of our 60,000 employees answered it. We were already before this for many years in a so-called high performance category, and now we are very strongly into high performance category. We had very strong results.
Our employees very much appreciate our strategy, direction, innovation, also said that our diversity and inclusion scores, they have improved significantly while we still have a lot to be done. We also did earlier in the year an organizational health survey. Here we were in the top quartile with strengths, innovation, direction, how we communicate internally where we go, and customer competition focus. We have a very good basis of our culture and engagement of our employees. This is important. Our third target is to grow faster than the market. We have had good development in this period, both in our new equipment as well as our services business. Our orders received, which of course consists mainly of new equipment and modernization, and partly also repair sales, has grown at constant currencies an average of 5% over this period.
We know that when we went into this period, the market in China was very difficult. The first year we didn't grow, but then 2018, 2019, we actually accelerated clearly that growth. With this, we have constantly gained market share, particularly strong market share gains in 2018 and 2019. This year, of course, we need to see, but I think we are on a good path again. In maintenance, our maintenance base has compounded at 6%, which again, the fastest if you look at us compared to our major competitors. Yes, we also continue to grow faster than the market. Our fourth target is to have the best financial development. Here we can't be fully satisfied. That's clear.
Going into this period, we know that we had a very challenging market in China starting in 2015, then particularly in 2016, 2017, and partly into 2018, where pricing was very much under pressure and raw material prices came up. That actually put a pressure on our margins. What I'm happy about, that since Q2 2019, we have actually improved now the margins of our orders received, both through improved pricing as well as productivity. Therefore, we are on an improving path, which we could see in the second quarter of this year that despite the crisis, we actually slightly improved our margins. It's really coming through, but it's clear that we are working hard to come back to the levels we were before this period. Our fifth target is to be the leader in sustainability. That's very important to us.
We know that already today, KONE has the most energy efficient products out in the market, but we constantly want to improve. We are looking at sustainability from a few different perspectives. First, we look at the carbon footprint of our operations. Here, our target is to improve 3% annually compared to our sales. CO2 per sale should reduce 3% per year. In three out of the four years, we have exceeded our targets. One year we didn't quite get there, but then we put some more focus, and again, we started to exceed targets. Our target is by next year to have 50% of our energy produced by renewable energy.
We've gone up from 28% to 37%, so we still have some work to be done this year. In diversity, number of women, this is one of the measures, but number of women at director level position has increased from 16% to 18%, and we have not got to our target of 20%. We continue to put more effort in this area. We want to be a zero accident company. We have improved our Industrial Injury Frequency Rate from 2.1 to 1.7, and compared to benchmarks, 1.7 is at a very good level. However, it's clear that we are not happy about this, that we want to be an incident-free company. Again, good development in sustainability. Those are our five strategic targets, and if I just look at then a snapshot on a development this year, when we know that the market has been very challenging.
What I'm very happy about, that in the midst of the crisis this year, actually our business has remained very resilient. Our orders received has declined by 5%, which I think is a good achievement in this environment. As sales has been flat, our adjusted EBIT has just declined slightly. It declined more in the first quarter, and then it actually improved in the second quarter. Our cash flow has been very strong. By far the strongest cash flow ever in a six months period. That, of course, gives us a very good fundament to continue developing KONE proactively also in this environment. Let's turn to that next. How are we building on our next phase and our mega trends and our solid foundation to differentiate even more and continue to drive growth?
I haven't talked so much about the COVID crisis. Let's talk about that shortly first. When we started to see the impact of the crisis earlier this year, we immediately made a few fundamental decisions. One, which of course the obvious one, which I think most companies are focused on, is the safety, health, and wellbeing of our people and our partners and the general public, that there cannot be any compromise there. Secondly, we decided that actually we want to create an even stronger company of KONE throughout this crisis. When we look at our history, we can see that many of our big improvements in our market position has come following or during a crisis, and we also want to take this opportunity here. We have the position to do it.
We have very strong balance sheet, we have motivated, engaged employees, and a good position overall. We said cost is not going to be our primary objective. Our primary objective is going to be health and safety of our people, serving our customers, and really driving forward our development programs to really make KONE a stronger company. What have we done? We have increased our training over the years a lot. This year, we've expanded it a lot. Number of completed courses by employees during the crisis in the spring were up three times compared to the previous year. Still now we are more than twice compared to normal levels. The first objective when people did not have work to do in installation or service was to train them, and that's something we're going to continue. Secondly, we have actually accelerated our investments in R&D.
Many of our core programs, we've allocated more resources to them, and we developed our health and wellbeing solutions. We really want to make this an opportunity for us. If we look at what are the implications of the crisis on many of our customer sectors, we can say that it's still unclear, but there are many trends we're following closely. If we look briefly, we can say that residential, I believe, that is going to be a resilient sector because we are spending more time at home. We are going to work more at home, and therefore people value their homes a lot, and we can see that that has recovered, actually, residential sales and construction in many countries have recovered quite nicely. That's probably going to be quite resilient, and that's more than 50% of our sales. Offices.
What is the future of the office? It's clear that the new normal, we will work differently. There will be more mixed mode of working, partly from home, probably more from offices to ensure that you continue to drive innovation, team spirit, culture, and so forth, but it's going to be more mixed mode of working. The question is that what does a future office look like? How much space do we need? I think that's still unclear, and to me it's not at all clear that it's going to be less space because the trend during the past 20 years has been constantly less space per employee in office buildings, and we probably went too far, and we're going to need different types of spaces.
I believe really the key here, again, will be adaptability, which we know that modern offices will be well-suited to, but not necessarily older offices or they need to be upgraded. Let's follow here, but it's going to be a change, definitely. Infrastructure. With all the government stimulus we see, we think that's going to be a robust and resilient sector. It's clear that travel, leisure, and retail are going to be hardest hit, and that's going to take a time before they recover. We're going to have different situations, and that means there are going to be opportunities that we need to find from this that we think we can do. Also to really look at what are the needs that have come out.
We can see that actually People Flow and the elevator has shifted from being maybe a secondary thought in smart buildings to really a primary role. That has really been a key thing, that how can we bring more intelligence? How can we do things more remotely? How do we actually help building owners have safe flows to bring people back to the office? Here we've done, again, a lot. Of course, our KONE 24/7 Connected Services and KONE DX Class elevators are incredibly relevant in this area because it really provides you with adaptability and ability to just seamlessly bring new services. To also support buildings manage this, we brought out new health and wellbeing solutions, but also worked a lot with our customers on how do you safely return to offices, and what is the office of the future to reimagine that.
We can see that People Flow is really at the center of the thinking of many people. We can see, again, a lot of opportunities coming out of a situation like this. If we look a little bit longer forward, we can see that our industry continues to have healthy megatrends that we can capture and bring opportunities from. Urbanization, yes, that's going to continue, but in a slightly different way. Sustainability, we can say it's the most important challenge of our generation, hugely important, and technology enabler to solve many of the problems. These are the megatrends that we believe will drive continuous opportunities and growth in our industry. What about urbanization?
I've been asked many questions by people that, Hey, do you think at KONE, do you think, Henrik, that urbanization will continue or people move back to rural areas? I think the answer is very much urbanization will continue, but in a slightly different way. That is because of demographic changes. More and more people are living by themselves. They want to live closer to services, closer to entertainment, and probably to their friends. It may not be only the biggest cities that grow. Actually, it's probably going to be mega city hubs and clusters, and you'll hear Bill Johnson talk about that a little more for China. Therefore, a rise of second-tier cities around with good connectivity and connections into the big cities.
We know that high-density areas brings opportunities, but also challenges, and that is what we want to resolve with our People Flow solutions. That's the urbanization megatrend that we think is going to continue. Also sustainability. We think that that is the biggest challenge of our generation. Cities and urban environments, they account for today 40% of world's energy-related greenhouse gas emissions. They're going to play a significant role in sustainability for the future. Why we think this is going to be such an interesting trend is that we see a lot of commitment in this area, the European Green Deal, with emphasis on building renovation. What is very interesting is that if we look forward to 2050, that 80% of the buildings that are going to exist in 2050, we expect that exist already today.
Less than a quarter of these buildings meet future or actually current regulations, and therefore they need to be modernized and upgraded for energy efficiency. China has just pledged carbon neutrality by 2060. That's going to be a huge growth driver. We can see that capital actually is drawn towards greener buildings. That's what tenants are expecting. As we all know, at KONE, we have some great assets here. We are already a leader with the most energy efficient product family in the industry. We think that this is a great opportunity for us. Also to further show our leadership here, we actually yesterday announced our pledge to Science Based Targets. We are pledging that our operations will be carbon neutral by 2030.
We are planning to reduce our greenhouse gas emissions by 50% of our own operations, so-called Scope 1 and 2. The rest we will compensate. Of course, that will be a lot about our buildings, a lot about our car fleet, and so forth. Also we are committing to a significant reduction across the value chain. We are committed to a 40% further reduction in greenhouse gas emission from our products and materials life cycle energy usage, so-called Scope 3, relative to products ordered by 2030. This is again, a very big commitment. Okay, here we of course, need to continue to improve the energy efficiency of our products and solutions, of our materials, their circularity, also engaging with our suppliers much more in detail.
This is a big pledge and very important to us because we think that sustainability and being a sustainable business is not only the right thing to do, it is also a huge business opportunity. That's why we made this pledge, because we think it's the right thing to do, and we want to play our part here. Next, before I wrap up, let's listen to short videos from our area heads, how they see the opportunities in our various geographic areas, and they will all give their own perspective on a specific area where we are looking to differentiate and grow and bring opportunities. Let's have a look at what they have to say.
Hi, I'm Thomas Hinnerskov, Executive Vice President of Central and North Europe. Central and North Europe is a diverse area consisting of 21 countries. Dominated by some large mature markets like Germany and the U.K. It's also an area where our resilient service business is the largest. Let's have a more granular look at the market and what the outlook is. Maybe before we do so, let me first start by thanking all our customers for trusting us and also our employees for delivering the KONE promise to our customers every day during these very challenging times. Looking at our exposure, clearly the residential segment is our largest customer segment. It's a resilient customer segment. It's also, when you look from a new equipment market, a segment with good underlying demand. Here, we believe we'll see a stable outlook for the near future.
Less favorable is the commercial segment. Commercial has been softening, we believe that will continue in the coming months. Governments are looking into currently of supporting the economy, that's where we see that the infrastructure investment will continue in trains and metro stations, et cetera. However, on modernization overall, even though there's a very large potential in modernizing equipment across Central and North Europe, we do see a softening in this market as decision-making is dragging out and taking longer time because customers are taking a pause, just look and see what actually the future brings before making the final decision. How are we capturing these opportunities in this market? Central and North Europe was one of the first, where the DX elevator was launched.
The DX has clearly helped us differentiate, be more relevant to our customers, but also helping solve our customers' problem in a better, more future-proof way. Clearly, when we talk to customers, they are concerned about that they don't really know what the future hotel, office, hospital is going to look like. They need flexibility, they need adaptability for the future People Flow. That's where the DX will help and can help facilitate that. For example, should there be a big need of robots in a hotel or in a hospital going forward, that's something the DX elevator can facilitate and accommodate in a very easy way. Also, this situation with the COVID-19 has shown us that we need to be very adaptable when it comes to engaging and connecting with customers. We've clearly been able to do so.
This is something we're going to look much more into and focus and develop in the future, how to, in the best possible way, and the most effective way also, connect and engage with customers on their terms. With that, thank you very much. I hope you have a really good day. Thank you.
My name is Pierre Liautaud, I'm Executive Vice President for KONE South Europe, Middle East and Africa. Our area is fairly large geographically as it spans from Brussels to Johannesburg and from Lisbon to Karachi. It covers large and mature markets such as France, Italy, Iberia and also growth-oriented regions such as the Gulf countries, Turkey and Israel, also Serbia and Romania. We are doing business under our own name in approximately 25 countries, we are represented by authorized distributor in another 40, mostly located in Africa, also in countries such as Azerbaijan and Kazakhstan. As you can expect, our business in mature countries is largely driven by the services opportunity. We do have about 30% of total KONE maintenance base in our region. While the new equipment is the core growth engine in our developing markets.
Let's look at the near term market outlook for the region. Our business mix is well-balanced in terms of customer segment. Residential, here in dark blue, is by far the largest slice of the pie, seen in terms of volume and in profitability, and that is valid for both the new equipment and the services. Office, in green, medical and infrastructure, in yellow, and retail and hospitality in light blue, are of about the equivalent size. When we look at the coming quarters, we see less growth in new equipment than in previous years, especially in developing markets.
Within traditionally stable segments such as residential and office, we believe our value-added offering with DX and 24/7 will help us differentiate and develop our market share. Infrastructure and medical segments are the most likely to benefit from government stimulus packages, and we are gearing up to take advantage of those opportunities, especially in modernization. From a country perspective, we see good prospects in several markets, such as France, Saudi Arabia, Turkey, while the short-term outlook for Israel and Southeast Europe is less positive. Now, beyond the near term, I'd like to represent how we plan to capture more business in our region. First, the investment we made over the past five years around customer experience are paying off. Understanding the customer journeys, developing initiatives to engage at the right moment with the right mindset is helping us to increase responsiveness.
I'm very encouraged by the ratings we receive from customers through Net Promoter Score. Specifically, our commitment to serve all our customers during the peak of the COVID-19 pandemic that hit South Europe especially hard, has earned us very positive feedback. This is also translating in terms of customer loyalty. For example, how well we're retaining the maintenance contract. That metric is high, and it's improving year-over-year, despite intense price competition from small and large competitors alike. In fact, we can expect the average maintenance price to rise in the future. In terms of midterm growth, the service opportunity in South Europe, Middle East, and Africa is very large. Our core platform with the DX and the 24/7 Connected Services is giving us a lot of benefit to win with our customers.
Whatever the age of the equipment, whatever the brand, we can now offer to our customers modernization solution that will deliver the benefits of KONE DX platform and the smart and reliable KONE 24/7 Connected Services. What's really inspiring with the recent DX modernization launch is that modernization is no longer just a solution for remediating to technical obsolescence, but it's also a new entry in the world of digital services. When you think that the service market in Europe is in the range of several million units, you can imagine the potential. Thank you very much for your attention.
Hello, I'm Ken Schmid, KONE's Executive Vice President in the Americas. The Americas contributes approximately 20% to KONE's global revenue. Geographically, the region is comprised of Canada, the United States, and Mexico. We also provide equipment and technical expertise to our distributors in Central and South America. Overall, the United States is the major contributor to revenue in the region. Now, let's take a look at our outlook for the markets. As you look at the segment distribution, you see that office and residential comprise a majority of the revenue. However, there are material contributions coming from infrastructure medical as well as hotel and retail, so good, strong diversity across each of the segments. Our outlook in the new equipment business suggests that office and hotel retail will be slightly down. This is driven predominantly by the economic impacts of the COVID-19 pandemic.
We think that the residential and infrastructure medical will be rather flat. As we look at the maintenance business, we see it as continuing to be rather resilient. We have good opportunities with our digital solutions, 24/7, as well as our health and wellbeing solutions. Finally, the modernization business line we see as being slightly down, with some recovery coming as discretionary spending loosens. Now let's take a look at an opportunity that we're very excited about in the Americas, lean construction. The technicians that install our elevators and escalators in the United States come with a very high hourly labor rate, so everything we can do to drive productivity and eliminate waste will drive strong profitability. When we talk about lean construction, we really look at it from four different angles. The first one I'd like to talk about is around product design.
What we're doing now is designing elevators by installers for installers to make sure we standardize the tools and the work practices to drive efficiency. A great example of this is our recently released MonoSpace 300. This is a machine room-less elevator for two and three landing applications. It gives us access to the hydraulic elevator market that we previously did not have. This product was designed by technicians for the technicians, and we're very excited about the promise it holds in serving our customers and driving profitable growth. The next area I would like to talk about is around scheduling. Understanding our customers' pain points. What are their schedules? What are they trying to achieve when? What are the coordination challenges with their other contractors on the job site?
By aligning ourselves and understanding our customer's critical path schedule, we can align our schedule to make sure we're doing the right things at the right time. We also then have the opportunity to set internal priorities for production, optimizing the supply chain and logistics to minimize costs. The next element I would like to speak to involves the visual workplace. Something that may seem rather simple, but is a challenge in construction. With the visual workplace, we post where our teams gather and review every day visual indications of what we're going to achieve that day and the rest of the week.
We circle back each day to say, "Did we achieve each of the items that we said we were going to achieve?" With technicians on multiple floors and many different points of the installation, this helps us stay aligned so that we can optimize each technician, assuring that they're staying busy, but it also assures coordination with the other trades and our customer, the general contractor. The final element of lean construction is on some of our technology construction solutions. Specifically here, I'd like to point out JumpLift. The JumpLift technology on a job site allows our customer to move people and materials on the job site with up to 50% efficiency. All of these four things combined for our lean construction solution to differentiate KONE, understanding our customer's business, their pain points, addressing them, thereby adding value.
We get employee engagement, and at the end of the day, we're very proud to say that KONE will continue to be the selected partner of new construction. Thank you.
Good afternoon to all. I'm Axel Berkling, Executive Vice President, KONE Corporation, and I head the Asia Pacific region, excluding China. This region is one of our growth engines because it is urbanizing at a rapid pace. It has the second youngest population in the world, the rate of technology adoption is the highest. It consists of a diverse group of countries, we have split them into sub-regions based on the market maturity. India is the second-largest new equipment market in the world, with an urbanization rate of only 35%. We have the Southeast Asian markets, with fast-developing countries like Vietnam, Indonesia, and the Philippines, with an urbanization rate clearly below 50%. Somewhat more developed countries like Malaysia and Thailand, with an urbanization rate of above 50%. The other extreme are Singapore and Australia and New Zealand, which are highly urbanized countries.
With the rapid pace of urbanization, over half of our sales come from the new equipment business. We also have a sizable and rapid growing service business with a lot of opportunities. Let's now take a look how we expect our markets to develop in the coming quarters. Firstly, the COVID-19 pandemic has impacted our area quite severely. Some countries, like Vietnam, Thailand, Australia, and New Zealand, were able to contain the virus fairly well. Others like Malaysia and Singapore were more impacted, but show good signs of recovery. India, Indonesia, and the Philippines still struggle to contain the virus, and the uncertainty remains quite high. The lockdowns have impacted our project deliveries and caused labor shortages at sites. We have also seen delays of new projects. Our maintenance business has been resilient as services has been considered as essential.
If I look at the outlook for the next couple of quarters, it varies a lot by customer segment and country. As I mentioned earlier, we are still a young and growing region, and urbanization continues to create growth opportunities in residential, our largest customer segment. Vietnam, for example, shows strong growth, and we see some recovery and good opportunities in India and Indonesia as well. Expectations for more remote working are impacting the outlook of our second-largest customer segment, office. We also see some green shoots in countries where the virus has been contained. We also have a meaningful share of hotel and retail in the area, which due to the pandemic, looks less positive in all countries, especially those with high share of tourism, like Thailand. The medical segment shows positive signs, not just from the need for more hospitals, but also the need for new technologies.
We also expect government investment in infra projects to support a good recovery in 2021 in almost all countries. Our service business has been on a double-digit growth trend. The main challenge we are currently facing is the slowness in the decision-making. The positive side is that we see opportunities in the long term as the markets are still developing and growing. The modernization business has opportunities, especially in the more mature countries, as the building needs are changing post-pandemic. The need for making buildings more adaptable and future-proof is increasing, and this is creating opportunities. Overall, I would say that also we are facing some headwinds in the short term. We still see great opportunities for the long term. Today, I would still like to talk about one exciting aspect of our diverse region, the opportunities related to smart and green innovations.
We are headquartered in Singapore, where government initiatives to make the country green and smarter are very strong. Singapore has been at the forefront when it comes to sustainability and new technologies and has topped the smart city ranking for the second year in a row. Singapore has one of the highest adoption rate of our 24/7 service business across the globe and has also been one of the forerunners in the health and well-being solutions we launched during the pandemic. We have an innovation lab in the city, and we are working together with customers and partners to support them in their initiatives. This helps us strengthen our digital infrastructure, adopt new technologies, and learn more to support our customers in their sustainability initiatives and how to influence the market. We believe these learnings will be valuable also in other markets.
With the high level of customer loyalty and our strong employee engagement, we are confident that our area will be one of KONE's growth engines for the future. I truly believe we are in the right neighborhood. Thank you for your attention.
I hope you all got some good insights on how we see our markets in the different geographic areas and how we are capturing opportunities in these markets. One thing that you probably realized that we didn't have anything on China, because we know that China is of big interest, and of course, big interest to us, given the importance of the business to us. We have now next, a slightly longer review by Bill Johnson of the current situation in China. Please, over to you, Bill.
China. China's all about people and People Flow. Hello, I'm Bill Johnson with KONE Greater China. China represents a significant portion of KONE's global business. I will spend the next few minutes with you sharing our perspective on the China market and our operations here. Currently, we have more than 20,000 employees in China operating two factories, 90 branches, and more than 500 service stations. We serve more than 30,000 customers, including nine of the top 10 developers in China. Earlier this year, we were the first elevator OEM to ship more than 1 million units in China. This is a significant milestone for us and for the industry. The majority of our China operation has been led by the new equipment business. Yet, the maintenance and modernization businesses are experiencing even stronger growth.
Let's first look at what has happened to the economy and the real estate market so far this year. Since the end of Q1, China's experienced a very strong V-shaped recovery. The real estate sector recovered quickly since Q2 and even stronger into Q3. This has been supported by favorable government policies related to developer financing, access to land, and new investment into infrastructure. The real estate market is linked to China's overall economic climate. Key drivers include regulatory direction, property supply and demand, and of course, developers' access to capital. As anticipated, COVID-19 conditions may have material impact going forward. Two macro trends impacting our industry is the continued formation of city clusters, as well as the recent focus on infrastructure investment. Growth in these city clusters will drive the elevator and escalator market at a sustainable level.
Investment in these key clusters is accelerating, especially for transportation related to infrastructure and affordable housing. The residential segment in these key city clusters has recovered quickly to pre-COVID-19 levels. Though the real estate sector has recovered impressively, we continue to see regulatory environment becoming slightly more restrictive going into 2021. One example, the government recently started to pilot a new risk assessment method to monitor debt among large developers. Such measures are likely to put pressure on real estate sector's cash flows going forward. In general, the central government continues its stance of housing for living, not speculation, and we do not expect this to change in the foreseeable future. We remain optimistic going into the first half of 2021, however, are cautious for the second half. The residential and infrastructure segments are expected to remain solid, while office, retail, and hotel will remain soft.
For KONE China, residential remains a large part of our business at approximately 70%, while infrastructure represents less than 10%. We continue to strengthen our position in China. Despite a challenging first quarter, by mid-February, we were one of the first OEMs to resume operations. This was possible through close collaboration with local governments, customers, suppliers, and channel partners. By May 2020, all of our branches had reopened, and we were shipping record numbers of elevators and escalators. A combination of sound strategy, strong execution, and a great team proved to be successful in outperforming the market. In the maintenance market, we expect continued double-digit growth for the foreseeable future. We are leveraging digital solutions to capture more opportunities. Progress in condition-based maintenance regulations will also help strengthen our position. However, the maintenance market will continue to be very fragmented and vulnerable to pricing competition.
With a total installed base of more than seven million units, China modernization is a huge and growing opportunity. KONE China's install base of more than one million units is relatively young, our opportunity is to capture projects from both KONE and non-KONE brands. We expect to continue growing our China mod business at more than 30% a year. We are more focused than ever on winning in the China market. KONE's strategic priorities remain the same. One. Winning with Customers, improve our added value to them. Two. Leverage our scale and operational competitiveness, including our dual-brand strategy with GiantKONE. Three. Capture high-growth service in modernization segments. Four. Continue to attract the best talent to grow and expand our business.
In closing, I'd like to express my appreciation to all of our KONE China employees for their commitment and dedication through this challenging year. They are heroes. I believe KONE China has come out of this crisis stronger than ever, and we look forward to capturing even more opportunities in the future.
I hope you also felt that was interesting and brought some new perspectives throughout our geographies, and now lastly, from China. Before we go into questions, let me wrap up. While we know that the economic environment is likely to be very challenging over the coming years, we continue to see great opportunities in this industry. This is a truly great industry to be in and find opportunities. We think in the coming years that we're going to find exciting growth opportunities by being the best partner for our customers in smart and sustainable cities. We think that this is really a growing area, both in new buildings, in modernizing them, as well as maintaining them. We expect that the services market will continue to grow in all parts of the world. That's an area where we will continue to drive significant differentiation to capture growth.
Of course, as we could just hear, throughout Asia Pacific, there continues to be fantastic growth opportunities in services. We will also drive growth by continuing to develop our core offering to make sure that we have the strongest offering in the market that really suits our customers' needs and help them succeed in their business. On top of that, we're building further value-adding solutions that actually is an opportunity for additional growth and additional revenues, as we have done, for example, 24/7 Connected Services, and what we are starting to do now with our KONE DX Class elevators. We expect that there continues to be great opportunities also going forward. This is just a glimpse into what we are planning from next year onwards, once this current strategy phase is over, and we start our next one. You will hear more about this early next year.
With this, we now have good time for some of your questions that now are from online. Sanna, if you join me here.
Thank you, Henrik. If you have more questions, you can keep submitting them. We will have now 15 minutes for questions for Henrik, and we can then take more at the end of the event. There seem to be several questions on the customer segments and the mix and how it impacts us. Maybe good to start with the big picture.
There's a question on the residential exposure that we have. How is it different in new equipment business compared to services?
If we look at new equipment and services, then look in services, both maintenance and modernization, the residential exposure is higher in new equipment, that is, of course, because of China. As you could see from all of the pie charts from the various area directors, it was clear it was the highest in China, that's, of course, a very big part of our new equipment business. If I look at services overall is less than 50%. If you look at maintenance compared to modernization, again, in maintenance, it's higher than it's in modernization.
We can say that the highest exposure, new equipment, then in maintenance, and then in modernization, to residential.
As a follow-up to that, there's a couple of questions on the impact of the customer segment exposures on profitability.
Whether the shift perhaps towards more residential will impact profitability. There's a China-specific question on this, but a more general one as well.
Not really. I would say that in most places, there is not a huge difference between profitability between these different segments, so that's not a big driver.
Good. A couple of questions on China and the China outlook. I guess we just upgraded the market outlook for China, so in that sense, things are looking good at the moment. Bill talked about the restrictions getting tighter. Here's, first of all, a question on, could you please talk a little bit more what these restrictions mean for you? Maybe we'll start with that.
Well, there are various types of restrictions. As Bill talked about, we have the restrictions on developers and their ability to take on further debt. That, of course, means that they have more difficulties to access financing, and clearly there can be some pressure on payment terms, but as you've seen from our cash flow, that has not been a problem for us. Then there are a lot of restrictions on people buying the apartments. I think that the biggest impact is, of course, the overall demand for housing or real estate in general, and therefore the demand for elevators and escalators for those. It's more that way it comes, rather than a direct impact on KONE.
Linked to this, why are we more cautious on the second half outlook in China versus being more positive, I guess, for the coming quarters?
Of course, we always have more visibility into the coming quarters. As Bill talked about it, you could hear that currently the momentum is good, and we expect that to continue for the coming quarters. Clearly, we have slightly less visibility when we look further out. At the same time, we can see quite a lot of restrictions, and we expect that maybe those restrictions have a bigger impact than later in the coming year.
I would say, as we all know, the Chinese market is very dynamic, and to have a clear prediction at this point of next year is a bit too early.
Right. I guess shifting gear a bit to services, starting from China. Here's a question on, do you want to increase your China exposure further from already high levels by acquiring Chinese service companies and distributors?
As we talked in the past as well, is that at the moment, our growth strategy is primarily an organic one. I think that makes sense. At KONE, the way we have achieved result is being quite focused on something. We want to, at this phase, still be very focused on organic growth, because there's plenty of it. I mean, we install more new elevators in China than anyone else, so capturing that base. Then there is a huge base of KONE and GiantKONE elevators out in the market that we can, of course, recapture. That is our primary focus. Maybe in the coming years, we start to look at acquisitions as well, but that's not the most relevant point right now.
Yeah. Continuing on the same topic, there is a question on how the regulation and the regulator is piloting a new way to regulate the Chinese maintenance market.
There's now a pilot going on in Shanghai, and there's a question on why is KONE not on the list of the trial OEMs. My understanding is that we are part of it.
We are. Those companies that were announced in two different phases, and we are definitely included there. Shanghai is not the only one. There's been many other ones, and we have been involved in a vast majority of these. We're definitely involved in the Shanghai one as well. We were not part of the first announcement, but further on. I think we are quite well positioned there as well.
Correct. I guess services more globally. Here's a more short-term-oriented question on have we seen any changes in the scope or pricing of maintenance contract when they come for renewal, and especially for the non-residential segments?
Nothing major. Maybe in some more harder hit segments in U.S., you have a slightly de-scoping of contracts. That's not, in the end, a huge difference, that in some cases you have a more comprehensive, then everything is included. If it's de-scope, then more will be discretionary repairs. There's been some changes, but nothing significant.
Service differentiation. How would you rank KONE's current level of differentiation in services compared to the best in class in other service industries outside of elevators? Can we differentiate?
As I mentioned, that it all starts from people. What we can see from our own surveys is that we have a very engaged and motivated workforce. That is, to me, the most important thing, because when you have engaged and motivated employees, they will serve your customers well.
I also believe that we are showing the way in terms of innovation, in terms of new types of services to our customers. I think we're making progress. Also, I think you have to say that why did we start investing so much in services back in 2014, 2015? Was simply that when we looked at the sector more critically, we realized actually there was very little differentiation there. Maintenance business doesn't move very quickly, but I think we made some determined good steps here. I think we have a lot still to be done. I think we are on a good path here.
Good. Seems like you're more focused across various regions on capturing services from other manufacturers. What protects you from them also trying to capture more service on your own installed base? What is the barrier to entry?
I wouldn't say that we are more focused on capturing third-party equipment from others. We've always been active and want to win more services.
both, of course, converting what we installed, winning KONE equipment that is out in the market and also third party. I don't think that has changed. It is a competitive sector. We know that it's very fragmented. The biggest service market in monetary value is Europe, actually by quite far the largest still. We have to remember that the top four players are only a little bit over 50% of the market. That has continued. We believe that by further differentiating, we have an opportunity to continue to grow, and we have a good growth track record. We often say that many of the small local players are very competitive and have a purpose in the local market, and we need to just continue to develop KONE to compete successfully against them and our bigger competitors.
Mm-hmm. Shifting gears towards the sustainability topic and I guess our sustainability pledge as well, how much does an elevator on average consume of the electricity in a building? Related to this, what kind of opportunities do we see in the Green Deal? Is there an opportunity for us?
First of all, the amount in elevators. An elevator's energy consumption varies a lot. Old elevators that are actively used in a building can be 10% of the energy consumption, even sometimes more. A modern elevator in a residential building is not used very actively, just a few %. That's what we see, is that really it's the old equipment that actually are consuming a lot, and there's a big reduction possibility when you modernize. That's why we think that elevators also play a role in the European Green Deal in Europe. Details are not out there yet, I think that everything that contributes to make these buildings more energy efficient and more sustainable is definitely going to be on the agenda. It's not only about energy consumption. Of course, it's also about accessibility. It's about materials, healthy materials, and so forth.
There's so many aspects to this that I think it is going to be, and it is a big possibility for us.
Good. I guess time for a couple more questions. Let's see. There's quite a few. Maybe we'll leave some to the end. U.S.-related question: what is the share of U.S. of the total North America sales and the country share of the maintenance base as well?
United States is clearly the vast majority of North America, because the others are Canada and Mexico, and they're clearly smaller. That's more than two-thirds of our business. Actually, more than that. Maintenance is roughly 40% of the revenues there.
Yeah, good and solid business.
I guess U.S., the bulk of the maintenance base as well in that region.
Absolutely, yes.
Yes. Market share related questions. Have we strengthened our position in escalators, and what is our position? Are we the market leader in escalators in China and globally today?
We are not the market leader in escalators today, but if I look at the past couple of years, we've clearly gained market share there. We have clearly improved our competitiveness in escalators and particularly now in escalators for metros, railways, and so forth, so for infrastructure. We're actually in quite a good position there, and we've made, I would say, quite a big improvement in the past few years in that area.
What about the market share overall? We've been doing well in China, I guess, compared to the market. Who are we taking market share from?
I believe in China, it's particularly smaller and mid-size players that have been losing out given the consolidation of the customer base, and the bigger players have been better placed to serve them. I think it's principally small and mid-size, but I can't point out exactly from whom, but in general, we have grown faster than market and gained share there.
Let's see. On the guidance, you upgraded the guidance last week. What was the trigger for that?
Well, trigger for that is that the development in Q3 has been better than we had expected when we announced our Q2 results. Both China has been even stronger than we thought. We thought it was going to be very robust and good, but it's been even better. Also, the momentum in maintenance has improved. While maintenance is clearly not back to normal, we've seen an improvement there. It's not only China, it's actually Europe and North America also have performed better than we expected.
Personnel-related question: have we had to lay off people due to the COVID-19 pandemic?
As I mentioned, one of the core principles that we set early on is that cost is not our principal objective, that it's actually health, safety, and then before, we have actually had people on temporary leave or so forth, we wanted to train them. We have not wanted to dismiss anyone because of the crisis. That has been very strong policy for us, and our objective has been to keep our people employed. Yes, they've taken some of their holidays, if they have untaken holidays, or in many countries, we've gone to negative work banks, but that way kept KONE's employees paid all the time. As I mentioned, the first objective has been to train them, which I think has worked very nicely.
That's how we have wanted to make sure that we take our responsibility also in this tough time.
Mm-hmm. There's a Net Promoter Score related question. What is the absolute level? Guess we haven't been specific.
We haven't disclosed the absolute level.
It varies quite a lot business to business and geography to geography. We can see that you have to usually look at them in regional context. We haven't shown the total one, but we are at a quite a good level, I would say.
Maybe the final question that could be a good segue to the next topics. Do you think the new technological developments raise the hurdle for small competitors?
I think that there will definitely be a platform for smaller competitors as well, for example, in the maintenance side. I think what is really key here is, as I mentioned, with our 24/7 Connected Services, is that for that type of a service to actually work and to be valuable, you need to have enough units connected. It's not enough that you have 1,000 units connected. It's not enough you have 2,000 units connected. Many of the small players we see here actually have hundreds, not 1,000. For you to learn and to create value, you need more of the data and insight. The more of the insight you have, the more you can create value. I think that the bigger players have an advantage here.
Having said that, we all know that this industry has a lot of small residential customers, the small players will be there, they will have a purpose, and we will be competing against them every day. They will be slightly different, probably the environment, how we compete against them.
Thank you, Henrik.
Thank you.
We will have more time for questions for Henrik as well at the end of the event. It's now time for a 10-minute break, so we'll be back shortly. Welcome back from the break. For the next section, we have two presenters. Our Chief Technology Officer, Maciej Kranz, who joined the company roughly a year ago and has a strong background in digital transformations and is now looking at the opportunities we are facing with fresh eyes. We also have our former Chief Technology Officer, Tomi Pihkala, who is now heading the New Equipment Business and bringing these innovations to life there. Maciej will first talk about the evolution of KONE's innovation approach, and Tomi will then focus on the New Equipment Business. Maciej, the floor is yours.
Thank you so much, Sanna. Good afternoon, good morning, everybody. As Sanna mentioned, over the next couple of minutes, let's talk about our approach to innovation. Just to set things in context, our innovation is driven by a couple of key principles. One is our mission to improve the flow of urban life, as well as the mega trends that Henrik discussed already. Urbanization, sustainability, and technology. The way we are directing our innovation efforts is to focus on addressing everyday problems that people face moving in buildings, moving in districts, moving in cities. Some of these problems we can actually address ourselves with our capabilities, our technologies. Increasingly, we actually also reaching out to our partners, and partnering with city ecosystems, co-creating with customers, co-creating with our partners as well.
When you think about innovation, we're actually very proud of our 110 history of innovativeness and coming to market with amazing innovations and market-changing innovations. Some examples, MonoSpace, and elevators, or UltraRope, were some of these innovations in recent history. Building on this innovation history, in 2016, we made a bold decision to create KONE Technology and Innovation organization to pool under the one umbrella all of our technology activities, in terms of research and development in our core offerings or physical capabilities. Research and development in services, in solutions, in digital capabilities, IT capabilities, as well as technology innovation. To put things in context, at that time, a couple of years ago, most of the industrial players were pursuing sort of digital capabilities that were separate from mainstream, often led by chief digital officers. We've taken a different path. We've taken an integrated path.
We integrated physical and digital capabilities. We were able to start coming out with physical and digital solutions that Henrik talked about. By using digital tools and new ways of working, the agile capabilities, we're also able to reduce our time to market for our innovation capabilities and innovation offerings by up to 40%. We've engaged with roughly 1,300 of our customers on co-creation activities. Now that we've built this physical and digital foundation, we're moving forward. We're moving forward and accelerating and scaling both our offerings as well as our capabilities. We're building physical and digital native organization. Of course, as you can expect, we are bringing all the new digital capabilities to the company.
When you think about data science and analytics, artificial intelligence, Internet of Things, cybersecurity, user interfaces, and user experience, all the kind of new capabilities coming into play here. We also spending a lot of our effort on evolving skills of our existing workforce to make sure that our engineers can evolve to become physical and digital natives. Building on the customer co-creation experiences over the last few years, we are also expanding and integrating our co-creation capabilities with our customers. We are in the process of rolling out the network of our co-creation labs we call KONE Works, where we co-create with our customers, we co-create with our partners from the sort of business problem statement all the way to a scalable solution. Lastly, we are integrating partner capabilities natively into our roadmaps as well. Focus on physical and digital integration.
In addition to that, we also are balancing our local and global capabilities. If you look at the map here, we actually have seven R&D locations and many more IT operations. We've actually chosen these locations very carefully using three criteria. The first one was, of course, access and proximity to our customers and partners so we can co-create with customers and partners. Secondly, of course, access to talent and to the right skills, and thirdly, also proximity to our supply chain and to our factories as well. These R&D units work as a network, focusing on driving our global roadmap, but also on local capabilities.
Let me give you an example of our China operations in Kunshan, next to Shanghai. This team is focusing on what we call China for China, so co-creating solutions with our customers and partners to make sure that we address their requirements in China. They also take our global roadmap and evolve it to meet the needs of our customers in China. The same team also focuses on the work we call China for the Rest of the World. For example, our escalator development is conducted in our China R&D facility as well. We've talked about physical and digital, we've talked about local and global. Now let's talk about areas of focus. In a nutshell, we're focusing on two key thrusts here from the innovation perspective. First, on strengthening our core, and second, creating new revenue opportunities.
When you think about strengthening the core, over the last few years, we've gone through the major transition. If you look at the blue side of the slide here, we've moved from our core being physical to now our core being physical and digital. KONE DX, KONE 24/7 Connected Services are good examples of our core being physical digital. In addition, these capabilities also are becoming platforms. Capabilities that we can build on top of as well. So in addition to establishing our digital and physical platforms, of course, as you can expect, we've been also working on optimization of our portfolio. MonoSpace 300 is a good example of an elevator offering targeting low-rise buildings. The second area of focus has been around creating new revenue opportunities. The immediate revenue opportunity, and Henrik talked about it as well, is to build capabilities on top of our platforms.
Henrik mentioned 24/7 Planner. It is a great example of extending our 24/7 capabilities by working very closely with our customers, listening to their needs, and responding with extended capabilities. Residential Flow is another example where we've created a contact-free and sort of interaction-free capability for residents and visitors in the building to move around the building. We plan to continue to focus on these types of capabilities building on top of our platforms. Last but not least, we're expanding into new opportunities. Two areas of focus. One, ecosystems. We've been talking about it already as well. Focusing on two opportunities. One is to integrate offerings from our partners into our solution capabilities and bringing these combined capabilities into our customers, our existing buying centers.
The second area that we are starting to look into as well, which is integrating our capabilities into our partners' solutions, and our partners taking these combined solutions to their customers and to potentially new buying centers. Outcome-based business models. This is the area that increasingly our customers are actually exploring, and we are exploring with them. It's still early, but we think this is a very potent and interesting opportunity for us as well. I've mentioned a lot physical and digital platforms. As you see here on the slide at the bottom, connected equipment is highlighted. We've been talking about the strategic importance of us connecting our equipment. Why? Two reasons. One is that by connecting our equipment then on behalf of our customers and for our customers, we can pull the data out of this equipment, and we can analyze the data.
We can look at the insights and use the insights as solutions to our customers' problems. The reverse flow is also true. By connecting our equipment, we can start creating plug-and-play digital and physical and digital capabilities, like for example, in our KONE DX Class elevators. The third capability is APIs, application programming interfaces. These are the gateways for us to integrate with our customer systems as well as with our partner capabilities to create joint solutions. We've given a lot of thought to this physical and digital platform capabilities, how we architect it, how we scale it, how we make it flexible. The reason for it is that these digital and physical platforms then allow us to create and to deliver new value-added solutions at speed and at scale. One example of these kind of capabilities, and Henrik mentioned it already, is health and wellbeing solutions.
We've actually introduced sort of initial wave of these offerings shortly after pandemic hit us. The primary reason we were able to be so fast is because of the platform capabilities that we had. Let's look at this example of health and wellbeing in a bit more detail. Here is sort of a list of problem statements that our customers would typically come to us before COVID. Examples would be, all right, I have, let's say, a lot of congestion in the lobby, or I'm getting some bottlenecks because of meetings or conventions. I would like to offer a fast-lane capability for daily users while offering sort of easy access for visitors. These were the problems that we were working with our customers and continue to work with our customers to solve those.
Obviously, over the last few months, we started facing sort of a different challenge. How do we enable people to move, let's say, from a parking lot to a COVID-optimized office in a safe and timely manner? There are some couple of other problem statements here. How do we make sure that they can move around the building in a contact-free way? How do we make sure that the surfaces people touch are either microbial-free or have been decontaminated? How do we make sure that people can follow physical distancing rules? We took this problem statement, and we pooled existing capabilities that we already had at KONE. We've added a few new ones as well. We pool them all together through People Flow, planning, and consulting capabilities, and design these experiences with our customers and for our customers. There's more.
By using the API capabilities, we're also able to integrate our partner capabilities into these solutions, like robotics or smart locks, and Tomio will talk about those in a moment. Hopefully, you see the picture here. It's starting with a customer problem, then figuring out how do we design this kind of experience together, and then what capabilities we can use that we have in KONE, as well as what capabilities we can integrate with our partners as well. This is basically what the world will look like. This is where we're going. In a way, we are already transitioning from being best-in-class product and services company, to becoming best-in-class product, services, and solutions company.
In the process, we are redefining our engagements with our customers from a, I would say, pointed engagements around new equipment or modernization or maintenance into a 360 continuous engagement, where we actually work with our customers to design and optimize their experiences and experiences of their customers. These experiences can evolve as building uses change, as the businesses of our customers change as well. In the process, we are establishing much more strategic relationships with our customers. We engage much earlier in the sales cycle. In addition to evolving our customer relationships, we are also evolving our internal capabilities by giving the right data in the right place and the right time to our own frontline operations and our sales teams, so they can optimize, increase our productivity, but also serve our customers better.
In summary, by combining physical and digital capabilities, local and global capabilities, by integrating our partner ecosystems and co-innovating with customers at scale, we are designing solutions that allow people to move in buildings, in districts, in cities with smiles on their faces. All right. Thank you so much. Now let me invite Tomio. You can join me here. You guys are getting two CTOs for the price of one. Tomio, you and I have been actually working a lot, and I really appreciate your help over last year. Not only because of your current role driving our new equipment business, but also because you actually drove KONE Technology and Innovation organization for a couple of years. Maybe a quick question before you start your section. You've been there since the beginning of KTI.
What are some of the biggest changes that you've noticed that happened in our approach to innovation in the last couple of years?
Thank you, Maciej, for the good question. I would say it's all in all the change in innovation culture. We have seen more people innovating. It used to be kind of a limited group of people who had a license to innovate. Then second aspect is actually about customer co-creation, customer aspect. I was kind of positively shocked when I saw some of the hardcore R&D engineers in the laboratory starting to talk about customer value and customer co-creation, and really get excited about it. I think then I noticed that, hey, there's something going on here. There's a change.
Yeah, I think in some ways, it's also great that our people are open to change, right?
Yeah.
They can shift from thinking technology to thinking customer problem.
Absolutely. I have a question to you.
Oh, okay.
You have been now working more than one years.
in KONE. It has been pleasure to work with you.
Thank you.
When you came to KONE, what was the biggest surprise or let's say, in terms of innovation culture? What did you didn't expect when you came?
Well, maybe I can give you I'm not sure I can find sort of one, but I can maybe give you a longer answer. The reason I was so excited about joining KONE because I was excited about our approach to transforming ourselves, our business, our culture, as well as transforming the industry. It turned out to be absolutely true. The second reason was people. It was really easy for me to get integrated in the company, and not only us working together, but us working broadly with our KONE colleagues.
Also in KTI, I think it's been great to see how open people are, as you mentioned, to sort of evolve their skills and then adopt new ways of working. Maybe one thing that surprised me, and is actually a big kudos to you and to the KTI team, is that when I came here, I thought I would be building, creating a lot of new capabilities. Instead, you've actually built this foundation that we talked about earlier, right? Now my job is much more into evolution and scaling than building. It's actually a great place to be. A personal note, I have to say, I've had fun, lots of fun over the last year or so.
Thank you, Maciek.
Thank you, Tomi.
I think it's this one, right?
Let's-
Yeah.
I think so. Yes.
Very good. Maciej had an exciting presentation. He talked about how we have been able to increase the new services and solutions in digital space. This change has been very rapid. It has become really our core part of our offering. I would claim that we are leading in terms of how we are able to scale new digital solutions and services. Also, how we have been able to create the commercial success. This one? Yes. In my presentation, I would like to talk more about how we are really applying these new digital solutions and services in new equipment business. I will talk specifically about KONE DX Class elevators, which Henrik already mentioned earlier. In the second part of my presentation, I would like to talk about the foundation of our competitiveness. Without, we would not be global leader.
It was November 29th, 2019, to be exact. That was the day we started the new chapter in KONE. KONE launched the KONE DX Class elevators in Europe. What is this new chapter? Elevator is no longer just elevator, but it is becoming platform. With this platform, we can create new outcome-based business. We can enable us to increase the share of customer wallet. This is a big bet for us as we are replacing all our existing elevator volume offering with the KONE DX Class elevators. What is DX, really? DX has three value propositions. Number one, it has built-in connectivity. It means that there are unlimited possibilities to upgrade People Flow experience during the life cycle of the building. This is done by using application programming interfaces and entire partnership ecosystem we are building around DX.
Number two, we are completely reimagining and redefining the user experience by using digital elements and physical elements, combining them together and creating multisensorial user experience. This design has so far received outstanding five Red Dot Design Award. Number three, partner for smarter buildings. We have been introducing series of new digital tools to help our customers to plan and design new buildings. We were a bit lucky here because we introduced these self-service digital tools for our customers just before COVID hit the market. We saw a big spike of users starting to use our CAD designers, our planner tools. We have seen that not only our products are now becoming digital, but also the way how we are selling and how we are interacting with the customers is becoming more digital.
As mentioned earlier, KONE DX Class elevators act as a digital platform for various services. We can connect these services by using application programming interfaces. We have four type of APIs we are offering for the external users. Elevator call, service robot, equipment status, and service info. We have 3 service categories we are offering to our customers. First of all, KONE's own solutions, like KONE 24/7 Connected Services or KONE Residential Flow. We have so-called third-party services, so partner solutions, whether they are global or local partners in different part of the world. We have a third category, so-called customer's own applications. These are the customer's own digital solutions we are able to adapt by using API interfaces in the smart buildings.
The beauty of DX Class elevator is that every single service will make elevator more valuable for customer, and every single service will make buildings smarter. We believe in open ecosystem where we can bring win-win relationship between customers, partners, and KONE. We are building app store of the industry, where different partners are creating new services and solutions for different segments, for different geographies, for different customer needs. Here I have a few examples. We are working in the access control area with a company called iLOQ. With iLOQ's smart lock solutions, we can create a seamless user experience in residential buildings. All the way from the main entrance to your personal floor and your personal door. In commercial buildings, for example, in office, hotels, we see more and more customers actually applying delivery robots to do different kind of things, like room service.
Here we are partnering with companies like Savioke and Robotise. Finally, I also want to mention the company called BlindSquare. This company is doing a really great job to make life of blind and visually impaired people easier, and also how they move in the cities and in the buildings. This global leading application for the blind and visually impaired people now can also call KONE Elevators. I have to say that the DX has really received well among our customers so far. This story about DX is resonating well. In uncertain world we are living, our customers are continuously looking how they can actually adapt to the new situation, to the new normal. For example, by creating touchless elevator journey. Here DX will come to the picture. We can offer that adaptability. In residential segments, the customers are appreciating safety and reliability.
Here we are offering solutions like 24/7 Connected Services or antibacterial wall panels to improve the hygiene of the car. We have very different needs in different segments, and the beauty of DX Class elevator is that you can truly mass customize the elevators to the different individual needs. More we have this customer project with the DX in each country, more we can demonstrate the value of DX for the wider audience. We have had really encouraging start with the DX. I would say it has been one of the fastest product launches I have seen personally in KONE career. We have already reached 80% tendering activity in EMEA area. There are many countries which are already 100% tendering and ordering DX Class elevators, replacing existing elevators. We have also seen positive impact on margins.
We are also now upselling and additionally selling new services on top of the elevators. Our plan is to now expand DX to cover new markets and new geographies step by step, and our goal is to reach and cover the majority of the market by 2021. DX Class elevator will replace all our elevator offering and being competitive in affordable housing all the way to the high-end commercial segments. While we are excited about DX and how it has been received by customers, we are fully aware what is our foundation of competitiveness in new competitive business. KONE is reliable and trustworthy partner. We deliver customer promise. It is all about execution capability and efficient delivery chain. In other words, supply chain and installation. Let me introduce our recent progress in our operational excellence, focusing on delivery chain. Safety, quality, and sustainability.
These are essentially everything we do. There's no shortcut here. It requires continuous improvement mindset. In safety area, we have been able to decrease our Industrial Injury Frequency Rate in supply line by 24% in the past years. There are many factors which have been operating in zero level for many, many years. This is thanks to the consistent safety culture development. However, we are fully aware that there's a lot to improve as an industry in the area of safety. It continues to be our high priority area. In the area of quality, we have also seen very positive progress. early failure rate, which is one of our key quality metrics, has been improving 32% in this period.
This is thanks to the more robust R&D process, investment in supply quality management, and also consistent competence development in the area of Lean and Six Sigma, particularly. About CO2 footprint. Here we have been consistently improving our CO2 emission per sales in past few years, 31% in this period. However, we are going to set much higher bar in this respect. Henrik already talk about it. In terms of supply line, we are setting the goal to be carbon neutral supply line by end of 2024. As our delivery volumes have been growing in the past few years, we have been able to leverage fixed cost by improving productivity in our supply units. We have seen 27% improvement in this respect. Our customers are continuously pushing us to improve our delivery times and lead times, and also responsiveness in project execution. This is particularly true in China.
In normal cases, delivery times are measured in months, we have also capability to have much faster deliveries. In China, we are leading the industry by providing broad capability to provide elevators just in seven days for the most important customers. Efficient installation is hugely important part for competitiveness. In fact, in China, we are clear leader in terms of installation efficiency. We do have also challenges. There is increasing challenge in labor availability, subcontractors. There's a shortage here. This is why we have been investing many years in installation-friendly products. Ken already talk about that in his video. For example, in Europe and in North America, where the labor costs are high, we have been reducing standard installation time for the volume elevators. In case of MonoSpace 500 DX, we have been able to reduce the installation hours by 14%.
There are so much more opportunities to improve our operational excellence. Even if we are global company with the global products and global supply chain, we do see a lot of complexity in our product platforms, in our processes, and we can improve that by harmonization efforts. We also think that we can continue to expand our fast delivery capabilities. Of course, we will continue to drive installation productivity going forward. About COVID-19. COVID-19 was the toughest stress test for supply chain in our history. We have been managing all kind of crises, natural disaster, component shortages, but nothing like this magnitude. I have to say, I am really proud how we were able to restart the China operation in February, and how we have been able to keep production running in Europe during the most difficult period, when most of the other companies were shutting down operations.
This was thanks to the strong focus in safe working practices, and also strong local accountability. Our local teams were quickly reacting to the issues and proactively managing the business continuity challenges. To be honest, there were many close calls. We have to move production volumes suddenly to the different factories, to the different suppliers. I have to say that our people did excellent work. There was a lot of heroic actions by KONE people, by suppliers, and we were able to manage the situation. However, we learn a lot. We learn that there is a lot of opportunities to improve our robustness of our supply chain by harmonizing our processes, by harmonizing also our product platforms. COVID-19 was also causing big disruptions to the logistics. This was caused by different lockdowns, different restrictions.
We had a situation where we have to explore new logistic routes or new distribution centers in extreme time pressure. This experience reminded about the power of seamless collaboration between the functions, between supply line logistics, sourcing, field operation. All in all, I have to say, there has been lots of learnings which are going to be valuable in future. Personally, past 255 days have been one of the longest days in my career. It is time to summarize my presentation. Number one, We had a really good start with the DX. We really feel good about it, how it will help us to differentiate in the future. We will focus on scaling and expanding DX quickly. Number 2, COVID-19 has opened our eyes to see more opportunities to improve operational excellence, which is our foundation of our business success.
With that, I would like to thank you for listening my story, and I will give back to Sanna.
Thank you, Tomio. Thank you, Maciek. There's a lot of questions coming in. Let's see. Maybe I'll start with Tomio, you, as you had it going already. Given a building takes a long time to build and design, how critical is it to be able to deliver an elevator to a customer within seven days?
Yeah.
How much of a differentiating factor it is?
Yeah. Typically, obviously, there is plenty of time. There are typically months of delivery times in normal cases. There are situation where, due to the various reasons, customer needs to speed up their own project, or they have had some sort of changes in the plan. This is quite normal in construction projects. In this situation, we provide this flexibility. Particularly the big developers in China, they have been appreciating this capability. We are trying to expand that capability. It is also our competitiveness in the market.
There's a question on differentiation, and I guess you could both take it from a bit different angles. Maybe, Tomio, you first. There is a question that Otis is also shipping its new elevators with connected capabilities. How does KONE differentiate itself from key competitors, I suppose? How can you keep your product differentiation lead when your new innovations are visible to competitors through the maintenance?
Okay, I will start, Maciej. This is our favorite topic. First of all, obviously, connectivity is important, that's not itself yet create the value for our customers. Obviously, it's all about what kind of problems you are solving with the digital solutions and technologies, and how you can really add value to the customers. I think this is where we are trying to really put our efforts and make it scalable. We will continue to do so. Obviously data plays important role. How we can really use the data to create the new insights, how we can really help customers solve different problems. This is going to be the thing we need to continue to improve. More we have data, like Henrik mentioned, more we have opportunities to also innovate different new services.
You're absolutely right. Connectivity is just an enabler, and we do expect everybody to do this. The key here is there are a couple of other sort of big trends that I think we need to be paying attention to. One is our customers want to co-create with us. They want to co-create solutions with us, not just buy stuff from us. The co-creation is tricky. It's not easy, and I think we've actually worked over the last couple of years how to make it sort of addressing customer needs, but also scalable. Not a bunch of one-offs. Second one is speed of innovation, and speed of responding to market changes when customer needs. Again, we sort of architect it, as we talked about, not just the connectivity, but the overall platform. Thirdly, it's partner ecosystem and integration as well.
It takes literally a village to build solutions these days. You've seen the example of integration with our partners. Again, we've built a system and capability, and we can do it at scale as well.
It's about customer intimacy, it's about partner ecosystem, and it is about speed.
About the technologies and partnering, there's a question that you have not acquired any technology companies, I think ever, it says here. Aren't you thinking of creating a corporate venture capital fund where you would buy stakes in several tech startups? It has worked well for many industrial companies in transitioning to digital industry leaders.
You know, I've worked with startups for 30 years, dozens of them. Of course, there are different ways that startups can get funding. What I think startups really look for is for opportunities to partner and to go to market together. They're looking for ways for companies like us to create revenue opportunities for them. That's basically what we're prioritizing, is we don't have to put money in the startup to work with a startup and to develop a joint solution and take the joint solution to market.
A little bit on the same topic, Tomio, here's a question that there has been no ecosystem partners added since January. What could be the next ones?
Right. Well, we are working on, and we are continuously expanding the partnership ecosystem. We will be announcing also some new partnership in the future.
Please stay tuned.
Please stay tuned.
I guess we sound very excited about this physical and digital-
We are.
Exactly. Here's one question. What does it mean in concrete terms that our innovation focus is on combining physical and digital offerings? What's changing? How is it different from what we have been doing?
Sure
in the past years?
Yeah, I can start.
Yeah.
When we talk about combining technology from a physical and digital perspective, this is just a starting point. What we are working on is basically blending the best of both worlds. Our understanding of the markets, of technology, of customer problems, and so forth, also integrating sort of digital ways of working. You look at internal startups, you look at culture changes in terms of fast fail, in terms of accelerated funnels of innovation. What is exciting for us is not only the outcome, but also how we get there.
Combining the best of the both worlds, and I think we've been pretty successful with it.
Yeah.
Do you think new technological developments will be a hurdle for the small competitors?
I think that, in general, for me, if there is competition means that there are good things happening in the market. In general, competition is good. I would expect that there will be some technologies that our small competitors will be exploiting as well. I think we need to stay vigilant. At the same time, from my perspective, and I may be sounding like a broken record here, but I truly believe that what will be defining our industry next couple of years is co-creation with customers, focusing on integrating solutions with partner ecosystems and integration of best of both worlds, physical and digital, which results in nimbleness and speed.
Yeah.
That's sort of our secret sauce.
I think Henrik already mentioned about that, even if I'm engineer, I would like to highlight the technology, but this is a people business. This is a people-centric business where, in the end of the day, you make a difference in how you serve customers. That will continue to be the case in future.
On the same sort of ecosystems and partners, isn't it the case that you need to make sure that you have connectivity with all of the large building management system providers? Is this currently the case, and do you have any preferred partners there?
I think it's a great question, and the way we've been architecting our API strategy is to be basically BMS agnostic, right? Whatever systems our customers want us to connect with, whether they are homegrown or driven by some of the BMS established players, we can integrate with them. I believe that's the right strategy for the market, which is that we use technology as a means to respond to customer needs.
I think it's very much about providing mass customization capability for our customers because they choose different partners. In our API strategy, we talk about it quite a lot. That is very much enabling that in many ways, also for building management companies.
Tomi, for you, when you say that KONE DX Class is going to replace all new product roll-outs going forward, does it mean that for all new products that KONE sells, it will be DX enabled? Will it make you less price competitive versus your peers? There was a different question also that can we DXify older elevators?
Yeah. That's an important question. I highlighted also in my presentation that DX platform will be very competitive platform, also competitive in affordable housing, but also in high-end segments. It is a digital platform, and we'll continue to serve the different type of customers, starting from low-end residential, where maybe there's more competitiveness. There's no question about that. Yes, we are replacing all our volume for elevator offering, and we believe that having that scale, that will also make the difference.
We can do it also in modern elevators, right?
We can do it. Yes. That is something we are working on. I think it was mentioned by Henrik that we have a capability now to also, let's say, DXify existing KONE Elevators in the service space.
On the kind of outcomes that we want to provide to the customers, what is the biggest priority? Is it reducing downtime or something else? What is the value for customers that we're trying to provide?
We have a half million customers, and they have very different type of needs, so there's no one thing, obviously. Obviously right now, of course, COVID-19 is creating a lot of questions where we can also help. I think maybe, Maciej, you can explain some of the things we are doing to help there.
Yeah, I think that Henrik mentioned that in some way we find ourselves a little bit in the eye of a storm now where customers are coming to us a lot asking sort of these basic questions, which is, how do I ensure safe and timely People Flow? We started from here, right? At the same time, again, if I look at this, we have different segments of customers with different needs. What we're focusing on is having a flexible enough technology architecture that we can address these different needs and also in different ways, including different business models.
There was a question on disruption and what kind of risks we see. Would you highlight anything? What are the things we are watching out for?
Yeah, I think that definitely the pace of change is accelerating, and we're watching it very carefully. Definitely move towards solutions is one of them, all right?
Which is why we're pursuing sort of a partnering strategy. The need to be nimble and need to be fast in responding to markets is really, really critical. We cannot take years to decide what we do. It takes weeks and months to respond and to anticipate the needs of the market. Thirdly is flexibility. It's flexibility from the technology perspective, also from the business model perspective.
Right.
We're ready.
I think the technology disruption as such, as a mega trend or trend, is very positive trend for us.
Of course, you need to really capture that.
Yep.
I think we have been doing that with our new digital solution services. We'll continue to do so.
Maybe from the technology perspective. If you look at the technology stack, we definitely are shifting more and more focus in our activities into analytics, into analyzing the data, into getting insights from the data, integrating these insights into solutions as well. Moving up from connectivity and sort of capturing the data into analyzing the data.
Yeah, there's a couple of questions on the absolute levels of the change numbers that you showed there, but unfortunately, those are not numbers that we are disclosing. Maybe one more question. Let's see. There's a lot of these, and we can take more questions after Iikka's presentation. What is the pricing impact of DX Class elevators? Why is it positive for the margins in practice?
Yeah.
What is it that makes customers want to pay more for it?
Yes. I already mentioned in my presentation that we have had a positive margin impact there, and in terms of pricing, it has been progressing well. Obviously, customer really appreciate the value of future-proofness, for example. That is a big value, and they are willing to pay for that. I think the second element of also pricing is that we are selling these additional services and solutions. That's I think where obviously, as I say, that there's actually unlimited possibilities. More we actually capture some of the, and understand the customer problems, we can actually even more than sell on top of the elevator.
So.
I've been involved in a lot of customer meetings lately. A recurring theme is exactly what, Tomi, you mentioned, which is now that we get our equipment connected, what can we do? Right? This sort of a visioning, I think is a very powerful engagement model as well, because our customers facing huge challenges every day in terms of profitability and business models and so forth. Now we can actually engage in this conversation because we have means to help them solve these.
Excellent. Very interesting. Thank you, gentlemen.
Thank you.
Thank you.
Now it's time for the last presentation. It will be by our CFO, Ilkka Hara. Ilkka will summarize, synthesize a little bit what you've heard in the previous presentations and explain why these things are relevant for us from the point of view of our financial targets. Ilkka, please.
Thank you, Sanna. Also a warm welcome on my behalf to this 2020 Capital Markets Day for KONE. I'll talk today about what we've heard today, summarizing it into a financial context and how that helps us to work towards our financial targets. At the end of this session, my session, you have a chance to do Q&A with all of today's presenters, stay tuned for that as well. I'll start first, just a reminder, I think this is something which is familiar to most of you, Henrik already talked about the strategic targets, how we progress towards them. From a financial perspective, we have three targets. First, growth. We want to grow faster than the market. Second, profitability. We have a clear ambition here.
We want to improve our profitability towards our 16% EBIT margin target, while at the same time, obviously, given our light balance sheet, then balance that with also growing our absolute earnings as well. Lastly, we have a target on cash flow. We want to improve our working capital rotations and therefore have a healthy cash generation for the business. I'll talk all of these three topics, and at the end, I will conclude with our outlook for 2020 as a topic. Let's start with growth. How are we able to grow faster than the market? Before we get there, I'll start with looking a bit backwards. Henrik talked about orders, growth. I'll talk here about how we've been able to actually, if you look at the longer period, grow quite healthy our sales.
During this strategic period, since 2016, our average annual sales growth has been 6.2%. Clearly, higher than largest peers for our industry. While the growth has been good, it's also been broad-based. If I look at the business lines and how they contributed, our services have average growth at the comparable currencies of 6.5%, and our new equipment business has grown during this period 6%. We've seen all of our areas contributing to this with highest growth in the period from Americas 8.7%, EMEA growing 6.5%, and Asia-Pacific 4.8%. There, Henrik already talked about the impact from China in the early part of the strategic period. Overall, we have been growing quite well in this period. If I look a bit in what's happening in the coming years, and I'll start first with our market outlook.
Today you heard a lot about urbanization. We believe that continues to be a key trend and a growth driver in our industry, supporting positive development in new equipment business and market. While it is true that the weaker economic outlook is likely going to dampen the short-term construction outlook, at the end, we believe that in new equipment business in the coming years, we have a stable or low single-digit market growth in the coming years. We, as KONE, we aim to grow faster than the market in this segment. If we look at services business, what is the opportunity there? Overall, we believe that the opportunity there is mid to high single-digit growth. What is driving that? First, the fact that we have a steady growth in the install base, driving growth in the maintenance business.
We have aging install base that is fundamentally a growth driver for the modernization business. We don't modernize enough. Lastly, we've heard quite a bit today about the opportunities for creating more value in our services with the digital solutions that we're developing. It's clearly providing us a good opportunity to see the growth being more driven by the services going forward. How about KONE? First starting with our business in new equipment. We clearly on the right-hand side, we're signaling there that we want to grow not only with the market, but be able to capture growth in units and also in value higher than the market itself. What is enabling us to do it? First, we today talked a lot about the DX Class elevators and how that's been a positive source of differentiation.
It enables us to offer platforms for value-adding services for our customers. Clearly that's something that we've seen our customers value. It's not only about the future, it's also the basics. As witnessed by the last six months, the execution capabilities that we've had and now have been tested in this difficult environment, clearly are also valued by our customers. We're there to deliver what our customers need in a changing environment. We continue to push for cost competitiveness to be able to also from that perspective be competitive. We also want to innovate with our customers, co-create and understand their needs. We believe that this is providing us with good basis to outpace the market growth in both units and in value going forward in the new equipment business.
If I look at the maintenance business, there we talked about today how we've been able to turn around the corner when it comes to increasing the monetary value per unit, which was for quite some time going down, and now for the last few years have actually been improving. Clearly an opportunity for us to grow faster going forward. We have a strong market position in new equipment, enabling us to grow our maintenance base. This is a people business at the end. The fact that we have engaged capable people, as Henrik was talking about, is a key driver for customer loyalty. That's clearly coming through in the Net Promoter Scores and the comments that we get.
We are seeing that we are adding value for our customers through the 24/7 Connected Services and other similar services where we get a higher revenue per unit going forward. There's clearly a potential for accelerating growth in the maintenance business going forward. Then lastly, about the modernization business. The aging install base that is aging in the Western world is also starting to be more and more an opportunity, especially in China and Asia. We believe that there's a sizable opportunity for us in the aging equipment base in China, where more and more of those units that get modernized are actually KONE units that we've installed in the last 15 years. We talked today about the smart and green buildings, how they're a driver for modernization business.
It is clearly something where we see even the younger install base getting modernized more in the coming years. Clearly, we see that there's a potential also for accelerating growth in our modernization business going forward. How about profitability? If that was about growing faster than the market. On profitability, if I look at the period from 2016 to 2019, clearly, as Henrik was saying, we can't be happy about the progress we made. Both on absolute as well as on relative terms, we have actually not been improving. While at the last year, we actually start to see our profitability improving, which is a good thing. What is the key drivers here? On a positive side, growth has contributed positively to our adjusted EBIT.
We actually decided to increase our investments in R&D and IT, where we see good opportunities for creating value. That's been a slightly negative impact to our profitability. We increased the investments by 50 basis points as a percentage of sales. By far, the biggest driver for this development has been the combination of the prices in Chinese new equipment market, which were under pressure, especially in 2016 and 2017, as well as the combination of the raw material headwinds that we've seen in the past few years. I'll talk a bit more about those. On the positive side, Accelerate program has contributed positively to our fixed cost leverage. We believe that it will also continue to develop positively and contribute also in this year and the following year positively to our profits. More about the margins of orders development. I promised to talk about that.
First, this is a picture illustrating what has happened. We talked about how in the China market we saw pricing pressure overall, but while there's a combination of raw materials and therefore also the component cost coming down, our margins were quite stable. During 2016, as the market volumes peaked and we start to see the combination of lower volumes and pricing pressure intensifying, we actually saw prices coming down while the raw material prices were going up. Therefore, our margins start to come down in the second half of 2016. We worked quite hard to develop our pricing capability, and therefore, we start to see stabilization of our orders margins in 2017. With actions that we've taken, we actually start to see our orders margins improving in second quarter 2019, and we've seen positive developments since.
That's clearly a good direction, but it's good to note that compared to where we were, we are at the lower level, but we have a healthy, profitable business in China in new equipment. Looking forward, how can we continue to see positive development in our earnings, as well as improving our profitability. Clearly, the two levers we are focused on are increasing the value per unit, as you heard in all of the presentations today. We believe that with improving differentiation, we can add more value to our customers, increase the value proposition we have, and by therefore seeing the value per unit going up. At the same time, we are focused on also lowering the cost per unit.
Working on making sure that we take the opportunities, as talked about by Tomi, on product harmonization, driving the quality and productivity up to decrease the cost, as well as continually working on fixed cost leverage. Primarily that's been done by our Accelerate program. It actually happens everywhere, every day, across the KONE. Clearly, these two levers both need to be used to continue to see good development on earnings as well as profitability. Now, a few words about 2021. We have both headwinds as well as tailwinds ahead of us. What's boosting our performance? First, we have a strong order book, and the recently improved margins in the orders received clearly is a positive thing. We have solid growth in our services business contributing positively, as well as the mentioned Accelerate savings and performance improvements contribute positively.
At the same time, given the environment we are in, we are expecting intensifying competition having a negative impact, as well as overall economic and geopolitical uncertainties creating a more difficult operating environment in next year. Lastly, this year we've seen in our discretionary costs a lower level. We are not traveling. We're quite mindful of where and how we spend on discretionary part. We don't expect that to continue fully next year, so there's clearly a more normal level we see, which is then burdening our results compared to this year. Lastly, on capital efficiency. Clearly, cash flow is important, and we've been seeing a very positive development this year, as Henrik was highlighting. Our first half 2020 cash flow has been exceptionally strong.
While there's exceptional items, especially in Q2, and there's always fluctuations, but if you look at the longer term development in our cash flow, we've actually seen a very good high operative cash generation and cash conversion over the last years. This is enabled by our stringent working capital management, and consistently, that's something we've been able to do quite a good job on. Just to conclude now on the market and business outlook. First, we upgraded our market outlook last week. There, in new equipment, the key change was that we are now expecting the Chinese market to grow this year. In other regions, we are seeing the new equipment market to decline. No change there. In maintenance markets, we expect that to be resilient, and excluding the direct impacts of possible lockdown measures, that has not changed.
In modernization markets, the fundamental growth drivers, as talked about today, are intact, but there is uncertainty in the market, and that could delay decision-making, impacting the modernization projects overall. For KONE, our business outlook for 2020, which was also upgraded last week. We are now seeing that our sales this year are going to be in the range of -1% to 2% at the comparable exchange rates compared to 2019. That is better than what we had in the past. Also our adjusted EBIT is in the range of 12.1%-12.7% this year. What is then supporting our performance to get here? We have a solid order book and a maintenance base supporting the business.
We have the improved margins of orders received, as well as the Accelerate savings of EUR 50 million that we expect for the year, and selective cost containment actions that are positively contributing to our results. On the other hand side, what's burdening our results? Overall, COVID-19 has a negative impact to our results. We are seeing a headwind from subcontracting costs that are increasing. We are investing to our capabilities despite this environment to sell and deliver digital services and solutions. Also, currencies have a negative EUR 50 million impact to our EBIT from conversions and translation rates. Overall, this is the upgraded business outlook that we shared last week. With that, I'll conclude my presentation, and there will be now time for Q&A. Before we get to the Q&A, give us a minute to get settled here, and we'll start the session soon. Thank you.
Welcome back. We are now ready for the Q&A session. Guess we got so many questions through the online form. Thanks for those. I'll start with a couple more so that we will not leave too many questions unanswered, and then we will switch to the telephone lines. Maybe I'll start with you, Ilkka, as you were the last one to present. There were a couple of questions on the 16% margin target and where we are compared to that with our current margin of orders received, and how do we think about it overall and how to get there.
Thanks, Sanna. If you first start with what I said actually in the beginning, we clearly have an ambition in terms of profitability, as we want to get to a 16% margin target. It is also a combination of absolute as well as relative performance, we don't want to sacrifice growing our absolute profits as well getting there. Clearly, if you look at the last few years, as I shared, it's been more challenging when it comes to our margin development. Clearly, the fact that we're start to see now improvement end of last year in our margins, and we had a positive margin outlook for this year, is positive.
There is many things where we see opportunities to continue to see that development going forward to be positive. If you think about, today talked about how we can add more value, so whole digital offering, that is clearly contributing positively. The fact that we've been able to continue to see growth in our maintenance business contributes positively. The fact that we have seen actually over time quite good growth is also a positive contributor to having a good fixed cost leverage. All of those are contributing to getting towards our target. As said many times, it is also a target where there's a clear ambition, but we have not set an exact date for it. In that sense, we want to do the right thing to grow both, grow profitably going forward to get there.
Thanks. There were many questions on 24/7 Connected Services from different angles. Guess one of the angles was that can we connect competitors' equipment? Is that kind of our strategy to increase market share?
I would say firstly that, yes, we can connect competitor equipment, and we have done that quite broadly. I would say here that our strategy really there hasn't changed, that we are out there in the market winning customers daily and actually also losing customers, but that's of course our strategy to win. The point is that we have a lot of non-KONE branded equipment in our maintenance base that we now have the ability or actually have had for several years already, the ability to connect. That's the perspective I would think about it mainly, is that we have those in our maintenance base, those who want to connect, and of course also all the KONE equipment we want to connect.
Yeah. Question on, I guess both DX and 24/7, maybe Henrik, you will like to take this. When you're able to be more predictive and smarter about things, will there be less need for repairs, for example, and is that bad for the business?
I would say, turn it back that 24/7, as an example, we believe is very good for our customers.
for their operations, for them running their buildings.
Whatever you do that is good for your customer's business, you benefit. The fact that you can predict when things go wrong doesn't mean that you necessarily need to do less repairs. We can just provide much more visibility to our customers, and they can plan it. We can do it when it's convenient to them.
not in an unscheduled way.
I think it's only good for business.
Particularly everything you do to customers that improves their businesses is good for your business.
I guess we can fix problems faster.
We can fix problems faster.
Yeah.
Absolutely.
Good. Maybe finally, before handing it over to the telephone lines, there were a couple of questions on the outcomes and the value for customers. What is it in concrete terms? Could you give us a couple of examples? What the outcome or the new value for customers could be?
There are many of them, Sanne. If you think about outcomes, you can think about those from many different perspectives. A very basic outcome is that you just have better predictability, and you know that your people are going to be able to move in your building seamlessly. You can go to more advanced outcomes. An office building may say that, KONE, the service you provide us is to make sure that everyone can get from point A to point B in maximum of X minutes. That is what we pay you for. If it's better than that, you get a premium.
If it's less than that, you get less. We can say that it can be on a construction site that, Hey, we can help you improve your productivity and so and so much because we're helping to move people more smoothly on that construction site than you could previously with previous types of solutions. There are many different aspects of outcomes, but really an outcome, what is really key to that is that you're really focusing on what is important to your customer, what helps improve their business, and that is what you commit to deliver upon.
Thank you. I think we're now ready to take questions from the telephone lines. Operator, please.
Thank you. If you would like to ask a question, you may signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one for questions. We'll take our first question from Klas Bergelind with Citi.
Yes. Hi, Henrik, Ilkka, and Sanna. Klas from Citi. My first question is on the maintenance business and focusing on Europe. There is absolutely no very strong, Henrik, when it comes to the hardware and how you can optimize People Flow. I want to dig deeper into the maintenance business and the digital offering and threats out there. We're hearing now of tech operators are starting to join forces with independent service providers and quite big independents and thinking they have an in that they understand not only your equipment but also better the equipment from third parties from a tech perspective. Obviously you say you can connect to third parties, but they
I think we're losing him.
Klas, I think we lost you, but the question was on the independent service providers and how they are talking about connecting the equipment in a smarter way, kind of similar themes that we are talking about. Any reflections on that?
I would say to give a perspective that our industry, we have always had a bunch of mid-sized and small competitors. I think we will continue to have that in the future as well. We look at connecting and using. Are we online?
Please continue.
When we think about connecting and using data, here, as I mentioned that we are connecting third-party equipment. That is something we do today. Here, I actually think that the big players will and do have a clear benefit because they have a broader base, and you'd require that data from a broad base to create those service needs. If you only have a small base, only some hundreds or 1,000 or a couple of 1,000, you're going to be very restricted in learning that what are the service needs that come out of certain signal, out of the data, and analyze and make sense out of it. I think actually, we are in a good shape here. Is there competition out there? Absolutely. There is, and there will always be.
I think we also have to put it in perspective here that the big players have a million-plus or much more units in their service than we're talking about smaller players who have some thousands. It's quite a different game to scale it from one level to the other. We all have a very large service base that we can connect. All of us have a big captive service base that we can connect. Yes, there's going to be competition. There's going to be small companies, going to be startups. I think that's absolutely a sign of a healthy and a competitive industry. That's something we're okay with.
Okay. Very good. Can you hear me again?
We can hear you now again. Yeah.
Yeah. Okay. Thank you. My second one is on DX. How protected is DX when you look at the independents getting access? Sorry to labor the point. I totally get your answer. On earlier innovations, I think it took quite some time until they could understand the technology and connect to your products. With DX, will it raise the barriers to entry versus the early models? Is it more difficult to connect to the control system, the ports? It's a great product when we look at the hardware and open source into the building, but I'm also interested in the control systems and the ports, Henrik.
Matti and Tommi, how difficult is it for someone to connect into our DX Class elevator?
Well, first I would start, I said in my presentation that actually we believe in open ecosystem. We're building open ecosystem with APIs. It's not so much about what you are limiting, but it's about really actually opening the possibilities for our customers, for our partners, and also of course for KONE. It's a bit different philosophy, actually.
Let me add to this, because I think this is really key. We believe in speed of execution, speed of innovation. The world of putting artificial barriers is over. Us being close to our customers, working with our customers, responding to their customers, evolving our technology very rapidly is the winning formula. That's how we're architecting our systems as well.
I would still build on that.
Okay.
That is definitely our philosophy and an important point. I would say that with our latest generation of control systems, we get much more data out of it than anyone else can get. That's not really the point. The point is to constantly move, as you could hear from Maciek and Tomio.
My very final one is on office and commercial. I created a simple spreadsheet with all the comments when I looked at the regional comments, looking through the slides. Obviously, the negative trends into 2021 across office and commercial, and infra seems stable. You say residential could see accelerating growth, obviously with the caveat of China into the second half. When I do that, I get to a stable market environment. I don't know, Henrik, if you want to put some numbers to those slides. Is that how you think about it?
I think it's first of all difficult to give a full outlook for next year. I think it's a little bit too early. I think the situation is moving quite fast. I think we're going to have big differences. China already comes this year from a strong position, and as we said, we believe that the first quarter, as we go into a good situation there. I think in other markets that have been harder hit this year, I think we have to see how they recover, because I do expect a recovery of them. I think, let's see. I don't know, Ilkka, if you have anything to add.
Well, I guess we are starting from a segment view, clearly infra and residential are maybe the more stronger segments, while then commercial clearly is maybe, and travel and leisure, more impacted. Overall, I guess we are seeing the opportunities more towards the stable, but early days to say exact numbers for next year yet, given the uncertainties. That's maybe the message that in coming quarters, more stable in that sense.
Yeah. Of course. Thank you.
Thank you.
We'll take our next question from Andre Kukhnin with Credit Suisse.
Hello. Thanks so much for taking my questions. I'll start with one that relates to the outlook and move on to margins. Ilkka, if I may ask kind of directionally, the stack of positives versus negatives that you cite, which way are we looking for 2021?
Well, as you see, even the 2020, there's still a range of outcomes for the business. There's both orders coming in, but also things to execute this year. As you know, we will guide then 2021 more towards when we release our results in January. Obviously, we have an ambition to be in a position to grow our profitability, but let's see what we then are able to do.
Thank you. May I ask on increased competitiveness, that featuring as a headwind for 2021. When we discussed it at Q2 results, it sounded like you saw signs of increased competitiveness, but not pricing deterioration. The fact that you're putting it into a headwind for 2021, does that mean you've seen this kind of moving on and progressing further and turning from signs into increased competitiveness and hence the pricing outcome?
Well, I would actually define it as increased competition. I think our competitiveness is in very good shape and has actually improved.
Sure
declining markets, as we have seen, then usually you have the same number of players as before. Usually everyone chasing a slightly smaller pie, and that usually creates more competition, and that's what we see in the hardest hit markets so far, and depends on the market development. That's definitely what we expect to see going forward. I think what we said in Q2 was that, then, and as you know, we don't comment on that going forward, but until then, we had actually had a good pricing development and had continued to improve the margins of orders received. Clearly, as we said, that situation has got more intense.
Very clear. Thank you. The final one, if I may follow up on DX, clearly that's one of the main features of the day-to-day, and thank you for all the color. Is it possible to quantify that kind of ASP increase? I know it's very diverse across different types of customers and verticals. Compared to the previous generation, is there a way to put a number of, I don't know, even kind of a mid-high double-digit sort of ranges on what you're achieving with DX versus like for like previous generation? How has DX launch developed in the last sort of 10 months compared to your original expectations in October, November last year?
Let me start, then I'll hand over to Tomi first. First, just remember that we are early days. I would say, and Tomi can comment more on the speed of the rollout compared to our expectations. What we are seeing with DX compared to the previous generation is that pricing is, first of all, slightly better for that. We're getting a slight price premium for that. Why are customers paying a premium for that? Well, I think the key thing is that it gives them the adaptability and flexibility for the future. They may actually not know, many of them actually, conversion rates for 24/7, we expect will be quite high for DX because you can just turn it on. That of course will help. All the other services, there are some that are picking them up already now.
The point is that when your needs change in the future, and there are additional services, Tomi talked about the first services we have, but there are more coming, then you can turn those on, and you get the benefit and we can get additional revenues. Our expectation is that in the beginning, it's still limited, but there is a big opportunity from that. If I take some example of, actually, not only one, but there are several hospitals who have bought it. They said, "We are thinking about what is our hospital of the future." Many Western countries saying, "Hey, we actually don't have enough staff in hospitals, so we need more delivery robots in them." That is not what I have in a hospital, but if I buy DX now, I have this option to bring it. I make my hospital future-proof.
When you want to have it, then you take that service. We think actually the opportunity over a lifetime can be quite significant. We're starting still, I would say we are very much at the start. As Tomio mentioned, we have tendered a lot of them, we have sold, we're only now installing the first ones because you have to remember, from tender to sales to installation, it's quite a long cycle. Tomio, how do you see the-
Yeah
launch compare to expectations?
No, I think it was a positive surprise. I mentioned that it has been one of the fastest, let's say, product implementations I have seen personally, and it has been very consistent across the markets where we are selling this. That has been very encouraging. Yes, we have seen a positive pricing and margin impact here. Again, as Henrik, you said, we are not just selling elevator here and then later on maintenance and modernization, but actually we are able to upsell constantly the services during the whole life cycle. I think there will be a lot what we are going to see, and we are in the early phase. You know that the order to deliver and installation are pretty long in our industry. It will take some time before we even see some lifetime benefits.
Good. Just as an anecdote, when Tomio talks about speed, he knows what speed is because he's lived for a long time in China and spent a lot of time there. We've done China speed in Europe, and that's something.
Thank you.
Thank you.
Thank you. We'll go next to Paramveer Singh with Bank of America.
Yes, hi. Thanks for the call, and the opportunity to ask the question. The first question I have is around, again, on the DX Class elevators. I understand your position on the product, but if you could talk about the competitive environment around DX Class elevators, are there similar products available with your major competitors? If not so, then how far do you think they are behind in terms of these capabilities? Second question is on the M&A side. What are your plans around M&A, and do you have specific strategy now around this? If not M&A, then what are the alternative uses of cash for you?
Okay. Maybe I'll start with the M&A, and I can then hand over to Tomi and Maciej on the competition question on DX. As you know, we have a very strong balance sheet, and you know that we continue to have strong appetite for acquisitions. I guess the challenge continues to be the availability of targets compared to what we are looking for. Definitely interest in that, and we clearly have the balance sheet power to do it. When we look at the DX, I'll let Tomi or Maciej answer that more, but when we look at compared to competition, of course, we don't know where they are, but as you hear, I think we are pretty good. We don't comment on them, but Maciej and Tomi, any thoughts you want to have?
Well, I can start maybe, Maciej, you continue. I think what I said also in the beginning was that I do believe that we are industry leader in terms of how we've been able to actually scale our new digital solution services, including DX, and have a commercial success already. I think one of the uniqueness of DX is that we are actually creating open ecosystem. we actually building not just a great offering, but also
Ecosystem of partners. That is pretty unique. Of course, I would not underestimate also the importance of the experience, how we are able to create a unique new experience combining digital and physical elements. What do you think, Maciej?
Fully agree. Again, as we said, connectivity is an enabler, right? We're not only coming up with DX for our current offerings, but we're also DXifying our install base as well. Exactly to Tomi's point, it's the ecosystem, but it's also the solutions that come on top. That's basically where customer value comes in, right? If we talk about just empty connectivity with a promise, the value will not hold very much, but if you have a connectivity with partner ecosystem, with solutions on top, and customer co-creation on top of that, we think that this is a sustainable differentiation formula.
Is it a very unique thing right now, which is available only with you guys? You think competition is also offering similar products?
We are not commenting individual competitors, but of course, we do see that there are similar kind of also connectivity provided for elevators. I think that's not the key, the connectivity, but really what type of value you can enable by that. I think here we believe that we have unique advantage.
Maybe to add to this, because we talked earlier that KONE was leading in the industry in terms of integrating physical and digital capability, and we've been working on this for what? Since 2016, right? For a couple of years now. We've gained experience in integrating these capabilities together, integrating a partner ecosystem. These are things that you don't learn overnight. You actually have to experience it. You have to learn on your mistakes, and you have to correct and move on. It's not just DX, it's the whole package that is important.
I have one follow-up question on the pricing environment. It has been quite supportive so far. How long do you think the pricing generally will be supportive, given all the situations around increased competitiveness as you have mentioned, especially looking into 2021, do you think pricing will remain a tailwind for you, or do you think that can be a headwind in 2021?
I would say, first of all, we never comment on pricing going forward because that's going to be individual negotiations we have with our customers. I would say that why have we improved our pricing? I'm not sure the environment has been easy. I would say that it's because we have brought new values to our customers, and we have also definitely improved our sales and pricing capabilities. What we said is that what we expect going forward is that competition in the market is and has intensified, and then we have to see what the outcome is going forward from that.
Okay. Just to follow up on my M&A question I asked, what are the alternative uses of cash if you are not able to find a suitable opportunity?
Well, maybe I'll take it. As you said, we have a strong balance sheet, and if I think about the environment we were, especially in the beginning of this year with COVID-19 crisis, definitely it was something where having a strong balance sheet was advantage. We could take a look at where we want to take KONE forward and also have the balance sheet to support making decisions for the long term, not for the short term. At the end of the day, for us and this business, we don't need much capital to operate the business as such. It's always a decision then also by the board what the right capital structure is for the company. Let's see. At the end of the day, we've been quite proud about our track record in the past for the dividends.
We've been able to consistently grow it quite nicely, and it's something we feel proud about. At the end of the day, it's a decision by the board.
Thank you very much for enlightening set of presentations. It was very, very useful. Thank you.
Thank you.
We'll take our next question from Daniela Costa with Goldman Sachs.
Hi. Good afternoon. Hope you can hear me well. I have one question with a couple of sub-points, relates to the 16% long-term margin target. I know you have had the target for the past few years, I wanted to understand how shall we look at it now? A couple of points. I guess in the past you've been close to 15% at the peak. Shall we see the 16% as this is where the next peak could be, or is it more of a true cycle ambition now because you have DX and KONE Care and 24/7, all these opportunities that you didn't have before, which makes it more likely now? Is it just aspirational? How shall we interpret it? Thank you.
Thanks for the question. I guess I answered already a quite similar question in the beginning. Clearly, we have now good opportunities to grow profitability in terms of the offering we have. If I look at the new services and solutions like 24/7, their margin structure as you get them to volume is much more, I would say, software-like. There's a fairly small incremental cost to add new units as you get it to scale. Clearly, those are ways for us to improve DX. Similarly, as we add more services on top of this platform, also is a different type of revenue opportunity that we've had in the past. We can now sell add-on revenue. Clearly, they are helping us to get towards the margin target. Your question, is that the absolute maximum where we get to?
Let's first get there and then see what the next target is. It's, still, if I think about where we are today, we have plenty of work to be done to get there.
Thank you. We'll take our next question from Rizk Maidi with Jefferies.
Yes. Good afternoon. Hope you hear me well. Thank you very much for the comprehensive presentation. I have three questions. Number 1 is on the digital solutions, so whether that is 24/7 Connected or KONE Care. Thanks for sharing the penetration rates. My question here is maybe can you help us just assess what is this total stream of revenue, so digital revenues today as a % of maintenance sales. Also if you can help us with what is roughly the % of newly signed maintenance contracts that are digital. Then finally here, just the profitability on those contracts. I think last time you commented on those, because of all the investments, you said it was break even. I'll stop here and I'll ask the other questions later.
We have not disclosed the revenues, but what I mentioned is that our maintenance business, the additional revenue, is contributing roughly a percentage point to our sales growth. That tells you something. We're still at the starting point, but we are growing them very nicely at the moment. When you look at how many of our new maintenance contracts, I think the most helpful way at what I've been looking at is that of new elevators we install, that we then after the first service period, convert into our maintenance base. What is the hit rate there? How many of those have 24/7 Connected Services? There we're actually above 20%, in some cases 25%. We can see that the momentum that way coming in is good and of course increasing.
We have the huge base that we want to sell to our customers, this additional value to them. That of course is progressing also every day.
Maybe I'll then add from a profitability perspective, that is part of your question. I actually wanted to come back because I think you were also then highlighting the new KONE Care and 24/7 in a bit the same sentence. I would say that for the new KONE Care, it is the way we sell our maintenance service. That's the basic way to sell in most markets. In that sense, we've been seeing a positive pricing impact coming from that. That's clearly then positively impacting profitability as well, in those markets, in those cases. For 24/7 Connected Service, I said already earlier that the margin structure as we get to scale is much more software-like. Clearly still today, the scale we're in, we are actually more break even, slightly positive maybe.
When we also include the development cost that we put into developing it further and being able to really provide the platform to grow it. In that sense, today it's still more of a neutral impact to our profitability.
Thank you very much. My second question is on China. My understanding is that the restrictions have now spread from buyers to now real estate developers. I think we've had a bit of a shock a couple of weeks ago on one of the biggest real estate developers, being caught in high leverage or at least it's been speculated. Are you worried about the leverage of your customers in China? Do you track it or if you can help us, a formal view there that'll be helpful.
You want to take that?
I guess first my job is to worry. Yes, I always worry, that comes with the job. Obviously we talked about over time quite a lot about our relationship with our customers, the fact that the bigger developers are growing share and how we've been, as part of the whole negotiation with them, obviously payment terms are part of that. We continue to monitor that the customers that we are dealing with, from a financial perspective, are also healthy companies, naturally. When it comes to the more recent changes, I guess it always has been a bit of up and down in China in terms of the liquidity overall in the market. I would say that during the first half of this year, overall liquidity was better.
Although the government was not specifically directing us, almost trying to restrict that to go to developers, in order to have a good balanced growth especially in the residential sector. At the end of the day, it was also positive, as Bill was saying, impacting our customers. More recently, there has been tighter restrictions in place. It is something that I believe that for the long term is actually the right thing to do. We like to have customers that have healthy balance sheets and can continue to grow their business in a good way. Yes, we do follow, as I said, their leverage and the business from the numbers that we see.
Okay, thank you. Finally, just on the market dynamics, whether you've seen any change there. Your biggest U.S. competitor is now a standalone company. Another big competitor in Europe is in the hands of private equity. I am just wondering if you've seen now in the last months, quarters, any change in the market dynamics, please?
As you know, again, we don't comment on individual competitors. I think what we said is that we think that competition, for many reasons, have tightened the market. I think we feel good about our competitiveness, about our position, about the team we have to deal with that, and that's just something you have to deal with. We feel quite comfortable with the position that we have right now and how we are developing forward. Of course, it means that we have to run a little bit faster all the time, but that's what you have to do in a healthy and competitive industry.
Okay, thank you very much.
Thanks.
At this time, there are no additional questions. I'd like to turn it back over to our speakers for any additional or closing remarks.
Thank you. I guess it's time to wrap up. Thank you for the very active participation, and thank you to all the speakers. We would have loved to see you all face-to-face, but hopefully, the day was worthwhile for you also this way. We will send feedback questionnaires afterwards, and hopefully, many of you will take the time and provide feedback to us. Guess next we will report our Q3 report on October 22, and in the meantime, if you have any questions, we're happy to help. Thank you. Have a nice evening.
Thank you, everyone.
Thank you.