Good afternoon and welcome to KONE's first ever virtual Capital Markets Day. I'm Sanna Kalle, the Head of KONE's Investor Relations. Let's first look at the agenda for today. We have altogether 4 presentations and short prerecorded videos from the heads of our different geographic areas. The event will altogether take around 3 hours, a little bit more than that, and we have 1 10 minute break in between.
We have now been executing our winning with strategy winning with customers strategy for 4 years and 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 and 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 Anruth, for the first presentation. Henrik, please.
Thank you, Sanna, and 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 Sande mentioned already, we started executing our win win customer 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. So those are some of the key themes you will hear from my colleagues and from myself today. But let's start with looking at what we have achieved during the past almost 4 years since we started to work on our winning with customer strategy. And then I will talk about how we're building on the strengths that we have for the next phase in our development, very much as we have done consistently over many, 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. And 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. So 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 and of course, developing our offering to add more value to our customers and that way also create additional revenue streams for KONE. But perhaps the biggest mindset change for us was 1 to create a truly outside in mindset. Outside means that we start always from whatever needs our customers have, and that's how we develop everything at Kone.
So those were some of the things that we set out to do almost 4 years ago. What I'll talk about next is how have we developed there. Let's start with a few highlights. So 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. So it's been a lot about creating customer centricity and capabilities around that. Again, we have continued to train actively our people. And when I look at the progress here, I think we made some really nice progress. You will hear much more from our from my colleagues of how we created capabilities or developing together with our customers for their benefit.
So 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.
But that has been really a key to this phase is actually we have brought total new types of services, bring new values to our customers and actually generates revenues that didn't exist in this industry before, and that I'm very pleased about. And also, we learned about new ways of working to have a smarter, more efficient organization. A lot about the Accelerate program, but also how we have further developed our KONE Technologies and Innovation organization. Let me then take glimpse into our new equipment business, our services business, what we have done there. In our new equipment business, we are 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 and that has been the basis of what we have done. In this period, we have again shown the direction in innovation in our industry. One of the signs of that was that we brought DX class elevators to the market in November last year. Again, they bring a new era in elevators. But 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 develop solution selling capabilities, where we sell whole system solutions and outcomes to our customer rather than products only. And 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. Now if we look at the outcomes, as you know that we have gained market share again throughout this period, particularly past 2, 2.5 years, even more so. And we have improved our margins of our orders received.
So we can see that we have provided more value add and improved our pricing. So the outcomes are quite good. In services, I think that's familiar to many people that about 5 years ago, we set out actually a little bit more than 5 years ago, we set out to differentiate even stronger in services because actually we felt that there was in general lack of differentiation. And one of the first things we concluded and we always have had as a basis is that service is 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 for our customers. We've talked a lot about our 20 fourseven connected services and also the Adaptable service offering, our new Connect Care as well as most lately also our DX class solutions to the modernization business. So 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.
And we very much looked at that from 2 perspectives, that how do we have a platform so we can actually add value to our customers. That's really the principal focus. But 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.
And 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, and that shows that we are adding value.
And also modernization, we have improved our margins in our orders received. So I would claim that the outcomes are pretty positive. Let's take a snap peek into our 20 fourseven connected services, how we're developing them. We all know that this is really our flagship service. And we can see that momentum is building very nicely here.
The idea with our 20 fourseven connected services is, of course, to add clear value to our customers. And at the same time, when we do that, we can create additional growth for KONE. And 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. And this is actually quite meaningful in my view.
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 1, 2 percentage points of growth through value added services in the compounding, it is actually meaningful over time. And 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 to be over 10%.
But 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. So this is something that when you only have 1,000 or 2,000 or 3,000 units connected, you will actually not have sufficient data to create really the best outcomes and the service needs. But when you start to have like us a very significant base connected, you actually learn all the time. And that helps us bring the new services to our customers constantly.
Like we recently brought 20 fourseven Planner. That's again a new element, new feature to our service, where we can create long term asset management plans for the next 2, 3 years for our customers to help them plan what do I need to repair, what do I need to upgrade and predictability to this. And this is a huge thing for our customers, and we've seen very positive feedback as a result of that. But those are really highlights for our new equipment business and services business a little bit of a look into 20 fourseven. But what I think is familiar to most people is that the way we measure our success is through our 5 strategic targets.
Here we have our 5 strategic targets and we can see actually a good development in most of them throughout this period. So let me actually dive a little bit deeper into each of them, how we're creating most of our customers, corner being a great place to work, have we grown faster to market, what about best financial development and being leader in sustainability. Those are the 5 ways how we measure our longer term success. So 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 summer of 2020. And again, we had a slight uptick in that and had an all time high now net promoter score. And 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. And that is something that we're 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. So we have some good fundamentals, but as always, good opportunities to improve.
Koren being a great place to work is really, I would say, fundamental 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 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 of innovation. Also said that our diversity inclusion scores, they have improved significantly, while we still have a lot to be done. But we also did earlier in the year an organizational health survey. Also here, we were in the top quartile with strengths, innovation, direction, how we communicate internally where we go and customer competition focus.
So we have a very good basis of our culture and engagement of our employees and this is important. Our third target is to grow faster in the market. And 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 then 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.
So the 1st year, we didn't grow, but then 2018, 2019, we actually accelerated clearly that growth. And with this, we have constantly gained market share, particularly strong market share gains in 2018 2019. This year, of course, we need to see, but I think we are in 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. So yes, we also continue to grow faster than the market.
Our 4th 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 'sixteen, 'seventeen and partly into 2018, where pricing was very much under pressure, raw material prices came up. So 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.
And therefore, we are in an improving path, which we could see in the Q2 of this year that despite the crisis, we actually slightly improved our margins. So it's really coming through, but it's clear that we are working hard to come back to levels before this period. Our 5th 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. So CO2 per sale should reduce 3% per year. In 3 out of 4 years, we have exceeded our targets.
1 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%. So we continue to put more effort in this area.
Then we want to be a 0 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. So again, good development in sustainability.
So those are our 5 strategic targets. And if I just look at then a snapshot on a development this year, when we know the market has been very challenging. What I'm very happy about that in the midst of the crisis this year, actuarial 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. And our cash flow has been very strong, by far the strongest cash flow ever in a 6 months period. So that, of course, gives us a very good fundament to continue developing Kone proactively also in this environment. And let's turn to that next. That how are we building on our next phase and our megatrends and our solid foundation to differentiate it more and continue to drive growth.
I haven't talked so much about the COVID crisis, but 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. 1, which is, of course, the obvious one, which I think most companies are focused on is the safety, health and well-being 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. Because 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 a position to do it. We have a very strong balance sheet. We have motivated engaged employees and a good position overall. So 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.
So 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 a crisis in the spring were up like 3 times compared to the previous year. Still now, we are more than twice compared to normal levels.
So 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 and D. Many of our core programs, we've allocated more resources to them, and we developed our health and well-being solutions. So we really want to make this an opportunity for us.
And if we look at what are the implications of the crisis of many of our customer sectors, we can say that it's still unclear, but there are many trends we're following closely. So if we look briefly, we can say that residential, I believe that it's 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.
So 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. So the question is that what does the 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. So 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 where they need to be upgraded. So 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. And 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.
But 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. But 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. And that has really been a key thing that how can we bring more intelligence, how can we do things more remotely, and how do we actually help building owners have safe flows to bring people back to the office. And here we've done again a lot. Of course, our 20 fourseven connected services and 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 managed this, we brought out new health and well-being solutions. We 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. And we can see that people flow is really at the center of the thinking of many people. So we can see again a lot of opportunities coming out of a situation like this. But 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, because it's the most important challenge of our generation, hugely important and technology enabler to solve many of the problems. So these are the megatrends that we believe will drive continuous opportunities and growth in our industry. So what about urbanization? I've been asked many questions by people that, hey, do you think that KONE and 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. And that is because our 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. But it may not be only the biggest cities that grow.
Actually, it's probably going to be megacity hubs and clusters. And you hear Bill Johnson talk about that a little bit more for China. And therefore, rise of 2nd tier cities around with good connectivity and connections into the big cities. So we know that high density areas brings opportunities, but also challenges, and that is what we want to resolve with our people first solutions. So that's the organization megatrend that we think is going to continue.
But 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. So they're going to play a significant role in sustainability for the future. And why we think this is going to be such an interesting trend is that we see a lot of commitment in this area. The EU Green Deal with emphasis on building renovation.
What is very interesting is that if we look forward to 2,050, that 80% of the buildings that are going to exist in 2,050, we expect that exist already today. And 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 energy neutral carbon neutrality by 2,060. That's going to be a huge growth driver. And we can see that capital actually is drawn towards greener buildings.
That's what tenants are expecting. And 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. So we think that this is a great opportunity for us. And 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 2,030. We are planning to reduce our greenhouse gas emissions by 50% of our own operations, so called Scope 1 and 2, and the rest we will compensate. And of course, there will be a lot about our buildings, a lot about our car fleet and so forth. But also, we are committing to a significant reduction across the value chain. So we are committed to a 40% further reduction in greenhouse gas emission from our products and materials lifecycle energy usage, so called Scope 3, relative to products ordered by 2,030.
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, but also engaging with our suppliers much more in detail. But 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.
But 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. So let's have a look at what they have to say.
Hi. I'm Thomas Inosko, Executive Vice President of Central and North Europe. Central and North Europe is a diverse area consisting of 21 countries, however, dominated by some large mature markets like Germany and the UK. 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 Connor 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 so is the commercial segment. Commercial has been softening and we believe that will continue in the coming months. Governments are looking into currently of supporting the economy and that's where we see that the infrastructure investment will continue in trains and metro stations, etcetera. However, on modernization overall, even though there's a very large potential in modernizing equipment across Central 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 is actually their future brings before making the final decision. How are we capturing these opportunities in this market?
Central North Europe was one of the first where the DX Elevator was launched. The DX has clearly helped us differentiate, being 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.
And 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 that the accelerator can facilitate and accommodate in a very easy way. Also, this situation with the COVID-nineteen has shown us that we need to be very adaptable when it comes to engaging and connecting with customers. And 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 Leautau, and 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, Iberica and also growth oriented regions such as the Gulf countries, Turkey and Israel, but also Serbia and Romania. We are doing business under our own name in approximately 25 countries, and we are represented by authorized distributor in another 40, mostly located in Africa, but 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 space 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 20 fourseven 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.
But 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 5 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-nineteen pandemic that hit South Europe especially hard has earned us very positive feedback.
And this is also translating in terms of customer loyalty. Example, how well we're retaining the maintenance contract. That metric is high, and it's improving year on 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 mid term growth, the service opportunity in South Europe, Middle East and Africa is very large.
And our core platform with a DX and the 20 fourseven 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 20 fourseven 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. And when you think that the service market in Europe is in the range of several 1000000 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-nineteen 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 20 fourseven as well as our health and well-being solutions. Finally, the modernization business line we see is 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 4 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 mono 300. This is a machine roomless elevator for 2 and 3 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 customers' 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. And then 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 customers' 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 Maxi Berglund, 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 2nd youngest population in the world and the rate of technology adoption is the highest. It consists of a diverse group of countries, and we have split them into subregs based on the market majority.
India is the 2nd largest market in the world with an organization rate of only 35%. We then in the Southeast Asian markets with fast developing countries like Vietnam, Indonesia and the Philippines with an organization rate clearly below 50% And somewhat more developed countries like Malaysia and Thailand with an organization 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. However, 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-nineteen pandemic has impacted our area quite severely. Some countries like Vietnam, Thailand, Australia and New Zealand were able to contain the virus fairly well. However, others like Malaysia and Singapore were more impacted but showed 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 reserving 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, showed 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 2nd largest customer segment, office, but 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. But 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 reach, the opportunities related to smart and green innovations. We are headquartered in Singapore, where government initiatives to make the country green and smart and 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 2nd year in a row.
Singapore has one of the highest adoption rate of our 24x7 services across the globe and has also been one of the forerunners in the health and wellbilling 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 Kona'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 of 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. So we have now next a slightly longer review by Bill Johnson of the current situation in China. So please, over to you, Bill.
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 2 factories, 90 branches and more than 500 service stations. We serve more than 30,000 customers, including 9 of the top 10 developers in China. Earlier this year, we were the 1st elevator OEM to ship more than 1,000,000 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 quarter 1, China has experienced a very strong V shaped recovery. The real estate sector recovered quickly since quarter 2 and even stronger into quarter 3.
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-nineteen conditions may have material impact going forward. 2 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-nineteen levels. And 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 sectors' 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 twenty twenty one, 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 Q1, 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. Looking at modernization, it is still a small part of our overall business here.
However, with a total installed base of more than 7,000,000 units, China Modernization is a huge and growing opportunity. As KONE China's installed base of more than 1,000,000 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.
1, win with our customers, improve our added value to them 2, leverage our scale and operational competitiveness, including our dual brand strategy with Giant Kony 3, capture high growth service and modernization segments and 4, 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 KONI 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.
So I hope you also felt that, 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. So that's an area where we will continue to drive significant differentiation to capture growth. And 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.
And 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, 20 fourseven connected services and what we are starting to do now with our DX class elevators. So 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. But with this, we now have good time for some of your questions that now are from online.
So, Sanna, if you join me here.
Thank you, Henrik. If you have more questions, you can keep submitting them. We will have now 50 minutes for questions for Henrik and we can then take more at the end of the event. There seem to be several questions on kind of the customer segments and the mix and how it impacts us. And 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 and then I look at services, both maintenance and modernization, then the residential exposure is higher in new equipment. And that is, of course, because of China. As you could see from all of the pie charts from the various area directors, it was clearly was the highest in China, and that's, of course, a very big part of our new equipment business. But then if I look at between so services overall is less than 50%. But if we look at maintenance compared to modernization, again in maintenance, it's higher than it's in modernization.
So 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 kind of the impact of the customer segment exposures on profitability and whether the shift perhaps towards more residential will impact profitability. And there's a China specific question on this, but more 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 it that's not a big driver.
Good. Then a couple of questions on China and the China outlook. And I guess we just upgraded the market outlook for China. So in that sense, things are looking good at the moment. And then Bill talked about the restrictions getting tighter.
And here's, 1st of all, a question on Nove. Could you please talk a little bit more what these restrictions mean for you? And 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. So 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.
And then there are a lot of restrictions on people buying the apartments. So 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. So it's more that's where it comes rather than a direct impact on Kone.
And linked to this, why are we more cautious on the second half outlook in China versus the being more positive, I guess, for the coming quarters?
Of course, we always have more visibility into the coming quarters. And 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 further 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. But I would say it's 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. Then 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. And I think that, that makes sense. At Kone, the way we have achieved results is being quite focused on something. And we want to at this phase still be very focused on organic growth because there's plenty of it. There are plenty of I mean, we install more new elevators in China than anyone else, so capturing that base.
And then there is a huge base of KONE and Giant KONE elevators out in the market that we can, of course, recapture. So that is our primary focus. Maybe in the coming years, we start to look at acquisitions as well, but not the most relevant point right now.
Yes. Continuing on the same topic, there's a question on how the regulation and the regulator is piloting a new way to regulate the Chinese maintenance market. And 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.
We are on the so those companies that were announced in 2 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. So we're definitely involved in the Shanghai one as well. We were not part of the first announcement, but further on.
So I think we are quite well positioned there as well.
Correct.
Then 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 nonresidential segments?
Nothing major. Maybe in some more harder hit segments in United States, you have a maybe slightly descoping of contracts. But that's not in the end a huge difference that in some cases you have a more comprehensive and everything is included. Then if it's descoped, then more will be discretionary repairs. So there, 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? So can we differentiate?
I think we can. And 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. And 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.
So I think we're making progress. But 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 determinant good steps here. But I think we have a lot still to be done, but I think we are in a good path here.
Good. It 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 than from others. We've always been active and want to win more services, both, of course, converting what we installed, with KONE equipment that is out in the market and also a third party. I don't think that 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. And we have to remember that the top 4 players are only a little bit over 50% of the market. So that has continued. But we believe that by further differentiating, we have an opportunity to continue to grow. And we have a good growth track record.
But we also 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.
Shifting gears towards the sustainability topic and I guess our sustainability pledge as well. How much does an average on an elevator on average consume of the electricity in a building? And related to this, what kind of opportunities do we see in the green deal? Is there an opportunity for us?
Well, first of all, the mountain elevators. Elevators' energy consumption varies a lot. So old elevators that are actively used in a building can be 10% of the energy consumption even sometimes more. A modern elevator in residential building is not used very actively, just a few percent. But that's what we see is that really it's the old elevators also play a role in the elevators also play a role in the Green New Deal in Europe.
Details are not out there yet, but I think that everything that contributes to make these buildings more energy efficient and more sustainable is definitely going to be on the agenda. But it's not only about energy consumption. Of course, it's also about accessibility. It's about materials, healthy materials and so forth. So there are 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's share of the maintenance base as well?
So United States is clearly the vast majority of North America because the others are Canada and Mexico, and they're clearly smaller. So that's more than twothree of our business, actually more than that. And maintenance is roughly 40% of the revenues there and a yes, good and solid business.
And I guess U. S, the bulk of the maintenance base as well in that region.
Absolutely, 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. So we're actually in quite a good position there, and we've made a, I would say, quite a big improvement in the past few years on that in that area.
What about the market share overall? We've been doing well in China, I guess, compared to the market. So who are we taking market share from?
I believe in China, it's particularly smaller and midsized players that have been losing out given the consolidation of the customer base and the bigger players have been better placed to serve them. So I think it's principally small and midsized, but I can't point out exactly from whom. But generally, we have grown faster and the market engaged 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. But also the momentum in maintenance has improved. So while maintenance is clearly not back to normal, we've seen an improvement there.
So 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-nineteen pandemic?
So as I mentioned, one of the core principles that we set early on is that cost is not our principal objective. That is actually health, safety we have not wanted we have not wanted to dismiss anyone because of the crisis. So that has been very strong policy for us. And our objective has been to keep our people employed. Yes, we have then they've taken some of their holidays if they have their untaken holidays.
Or in many countries, we've gone to negative work banks. But that's where it kept KONE's employees paid all the time. And as I mentioned, the first objective has been to train them, which I think has worked very nicely. So that's how we have wanted to make sure that we take our responsibility also in this tough time.
Then there's a Net Promoter Score related question. What is the absolute level? I guess we haven't
disclosed the absolute level. And 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. So we haven't shown the total one, but we are at quite a good level, I would say.
Maybe then 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. But I think what is the really key here is, as I mentioned, with our 20 fourseven connected services is that for that type of 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 we have 2,000 units connected. And many of the small players we see here actually have 100, not so for you to learn and to create value, you need more of the data and insight.
And the more of the insight you have, the more you can create value. So 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, so the small players will be there, they will have a purpose, and we will be competing against them every day. But it 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 2 presenters.
Our Chief Technology Officer, Marcin Krunch, who joined the company roughly a year ago 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, Tomio Picala, who is now heading the new equipment business and bringing these innovations to life there. So, Maciek will first talk about the evolution of Kone's innovation approach and Tomio will then focus on the new equipment business. Maciek, the floor is yours.
Thank you so much, Sanna, and 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. 1 is our mission to improve the flow of urban life as well as the megatrends that Henrik discussed already, so urbanization, sustainability and technology. And 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.
And some of these problems we can actually address ourselves with our capabilities, our technologies. But increasingly, we're actually also reaching out to our partners and partnering with city ecosystems, co creating with customers, co creating with our partners as well. So 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, motor space and elevators or ultra rope were some of these innovations in recent history. And then building on this innovation history, in 2016, we made a bold decision to create KONE Technology and Innovation Organization, to pull 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.
And to put things in context, at that time a couple of years ago, most of the industrial players were pursuing sort of a digital capabilities that were separate from mainstream often led by Chief Digital Officers. So we've taken a different path. We've taken an integrated path. We integrated physical and digital capabilities. As a result of that, 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%. And also we've engaged with roughly 1300 of our customers on co creation activities. So now that we've built this physical and digital foundation, we're moving forward. We're moving forward in accelerating and scaling both our offerings as well as our capabilities. We're building physical and digital native organization.
And 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. But we're 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 a process of rolling out the network of our co creation labs, we call KONEWORKS, 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.
And lastly, we are integrating partner capabilities natively into our roadmaps as well. So 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 7 R and D locations and many more IT operations. And we have actually chosen these locations very carefully using 3 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. And these R and 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 a 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. But the same team also focuses on the work we call it in China for the rest of the world. For example, our escalator development is conducted in our China R and D facility as well.
So we've talked about physical and digital and we've talked about local and global. So now let's talk about areas of focus. In a nutshell, we're focusing on 2 key thrusts here from the innovation perspective. 1st, 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.
And 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 20 fourseven 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.
So the second area of focus has been around creating new revenue opportunities. And the immediate revenue opportunity and Henrik talked about it as well is to build capabilities on top of our platforms. Henrik mentioned 20 Fourseven Planner is a great idea a great example of extending our 20 Fourseven 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 contact free and sort of interaction free capability for residents and visitors in the building to move around the building. And we plan to continue to focus on these types of capabilities building on top of our platforms.
And then last but not least, we are expanding into new opportunities. Two areas of focus. 1, ecosystems. We've been talking about it already as well. Focusing on 2 opportunities.
1 is to integrate offerings from our partners into our solution capabilities and bringing these combined capabilities into our customers, our existing buying centers. And 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. And then 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.
So I've mentioned a lot physical and digital platforms. And as you see here on the slide at the bottom, connected equipment is highlighted. And 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, physical and digital capabilities like for example in our DX class elevators. And the 3rd 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. And 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 well-being solutions. We've actually introduced sort of initial wave of these offerings shortly after pandemic hit us.
And the primary reason we were able to be so fast is because of the platform capabilities that we had. So let's look at this example of health and well-being in a bit more detail. Here is sort of a list of problem statements that our customers would typically come to us before COVID. So examples would be, all right, I have a 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.
And these were the problems that we were working with our customers and we continue to work with our customers to solve those. But then 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? And there are some couple of other problem statements here. How do we make sure that they can move around the building in sort of a contact free way?
How do we make sure that the surfaces people touch are either sort of are microbial free or have been decontaminated? How do we make sure that the people can follow physical distancing rules? And we took this sort of a problem statement and we pulled existing capabilities that we already had at Kona. We've added a few new ones as well. And then we pulled them all together through people flow planning and consulting capabilities and design these experiences with our customers and for our customers.
But 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 Tom will talk about those in a moment. But 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 Kona as well as what capabilities we can integrate with our partners as well. And this is basically what the world will look like and 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 sort of 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 sort of optimize their experiences and experiences of their customers. And these experiences can evolve as building uses change, as businesses of our customers change as well. And in the process, we are establishing much more strategic relationships with our customers. We engage much earlier in the sales cycle.
In addition to sort of evolving our customer relationships, we're also evolving our internal capabilities by giving data, 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 sort of serve our customers better. So 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.
And now let me invite Tomio. You can join me here. So you guys are getting 2 CTOs for the price of 1. So Tomio, you and I have been actually working a lot and I really appreciate your help over the last year, not only because of your current role driving our new equipment business, but also because you actually drove Colony Technology and Innovation Organization for a couple of years. So maybe a quick question before you start your section.
You've been there since the beginning of KTI and 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. And we have seen more people innovating. So it used to be kind of a very limited group of people who had a license to innovate. And 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 and D engineers in the laboratory starting to talk about customer value and customer co creation and really get excited about it. So I think then I noticed that, hey, there's something going on here. There's a change.
Yes. And I think in some ways, it was also great that our people are open to change, right? That they can shift from sort of thinking technology to thinking customer problem.
Absolutely. I have a question to you. So you have been now working more than 1 year in Kone. And it has been a pleasure to work with you. But when you came to KONE, what was the biggest surprise or let's say in terms of innovation culture?
What did you you didn't expect when you came?
Maybe I can give you I'm not sure I can find sort of one, but I can maybe give you a longer with a longer answer. The reason I was so excited about joining Kona because we I was excited about our approach to transforming industry. And 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 kind of colleagues.
And 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 it's actually a big kudos to you and to the KTI team is that when I came here, I thought I will be building, creating a lot of new capabilities. And instead, you've actually built this foundation that we talked about earlier, right? And then so now my job is much more into evolution and scaling than building. And it's actually a great place to be.
And a personal note, I have to say I've had fun, lots of fun over the last year.
So Thank you, Patrick.
Thank you, Tom.
I think it's this one, right? Yes.
I think so, yes.
Very good.
Well,
Majic had an exciting presentation and he talked about how we have been able to increase the new services and solutions in digital space. And this change has been very rapid and it has become really our core part of our offering. And I would claim that we are leading in terms of how we are able to scale new digital solutions and services and also how we have been able to create the commercial success. So, 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 DX Class Elevators, which Henrik already mentioned earlier.
And in the second part of my presentation, I would like to talk about the foundation of our competitiveness. We doubt we will not be global leader. It was November 29, 2019 to be exact. That was the day we started a new chapter in KONE. KONE launched the DX Class Elevators in Europe.
So what is this new chapter? Well, elevator is no longer just elevator, but it is becoming platform. And 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 DX Class elevators.
So what is DX really? DX has 3 value propositions. Number 1, it has built in connectivity. It means that there are unlimited possibilities to upgrade people for experience during the lifecycle of the building. And this is done by using application programming interfaces, an entire partnership ecosystem we are building around DX.
Number 2, we are completely reimaging and redefining the user experience by using digital elements and physical elements, combining them together and creating multi sensorial user experience. This design has so far received 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. So we saw a big spike of users starting to use our car designers, our planner tools and 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, DX plus elevators act as a digital platform for various services and we can connect these services by using application programming interfaces.
We have 4 type of APIs we are offering for the external users: elevator call, service robot, equipment status and service info. Then we have 3 service categories we are offering to our customers. 1st of all, KONE's own solutions like 20 fourseven Connected Services or KONE Residential Flow or we have so called 3rd party services, so partner solutions, whether they are global or local partners in different part of the world. Then we have a 3rd category, so called customers' own applications. So these are the customers' own digital solutions we are able to adapt by using API interfaces in the small 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. So here I have a few examples. We are working in the access control area with a company called EyeLock.
With EyeLock'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, we are, for example, in office, hotels, we see more and more customers actually applying delivery robots to do different kind of things like room service. And here we are partnering with companies like Savioke and Robotize. 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.
So, this leading global leading application for the blind and visually impaired people are 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.
And here, DX will come to the picture. We can offer that adaptability. In residential segments, the customers are appreciating safety and reliability. And here we are offering solutions like 20 fourseven connected services or antibacterial wall panels to improve the hygiene of the car. So we have very different needs in different segments.
And the beauty of DX Class Elevator is that you can truly must customize the elevators to the different individual needs. And 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 Konecourier. We have already reached 80% tendering activity in EMEA area.
There are many countries which are already 100 percent tendering and ordering DX class elevators replacing existing elevators. We have also seen positive impact on margins. In addition, we are also now upselling and additionally selling new services on top of the elevators. So 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 plus 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 nuclear business. KONE is a reliable and trustworthy partner. We deliver customer promise. And it is all about execution capability and efficient delivery chain. In other words, supply chain and installation.
So 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 industry incident failure rate in supply line by 24% in the past years. In fact, there are many factories which have been operating in 0 level for many, many years. And 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. And this is thanks to the more robust R and D process, investment in supply quality management and also consistent competence development in the area of lean and 6 Sigma particularly. Then about CO2 footprint. Here we have been consistently improving our CO2 emission per sales in the past few years, 31% in this period.
However, we are going to set much higher bar in this respect. Henrik already talked 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. So 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, but 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 7 days for the most important customers. Efficient installation is hugely important part for competitiveness.
In fact, in China, we are the clear leader in terms of installation efficiency. But we do have also challenges. There is increasing challenge in labor availability, subcontractors, there's a shortage here. And this is why we have been investing many years in installation friendly products. Ken already talked 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 500DX, we have been able to reduce the installation hours by 14%. But 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.
And of course, we will continue to drive installation productivity going forward. Then about COVID-nineteen. COVID-nineteen 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'm 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. But to be honest, there were many close calls. We have to move production volumes suddenly to the different factories, to the different suppliers. But I have to say that our people did excellent work.
There was a lot of heroic actions by Conet people, by suppliers and we were able to manage the situation. However, we learned 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-nineteen was also causing big disruptions to the logistics. This was caused by different lockdowns, different restrictions.
And we had a situation where we have to explore new logistic routes or new distribution centers in extreme time pressure. So 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. So it is time to summarize my presentation.
Number 1, 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-nineteen 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, Marcek. 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 7 days?
How much of a differentiating factor it is?
Yes. I mean typically, obviously, there is plenty of time, typically months of delivery times in normal cases. But there are situations 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.
And 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.
Then there's a question on differentiation and I guess you could both take it from a bit different angles, but maybe Tomio you first. There's a question that Odysse is also shipping its new elevators with connected capabilities. How does Kone differentiate itself from key competitors, I suppose? And yes, how can you keep your product differentiation lead when your new innovations are visible to competitors through the maintenance?
Okay. I will start, Maciek. This is our favorite topic. Well, first of all, obviously, connectivity is important, but that's not itself yet to create a value for our customers. So 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.
And I think this is where we are trying to really put our efforts and make it scalable. And 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. And this is going to be the thing we need to continue to improve. And more we have data like Henrik mentioned, more we have opportunities to also innovate different new services.
Yes, you're right. I mean connectivity is just an enabler, right? And we do expect everybody to do this. But the key here is there are a couple of other sort of big trends that I think we need to be paying attention to. 1 is our customers want to co create with us.
They want to co create solutions with us not just buy stuff from us, right? And 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. So not a bunch of one offs.
Second one is speed of innovation, right? And speed of responding to market changes and customer needs. And again, we sort of architected as we talked about not just the connectivity, but the overall platform. And thirdly, it's partner ecosystem and integration as well. It takes literally a village to build solutions these days.
And you've seen the example of integration with our partners. And again, we've built a system and capability and we can do it at scale as well. So it's about customer intimacy, it's about partner ecosystem and it's 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?
So I've worked with startups for 30 years, dozens of them. And of course, there are different ways that startups can get funding. But what I think startups really look for is for opportunities to partner and to go to market together, right? They're looking for ways for companies like us to create revenue opportunities for them. And that's basically what we're prioritizing is we don't have to put money in a startup to work with a start up and to develop a joint solution and take the joint solution to market.
And 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 and we will be announcing also some new partnership in the future.
Stay tuned.
Please stay tuned.
I guess we sound very excited about this physical and digital. Exactly. So 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
in
the past years?
Yes, I can start. And we talk about technology combining technology from a physical and digital perspective, But this is just a starting point. What we are working on is basically blending the best of both worlds. So our understanding of the markets of technology, of customer problems and so forth, but then also integrating sort of digital ways of working. You look at internal startups, you look at sort of culture changes in terms of fast fail, in terms of accelerated sort of funnels of innovation.
So what is exciting for us is not only the outcomes, but also how we get there and combining the best of the both worlds. And I think we've being pretty successful with
it. Do you think new technological developments would 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. So in general competition is good. And I would expect that there will be some technologies that would that our small competitors will be exploiting as well. And I think we need to stay vigilant, but 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 sort of integration of best of both worlds physical and digital, which results in nimbleness and speed. And that's sort of our secret sauce.
I mean, I think Henrik already mentioned already, but I mean, 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 and that will continue to be the case in future.
Then 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?
Yes, I think it's a great question. And the way we've been architecting our API strategy is to be basically BMS agnostic, right? So 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. So and 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. So in IPI strategy we talk about quite a lot That is very much enabling that in many ways also for building management companies.
Tomio, then for you. When you say that DX Class is going to replace all new product rollouts going forward, does it mean that for all new products that Kone sells, it will be DX enabled? And will it make you less price competitive versus your peers? And then there was a different question also that can we DX ify old elevators?
Yes. That's an important question. So, I highlighted also in my presentation that the DX platform will be a very competitive platform, also competitive in affordable housing, but also in high end segments. So it is a digital platform and we'll continue to have conserve the different type of customers starting from low end residential where there may be there's more competitiveness. So there's no question about that.
Yes, but we are replacing all our volume for elevator offering and we believe that having that scale that will also make the difference.
And we can do it also in modern applications, 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, de exify existing Kona elevators in the service space.
Then 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?
Well, I mean, we have 500,000 customers and they have very different type of needs. So there's no one thing obviously. So obviously, right now, of course, COVID-nineteen is creating a lot of questions where we can also help. I think maybe Madjer you can explain some of the things we are doing to help there.
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. And we started from here, right? But at the same time and again, if I look at this is we have different segments of customers with different needs. And 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.
Then there was a question on disruption and what kind of risks we see. So would you highlight anything? What are the things we are watching out for?
Yes. 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, and which is why we are pursuing sort of a partnering strategy. The need to be nimble and need to be fast in responding to markets is really, really critical. So we cannot take years to decide what we do.
It takes weeks months to respond and to anticipate the needs of the market. And thirdly is flexibility. It's flexibility from the technology perspective also from the business model perspective. So we're ready.
I think technology disruption as a such as a megatrend or trend is very positive trend for us. Of course, you need to really capture that. And I think we have been doing that with our new digital solution services. We'll continue to do so.
Maybe from a 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. So moving up from connectivity and sort of capturing the data into analyzing the data.
Yes. Then there's a couple of questions on the absolute levels of the numbers that you showed there, but unfortunately, those are not numbers that we are disclosing. One more question. Let's see, there's a lot of these and we can take more questions after Jukka's presentation. What is the pricing impact of DX Class Elevators?
Why is it positive for the margins in practice? What is it that makes customers want to pay more for it?
Yes. So I already mentioned in my presentation that we have had a positive margin impact. And in terms of pricing, it has been progressing well. And obviously, customer really appreciate the value of future proofness, for example. And that is a big value and they are willing to pay for that.
But then I think the second element of also pricing is that we are selling these additional services and solutions. So that's I think where obviously that's why I say that there's actually unlimited possibilities. The more we actually capture some of the and understand the customer problems, we can actually even more than sell on top of the elevator.
I've been involved in a lot of customer meetings lately. And so the recurring theme is exactly what, Tommy, you mentioned, which is now that we get our equipment connected, what can we do, right? And this sort of a visioning I think is a very powerful engagement model as well where customers facing huge challenges every day in terms of profitability and business models and so forth. And 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 and it will be by our CFO, Ilkka Hara. So 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, and 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. And at the end of this session my session, you have a chance to do Q and A with all of today's presenters, so stay tuned for that as well. But I'll start. 1st, just a reminder, I think this is something which is familiar to most of you, and Henrik already talked about our strategic targets and how we progress towards them.
But from a financial perspective, we have 3 targets. 1st, growth. We want to grow faster than the market. 2nd, 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. And then 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. So I'll talk all of these three topics. And at the end, I will conclude with our outlook for 2020 as a topic.
So let's start with growth. How are we able to grow faster than the market? But 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.
And during this strategic period since 2016, our average annual sales growth has been 6.2%, so clearly higher than largest peers for our industry. While the growth has been good, it's also been broad based. So if I look at the business lines and how they contributed, our services has average growth at the comparable currencies of 6.5% and our new equipment business has grown during this period 6%. Also, we've seen all of our areas contributing to this with highest growth in the period from Americas, 8.7 percent EMEA growing 6.5% and Asia Pacific, 4.8%. And there Henrik already talked about the impact from China in the early part of the strategy period.
But overall, we have been growing quite well in this period. If I then look a bit in what's happening in the coming years, and I'll start first with our market outlook. So 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 the new equipment business in the coming years, we have a stable or low single digit market growth in the coming years.
And we, as Kone, we aim to grow faster than the market in this segment. Then 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 installed base driving growth in the maintenance business.
We have aging installed base that is fundamentally a growth driver for the modernization business. We don't modernize enough. And then 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. But then 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. And what is enabling us to do it? 1st, 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 customers.
And clearly, that's something that we've seen our customers value. But it's not only about the future, it's also the basics. As witnessed by the last 6 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, but we also want to innovate with our customers, co create and understand their needs.
And we believe that this is providing us with good basis to have the faster than market growth in both units and in value going forward in the new equipment business. Then 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 in the 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. So 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 promoters net promoter scores and the comments that we get. And we are seeing that we are adding value for our customers through the 20 fourseven connected services and other similar services where we get a higher revenue per unit going forward. There is clearly a potential for accelerating growth in the maintenance business going forward.
And then lastly about the modernization business. The aging installed base that is aging in the Western world is also starting to be a more and more 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. And we talked today about the smart and green buildings, how they are driver for modernization business. It is clearly something where we see even the younger installed base getting modernized more in the coming years.
So clearly, we see that there is a potential also for accelerating growth in our monetization business going forward. Then 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've 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.
But 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 and D and IT where we see good opportunities for creating value and that's been a slightly negative impact to our profitability. We increased the investments by 50 basis points as a percentage of sales. But 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.
I'll talk a bit more about those as well as the combination of the raw material headwinds that we've seen in the past few years. On the positive side, Accelerate program has contributed positively to our fixed cost leverage, and we believe that it will also continue to develop positively and contribute also in this year and the following year positively to our profits. But more about the margins of orders development. I promise to talk about that. So 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 is a combination of raw materials and therefore also the component cost coming down, our margins were quite stable. Then 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. And therefore, our margins start to come down in the second half of twenty sixteen. We worked quite hard to develop our pricing capability and therefore we start to see stabilization of our orders margins in 20 17.
And with actions that we've taken, we actually start to see our orders margins improving in Q2 2019 and we've seen positive developments since. And 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. Then looking forward, how can we continue to see positive development in our earnings as well as improving our profitability? So clearly, the 2 levers we are focused on are increasing the value per unit as you heard in all of the presentations today.
We believe that we can 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. So working on making sure that we take the opportunities as talked about by Tomio 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, but 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? So first, we have a strong order book and the recently improved margins in 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. And then 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 burning our results compared to this year. Lastly, on capital efficiency. So 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. And 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. And 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. And 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. And 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. And then 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 minus 1% to 2% at the comparable exchange rates compared to 2019. So that is clear better than what we had in the past. And also our adjusted EBIT is in the range of 12.1 to 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 €50,000,000 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-nineteen has a negative impact to our results. We are seeing a headwind from subcontracting costs that are increasing. And we are investing to our capabilities despite this environment to sell and deliver diesel services and solutions.
And also currencies have a negative €50,000,000 impact to our EBIT from conversion translation rates. So overall, this is the upgraded business outlook that we shared last week. But with that, I'll conclude my presentation. And there will be now time for Q and A. But before we get to the Q and 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 and A session. Guess we got so many questions through the online forum. 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 kind of how do we think about it overall and how to get there?
Thanks, Sanne. If you first start with what I said actually in the beginning, so we clearly have an ambition in terms of profitability as we want to get to 16% margin target. But it is also a combination of absolute as well as relative performance. So we don't want to sacrifice growing our absolute profits as well getting there. And clearly, if you look at the last few years, as I shared, it's been more challenging when it comes to our margin development.
But clearly, the fact that we start to see now improvement end of last year in our margins and we had a positive margin outlook for this year is positive. But there is many things where we see opportunities to continue to see that development going forward to be positive. So if you think about, we 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. And the fact that we have seen actually over time quite good growth is also positive contributor to having a good fixed cost leverage.
So all of those are contributing to getting towards our target. But 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. So 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 20 fourseven connected services from different angles. I guess one of the angles was that can we connect competitors' equipment? And is that kind of our strategy to increase market share?
So 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're 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. So 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.
Yes. Then a question on, I guess, both DX and 20 fourseven, but maybe Henrik you will like to take this. Is there 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 I would still turn it back that 20 fourseven 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 customers' 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.
So I think it's only good for business. And particularly everything you do to customers that improves their businesses is good for your business.
And I guess we can fix problems faster.
We can fix problems faster, absolutely.
Good. Then 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?
So there are many of them. And if you think about outcomes, you can think about those in 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 smooth seamlessly. Then 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.
And 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. And or 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 in that on that construction site than you could previously with previous types of solutions. So 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? We'll take our first question from Klas Bergland with Citi.
So my first question is on the maintenance business and focusing on Europe. So there is now there is absolutely no very strong when it comes to the hardware and how you can optimize people flow. But 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 advantage in that they understand not only your equipment but also better the equipment from 3rd parties from a tech perspective? And obviously, you say you can connect to 3rd parties, but
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 midsized and small competitors. And I think we will continue to have that in the future as well. When we look at connecting and using are we online? So when we think about connecting and using data, here, as I mentioned that we are connecting 3rd party equipment. So 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 100 or 1000 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. So 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 1,000,000 plus or much more units in their service than we're talking about smaller players who have some 1,000. It's quite a different game to scale it from one level to the other. And we all have a very large service base that we can connect. So all of us have a big captive service base that we can connect.
So yes, there's going to be competition. There's going to be small companies, there's going to be start ups. I think that's absolutely a sign of and a competitive industry. And that's something we're okay with.
Okay. Very good. Can you hear me again? We can
hear you now again, yes.
Yes. Okay. So my second one is on DEx. How protected is DEx when you look at independents getting access? So sorry to labor the point.
I totally get your answer. But on early 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 port energy.
Much again, Tom, how difficult is it for someone to connect into our DX class elevator?
Well, I would 1st, I will start I said in my presentation that actually we believe in open ecosystem. We're building open ecosystem with APIs. So 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. So it's a bit different philosophy actually.
Let me add to this because I think this is really key, right? We believe in speed of execution, speed of innovation. So the world of sort of putting artificial barriers is over, right? Us being close to our customers, working with our customers, responding to their customers, evolving our technology very rapidly is sort of the winning formula. So and that's how we're sort of architecting our systems as well.
I would still build on that. That is definitely our philosophy and an important point. Though I would say that with our latest generation of control systems, we get much more data out of it than anyone else can get. But that's not really the point. The point is to constantly move, as you could hear from Maciek and Tomio.
Got it. My very final one is on Office and Commercial. And I created a simple spreadsheet with all the comments when I looked at the regional comments looking through the slides. And obviously, the negative trends into 2021 across office and commercial and intra seems stable. And then you say residential could see accelerating growth, obviously, with the caveat of China into the second half.
And when I do that, I sort of 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?
Well, 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 Q1 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. So I think let's see. I don't know, Ilkka, if you have anything to add. I think we are
starting from a segment view. Clearly, in front residential are maybe the more stronger segments, while then commercial clearly is maybe and travel and leisure more impacted. But 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. But that's maybe the message that in coming quarters more stable in that sense.
Yes, of course. Thank you.
Thank you.
We'll take our next question from Anikukhnin with Credit Suisse.
Hello. Thanks very much for taking my questions. I'll start with one that relates to the outlook and move on to margins. Okay, if I may ask kind of directionally the stack of positives versus negative 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. And as you know, we will guide then 2021 more towards when we result release our results in January. So 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.
And may I ask on the increased competitiveness, that featuring as a headwind for 2021. When we discussed it in Q2 results, it sounded like you saw signs of increased competitiveness but not pricing deterioration. The fact that you're putting it into headwinds for 2021, does that mean you've seen this kind of moving on and progressing further and turning from science 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. When you have 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 we don't 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. But clearly, as we said, that situation has got more intense.
Very clear. And 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.
But compared to the previous generation, is there a way to put a number of I don't know, even kind of a midhighdoubledigit sort of ranges on what you're achieving with DX versus like for like previous generation? And how has DX launch developed in the last 10 months compared to your original expectations in October, November last year?
Let me start, and I'll hand over to Tomio first. First, just remember that we are early days. I would say and Tomio 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, 1st of all, slightly better for that. So we're getting a slight price premium for that.
And 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 20 fourseven, we expect, will be quite high for DX because you can just turn it on. So that's, of course, will help.
But all the other services, there are some that are picking them up already now. But the point is that when your needs change in the future and there are additional services, Tomio 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. So 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 there are actually not only one, but there are several hospitals who have bought it. They said, because we are thinking about what is our hospital of the future.
And many Western countries are 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. So I make my hospital future proof. When you want to have it, then you take that service.
And 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, but we're only now installing the first ones because you have to remember from tender to sales to installation, there's quite a long cycle. So but Tom, how do you see the launch compared 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. So that has been very encouraging. Yes, we have seen a positive pricing and margin impact here. And again, as Henrik you said, we are not just selling elevator here and then later maintenance and modernization, but actually we are able to upsell constantly the services during the whole lifecycle.
So I think there will be a lot what we are going to see and we are in the early phase and you know that the deliver to order to deliver and installation are pretty long in our industry. So it will take some time before we even see some lifetime benefits.
And 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. So this has been we've done China speed in Europe and that's something.
Thank you. We'll go next to Mady Singh with Bank of America.
Yes, hi. Thanks for the
call and the opportunity to ask the question. The The first question I have is around again on the DX elevators. So I understand your position on the product, but if you could talk about the competitive environment around DX 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? And second question is on the M and A side.
What are your plans around M and A? And do you have specific strategy now around this? Or if not M and A, then what are the alternative uses of cash for you?
Okay. Maybe I'll start with the M and A, and I can then hand over to Tomi and Maciek 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. So definitely interest in that and we clearly have the balance sheet power to do it.
When we look at the DX, I'll let Tomio and Macek answer that more. But when we look at compared to competition, of course, we don't know where they are. But as you know, I think we are pretty good. And I don't think we don't comment on them. But Marcio and Tom, any thoughts you want to have?
I can start, maybe Basak you continue. But 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. And I think one of the uniqueness of DX is that we are actually creating open ecosystem and we're actually building not just a great offering, but also ecosystem of partners. That is I think is pretty unique. And of course then I would not underestimate also the importance of the experience, how we are able to create the unique new experience combining digital and physical elements.
What do you think, Patrick?
Fully agree. And again, as we said, connectivity is an enabler, right? And we not only sort of coming up with DX for our current offerings, but we also DX ifying our installed base as well. But then exactly to Tomio's point, it's the ecosystem, but it's also the solutions that come on top. And 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
you guys? Or you think competition is also offering similar products?
Aghe, we're not commenting individual competitors. But of course, we do see that there are similar kind of also connectivity provided for elevators. But I think that's not the key, the connectivity, but really the what type of value can enable by that. And I think here we believe that we have unique advantage.
Maybe to add to this because we talked earlier that Kona 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, so for a couple of years now. And 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. So it's not just DX. It's the whole package that is important.
Thank you. 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 negotiation we have with our customers. So I would say that why have we improved our pricing? I'm not sure there's been 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. And just to follow-up on my M and 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. So 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-nineteen crisis, definitely it was something where having a strong balance sheet was advantage. We could get take a look at where we want to take Konec forward and also have the balance sheet to support making decisions for the long term, not for the short term. Then at the end of the day for us and this business, we don't need much capital to operate the business as such.
So it's always a decision then also by the Board what the right capital structure is for the company. So 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 Acosta with Goldman Sachs.
Hi, good afternoon. Hope you can hear me well. I have one question with a couple of sub points, but relates to the 16% long term margin target. I know you have had the target for the past few years and wanted to understand how shall we look at it now. So a couple of points.
I guess, in the past, you've been close to 15% at the peak. Shall we see the 16% has this is like where the next peak could be? Or is it more of a true cycle ambition now because you have DX and ChronicCare and 20 fourseven and all these opportunities that you didn't have before, which makes it more likely now? Or is it just aspirational? How shall we interpret it?
Thanks for the question. And I guess I answered already a quite similar question in the beginning. But clearly, we have now good opportunities to grow profit ability in terms of the offering we have. And if I look at the new services and solutions like 20 fourseven, they are clearly their margin structure as you get them to volume is much more, I would say, software like. So there's a fairly small incremental cost to add new units as you get it to scale.
So 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. So clearly, they are helping us to get towards the margin target. But your question is that the absolute maximum where we get to let's first get there then see what the next target is.
So 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 Riz Maidai with Jefferies.
Yes. Good afternoon. Hope you hear me well. Thank you very much for the comprehensive presentation. I have three questions.
So number 1 is on the digital solutions. So whether that is 20 fourseven Connected or Chronicare. Thanks for sharing the penetration rates. My question here is maybe can you help us just assess what is this total stream of revenues, so digital revenues today as a percentage of maintenance sales? And also, if you can help us with what is roughly the percentage of newly signed maintenance contracts that are digital.
And 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 breakeven. I'll start here and I'll ask the other questions later.
Okay. So we have not disclosed the revenues. But what I mentioned is that our maintenance business, the additional revenue is contributing roughly 1 percentage point of our sales through sales growth. So that tells you something. So 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, what I've been looking at is that of new elevators that 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 20 fourseven connected services? And there, we're actually above 20%, in some cases, 25%. So that is we can see that the momentum that way coming in is good and, of course, increasing. But then we have the huge base that we want to sell to our customers this additional value to them.
And that, of course, is progressing also every day.
Maybe I'll then add from a profitability perspective, that is part of your question. So I actually wanted to come back because I think you were also then highlighting the new KonecCare and 20 fourseven in a bit the same sentence. So I would say that for the new KonecCare, it is the way we sell our maintenance service. That's the basic way to sell in most markets. And in that sense, we've been seeing a positive pricing impact coming from that and that's clearly then positively impacting profitability as well in those markets and those cases.
Then for 20 fourseven Connected Service, I said already earlier that the margin structure as we get to scale is much more software like. But clearly, still today, the scale we're in, we are actually more breakeven, slightly positive maybe. But when we also include the development cost that we put into the developing it further and being able to really provide the platform to grow it. So in that sense, today, it's still more of a neutral impact to our profitability.
Okay. Thank you very much. My second question is on China. And the my understanding is that the restrictions now have now spread from buyers to now real estate developers. I think we've had a bit of a shock couple of weeks ago on one of the biggest real estate developers sort of being caught in some of high leverage and all of this
has been
speculated. Are you worried about the leverage of your customers in China? Do you track it? Or if you can help us a form of view there, that would be helpful.
You want to take that?
Well, I guess, first, my job is to worry. So yes, I always worry. That comes with the job. But obviously, we talked about over time quite a lot about our relationship with our customers, the fact that they are 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. And we continue to monitor that the customers that we are dealing with from a financial perspective are also healthy companies naturally.
But then when it comes to the more recent changes, so I guess it's always has been a bit of up and down in China in terms of the liquidity overall in the market. Now I would say that during the first half of this year, overall liquidity was better And although the government was not specifically directing, it was almost trying to restrict that to go to developers in order to have a good balanced growth in especially in the residential sector. So at the end of the day, I mean, it was also positive, as Bill was saying, impacting our customers. Now more recently, there's been tighter restrictions in place and it is something that I believe that for the long term is actually the right thing to do. We like to have customers that are have a healthy balance sheet and can continue to grow their business in a good way.
And yes, we do follow, as I said, their leverage and the business from the numbers that we see.
Okay. And then finally just on the market dynamics, whether you've seen any change there. Your biggest U. S. Competitor is now a stand alone company.
Another big competitor in Europe is in the hands of private equity. I'm just wondering if you've seen now in the last sort of months, quarters, any change in the market type of FX, 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, but 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.
I guess, next, we will report our Q3 report on October 22nd. 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.