Welcome to KONE's Q1 2020 results call. My name is Sanna Kaje and I'm the Head of KONE's Investor Relations. We are doing today's call a bit differently this time due to our COVID-19 related safety policies. It's an audio cast where our President and CEO, Henrik Ehrnrooth, and CFO, Ilkka Hara, will be participating in the call from separate locations. Apologies beforehand if the quality of the call is not perfect today. I'll now hand over to Henrik to start with the highlights of the quarter.
Thank you, Sanna. Also a warm welcome to our first quarter 2020 results call. It's been clearly a very eventful quarter to say the least. When we had our full year results call back in January, we could of course, already see the first impacts of COVID-19, but it was also very clear that at that point, I don't think anyone could have imagined the scale, impact, and breadth of this pandemic and crisis that we are going through. What I'm very happy to share with you all today is that KONE has weathered the storm rather well, and I'm actually quite proud of our results in the first quarter of 2020. Let me, as usual, start with some highlights, look at the financial highlights, then I'll talk a little bit more about what COVID-19 means for KONE, how we are working in this situation.
I'll talk a little bit also about topics from last year. As you know that in connection with first quarter results, we talk more in detail about our development of our market share last year, as well as development of our sustainability. I'll deep dive a little bit deeper into those. I'll talk about the external market environment, how we see that. I'll hand over to Ilkka for financial review, and then wrap up with the outlook. If I start with the highlights for the first quarter. Our sales and orders received were very resilient in a very exceptional environment. It's also clear that our profitability was burdened mainly by COVID-19 related items. On the other hand, our supply chain was very robust and remained very reliable and strong despite restrictions and everything we've seen in the market.
Also on a very positive note, we launched our DX Class elevators late last year in Europe, and we have now rolled them out in most European countries, and I'm very happy to share with you that the progress has been strong. A very positive response from our customers, given the flexibility it gives them over the lifetime, given the opportunities that the built-in connectivity gives them, as well as the new functional materials, including antimicrobial materials, as well as the new design tools and project management tools that it comes with. Very strong start, and we can see that we can charge a premium for this class and this family of elevators. A great start here, which I'm very happy about. Let's go first into our key figures of Q1. As I mentioned, orders received and sales very resilient.
Orders at EUR 2.1 billion, growth of 0.3% in comparable currencies, a great achievement in this environment. Very solid order book at EUR 8.4 billion, slight growth from last year. Our sales in reported currencies more or less exactly at last year's level, and basically flat year-over-year. Operating income at EUR 197 million compared to EUR 250 million in a year before, or the adjusted EBIT EUR 205.6 million, down 10% year-over-year, a margin decline one percentage point. What was also very strong in the first quarter was our cash flow at EUR 347 million. We all know that cash flow is critical in an environment like this and maintaining a very healthy balance sheet, and that's something we have. Our earnings per share down 9.4% to EUR 0.29 per share. At this point, I'd like to again extend a huge thanks to KONE's people.
Overall, my view is that this was a strong achievement in a very exceptional circumstance. I must say that I could not be more proud of the KONE team, of their performance, of the lengths they've gone to resolve some of the most complex problems through phenomenal collaboration, both internally, with customers and with partners. Our service technicians have ensured that societies can keep function in a safe way. That has been fantastic. Our installation technicians work in a safe way on sites. Supply chain has remained resilient, fantastic achievements there, and our office-based people have very quickly learned how to work in a new environment. A special call-out goes to our sales people, how quickly they've been able to go into that new mode of working and kept up a very high activity level with our customers.
Overall, I think there's been phenomenal performance by our team, and as I said, I could not be more proud of them. Let's start with how is COVID-19 impacting KONE. Our new equipment and modernization business. We've seen that it's been impacted by the fact that a number of construction sites and buildings have been closed as a result of lockdowns. That is clearly impacting our ability to deliver to our customers. Our supply chain has remained robust throughout this crisis with minimal disruptions to customers. This has been, again, a lot of phenomenal performances to enable that. We do expect that the demand for our solutions will be impacted by the uncertainty that we're going through. Our maintenance business, as all of you know, is by nature much more resilient through a cycle.
In most parts of the world where we operate, elevator and escalator maintenance has been deemed an essential service and therefore it's been allowed with small limitations. Actually, I think in all countries we can do at least call out, but in most countries we can continue even with preventive maintenance activities despite the situation. However, there are some customer sites that are closed, and in some places, restrictions are more severe and therefore some discretionary parts of maintenance are being impacted, like repairs. If you look at our exposure to the various customer segments, we can see that by far the largest customer segment for us are residential customers, and there the market is quite resilient and robust. It's clear people have to stay at home, that market remains active. Also, infrastructure and medical have clearly been robust and very active.
Where we've seen the biggest impacts, it clearly goes without saying, hotels, leisure, and retail, it's only somewhere over 10%, less than 15% of our total exposure. Office is a bit over 15% and there, of course, there's been a mixed impact. We can see that the majority of our business are in segments where impacts are smaller. Our supply chain, I mentioned that a couple of times, all of our supply operations, our facilities and the suppliers to them are fully operational except for a facility in India, where all of India is in a full lockdown at least until May 3rd. There's of course no demand either from construction sites, therefore there's no that way impact on customers.
In all other parts of the world, we are up and running, of course, not at full capacity, but also our suppliers and partners are fully up and running. Overall, good situation here. When we could see the magnitude of this crisis, and this was in the third week of March, we quickly formed five task forces how we will ensure that our employees can continue to work safely and their health and wellbeing, how we can support customers, and also how we find opportunities to become even stronger. Here are the five task forces that we established. Clearly the leading one, safe work and business continuity. Here, fantastic work how that team has been able to keep our operations going and our people working safely. We also have a task force for the wellbeing, engagement, and care of our people.
It is important that we have very clear policies, how we keep our people motivated, what are the policies, how we help them work in an efficient way, whatever they do in this environment, and all our policies, how we do if we need to ramp down our activities. Cost containment and financial risk management. It's clear that when business activity is lower, we also need to contain our costs, and very much in an environment like this, we need to manage our financial risks. A very important task force where we have done a lot of work is customer activity and sales. As I mentioned in the beginning, I've been very impressed how quickly our sales force has moved to virtual and online selling from very often physical meetings. Currently our customer activity, we just measure it by number of customer meetings, is clearly above pre-crisis levels.
The time our salespeople are saving from not traveling, going to customers, they are using to be more in contact with our customers. This has been fantastic to drive our commercial activity even in this situation. We want to constantly find new opportunities. We know that every crisis also brings new opportunities and new needs. In fact, if I look at KONE's now about 110-year history, many of our biggest breakthroughs have been during difficult times. We are very actively looking at what are the mid and long-term opportunities out of this. What we have decided is that we will continue fully investing in our R&D projects, in our development projects, and so forth. We also made some pledges and commitments to our customers to help them through this crisis.
Already several weeks ago, we announced to our customers who have medical facilities, either hospitals, care homes, or other medical facilities, that we will provide our 24/7 connected services for free to them during this crisis. Now we have already around 100 medical facilities around the world who have taken up on this offer to ensure that their people flow will remain safe and uninterrupted in a time when they have high activity and it's so critical that people can move safely without interruption in hospitals. This is something that we continue to do, but already now we are at about 100 hospitals who have taken us up on this great offer to provide that very valuable service for free to them. That is about COVID-19. Let's go to more normal business-related matters.
In the first quarter, we also announced that we have appointed Ken Schmid to be the Executive Vice President for KONE Americas as of April 1. I'm incredibly happy to welcome Ken as a permanent member now of the KONE Executive Board. He has been, since February, the interim leader of our Americas. Ken is a very seasoned and experienced KONE executive. He has had leadership roles within KONE within sales. He has led branches. He has led change projects, processes. He has led IT functions. He has led finance. So many different leadership roles within KONE, and a very respected leader who has a very strong track record within KONE. I'm very happy to have him lead our North America business, and I believe he can take it to even further heights than we are at the moment. As I mentioned, we are now the first quarter results.
We also talk more about what do we think about overall market size for last year, how they developed, and our market share. The new equipment market in 2019 grew a little bit shy of 2% if we look at both measured in units and in value. We clearly outgrew the market last year. As you remember, last year, we sold about 173,000 elevators and escalators. We grew our market share in particular in China and many parts of Europe. North America and rest of Asia Pacific more or less held our own. Again, we did increase our market share in the new equipment business last year. The service business overall was last year about 17 million units, and growth about 5% from prior year. We were again last year the fastest-growing company of the major players in the market.
In number of units, we grew about in line with the market. In monetary value, we outgrew the market significantly. Monetary value of the market grew about 4%, and as you know, we grew clearly faster than that. We continue to be the challenger and grow faster than our key competitors in services, and it's of course, a result of the very strong position we have in the new equipment market. Overall, I'm pleased with how we developed on this front last year. Another strategic target for us is to be the leader in sustainability. Today, we have published our sustainability report for 2019. As you know, there are a few specific targets we have in terms of sustainability. It is to have the most energy-efficient products in the market. It is to constantly reduce our carbon footprint relative to our operations.
It relates to safety and to diversity. We have clearly more elevators than any of our competitors that are A-rated according to ISO standards. We objectively have the most energy-efficient products in the market, and we continue to develop well in that area. Our target is to improve our carbon footprint relative to our sales by 3% per annum. Last year, we did by 3.1%. The year before that, it was about 4%. Our safety improved. Our industrial injury frequency rate improved from 2.1 to 1.7. Good development there as well. Our target is to have more than 20% of women in director-level positions, and that increased now to 18%. That's a start, and we need to go further in all of this. We also had a lot of external recognitions for our work in sustainability.
Despite the crisis we're going through, this remains a very strategic and important area for KONE. That was about how COVID-19 is impacting us, how we're dealing with that, and some development towards some of our strategic targets, in particular, growing faster than the market and sustainability. Next, I will turn to how the external markets have developed and how we see them developing. This is purely an external view now. I'll start with the Americas. The markets throughout the Americas were stable until March, after which we started to see wide-ranging restrictions during the second half of March in particular. The activity level until that was strong and high, and that we can see in our results as well, and we captured a lot of the opportunities from the market.
Currently, we have a lot of lockdowns, but the situation varies significantly between states or provinces. What is common throughout the region is that elevator and escalator maintenance have been deemed an essential service in most countries. Although we have, of course, many customer sites, particularly on travel and retail side, are closed, and leisure side, so that is impacting some of our discretionary spending. If I look into the second quarter for the market development overall for the Americas, it is clear that the second quarter is much more challenging than the first quarter, and the impacts of all the restrictions can be seen much more clearly than what was the case now in Q1. Europe, Middle East, and Africa, similar situation in that market environment until March was stable. Particularly, Central North Europe actually developed quite nicely and high activity throughout.
It's clear that Italy was the first one that we started to see a clear impact, then Spain and France, and then U.K. a little bit later on. Also, if I look at Europe, the market outlook for the second quarter is clearly weaker than it was for the first quarter. In the Middle East, also, lockdown started to happen towards the end of March, perhaps the bigger impact in Q1 were currency fluctuations and low oil prices. Also here we see a more difficult market in Q2 as a result of lockdown. As North America elevator/escalator maintenance deemed an essential service, and therefore has continued quite well. Asia Pacific, and I'll come to China last. Again, Asia Pacific, like Europe and North America, many markets developed quite well until March, and then lockdown started.
The most severe lockdown almost globally at the moment is the one in India. You know India is an important market for us, so that clearly has quite some impact. China, hardest hit, of course, during the month of February, but then towards the end of February, we started to see a recovery. Recovery throughout March and overall market activity at the moment is on a high level. We've seen a very strong recovery. If you look at Q2, China is recovering, whereas, market environment in rest of Asia Pacific is clearly more difficult in Q2 than it was in Q1. Also here, elevator maintenance, a essential service. China in more detail. How did market and property market and our business develop there? The overall market in number of units ordered, the market declined significantly year-over-year. Of course, because of the lockdowns in February.
Pricing environment was fairly stable, although, given the market decline, we started to see some signs of price competition. When we look forward, we expect that there will continue to be high activity on the infrastructure side, and that's going to be a form of stimulus to boost economic activity. However, on the residential side, there are no indications that the restrictions in the residential market would be eased. We continue to see strong restrictions there. Policy positive has been the liquidity increase in the market that has helped many of our customers to ramp up quickly. Real estate investments while they declined overall in the Q1, in March, they recovered and was slightly higher than a year before. Residential sales volumes, they also declined 14% year-on-year and new starts as well.
We started to see residential sales volumes also recover towards the end of the quarter. A slight decline in prices given the environment. What is clear is that consolidation amongst top property developers are continuing, and the top developers have a better ability to purchase land in this situation. That was all about the market environment and little bit how we see market developing. With that, I'll hand over to Ilkka to dive a little bit deeper into our financial development during Q1.
Thank you, Henrik, and welcome also on my behalf to this first quarter results announcement and greetings from KONE building, where I'm calling into this webcast. The call format is a bit different, but I will go through the financials in a very similar manner than normally and deep dive a bit more into them during the next section. First, I'll start with orders received development for the quarter. Orders received for the quarter were EUR 2.1 billion and slightly up both on a historical as well as comparable basis compared to last year. We continued to see slight growth in orders received in the volume businesses, both in new equipment as well as in modernization. While there were less major project orders in the first quarter compared to last year.
Geographically, we saw clear growth in orders in Americas, a slight growth in Asia-Pacific, driven by good performance in China. I'll come back to that. Slight decline in Europe, Middle East, Africa in orders received. Deep dive into important Chinese market. Despite the difficult operating environment, our orders received developed very positively. First, from a unit perspective, we saw our volumes growing slightly. On a comparable basis, our value grew clearly, so more than 5%, driven by both mix as well as pricing contributing positively. Also, in this market environment, very happy to see that the focus and effort that we spent on being able to drive better pricing going forward continuously is also having an impact here. The margin of our orders received improved slightly in the first quarter, largely driven by the pricing improving for the orders. Moving to sales.
As Henrik already highlighted, through the quarter, we did see our customers and markets being impacted by COVID-19, which is largely being seen in our new equipment business, where we saw our sales declining. At the same time, we saw good performance in the services business offsetting that decline. Overall, our sales were EUR 2.198 billion. Effectively flat compared to last year on both historical as well as comparable currency basis. As said, new equipment declined 5.3%, whereas our maintenance business grew 5.7%, so good growth in the maintenance business in the quarter. Also, modernization business contributed positively with 1.4% growth in the quarter. Geographically, the strongest growth in sales perspective was visible in performance in Americas, which, as Henrik said, had less impact from COVID-19, and the sales grew 5.3%. Also, in Europe, Middle East, Africa, we saw growth 1.5% in sales.
Asia Pacific had the biggest impact from COVID-19, and our sales actually declined overall 6.3%. Particularly in China, we saw the lockdown impact in sales, and our sales in China declined close to 7% in the quarter. At the same time, it's good to note that the activity level rebounded quite well already during February and March, and is now on a good level, as highlighted by Henrik already earlier. To adjusted EBIT development. Our adjusted EBIT was, for the quarter, EUR 206 million, and our adjusted EBIT margin was 9.4%. On an absolute basis, a decline of 10% and 180 points in margin, largely driven by the COVID-19 related items. If I look at the performance outside of the markets being impacted by COVID-19, our profitability and profits continued to develop positively.
However, given the situation, we had extra costs related to COVID-19 of more than EUR 10 million, as well as profitability was impacted by the weaker fixed cost absorption due to lower sales. The restructuring program or Accelerate program had EUR 8.4 million restructuring related costs in the first quarter. As said, this is the last year of the program, and we continue to see that this year the costs related to the program go down. Finally to cash flow. Our cash flow for the quarter was EUR 347 million. Very solid number, especially given the circumstances. We continued to see net working capital contributing positively to our cash flow and driven by the strong performance in both advances received as well as progress payments from our customers. Good performance there.
At the same time, it is good to note that KONE is in a very strong position when it comes to its balance sheet. Our liquidity position is strong. We have EUR 1 billion of net cash in our balance sheet. Also, we have a further EUR 1 billion of undrawn committed credit facilities available to us. Overall, from a balance sheet point of view, we have very strong position. With that, I'll hand back over to Henrik to talk about market and the business outlook for the year.
Thank you, Ilkka. Let me wrap up with the outlook for the year. New building markets, we expect them to decline in all regions because of the COVID-19 outbreak. I think that's pretty clear to everyone. Chinese markets started to recover in March. It was significantly down in Q1. We're seeing a recovery, probably slight decline for the whole year. Maintenance markets, we expect them to be resilient. There will be some impact from the direct impacts from lockdown measures, particularly on discretionary spending. Modernization, fundamental growth drivers, they are fully intact. It's clear we're going to see and can see some delays in decision-making amongst many customers when you're looking at saving money and maybe slightly postponing things. The growth drivers are very much intact there. Our outlook, it is unchanged from the one we came out with in March.
As you know, we have provided three scenarios all related to how quickly economies can be opened up in a safe way, how quickly markets recover. Best case is that we will be flat sales year-over-year. Worst case scenario, 10%, and of course, everything in between. I think they're quite explicit, the scenarios we have provided. We expect the adjusted EBIT margin to decline somewhat or to be stable at best. We know that both as a business, as an industry, we have many things that support our performance in this difficult time. We have a very solid order book and a maintenance base. The good thing is that our margin of our orders received started to improve last year, and that, of course, provides us with benefits this year. We have taken already previously actions in containing and saving costs, which helps right now.
There clearly, a lot of things are burdening our result. COVID-19 outbreak being the most significant one. There when you have lower sales, you also have lower just margins from that, but also lower cost absorption than we had planned, but also the safety and business continuity measures that we had to take to keep our businesses going and support our customers in the right way. To be very clear, we are not making short-term cuts to our expenses that could impact the way we serve our customers, or if that could impact the way our people stay safe or our competitiveness. All of that we are continuing with, and we are not compromising there. Subcontracting costs, they continue to increase, and one could ask why are they increasing if activity is going to be lower.
We have to remember now, a lot of subcontractors have gone to their home countries, and it may take a time before they can go back to countries where they work. There may be a shortage of capacity, not only for us, but for the whole construction industry as a whole, but for us as well. Despite the crisis, we continue to invest in our capability to sell and deliver digital services and solutions, and also in R&D. We think that that's the right thing to do given our strong balance sheet and the capabilities of our people. Overall, I'm very pleased with our performance in Q1. I think it was very solid in an extremely demanding and changing environment. We are in a very good position to capture opportunities.
We have what we've again seen in this crisis, incredibly committed, motivated people who are capable of achieving almost anything. We have a very strong balance sheet. Those are the right ingredients to really drive the company to come out even stronger after this crisis. That is clearly what we are aiming at, and we can see a clear opportunity here. With that, I'm handing over to Sanna.
Yep. Now we have time for your questions. Operator, please.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach the equipment. A voice prompt on your phone line will indicate when your line is open. Please state your name and company name. Once again, that is star one. We'll go to our first question.
Hello. This is James from Redburn. Can you hear me?
We can hear you, James. Hi.
Hello. Thanks for taking my questions. I hope you're all well. Firstly, I wondered if we could talk a little bit about the exit run -rate at the end of the quarter for demand, and thank you for your helpful comments that China has finished very well and the U.S. and Europe, much more challenging. I would have expected that. I don't know if you're able to help us quantify that a little bit. Are we talking China back to pre-COVID levels or indeed above pre-COVID levels in late March, early April? The same question really for U.S. and Europe. Are we talking about down 30% from those levels or a more modest 10%? Here I'm talking about new equipment and modernization, not maintenance, which is more resilient. That's the first question. Thank you.
The recovery in China has been very strong. At the moment it looks like that is continuing. If that continues the level in Q2, I would say is probably quite a normal level of what we would expected for the market. Very fast recovery, but of course, it comes from a slump. That is what I would expect for many markets when they recover, that you have some pent-up demand and you want to catch up with the work that has been done. Now, if you look at Europe, many Asian countries, and North America, it is clear that going into the second quarter, the environment was much weaker than it was overall in Q1. It was clearly a declining trend, and we continue to see a declining trend in the markets and overall activity.
T he restrictions have only got started and really we can see the impact more of them now. We've only seen discussions of opening up of markets, but we haven't seen any broad-based opening up of markets. We will see a significant impact, particularly on new equipment, and partly modernization business as well.
Thanks, Henrik. The second question, if I could, relates to your exceptional COVID costs, which I guess are PPE masks, logistics costs. Those sorts of topics, maybe EUR 10 million-EUR 15 million. I just wondered, without being specific on the numbers, unless you want to be, do you think the second quarter will have a similar impact there or a bigger or lesser impact on that specific item?
You have to remember, Ilkka can probably comment a little bit more in detail, but you have to remember, it's not only clearly it's PPE, but when you have restrictions as we've seen, logistics clearly has been more expensive, and you have had to do special arrangements. With that, we have been able to very well serve our customers in a safe way. That is something has been a priority. Rather than to maximize short-term profit, we have wanted to make sure that we do the right thing and serve our customers in absolutely the right way. Ilkka, if you think about Q2, are we looking at similar levels?
Thank you. Henrik. Just to make sure that we're talking about the same thing. For first quarter, yes, the costs were more than EUR 10 million. It is somewhat difficult to give you an estimate on Q2 because the situation still evolves quite a lot. At the same time, it's good to remember that based on what we see in the markets overall, clearly have the worst ahead of us, when it comes to all markets except China, where it's more recovery mode. In that sense, I don't have a good estimate to give, but clearly the worst is still ahead of us.
Yeah. That's very helpful. Thank you. Finally, you talked about the medium and longer term opportunities and the structural changes that might come. I'd be interested in any early thoughts you have on what those may be. On the other side, do you see increasing structural threats in the office environment, working from home, e-commerce to retail, hotels?
I think one thing is clear that the way we live, work, and spend our free time, there will be changes to that every time there is a crisis of this magnitude. There's been significant changes. There's no question about that, but also brings opportunities. More people spend at homes, maybe you want to even focus more on that. You can ask is it feasible to have as tightly packed offices as we have today? Maybe there is a balance of people more working from home, but you have less packed offices, things like that. I think what we have to see is how quickly do the travel industry recover. I think over long term, people still want to explore and want to see, but there's going to be changes to that as well. I think it's early to see.
We are working a lot on that. We are working a lot on how we will find solutions to be able to support our customers in that type of environment. I think in this environment, it's clear that there are health and wellbeing solutions that will be very much sought after. Our launch of our DX Class elevators with antimicrobial materials late last year was, I guess, rather well timed in hindsight.
Yes. Thank you. Well, thank you very much both. Stay safe.
You the same to you.
We'll move to our next question. Please state your name and company name.
Oh, hi Henrik, Ilkka, Sanna. It's Lars from Barclays. I hope you're well and healthy, and thank you again for a very detailed presentation. Very helpful. I have three questions, Henrik, if I could. Number one, back to China and more to your relative performance as opposed to the performance for the market overall. I appreciate ordinarily we accept quarterly variances as just sort of usual volatility, but this quarter clearly is a standout for you in China. I understand there's no material large projects or anything else that swings the meter for you in the quarter. Obviously, we had a slightly weaker Q4. Maybe you can help me understand a little bit better the unusually strong relative performance for you in that market.
On the market share gain, is that sort of an ongoing shift from the smaller OEMs, or can you talk about whether you're seeing any signs of some of the structural changes we are seeing among your bigger competitors this quarter have led to some opportunities for you there?
Yeah, I think our performance in China was very good. It was stellar in Q1. Not only the orders received, but I believe that we were one of the fastest companies to emerge from this crisis, how we ramped up our operations. Why did we have such strong orders received? Well, first of all, we had a very good start in January. We really got off the blocks very well for this year. We were probably, if not the fastest, one of the absolute few fastest ones to recover out of this crisis. That is, of course, something customers can see. We were very quickly out there delivering to them, serving them, providing them with solutions. Of course, that type of thing, great confidence. Again, we were able to book orders with them.
It was very fast off the blocks, both beginning of the year and after the crisis, that really enabled this. I must say that again here, incredibly proud of what our China team has been able to achieve. Market share, that of course always quarter -to -quarter fluctuates. In this type of environment, it's clear that the smaller players have a more challenging situation overall.
Can I be clear, Henrik, on the comment of increased pricing competition or signs of pricing competition? Is that on the OE piece or in services as Schindler was flagging earlier today? Again, is that more from the smaller OEMs as you would expect? Maybe just to that, any signs already in March that that started to abate as volume started to come back?
It's clear that when you have a difficult market like Q1 was that you can easily see some pricing competition. I think Ilkka was quite clear in his comments that we had a good development overall in China in Q1. I think our comments mainly relate to that new equipment business. Let's see how it develops. We don't like to comment on pricing going forward, so I think we have to see how the market now develops and the competitiveness and competition there. Clearly, as we all know, China is constantly a very competitive market where all the big players and also many local players are strong and focus a lot on that, and that hasn't changed.
Can I ask a slightly bigger picture question, Henrik, to the impact of COVID-19 on your maintenance market? I think I heard you say that you offer 24/7 for free to 100 hospitals. Obviously, a very sensible thing to do from a broader social standpoint, but it might also prove to be a sensible thing to do from a competitive standpoint. More broadly, how do you see COVID-19 impacting the maintenance market? I would have thought in the near term, you might see some pressure on the smaller service providers, but perhaps longer term, it could be a catalyst for digital service adoption. Is there any evidence of that, the latter, that digital services are accelerating over and beyond what you were seeing pre-COVID?
What we've seen is that the strong growth rate we have had in our digital services has continued in Q1 despite the situation. There has been at least no impact where people buy less, and the reason we're doing it for hospitals is that we think just this is the right thing to do to support them in a very tough environment. I said we have 100 hospitals now, and that is just a start. I'm sure in a couple of weeks, we'll be at a couple of hundred hospitals that we provide this service for free during the crisis. I think structurally, yes, I think the bigger players are probably better suited to drive the changes that are needed. There will also be, as always, some smaller agile players who find great opportunities out of this.
I do believe that a crisis such as this, customers are seeing, and we are seeing good development on getting our 24/7 Connected Services because that just helps keeping the reliability up and you can do much more things remotely.
Understood. Thank you, Henrik.
Just to add to that, if you can hear me. Just to make sure that on KONE 24/7, our approach has not changed. We want to give it for free for hospitals, but in general, we see that as a value-add service. In that sense, that has not changed in our approach and how we go to market with that.
Thanks for that clarification, Ilkka.
We'll move to our next question. Again, state your name and company name.
Yes, good afternoon. It's Andre from Credit Suisse. Thank you very much for taking my questions, and I hope you're well. I wanted to talk about aftermarket resilience and just to double-check the logic on regular maintenance, the extra repairs, 3/4 of your maintenance business. If we put aside rebates and specific situations like India, are we right to think that this business kind of carries through the periods of lockdowns and this year should be landing up year-on-year with units or is there anything else that can happen that prevents that?
Let's see how things develop, but so far given that elevator, escalator maintenance has been deemed an essential service, we have also been able to, in most countries, continue with normal preventative maintenance as well as call-outs. There of course may be some delays to conversions from new equipment to service. The fundamental growth drivers are not there. The longer this goes on, the more we will see impact on the discretionary spend. For example, in India, you can do call-outs, and there may be that you can soon start doing a limited way preventative maintenance, but at the moment, that's not possible. I think we have to see how it develops. The fundamental growth drivers or the market hasn't gone anywhere. Clearly, there can be a little bit more impact on the business this year.
Thank you. Somewhat kind of tactical question. I wonder if you can help with that. If we look at Europe as a whole, and if we think about kind of last two weeks where we really kind of had the brunt of shutdowns already set in from 23rd of March when the countries were shut down and taking it as far as you can into today's point. What has been the run -rate in terms of new equipment and modernization activity? I'm just trying to get my head around the mix of some countries not shutting down, but obviously still being affected by availability of labor and supply chain. Some countries completely locking down, but some things still taking place even there. Yeah, if you could help with that would be great.
Clearly, it varies a lot. If you look at the Nordic countries, actually, construction activity has remained quite resilient. Yes, the whole construction industry, including us, maybe we have a little bit shortage of subcontractors, but quite resilient as well as Germany. Then you go to Southern Europe, the U.K., where you have full shutdown, so all construction sites are closed, then of course, you're not delivering anything. It varies a lot market to market.
You would have a holistic number for Europe for me?
Well, it is significant the impact on new equipment business. Even in Italy, some construction sites are starting to open and so forth. It is clearly significant. Several 10s of percentage points, the impact that we're seeing right now.
Great. Thank you very much. I also wanted to kind of follow up on the bigger picture, and to the answers you gave on what may change more kind of fundamentally and structurally on the back of the situation. Are you seeing any evidence of customer behavior changing in China already on the back of what's happened? Or anything that you're now going to be doing structurally different there on the back of the COVID-19?
Well, we can see a lot of discussions around that, and Chinese are usually very, very quick in coming up with solutions to resolve problems. I think where we can see great development in China is that how they are enabling virtually all industries safe working there. There's still a lot that Europe and North America can learn, how people are safely in the offices and on sites. Those have been perhaps the first things that have come out of there. I think people are still discussing and thinking what are the longer-term implications, and those are still a little bit unclear. I think some of them are starting to emerge, but perhaps a little bit too early to comment on them right now.
I look forward to following up on that. Thank you very much for your time.
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Oh, hi, this is Lucie Carrier from Morgan Stanley. Thank you for taking my question, congratulations, v ery strong quarter. I guess my first question was around your scenarios for 2020 on the top line. You've had barely, I would say, well, no decline at all really in terms of sales or even very limited on the order side in the first quarter. Considering China is your largest exposure and also is very heavy in terms of OEM modernization business, when I look at your construction tracker, it seems most of your main other countries, except for India, obviously, are actually operating at full steam or somewhat operating at decent levels. Knowing as well that a large part of the business in Americas and EMEA are more maintenance related, which you said was quite resilient.
What I guess I'm trying to get from you is, shouldn't we actually be thinking that maybe the first quarter would have been maybe the biggest risk for you this year? Considering how you managed it, that we should be looking for something actually a little bit better during the rest of the year, considering the geographical balance and the mix balance for your portfolio.
I think you have to remember that we still have a very large new equipment and modernization business outside of China. As Ilkka said earlier, let's be very clear. When it comes to development outside of China and overall for KONE, the worst is still ahead of us. I think that's something we need to be very clear on. China has recovered very rapidly, which is, of course, very, very positive, but the rest of the world and overall, worst is still ahead of us.
Okay. Thank you. Just as we then speak about maintenance, are you able maybe to provide us with some sort of range in terms of how much of your revenue's maintenance or actually contracted, and how much are repair or call-out discretionary, as you were making a bit of a difference in the two during your comments?
Ilkka, do you want to take that one?
Yes. I can take it. If you think about our maintenance revenue. The discretionary spare parts represent, roughly speaking, 25% of the revenue. Some of that is more discretionary and some of it less. That gives you an idea that that's about 1/4 of the revenue.
Thank you.
Okay. Next.
Hi, this is Jeff Sprague from Vertical Research Partners. Thank you for taking my question. Two questions, if I could please. First on the maintenance side and contractual in particular. Just wondering how, for lack of a better term, bulletproof that is in an environment like this. Do you still get paid on some of your contracts even when work is not being done, sort of, kind of on a subscription basis? Do you in fact see some pressure on even the contractual work because of the nature of the lockdowns that your customers are dealing with here?
First I would say that quite a significant part of maintenance is possible to be done. Clearly there are some customers that will ask for suspensions of payments or rebates or things like that, but we are talking about very few individual cases. That is not anything significant right now. Mainly in retail, aviation, and similar.
I was wondering on the 24/7 value-added service. Clearly, the implementation of that will allow you to lower your cost to serve, which should be margin supportive over time. Do you see any risk, though, that that service becomes really kind of a necessary competitive product and thus it's table stakes, so to speak, that everyone is going to be there, and therefore the ability to charge extra for it actually ends up getting undermined?
I would say we have clearly marketed it as a value-added services that we think there are great benefits to our customers of having it, and therefore we have it as a commercial service. It's clear that unless we continue to develop that service forward all the time, like with any service, then you can get into that situation because it's clearly something that makes sense in this industry. We continue. I think we are showing the way overall in our industry, and we need to constantly develop it, show our customers that they are better off having this service than being without it. When we can show that, then I think we can continue to have it as a positive commercial service, and that is our main focus here.
Thank you. Just one last quick one from me. On slide four where you show the representative exposure, for example, with residential greater than 50%, is that indicative of total KONE, or is that your installed base service mix? Could you just clarify what exactly you're illustrating there?
Sure. That is out of our revenues for total KONE.
Total KONE, new equipment and service.
Indeed.
Thank you very much.
We'll move to our next question. Again, please state your name and company name. Questioner, if you heard your voice prompt on your phone line, your line is now open. You may be on mute. Hearing no response, we will move to our next question. Please state your name and company name.
Yes. Hi, this is Rizk Maidi from Jefferies. Just a quick follow-up. Is this whole COVID crisis prompting you to change anything in the way you outsource the outsourcing business model, whether you're thinking about insourcing some of it or taking control a bit more of your supply chain?
I don't think what we do ourselves versus what our partners and suppliers do are going to change. What I'm very happy about is that we worked very hard over many years to make sure that we have a very robust supply chain. We have backups, not only many different suppliers, but also that our factories and supply chains can support each other across geographic regions. I think there will be more development in that direction versus what we do ourselves versus what our suppliers do. Clearly, this is a call for everyone to constantly make sure that you have a more and more robust supply chain, and you can have more interoperability between different geographic locations.
Okay. The last one on my side. In the report, you talk about pricing pressure increasing towards the end of the quarter. Outside of what you talked about in China and potentially some of the rebates on the maintenance, which I'm understanding this is not a big deal and still remains small as we speak. Any other segments where you're seeing pricing pressure increasing?
Clearly, that's normal. If you have overall market activity declining, usually you get some more pricing pressure. I think what we're mainly talking about is new equipment business and maybe partially modernization. That's what we primarily refer to.
Okay. Thank you very much. Stay healthy.
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Yes. Hi, Henrik and Ilkka. It's Klas from Citi. I wanted to come back to the drop through the EUR 23 million low EBIT. It's obviously within the guidance of what you said, Henrik, could happen, but I still want to understand this better, given that sales growth wasn't down as much as expectations. You were quick to ramp in China. There were minimal supply disruptions. Maintenance growth was still solid. Going into the second quarter, we could see more pressure in repairs. We will have weaker installations ex China. I'm trying to understand the underlying drop through ex the EUR 10 million of COVID-related costs. I think Ilkka, you said a 5% drop in China. Should I, and maybe this is too detailed, but I will try. Could you break out that sales drop by month?
I'm obviously interested in how much sales dropped in February, and I'm thinking about China in particular. Thank you.
Ilkka, if you can take this question, please.
Yeah, maybe I'll take it. First, from an activity perspective, I said that we had a close to 7% drop in sales in first quarter in China. If you think about what happened. The lockdown of China impacted the period after Chinese New Year. We normally close down activities for Chinese New Year, and then we were postponed to reopening the factory. Large part of that revenue impact compared to last year was then impact in February when we were ramping up our capacity, but also our customers were ramping up again their sites. We saw throughout February and March then continued improvement and recovery in the activity levels in China. For the rest of the world, largely the impact of COVID-19 was more at the latter part of first quarter, so much less visible in the first quarter.
Therefore, also the comment that we're expecting much worse performance or bigger impact in the coming quarter to the rest of the business outside of China.
Yeah. I'll reach out with some progress and clarification on the moving parts. My second one is on Accelerate. Obviously, the savings here are strategic actions independent of COVID-19, and there are cost actions on top, Ilkka. Can you walk through the actions here? How much are we talking about roughly? Is it EUR 50 million? EUR 100 million? Would be great to get an indication of the temporary savings because of COVID.
Yes. Overall, as said by Henrik, due to COVID-19, obviously, we are taking also cost containment actions. At the same time, we don't want to jeopardize or stop development of KONE's competitiveness going forward. The actions that we're taking are much more focused on discretionary spend, especially on fixed costs and managing our overall spend levels across the globe. At this stage, we're talking about some EUR 10 millions of savings that we've identified, and obviously, we continue to follow that quite carefully. That's on top of the expected close to EUR 50 million savings that we're expecting from Accelerate program in this year.
That sort of puts the margin comment of stable to slightly down even, when you think about the higher end of the sales drop, that looks quite ambitious. Is that an assumption of that on the service side, outside of repairs, that we feel very confident in the 25% continuing to grow through the period? I'm trying to understand that margin comment in the guidance from March.
I guess, on the margin comment, obviously there are many moving parts when we look at the guidance. You look at the breadth of the guidance from zero to -10, depending on how quickly can we get on top of the situation, the government can actually then start opening up the markets. That's one part. Depending on that, obviously the margin, we are seeing that at best we could be flat, but it also could be down based on then the revenue outcome out of that. That's the picture. Just coming back to your question on first quarter. If you look at the first quarter performance, our COVID-19 related costs were more than EUR 10 million out of the impact on profitability. Obviously the weaker fixed cost absorption.
We had planned for higher revenue and gross profit, but also more importantly, the fixed cost absorption is lower. On top of that, there are a few millions of costs related to the thyssenkrupp acquisition.
Okay. My final one, very briefly. On digital sales, how much, Henrik, did it add to the maintenance growth? Was it still around 1%? I guess that when you look at total digital, it's not contributing to profits yet. It's still a break-even business. I just want to get an update on where we stand in the first quarter.
Ilkka, you want to take that or?
Well, go ahead, if can start.
Okay. With something in that range, it's clear that we're still in a very heavy investment phase in that. Of course, we're also scaling it up quite well. Yes, at the moment, we're probably more on a break-even way. Yes, it has positive impact on our revenues overall.
Thank you.
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Erik Karlsson from CapeView Capital. Thanks for taking my questions. I had two, please. Just on raw materials, could you just give us an update now how the raw material situation is looking for you in terms of hedging and prices for the rest of the year? The second question was on maintenance growth. You stated a very solid 5.7% in the first quarter. Should we expect that number to decelerate in the second quarter, given what you said about spare parts sales in some of the COVID-19 affected countries? Thank you.
Ilkka, do you want to start with the first question?
Yes. I'll start with the raw materials. Raw materials, we have fairly good visibility now to raw material costs and component costs in first half. Obviously, the prices for raw materials have been quite volatile in the recent weeks and months. Overall, we expect raw materials to be neutral for the year, possibly having a bit of a tailwind in the latter part of the year coming out of them. Let's see how that develops. There is both the raw material component, which is changing, but as well as then, depending on exactly what we deliver, that is also then impacting the actual outcome in the second half.
Your other question, Erik. Y es, we had good growth in our maintenance business in Q1. I would say that if we look at Europe and North America, it developed quite in a normal way. There was some impact in China, so there was below-trend growth clearly in China because of the lockdowns in February. If you remember, where is the majority of our maintenance sales? That is in Europe, North America, and as we said, we expect the impact of the lockdowns and development to be more severe, clearly more severe in Q2 than in Q1. Therefore, the impact in Q2 is going to be clearly more than it was in Q1.
Thanks, very clear. Great. Thanks for all the hard work for us shareholders. Thank you.
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Hi, Alex Virgo, Bank of America. I trust everybody is well. Thanks for taking the question. It was just a broader one on your sales force, the shift to virtual working. You mentioned that activity rates have, I suppose, arguably even increased given the efficiency of being able to just get on the phone, and I'm sure that we're seeing this ourselves as a sell-side community, at least. I wondered if you could talk a little bit about the conversion rates and the customer dynamics around advanced payments. Clearly, obviously, orders held up very well in Q1, but you mentioned that was a basis of a very strong January. I'm just trying to understand the dynamics of that customer relationship and the conversion of order rates going forward. Thank you.
We know that new equipment business in particular comes a little bit with a delay to the whole construction sector overall, and that's why we continue to see good development in many places so far. I would say that tender rates and all that activity has been quite good. Particularly, bigger developers are continuing, and I'm talking about globally, are continuing to take their projects forward. We continue to see new opportunities. I think it's too early to say what the overall impact will be, and that's something we monitor very closely that how much are we getting new opportunities? What are the tender rates? At the moment, in many countries, it's been surprisingly resilient. That doesn't mean that we're not going to see a decline, but that's a longer-term question. Q2 clearly it's going to be more tough, the environment.
I think most companies are still trying to figure out what this means. A lot of companies are still continuing to drive projects forward in a development phase, but then we have to see what is the impact when you have to make the decision and make your investment commitments for new buildings and so forth. I think that's too early still to see what the exact implication will be.
Thank you. Just, I suppose, in follow-up to that last point, if we are clearly going to see a significant drop-off or deferral in terms of decisions around larger projects and the starting or financial approval of some of these larger projects, what sort of hangover does that have on the broader construction market? I wanted to pick up on a point you made in your opening remarks about tightness of labor and subcontractors moving back home. How do you see that kind of speed of recovery? I guess shortage is one thing, but availability and preparedness to travel and move back in. I appreciate it's all very up in the air right now, but I'm just curious to hear how you develop that thought into the trajectory of recovery.
It's a good question. Of course, I think at the moment you have to remember that most of what we're going to deliver this year, we have in our order book. China, given the fast rotation, the order book, we still need to book quite a lot of new orders for delivery this year. The rest of the world, what we have in the order book this year is what we deliver. We kind of know that so long as those projects going forward, and they seem to be going forward. I think it's more of a this year issue with resources and how quickly can people start to travel between borders, both in Asia, Middle East, and in Europe. That's probably going to take some time. We're going to see some shortage.
Probably as we get towards the end of the year or next year, I'm sure there's going to be more solutions to that problem. We're starting to look at fundamentally how much new demand there will be. I think this comment was more of a shorter-term issue, how quickly you can ramp up construction in many European countries and perhaps in the Middle East. It's probably going to be more challenging in terms of speed compared to China.
Thank you very much. Very clear.
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Yes, thanks. This is Antti from Danske Bank. I have a big picture question. If you look at this industry from the helicopter view, especially in terms of operating margin, I think we can say that in 2018, this whole industry took a step down in margin. In 2019, it stabilized or started a fragile recovery. This crisis in 2020 gives a new hit to the industry's operating margin. Do you think it is realistic to assume that the industry will recover from this and be able to turn on a sustainable basis, the operating margin trend upwards again?
If you look longer term, clearly, I think what we need to do all to be able to get margins up is we need to constantly show that we can add more value to the customers. I think that's what we've been working very well on. If you look at all the new solutions we've come with, and I think traction in those is really what's going to drive that. I don't think it's going to be a similar driver that we saw after the financial crisis where margins very much came up because the huge ramp-up of volumes in China. We are probably not going to see that on a global basis, I still have full confidence that we can do that longer term because of new solutions, because of the finding much better solutions to challenges and needs that our customers have.
With that, we can drive up margins. I think we were on a pretty good path to getting into that direction. Clearly this is a setback and if I look at the services business, I think the opportunity is definitely there. It's also in new equipment, although volumes may be hit.
Okay. Just nice to hear your thoughts. Thank you.
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Hi, it's Guillermo Peigneux from UBS. Thank you very much for taking my question and hope everyone's safe. I guess one follow-up question regarding China. As per Minister of Housing, central government started to include urban renovation as affordable housing projects. At the moment, I think starting in 2019, but I guess even more so the case in 2020, the central government is funding support for renovation, and that, in some instances, will help the elevator industry. I wonder if you saw this during the quarter as a healthy trend, and as we move forward and this becomes a more meaningful market, what would be the impact in mix? Now that you participate in this affordable or modernization market, how would the margins mix react to it as we move forward? Thank you.
I don't think that mix will have a major impact participating in many affordable segments as it is at the moment. I don't think that that's a big issue, at least as we have identified.
Has this helped your growth trends during the first quarter, or was this normal mix in terms of order intake?
I think it was pretty normal mix in terms of order intake and for the KONE brand, we had a, as you saw, a spectacular performance in Q1.
Thank you.
Guillermo.
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Hi, good afternoon, everyone. It's Andrew Wilson from JP Morgan. Just a couple of probably follow-ups on some comments you made on Q1 actually. Clearly, cash doesn't seem like it's been any sort of issue in the Q1 in terms of collection. Similarly on the supply chain, it feels like obviously a little bit of extra cost, but no, I guess bigger fundamental problem in the balance of the year. Basically, no major supply chain concerns at this stage and no major concerns in terms of cash collection.
If I comment on the supply chain and you can comment on the cash situation. Supply chain, as said so far, we have had a very robust supply chain and it's functioned well. Currently the situation looks very promising. However, I think it would be very bold to now make strong predictions of how this pandemic will continue, what lockdowns we're going to see, what openings we're going to see and so forth. We are definitely going to see some unexpected situations. That is quite clear. I would say at the moment our supply chain is robust and functioning well. I don't foresee changes to that. We've seen so many situations in the past few months that we could never have experienced. I think that's just important to note here.
Maybe I'll then continue on the cash flow and receivables. Yes, cash flow was strong and solid in the first quarter. Also, net working capital contributed positively, and as you saw, receivables actually came down within the quarter. It is clear that there is a risk in receivables going forward and also in bad debt. We are taking active measures to monitor and collect, but as said earlier, especially markets outside of China now, we expect that there is more impact in Q2 and that.
Increase the risk also in receivables.
Thanks. That's helpful. Can I sort of ask a question just on sort of relationship between new equipment and modernization? Just trying to think about I guess my question is, whatever I assume for new equipment declines in the Q2 as a starting point. Should I be assuming that modernization is weaker still, just on the basis of perhaps it's easier to defer for some customers, it's perhaps not as immediate payback versus obviously getting a sort of piece of equipment in a new building up and running. Just trying to sort of get a feel for how we should be thinking about that. Any comments helpful?
What I would in general say first about modernization. It's clear it's a much more faster cycle business than new equipment, based on shorter-term decisions. I don't think it will be a major difference between the development of new equipment and modernization, pretty similar impacts of lockdowns for both of them.
That's very helpful. Thank you. Maybe I'll squeeze just one final one. Just number of comments around investment and R&D and maintaining the sort of the levels of spend even when things are difficult. Just trying to get a sense of when you talk about maintaining the spend, would we expect R&D to be a higher cost in absolute terms year-on-year, or would we rather expect it to track sales? Just to try and get a sense of that.
Well, our plans for this year would have been an increase in absolute amount. With growing sales, it could have been probably flat or slightly up relative to sales. If sales is down, it's going to be clearly a higher percentage of sales. That's what it looks like at the moment.
Okay, it's sort of maintained in absolute levels is a reasonable base case.
Slightly up.
Yeah. Okay, perfect. Thank you very much for your time, guys.
Thank you.
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Denise Molina, Morningstar. Hi, Henrik . Just a follow-up question on the digitalization in terms of the take-up rates. You talked before about the potential for doing more remote monitoring to help reduce visits from technicians, and I imagine that this would be a scenario where people would be, or customers are thinking about doing that more. If you have an elevator, a modern elevator with more digital products in it, I'm thinking that those would be less open to third-party maintenance teams. That's what we've seen in some of the elevators, at least in Europe. I'm just wondering if that's potential upside for you in terms of long-term kind of retention of maintenance contracts going forward. What percentage of your install base right now has those elevators that have software where third parties probably would not be able to do the maintenance?
First, I would make a statement here that competition law in most countries is such that you cannot prevent others from maintaining your elevators, same as in cars. It is a fully open and competitive market. I would say what is perhaps more important, why we're developing these services so much that if we can have proprietary services where we are a step ahead of most of our competitors, then that's something that is a real value add to our customers, and that is the way we retain them and maintain our customers. I think that's the way you want to maintain customers. That is how you help them. That is how you keep the best relationship with them and the best long-term business rather than locking someone out from doing it.
I guess we have some anecdotal evidence of that, but that may not be the case broadly. The second question I wanted to ask is on the smaller players, again, you were talking about before that they might have seen some disruption in their own businesses from the COVID-19 restrictions in China. If maintenance is an essential service, wouldn't they also be able to maintain their businesses given that China is really, for smaller businesses about maintenance and not so much about the OE side?
Of course, it's the same situation for them. I think the bigger players probably have a better ability to provide training, I would say PPE and methods, how you work in a safe way in this environment and following it up. Usually have more financial resources to do that. The comment on the Chinese market that I made earlier was more related to when he was asked about market shares, was more related to the new equipment market rather than services market. I also do believe that when technology starts to play a bigger and bigger role in the maintenance market, that the bigger players will have a better position. There will always be small players who will be very strong and innovative there, but I still believe by and large, the larger players will have a better ability to invest and roll out these services.
Do you have a portion of your base already doing remote monitoring where you've replaced some of the actual physical visits?
I wouldn't say we're necessarily replacing so much physical visits. What you do is that you can do them in a much better planned way. You can prevent unscheduled call-outs in particular. That is the biggest thing. You can plan your maintenance over the lifetime of the equipment in a much, much better way. It comes to the unscheduled call-outs have gone clearly down for the elevators that we have connected by quite a significant amount. You can create much better plans for how you serve them over the life cycle. That, of course, provides value to our customers because it provides them with reliability, predictability, and transparency. Of course, we can plan our work better.
Okay. That's great. Can I ask you one last question in terms of the pipeline in China? Going into this, you obviously had a pipeline, and then coming out you're saying that things are looking better. Would you say that the pipeline strength is the same on the other side of the COVID-19 measures in China as it was going into it?
In terms of you mean tender pipeline or what do you refer to?
Yeah, sorry, the tender pipeline for new orders for new installations.
Okay. We have an overall good situation. We don't guide or give comment on pipeline or orders maybe going forward. I think as we showed in the first quarter, overall situation in China is good.
Okay, great. Thank you so much.
Thank you.
I'll move to our next question. Please state your name and company name.
Yeah, hi. This is Martin Flueckiger from Kepler Cheuvreux. Thanks for taking my questions. I've only got one actually left since all the others were answered. Just to come back on your experiences during the COVID-19 lockdown in China, and I guess there were a great deal of lessons learned by your management team. I was just wondering how you intend to leverage this experience to the EMEA region and particularly also to North America, and whether there's any conceptual differences in how you will respond to the pandemic in these two other regions in the western world, so to speak. What you think will be the likely outcome in terms of the order in-take and revenue performance compared to Q1.
First, clearly I said that we have experience from China how to deal with this, and as we can see, it's gone quite well. Our global business continuity teams and crisis management teams, they are global teams who work and share experience constantly between what went well in China, what we could have done better, how we can apply that to Europe and North America. That is clearly something that we are working very actively on all the time.
Okay, you think that'll help you also, because you were saying originally that Q2 was going to be much more severe than Q1. I'm just thinking, if you've been going along your learning curve the way you inform us, the way you've told us that this has happened in Q1, I'm just wondering whether the mitigation effect will be much bigger or much more significant in the Western world in Q2?
I think the recovery is probably not going to be as well coordinated across Europe as we saw in China, and probably not either U.S. Because remember that we are now almost the first month of the second quarter is behind us with very severe lockdowns. What we saw in China is that markets are starting to open up in February, and it took probably three, four weeks to ramp up that activity, which I consider very quick. I don't think that recovery will be as quick in other parts of the world. That's why I think, as I said, that's why we said that if we look at Q1 and then forward, then we can clearly, as I also put in my letter in the Q1 report, that the worst is still ahead of us.
Thank you so much.
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Hi, it's Wasi Rizvi from RBC Capital Markets. Thanks for taking the questions and the detail you've given. Just a couple left for me. On the maintenance market share commentary you gave on the 2019 market data, did I hear you right that you think you're the only major player to be gaining share? Just in terms of what's driving your share gains in that market, could you help us understand is it simply a function of the new equipment you've sold in the past years, or is there another factor we need to be aware of which is helping you gain maintenance share? The second question was on maintenance growth for this year. Can you talk us through the components of that market growth?
I guess you should have a reasonable handle on how many units the market's going to grow by, but then there's that, and then there's also the pricing. Can you talk us the range of outcomes you think is possible for pricing and maintenance for you at a group level for this year?
When it comes to market share, I did not comment on our competitors' market share. I only said that I believe that we were the fastest growing of the major players. I think that was my comment. Clearly why are we growing so fast in maintenance is because we have a very strong new equipment business, and therefore we have a lot of units that come into conversion, and we are converting those successfully. That's clearly driving our growth here. If we look at what the outlook before this crisis was for the maintenance market was a similar growth to last year. You can think the units probably would have grown 5 %.. We're probably going to see some delays to conversions in the market. Overall, the value of the market did actually not grow quite as fast as units.
That's simply a function that China is the fastest-growing market, and their average value per unit is lower than what it is in, for instance, Europe and Americas. I think those same trends would have continued. Yeah, other than that, we were last year successful in improving our pricing on a global basis in maintenance last year.
Okay. Just to follow up, in terms of for this year, what do you think the range of outcomes is on pricing for your maintenance revenues? Is it going to be a positive contributor, a negative contributor? What kind of range are we talking it could be given what's going on?
Yeah, we try to be very clear that we don't comment on pricing going forward. I think that's something we have to see. I think what we can see is if we have lower market activity overall, we're probably going to see a somewhat tighter pricing environment. That's something we have to monitor and see and do the best we can in the environment we have.
Got it. Thanks.
That does conclude our question and answer session for today. I will turn the conference back over to management for any closing remarks.
Very good. Well, thank you all for active participation. We all know it's exceptional circumstances and exceptional times, and visibility is not quite what we usually have in this industry. Overall, as I said that I feel that at KONE, we are in a very good position to deal with this tough situation given the strength of our team, motivation and commitment of our team and our very strong balance sheet. Those are very important assets just in this environment. We are going to see many situations ahead of us in the coming months that we have not expected, but with the same spirit and drive, we will continue finding solutions to them. Look forward to talking to all of you in the second quarter. Hope we have more visibility. I hope we have a better situation.
I hope all of you are safe and will stay safe and healthy. All the best.
That does conclude today's conference. Again, thank you for your participation.