Afternoon, and welcome to KONE's Q2 Results Webcast. Present here in Espoo, Finland today, we have our CEO, Henrik Anruth and Senior Vice President for Corporate Control, Roberto Molteni. I am Katri Sarenheimo from Investor Relations. As usual, we will start with an overview of our Q2 figures and development, after which we will have good time for discussion and questions. But let's start from the Q2 development presented by CEO, Henrik Anhout.
Welcome also on my behalf to our Q2 results webcast. And it's a great pleasure again to present our results to you because we have good news to tell again from our performance during the second quarter and the first half of the year twenty sixteen. During the quarter, we had good progress overall. We can see that our development programs that we've been executing on are delivering results and that we also been able to continue good growth in many markets to compensate for some of the large markets that are weaker. But as always, now it's our Q2 results.
Let's go straight into the numbers. I'll start again by going through our key figures, then a little bit more in detail on orders received, sales and operating income, after which I'll talk about how we have developed KONE and our markets as well as outlook. But let's go straight into the key figures for the Q2 of 2016. Highlighting this quarter was that we had strong execution and profitable sales growth. Our orders received, they declined slightly during the quarter, but they were good level of €2,267,000,000 They declined at 5.7 percent or 1.9% if you look at it in comparable currencies.
Our order book remains strong. It's at 8 or more than €8,700,000,000 and has grown at 1.6% or 5.5% in comparable currencies. We have a strong order book, and that gives us a good situation to develop KONE from here on. Our sales also grew. It was almost €2,300,000,000 growth of 2.8% or 6% in comparable currencies.
And what's most important with this growth is that it was profitable, and we had a good improvement in our operating income. Our EBIT reached €349,000,000 and improvement in the EBIT margin was good. It improved from 14.7% to 15.3%. Also, we can see that we have maintained a good discipline in our business because our cash flow continued to be strong, although it was slightly lower than last year. But as I think all of you remember, last year in Q2, we had an exceptionally high cash flow, but now €393,000,000 it was good.
Also, EPS improved from €0.51 to €0.54 But as we always said, 1 quarter is a short period of time. Now we have half of the year behind us, so we have a little bit more now perspective of how we're developing over this year. If you look at the 1st 6 months, we can see solid progress overall. Our orders received, a little bit over €4,000,000,000 declined by 5.6% or just over 3% in comparable currencies. Our sales also delivered over SEK 4,000,000,000 for the 1st 6 months, growth of SEK 3.1 percent or 5.2 percent in comparable currencies.
Also, if you look at the 1st 6 months, we can see growth has been good and profitable. We had SEK 570,000,000 EBIT for the 2nd quarter, and relative EBIT margin improved by 4% 0.4 percentage points from 13.8% to 14.2%. Cash flow, very strong for the 1st 6 months, almost €700,000,000 good improvement over last year. If you remember, in 2015, we had a slightly weaker start in terms of cash flow, then exceptionally strong in the second quarter. Now we have had more even development throughout the 1st 6 months of the year.
Our EPS improved from €0.80 to €0.90 We know that many of our large markets are quite uncertain, but it's on the equipment side, but we have continued to perform strongly also in this environment. We have shown that we can also perform well in more uncertain environments. Let's clear it down to very strong commitment and dedication by our employees. So again, a huge thanks to everyone at KONE for the great job they've done and for the results that we have achieved during the 6 months of the year. So those are the highlights of our figures.
Let's, as usual, go a little bit more in detail and start with orders received. As I mentioned, our orders received declined by 1.9% in comparable currencies but were €2,000,000,000 68,000,000 Even though they declined, they were at a good level. This was the 2nd highest level of KONE's orders received in KONE's history. We achieved this despite a significant decline in orders we've seen in China because we were able to grow in all other markets outside of China. So again, we were almost able to compensate that impact, and we can see that we are developing well on a broad basis if we look globally.
Looking at orders received. We had strong growth now in our modernization business. And if we look at geographically, continued good growth in North America, where we grew in double digits, and we also had good growth in both Europe, Middle East and Africa and Asia Pacific outside of China. So again, I think the highlight from orders received perspective is really the good broad based development we had and the good acceleration we have been able to achieve in our modernization business. As you all know, price competition continues to be tough, particularly in the large Chinese market.
So that has, of course, had impact on selling prices. However, our competitiveness is in a good shape, so we have been able to maintain the margin of our order book at a good and healthy level. So that's I'm very happy about. That is about orders received. If we then go to sales, we grew in all our businesses.
Comparable currencies, our growth was 6%. New equipment business grew at a little bit over 3% in comparable currencies, and what I'm very pleased about was the strong sales growth we had in Services. Our Service business grew at 10% in the quarter. It was very strong in modernization, but grew close to 20%. But it's also good growth in our maintenance business.
We've now grew at 6.3% in the quarter. I must say, I'm very pleased with the overall sales growth we have achieved in Services in the Q2. Geographically, best growth in North America, where we are delivering on a very strong order book, growth about 19%, but also good growth in Asia Pacific of 6.6%, particularly strong in markets outside of China, but we also grew slightly in China. When I look at Chinese growth, highlight there was that we continued our strong growth in our service business in China, which continued to grow at over 25% during the first half of the year. So 25% plus growth in both Q1 and Q2.
So we can see that we have good progress in that business. But again, the most important factor with our sales growth was that it was profitable, and that we can see from our operating income or EBIT. EBIT reached 349,000,000 euros And as I mentioned, the margin improved from 14.7% to 15.3%. This good improvement was achieved because we had a good development on a broad basis. We improved in all of our businesses, good improvement in our new equipment business as well as in services.
Geographically, the best improvement came from Asia Pacific and North America. And we achieved a good improvement in our operating income despite headwinds that we had in the second quarter. Headwinds were particularly from foreign exchange. Translation exchange rates impacted the result almost €15,000,000 negative, a little bit less than €50,000,000 And we continued to increase our investments in R and D, IT and in key growth markets of the world. So we are definitely investing in our competitiveness going forward.
Overall, I must say, I'm very pleased with how our profitability improved both in the quarter and first half of the year. If we then turn to our sales split. Here, we can actually see the impact of the improvement we have had in our Services business, and we can see that the share of both modernization and maintenance has increased a bit, and also the share of North America is increasing. All of this is good as it slightly balances our more our overall sales mix. So I think it's been good development.
This is about our numbers. I would say overall, I'm pleased with how we have developed in both the first half of the year and if you look at Q2 as well. Next, I'll go to how our business has developed and how our markets are developing. Before I go to that, as you will have seen, in the quarter, we have announced a few changes to our Executive Board. In we will have in the 3rd quarter, we will have Thomas Ignerskod join us as a new head of our Central and North European Business.
He has a great experience in driving good growth in service businesses in many parts of the world. We also have Ilkka Hara join us as our CFO on the in August. He's someone who's been spending most of his career in the technology sector but a very business focused finance leader. And then last week, we announced that Aksel Barkling, who currently leads our German business and has grown that business very successfully through very good leadership. He is moving to become head of our Asia Pacific business as of beginning of October.
Until that, Niraj Sharma will continue to run that business. These are all, I would say, positive rotations that will again help Konex develop well as we go forward from here. If you look at how we developed overall and our development programs. As I think many of you know, this is the last year of our current development programs, and we have achieved a lot of good things in them. I'll highlight here a couple, one related to the most competitive people for solutions program and one related to top modernization provider program.
As you know, our strategy has been for a long time that we want to grow the fastest in the fastest growing markets of the world to gain market share where the markets are most positive. This was done in North America over the past years, and we are now also invested in more in North America to support this growth. So in June, we opened a new R and D manufacturing facility in Allen in Texas. This will help us support our growth in North America and improve our customer service and competitiveness in both the new equipment and modernization market. We are bringing also for new North American market more R and D resources closer to our customers to have better products specifically for that market where we have had a good development and a very strong order book.
Also, stock modernization provider, as you all know, that's an area we've been focusing significantly over the past years to strengthen our offering, strengthen our processes and also improve our sales management and sales setup. We can see that this has definitely produced results with the growth we've started to achieve towards the end of towards last year already in orders received. Now we have continued with strong growth in orders received, and we can also see that our sales growth is good in modernization. We can see again the actions that we decided to take, they are producing good results. If you then turn next to our markets.
I'll start with the new equipment markets. I'll start with Asia Pacific. Markets overall in Asia Pacific declined slightly as a result of a decline in the important Chinese market. At the end of this, I'll address the China market a little bit more in detail, so I jump over it now, just address the rest of Asia Pacific. Rest of Asia Pacific has grown because of growth in India and Australia.
If you look at Europe, Middle East and Africa, here we have seen a continuation of the improvement in our markets, in particular in Europe. In Central and North Europe, markets continue to grow at a good rate, whereas in South Europe, we'll continue to see more stabilization of the market. Spain growing slightly and more stabilization in particularly in the port market of France. Also Middle East, there's been continued growth opportunities despite the uncertainty in the region. In North America, markets have now already for several years been growing at a good rate.
They are at a good level overall and continue to grow slightly from there. So what we can see, if we look at new equipment markets from a global perspective compared to last year, we see a good level of activity in both Europe and North America, whereas then some of the Asian markets are slightly more uncertain with the China. So if we can address China, we will pause here and address that a bit more in detail. In the Q2, the Chinese market declined by about 5% if you measure in volumes. That's a slight improvement compared to the Q1 when the markets declined at about 8%.
So year to date, we are somewhere around 7% decline. However, if you look at the market development, if you measure the monetary value, then the decline was in the mid teens. So here, we, of course, have the volume decline but also continued price pressure, which has continued more or less at similar levels to before. But what we've seen an increasing trend is that customers are selecting lower specification products or more affordable products, which has meant that average selling prices have been coming down. But we have a good confidence also in these segments.
So that perspective, we have continued to develop largely in line with the market was our development in Q2. If you then look at the various parts of China, how it's developing. As we have discussed before, the situation in Tier 1 and many Tier 2 cities continues to be good. In fact, if we look at the inventory levels overall in Tier 1 and Tier 2 cities, they are at very healthy levels. I think we are overall, you look at Tier 1 and Tier 2 cities, at the lowest inventory levels for about 7 years.
So their markets continue to be healthy. Growth is spreading more to Tier 2 and some Tier 3 cities now as a result of the cooling measures that the government has taken in Tier 1 cities. We can see that in here, urbanization continues, and people are moving more and more into these cities. However, if you look at the lower tier cities, here, inventory levels, although they are improving, they continue to be rather high, and therefore, that is impacting our overall sector. It's residential the residential market that is declining, particularly affordable housing, whereas commercial segments are more stable as well as infrastructure.
As you also have followed, if you look at the property markets overall in China, they have improved during this year. Sales area, total sales area for real estate has improved by about 28% in the first half of the year. New construction starts are up 15% and total real estate investments are up 6%. So then you ask why are we not seeing a better improvement in our sector, but we can see that still in many of the lower tier cities, many of the developers are focused on reducing inventories where demand continues to be good in many of the higher tier cities. What has Enkone's approach been here?
As I mentioned, now in Q2, we developed largely in line with the market. We look at our development on a long term basis and want to maintain healthy long term fundamentals in our business. We are looking very much at finding good opportunities and, as I mentioned, maintaining healthy business principles. And that we have done. And looking forward, of course, our ambition continues to develop now.
I would say that the development we have had so far has been very much in line with what we have planned and what we have expected. The most important thing with China is that our distribution is strong, and we can see as you can see from our results, our competitiveness is in a good shape. So a little bit more in detail about new corporate markets and then more in detail about the important Chinese market. Let me then next turn to service markets and start with maintenance. If we look at Europe and North America, we can see very much the same trends.
Markets are growing in this region, although there's clear variation between country to country, and price competition continues to be intense. However, Asia Pacific markets continue to develop positively, and that's, of course, a result of high new equipment deliveries over the past years. In modernization, as you probably remember, we started to talk about improvement in the market towards the end of last year, and this with FNDC. Modernization markets are now growing at a good rate in Central and North Europe, and South Europe are stabilizing. In North America, modernization markets are growing slightly from a good level and the same situation in Asia Pacific, good growth from a good level already.
If we look at our markets overall, modernization improving, maintenance continues, a good development and then new equipment better in Europe, continued good in North America, whereas a bit more challenging in Asia Pacific. So a good mix of various market situations. And with that, let me turn then finally to our outlook. If you look at our overall market outlook, that has remained unchanged. Asia Pacific, we expect the Chinese market to decline by 5% to 10% measured number of units, and the price competition will continue to be intense.
We have maintained this 5% to 10% despite the fact that the market slightly declined slightly less in Q2 than Q1. If the momentum in the property markets continue towards the end of the year, they're probably going to be at the slightly better end of this range. But now first half, we are exactly in the middle of it. Restoration Pacific, we expect to see some growth because of India and Australia. Europe, Middle East and Africa grew slightly because of growth in Central and North Europe, more stable in South Europe and the Middle East.
And North America, particularly some growth from a good level. In the maintenance markets, very much the same trends we've seen so far. Growth in Europe and North America, although variation between markets and good growth in Asia Pacific. Any modernization, continuation of what we had in Q2, some growth in Europe because of good growth in Central and North Europe and both North America and Asia Pacific growing. And with that, finally, I go to our business outlook, which we, in terms of EBIT, have slightly upgraded.
Our sales outlook remains unchanged. Here we say that our sales will grow between 2% 6% in comparable currencies. Our EBIT, we expect to be in the range of €1,250,000,000 to €1,330,000,000 and now assuming a translation exchange rates remain at the level of January to June 2016. Previously, our previous range was €120,000,000,000 to €320,000,000 If translation exchange rates stay at this level, then we are looking at a currency headwind of about CHF 40,000,000 for the full year, whereas our previous outlook, that would have been about CHF 30,000,000. So we have a little bit more currency headwind than we expected during Q1.
But given the good performance we have had in the 1st 6 months, we slightly upgraded the EBIT outlook. So if I look at some of the highlights for the Q2, here I will say the strong growth in Services is the first highlight and both in modernization as well as in maintenance, good growth. The second point I would highlight is the growth we had in all other geographic regions apart from China, which largely compensated for the decline in Chinese orders received, so we can see good broad based development and then the fact that we grew at a good rate and that our growth was profitable. So those are some of the highlights and our outlook. And with that, we have now a good time to go into questions.
Thank you, Henrik. Do we have to start with questions from those present here in Espoo, please?
Pekka Spondre from BNP Financial Group. First, about China and the pricing again. When we look at the decline in units and the decline of value of the market, and my question is about how much is the price erosion if we talk about how much the prices have declined? And earlier, it was discussed about something like 5%. Is it still around 5% or more?
On a like for like basis, we are probably roughly 5% ish. So you have probably 3 parts of the market decline. It was about 5% now in the quarter. Then you have the like for like price decline. And then also, you have this mix effects from those specification more affordable products.
So each of them contribute not exactly, but very roughly similar amounts.
And your own pricing policy in China has changed in the Q1?
As you can see from our cash flow and our profits, through our cake, of course, profits don't come through straight away, but we have maintained healthy business practice. And you can see, therefore, that we have a good overall development. Our focus is to make sure that we maintain a healthy business over the long term. That's the most important point for us.
And the second question about the European market. If you compare the situation today versus 3 months ago in Europe, would you say that sentiment has improved or is it stable?
In Central and North Europe, I would say it's pretty much the same. Perhaps during the quarter, markets grew a little bit better than we had expected. But overall, I mean, Germany, Sweden and other markets continue to be strong. Clearly, England has or UK has been a strong growth market there. Probably going to see a little bit more uncertainty.
So on balance, not a huge change. And in South Europe, I think the good thing is we've seen a continuation of the stabilization of the market. So perhaps some balance similar to slightly positive ish.
And finally, you already referred to U. K. What's the role of the U. K. Market as a whole?
U.
K. Is one of our top 10 market in terms of sales. We have a strong and good order book in the U. K. Course, quite a lot of business also there comes from our services.
We, of course, have to see what the impact will be of Brexit. In discussions with customers so far, it seems that standard residential construction continues at a good rate. We will probably see slightly more uncertainty on commercial construction. But it's too early to say what the impacts are, and I think we have to yes, I don't think anyone really knows what the impacts will be.
Okay. We are then ready to switch to questions from those present from the line. Operator, I'm handing over to you, please.
Thank And we will now take our first question from Antti Suttelin from Danske Bank. Please go ahead. Your line is open.
Thank you so much.
I would like to ask about
modernization. What is going on? Because that was the really strong spot of the report, almost 20% growth in sales. Is this really pickup of the market? Or is this market share gain?
And is this sustainable? Or is this kind of a one off as we should take it?
Yes. Antti, as you probably remember, our orders received started to grow during last year already. So it's of course, in sales growth, it's a good order backlog that we have that is coming through. But why are we growing so well? First of all, the markets have particularly well, both in Central and North Europe and in South Europe, where they're more stable, they have improved compared to where we were a year ago, and we continue to have good markets both in North America and in Asia.
As you know, we have focused a lot on our competitiveness in modernization, everything from our sales management, sales processes, our offering and our overall process in modernization. And I would say we can see that what we have done is producing results. I can't say exactly what our market share has developed because it's not a market where you have good data on a short term basis, but it clearly seems that we have developed well compared to the markets. If you look at the modernization market from a longer term perspective, given that we have had pretty constant growth of our new equipment markets over the past 20 years. It's clear that every year, there will be more and more equipment than the previous year that reaches the age of 20 years.
Not that there is an exact time, but it just indicates that the modernization needs will increase each year. And we also know that there's been a little bit of a pent up demand in Europe that we're starting to see coming through as well.
All right. And then on China and the stimulus that you referred earlier. When I look at the numbers from China, what I see is a fading impact of the momentum. If I compare the early start of the year versus the latest month in June, it seems that the stimulus impact is clearly fading now. What is your view on that?
And how sustainable would you consider that the kind of apparent improvement of the Chinese market is?
You have when you look at the growth rate year over year, you have to remember that real estate transactions have grown now for over a year. So that means also that the comparison points start to be higher. But perhaps the stimulus impact was higher early in the year. But what I think is the most important point with the Chinese market is that if I look at the inventory levels, as I said, Tier 1 and Tier 2 are at very healthy levels, and they are improving. While they are still at quite a high level in many lower tier cities, they are improving there.
You can see that when there are jobs, when there are infrastructure in cities, then people do move into them. So and that is what it seems that developers are focused now on reducing inventories in these cities, which is, of course, a good and healthy thing for the market over time. But if you look at the growth rates months over month, yes, they're not quite as high in the past months as they were early in the year, but still the development is in the right direction. Yes. All right.
Thank you very much.
And we will now take our next question from Ben Maslin from Morgan Stanley. Please go ahead. Your line is open.
Thank you. Yes, good afternoon, Henrik. Three questions, please. Firstly, the very strong margin you delivered in the quarter, can you give any more color around the drivers of that? Because you've seen similar growth and mix in previous quarters with a much less significant impact.
So was there anything specific in Q2, raw materials, mix, etcetera, which drove it? That's the first question. Thank you.
There wasn't anything specific. I would just say that we had a good execution on a broad basis. So nothing of a one off character. Raw materials, yes, that's been a tailwind now for a while already. But naturally, the impact of reducing raw material prices has also been one of the reasons for the price pressure in the market in China.
So is there a tailwind or headwind? It's a difficult thing to say. But we have constantly been able to improve our competitiveness, improve our execution, and that you can see in our results. I will say that we did we had a good overall execution in the quarter.
Thank you. And maybe a follow-up on that. I mean, in terms of your commentary that said that pricing intensified during the quarter, was weaker in Q2 relative to Q1. I mean, why would that be the case when end markets now are showing signs of some stabilization and the key commodity prices sequentially improved during the quarter. Why would pricing get worse Q2 versus Q1?
The competition for market share continues to be tough. That is just what we have observed. I would say it's a combination of price pressure on a like for like basis and also then a mix change toward more affordable products. That is just a the market is highly competitive, and that's the trend that we have seen.
And then just finally, you did I think organically, you've done about 5%, 5.5% growth in the first half of the year, and you're guiding for 2% to 6% for the full year. So the midpoint would suggest a slowdown in the second half. Is that just you being prudent? Or do you see sales growth slowing as you go through the back end of this year? And I guess I'm asking particularly around China.
If your orders are down organically 15%, including volume and pricemix, at what point would that start to go negative?
As you know, the lead time from orders to deliver in China is, let's say, on average, 6 to 9 months. But clearly, the reduction in orders to see it will start to have an impact towards the end of the year. We have given a range. That's the range we expect to be in. That's our best estimate without saying where we are going to be in that range.
But clearly, if you have in a certain market declining orders to see it at some point, it comes through in sales.
And
we will now take our next question from Claus Bergelind from Citi. Please go ahead. Your line is open.
Yes. Hi, Henrik. It's Claus from Citi. A couple of questions, please. Firstly, just to get back on China pricing.
So units are down 5%, and in monetary terms, you're down 12% to 13%, if I get this right. You're falling in line with the market, both in units and in monetary terms. So that would be a 7% to 8% fall in pricemix versus previously 3% to 5%. Is that correct?
As I mentioned, there are 3 different factors here. So one is if you look at price like for like price decline, probably somewhere around and very roughly, I'm not giving exact numbers here, but very roughly 5 ish percent plusminus. But then also this kind of mix shift that, of course, it has an impact to the average selling prices.
So just the pure price here, if that was down 5%, last quarter, was that down 3% or 2%? Or when you say that pricing is getting weaker, is it only mix that is getting weaker? Or is it also the absolute price level?
I would say, unfortunately, a bit of both.
A bit of both. Okay. Then when it comes to China and the market, if I look back at the year over year comps, it seems like you get 3 percentage points just on the comps. If the market is down 5% today and that compares to 8% down last quarter in the Q1, that is effectively a flattish volume quarter on quarter. Is that correct?
We haven't seen any improvement from the increasing housing start impacting the market yet. I just want to confirm that.
No, we have not seen it. And you have to remember that housing starts in our industry were negative in both, if you look on full year basis, both in 2014 'fifty. So we come with some of the delay because you can bring the standard residential, you order the elevators quite at an advanced stage of the project.
Okay. Then to come back to one of Ben's questions on the guidance. You leave the like for like growth unchanged despite services continuing to improve here. This is obviously short cycle in for out. So shall we expect a slowdown in services in the second half?
Are you tougher comps? Or what are you seeing there?
We had a good growth in our particular maintenance business last year. I'm not guiding any specific business. I think we have a pretty specific and good range to indicate, And I think that's where we you can see what you can see from our guidance is that we expect a good development also in the second half of the year.
And we will now take our next question from James Moore from Redburn London. Please go ahead. Your line is open.
Yes. Hi, everyone. Hi, Henrik. I've got a few questions. Just on the raw material and the direct material was wondering whether that has moved favorably.
And if you could help us on was wondering whether that has moved favorably and if you could help us on that. Secondly, on the modernization margin, given the excellent revenue growth you're seeing there, my understanding is it was low single digit last year. And has that increased a lot? Could you help us perhaps think of the change in modernization margin?
Let's start with again, this material, you have to remember that we buy very little material directly ourselves. I mean, we buy components from our suppliers. And of course, as raw materials come down, but that has an impact on the component prices. Of course, we continue to work with our suppliers on the design and how we develop to find savings there and to find better performance. If you can see as you can see from our development, we have been able to develop in a positive way both our product cost competitiveness as well as our overall execution.
So it's difficult and I don't think it's relevant to start breaking down breaking out individual numbers there because it's, of course, all comes to a total competitiveness relative to the pricing you have in the market. In modernization, last year, we had a slower top line growth. However, we started to grow our orders received towards the end of the year, and we have good growth now in modernization orders received beginning of this year. This is a more short cycle business, let's say, 3 to 6 months on average from order to delivery. So you can see that coming through in sales now.
If you look at the margin, yes, there's good growth in sales and our improved execution has improved our margins in modernization. But it is a lower margin business than both new equipment and maintenance.
And in terms of modernization growth, the 20% or near 20% you've seen in the first half, you sort of talked when you were talking about trends of a continued good growth. And then later you said maintenance comparative is difficult. Do you expect modernization growth to continue at the high level in the second
half? We have very strong order books without giving any specific guidance on it. We have a strong order book that we can deliver on during this year. Of course, modernization is something we need to continue to book also orders because we're still a big part of the modernization business that we have to do in Q4 is is something we still need to book as orders during this year. But we have a good and healthy order book there, too.
Helpful. And finally, just on China. You mentioned the mix, which is sort of average selling price on affordable housing. I get the change in pure price, but was that mix effect there? Or was it 0 in the last quarter, and the Q1 against the 5 you called out for this quarter?
Sorry, can you repeat that? I didn't quite understand your question.
Yes. You broke down the Chinese organic growth into 5, 5 and 5 volume, price and mix. I'm just specifically asking about the mix piece of that, where you mentioned the average selling price relative to affordable housing. What was that mix effect last quarter? Was that a 0 last quarter?
Is that a change?
It's not only affordable housing. It's in all segments, I would say, slightly lower specification. It was probably less in the Q1 than it was now. There was some impact of that, but it was less and it was a little bit more now than last year and the Q1.
And we will now take our next question from Guillermo Pignot from UBS. Please go ahead. Your line is open.
Good afternoon. Just maybe a couple of questions. One really regarding the China aftermarket growth. I just wonder now that very healthy growing 25%, but the order bookings or the orders are declining. And obviously, I understand there is a time lag between installation and service.
But shouldn't we see a slowdown, a material slowdown on the aftermarket growth maybe not 1 year out or maybe even more than 1 year out?
We have a good order book, and we're still delivering a lot of products. So and the higher your service base is, of course, the more challenging is to achieve growth on that year over year. The good thing is that the backlog we have of units in 1st service to coming into the service base is very strong, and we have healthy deliveries. So over time, yes, you will have a slowdown in the growth of the maintenance business as the base gets larger and larger. And that we've seen already, but I would say we have a quite large maintenance business already that we are growing now at 25% per annum, which is, I would say, a very good rate.
Okay. But installations are now falling, I guess, or no installations for orders. So therefore, maybe 1 year from now, installations will fall as well. So presumably, you'll see that deceleration earlier than anticipated?
We of course, we have to see we have many levers in our service business that we can work on, including can we improve our conversion rates. We still have a lot of potential to do in that business. So of course, that's our objective, to continue to drive a good growth in the maintenance business in China.
Okay. And then one second actually. Obviously, now you see all how the market is declining in terms of volumes and pricing. So I wonder what actions are you taking in terms of restructuring to keep the backlog margins at healthy levels as you suggested? So is there any actions you're putting in place to your capacity, to your employee headcount or supplier optimizations or anything that you are putting in place in order to mitigate pricing pressure or sorry, margin pressure?
Of course, when we look at, as I say, cost competitiveness, it's something we've been working on every year all the time, and we continue on that. Of course, we need to, all the time, look at the fact that we keep a good cost structure in our business, and we have resources when they're needed. The good thing is that given how we're growing our service business, and service is a more labor intensive business than new equipment. Therefore, in areas where new equipment markets are weaker, we can then take people who are very experienced and good in our industry and put them over to service. From that perspective, we have a and as you know, most of the installation is subcontracted.
So we have a pretty flexible structure. But of course, when markets are weakening, of course, you look at your costs and what you can do. But we have to remember, we have an order book. We can see I think we've been able to predict pretty well how the market has developed. So there's we are not looking at any drastic or quick actions here.
It's a continuous development that we have been working on for a long time already.
Thank you. Thank you very much.
And we will now take our next question from Manu Rimpela from Nordea. Please go ahead. Your line is open.
Okay, good afternoon. It's Manu Rimpela from Nordea. The first question would be on the U. S. Have you seen any improvement in the maintenance pricing there?
As you know, we've seen an improvement, particularly in new equipment and in modernization. The good deliveries we've seen in new equipment has only started to come in now to the service base. So perhaps some slight reduction in the price competition, but it continues to be a very competitive market there, but perhaps not at quite the same level as we saw, for example, last year.
Okay. And then on China, I think you in the Q1, you mentioned that you expect the orders to be more evenly distributed through this year. So would you still agree with that comment? And is there any kind of read through from that comment we can make into the second half of the year that would you expect volumes to be on a kind of first half level in the second half of the year as well? Or is there some sort of a clear seasonality in China that happens every year that we remember when thinking about those comments?
I believe what your comment was more from relative perspective. So if you look at China, it's a market where first half of the year tends to be larger in terms of orders. You see second half larger in terms of deliveries. That trend is not going anywhere. I think when I've commented on that, I mean, if you looked at even though we don't break down usually our market share in parts of the year, our market share usually during the first half of the year is slightly higher than the second half of the year.
And the comment I made then is that perhaps this year, we see a more even development relative to the markets.
Okay. Okay. And then finally, are you seeing any when you're
mentioning this shift towards lower price point units in Chinese markets, are you seeing that the competitors are having the similar type of exposure as you are and they are able to respond to the demand? Or are you kind of seeing that Kona is in a better place to maybe return to growth outgrowing the market in this dynamic? Or how do you feel that you are positioned compared to the competition?
Well, I think we have a great positioning. As you know, we are clearly the largest player in the Chinese market. In 2015, we increased our market share by almost 1.5 percentage points. And so we are constantly growing now first half of the year. We have not outgrown the market.
But if you compare our scale, our product competitiveness, our distribution, we are in good shape, I would say.
Okay. No further questions. Thank you.
Thank you.
And we will now take our next question from Tom Skogman from Handelsbanken. Please go ahead. Your line is open.
Thank you and good afternoon, Henrik. I got a couple of questions starting with the competition balance in the maintenance. Can you give any comments about the development there and the outlook for the second half, especially in
Europe? It's again, this year, we have been able to improve it. It is still slightly negative if you look year to date, but we are constantly going in the right direction. I'm particularly pleased with the improvements we're seeing in South Europe. So we can see that the actions we are taking are the right ones.
Thanks. Can you confirm still that the modernization EBIT margin is lower than in equipment on a global scale, but that is better than equipment in Europe.
Well, I would just say that it's in new equipment, we have a better margin overall. It may then slightly differ from market to market. But overall, we have a better margin in the equipment than in modernization. But modernization is with the growth we're having and the improvement regarding the business, we go in the right direction.
And then finally, I give you a chance to elaborate a bit about your IT investments. You have announced a lot of recruitments and you have announced cooperation with IBM. And now I wonder whether you have anything new to tell us what kind of new products and new revenue streams can we expect? What kind of findings have you done so far?
What we are doing is that we have a lot of, I would say, very exciting new service concepts for our customers and also solutions. We are testing many of them out to the market. We can see with good results. But remember that we have more than 400 close to 450,000 customers at KONE. So you don't change those contracts and how you work with them overnight, but you will start to see a gradual improvement.
And that's a change you will see over the coming years. In this industry, you don't see it happening overnight.
But is it kind of fair to expect that the benefits 3 years ahead will be mainly in efficiency, getting costs down and billable hours up? But then beyond 3 years, or would you say it's even more beyond that, that we should see new revenue streams?
I would say the most important thing is, yes, we will get productivity and quality into our business. Most important thing we're focusing on, how can we serve our customers and deliver solutions that are very specific for their needs in a better way with having a more connected and data driven business. That is where we drive the value. And yes, it will, of course, help us to be more efficient and deliver in a better way. But it's margin to expect, it's only the cost side.
We are very focused on how we find better services and ways of delivering value to our customers.
And we will now take our next question from Andre Kukhnin from Credit Suisse. Please go ahead. Your line is open.
Yes, good afternoon. It's Andre from CS. Thanks very much for taking my questions. Can I just quickly check on the service growth acceleration that you saw in Q2 versus Q1, was there anything kind of unusual in there? Was it maybe the day count effect that helped?
And was there any kind of difference by geographies in development there versus Q1?
I don't think I'm also haven't counted the base compared to last year. I haven't but there was nothing specific. There's always a little bit of seasonality. You have to remember that end of last year, Q4, we had a very strong growth in maintenance, then it was a little bit slower Q1 and now a little bit better. So of course, you can always have quarterly fluctuations.
I wouldn't so much look at quarterly fluctuations. It's more important to look at how trend wise it's going. So I think we are at a good growth rate of more than 6%. And Q1, we were slightly above that. Q4 last year, we were clearly above that.
So you I would put it down to quarterly fluctuations, not much more than that.
Great. And a couple on China, undoubtedly. On the your incentive structure to distributors, did you change anything in Q2 in China?
Not really, no.
Great. And against the 2 brands, Kony and Giant, were both of them in a negative territory in Q2 year on year in volume terms?
As you know, the reason we have 2 brands is that sometimes it's the Kona brand doing better and sometimes China Kona brand doing better. It kind of varies from quarter to quarter. Now if you look at overall China, it's perhaps the larger brands are doing slightly better because they tend to be more exposed to the larger developers who have a better overall situation. So in this quarter, therefore, the KONE brand had a slightly better development largely because of the customer exposure that we would have there compared to Giant Kone.
Very clear. And can I just check against that 555 that you've talked about in terms of orders, volume, price and mix, your numbers suggest that you're not at 5.5 5, you're at sort of adding up to around 10, 11 in Q2 altogether? Is this and then your units are in line with the market. So between the price and mix, are you outperforming on 1 or the other? Or is it kind of equal just to confirm against a pretty similar question earlier?
Look, we haven't, of course, announced exactly our growth rate there. But again, please, please don't take literally exactly this 555. It's a kind of magnitude. All of them are kind of either plus or minus. So do not take it that literally.
So if you add them up, you come to a specific number. It's not that specific. So I can't say exactly how the market would have been exactly compared to us. But what you can see from our cash flow, our result is that we are focused on maintaining healthy principles in our business.
Got it. Yes, that was both just to double check whether we take those numbers or not. And finally, the comment on backlog margin, obviously, that's forecast margin from your backlog. And just to confirm, this is basically you're saying that the margins that you expect to see from the backlog into revenues are comparable to your current margins that you're delivering in revenues right now. Is that the right way to take that?
That's what we indicated, of course, on a gross margin level where we can see we have had them relatively stable compared to where we've been previously Despite the fact that we've seen price competition, that means we've been able to have a good development in our overall competitiveness, something you're going to foresee from our results as well.
Great. Thanks very much, Henrik.
And we will now take our next question from Martin Flueckiger from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Hi. Martin Flueckiger from Kepler Cheuvreux. Thanks very much for taking the question. Just 2 left really.
First one, I would like to come back to your performance in EMEA. It looks to me like underlying growth here is not really picking up. And if I remember correctly, we've seen improvement in the market environment now for a few quarters. If you could just remind us what the most or whether the developments were in market or order intake growth in EMEA in 2015? And whether and when, if you do, you expect a pickup here?
That would be my first question. And then the second one would be on your
Let's take one at a time. It's Mike, you can take one at a time. So you referred to our sales growth in EMEA. We were able to grow our orders and see it at a good rate in Central and North Europe last year, was more mixed in the Southern European markets. But we have an order book that has grown year over year in Europe and Eastern Africa.
I would put the fact that top line growth was only slight, I would put that down to quarterly fluctuation is nothing more specific in that. Sometimes the structure of the order book little bit changes with what types of projects you have and when they come through and so forth. So it's important more than that.
Okay. And then the second question would be
on the U.
S. You've given us some hints on your performance there and why you think you've been doing so well. But could you elaborate a little bit more on that? I'm curious what are really the main reasons for Kona's significant outperformance in the Americas, do you think?
It's not down to one thing. I would say it always starts with having good leadership and focused actions in the market. If you look at how the new equipment market has been developing over the past years, we have a good competitiveness in the good segments, and we have been able to develop that. In North America also, what is so important to your competitiveness is the execution in the field. And we have been able to develop that in a good way and produce value to our customers.
So it's not only one action, but it starts from clarity of direction, what is important, what are we doing, developing constantly your product offering and competitiveness, which we'll be doing. And U. S, very important, the execution. Given the high labor cost content in the U. S, execution is hugely important.
And there, we've seen good development here over the past years.
And we will now take our next question from Glen Liddy from JPMorgan. Please go ahead. Your line is open.
Good afternoon. You've been clearly very successful in all your cost saving measures. Can you quantify either so far this year or over the last 12 months how much you've actually saved in money terms from all your cost cutting actions?
It's always we can see that we have had good development. I wouldn't just call it cost cutting actions. I would call it how we develop our offering and find new solutions or new components or new ways of doing things. And that has improved our overall competitiveness. And that we have been doing for many years already.
And as you can see from the good development in our new equipment market, we're probably even a bit ahead of the curve, how we have developed that compared to the price competitiveness. So just you can see good execution there. But I think you can't difficult to quantify the exact amount. It is significant. But I would also it's not only about cutting costs.
It's about focusing on do you have the right offering to meet your needs of the customers, really understanding where the good opportunities are, staying very close to the markets, understanding our growth and picking up the right opportunities, that's where we put a lot of emphasis. And the better we can deliver value to our customers, the better we will develop. So it's a combination again of all of these factors.
Okay. And in China, you grew less than the market or your decline was bigger than the market in Q1 and you're in line with the market in Q2. Have you made a specific decision about market share that's acceptable or not? Or is that just something that will fluctuate quarter by quarter?
As you see and as you know, for us, very high focus to maintain healthy business fundamentals and that we have done. You always your development will always fluctuate from quarter to quarter as it always has done for us. Sometimes we outperformed more, sometimes less. Now we have had first half of the year, first quarter a little bit below the market, now more in line. So again, you're going to always have this fluctuation.
But there's not a specific I
don't think it's more than that.
Decision, okay. And in terms of the conversion of an OE sale to an aftermarket contract in the different regions. Is that changing at all? I mean, you want to grow the aftermarket in China clearly. So is your conversion rate improving in China?
And is it stable or improving in markets like the U. S?
In the U. S, we probably improved it a bit. In China, it has been more stable. In Europe, in most markets, already at a very good level.
At
duration. Okay. And finally, the duration of your backlog in China, I know you don't give it in number terms, but is it changing at all, getting better or worse?
In terms of the overall order backlog?
For China, yes. The overall backlog, is the length of delivery time changing at all?
Not materially. There are slightly different trends there, but not materially not a huge difference in order delivery times.
And we will now take our next question from Piotr Osywich from IronShield Capital. Please go ahead. Your line is open.
Hello, and thank you for taking my question. Just a quick follow-up on the cost control measurements. Like in particular, like how well, in China, you are seeing the increasing price pressure. To what extent are you able to pass on those this price pressure on to the suppliers? I mean, looking at the select fairly weak commodity outlook and obviously, the suppliers being competitive as well, like to what extent do you do can you compensate for the margin decrease by also asking lower prices or looking for new suppliers, switching to local suppliers?
Like how much of this you can do?
Of course, that is one of the things we've been doing a lot of. But it's not only about you, of course, have to look at new components and new ways of doing them all the time. We have a good situation at KONE given that we have a quite a harmonized product portfolio and we have bigger volumes. So that gives us a good situation in the market. If you look at our overall margin for KONE, you can see that we have had a good development in all these aspects over the past years.
And of course, we continue to have high activity there right now. But do you think that this is something that you have more
or less done in the first half of the year? Or you think that there's even more to come in this regard?
This is something we've always been doing. It's not something that you do and then it stops. That's not how business works. Over the past years, we clearly have everyone in our industry has had more tailwind from raw materials that has reduced component prices. That tailwind isn't there in the same way it's actually a headwind in some cases.
So from that perspective, price is a little bit less. But of course, we continue to develop our products every day.
Okay. And last question on this one.
Like do you are
you seeing yourself using more local suppliers, especially in China? I mean, can you get better deals from them?
We have used I mean, what we our Chinese products, almost all of the suppliers are local. Some of them may be international companies, but they make them local in China. We have very good supplier base there, very experienced high quality good suppliers in China. Some of them are local Chinese companies, and some of them are international companies but with operations in China. Okay.
Thank you. And
we will now take our next question from Tommy Reylo from SEB. Please go ahead. Your line is open.
Hello, Henrik. It's Tommy from SEB. Can you comment on the currency impact? Any currency impact from weak yuan in terms of your orders, revenues or profits in the second quarter?
That's clearly one of the reasons for the currency headwind. It's clear that the Chinese RMB is a very important currency for us from a translation perspective, and we have good margins in China. So clearly, that has an impact, and that's one of the reasons for the foreign exchange headwinds that we have.
So you have added €10,000,000 Is that purely from the Chinese currency in the second quarter? And do you expect further impact in the second half?
I can't, but I don't know where I can't predict. I don't know where currencies are going. That's why we always look at the 1st 6 months where we are and take that as an average. I think the average and where the spot is now, perhaps the RMB is slightly below, but it's not too far away from the average year to date. But I think we have to see.
I'm not going to predict currency movements.
And then perhaps on the market direct question on China. Would you call that the market has troughed, I mean, minus 8% in the Q1, minus 5% in the second. You're repeating the comment, 5% to 10% market decline. What's your outlook for the second half in particular?
Well, I think if we have 7% year to date, first half of the year, we have 5% to 10%. So we are smack in the middle, so we're going to be somewhere in that range for the rest of the year. What I said already is that if we have a continued good momentum in the property markets for the rest of the year, we're probably going to see somewhere at the better end of this range, But if not, then somewhere within this range. So let's see. I think it's quite a tight range already.
And we will now take our next question from Lars Rasmussen from Barclays. Please go ahead. Your line is open.
Hi, thanks. Hi, Henrik. Hi, Catri. I had a couple of follow ups on some of the topics that have already been discussed. Henrik, just on the China market volumes, I wonder whether you could tell us sequentially in Q2 versus Q1, how the new equipment volumes in China developed ideally on a seasonally adjusted basis?
Did you actually see growth quarter over quarter in the market as a whole?
Again, as I said, you have seasonal fluctuations. What is relevant to look at this compared to last year? And the market, from a volume perspective, was slightly better in the Q2 and the Q1. So I think that is the key point.
And is the I understand, and I don't want to pin you down, but it sounds like you're obviously quite optimistic that, that sequential recovery can continue on the basis of what we see in the leading indicators. With what you see, are you more confident that Tier 3 to 5Cs start to improve from here? And perhaps that we see a bit of a cooling down on Tier 1 to 2? Or do you see sustained momentum in that? And perhaps if you could also just touch briefly on what you see on the affordable housing segment, that would be helpful.
Well, I think what we are seeing is exactly as mentioned is that Tier 1 cities, because of the cooling measures that the government has taken, you probably see a slight slowdown. But then the growth is definitely spreading to more Tier 2 cities and the Tier 3 cities. And also, we can see that if you look at lower tier cities overall, the inventory levels are going in the right direction. So that's the overall trend that we see at the moment.
And just on your market shares in Q2, I mean, I appreciate your comment that obviously in any quarter there will be fluctuation. But you did highlight in Q1 that you were holding back on pricing versus earlier years where you started the year incentivizing your sales force to drive greater new equipment orders in the beginning of the year. Other companies or other competitors weren't following suit. I think Bar1, other OEM, they were mentioning the same. Should we then surmise that your in line performance in Q2 is really more a function of others being more disciplined?
Or per your earlier comment, is it really more a matter of mix that you're gaining from a slight trade down into, should you say, the mid in value range?
I would again put this dividend perspective now. We're looking at 1 quarter. You always have fluctuation for quarter to quarter, how your backlog develops and how your tender rate develops. I would say we did, overall, very much in line as we had planned. And I would say at KONE also, we did overall from a global perspective as we had planned.
We know that the Chinese market is more difficult, so we put a lot of efforts on growing in a good way in other parts of the world, and that we have done. So I don't think it makes now sense to try to go into some minute detail of why we did slightly better or slightly worse in Q1 or Q2. You always have this fluctuation.
Understood. On that note, let me just ask one final question on the modernization market. I appreciate your modernization business is a bit skewed towards Northern Europe, which obviously is doing very well. You also talked about a reorganization in North America that may have supported your modernization business. To what extent is the outperformance you're seeing in modernization a function of your push into more standardized, harmonized product portfolio?
It seems to be a little bit earlier than your peers there. Are you benefiting from what you did on the new equipment side a few years back? And on that basis, do you think you can sustain that outperformance versus peers in the modernization market?
What is, of course, important is you have standardized products and you that way, you get volume benefits. But at the same time, it's I would say the most important thing has really been how we go to market and how we make sure that we can deliver on the better product offering we have. But that's where we have focused a lot again is on our how we deliver value to our customers, how we manage our sales to be able to do what is relevant and find the good opportunities. Those are, I would say, the most important things we've done in the modernization business. It's a market where there are lots and lots of small to midsized opportunities.
Understood. Thanks, Henrik.
Thank you.
And we will now take our next question from Rizk Mady from Berenberg. Please go ahead. Your line is open.
Hi, Henrik. Hi, Catri. Two quick ones for me on China. I'll take one at a time. So firstly, how big is the service business given the 25% increase?
Is it still less than 10% of revenues?
Services in China is roughly 10% of revenues at the moment.
Okay. And then secondly, on pricing on the maintenance in China. Have you seen any changes recently there?
I would say more stable. Of course, we also see competition there given that the new equipment markets are weaker. We have a good situation and a good maintenance business in China overall.
And we will now take our next question from Matthew Spur from Royal Bank of Canada. Please go ahead. Your line is open.
Good afternoon. Thanks for the opportunity to ask a question. Did you say I think in Q1, you said China sales overall were flat year on year. Can you say what that was in Q2? I can see Asia Pacific sales accelerated.
But are you able to say what China sales themselves did?
China sales grew somewhat in Q2.
Okay. And then I had another one. Just on your investment in the U. S, you say you're investing in facilities and R and D for developing products specifically for that market. You're already sort of outperforming quite nicely there and we're quite a way into this cycle.
What's sort of driving that investment now then?
We have a very large order book that we need to deliver on, and this helps us deliver on that in a better way. But also, I think, eventually, when the market is that strong, we will have a much better customer service and be able to much quicker react to market needs. So I think it's something that makes a lot of sense and would be a good improvement to our business in the U. S. For North America overall.
And we will now take our next question from Michael Kalakouris from BOA. Please go ahead. Your line is open.
Yes. Hi, good afternoon, Henrik, good afternoon, Catri. My first question just on your comment here on sales picking up a little bit in China in Q2 versus Q1. Just wondering whether you are seeing some of the orders that were maybe stuck in the backlog now being delivered as the developers are able to reduce the inventories or orders being delivered at the moment?
Not a huge change. I mean our deliveries in China have been constantly good. So we've been delivering our backhauls. Not a big change there, frankly.
Okay. Good. Thank you. Second question just on maintenance. So you print a very nice number again this quarter.
If we take out the China growth, which is maybe a bit exceptional at the moment, the growth of 3%, 4% elsewhere. Going forward, if you want to grow in the kind of 5% plus, I mean, what do you think is going to drive that? Is it the other markets that are going to pick up? Or do you think that you're going to have another growth boost maybe from converting more your installed base in China? What is the next growth driver for you in maintenance?
We have as you know, our new equipment business is growing in many places at the moment. So we expect we are growing our service business, our maintenance business in all geographic areas, so that's a good thing. And we are focused on delivering good value in maintenance, and therefore, we expect to continue to be able to grow. So even if you would have a lower growth rate in Asia overall over the coming years, still the share of it is growing. So that's contributing in that sense in a good way to growth.
So our objective is to continue to drive a good growth in our maintenance business over the coming years.
Okay. Very good. And just lastly, maybe a clarification on maintenance and China because we're leaving we're hearing sometimes some misleading indication on that market. And can you confirm that the margin on maintenance is above the margin on original equipment maybe first? And then as you grow with very good growth rate at the moment, are you able to improve the margin on maintenance in China?
Or because you have to invest a lot in the margins rather fast?
Yes. We don't break down our margins between maintenance and new equipment elsewhere. But what I would say is that we have good margin in all of our businesses in China, not very significant differences between them.
Okay. And with the growth that you're seeing in maintenance, are you able to get some I mean, not really operating leverage because it's a very outsourced business, but are you benefiting from density or anything driving the potentially driving the margin up in that sense in China?
Overall, our business in China, as you know, we don't break down overall the margins. But overall, we have had a good development.
Excellent. Thank you very much.
And we will now take our next question from Andre Kukhnin from Credit Suisse. Please go ahead. Your line is open.
Yes. Hi, it's Andre Kukhnin. Thanks very much for taking the follow ups. Can I ask a quick question on Turkey? How relevant that is to you at the moment?
And whether you what do you expect there in terms of impact from the recent events?
Turkey has been a good and growing market over the past year. It's still a small percentage of our revenues. So it's not a big country. And the impact of the recent events, I think it's too early to say. Of course, they're concerning.
But it has been a market developed very nicely over the past year overall.
And can you tell us roughly how big is market size there? It's the 4th in Europe
or 4th in Europe? In Turkey, it's quite large. There's a lot of local players that, if you look from volume perspective, are the largest. But I think we have been constantly able to kind of expand the approachable market for us, and that has been one of the reasons we've been growing well. But it's Turkey is a very significant market.
And young population, urbanizing population, it's a market country with good potential over the coming years.
Got it. And can I just pick up on a couple of things you said earlier? Firstly, you said that your margins in new equipment are up year on year, and the 2 biggest contributors were Asia Pac and North America. Are China margins up within Asia Pac as well?
Again, Anders, let's keep it at relevant levels. I think overall, we have had good development in our margins overall in our businesses. And of course, to develop well in our new equipment business, China is a very important part of that.
Got it. And I guess final on cash. Just we see it obviously building back up after the dividend. How should we think about it in the course of the next 12 months or 6 to 12 months?
We are comfortable having a strong balance sheet, and we think it makes sense to have a strong balance sheet in the type of environment that we have. And as you know, if the opportunities arise, then we are very interested in those opportunities.
And if they don't?
That we then have to see over time. I can't comment on what the board may think over time.
Got it. Thanks very much.
Discussion. I believe we have time for one last question, and then we need to conclude the call.
And we can now take our last question from James Moore from Redburn London. Please go ahead. Your line is open.
Yes, thanks for taking the follow-up. I just really wanted to follow-up on this China mix point. Could you explain again, I'm not sure I really understood as to what this minus 5% mix is? And will it continue at that level in the second half? Or is it some sort of volatile, lumpy event that's specific to the quarter?
It's not more difficult that in any products, you have things with higher specifications, and then you have products that are more standardized with lower specifications given the trends in the market some of our many of our customers have probably opted for, which are good products, very solid and good products that we deliver, but slightly lower spec out rate for the elevators overall. Nothing more than that. Probably that's something we're going to continue to see for at least some
time. And earlier, I think you said that the 555 that you gave us was not the right picture. Could you give us the right picture?
James, come on. I said that it's not an exact figure. I said they are all very rough figures just to see that the magnitude of them. So I don't take them literally each of those numbers.
Sure. But I understand that. But China is significant part of your business, and don't your owners have the opportunity to understand how it's moving? It's difficult when you say it's sort of that number, but it isn't really.
Hey, come on, James. I'm saying it's roughly that number.
Okay. Okay. All right. Thank you.
Thank you.
Okay. Thank you for the discussion, everybody. And we also hope that we will see many of you in our Capital Markets Day, which will be held on the 28th September in Helsinki, Finland. We can certainly continue the discussion there at the latest. So thank you, everybody, and we wish you a good rest of the day.
Thank you.