Good afternoon, welcome to KONE's Q2 results webcast. Present here in Espoo, Finland today we have our CEO, Henrik Ehrnrooth, and Senior Vice President for Corporate Controller, Roberto Molteni. I am Katri Saarenheimo 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. Let's start from the Q2 development presented by CEO Henrik Ehrnrooth.
Welcome also on my behalf to our Q2 results webcast. 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 2016. 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 have also been able to continue good growth in many markets to compensate for some of the large markets that are weaker. 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.
Let's go straight into the key figures for the second quarter of 2016. Highlight of 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 EUR 2,067,000,000. They declined at 5.7% or 1.9% if you look at it in comparable currencies. Our order book remains strong. It's at more than EUR 8.7 billion 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, was almost EUR 2.3 billion, growth of 2.8% or 6% in comparable currencies. 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 EUR 349 million, an improvement in the EBIT margin was good. It improved from 14.7% to 15.3%. Also, we can see that we have maintained good discipline in our business because our cash flow continued to be strong. Although it was slightly lower than last year, as I think all of you remember, last year in the second quarter, we had an exceptionally high cash flow. Now at EUR 393 million, it was good. Also, EPS improved from EUR 0.51 to EUR 0.54. As we always said, one quarter is a short period of time. Now we have half of the year behind us, we have a little bit more now perspective of how we're developing over this year. If you look at the first six months, we can see solid progress overall.
Our orders received a little bit over EUR 4 billion, declined by 5.6% or just over 3% in comparable currencies. Our sales also a little bit over EUR 4 billion for the first six months, growth of 3.1% or 5.2% in comparable currencies. If you look at the first six months, we can see growth has been good and profitable. We had EUR 570 million EBIT for the first six months and relative EBIT margin improved by 0.4 percentage points from 13.8%-14.2%. Cash flow, very strong for the first six months, almost EUR 700 million. Good improvement over last year. If you remember, in 2015, we had slightly weaker start in terms of cash flow, then exceptionally strong in the second quarter. Now we have had more even development throughout the first six months of the year. Our EPS improved from EUR 0.80 to EUR 0.90.
We know that many of our large markets are quite uncertain, at least on the new 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. That's clearly down to very strong commitment and dedication by our employees. Again, a huge thank to everyone at KONE for the great job they've done and for the results that we have achieved during six months of the year. 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 we were at EUR 2,068,000,000. Even though they declined, they were at a good level. This was the second highest level of KONE's orders received in KONE's history.
We achieved this despite a significant decline in orders received in China because we were able to grow in all other markets outside of China. Again, we were almost able to compensate that impact, and we can see that we are developing well on a broad basis if you look globally. Looking at orders received, we had strong growth now in our modernization business, and if you look at geographically, continued good growth in North America, where we grew in the double digits. We also had good growth in both Europe, Middle East and Africa, and Asia Pacific outside of China. 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. 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. That 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 a little bit over 3% in comparable currencies. 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, where it grew close to 20%. It is also good growth in our maintenance business, where we 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 second quarter. 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. 25% plus growth in both Q1 and Q2. We can see that we have good progress in that business. 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 EUR 349 million, 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. 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 EUR 15 million negative, a little bit less than EUR 15 million. We continued to increase our investments in R&D, IT and in key growth markets of the world. 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, we can see that the share of both modernization and maintenance has increased a bit, also the share of North America is increasing. All of this is good as it slightly balances more our overall sales mix. 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. We will have in the third quarter, we will have Thomas Hinnerskov 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 in August. He's someone who's been spending most of his career in the technology sector, but a very business-focused finance leader. Last week we announced that Axel Berkling, who currently leads our German business and has grown that business very successfully through very good leadership, is moving to become head of our Asia Pacific business as of beginning of October. Until that, Neeraj Sharma will continue to run that business.
These are all, I would say, positive rotations that will again help KONE develop well as we go forward from here. If we 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 will highlight here a couple. One related to the most competitive people flow 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 we have done in North America over the past years, and we are now also invested more in North America to support this growth.
In June, we opened a new R&D and 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&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, top modernization provider, as you all know, that is an area we have 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 have started to achieve towards last year already in orders received.
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 have decided to take, they are producing good results. If you then turn next to our markets, I start with the new equipment markets. I 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 will address the China market a little bit more in detail, so I will 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 are seeing 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 continue to see more stabilization of the market. Spain growing slightly and more stabilization in particularly the important market of France. Also Middle East, there has 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. 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, particularly China. Let me then address China. Take a pause here and address that a bit more in detail.
In the second quarter, the Chinese market declined by about 5% if you measure in volumes. That's a slight improvement compared to the first quarter when the markets declined at about 8%. Year to date, we are somewhere around 7% decline. If you look at the market development, if you measure it in monetary value, then the decline was in the mid-teens. Here we of course have the volume decline, but also a continued price pressure, which has continued more or less at similar levels to before. What we've seen an increase in trend is that customers are selecting lower specification products or more affordable products, which has meant that average selling prices have been coming down. We have a good competitiveness also in these segments. That perspective we have continued to develop largely in line with the market was our development in Q2.
Looking 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 you look at the inventory levels overall in Tier 1 and Tier 2 cities, they are at very healthy levels. I think we are overall, if you look at Tier 1 and Tier 2 cities, at the lowest inventory levels for about seven years. 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 here the urbanization continues, and people are moving more and more into the cities.
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 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. 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%. You ask, why are we not seeing a better improvement in our sector?
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 KONE's approach been here? As I mentioned, now in Q2, we developed largely in line with the market. We look at our development from 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. Looking forward, of course, our ambition continues to develop well. 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 as you can see from our results, our competitiveness is in a good shape. Let me be more in detail about new equipment markets. Then more in detail about the important Chinese market. Let me next turn to service markets and start with maintenance. If you 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, as 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. This we're definitely seeing.
Modernization markets are now growing at a good rate in Central and North Europe. 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. New equipment better in Europe, continue good in North America, whereas a bit more challenging in Asia-Pacific. A good mix of various market situations. With that, let me turn finally to our outlook. If we look at our overall market outlook, that has remained unchanged. In Asia-Pacific, we expect the Chinese market to decline by 5%-10% measured number of units. That price competition will continue to be intense.
We have maintained this 5%-10% despite the fact that the market 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. Rest of Asia-Pacific, we expect to see some growth because of India and Australia. Europe, Middle East, and Africa grow slightly because of growth in Central and North Europe, more stable in South Europe and the Middle East. North America continue to see 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. In modernization, continuation of what we've had in Q2.
Some growth in Europe because of good growth in Central and North Europe, and both North America and Asia-Pacific growing. 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% and 6% in comparable currencies. Our EBIT we expect to be in the range of EUR 1,250,000,000-EUR 1,330,000,000, and now assuming the translation exchange rates remain at the level of January-June 2016. Our previous range was EUR 1,220,000,000-EUR 1,320,000,000. If translation exchange rates stay at this level, then we are looking at a currency headwind of about EUR 40 million for the full year, whereas our previous outlook, that would have been about EUR 30 million.
We have a little bit more currency headwind than we expected during Q1, but given the good performance we have had in the first six months, we slightly upgraded the EBIT outlook. If I look at some of the highlights for the second quarter, here I would say the strong growth in services is the first highlight, 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. We can say good broad-based development. The fact that we grew at a good rate and that our growth was profitable. Those are some of the highlights and our outlook. With that, we have now good time to go into questions.
Thank you, Henrik. Do we have to start with questions from those present here in Espoo, please?
Pekka Sponder from OP Financial Group. First, about China and the pricing again. When we look at the decline in units and the decline of the value of the market, my question is about how much is the price erosion, if we talk about how much the prices have declined. 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 five-ish. You have probably three parts of the market decline. It was about 5% now in the quarter. You have the like-for-like price decline, also you have these mix effects from lower specification, more affordable products. Each of them contribute, not exactly, but very roughly similar amounts.
Your own pricing policy in China has changed in the first quarter?
As you can see from our cash flow and our profits, of course, profits don't come through straight away. We have maintained healthy business practices, 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.
Thank you. The second question about the European market. If you compare the situation today versus three 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. Overall, Germany, Sweden, other markets continued to be strong. Clearly, U.K. has been a strong growth market. There, we're probably going to see a little bit more uncertainty. On balance, not a huge change. In South Europe, I think the good thing is we've seen a continuation of the stabilization of the market. Perhaps on balance similar to slightly positive-ish.
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 markets in terms of sales. We have a strong and good order book in the U.K. Of course, quite a lot of business also there comes from 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 good rate. We will probably see slightly more uncertainty on commercial construction, but it's too early to say what the impacts are. I don't think anyone really knows what the impacts will be.
Thank you.
Okay. We are then ready to switch to questions from those present from the line. Operator, I'm handing over to you, please.
Thank you. If you would like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We will now take our first question from Antti Suttelin from Danske Bank. Please go ahead, your line is open.
Thank you very much. I would like to ask about modernization. What is going on? That was the really strong spot of the report, almost 20% growth in sales. Is this really pick up of the market or is this market share gain? Is this sustainable or is this kind of a one-off as we should take it?
Antti, as you probably remember, our orders received started to grow during last year already. Of course, in sales growth, it's the good order backlog that we have that is coming through. Why are we growing so well? First of all, the markets have, 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 approach in modernization. I would say, we can see that what we have done is producing results.
I can't say exactly how our market share has developed because it's not the market where you have as 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 equipment than the previous year that reaches the age of 20 years. Not that that is an exact time, but it just indicates that the modernization needs will increase each year. 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. 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?
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. That means also that the comparison points start to be higher. Perhaps the stimulus impact was higher earlier in the year. What I think is the most important point with the Chinese market is that if I look at the inventory levels, as the tier 1 and tier 2 are at very healthy levels, and they're improving. While they're still at a quite a high level in many lower-tier cities, they are improving there. We can see that when there are jobs, when there are infrastructure in cities, then people do move into them.
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. If you look at the growth rates month-over-month, yes, they are not quite as high in the past month as they were early in the year. Still the development is in the right direction.
Yeah. All right. Thank you very much.
We will now take our next question from Ben Maslen from Morgan Stanley. Please go ahead. Your line is open.
Thank you. 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? We've seen similar growth and mix in previous quarters with a much less significant impact. Was there anything specific in Q2, raw materials, mix, et cetera, 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. Nothing of a one-off character. Raw materials, yes, that's been a tailwind now for a while already, naturally the impact of reducing raw material prices has also been one of the reasons for the price pressure in the market in China. Is it a tailwind or headwind? It's a difficult thing to say. We have constantly been able to improve our competitiveness, improve our execution, and that you can see in our results. I would say that we had a good overall execution in the quarter.
Thank you. Maybe a follow-up on that. In terms of your commentary that said that pricing intensified during the quarter or was weaker in Q2 relative to Q1. 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? Thank you.
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 like-for-like basis and also then a mix change toward more affordable products. The market is highly competitive, and that's the trend that we have seen.
Thank you. Just finally, I think organically you've done about 5%-5.5% growth in the first half of the year, and you're guiding for 2%-6% for the full year. 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? I guess I'm asking particularly around China. If your orders are down organically 15%, including volume and price mix, at what point would that start to go negative? Thank you.
As you know, the lead time from order to deliver in China is let's say on average six to nine months. Clearly the reduction in orders you see 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. Clearly, if you have in a certain market declining orders, you see it at some point it comes through in sales.
Got it, Henrik. Thanks very much.
We will now take our next question from Claus Bergelund from Citi. Please go ahead. Your line is open.
Yeah. Hi, Henrik. It's Claus from Citi. A couple of questions, please. Firstly, just to get back on China pricing. Units are down 5%, and in monetary terms you're down 12%-13%, if I get this right. You're falling in line with the market both in units and in monetary terms. That would be a 7%-8% fall in price mix versus previously 3%-5%. Is that correct?
As I mentioned, there are three different factors here. One is if you look at like-for-like price decline, probably somewhere around, and very roughly, I'm not giving exact numbers here, but very roughly 5-ish% plus minus. Then also this kind of mix shift that of course then has an impact on the average selling prices.
Just the pure price here, if that was down 5%, last quarter was that down three or two? 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. When it comes to China and the market, if I look back at the year-over-year comps, it seems like you get three percentage points just on the comps. If the market is down 5% today, and that compares to 8% down last quarter, in the first quarter, that is effectively a flattish volume quarter-on-quarter. Is that correct? We haven't seen any improvement from the increase in housing start impacting the market yet. I just want to confirm that.
No, we have not seen it. You have to remember that housing starts in our industry were negative if you look from a full year basis, both in 2014 and 2015. 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. 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 a short cycle in for out. 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. What you can see from our guidance is that we expect a good development also in the second half of the year.
Thank you.
We will now take our next question from James Moore from Redburn, London. Please go ahead. Your line is open.
Hi, everyone. Hi, Henrik. I've got a few questions. Just on the raw material and the direct material benefit, could we quantify the change there at all year-on-year? I think last year, full year, because in the annual you break out costs but not quarterly, you said direct materials were 41.8% of sales. I just wonder 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. 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, and we buy components from our suppliers. Of course, as raw materials come down, 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. 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. It's difficult, and I don't think it's relevant to start breaking out individual numbers there because it 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 three to six months on average from order to delivery. 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. It is a lower margin business than both new equipment and maintenance.
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. Later you said maintenance comparative is difficult. Do you expect modernization growth to continue at the high level in the second half?
We have a strong order book. 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 a big part of the modernization business that we have to do in Q4 is something that we still need to book as orders during this year. We have a good and healthy order book there too.
Helpful. Thank you. 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, was that mix effect there or was it 0 in the last quarter, in the first quarter against the 5 you called out for this quarter?
Can you repeat that? I didn't quite understand your question.
Yes. You broke down the Chinese organic growth into 5, and 5 volume, price, and mix. 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 first quarter than it was now. There was some impact of that, it was less and it was a little bit more now than last year and the first quarter.
Thank you very much.
Thank you.
We will now take our next question from Guillermo Pigno from UBS. Please go ahead. Your line is open.
Good afternoon, Henrik. Just maybe a couple of questions. One regarding the China aftermarket growth. I was just wondering how that very healthy growing 25%, but the order book is, so the orders are declining. Obviously I understand there is a time lag between installation and service, but shouldn't we see a material slowdown on the aftermarket growth, maybe not one year out, but maybe even more than one year out?
We have a good order book. We're still delivering a lot of products. The higher your service base is, of course, the more challenging it is to achieve growth on that year-over-year. The good thing is that the backlog we have of units in first service to coming into a service base is very strong, and we have healthy deliveries. Over time, yes, you will have a slowdown in the growth of the maintenance business as the base gets larger and larger. That we've seen already. 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. Installations are now falling, I guess, or no installations for orders. Therefore, maybe one year from now, installations will fall as well. Presumably, you'll see that deceleration earlier than anticipated?
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.
Thank you.
Of course, that's our objective to continue to drive a good growth in the maintenance business in China.
Good. Thank you. Then one second, actually. Obviously now you see how the market is declining in terms of volumes and pricing. I wonder what actions are you taking in terms of restructuring to keep the backlog margins at healthy levels as you suggested. Are there any actions you're putting in place to your capacity, to your employee headcount or supplier optimizations? Anything that you're putting in place in order to mitigate pricing pressure or, sorry, margin pressure?
Of course. When we look at, for us, cost competitiveness is something we've been working on every year, all the time, 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 services 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, as you know, most of the installation is subcontracted, so we have a pretty flexible structure. Of course, when markets are weakening, of course you look at your costs and what you can do.
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. 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.
We will now take our next question from Manu Rimpelä from Nordea. Please go ahead. Your line is open.
Okay. Good afternoon. It's Manu Rimpelä 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. Perhaps some slight reduction in the price competition, but it continues to be a very competitive market there. Perhaps not at quite the same level as we saw, for example, last year.
Okay. Thank you. On China, I think in the first quarter, you mentioned that you expect the orders to be more evenly distributed through this year. Would you still agree with that comment then? Is there any kind of read-through from that comment we can make into the second half of the year? Would you expect volumes to be on a kind of first half level in the second half of the year as well? Is there some sort of a peer seasonality in China that happens every year that we should remember when thinking about those comments?
I believe what we are commenting was more from relative perspective. If you look at China, it's a market where first half of the year tends to be larger in terms of orders received, second half larger in terms of deliveries. That trend is not going anywhere. I think when I commented on that, 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. The comment I made then is that perhaps this year we see a more even development relative to the markets.
Okay. Finally, 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 this demand? Are you kind of seeing that KONE is in a better place to maybe return to growth, outgrowing the market in this dynamic? 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 one and a half percentage points. We have 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.
We will now take our next question from Tom Skogman from Handelsbanken. Please go ahead. Your line is open.
Thank you, good afternoon, Henrik. I got a couple of questions starting with the competition balance in maintenance. Can you give any comments about the development there and the outlook for the second half, especially in Europe?
Again, this year we have been able to improve it. It is still slightly negative if you look year to date, but we're constantly going in the right direction. I'm particularly pleased with the improvements we're seeing in South Europe. 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, that it's been better than equipment in Europe?
Well, I would just say that in new equipment, we have a better margin overall. It may slightly differ from market to market. Overall, we have a better margin in new equipment than in modernization. Modernization, with the growth we're having and the improvement, we're driving the business, we're going the right direction.
Finally, I give you a chance to elaborate a bit about your IT investments. You have announced a lot of recruitments, you have announced a cooperation with IBM, 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. Remember that we have more than 400, close to 450,000 customers at KONE. You don't change those contracts and how you work with them overnight. 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.
Is it kind of fair to expect that the benefits three years ahead will be mainly in efficiency, in getting costs down and billable hours up, then beyond three years, or would you say it's even more beyond 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. Yes, it will of course, help us to be more efficient and deliver in a better way. One shouldn't 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.
Okay. Thank you.
We will now take our next question from Andre Kukhnin from Credit Suisse. Please go ahead. Your line is open.
Yes. Good afternoon. It is Andre from CS. Thanks very much for taking my questions. Can I just briefly 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? Was there any kind of difference by geographies in development there versus Q1?
I must say I haven't counted the days compared to last year. I haven't. There was nothing specific. There is always a little bit of seasonality. We have to remember that end of last year, Q4, we had a very strong growth in maintenance. Then it was a little slower Q1 and now a little bit better. Of course, you can always have quarterly fluctuations. I wouldn't so much look at quarterly fluctuations. More important to look at how the trend was going. I think we are at a good growth rate of more than 6%. Q1 we were slightly above that. Q4 last year, we were clearly above that. I would put it down to quarterly fluctuations. Not much more than that.
Great. Thank you. A couple on China, invariably. Your incentive structure to distributors, did you change anything in Q2 in China?
Not really, no.
Great. Against the two brands, KONE and GiantKONE, were both of them in a negative territory in Q2 year-on-year in volume terms?
As you know that. The reason we have two brands is that sometimes it's the KONE brand doing better and sometimes GiantKONE brand doing better, and it kind of varies from quarter-to-quarter. If you look at overall China, it's perhaps the larger brands that are doing slightly better because they tend to be more exposed to the larger developers who have a better overall situation. 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 GiantKONE.
Very clear. Thank you. Can I just check against that five-five-five that you talked about in terms of orders, volume, price, and mix. Your numbers suggest that you're not at five-five-five. You're at sort of adding up to around 10, 11 in Q2 altogether. Your units are obviously in line with the market. Between the price and mix, are you outperforming on one or the other or is it kind of equal? Just to confirm against a similar question earlier.
We haven't, of course, announced exactly our growth rate there, but again please don't take literally exactly this five by five. It's a kind of magnitude. All of them are kind of either plus or minus.
Sure.
Do not take it that literally. If you add them up, you come to a specific number. It's not that specific. I can't say exactly how the market would have been exactly compared to us. What we can see from our cash flow, our result is that we have focused on maintaining healthy principles in our business.
Got it. That was more just to double-check whether we should take those numbers or not. Finally, the comment on backlog margin. Obviously, that's forecast margin from your backlog. Just to confirm, this is basically you 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 indicate. This, of course, is on a gross margin level, where we can see that 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 and something you can, of course, see from our results as well.
Great. Thanks very much, Henrik.
Sure.
We will now take our next question from Martin Flueckiger from Kepler Cheuvreux. Please go ahead. Your line is open.
Yeah. Hi, Martin Flueckiger from Kepler Cheuvreux. Thanks very much for taking the question. Just two left there, 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. If I remember correctly, we've seen the improvement in the market environment now for a few quarters. If you could just remind us what the developments were in market or order intake growth in EMEA in 2016, and whether and when, if you do, you expect to pick up here. That would be my first question, and then the second one would be on your
Let's take one at a time.
Sure.
It's fine. We can take one at a time.
Sure.
You referred to our sales growth in EMEA. We were able to grow our orders; you see at a good rate in Central and North Europe last year, was more mixed in the Southern European markets. We have an order book that has grown year-over-year in Europe and Eastern Africa. The fact that top line growth was only slight, I would put that down to quarterly fluctuation. It's nothing more specific than that. Sometimes, the structure of the order book little changes with what types of projects you have and when they come through and so forth. It's not more than that.
Okay, thanks. 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, could you elaborate a little bit more on that? I'm curious, what are really the main reasons for KONE's significant outperformance in the Americas, 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. We have been able to develop that in a good way and produce value to our customers. It's not only one action, it starts from clarity of direction, what is important, what are we doing, developing constantly your product offering and competitiveness, which we've been doing. U.S., very important, the execution. Given the high labor cost content in the U.S., execution is hugely important. There we've seen good development over the past years.
Okay. Thank you very much.
We will now take our next question from Glen Liddy from JP Morgan. 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?
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. That has improved our overall competitiveness, and that we have been doing for many years already. 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. Just you can see good execution there, but I think it's difficult to quantify the exact amount. It is significant. It's not only about cutting costs. It's about focusing on, do you have the right offering to meet your needs of your customers?
Really understanding where the good opportunities are, staying very close to the markets, understanding their growth, and picking up the right opportunities. That's where we put a lot of emphasis. The better we can deliver value to our customers, the better we will develop. It's a combination, again, of all of these factors.
Okay. 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. Your development will always fluctuate from quarter to quarter as it always has done. For us, sometimes we outperform more, sometimes less. Now we have had first half of the year, first quarter a little bit below the market, now more in line. Again, you can always have this fluctuation.
There's not a specific-
I don't think it's more than that.
decision. Okay. In terms of the conversion of an OE sale to an aftermarket contract in the different regions, is that changing at all? You want to grow the aftermarket in China, clearly. 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 the very good level.
Saturation. Okay. 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, yeah. 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.
Okay then. Thank you very much.
Thank you.
We will now take our next question from Piotr Osowicz from Iron Shield 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. In particular, in China as you are seeing the increasing price pressure, to what extent are you able to pass on this price pressure onto the suppliers? I mean, looking at the still very weak commodity outlook and obviously the suppliers being competitive as well, to what extent can you compensate for the margin decrease by also asking lower prices or looking for new suppliers, switching to local suppliers? How much of this you can do?
Of course, that is one of the things we've been doing a lot of. Of course, you 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 harmonized product portfolio and we have big volumes. That gives us a good situation in 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.
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, 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. From that perspective, price will be less, but of course, we continue to develop our products every day.
Okay, last question on this one. Are you seeing yourself using more local suppliers, especially in China? I mean, can you get better deals from them?
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 goods 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.
We will now take our next question from Tomi Railo from SEB. Please go ahead, your line is open.
Hello, Henrik. It's Tomi 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. Clearly that has an impact, and that's one of the reasons for the foreign exchange headwinds that we have.
You have added EUR 10 million. Is that purely from the Chinese currency in the second quarter, and do you expect further impact in the second half?
I can't predict. I don't know where currencies are going. That's why we always look at the first six 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, it's not too far away from the average year-to-date. I think we have to see. I'm not going to predict currency movements.
Then perhaps on the market, a direct question on China. Would you call that the market has dropped? I mean, -8% in the first quarter, -5% in the second. You're repeating the comment 5%-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%-10%, we are smack in the middle. We are 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. If not, then somewhere within this range. Let's see. I think it's quite a tight range already.
Thank you.
We will now take our next question from Lars Larsson from Barclays. Please go ahead. Your line is open.
Hi. Thanks. Hi, Henrik. Hi, Katri. 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 is compared to last year and the market from a volume perspective was slightly better in the second quarter than the first quarter. I think that is the key point.
I understand. 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 base of what we see in the leading indicators. With what you see, are you more confident that tier 3 to 5 cities start to improve from here? Perhaps do we see a bit of a cooling down on tier 1 to 2, or do you see sustained momentum in that? Perhaps if you could also just touch briefly on what you see on the affordable housing segment, that'll be helpful. Thanks.
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, we probably see a slight slowdown, then the growth is definitely spreading to more tier 2 cities and to tier 3 cities. Also, we can see that if you look at lower tier cities overall, that the inventory levels are going in the right direction. That's the overall trend that we see at the moment.
Just on your market shares in Q2, 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've 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 bar one other OEM, they were mentioning the same. Should we surmise that your in-line performance in Q2 is really more a function of others being more disciplined or per your earlier comment, it's really more a matter of mix that you're gaining from a slight trade down into, to say, the mid and value range?
I would again put this a bit in perspective now. We're looking at one quarter. You always have fluctuation from 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. 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, we put a lot of efforts on growing in a good way in other parts of the world, that we have done. 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 talk 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 me you've been a bit earlier than your peers there. Are you benefiting from what you did on the new equipment side a few years back? 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 that way you get volume benefits. At the same time, 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. That's where we have focused a lot again is on 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 mid-size opportunities.
Understood. Thanks, Henrik.
Thank you.
We will now take our next question from Rizk Maidi from Berenberg. Please go ahead. Your line is open.
Hi Henrik. Hi Katri. Two quick ones for me on China. I will take one at a time. 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. 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.
Thank you very much.
We will now take our next question from Matthew Spurr from Royal Bank of Canada. Please go ahead. Your line is open.
Oh, 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, are you able to say what China sales themselves did?
China sales grew somewhat in Q2.
Okay, thanks. I had another one on your investment in the U.S. You say you're investing in facilities and R&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. Also, I think, eventually, when the market isn't as strong, we will have a much better customer service and be able to much quicker react to market needs. I think it's something that makes a lot of sense and would be a good improvement to our business in the U.S. or North America overall.
Okay, thanks.
Thank you.
We will now take our next question from Michael Kalas from BofA. Please go ahead. Your line is open.
Yeah. Hi, good afternoon, Henrik. Good afternoon, Katri. 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 inventory. All the orders being delivered at the moment.
Not a huge change. Our deliveries in China have been constantly good, so we've been delivering our backlogs. Not a big change there, frankly.
Okay, good. Thank you. Second question, just on maintenance. 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, what do you think is going to drive that? Is it the other market that are going to pick up, or do you think that you're going to have another growth boost maybe from converting more your install base in China? What is the next growth driver for you in maintenance?
As you know, our new equipment business is growing in many places at the moment. We are growing our service business, our maintenance business in all geographic areas. That's a good thing. We are focused on delivering good value in maintenance and therefore expect to continue to be able to grow. Even if you would have a lower growth rate in Asia overall over the coming years, still the share of it is growing. That's contributing in that sense in a good way to growth. Our objective is to continue to drive a good growth in our maintenance business over the coming years.
Okay, very good. Just lastly, maybe a clarification on maintenance and China, because 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 a 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 margin rather fast?
As you know, 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. With the growth that you're seeing in maintenance, are you able to get some, not really operating leverage because it's a very [outsource] business, but are you benefiting from density or anything potentially driving the margin up in maintenance in China?
I think overall our business in China is doing well. As you know, we don't break down overall the margins, but overall, we have had a good development.
Excellent. Thank you very much.
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 again. 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 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. The impact of the recent events, I think it's too early to say. Of course, they're concerning. It has been a market developed very nicely over the past year overall.
Can you tell us roughly how big is the market size there? It's the fourth in Europe or something like that in units.
Market in Turkey is quite large. There's a lot of local players that, if you look from volume perspective, are the largest. I think we have been constantly able to expand the approachable market for us, and that has been one of the reasons we've been growing well. Turkey is a very significant market and young population, urbanizing population, it's a country with good potential over the coming years.
Got it. Thank you. 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 two biggest contributors were Asia-Pac and North America. Are China margins up within Asia-Pac as well?
Again, Andre, let's keep it at relevant levels this. 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. 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 6-12 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. As you know, if the opportunities arise, then we are very interested in those opportunities.
If they don't?
That we then have to see over time. I can't comment on what our board may think over time.
Got it. Thanks very much.
Thank you.
Discussion. I believe we have time for one last question. Then we need to conclude the call.
We can now take our last question from James Moore from Redburn, London. Please go ahead. Your line is open.
Yeah, 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. 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 product you have things with higher specifications. Then you have products that are more standardized with lower specifications. Given the trends in the market, many of our customers have probably opted for, which are good products, very solid and good products that we deliver, but slightly lower spec upgrade for the elevators overall. Nothing more than that. Probably that's something we're going to continue to see for at least some time.
Thank you. 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.
I understand that
the magnitude of them.
I understand that.
I'm not taking literally each of those numbers.
Sure. I understand that. China's a significant part of your business, and your owners have the opportunity to understand how it's moving. It's difficult when you say it's all of that number, but it isn't really.
Hey, come on, James. I'm saying it's roughly that number.
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 of September in Helsinki, Finland. We can certainly continue the discussion there at the latest. Thank you, everybody, and we wish you a good rest of the day.
Thank you.