Good morning, ladies and gentlemen, and a very warm welcome to KONE's Capital Markets Day 2015. We are very happy to have so many of you here with us in Shanghai today. We also have some people following the webcast. A very warm welcome to you, too. I am Katri Saarenheimo from KONE's Investor Relations. We will have an exciting day ahead of us. We will start here in Shanghai with 3 presentations in the morning, after which we will have lunch. We will be visiting our factory and production facility in Kunshan, close to Shanghai. During this morning, we will have 3 presentations. We will start with a presentation by our President and CEO, Henrik Ehrnrooth, who will discuss our recent developments and the drivers that are shaping our industry.
We will have a short break, then we will have our Executive Vice President for Greater China, William Johnson, discussing the China market and our development here. The morning's presentations will be concluded by our CFO, Eriikka Söderström , who will discuss our business model and how we manage our financial performance. We will have time for Q&A after each presentation, and we will also have a longer Q&A session and discussion after all 3 presentations. During the lunch following the presentations, we will also have our Head of Supply Operations China, Janne Kuisma, discuss our production model as well as give an introduction to the Kunshan factory that you will be visiting. We have quite a busy and full day ahead of us, and we are very excited to have you here. I think it's time to get started. Henrik, the stage is all yours.
Thank you, Katri, good morning, everyone. Also, very welcome on my behalf, and great to see that so many of you have traveled to China to come and spend this day with us and discuss how we are developing KONE going forward and how we continue to differentiate in this exciting industry. A year ago, in the same session when we were in London, I introduced to you how we intend to accelerate our differentiation in the coming years. In particular, in the services business. We all know that we have clearly differentiated from our competition in new equipment in the past years, and now it's our intention to do the same also in services. We operate in a very exciting growth industry. In an industry where dynamics are changing at the moment.
I think that's great, because every time dynamics in an industry change, it gives a new opportunity to differentiate from the competition. This is what we intend to do again in this phase. What we'll do is we'll build upon the strengths that we have as KONE, and I'll discuss some of them today, and we'll continue to invest quite a lot throughout our business, both in services, new equipment, but quite a lot as well in new technologies. Here, what you also will see is that technology per se is not so important. When it comes to new technologies, everyone has access to more or less the same technology. The question is what you do with it to provide a better experience to your customers and to users, and how you create better quality and productivity in your operations. I will discuss that.
In the past five years, KONE has done very well. We have had a great journey. Our sales has grown in the past five years at a compound annual growth rate of 9%, and our growth has been very profitable. Our EBIT margin has improved from 11.9% to 14.1%. Strong growth with margin expansion, and that has, of course, created a lot of value. Our intention in the coming years is to continue this journey. I will talk about today, first of all, what we have done in the past 12 months. Then I will go into the mega trends that are shaping our industry. These are familiar to most of you, but I will go a little bit deeper because I think we have an interesting story to see how we have interesting growth throughout our geographies.
Then I will spend time on how we intend to differentiate, how we take the changing market environment, again, as an opportunity to be able to grow faster our markets and continue our profitable growth. Let's start with how we have done in the past 12 months. I think this is familiar to all of you, our financial performance for the first half of the year. As you know, we had a good first half of the year. We continued to grow. Very strong orders received, growth of 20% or about 6% in comparable currencies. This despite a challenging environment that we have overall globally. Our order book is at an all-time high. Very strong growth over the past year, and this gives us a very good opportunity to continue our profitable growth in the future. We have grown our sales, and our sales growth has been profitable.
We have been able to improve our EBIT margin in the first half year from 13.5% to 13.8%. Our cash flow has been very strong. I think strong cash flow, this is something we have been able to have very consistently over the past years. That shows that while we are growing, we maintain very healthy fundamentals of our businesses. We have been able to maintain good payment terms, we have managed our inventories, and we have been able to collect our receivables from our customers. Overall, very healthy underlying fundamentals of our business we can see from our cash flow. Overall, a very good start to the year. If you look a little bit more detail at our orders received, I think we have a great story to tell here.
First of all, over the past five years, we have had a very strong double-digit growth in both our volume business as well as in our major project business, even faster in our major project business. If we now look at the past 12 months, we have continued a very good performance in a challenging environment. Our major project orders are slightly down. Reason for this is that we have had, in the first half of the year, less what I would call mega projects compared to the prior year. Still a very solid and good performance, and good development overall in the market. What I am very pleased about is the good performance we have had in our volume business, a growth of 8%.
We have to remember that we all know that the Chinese market has been challenging this year and that historically has been our main growth driver. This year, the Chinese market has slowed down. We have been able to grow despite the fact that the market has declined slightly. At the same time, we have been able to drive a very strong growth in rest of the world. We have continued a very strong growth in North America, U.S. in particular, where our growth has been well over 20%. We have accelerated our growth in Europe, Middle East, and Africa. While we're seeing a slowdown in Asia-Pacific or China in particular, we have been able to accelerate our growth elsewhere. I think we've shown that also in this environment, we can perform very strongly. Same story when we look at sales.
You look at by geography, over the past five years, we have grown in all geographic regions, but clearly fastest in Asia-Pacific. Very strong growth in Asia-Pacific. This is where we have differentiated in a significant way from anyone else in this industry. We now look at the first six months of this year, again, when we have had slightly slower growth in Asia-Pacific, but still a good solid growth from a very high level, a good performance. At the same time, we've been able to accelerate our growth, both in North America to 11%, and we have also been able to accelerate our growth in Europe, Middle East, and Africa. In particular, in North America, we have a very strong order book.
We have grown our orders to see it very significantly over the past two years, we can start to see this coming through now and, again, being able to drive a good and broad-based performance, and this I'm very pleased about. We can see a similar story when we look at sales by business. Here, very strong growth in our new equipment business, being compounding at 12% over the past five years. Also our service business, very healthy, strong, 7% growth. Think about the maintenance business with a maintenance base, to compound that at 7% per annum is very good. When we look at first half of this year, continued solid growth in new equipment and very good growth in maintenance.
Even though the percentage looks a little bit lower than in the previous five years, what we actually see underlying is that the organic growth we've been able to accelerate over the past two years. We have had more impact from acquisition if you look at the five-year period. When we look at our organic growth, we see that we've been able to accelerate. I think it shows that the actions we are taking, that we are on a right path. When it comes to our profitability development, Eriikka will discuss that a little bit later in her presentation. When we look at our performance, as most of you know, we measure our performance through our five strategic targets. That's a very balanced and good way to measure performance because it looks on more broad basis whether we have become a stronger company.
If I review them briefly, I will dive into the first three ones then little bit more in detail. Our first strategic target is to have the most loyal customers. What you will see, we have had a continuous very good performance here. Our customer loyalty and customer satisfaction has continued to strongly increase. I think we can see that we are on the right path here. We want KONE to be a great place to work. We want to have the most motivated, most engaged, and most competent employees in this industry. We see that also our employee engagement, employee motivation, has constantly improved. We consider ourselves a challenger in this industry, so we want to grow faster than the markets. This, again, we have done consistently.
Growth without profitability is not valuable, so therefore, we also need to have, say, the best financial development. Here our growth has been profitable with very good cash flow. Also here we have had good development. The fifth area, sustainability. We all know that this is becoming increasingly important everywhere, and it has a very significant positive impact on our business. Also here we can see a good development. We know that sustainability is a very broad topic. What we said is that we want to look at it where we have the biggest impact. Here we know that we are the eco-efficiency leader in this industry very clearly, and we have constantly been able to reduce the carbon footprint of our operations.
In fact, if you go back a little bit over five years and compare to today, we have reduced the energy consumption of our volume elevators by 70%. I think that again shows a very significant improvement, and we take this seriously, and it's a great positive growth driver for us. Overall, therefore, I would say good performance towards each of our five strategic targets. When we look at the performance as management, we are only happy if we can see performance towards each of these five strategic targets, and that we have done in the past 12 months. If we go a little bit more deeper into first customer loyalty, customer satisfaction. We know this industry is one where we have a very broad customer base. At KONE, we have over 400,000 customers.
What we want to do is to have the most loyal customers in the industry by providing great solutions and great services to them. Just before the summer, we again completed our annual customer loyalty survey. More than 30,000 customers globally answered the survey, so a very broad sample, and the improvement was very good. We can see that we are on the right track. We improved our customer loyalty and customer satisfaction in each of our businesses, and good improvement in each of our businesses. You can see from the graph, the dark green line, the path we have had over the past years. What is even more important is if we look at the comments we get from our customers through this survey. I mentioned there were over 30,000 customers answering it.
I just highlight here the three most frequently occurring comments, each of these occur very frequently in this survey. First one is the strength of our quality. Our customers appreciate that KONE delivers the best quality in the industry. That's what we hear from our customers. Secondly, that KONE is a reliable partner that delivers on its promises. This is hugely important and tells very much about our culture. Third point is that we understand the needs of our customers and help them succeed in their businesses. As I said, these are just the three most frequently occurring comments, they occur very frequently, each of them. These are very significant strengths that we can build on.
I would say if we look at the two last ones, being a reliable partner and understanding the needs of our customers, with that culture, I think we can drive significant change and bring new services, and new ways of working with our customers. Here, I think we differentiate quite significantly. We have areas to improve that we are working on. One of the areas that we are working quite a lot on, you will hear about it more when I talk about the service business, how we can improve our customer communication at every touch point. This is particularly important in a services business. I'll talk about that more. We are also strengthening our services offering to have better, more relevant services that suit better the needs of our customers and their businesses. Overall, strong performance here. Our employee satisfaction and employee engagement.
If there's something I must say I'm very proud of working for KONE is our employee engagement survey. We highlighted this in connection with the Q1 result, as I told you already then, that when we did our survey this year, that 93% of our 48,000 employees answered this survey. It shows that it matters, it shows that our employees think their feedback matters. Here we continue to improve our employee satisfaction and employee engagement. I think, again, with this culture, we can continue driving very positive growth in this industry. I think our customers can see the strong motivation, strong engagement, and pride of our employees working for KONE. How have we got here? Well, we invest a lot in helping every employee to perform at their best.
We want to make sure that every single employee at KONE has an individual development plan, we're getting very close. We invest a lot in field training competence development. Field training, that's where most of our people are every day out in the field. That's where they meet our customers. That's where we deliver our services, installation, and solutions to our customers. It's very important. It's also great improvement here. I must say that I benchmarked this with quite a few other business leaders, I haven't seen anyone else with a company of our size who's got to 93%. It just again shows that it does matter. That's our second strategic target. If you go to the third one, faster than market growth. This we have done consistently.
Over the past five years, we've increased our global market share in the new equipment business from 12% to 19%. Our orders received has increased from less than 60,000 units to 154,000 units last year. That's more than a two and a half times increase over a five-year period in new orders volumes. The good thing is that we have strengthened our market share in each geographic region. Our strategy has been to grow our market share in the fastest growing markets of the world. That's what we have done. If we look at, again, last year, the fastest growing markets last year were U.S., North America overall, and China. This is where we, in both markets, we took clear market share last year again in a profitable way.
Last year, our North American market share increased by about two percentage points and our Chinese market share increased by close to one percentage point, and we strengthened our market leading position. Continue faster than market growth. If you look at the same thing from a service business perspective, here we can also see that we have strengthened our position. We remain number four, but we have grown faster than our markets here as well. Where we have taken most significant market share has been in the important Chinese market. We know that here, that's where the biggest growth in the services business is here. In a growing market here, we are growing faster than the market and going from being number four player, we believe that we are at the joint number one position in this market at the moment. Overall, good development here.
Still, the reason we want to accelerate our differentiation in services is that our growth compared to our markets has to be faster than market in services, but not as much faster as we've done in the new equipment business. That we want to do here as well going forward. Those are our strategic targets. Before I wrap up of our performance in the past 12 months, we can look briefly at what's happening in our markets. First, we look at the new equipment markets. Not much new to tell compared to what we said in connection with our Q2 results and what I think all of you have heard. Perhaps a couple of highlights. We can see that South Europe, I think, is turning the corner. Spain is back on a recovery path from low volumes, but it's recovering.
I think that the French market has found its bottom. That's good. We can start to see that after many, many difficult years, we start to see a slight recovery. We can see that the North American market continues to develop very positively. If you look at Asia-Pacific, we know that the Chinese market has declined slightly this year. We can see that the Indian market is growing, not quite as fast as we had predicted beginning of the year, but it's going the right direction. The services market throughout Asia-Pacific is growing very nicely. Pretty much similar picture to what we had in the past or in connection with our Q2 result. If we then look at our market outlook, we have just a little bit specified our market outlook. I won't go through it in detail.
The only highlight here would be that we have slightly adjusted the outlook for the Chinese market for the full year. Now we say that the overall Asia-Pacific market is expected to decline slightly in 2015 due to a slight decline in the Chinese market. Previously, we expected the Chinese market to be flat or slightly decline. We have now 2 more months of data. We have about three, four months to go, and now our best estimate is that the market will decline slightly. Within the previous range, we've adjusted slightly. Otherwise, our outlook is pretty much intact. Our own business outlook for KONE, that's fully intact. What we said in Q2, we are fully committed and on a good path delivering on that. Here we expect our sales to grow between 6%-8% in comparable currencies.
We expect our EBIT for the full year to be between EUR 1,190 million-EUR 1,250 million. This assumes that translation exchange rates will stay approximately at the level the first half of 2015. If that happens, as you remember, we're going to have a positive FX impact of about EUR 100 million-EUR 120 million for the full year, and that's included here. The key message here, we expect to have continued solid, good performance in 2015. That's about history. Let's look a little bit forward now, and I'll start with our megatrends. I think the megatrends that we discussed are familiar to you, but I'll go a little bit more deeper into them, what they mean to us, and why we see that they're driving growth in each of our geographic areas.
First of all, we know that we have the main megatrends that are driving our growth are urbanization and changing demographics in this urbanization. Very much underpinned by an increasing need to care for the environment, for increasing need for safety, quality, and also we can see a strong improvement and development in connectivity and digitalization. I will focus now mainly on urbanization and changing demographics, how they are impacting our industry. Here, I want to go a little bit deeper than we discussed in the past. Usually, when we talk about urbanization, we think about people moving from rural areas into cities. I would say that that's the first stage of urbanization. That is what has driven the Chinese market growth very strongly over the past 10-15 years.
What we see happening in many markets, we see accelerating in India, we start to see happening more and more in Africa. We have a stage 2 where the urban people start to get wealthier. Growth in middle-income population. Very significant impact on market and actually a very positive growth driver. I would call this an improved quality of the urbanization. We have the area 3, changing patterns of urban living. This is what we see happening throughout the U.S. at the moment, throughout Europe at the moment, and also a very positive growth driver. What's interesting is that we have good growth happening in each of these phases of urbanization. If you look at the phase 1, again, very familiar, I think, to everyone. We know that basic urbanization is a very essential driver to economic growth in emerging markets.
Has been a very strong driver in China. We see India increasingly driven by this. We start to see that Africa is then the next. We see many other Asian countries as well. Over the next 15 years, again, we're going to see more than 1 billion people moving into cities. We know that in these areas, there is scarcity of space and of land. That's why we start to see building higher and higher. What's interesting to see that we all know that in China, this urbanization has been built quite in high buildings. India, so far, has been quite a lot of low to mid-rise residential construction. Also here, we start to see that buildings will become much higher, which is not a bad thing for someone in our industry. We see a growing need for affordable housing.
One needs to have good solutions to support affordable housing. We know that this is an area where we are very strong as a company overall. The second phase is a growth in the middle income population. That is what we see, for example, in China very strongly today. We expect that the population of middle-income consumers will double over the next 15 years. The fastest growth will be in Asia-Pacific. What happens when consumers get wealthier? Well, we see a clear shrinkage in household sizes, because not that families are getting smaller, but that many generations no longer live together and each generation want to have their own apartment. Again, a big need for more apartments. We see a big need for upgrading of urban areas and fringe areas of cities, and that's something you can see in China happening very actively today.
In all phases of urbanization, particularly here, when you have more people having better jobs, more in urban areas, very big strains on urban infrastructure. Later at that stage, very big need to build out public transport and urban infrastructure. Again, a very positive growth driver. An area we haven't discussed so much, which I think is a very interesting driver. We see it very much happening today in the U.S. We see it happening in most big European cities as well. That is changing preferences from younger generations and also from older people. What we see happening in many parts of the world is later family formation. People stay single for a longer period of time. When they get married and start forming families, they no longer move out to the suburbs. They want to stay in the cities.
Totally different preferences from younger generations. Therefore we see, for example, the U.S. at the moment. We see many European cities, actually most European cities, a significant shortage for apartments. The challenge, as we can see for most politicians today in Europe and the U.S., is the lack of apartments. The lack of apartments driving prices up. Also here, need for more affordable living, and that's where we see very positive growth. I think this is one of the absolutely most important growth drivers in the U.S. at the moment. We see it happening in all big cities in Europe, be it Paris, London, Sweden. For example, in Stockholm, the government's plan, they said the only way they can drive economic growth is to double apartment production over the next years. We can see very positive growth driver.
We can see here, if we look forward about 15 years compared to earlier in year 2000s, that we have very significant increase in single person households. This is both younger people, but also elderly people moving back from the suburbs into the cities to have better services. I guess the conclusion here is that we have urbanization at many stages. Each of them is driving growth for us. That is very exciting. That's why we see good possibilities to grow our new equipment business, in Asia-Pacific, Europe, as well as in North America. If we look at Asia-Pacific and China in particular, it's clear that we see a moderation in the growth. We have had a situation where the Chinese market has grown at about 20% per annum in the past 10 years.
It's evident to all of us that we will not see that going forward. We can see still overall if you look at Asia-Pacific, we can see a positive development, but at more moderate levels. I think we can see good growth in other parts as well. I think what's exciting is that we continue to be in a very good growth industry. If we then look at little bit at what's happening specific, that's the overall macro situation. If we then look at what's happening specifically in our industry, and how are we going to capitalize and differentiate and drive growth in this environment? I would say that there are two main things happening in our industry. First of all, changing growth dynamics. As I mentioned, a moderation in the growth of the new equipment business, still good opportunities, but more moderate levels.
An increase in the opportunity on the services side, both an acceleration in the maintenance growth and opportunity for new services. Hugely exciting. We can see digitalization and increased speed of technological change having a very significant impact on our industry. Both of these bringing a lot of new opportunities for us to capitalize on. How do we intend to do that? Well, let's first of all look at a little bit the industry dynamics. I think this is familiar to all of you. We have the wheel starting for new equipment. Continued good opportunities despite more moderate growth in Asia-Pacific. We're going to see more opportunities from smart buildings. I'll talk about that a little more, requirements for more ease, convenience, and better people flow for users. The relative importance of maintenance will increase over the coming years.
Remember that historically, share of maintenance was the bigger share of the overall industry. I think we're going to see that share grow again. Here we can see that technology will impact all of our businesses, but perhaps even more the services business. Then we see a very significant opportunity in modernization. We all know that there is a high pent-up demand in most mature markets, both Europe and United States. United States growing at very good rates. Europe still hampered by weak economic development. We can see that when economies start to recover, Spain is a great example at the moment, that we see a good improvement in the modernization business. When we look at this base of elevators and escalators is only aging at the moment. This opportunity is increasing constantly.
When we look at what does it mean, I think this is one of the most exciting overall pictures. At least I get excited when I look at it. Over the next 15 years, we expect that the overall installed base of elevators and escalators in the world can more than double. That is, I think, a hugely exciting prospect. First of all, there are a lot of new equipment to be delivered to get there. Secondly, this base will age a lot during the time, a lot of modernization opportunities. Bill Johnson will talk about how modernization opportunities also shaping up in China. Then a much, much larger base of units in maintenance. Why I'm so excited about this?
Well, if we look at our performance, again, if you look here on this chart, we can see that we have grown clearly faster than anyone else on a global basis in this industry. We are the clear market leader in the fastest growing area, which is Asia-Pacific. We have a better position than anyone else in this industry to capitalize on this growth. I think this is very, very exciting and something that's why we are putting a lot of effort in developing this. We can see that still, Asia-Pacific is growing very fast, but a small base, but will be very significant in the coming years. Very positive prospects. How do we intend to do that? I've talked about how we want to differentiate in the services business.
Differentiating, as I talked also in the Capital Markets Day last year, differentiating in services is totally different than differentiating in a new equipment business. In a new equipment business or an equipment business overall, you buy something tangible. You immediately have an opinion of the quality and value you get. In a service business, particularly the type of maintenance that we do, it's often invisible, or most of the times invisible to our customers. We need to show them much better how we create value. How are we intending to, and how are we differentiating?
First of all, we start with, and we developed much better processes on how understanding customers' needs based on the data we have on them, based on their businesses, to understand how we can support their business in a better way in order to be able to define a better promise and better offering for our customers that is more specific to their need. More granularity in our offering. Doing that will, of course, mean more challenging execution of it because all of our field technicians need to know exactly what we promise to each customer, therefore we come to the next one, how we deliver on our promises. As I told you, we are known in the industry for the company that delivers on its promises.
This we will continue doing, so we invest in quite a lot in processes, tools, systems to make sure that our technicians know exactly what we promise to each customer and deliver that in a more proactive and accurate way. The fourth area is to show our customers that we have delivered on our promise, and that needs to be very much linked to the promise we made. I think this is a very important part in this industry to create a better transparency. I think if we can get this whole circle right, then we can differentiate. We are investing quite a lot in each of these areas. A lot of technology is going in underneath to support this, and there is a lot of technology in place already.
Again, that's not relevant because I don't think our customers care what technology we have underlying. What they care about is what services we provide to them and how we can make much more transparent what we do to them. Talking about technology, I think that's a good segue into the next topic, the increasing speed of technological change and digitalization. You hear about it a lot. We see it all in our daily lives, how that's impacting everything we do. How does it impact our industry? I thought I'd distill it into perhaps the most important matters. It has, of course, many implications, but what do I think are the main impacts? First of all, as we know, everything mobile and connected.
Mobile, our field force, already very mobile, but can in future be even more time spending out in the field, performing our services, installations, serving our customers. Everything is connected, so all the information about what they should be doing, the condition of the equipment of our customers, the background of our customers, and our performance at their fingertips. That's the first area. The second area is that our customers will have full real-time transparency of what's happening in their elevators and escalators and other people flow solutions that we provide. Also, users will demand much more convenience and efficiency from their people flow. Here we have already interesting solutions with our People Flow Intelligence. I think we have really been leading, or we have been leading the industry here in providing an easier and smoother people flow overall.
These needs here will increase, and I think, again, a very good opportunity. We also start to see that new ecosystems are being built around smart buildings and smart cities. With our position, I think we are in very good position to lead the people flow aspect in smart buildings. All of these are great opportunities and areas that we put effort into. What are we doing? First of all, digitalization enables us to provide new values to our customers, new services to our customers, and improve quality and productivity of our operations. That's the basics of it. It has both a growth aspect for our industry and it has a productivity aspect in our industry. If you start from the growth aspect, we will see new business models growing up in this industry. They can be lifetime pricing models.
We're probably going to see pricing also based on usage. I think, again, when we have a clear transparency to our customers, we can price them in a much more accurate way and we see that how we support their business in the best way. Not much happening in our industry at the moment here, we will start testing new methods soon to see what are the best solutions here. We will see a lot of new services and solutions come. There will be new value add we can provide to our customers and our users. As I mentioned, the first ones we have already in the market are People Flow Intelligence solutions.
We have applications for users to provide them how they can call elevators from their smartphones, that knows exactly where they can go, where they have access, and again, providing a more convenient People Flow Experience for them. Here we will see much more happening on this side. With all the information we have our customers, now we have everything in one system. I don't know many other companies that would have, as we have, we're using Salesforce. Salesforce has come throughout our business, and we have all the information about our customers in one central database, that helps us give our good mobility for our salespeople to be out in the field servicing our customers with all the information at their fingertips. Again, much better experience for our customers and much better time with our customers to drive growth. Much higher sales efficiency.
Here, as you know, we've been investing quite a lot in this over the past years. What I think is the absolutely most clear case that is happening in our industry and everywhere else is field operations productivity. By having much better information about our equipment, being able to do maintenance in a predictable way, and also the mobility, not only of our maintenance technicians, but also service supervisors. Here we have very good solutions, how we have them mobile and all the information at their fingertips all the time. We see opportunities both on the growth side and quality and productivity side. As I mentioned, the importance here is that what we provide to our customers and how we provide it. Technology in itself is not so important. All of this we need strong technology platforms underlying here.
We have many of them, but we have also a lot that we are upgrading and investing in at the moment. Everything is also based on a basic customer and user engagement and experience, what they expect from the KONE brand, what we can provide specific services for users. Here we are leading the industry in taking an end user based perspective in all of our development. What's also underlying this is what we would call a digital way of working and culture. This means that we are working much more with partners, not developing everything ourselves, and also then co-creating with customers, testing many more services and solutions and see how they work.
We have started piloting first solutions already with some customers in limited areas to see how they perceive that and what value we can bring and a lot of co-creation with leading customers in this area. Hugely exciting experience, and I think over the coming years, you will continue to see how this area evolves. To be able to accelerate that change in this area, as you saw last week, we announced that we are strengthening our organization and creating a better ability to accelerate our development and speed of change here. We have formed a new technology and innovation unit. This unit consists of what we have currently in our research and development and our IT. With new connected technologies, the biggest challenge is to find people with strong product R&D knowledge with an IT knowledge.
Here we're bringing very good knowledge within the company together to be able to accelerate our development. I'm hugely excited about how we do this, and we can see when we announced it internally, very good energy. People say, "Hey, now we can further accelerate our development here." To do that, we have appointed Tomio Pihkala as our Chief Technology Officer to lead this. I must say that I can't see a better person than Tomio leading this unit. Tomio has, for the past two years, been an Executive Board Member, Head of our Operations Development. He's been responsible in that for our installation, safety, quality, and IT operations. He has a very strong leadership background within KONE. He has been Head of the service business here in China. He has had many leadership roles in our technology function, and last now led this KONE Operations Development.
Very solid experience within KONE. To be Tomio's successor to again strengthen our Executive Board, we have appointed Mikko Korte to join as the successor for Tomio in KONE Operations Development. Mikko is currently Head of our North American New Equipment Business, and he also has a very broad leadership experience within KONE. I'm very happy to strengthen our team with Tomio and Mikko, and I'm convinced that this will help us accelerate our development and change in this area. Everything I talked about is about our big picture. Our vision is to deliver the best People Flow Experience. That's how we develop everything to get to the best experience for our users and our customers. I talked about our strategic targets. We have very good progress towards each of them, and I talked about the growth drivers, that we are in a growth industry.
Our development programs, they contain what I've been discussing about how we develop our company, and I think it gives us a very good clarity on what we need to go, very focused actions to get towards our vision. Again, one of the absolutely biggest strengths we have within the company is our culture, our people. That's our values at the bottom of everything. We can see that we are a company where our employees want to improve. They want to improve themselves, the company, and they want to deliver our customers. That we see every day. A very strong basis for continued growth. With this, I wanted to wrap up. We are in a good growth industry. Growth dynamics are changing. That's okay. That's actually good, because every change brings new opportunities to differentiate and find new profitable growth.
What we're doing, we're accelerating our differentiation services. We are increasing our investments here, we are increasing our investments in new technologies to accelerate this very strong opportunity. We are going to further strengthen our leadership position in new equipment. We are very strong in new equipment. We will strengthen this because it provides us with good, profitable growth opportunity, and again, feed the maintenance base. As I mentioned, we have a better position than anyone else in this industry to capitalize on the great growth in services going forward. We are driving new ways of working to be more agile, to work more with partners, more co-creation with customers. I think this gives us a very good opportunity going forward. I must say that I personally think that this is a hugely exciting time in our industry. We are in a growth industry, things are changing.
We've seen many things shaping the industry over the past 20 years. Every time there's been a change, KONE has been able to capitalize on that, and again, grow faster than the markets overall. First change happened about 20 years ago with KONE MonoSpace. Past 10 years has been about Asia-Pacific growth. Again, we have been able to capitalize on that better than anyone else. I think now we see a growth in the service business. We're committed to do the same here as well. I think with the strengths we have, I think we have every opportunity to do it. With that, we have now good time for questions before we have the first break. I believe, Katri, there will be microphones for-
Yes
for questions.
Yes. I believe there are a few questions already here in the middle.
Thanks very much. Good morning. Lars Brostrøm from Barclays. Henrik, just on the China market outlook, can you talk a little bit about what the incremental change is here since your Q2 results? You've got two more months of data, as you said. Where have the changes come here? Can you talk a little bit about what key levers you have to adjust your cost and capacity, both on your new installations business and services business, to what seems to be a challenging market in China for now? That's my first question. Thanks.
I don't think that much has changed. We know that the market in the first half of the year declined slightly. What we expect to see a similar trend for rest of the year. We are talking about a slight decline. I don't think it's dramatic. We know the market is challenging here. At the same time, if you look at our performance in the first six months of the year, we've continued to clearly outperform the market. We've continued to grow our services business in a very good way. It's clear in environment like this, we are looking at all of our costs in a more careful way. As we said, in connection with the Q2 results, that the market is challenging, it's very competitive. We have had a very good development in our overall product cost competitiveness, our overall competitiveness.
We have been able to keep a pretty stable margin for our orders received. As I said, we have been able to grow that. Also in challenging environment, we have had a good performance. I think that the change we make here is a little bit of an adjustment within what we said previously.
A second question, if I could, just a final one. It's interesting, of course, that your CMD today focuses on service offering and differentiation as it did last year. The last three years prior to that, we've talked primarily about your new equipment business. I guess the theme today is partly a function of the market in China and indeed your own product portfolio. You're three years in to the product rollout on KONE MonoSpace and KONE MiniSpace. Other OEMs are ramping up on their volume offerings, notably Schindler with the 3600. Can you talk a little bit about what incremental improvements you're doing to your product portfolio and how you think about sustaining competitive advantages and cost lead on your volume offering? Thanks.
Again, as we discussed many times, in this industry, competitiveness comes from many aspects. One is product competitiveness, but that's only one aspect of competitiveness. Here, we have continued to strengthen our product competitiveness this year. Earlier this year, we launched a new KONE I MonoSpace for the India market, a product that's very specific for India, been very well received by the customers. We just launched a new product here in China, the KONE Z MiniSpace, that again, is for the affordable housing sector, or for more affordable commercial housing as well in China to strengthen our competitiveness. And we have continuous on major project side launched and broaden our KONE People Flow Intelligence solutions. I think we have had a good continuous development there. You have to remember that in a new equipment business, your product competitiveness is one thing.
One of the most important things is the delivery of the new equipment. It's the quality and productivity of field. Do you continue to deliver on your promises in the field? That's how we can support our customers in the best way to do their business. Competitiveness, it's so much about what solutions you have, how you deliver them and the people you have. I think here we have an overall very strong competitiveness and we continue to invest a lot in competence and field development of our people. I must say that I think overall, our competitiveness in new equipment, I think, has strengthened over the past year.
Please.
Thank you. It's Andre from Credit Suisse. I'll start with a question just on a broader level, on a high level. You've downplayed the significance of technology in new equipment, as Lars mentioned, and the installed base growth forecast kind of implies flat new equipment market on average for the next 15 years, and then focus on service and differentiation in that. With this information of the new unit, is this the beginning of a phase where you need to invest in a very different skill set within KONE or into more along the lines of maybe IT and code writing as opposed to good old machine-room-less elevators and carbon ropes?
First of all, I don't think I downplay the important technology in new equipment. I think technology is hugely important everywhere, but the importance of technology is of what it means, what performance we deliver to our customers. You calculated very accurately the scenario of what it means from the maintenance base. Don't take that exactly. That's kind of a very rough picture of what it could look like, and there's definitely not an indication where we expect the new equipment markets to be. It just shows that even what you mentioned, that we're going to have very significant development there. I think you're right.
The skills and competencies from a technology perspective to continue succeeding and winning in this environment are changing, that's why we have also changed our approach to innovation and bringing our traditional R&D and IT closer together and working much more with partners, co-creating with customers to be able to have increased speed in this area. Again, it's not the first time things change. Again, I would claim that when things have changed, we have been able to capitalize on that very well. That's what we intend to do here again. Yes, there will be a lot of new competency skills that we need, but we are committed to invest in that.
Got it. Thank you. The second question is, you talked about outgrowing end markets and the areas where, particularly end markets where you target to outgrow by a large margin. Could you share with us which are the end markets going forward over the next couple of years where you think you can outgrow the most geographically or by that?
I think our strategy is that we grow faster than our competition in key growth markets of the world. There you can do it, if you have your competitors in order, you can grow profitably. We have to see which markets are. I think it looks like at the moment that United States, at the moment, has the best momentum and some of the Asian markets. All of these are areas we'll continue to invest, but I can't say exactly which market will be in 3 years' time. That's why we need to keep an agility all the time to see that we find them. We all the time stay a little bit ahead of the ball to find those growth opportunities. If you look on a longer term, of course, Africa will be there as well.
I think the message is that we continue to do that in new equipment. Now we want to do the same also in services.
Right. Just lastly, I think last year you very helpfully shared your thoughts on China the year ahead, in more in sort of color of an outlook or guidance. Could you talk to us what you think about China outlook in sort of order volumes for 2016?
Well, you will hear quite a lot about China from Bill. First of all, as you know, we give also last year, we didn't give an exact prediction this year because we always give our guidance at the beginning of the year when we have good data and good prediction. What it looks like at the moment that for next year, we probably expect to see similar trend continue to this year, not a significant change overall in the market. Again, it's early to say, we will give our specific and formal outlook in January on this.
Of course. Thank you very much.
We have now two people with questions here on the right side of the room. Let's take first the second row, please.
Hi, it's Phil Wilson from Redburn. You talked about accelerating maintenance growth. I know you don't disclose your maintenance profitability, but when you look over the next 2-3 years, do you see scope to lift your maintenance EBIT margins? If so, can you comment which regions you think that can be achieved and perhaps give some scale as to the potential there? Thank you.
I would say that when we achieve growth, then we achieve leverage in our business, and that's what we intend to do here. We have a good profitability in our maintenance business. We have very good profitability also in our new equipment business. That's what we've been able to grow our margins over the years. I wouldn't give any specific areas, but I think if we can accelerate that growth, we can continue to grow profitably.
Okay, the first row, please.
Hi. It's Guillermo Peigneux-Lojo from UBS. Maybe 2 questions. One on China market share, which has been outstanding from 10%-19%. What is the aspiration here? At what point actually you create friction either with authorities or actually with your competitors just becoming even more aggressive as they see how you grow? Thank you.
First of all, you have to remember we have two brands that it is spread over. I think what we see is that if you are competitive, if you deliver to your customers what they need in a competitive way, you can continue to grow. That's our ambition. That's why we have two brands, depend a little bit on the market circumstance. At some point, one is growing faster than the other, and that's really the strategy we have had and the strategy we go forward. We don't set an exact target. If you remember, when we became market leader in China, we hadn't set a target to become market leader. Our objective is, yes, we want to grow faster than market, but the growth is also to be profitable.
If you start to set the target that we have to get to a certain market share, you very easily forget the profitability of your business. We want to do this in a balanced and good way and create leverage out of that growth.
The second question is regarding the services opportunity in China. It is underrepresented in the revenues at the moment because of the nature of the business. Does it make sense to start to consolidate the market through acquisitions in an aggressive way, so actually that service revenue becomes a little bit disproportionate to the size of the equipment opportunity, or is something that you will not look in the future?
We can get there in the future. I would say that the organic growth is very strong for us in the services business at the moment. When we grow a business like this, the same way we grow the new equipment business, one of the biggest challenges is that you have to hire a lot of new service technicians, supervisors, and experts all the time, and training them. What is the most important thing for us when we grow our business, that we do it in a quality way and we continue to deliver great services to our customers. I think we have very good organic growth here. We want to stay focused on delivering that, because in the end, that's the most attractive growth we have.
At some point in the future, I think it can become very relevant, what you say, and start consolidate the sector, but we're not quite there yet.
Thank you.
Okay, there is a question here on the right side.
Over there.
Thanks, Henrik. Ben Maitland from Morgan Stanley. Just coming back to your comments on Europe. As ever, it was a fairly uncertain summer. Has the recovery that you've noted in the second quarter carried on over the last few months? Is that being driven by any specific countries, or is it fairly broad based?
I think, as I mentioned, it's very much same as we saw in the summer, that if you look at South Europe, Spain is going in the right direction. As I mentioned, I think France has probably found its bottom. Pretty much the same. Remember, these are markets that have been declining for many years, and they still have a lot of need, particularly in bigger cities, for more apartments. That's why I think that we're probably going to see a better development there overall in the coming years, despite a overall quite challenging economy.
On the competitive environment, you've outperformed very clearly over the last few years. A number of your competitors have said that they need to re-accelerate their own growth agenda and maybe would sacrifice some short-term margin in order to do that. What risk do you see that, particularly as the China market slows, that we have a much tougher period for the industry now in terms of pricing? Have you seen any signs of that, and how do you mitigate it? Thanks.
As we have communicated earlier, I think we see a very competitive market overall, most parts of the world, and that's why we have to continuously strengthen our competitiveness to be able to grow profitably in this market. We've shown again, in the first half of the year and last year, that we can do it. The competition for market share in China and elsewhere is high. We still see it's a very big market with good opportunities, and we have to continuously strengthen our competitiveness so we can grow in a good way here. That's the nature of the game, and I think still, even the market here is slightly down. We have to remember, it's a very big market with very significant opportunities. That one shouldn't forget.
You're right, competition is tough and you have to live with that and then develop your competitiveness so you can develop well there. We can't impact what our competitors do.
Thanks.
Okay. Many thanks for your questions, and thank you for the presentation, Henrik. Before we go to the break, please let me share a few practical details about today's schedule still. I would like to take this opportunity to remind you that after the two presentations following the break, we will continue and have lunch immediately after the presentations, and we will leave at 12:15 P.M. to the Kunshan factory. Please take this break as an opportunity to check out of your room if you haven't done so, and you can leave your bags with the concierge one floor down, just next to the escalator exiting from this area. With this, I think we're ready to start the break, and we will continue with the presentations at 9:30 A.M. Thank you very much.
Okay. No one will see from the back. I saw Henrik. Yeah, okay. Is it now on? Okay, is this working well?
Sorry, that's mine.
Is that yours? Otherwise
Okay. Welcome back, everybody. Now it is time for our next presentation, which will be on a market that is very relevant for KONE today. I am very happy to welcome on stage our head of Greater China, Bill Johnson.
Thank you, everyone, and good morning. Welcome to KONE's Capital Markets Day here in China. On behalf of my Chinese colleagues, we are honored to have this opportunity to host KONE's first Capital Markets Day here in China. I think you will find it If you have any issues, please talk to our team here. This afternoon's visit to the Kunshan facility, I think, will be particularly interesting. It is really a magnificent facility out there, and I think you are going to enjoy that visit very much. Today, we are going to review a little bit more in detail the China market and what we have been doing up till now and what we see our situation going forward. Let me first go right into where we see the market today. Now, I earlier just welcomed you to China. Let me put a little different spin on that.
Welcome to the world's largest elevator and escalator market. This is not just by a little bit. You can see we are nearly 70% of the global market for new equipment. We have seen that this growth rate has been tremendous over the past few years. I would like to pause here to think that what this really actually represents. This represents a transformation of the Chinese urban landscape, and it is really quite significant to see this. I have been honored to be here for the past 10 years here with KONE and be even just a small part of this transformation. It is really quite significant when you think about it. What is interesting about the China market is that not only is it the world's largest market, but that it is by a factor of 10 larger than the second-largest market.
This is very significant for us and really to be a top elevator global supplier, you have to do very well in this market. In addition to the new equipment market and the growth we've seen over the past several years, we're also seeing a tremendous growth in the aftermarket business. As you can see, we have added more than 2.6 million units in the past 10 years. That's more than almost three times, I should say, more than double what Europe and Middle East has done in the past 10 years, and more than 10 times what North America has done. This we see as a very significant business, and not just an add-on business. This is not just supporting our new equipment growth, but we see this as a very fundamental business to us and a very profitable one as well, growing in its profitability for us.
10 years ago, I sat down with the senior management of KONE, and we looked at the China market, and we realized early on that if we were going to be a significant global player, we had to become very strong here in China. Every year we've looked at this situation and we've come to the same conclusion. This is a key market for us, and we plan to continue in the future to make this one of our key markets, to increase our competitiveness and make sure we're performing at the best we can here in this market. Before I go to the next slide, I just want to mention here, by the way, that this is a rendering of an actual building now under construction in Beijing. This is called the China Zun. It will be Beijing's tallest building, over 520 meters tall.
It has 142 KONE elevators and escalators. It will also have, within this building, more than 20 double-deck elevators running at 10 meters per second. When finished, it's going to be a really outstanding showcase for us. Let's take a look at the market in the present situation and what we see are the long-term trends. Most of these figures here, I'm sure, are very familiar to all of you. You look at these continuously. Namely, we've seen that the growth rate in manufacturing has softened significantly over the last five years or so. We're also seeing that real estate investment, the growth rate has also dropped continuously for the last five years. These are figures that we watch very carefully to see how they're going to impact our business.
At the same time, we've also seen that inflation has moderated and that the PPI has come down significantly as well. These figures are important to us because particularly on inflation, when we see that, we see that as an opportunity for the government really to make significant monetary and fiscal changes without the fear of inflation really taking off. The PPI is something we look at because it indicates how we can work with the market to reduce our raw material and component costs. Generally, we can see that these indicators are indicating that in the first half of 2015, and probably going forward for a little bit, a general softening of the market. Another key figure that we look at is the new construction starts. As you can see, since 2011, there's been a real whipsaw of the construction starts.
Since the last two years, construction starts growth rate, we want to make that clear, growth rate has dropped twice, first in 2014 and 2015. That doesn't mean construction starts have come to a stop. It means that they are redeploying and looking at the larger developers are seeing where their opportunities are. Many are reducing their starts in tier 5, 4, and 3 cities and redeploying them in tier 2 and 1. We're also seeing that the work in progress, or WIP as we call it, the work in progress of the construction industry remains very large. Approximately about six years' worth of construction is now underway right now. The advantage of having this WIP, though, this work in progress, is that as developers see opportunities, they can ramp up or ramp down, depending on their situation, to take advantage of changes in the marketplace.
I just mentioned about Chinese government looking at monetary and fiscal levers and tools to stimulate the economy. Again, you are all very familiar with the recent rate cuts and interest rate cuts that the government has instituted. You're also familiar with the fiscal stimulus. The government continues to put money into infrastructure growth and to support local governments. An area that we particularly watch is the policies towards the property market. In the last few months, the government has begun to soften a number of property policies that they had put in place a number of years ago to cool down the market. Now they're beginning to reduce those or pull those back. For example, they're allowing people now to buy more than one apartment. They're allowing people to buy apartments, not just in the cities where they have resident permits, but in other cities.
They're even allowing foreigners like myself to buy apartments. In addition, they're reducing the down payment that is required. This is a big plus. I also heard yesterday that not only is the down payment being reduced, but you can now pay the down payment over a period of time as well. The government really is making it easier for people to buy houses. When we look at those changes in monetary policy, fiscal stimulus, the policies towards housing, make those changes, we're beginning to see that they're perhaps having an impact already on the situation here in China. In terms of sales growth area, we're starting to see the sales begin to pick up across China. We're also seeing property prices, which had come down significantly since 2014 through 2015, now begin to inflect back up. We know it's still early.
We know we're watching this very carefully, but we see that this is already very positive signs for our market. Still, we know it's going to be a challenge. Why do we know that? Well, because although these figures are positive, they're looking at China as a total. I think what we need to do is break it down a little bit more granular to see where investment is going on. In the northeast and northwest of China, clearly, they're facing a lot more challenges. Investment has come way down in those areas. They got a bit ahead of themselves, built a lot of inventory up there, and they've also been hit by industrial softening as well as the mining industry has softened. That's going to be an area where investment is going to pull back for the foreseeable future.
We continue to see good investment along the east coast and central part of China, where the majority of the population is. When we look on a province-by-province basis, we're seeing that there is also great variations within that. 1st-tier, 2nd-tier cities are doing well. 3rd and 4th-tier and 5th-tier cities, investment is being pulled back a bit. In some cases, there are opportunities even in those cities. Year to date, we're seeing that real estate investment has continued to climb, albeit much more slowly. If you look at the residential, it has certainly pulled back from its heights of a number of years ago, and so far this year, the growth is only about 2%. However, backing up this will be what we're seeing as continued strong investment in the commercial segment.
If you add infrastructure in that, it would be even slightly higher. We see that the market certainly has changed. It softened a bit. We also think that there are still opportunities for those who have a finer understanding of the market and can take their organizations and deploy them more effectively across China. As Henrik mentioned a little bit earlier, we see a slight softening year-over-year for the entire market. Let's take a look at the segment. I think the segments will give us a finer understanding of where the market is going. We're seeing that the largest segment, of course, two-thirds remains about residential, and that is coming down a bit, particularly in what we call the commercial residential segment. That's excluding affordable housing. That's developing in line with the market, which is in slight decline.
We're seeing affordable housing, however, to remain reasonably stable this year with 7.4 million starts planned for the full year. In addition, we're seeing continued urban renewal and reconstruction of shanty towns as a lot of these larger cities have begun to envelop smaller regions around them or townships. These areas are very ripe for redevelopment. We're seeing generally positive growth in the commercial segment. We know that the retail segment, shopping centers, have come down a little bit. e-commerce has exploded here in China, as you know, and a lot of developers are trying to understand the impact of this. We see some of the retail shopping centers, the plans are being adjusted, and they're looking at their model and see how best to cope with this growth in e-commerce. We're seeing still strong growth in the office segment.
In some cases, in some cities, it's improving, and we're seeing, of course, very strong growth in infrastructure, airports, subways, train stations, high-speed train, things like this. That's doing very well. However, in the market today, there certainly are some headwinds, challenges for us, but there's also some positives, some tailwinds for us, too. When you look at the challenges facing us, certainly the overall market is growing slower than it has in the past. That's putting a certain amount of pressure on the entire system. There's no question about that. Price competition is intense, and we see that remaining intense. A question earlier from someone to Henrik was, a competitor said that they're willing to give up a bit of pricing for market share.
I'm reminded what a colleague said during one meeting when we were reviewing that kind of scenario, and her comment was, "Well, join the party." It's already been very price competitive. One more player wanting to join the price competition really won't add that much more to the present situation. It's already extremely price competitive. We're going to look at other ways, not just price, to keep our competition going forward. Another headwind for us, challenge, is the increase in labor cost. That has gone up significantly, but that's gone up for all of us. The trick now is how do we make sure that while the labor costs are up, we improve our productivity. This is a very exciting area for us. On the positives, the tailwinds for us going forward, we're seeing large developers gaining share, and the large developers are our customers.
Both KONE brand and Giant KONE brand, we go after, specifically, the deals with the largest top 100 developers in this country, and they're the ones who are doing generally very well. We also see among the developers and their end users an increased interest and focus on quality and safety. Again, that works in our favor because of our reliability and high-quality products. Overall, that helps our costing. We're seeing much more favorable raw material prices. This helps us because, of course, we use a lot of steel, copper, and our component manufacturers get better costing themselves. Overall, there are some positives and negatives in the market, but generally, we see that these trends are actually going to favor us and favor the larger OEM providers in this market.
We know it's a challenge for us, but we know some of the smaller companies, those that don't quite have the scale, they're actually facing a very difficult time right now. We get calls weekly about companies seeing if we want to buy their business. We know a number of companies have already gone bankrupt in this market. We can see that these challenges are really starting to precipitate the beginnings of a market shakeout for a number of competitors. Remember, there are over 400 OEMs in this market, there's a lot that will probably not make it through this next wave of economic challenge. Now, we've talked about these as short-term challenges, but I want to reiterate what Henrik talked about, what are the long-term mega trends that we see for the environment. I want to bring it into a China context for you.
Big one for us, of course, is urbanization, and that's continuing. Day after day, this is happening. You see that in 2015 to 2025, we're expecting more than 160 million people moving into cities. The official figure right now is that there's about 55% urbanization, but a lot of people feel that's still optimistic. Why? Because while people are working in urban centers, they haven't relocated their families here yet. They haven't really fully integrated into a given urban center, and therefore, there's still a lot more opportunity for this to happen. This is a key change that will be taking place over the next 10 years. Henrik also mentioned the growth of the middle income consumers. Very important for us. Their expectations rise. They want better services, more convenience, better safety, reliability. It's not just the consumer themselves.
The people who are running the cities, running these townships, their expectation is, "Hey, I have to deliver to my area, my political area, a stable environment. We need to make sure, because if I don't deliver a stable environment, there's going to be people who are going to be unhappy, and that's not going to work well for me." They're saying, look, their expectations are rising. I need to work and promote companies that are going to deliver good services and good, reliable products and support to us. Another one is urban renewal, and we've talked about this in our last CMD in London. There's a lot more detail on this, how we came up with this calculation, so I encourage you to go back into that data if you want some more granularity on that.
This is a very important trend for us as we see that buildings are being taken out of the market that don't have any elevators, and new buildings are put in their place. Let me give you a very specific example, and it's right here where you're sitting today. This picture is Pudong. Those three tall towers in the corner over there, we're located just at the base of that. This picture is being taken from east side, looking west towards the river. You can see that there's a huge amount of landscape here, urban landscape. None of that here, by the way, none of these buildings, or very few of them, had elevators. You can see the wave is coming in this direction. This is Shanghai. This is a tier 1 city. It's often referred to as a mature city.
The opportunities, they say, are not here. I say, look, there's still a lot more opportunities here. The service business. We mentioned this is extremely fast-growing here in China, what does it mean to us? Well, when we look from a quantity standpoint of view, from 2014 to 2025, we're expecting this installed base to more than double, probably come close to tripling in the next 10 years. You can see our expectation is that new equipment is going to continue to feed this market very steadily for the next 10 years. It's a very fragmented market. OEMs at this point really only maintain about 25% of their installed base. There are over 8,000 licensed service companies in China, but very few, if any, have more than a regional, and none have a national presence. It's only the OEM companies that do that.
We believe that there is now clear trends in place that are going to drive the consolidation of this industry as well, again, towards the OEMs. Why? Because we're seeing regulation, tighter enforcement of regulations that are on the books to make sure that elevators and escalators are well-maintained, that if there's any problems, the response rate is very quick to address them, and if anything happens, who's going to be responsible? Who's going to be accountable? This is increasingly being pushed from the regulatory side. In addition, we're seeing technology coming in. Henrik talked about it earlier, the Internet of Things. Again, it will be the large OEMs that have the capacity to do this. However, I do want to stress that we at KONE probably look at this business maybe slightly differently.
We know that, yes, having a strong aftermarket business supports your new equipment business very well. That's good, and we agree with that. We also want to make money in this business. We want to make this a profitable business. I have tasked all my branch managers that their target is to make sure that their service business can cover their fixed costs. That's the minimum target I want to see them do that. That's the goal. As they're growing up, they want to make sure that they develop this service business and make it a profitable one. Let's take a look at KONE's business so far. Since 2006 to 2012, KONE's grown double the market growth. 2013 and 2014, we grew 50% faster than the market.
In the first half of 2015, well, as my 20-year-old daughter would say, "Hey, Dad, not too shabby." For those of you that have teenage daughters, you know that's a pretty good compliment. When it comes to our maintenance base, we continue to grow faster than the market. Since 2006 to 2013, we grew not quite double, but we were close to it. In 2013, we were almost 50% fast. 2014, should be we were almost 50% faster. We see these as two very key businesses for us. One supports the other, but both are great businesses. What does that bring us today? Today, we're the largest OEM in new equipment here in China. Remember, the world's largest market. We're number one, we call ourselves joint leader in maintenance.
We see that there are two other OEMs that we're all about probably fairly close in our estimate. We call ourselves joint leader in this business. Outside of these three top companies, the market share drops off quite significantly. How have we been able to do this? Four quick reasons, and I'll go into detail in a minute. Best-in-class equipment solutions, both on the KONE brand side and on the GK side. Strong dual-brand strategy to go after these different market segments and geographies. We have a great geographic coverage, and I've got the best, most professional workforce in the industry here in China. I say that with great pride. Let's go a little bit more in detail. When you look at the product offering that we have, the KONE brand occupies the very high to the upper end of the value segment.
The high end, these would be the major projects. I gave you an earlier example, the China Zun in Beijing. This is the area where we excel, and we have the latest technology, and we provide this market with fantastic solutions for their high-rise challenges. We're also very competitive in the commercial real estate zone, and we can touch down into the value segment. On the KONE brand, we're occupying mostly the first, second, and third-tier markets. When you look at the Giant KONE, they have a very strong offering in the mid-range and all the way through to the value segment, and they're very strong in third, fourth, and fifth-tier markets and can sometimes bring a good competition to the second tier as well. Having just great products, great hardware is not enough. You've got to really be able to differentiate yourself in this market in delivery.
Why is that? I've got to tell you, constructing a building in China here is difficult. It's complicated. So many trades. What happens is, a developer who considers a company, after they look at the equipment, they say, "Okay, is this supplier going to make it easy for me to do business?" What we like to say is, winners make it easy to do business with. Winners deliver on their promises. Winners deliver high-quality services to their customers. That's what we want to be. We want to be here a winner, and we're going to continue to work hard. Geographic coverage. I've said that we have great geographic coverage, probably the best in the industry. What I want to also stress here is that this is not a static model.
Each and every year, we review every branch, office, service depot to make sure it is in the right place at the right time. We are not over-invested, we're not under-invested, we're not missing opportunities. We're constantly adjusting this portfolio, if you will, of locations to make sure that we've got the right mix for the right market. We're not overspending, and we're controlling our costs. Our service business. We want to really be a leader in this business, and we want to continue to ramp up our volume in this area. As you can see from 2006 to 2014, we've really grown this business quite rapidly. What's interesting is when you look at the lighter blue side, this is the equipment that we have installed and is now in what we call first maintenance. By the way, this first maintenance is a revenue generator as well.
All that is revenue generation. First service is the pipeline, which will then convert over to long-term maintenance. The issue of conversion, very important for us. We take this as a very important KPI for our teams. We have right now on the KONE brand, the best conversion in the industry here in China. GK, continuing to work on its conversion capabilities and on its service business. We see that as a great opportunity going forward. By the way, I want to say, as important as the new equipment business is, this is very key for our sustainability. This is our legacy that we're leaving for the next generation of people to come in to this market. A growing opportunity and one that we're developing our capabilities on very quickly is a modernization market.
The lifetime of elevators here in China is a lot shorter than in most other industrial countries. The reason being is that the usage rates are very high. For many, many years, as they were building buildings, they didn't put in enough elevators. We call that they under-elevatored a building. A typical building, let's say 24 stories, might have only two elevators. Well, those elevators are going all the time. Today, of course, a typical building that's 24 stories has a minimum of three, sometimes four. You can imagine these elevators that are turning 15 or 20 years old in the next few years, they're tired. They need to be upgraded. This is not an easy business to do. It requires a lot of expertise, and you're working in occupied buildings. The owner is very nervous.
The owner is saying, "How can you ensure that my present tenants are not going to be disturbed too much?" They're not going to go out and just talk to anybody. They really only are going to go to a company they have confidence in, that they feel comfortable will be able to treat their tenants well and make it as easy as possible for them to modernize their facility while not stopping people from using the building. Let me give you one example of a typical job that we're doing today in China. This is Plaza 66. It's on the west side of Shanghai, the other CBD district, a modern shopping center. Plaza 66 has world-class tenants in there. You would recognize the names in luxury goods, in consulting, are all officed in this building. The customer was unhappy with their present supplier, a competitor of ours.
These are not KONE lifts that we're taking out. We're putting in, though, brand-new KONE lifts, taking out the competitor equipment. Did I say this was competitor equipment? Okay, you got that. Taking out competitor equipment and putting in 18 brand-new KONE lifts. We're going to improve the waiting time with very modern algorithms, dispatch technology, better reliability, and make it what we call their people flow in the building much better than it was before. We talked about the labor cost increasing. How are we addressing that? Well, the big one is in productivity. This is where I believe we're doing an outstanding job. One key area that we've looked at and we've been really rolling out very quickly is providing new installation methods. These installation methods we call scaffoldless.
In a typical building, you wait till the building is completely topped off, then the elevator company comes in, builds steel scaffolding in the shaft, then the workers come in and build the elevator. Once they've reached a certain stage, they have to then take the scaffolding out and remove that and go on. This new technology that we're doing allows us not to have to spend money or take time to build or disassemble a scaffolding in that building. We're able to work more effectively, quickly, get our people on and off the job site, install the elevator higher quality, more safely, then we can turn the elevator over to the customer more quickly so he can then use that for his trades. Remember what I said, building here is complicated. If you can make your developer's life easier, they'll want you.
In addition to hardware or methods like scaffoldless, we're providing our field management, our supervisors, our people field management tools, mobile tools that allow them to stay out. One thing that I want to add to Henrik's comments, this is exciting for us, that is e-learning. We now push learning down to mechanics, supervisors, so that in their spare time, they can learn all the techniques. They can receive updates in how the technology's changing, updates in how to manage job sites. This is a very powerful tool for us. By the way, what we do is we incentivize our service people that as they improve their skill level, they can receive higher pay. We can push information, then they pull from us that they want to improve their skill level so they can receive a higher salary.
It's a win-win because we're going to get more productivity out of them. They're going to go to a job site and be able to solve a problem more quickly, and then provide a better customer satisfaction. We have to do a lot of training. Training, training. This is where we invest a lot of time and energy. Let me give you an example of a typical day in the life of KONE China. On any typical day, let's say today, Friday, we're going to book between 400 and 600 elevator orders. We're going to work on more than 4,000 construction sites. Janne, my colleague, is going to ship through his distribution center more than 9,000 crates and components out to these job sites across China. Our 5,000 service technicians are going to perform more than 22,000 service visits on a typical day.
Today, I'm also going to hire five more people. Every day, at least five people. What's our way forward? We've talked about this before. We've got great products covering all segments, both in GK and KONE brand. We've got the two-brand strategy working for us, covering 1st tier, 2nd tier, 3rd tier, 4th tier, 5th tier markets, all the developers. Great geographic coverage, but making sure it's at the right cost level. We're focusing on the service business and not just as an ancillary business to our new equipment, but as a standalone profit-making business. We're hiring and training the best people in the industry. That's where we start from. Where are we going to go?
We're going to first make sure we keep reminding ourselves, we want to grow profitably in this market, we want to grow faster than the market, and we want to do that by keeping that challenger mentality. Thank you. I'm number 1. Let's move on. Let's earn that stripe every day. How are we going to do that? We're going to continue to leverage our scale and our delivery capabilities. We're going to make sure we've got the best field productivity in the industry, adding those technologies, working with our customers, making their life easier, and making our people more effective. Finally, we're going to make sure that we focus on this great service business. We're in the number 1 position. Great momentum. Best team. Outstanding offerings. Fast-growing service business. All of this in the world's largest new equipment market and service market.
I'm excited about the future for KONE here in China. It makes me pumped up. Thank you.
Thank you, Bill, for the very comprehensive update. We have now time again for some questions. We can start here in the middle of the room.
Morning. Thanks. Can you hear me? Yeah. Thank you.
That's a good sign.
Sorry. It's on. Last problem, I promise. Three. I don't think it's quite working, but I'll give it a go. You talk about five hires a day, 1,000 employees a year or more. Can you talk a little bit about how you are adjusting or how you can adjust your service business to a weaker market? How geographically mobile is your service workforce, and how easily can you redeploy that? That would be my first question. Thanks.
Generally, our service people, yes, are very local in the business. I think the key is not just their mobility, but how we can bring to them more training. We're doing that through mobile devices. We also want to make sure that they're connected with supervisors and leaders within their local geography. We've got certainly enough business to support these people. I think generally when we talk about redeploying resources, we're talking about within a company. For example, in case we saw in some area sales we were not happy with, we would move salespeople from perhaps new equipment over to service sales, or we would move installers over to the service business. We have enough growth in both of these markets to allow us to flex the workforce within that given area.
Secondly, can we talk a little about pricing dynamics? You and I think Henrik have historically been a bit dismissive of the idea that the aftermarket impacts the OE pricing. I wonder whether you can talk about pricing strategy in China, how that differs to developed markets, and how you expect that to transition towards more a service-led pricing model, partly, I guess, as the OE part of your business declines and as you ramp up your service business. Thanks.
I'm sorry, I didn't quite get your question.
How aftermarket and the opportunity in aftermarket, again, we're looking at aftermarket in China, which arguably could, in the longer term, be very attractive, very profitable.
Yes
high density rates. You would expect as competition increases for that service business, as most of your competitors ramp up their service businesses, how does that affect pricing on your OE business?
Well, they're two separate markets. The OEM business has to work on its own, and customers will look at that. In the first service period, that's included in the contract. That's part and parcel of the new equipment contract. When we convert that over to our service, we're typically not competing necessarily against, let's see, an OEM per se, but we're competing against many of these small regional players or even in some cases, a company's own property management team. What we try to focus on is the reliability of our service, the professionalism. We're never going to be as priced as well as these small mom-and-pop companies, these small independent operators. We'll never have that. We have to say, "Look, we're going to offer you something that they can't." That's where our value is. I would not even price myself to compete with them.
If I could just ask a third and final question. We've seen new construction starts, as you have said in your presentation, decline since 2014.
We've seen more recently house prices and indeed sales improve since April, May. Historically, we've talked about a sort of six to nine months lag between the two. Do you think we're in a prolonged decoupling period where we see, given inventory levels, particularly in tier 3 to 5 cities, starts to decouple, and therefore in a prolonged downturn as far as construction is concerned, and a decoupling from house prices and house sales? Thanks.
I think you just yourself already mentioned, between the tier 3, tier 4, and tier 5 cities, there is a lot of different change going on right there. That's going to certainly affect how construction starts. I see what happening now is that developers are shifting their priority away from tier 3, tier 4, tier 5 cities back to the tier 2, tier 1 cities. We're watching that very carefully. Remember, this is still a very large market. There's still a lot of starts that still happen. Clearly, it's gotten softer over the last few months, so we have to watch it very carefully.
Okay. Let's take the next question from this side of the room.
Thank you. This is Antti from Danske Bank. Understanding about the Chinese new equipment market, you showed the increasing work in progress backlog. Still, the elevator market is declining. How should we read this? Is it like developers started some buildings, passed in the history, and now they realize that we actually don't want these buildings completed? How should we read this?
Clearly, developers have slowed down some of their projects. What we've also seen is a developer, typically in the past, would take down a reasonably large parcel of land, and that maybe have 4 or 5 phases on it. What they're doing is they're moving ahead. In the past, they would move 3 or 4 or even 5 phases simultaneously. What we're now seeing is they're being a little bit more judicious. They're building 1 phase at a time and seeing how sales go. We're seeing they're more cautious, but not necessarily stopping the completion of a building, but more the phases of their construction. Total stopping of jobs, we don't quite see that on a mass level at this point. Individual cases, of course, each circumstance is different from the other. Generally, what we're seeing is that's how they're slowing down their business.
Instead of building all phases or more phases at the same time, they'll take one phase, see what happens, and then go to the next.
Your view, say, in the medium term, do you think that this is kind of a soft patch because we have seen some, as you mentioned, leading indicators like pricing and sales data improve slightly in the short term? Or is this something that could last three years, that developers slow down, slow the conversion?
Well, it's hard to really give you a forecast, what it's like, and we sort of want to avoid that. We want to look at things more short-term. We've already said that for this year, the market has clearly softened. Henrik has also given you a little bit of insight that we feel next year, there'll be softening in line with what we've seen this year. I think beyond that, it's hard to say. I also see, as I mentioned, some positive signs in the market already. How sustainable they are, time will tell.
Thank you.
Okay, let's take a few questions from the back of the room, here in the middle.
Hello. Thank you for taking my questions. I have two. The first one is, what are the forms of corruption that you're most exposed to? Here, I'm talking about where you would benefit and where you could be hurt financially, as well as on the OE side and on the service side, particularly because you're growing so quickly. Could you comment on that and risk controls?
I'm sorry, I didn't quite catch that. What was that again, please? Can you speak up?
I will repeat the question. What forms of corruption are you most exposed to, both where you would benefit and where you would be hurt financially, as well as on the OE side and the service side?
Well, you mentioned that's a very serious issue that we also take very seriously. As you know, China is instituting a very strong anti-corruption campaign right now. We think this is a very net positive for our industry and the government as well, the country as well. I want to make it very clear that we have zero tolerance towards corruption. We have very strong code of conduct. This applies not just to China, but to our company globally. We spend a lot of time communicating, training, we don't tolerate any form of illegal payments. This is something that we take very seriously.
My other question is on the incremental capture rate. Could you give us some color on the high end, I guess that was always high, but on the mid-range and on the entry-level, your success at increasing your capture rate?
You mean.
Conversion rate.
Conversion rate. Okay.
Conversion rate. Sorry.
We've had very strong conversion rate, particularly on our KONE brand, because we have focused from the very beginning, that with the customers, the end users, that we want to not just provide the new equipment, we want to make sure that we get the service. It's a full mindset and organization structure. We have the people in place to be able to provide the quality of services that we expect and that our customers want. As I say, I can't catch all of it. I'm still at only 60% conversion. I'm not happy with that. On our Giant KONE brand, we're not quite the same conversion level. We think we've still got a lot of opportunity there. This market is still rather immature. It needs some time to grow.
OEMs still only account for 25% of the overall conversion of their equipment to their own maintenance. It's still early days, and I think this market will mature again as regulation becomes more enforced here in China, and as customers, their expectation for better services, better transparency to what's going on with their equipment takes off.
Let's take a question here from the middle.
Manu Rimpelä from Nordea Markets. Two questions. The first one, you mentioned that we are seeing a change in the market from tier 3 to 5 cities to tier 1 to 2 in terms of the developers. Could you maybe talk a bit more about your position in these tier 2 and 1? Would this be a beneficial trend for you and also for the other OEMs, or how should we think about that?
Yes. Well, as I showed on one of the charts, that our product portfolio and our coverage rates are very strong across the entire product, along the entire range, not just from the high-end, mid, and value segment. The two brands are well-positioned to go after any jobs in all these tiers. As the developers move back, let's say from the lower tiers into the higher tier cities, that's going to generally have probably a higher impact on the KONE brand. That would be, again, more towards our brand than the GK brand. Its business is still developing well. There's still a lot of opportunity for that, even in the softer markets of the tier 3, 4, 5.
If I rephrase the question slightly. Can you say how your growths have developed over the last five years in tier 3 and lower, and tier 1 and 2 in terms of, is tier 3 and 5 a bigger share of the group today than it was, for instance, five years ago?
How it's developed is, again, I would say that, breaking the brands down a little bit, the KONE brand is targeted at tier 1, 2, and 3. That's done very strongly, very well. In the past few years, Giant KONE has really found its footing in the tier 3, 4, and 5 markets. Also, from a share point of view, done very well. I would say that, again, what I just mentioned, that with the softening in these lower tiers, we're going to see certainly a little bit more headwind trying to gain more share in these smaller cities.
Okay, thank you. My second question would be on services. You mentioned that there were 8,000 service companies in China, I think.
Yes.
How has that number developed over the years, and are you seeing that number is still significantly growing? Are we starting to see that some of the smaller companies are maybe running out of business as on the ordinary equipment side?
There's clearly a lot of churn in these small service companies. License can move back and forth, and in some cases, people will actually pay a fee to someone who has a license to work with them, but they'll be independent. There's a lot of variation in that level. I think what's important to recognize is that these are all very local companies within a given city, sometimes within just a district. They may have two or 300 units under service. We're also seeing that what happens is when a service company tries to go above 500 units, it's really difficult for them. A small service operator typically is an entrepreneur by himself, and he can manage 30 or 40 people at a time, perhaps. But once it goes above 500 units, very difficult for them to maintain control over the business.
We don't really see that these companies are growing. There's a lot of churn. We also see that people, as they're getting older now, they want to leave the business. There's going to be some opportunity to pick up some of these units as they come onto market.
Okay. Thank you very much for the good discussion and Q&A, we will have time for more discussions after our last presentation of the morning. Now let's move on. Thank you, Bill.
Thank you.
Welcome on stage Eriikka, our CFO, to discuss our financial development.
Thanks, Katri. It's good to be here this morning with you here in Shanghai in our Capital Markets Day. Just a moment. Last year, I was talking to you in our CMD as the new CFO of the company. I can tell that it's much nicer to be here at the podium this morning when I do recognize several faces already. I have had the opportunity to meet quite a few of you during the past year. Am I having a problem with the microphone? Okay, it's breaking up here a bit. All right. You have heard Henrik discussing today about our recent developments, he talked about the megatrend of urbanization. Microphone.
Eriikka, maybe you can use this one. Yes.
Now it works. Can you switch this off so we don't get the double input? All right. I don't know how much you heard from the beginning. You heard in the morning Henrik discussing about our recent developments, he also discussed about the megatrend of urbanization and how we are addressing the changes that we see in the industry. Bill was discussing about China. Now I thought that I would share with you thoughts more related to our business model. What I thought that I would cover there will be these topics that I will shortly come. First, I need to mention that last year, I already said that I like the business model of KONE as a new CFO. After one year and having more understanding of the business, I'm very excited about it.
I'm pleased to share with you now why I think we have such an attractive business model. First of all, we are positioned very well in the industry, we are a global company in a life cycle business. We have good visibility to our revenue. We have a good order book, we also have recurring revenues coming from our maintenance business. We have a flexible cost structure, we can create good cash flow and also high return on capital. Let me dive a bit deeper into the subject and start with this geographic footprint of ours, because we really are global. We operate in over 100 countries around the world. In 60 countries, we have our own units. The rest is covered by distributors. That really makes us global.
If we look at where we are, over 40% of our sales is coming from Asia-Pacific, about the same from Europe, Middle East, and Africa, and 15% from North America. As a reminder, we are not present today in South America. We are in life cycle business. Henrik was already talking about it. If you think about it, that we sell equipment, we install it, we maintain the equipment under the first service period, we sell the maintenance contract, we have the opportunity to modernize the equipment when they get older. We might start partially modernizing, as an example, like upgrading electrification. At the end, we can make a full replacement. That's about the life cycle. We are there present with our service to the customer all the time.
If we look at this new equipment business, you see that it has been growing fast over the past years. Yes, we have a strong position there. We are joint number one in the market. When we look at the maintenance business, we are a challenger, and we have the opportunity to accelerate the service growth, as has been discussed this morning already. In modernization, we have been growing, but there is more opportunity to capture. Clearly, we can do better in the modernization side. If we then move a bit and come back actually to Henrik's presentation, you recall him talking about the framework related to the urbanization, the phases of urbanization. First phase, people moving from rural areas to urban cities, the increase of the middle class income, getting the efficiency in the urban living.
If we put that into KONE context, actually it's quite interesting, because here, I can identify similar kind of development phases with our current business. These numbers here that you see are our sales per area, showing the split between new equipment business and the service business. Let me start from the mature countries like North America and Europe. There you can clearly see that the service is a majority of our sales today, 70%, but still 30% is sales for new equipment. That is like applying there is a need in the phase 3, in the mature countries to continue building and having opportunities there as well. When we move to the Middle East, the picture changes quite dramatically.
75% of the sales in Middle East is new equipment, but we already are having service sales, and we are growing that business in that market. When we look at China, that has been discussed already this morning, less than 10% of our sales today in China comes from services. We have this huge opportunity in our hands now to capture the growth, being the leader in the new equipment side, it gives us a good start. Asia Pacific. There, the situation would be like 50/50, but let's remember that consists of countries like Singapore in one hand, and on the other hand, like India or Malaysia. There is some variation. Overall, I would describe the rest of Asia, excluding China, as countries where we are having very healthy, good new equipment business, and we are growing our services.
What does it mean for us? This means that we have the opportunity to serve our customers and give the right set of products and services that they require. If we look at this in practical terms, what does this mean to us in our daily life? It means that we can think about each market in a bit different manner, and I can tell you that whenever the phone call comes in the office, every phone call is different, because the needs are so different in these different markets. Let me go through a bit more detail examples of the focus areas in each market. Starting again from the mature markets of Europe and North America. In the mature markets, as you know, the labor cost is high compared to the developing areas.
There, the installation productivity is an important cost item to be looked at. How can we actually improve the productivity there is valid both for North America and Europe. Also it's about pricing capabilities, sales management, but also to have the right competitive products in the marketplace. In Europe, I would say that actually what is specific for that area is the fixed costs. We need to make sure we have the right level of fixed cost and we get the leverage out from the market that has been low for a long time. While looking at North America, the situation is different.
We have been performing very strongly in North America in the recent years, and we have a big order book, and there our focus area is to actually be able to deliver the order book, find the people, train them, and have good quality delivery. On the maintenance side, the focus areas would be more common for these mature markets, talking about the field operations and the productivity there, and also about the pricing capabilities. Moving to the Asia Pacific and the Middle East. Let's start from China. Here in China, it's very important for us to look at our product competitiveness, also about the installation productivity, and also this fact that how do we grow now our service business. These are our focus areas.
When we, on the other hand, move to rest of Asia, Pacific, and Middle East, we have a high order book, and it's a point of ensuring that we can execute in the quality manner the order book. Also here in rest of Asia Pacific and Middle East, it is about learning from other countries, that we don't have to invent the wheel again. We know how to do things, especially now in the service side, and also expanding the footprint and making sure that we can also grow the service in that area. I find this quite fascinating, combining this urbanization story and looking at where we are, because it tells that we have different kind of opportunities in different places. This is what makes it very interesting for us.
Let's then move to look at the order book and the recurring revenues, and see what kind of visibility we have towards our revenue, and what's the benefit out of that. Naturally, it gives you some time to think, time to plan what needs to be done. Let's start from the order book. At the end of June, our order book was all-time high. It was EUR 8.6 billion. As a reminder, in order book of ours, we include new equipment orders and modernization orders. The maintenance contracts are not inside of our order book. What does this order book, which has been growing over the years, as you can see, give us? It gives us visibility towards the future in the new equipment and modernization side. How long is this visibility?
These numbers that you see here are now related to the new equipment. I could say that roughly in the volume business, it's about a bit more than one year, and in the major projects, up from two to five years. If we look at the bar here on the left, you see that the major projects represent today about one-third of our order book. That has been growing over the years. These major projects have become bigger by size and longer by nature. That has a somewhat slowing impact to our order book rotation. In the volume business side, the rotation, I would say that has been pretty much the same, maybe just slightly increased, but in all areas altogether, it has stayed in a good level.
If we then look at the bar on the right-hand side, this shows the split by region, the order book by region, where you see that the Asia Pacific has approximately half. Please note the North America. If you remember pictures where we talk about the market size, like in volumes. North America does not represent such a big share of the new equipment, but the monetary value is higher. It's good business over there, and you can see that it's growing now very well. Order book gives us visibility, what about maintenance business? Actually, maintenance business is my favorite, and CFO, it is the highest profitability of our businesses, as in many other industry as well. Also the fact that maintenance business bring us recurring revenues, which are stable, and they normally go pretty well also through different kind of economic cycles.
Today, our maintenance business is about one-third of our sales, and the growth rate is 5%-6%. Yes, our plan is to accelerate that sales growth. You have heard this morning about the ways how we are approaching that. One good thing about maintenance business still is that it's a sticky business. Sticky meaning that the retention rate is pretty high, so 90%-95% retention rate globally. As Henrik tells me that it's not enough, we need to improve. That's why we have the plans that we have been discussing how to get the customer satisfaction up and improve even further. We have been touching now our global position, our visibility revenue. I would like to spend some time to discuss with you about our flexible cost structure. Let's start talking about the sourcing and manufacturing side.
In the sourcing and manufacturing, we have inbuilt flexibility in that way that now in the afternoon, when we go to Kunshan, you will see that our factory is actually a set of assembly lines. It's a set of assembly lines where you see people working in shifts. We also purchase majority of our components from our supplier network. Our product platform is very harmonized, which gives us capability to have pretty standardized components. That brings us flexibility then also in the sourcing side. Our factory, it's not that expensive. It's no pulp and paper business. You will see that it's a very capital light model that we have when we talk also about our manufacturing. Another element then related to flexibility is in the installation side, where the subcontracting is being used in many countries, for example, here in China.
Also looking at the service. We have been discussing about expanding our service business, but that is not tying so much money. It is about people, finding the right people, training these people, getting them to work, and sharing with them about the practices that we have learned over the years in other places. That about our cost structure, and I could say that we do have pretty low level of fixed costs compared to the variable costs. Let's then look at the external environment. There have been both headwinds and tailwinds, and we look at the pricing environment and on the other hand, the cost environment. The price competition has remained intense, but I think Bill was pointing out that, yes, well, there's always been competition, but now it has become even more intense here in China.
On the other hand, the good news is that in North America, we have seen improved price environment or for some time. Also in our modernization business, we have seen a healthy environment in pricing, especially in our growing markets. On the other hand, the maintenance business, there pricing remains competitive, especially in South Europe. There is the logic that in those areas where the volumes have been low for new equipment, then the maintenance business has become very competitive. In South Europe, we continue to see intense competition. We do have also tailwinds, and as Bill was pointing out, that despite the price pressure, we have been able to keep good levels of orders received margins in China. That has been supported by our product competitiveness, but here talking about the sourcing cost.
The raw material prices have been helping us somewhat, but I'll come back to the own actions because that's important as well. Another favorable trend has been then related to the labor cost inflation because there, like in mature countries, it has stayed in the single digit level. In the emerging markets, I would say that we have started to see a trending downwards in the labor cost inflation. This is the environment, but what are we doing about it? I guess is a key question. If we think about pricing, so in the pricing side, it is about us making sure that we utilize our sales management processes as we have defined them. We have been discussing about this sales excellence and bringing global tools and processes for some time already. It's to continue working on that.
It's also about bringing the capabilities to be better at in analyzing the data to support our sales. On the sourcing side, it is a fact that when we're having the volume, it helps. We need to utilize the economies of scale there continuously and also make sure that we get the benefit from the low raw materials into our component prices. They don't come automatically. It requires work, as you can imagine. The most interesting of these, I would say, is the last topic. This product cost development actions, because those are the ones where we go back to the design table and we start with looking at how does the new product look like or how can we modify the existing product. There it's a question that how can we optimize the use of components.
We look at the manufacturing process, try to make sure that we would make it as simple as possible. We also think about the installation guys and how do they work. How could we make it easier for them? Because each little piece in these processes has a cost tag, and when we can reduce it helps us. One more external factor, very familiar to you, but maybe worth reminding is our FX exposure. As the title here says, our FX exposure is mostly limited to translation risk. Why is that? The transactional risk is pretty limited because in most of the countries, we sell and purchase in the same currency. When there is some exposure in a country, it will be hedged according to our corporate policy. The translation exposure, instead, is significant for us. Why is that?
70% of our sales comes in other currency than in euro. When we translate our numbers into home currency in euros, naturally it has an impact. This year we have seen a weakening euro, that has brought positive impact to our EBIT. I think Henrik already mentioned, but I'll repeat that, in the current estimate of ours for the full year result, it includes an FX impact of EUR 100 million-EUR 120 million. I've checked, taking into account also the July, August, early September changes, and this range is still valid. On the economic exposure, the comment is that no major implications on competitiveness, because according to our understanding, our biggest competitors have pretty much the same kind of footprint as we do. Let's move to our strong cash flow.
As you can see here, the chart on the left-hand side shows you the quarterly rolling cashflow, which has been developing very positively. Our working capital has been staying at a good level. Very good level, I would say, if the level was -EUR 950 at the end of June. Cash conversion has been strong. What's behind this? Well, it starts from the payment terms, where we have upfront model where the customers need to pay us a down payment and milestone payments. Of course, the working capital management, making sure that we manage our inventories, payables and receivables in a professional manner is part of this. If I then break down a bit more in detail the working capital. First, on the left-hand side, you see the working capital rotation for inventories, receivables and payables.
The highlight there for you would be that look at the payable curve. There we have been able to improve, which means that we are very happy about that. On the right-hand side, this is a new picture, maybe it needs some clarification for you. The green is our advanced payments, and when it's negative in the balance sheet, now it's minus EUR 2 billion, meaning that our balance for advanced payments at the end of June was EUR 2 billion. That's the amount of money we have received from our customers, and this has been growing because we have been growing. In the blue line, you see the inventories. The inventories is the money that is tied up to these projects that the customers have paid for.
A KPI which I look at very carefully is this so-called net inventory, deducting from advanced payments the money tied to these projects. Minus 2, or let's say EUR 2 billion minus this EUR 1.4 billion, and there we come to close to negative EUR 600 million of net inventory. You see that it has also been developing favorably, telling that we are able to hold on to good payment terms and also run our business in a good way. The blue line there is then the official working capital number. What about the money we spend? What about our capital expenditure? It's one of the beauty of the business model. This is capital-light business. We spent a bit more than 1% of our sales in capital expenditure. What do we have there? Like what kind of items?
It can be about expanding our production facility or building a new one. It's about R&D facilities. You will see in the afternoon a wonderful test tower in Kunshan. It's quite beautiful. There's also the IT investments included, and we also have investments related to improving our installation productivity. This one is not including our acquisitions, what I'm talking about. If we talk about acquisitions, I'm not too proud about the number that you see for the first half because it doesn't tell about the activity that we have all the time. We continue with our strategy that we are interested in finding opportunities, and sometimes it takes a long time to get these deals closed, the number is pretty low there now for the first half. We will catch up. That we did last year as well.
Lately, we have been acquiring small maintenance companies, which bring their maintenance portfolio, which we can combine to ours and get density. Sometimes we are interested in acquiring a distributor, which is giving us access to a new market. What kind of companies are we interested in? I would say that the rule of thumb would be related to our vision of the People Flow Experience. Yes, we would be interested also to look at bigger targets, we keep our eyes open. I think we need to-- or I remember always what Henrik says to me, that to be able to buy, you need to have a seller. We are continuously looking at different opportunities here. Talking about cash flow, I'll close the cash flow side now related to dividends. As you know, we have nice track record of paying dividends.
We still do not have a dividend policy, it is our board of directors which considers the situation of the company then makes a proposal to our annual general meeting. On the high return on capital. I'm quite happy about this picture, I think quite many of you agree with me that these are healthy numbers. This is supported by our light capital intensive business with the growing earnings that we have been able to create. Let's spend some time to discuss now these earnings. I look at our EBIT, how that has been developing over the past years. You see here that we have been growing both on the absolute also in the margin-wise. This shows the margin picture. Here the improvement, it starts with the fact that we have been growing our market share.
When we look at the business mix, it's good to know that it has not been favorable because our new equipment business has been actually growing faster than the maintenance business. On the other hand, let's remember that the maintenance business has been growing as well, bringing absolute value there. While we have been growing, we have been seeking for operational efficiency. We have wanted to make sure that we utilize the best practices, we bring in global tools and processes, harmonize our ways of working. Surely, we have still a lot of work to be done in this area, we've done already a great lot. On the sourcing side, we have centralized our sourcing activity, that has helped us, also the size of ours has helped.
The fixed cost leverage is something that what I always talk about what we should focus going forward as well. I can tell you that in an exciting world of ours, there are a lot of ideas things that we could do go into new markets. Always have the balance like, how much do we put money then in fixed costs? Do the right choices there. Looking at the long-term targets of ours, we have not changed them. They are the same. I could say that I can tick two out of three boxes that we have achieved so far, we have not had a defined deadline for this. We have grown faster than the market, we have strong cash flow with improving working capital rotation.
The profitability target of ours is 16%. We are at the level of 14%. We are not too unhappy about it because we have been able to create absolute growth of EBIT, with the support of strong growth in the new equipment business, also the other items that I mentioned there earlier. The 16% target is a realistic target, I'm going to tell you how we are going to approach it. First of all, we need to continue to grow, we need to accelerate the service business growth. Also in the new equipment business, our plan is to continue to grow faster than the market.
These smart growth investments relates to what I just said about that there would be a lot of places what we would like to do and increase the cost, but we need to be smart and have that well under control. About quality. Quality has always a price tag. Quality is a prerequisite for improving productivity. That's why it's important for us to improve the quality of field operations and also the new products. Moving to productivity side, there we need to continue to drive improved productivity in maintenance and installation and also in the fixed cost side. Finally, pricing. We need to continue this pricing excellence work that we've done, make sure that we have the right processes and tools in place, but also that we balance between growth and profitability in the right manner.
It all starts from understanding the market very well. These are now the elements of our business model, and I think it's a pretty attractive business model as such. I listened to the morning discussion about the future and how we are going to address the future, with new opportunities. I think this gives us a good standing point to start looking for the future as well. Thank you.
Thank you very much, Eriikka. Let's have a few questions for you before we turn to the general Q&A. Maybe a question for you, here in the middle of the second row. Yes, that would be Tomi.
Yes. Hi, this is Tomi Skogman from Handelsbanken. You said you have appetite also for bigger acquisitions. How would you characterize how much debt you could have with your model and balance sheet?
Well, you know that we have very strong balance sheet. Maybe I'm not willing to state any numbers here. I think there's enough bankers around that you can do your calculations. Still, there's a lot of flexibility in our balance sheet. We are not afraid to have net debt if need be.
We have a question here in the front row, the lady in the front row.
Thank you. I'm from SummitView Capital. In terms of the maintenance business, you just say that you have 5%-6% growth over the past several years. I would like to understand how much is from organic growth and how much from acquisitions, and how much do you pay for those acquisitions in general in the past 5 years. Thank you.
I would say that, first of all, starting now from the part that for the acquisitions, they are pretty different in different parts for these maintenance companies. Overall, the level is about one-third that we've had. Is that category correct?
From the growth-
Yes
if that was your question.
Yes. Your next question was then about the pricing model or Well, we haven't answered the question when you have often asked me about the multiples and that side. Overall, I would say that we are able to integrate the maintenance portfolio very quickly to our operation, we can then take our processes and tools in use. That in that sense, we get the productivity in. We take the people over from the acquired company. Most often we take our brand over, sometimes we leave them with their own brand, we use our scale as a help to make it very good and profitable business for us.
Okay. Again, here in the front row.
Hi, Guillermo Peigneux-Lojo from UBS. Maybe a couple of questions regarding advanced payments. Can you disclose how much of that is China based?
I need to check. Have we disclosed the exact payment terms in China? I can say in general terms, Guillermo, if that's okay, that about the payment terms in China, because that is probably of interest to you. We have here maybe even more favorable payment terms than in the rest of the world. Now the question would continue probably, that have we seen a change there? There's been some pressure from some customers to change the payment terms, we are pretty conservative, and we are not willing to be the first, at least, to do any moves. We have done some slight changes, maybe removed a milestone payment for some customers. Overall, I can say that we continue to have very good and strong cash flow from China, and there has not been any massive pressure to change the payment terms.
A follow-up regarding your business structure when it comes to pricing raw materials and headcount. Can you give us a little bit of granularity on the current trends? How much for the group, I guess, pricing is down or what's the number there roughly, how much raw materials or components are basically down and I think you gave some guidance on inflation, headcount inflation, plus organic growth in employee. Can you give some granularity on that?
It's a difficult question from that perspective that, the markets are different. If we look at the new equipment business that you are referring to, most likely also related to China. Let me answer to that part. There, starting from the price side, we have seen, let's say, 2%-5% price reduction this year, we feel that we have been able to compensate that with our product cost. Our orders received margins have been staying approximately in the same healthy level where they have been in the past. As I mentioned, for the labor cost side, the inflation rate there has been close to about 8% in the past, it's coming down now.
Your growth in employee?
Yeah, just to add to what you said, Eriikka, as we reported in the Q2 results, the margin of orders received was pretty stable globally in Q2. I think, Guillermo, if we can switch to the general Q&A, I'm aware of time, but we can certainly continue the discussion over lunch. Let's have a few more general Q&A still, if you have questions on any of the other presentations. I would like to invite Henrik back to the stage.
All right. We can sit here.
Thank you very much.
Okay. Thank you. Okay. Can you Yep.
Peter, please, in the front row with the light color shirt.
Hi, Henrik. Peter Lawrence, JP Morgan Asset Management. Three quick questions, please. Firstly, you highlighted the 1% gain in market share last year. One of your leading competitors is saying that you're actually losing some market share in Giant at the moment. Could you comment on that, and if so, why? Secondly-
Let's take one question at a time.
Yeah.
That just makes it easier. First of all, we look at our China market share as a whole, and that's exactly the idea of our dual brand strategy, that currently Giant KONE's customer base has a little more challenging environment than what we have in KONE. Now the KONE brand is growing a little bit faster than Giant KONE. If you go a couple of years back, the situation was the reverse, this is exactly how we have two brands and play, I don't think actually Giant KONE has lost market share.
The second question ties in with that. With the shift in real estate development back to tier 1 and tier 2.
I assume that Giant is going to be disproportionately exposed to any slowdown in tier 3 to tier 5. What measures can you implement to mitigate that impact?
Yeah. First of all, I think the strength of our business here in China is that we have a good competitiveness across segments and across geographies. If we're growing more now in tier 1 and tier 2, that's okay for us. That means that, okay, we have a little bit lower growth in tier 3, 4, 5 cities. Of course, we need to look at our costs. We need to look at our productivity to be able to manage that. Also in Giant KONE, what we are doing there is that we are working hard to be able to ramp up the service business there. I think we had here from Lars several questions about headcount. It is not such a big issue because the service business is actually much more people intensive.
If you can grow that, actually we need more people rather than less. We need to look at all the time, all the productivity and efficiency we do, everything in operations, what we do back office and so forth. Constantly looking through this to make sure that we remain competitive, as you would do in a slowing market.
The third question is on the shift in the market and also your business model more towards service away from OEM. Are you ironically going to be put under some margin pressure because of this? Because your business model in China has been that you obviously make decent margins on the OEM side and you don't yet have the critical scale on the aftermarket that you do in Europe and North America. Your margins may come under pressure before you really have the economies of scale that you want, and also the pricing levels on the aftermarket.
First of all, our service business in China is profitable, and we have good profitability. We have to remember that as you saw from the chart that Bill showed, that we've gone from a very small service base to quite a significant one. We've been ramping up that, and I think we have an opportunity to grow profitably our service business as well, as we have been doing. I think we have Ben there.
Yeah. Here, we have one more question here on this side.
Yeah. Thanks. Ben Maitland, Morgan Stanley. Two questions, please. Firstly, Henrik, you talked at last year's Capital Markets Day about the negative competition balance you'd had
on the maintenance book over the last few years. You were taking measures to address that. Maybe you can give us an update on how the competition balance has developed this year and how your measures have progressed, whether that is a drag on your ambition to grow the maintenance business even more quickly.
The competition balance continues to be a challenge, particularly in Europe and U.S., I would say in particular in Southern Europe, where we have had a prolonged weakness in the new equipment market. We continue, unfortunately, to have a negative competition balance. If you compare to last year, we have improved perhaps slightly, but not much. Where we have been able to improve is to see the overall pricing of our service base. It's all the time also a little bit of a balance that how many units do you retain and what is the overall pricing of your portfolio. I think where we have done slightly better this year is the overall pricing of the portfolio. The competition balance has not improved quite as much as we had planned. That's something we continue to working on.
Thanks. Then a follow-up on China and the six years of work in progress, which is just a massive pipeline of work. I'm just trying to get my head around how the elevator order process fits into that. Is there any way you can give a figure as to how much of that pipeline would've seen the elevator already ordered? Where does the elevator order come in that construction cycle, basically? Have they pre-ordered elevators effectively, need to de-stock, and we're going to see a hiatus of demand whilst they work that pipeline down?
First of all, I'll hand over to Bill, you have to remember that what we said is that our delivery cycles in China are reasonably fast. It comes at some point during the project. Bill, how would you explain the kind of order-to-delivery cycle in China and relative to this work in progress?
Typically Is this mic on? Use this mic. In the order cycle, typically, a building will, after about 12-18 months, it will order the equipment. Then from there on, there's another, again, about 6 months or so from order to delivery, which we'll bring it in. Then by that time, it's another 12 months or so by the time the project is completely finished. We're talking about a 3-year product cycle approximately, give or take 6 months or so on either end. We're still seeing a lot of work coming through because of the large size of the WIP. Work in progress.
Thank you.
Okay. Thank you very much, we can certainly continue the discussion over lunch, to make sure that we will get in time to our Kunshan factory with the heavy traffic in Shanghai, I think it's time to wrap up this part of the presentations. The final word will be with Henrik, who will discuss the key topics of today.
Okay. Thanks all for your attention. Excuse me. I hope you had some good insights from our presentations today. I think our key messages that we discussed today are, first of all, that we are in an exciting growth industry, where growth patterns are changing in this industry. That is a good thing because change in markets gives opportunities to differentiate again in a new way. I think our track record and the KONE way of doing things is to benefit from changing markets.
If we look at the opportunities that we discussed, a growing acceleration in the service market, changing the types of services we'll provide to our customers, I don't think there's anyone that is better placed to capture that opportunity than us because we are the market leader in the fastest growing area where the services are growing, and I think we have an excellent team. I think we really differentiate from our competition with the strength of our team, the competence, and we see the stability also of the team that we have. I think that will give us an opportunity to capture this new exciting growth phase that we are in. Again, very interesting time to be in this industry. Bill discussed China. We all know that China is going through a little bit more challenging period right now. It remains the largest market.
A lot of opportunities. I think we have a good momentum in this market. We can find good opportunities also in this more challenging environment, and we have done that. We see a great potential and improvement in the service business, something that I think we have every opportunity to capture, again, with the strength in our team and our market position that we have in the new equipment business. We continue to have a very cash generative business model with low capital intensity in the business, gives us high returns, for we have a very good return on capital. I think overall, we are in a very good model, in a good industry, and we think that our coming years will be as exciting as our past years have been.
With that, thank you again for your attention and for good time to discuss during lunch in Kunshan further.
Thank you very much. Thanks also to everybody who has been following this via the webcast. Now it is time for lunch, and our colleagues will show you the way, and let us continue the discussion over lunch and during the factory visit. Thank you.