Afternoon, everybody, and welcome to KONE's Q2 Results Webcast. My name is Katri Sarenheimo. I am IR Manager here at KONE, and I am the main contact point from the IR team for this Q2 results. Present here in Espoo, Finland are our President and CEO, Henrik Handod and our CFO, Erika Svelderstren. As usual, we will start with a brief presentation about our Q2 results and the market development during the quarter.
After this, we will have plenty of time for Q and A and discussion. But let's start with the Q2 results presentation. And for this, I hand over to Henrik Andals.
Okay. Thank you, Katri, and welcome, everyone, to our Q2 conference call and webcast. It's a pleasure presenting the results to you given the good growth that we achieved in the Q2 and the fact that we continued to achieve profitable growth. In this presentation, I'll go through, 1st, our financial performance. Then I'll talk again about our market development overall.
Then I'll touch upon a few highlights from the Q2, after which I then go to our outlook for our markets for Kone for the full year. So let me go straight into our numbers for the Q2. Orders received grew strongly in the Q2. Orders received grew at 10% or 15% in comparable currencies and reached €1,800,000,000 Our order book also reached an all time high of €6,500,000,000 and growth was 11.3% or 15.5% in comparable currencies. So clearly, a strong order book from to develop from here on.
Our sales grew at a good rate. Growth was 5% and 9% in comparable currencies and reached roughly €1,800,000,000 Pleased to say that our profitable growth continued. Operating income reached €263,000,000 a growth of 8.4 percent and the relative operating income improved from 13.8% to 14.2%. So I think we can be quite pleased with the profitable growth that we achieved. Also, we continue to have strong cash flow.
Although cash flow was lower than it was last year, it was at a good level. The cash flow in quarter 2 last year was at an exceptionally high level. The $280,000,000 in cash flow shows that we have continued to grow our business in a disciplined way, maintaining good payment terms, managing our working capital overall and collecting money. And also then, earnings per share grew from €0.37 to €0.39 So overall, we can be and I'm quite pleased with our 2nd quarter performance. If you then look at the first half performance, give a little bit longer perspective, we can see that growth was also good if you look for the 1st 6 months.
Orders received grew at 5.4% or 10.1% in comparable currencies and reached €3,500,000,000 Sales grew at €4,100,000,000 or 7.9% in comparable currencies. And clearly, we had a stronger sales growth in the 2nd quarter. The first quarter, slightly slower growth, but an acceleration on the second quarter. Also strong profitable growth, if we look at the half year, 9.8% growth in operating income reached €443,000,000 and relative operating income improved from 12.8 percent to 13.5 percent. Also strong cash flow if you look at the first half year.
And I would say, what's the reason for our continued good performance? I would say if you think about this business, it's a global business, but with very local customer relationships and very local execution of our projects. Therefore, really the actions of every single Kona employee really has an impact on our performance and we need to get a good consistency throughout the company. And I would say the consistency and strong performance of all Konex employees, again, have contributed to this. I'm really thankful and happy for how what our people have done and the good mindset and spirit that they have continued to work with.
I think this is very important. I'm very happy about that. So overall, I think we can be pleased with our financial performance in Q2 and the first half. Let me then go a little bit more detail into our numbers and start with orders received. As I said, growth was 10% or 15% in comparable currency.
And what I'm particularly happy about is that our orders received grew in all geographic regions and grew both in new equipment and in modernization. So we have significant growth in both and that's that we can be pleased about. The strongest growth was we achieved the strongest growth in the Americas, driven by very strong growth in new equipment modernization in the United States. And we also had significant growth in Asia Pacific. In Asia Pacific, we grew Puerto Rico in China, Malaysia and in Australia.
And we also had good growth in Europe, Middle East and Africa. And here we grew in the Middle East, Turkey, Germany and the Netherlands. So I think the important point with our growth in order to see it is that growth was broad based both geographically and both in new equipment and modernization. So that's very good and I'm very pleased about that. Then of course always a lot of focus on our China performance continues to be strong.
So China represented now a bit over 40% of our orders received. In China, our orders received growth was almost 15%, when the market growth was 10%. So we continue to have a strong outperformance relative to the market, which is very important. So I'm pleased with that. Also what's important with our orders received is that the margins of our orders received continue to be at a good level.
And that is the case both if we look at the situation globally as well as China specifically. So I'm very pleased that we have strong orders received growth and we achieved that with good price discipline. So that's about the orders received. Let me then turn to sales. Sales grew at 5% more in comparable currencies grew at 9%.
And we continue to have strong growth in sales in new equipment. Our new equipment sales grew at 13.3% in comparable currencies, which I think is a continued solid sales growth. Our maintenance sales also grew. It grew at 5.5 percent in comparable currencies. We continue to have strong sales growth in maintenance in Asia Pacific.
If you look at we had and the good thing in maintenance, we had growth in all geographic areas, although clearly the growth rate was clearly lower in Europe, Middle East and Africa and the Americas, but growth in all geographic areas. And our sales in modernization was now about flat. But an important point is, again, here broad based growth that we had growth in all geographic regions. If we then turn to operating income, and what I've mentioned a couple of times already has been the fact that we've continued to grow profitably. Our EBIT reached $263,000,000 And the drivers of our EBIT growth were continued strong sales growth in Asia Pacific, but also overall good performance in North America.
If we look at our global business lines, also the improvement in the maintenance business drove our results improvement. What we can also see is that the efforts and focus we have had on developing our pricing competencies and pricing processes over the past years really are start have a good impact on our results. So we can see that we have been able to offset some of the very high price pressure that we have had in some of our markets through the development of our competencies and processes in pricing. So that's very important, of course, that development continues. If you then look at other factors that impacted EBIT, Coverage fixed translation rates, quite a significant headwind.
They impacted our EBIT by €12,000,000 in this quarter. We had a slight benefit from raw materials, but not as significant as the headwind from foreign exchange. And also, we have continued and will continue to invest in areas that support the development of our competitiveness and our growth such as investments in Asia Pacific, Process Development and IT. So overall, we can be pleased and I am pleased with the development of our operating income. I'll then go next to our sales split and it starts by sales by business.
And here we can see that the share of new equipment continued to increase and it was now 53% of our sales compared to 52% last year. And that was, of course, due to the strong sales growth we have achieved in new equipment. The share of maintenance stayed stable, which I'm pleased with and declined slightly in modernization. I think what is important in modernization is that although its share has now declined, if you look at the growth we have achieved in orders received, that has meant that our order book has strengthened and we have a stronger order book now in modernization. If you then look at the situation on sales by market, here again the biggest change is the share of Asia Pacific, which grew from 38% to 41% as share of our sales.
China was close to 35% of our sales in this quarter. So that is our financial performance now overall in the second quarter. I'll turn next into how our markets are developing. And I'll start with Europe, Middle East and Africa. And here Europe, Middle East and Africa, as previously, the situation remains mixed.
However, the good news is that we have seen a slight improvement in the markets in Central and North Europe. So if I start with the new equipment markets, the Central North Europe markets grew slightly, and we also saw a slightly better development of the markets sequentially. South Europe continued to decline. In particular, markets in France and Italy declined clearly still. In Spain, markets remain at a very low level, but are growing slightly, but from a very low level.
So South Europe continues to be weak. But if you look at the Middle East and Turkey, there demand is growing. So positive situation overall. The modernization markets, we saw some growth in Central and North Europe, but a further decline in South Europe. And the maintenance markets, they grew, although significant variation between various countries.
And clearly, the situation is such that in markets where we have had a prolonged weakness of the new equipment markets that we also have a more challenging maintenance market overall. And there we have in those markets with a very strong price competition. And that's mainly South Europe, but also some Central North European markets. But I would say overall markets in maintenance in Europe, Middle East and Africa are growing. Then to North America, where the positive development continues.
And we start with new equipment and we start with United States, where the new equipment markets continue to grow at a solid rate, really driven by residential and commercial the commercial segments. Canada was rather stable. We have to remember that Canada has never had a big slump. U. S.
Had and has been at a rather good level already for a longer period of time. The United States now clearly recovering strongly. Monetization markets also grew, driven by the United States. And the maintenance markets grew, although with very strong price competition. If you look at the price competition in North America in new equipment and modernization, we can see that pricing in the market overall has slightly improved as the markets have grown now at a good rate.
So overall, I would say positive development in North America. Then Asia Pacific, we'll continue to see clear growth. And as China tends to have a lot of focus, of course, very important market for us, I thought I'll spend again a little bit more time in explaining how we see the Chinese market and what the drivers are in the market. So first of all, the Chinese markets grew at 10% in the quarter and our expectation is that it will grow at approximately 10% for the full year. We continue to have good confidence on the growth for the full year based on what we see on the ground.
If you then look at the various segments in China, The growth was clearly driven by Standard Residential and Commercial segments, but we also had good growth in Infrastructure. And as we had expected, the demand in affordable housing segment declined. But overall, residential, commercial infrastructure, all segments grew. If you look at it more geographically, we can see a good development continuously in Tier 1 cities. And if you then look at lower tier cities, situation varies clearly from city to city.
But I think here, the most important observation is that in the vast majority of the lower tier cities, the situation, the fundamental demand and overall situation continues to be good. And that gives us good confidence overall. Then if we look at the real estate statistics and overall real estate markets in China. So we can see that in the Q2, overall real estate investments continued to grow at a good rate. They grew at about 13%, so continued solid growth in overall real estate investments.
However, if we look at total sales area, that declined by 7.5% in the 2nd quarter. I think what is important to see here is that the situation now has clearly improved from what it was in the spring. And in fact, if you look at June, overall sales area was already flat. Also if you look at new construction starts, they also declined by about 10% in the second quarter, but a clear improvement from the situation that we saw in the Q1. So also that has gone in towards a better direction.
And the drivers for what we see a gradual improvement, numbers are still negative but less negative, is clearly improved liquidity in the market. And I think liquidity has really been one of the main reasons for the decline in real estate transactions and new starts. And then we can see it's improving. And another good factor we can see is that the government has started to relax real estate restrictions or in fact they have given more local decision making power in what kind of real estate restrictions are imposed in the market. And we can see that many cities have started to relax their restrictions.
So based on everything we see, we have good confidence for the 10% growth for this year, but also our confidence for the mid- and longer term continues to be good. So we believe in a good development in the market overall, really driven by the fact that the fundamental situation in the vast majority of the cities continues to be strong, good outlook and also the improving macro situation and improving overall financing situation in the market. Of course, longer term, the main drivers are the ones we have been talking about several times and we think that the overall view and case we have for China growth remains fully intact. So we continue to be confident about the market overall. So that's about China.
Let me then turn to the other markets in Asia Pacific. First of all, India. The market now declined from a high comparison point last year and was particularly in the infrastructure segment where there was very high comparison point. I would also say that the development of the Indian market is very much in line with what we have been talking about in the past couple of quarters. So late last year, earlier this year, Indian market was clearly characterized by economic uncertainty and difficult to access financing.
And that situation is now reflected in our markets in the Q2. However, if we look at the situation in India following the elections, we can see a sharply improved business confidence overall in the market also better access to financing. We believe that that will help the market start developing in a positive direction in the second half of this year. Then Australia continued to grow and Southeast Asia was largely stable with clear difference from market to market. So we have some markets that are growing well and then we have a couple of markets that where overall economy is quite uncertain such as Thailand and Indonesia.
Also Singapore has implemented cooling measures for the property market overall, which has an impact there. But I would say overall fundamentals in Southeast Asia remained very strong. Then modernization markets. And as you know, the most important monetization market in Asia Pacific is Australia and that was now rather stable. And if we look at the maintenance markets, they have continued to grow at their good rate.
So overall, good growth in the maintenance market. So that's our overall market. So I would say that if we look at the overall situation, we have a good favorable situation in Asia Pacific And in Americas, mix situation in Europe, Middle East and Africa, but clearly improving now in Central and North Europe, if you look at the new equipment business. So let me then next turn to just a couple of highlights for this quarter. So first of all, which I'm sure many of you have seen, we are proud to be a selected partner to deliver elevators and escalators to the Kingdom Tower in Jeddah, which will eventually be the world's highest tower.
And I think what is most important with this order is that, yes, we're very pleased to be a partner of the world's highest tower with the highest elevator rights in the world, but also that really this order includes really the latest technology available in the industry, including Kona Autorope and our People Flow Intelligence solutions. So from that perspective, a very interesting order for us and interesting partnership with the Kingdom Tower. Another important event is that during the quarter, we were ranked as the 12th greenest company in the world by Newsweek. We did a big survey together with Corporate Knights. So we're 12th overall in the world.
And if you look at the manufacturing sector, we were the 3rd greenest company in the world. And I think this shows and it's a result of the consistent work we've been doing on our developing our sustainability. And we can see also that as part of our sustainability in 2013, our carbon footprint from our operations relative to our sales declined by 3.5%. And that is a following on of a consistent improvement we have had each year in our carbon footprint performance. So that's a continuation of a good performance.
And I would say both of these events that we highlight here are very much results of the systematic development we have had of our competitiveness. And really at the core of this are our development programs. And as you know, we launched our new development programs in the Q1 of this year. And I would say we have got off to a good start 30 days, but we have some early good results from them. A lot continues to be done, but I'm convinced if we continue again driving these programs forward as we have done now during the past 6 months and also historically that we will continue to develop our competitiveness and to differentiate further from our competition.
So I think we can be pleased with how we are also developing our overall competitiveness. So that's about a couple of highlights. And now, at the end, I'll go through first our market outlook and then our business outlook. We start with new equipment markets. Here Asia Pacific, we expect it to grow clearly.
And as I mentioned, China to grow by 10% or approximately 10% for the full year. Markets in Europe, Middle East and Africa expected to grow slightly, with slight growth in Central and North Europe, further decline in South Europe and the growth in the Middle East. So it means that overall EMEA markets grow slightly. North America, we expect to continue to grow. Monetization markets, from global perspective, they will continue to grow slightly.
And maintenance market expected to develop rather well in most countries, but would clearly differentiate from country to country. And then finally, our business outlook, which we only slightly specify. We expect our sales to be in the range of 6% to 9% at comparable exchange rate, which is unchanged. And we expect our EBIT to be in the range of €1,000,000,000 to €1,050,000,000 assuming that translation exchange rates don't materially deviate from the situation at the beginning of the year. Previously, our outlook was €990,000,000 to €1,050,000,000 So overall, that's how we performed in the Q2.
Our overall markets, As I said, I think I'm very pleased with our progress in the quarter and overall how we have continued to develop Kvaerner. Before we go into questions, I'll hand over the word to Katri, who will just give some background on our Capital Markets Day.
Thank you, Henrik. I wanted to indeed take this opportunity to mention our CMD, which will be held as we have communicated before on the 26th September in London. And as you can see from the list of speakers featured on the slide, we will be covering a broad range of topics at the CMD, both from a global perspective and from the area as well as business line perspective. So we will be sending a more detailed invitation with registration details soon, and we hope to see many of you at the CMD in London in September. But now let's go ahead and go to the Q and A part of this webcast.
And let's start from questions from those present here in Espoo Finland. Do we have any questions?
Pekka Sponder from Borjelder Bank.
I'd like to ask about this Middle and North European market where you have seen some modest growth. Can you say now that the burst is over? Can we be confident that the market is improving even slowly, but it is improving? Or is it can you see that there's still a risk that the market is fluctuating?
But this, of course, relates a lot to how the overall macroeconomy will develop in Europe. But if we look at Central and North Europe, here perhaps continuously the best markets for me will be Germany, the U. K. Also developing positively as well as Sweden. And I think the situation in these markets outlook continues to be favorable.
What has been changed is that markets such as Holland, which was a very weak market been declining has now seems to have reached its bottom and developed slightly positively. And many of the other markets where also we have had a negative outlook, some of the other Nordic and Scandinavian markets seem to be now more flat. So we are not saying they are growing significantly, but at least we see that it's slightly better. And that's what we believe the development at least for the foreseeable future will be now based on the outlook that we have.
Thank you. And the second question about the price competition. How would you say has it even tightened when we compare for the beginning of this year or year ago? Or is it at the still same level?
I would say it continues to be quite in many markets. And perhaps the tightest price competition we have in refers to maintenance business as I mentioned in the markets where we have had a prolonged weakness in new equipment. And here markets continue to be very price competitive particularly South Europe, some Central North Europe markets and North America. I think for those markets to really fundamentally change, you need to start seeing better volumes on new equipment side to really have more conversions coming in. And clearly, the fundamentals in the United States are there once they start delivering the equipment they're selling in the order book.
So it continues to be tight, but I wouldn't say there is a big change from what it's been previously. It's continued to be similar levels. And I would say the same thing for China. It continues to be strong price competition, new equipment there, but nothing really that would be different from earlier situations. Thank you.
Hello. Elie Marotta from Everly Bank. The investments that you or you mentioned always that you keep making investments in certain areas. Can you quantify at all on what level they are? Are they growing?
Are they quite stable over time?
Well, it kind of depends on over the past years. Of course, a lot has been in China. We continue to expand there. There perhaps the growth rate in our increased footprint is not as high as we have a big one. But I think if we look at rest of Asia Pacific, Middle East, perhaps these areas, there, I would say we are continuing to invest.
And it's really developing our footprint, developing but growing what does it really mean? It means that we really need to have competent and strong people on the ground and building up the infrastructure for that developing people having more and stronger competencies. And these are the principal investments. Of course, we do a lot of then project development and R and D as well. But if you look at when you ask specifically about this kind of regional investments that we talked about.
Is there anything opposite going on listening to some companies talking about Europe and seeing areas where they believe that it's never going to come back to the level that we've seen before. Do you see something like that where you're kind of you're taking down your presence or investments because it wouldn't be coming back to the levels we've seen? So it's
clear that in the weaker markets, we need to look at our cost base all the time. But our objective continues to have been to have a continuous and good development of our cost base, not to have to take any dramatic moves because it's seldom within business. So clearly, when we look at the weaker markets, clearly, we are looking at our cost base all the time, but want to make sure we continuously develop it to make sure that we keep our cost under control and make sure we remain
Jose Gosskinen, about those development programs, you are saying that I'm convinced that these programs will drive continued strengthening of our competitiveness and differentiation. So in a very stronger differentiation even earlier. And in history, this better competitiveness and differentiation has caused global markets increased from 12,000 to 19 1,000. And if this differentiation comes even stronger than it was earlier, what kind of conclusions I should make about that?
Well, I would say that clearly our competition is not standing still. And therefore, we need to continuously improve. But as you know, our objective is that we say that we are a challenger company in this industry overall and our objective is to continue to grow faster in our markets. We haven't set specific targets or objectives here, but overall I can say this way.
That is quite a strong statement. If you are saying that okay, not going to have earlier the Vantage and I can almost understand about that statement that it's coming even this differentiation is coming even stronger. Do you understand it the right way?
We need to differentiate in all of our businesses. And as I said, competition is not standing still, so we need to all the time find ways of differentiating. So we need to I think what is so important and what has been important for us has been the systematic and constant development of competitiveness. Okay. Thank you.
Thank you. We're now ready to take questions from those present on the line. So for this, I hand over to the operator. Go ahead, please.
Thank Your first question is from the line of Jonathan Hanks. Please go ahead.
Hi, there. Thanks for taking my question. Just going back to China, as you've already elaborated, new starts have been very weak, something like down 20% year to date. And yet the elevator market continues to grow quite strong, 10% as you expect it to continue to grow. I'm just wondering if you could help us.
When we think about new starts, is it that simply new starts maybe not the relevant metric? Or is it maybe that you're baking into your guidance and new starts pick up in the second half? Or is it simply there's something else going on, which explains maybe why the elevator market can outgrow the construction market more generally? That's my question. Thank you.
Okay. So first of all, we don't predict what new starts are towards the end of the year. I think if you look at the history of new starts with elevated escalator markets, so elevated escalator markets never hit the peak if you compare new starts and never crop either. It's been a more smooth development. But I think there is a difference between these two.
Clearly, it is a driver for the market. But if you look at the Chinese market, so the intensity of elevators and escalators continues to increase. So the types of buildings are built have more elevators and escalators. So therefore, that market can grow faster than overall new areas started. When we make comments on the mid and longer term, we of course look at the longer term trends.
We don't have understanding how each quarter in the future is going to develop. But the way we develop our competitiveness, the way we develop KONE is, of course, we need to look at the fundamental long term situation, which we both in the mid and longer term continue to believe is favorable and therefore, we continue to invest in our presence in the market.
That's great. Thanks very much. And just maybe one more follow-up. Can you maybe comment on how the penetration is increasing? And then what if you could maybe put
a number to that?
So the penetration the reason for the increase in penetration it's twofold. 1 is if you look at the kind of urban development in China, it's going much more from mid- and high rise. And buildings that have elevators have been used to have elevators. So it's the kind of urban development we have has clearly higher elevator escalator or elevator intensity in particular. Secondly is what is a very strong driver in China is the growth of the middle income consumer.
And as consumers get more wealthy, the demand, 1st of all, they buy bigger apartments. Secondly, they demand more out of the service of the apartments, and that means also usually better elevators. So there's been a I think if you go into our Capital Markets Day slides from last September, you can see in the China presentation, you can see the development of the intensity of elevators and escalators by square meters built.
Okay. Thank you very much. That's very helpful.
Thank you. Your next question comes from the line of Guillermo Pena of UBS. Please go ahead.
It's Guillermo Pena from UBS actually. Talking about the currency impact, can you help me out in identifying what was the ForEx impact on Americas North America and Asia Pacific? Sorry, if this number is somewhere in the report, I couldn't see it. And then I'll ask a follow-up.
So if you look on from a sales perspective, if you look at overall for KONE sales, it was 4 percentage points of difference and it's clear that then it was over 5 percentage points difference between reported and comparable both in the Americas as well as in Asia Pacific.
Thank you. And then can I ask then about the slowdown that we've seen in Asia Pacific in terms of growth in revenues even if you adjust for currency?
I would say that our Asia Pacific sales continues to grow at strong double digits. I think we have a strong order book here. I think if you look at Southeast Asia here that's particularly where the share of major projects in order book have grown, which perhaps growing slightly slow or rotating slightly slower in that part of the order book. But I would say overall, I think we have continued to have solid good growth in Asia Pacific.
Thank you. Can I ask as well about the service revenue? Obviously, slowing down I think for around 5% in Q1 to 3.8% adjusted, I think, if my numbers are correct. What's going on there? What's happening?
Well, first of all, I think that's what we have started to break out now separately, service or maintenance and modernization. So if you look at, 1st of all, the maintenance, that grew at over 6% in the Q1, it grew at 6.2% and now it grew at 5.5% in comparable currencies. And if you look at maintenance, it continues to grow at very good rate in Asia Pacific. But if you look at the sales split in maintenance, then the vast majority of the sales is in Europe and North America, but clearly growth is slower. So very strong growth continued in Asia Pacific.
We are growing in Europe, Middle East and Africa, North America, but at a lower rate. So continuous growth there. I think what is taking the overall services sales down is the fact that our if you look at the Q1, our modernization sales declined by about 7%. Now it was about flat. What I would say about the modernization sales is that, that has come slightly down.
I would more say that that's a timing question because if you look at our order book, as I mentioned, in modernization, now given the growth we have had in order to see it has grown.
Okay. Thank you. And then last question regarding the advances that you saw on the balance sheet, I was wondering of the €1,598,000,000 how much of that is China, If you disclose that at all, sorry.
We haven't broken down the advantages by geographic area.
But conceptually, it will be the majority of it?
I would say not taking the old number, but in China, we have a good level of advanced statements and we have a policy that we don't look orders received unless we have an advanced payment.
And you don't follow that policy in other regions?
We follow that in all growing markets.
Okay. Thank you.
Thank you. Your next question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. Could I ask you sorry to labor on Chinese market again, but just to maybe understand it a bit better, the mix of the market or your business in China between of the new equipment split between new, new construction, retrofit of elevators into sort of existing buildings and old buildings being knocked down and new ones being built. Is there any way to kind of split that up? Do you know kind of how the market looks from that perspective?
First of all, I would say that the modernization market is quite a small market still in China that old buildings tend to be the building tends to be rebuilt. And I think we have estimated that roughly 20% of all construction volume is tearing down all building and rebuilding new ones. Of course, they are very different than newly built buildings that tend to be demolish low rise buildings and then build mid- or higher rise buildings instead. But that's about 20% of the volume overall. So for that, it gives some picture.
Great. Thank you. And that feels quite high. And so I guess that number has ramped up quite substantially in the last few years just recently. Would that be right to guess?
I must say, perhaps a bit that has still been a trend for a while that quite a lot been particularly in the bigger cities, when you build something, you very often tear down. I would think probably when you go further into the country, you would probably have seen more growth in this recently. I don't have an exact number of what it was historically. It was something we estimated towards the end of last year, this number. Unfortunately not exactly what it was a couple of years ago.
Got it. Thank you. And one non China question actually on new product introductions. You said you called Ultra Rope revolutionary, I think, when you launched it. Now I think a year after the launch, would you confirm that?
And secondly, are there other those type of revolutionary product launches that you have in pipeline, new products that you have in pipeline? When can we expect sort of the next one?
I would say AltaRope, the reception from our customers, interest from developers, architects has been very high. So I think we confirm that this is definitely a revolutionary innovation. And we have a lot of discussions ongoing there. It's clear something when you develop high rise buildings, the development cycles are quite long. But I think, yes, we can confirm that, obviously, it is definitely revolutionary.
We haven't seen anything similar on the market as of yet. And what then comes to other revolutionary innovation, so of course, we have a lot of activity and as and when we have something new to tell about, we will of course tell about it.
Got it. Thank you very much.
Thank you. Your next question comes from
the line of Ben Maslin of
Bank of America. Please go ahead.
Yeah. Thank you. Afternoon, Henrik. A couple of questions to you. Firstly, a few of your competitors talked about delays in China of the shipments of new elevators.
So orders are very good, but some developers are slowing down projects, slower cash collection cycles and so forth. Have you seen any of this in parts of the market? I guess related to that is the length of your order book in China stable? Or is it lengthening?
I would say not a significant difference. But I would say that if you look at the tight liquidity in the market and particularly when you go to smaller developers, their situation is tighter and they have perhaps slightly slowed down their projects. I wouldn't say it's anything widespread and it's really related to the liquidity in the market. So not a big change in the rotation of the order book.
Okay. Thank you. And then you say in the statement that the margins on new orders in the quarter are now stable at a good level. Whereas I think in previous quarters you said that the margins coming in were improving. I know it's very subtle, but just maybe why is that flattened out?
Is it tougher to raise prices now from a current level? Or have you kind of switched your focus slightly to push a little bit harder on growth?
I wouldn't say that we have started to push harder on growth. I would say, 1st of all, most many of our markets are very price competitive. And I think the fact that we have been able to maintain our orders received margin at good levels is a good performance and really relating to the development we've been done in our pricing competencies. But if you look at many of our markets, they have continued to be very competitive for a while. I don't think that there is a huge difference of what we have had in the past.
And I would say overall, I think we continue to have a good level of the orders received that we are of margins of the orders received that we are booking.
Thank you. And just a final admin question. I think you said before that you expected a currency impact on EBIT for the year of around 30 negative. I just wonder after the first half and some of the currency moves we've seen whether that was still the right number. Thank you.
So we are we had in the Q1, I think we had about EUR 7,000,000 and now we have EUR 12,000,000. So that's year to date then of course. We don't predict where currencies go from here. But if they stay at this level, we are in that ballpark.
Got it. Thank you very much. Thank you. Your next question comes from the line of Martin Flueckiger of Kepler Cheuvreux. Please go ahead.
Yes. Good afternoon. Martin Flukiger from Kepler Cheuvreux. I was just going to ask you a question on India. Mark, we haven't talked about so far, if I remember correctly.
In your presentation, you mentioned that the market declined from a high comparison level, in particular, in the infrastructure segment. I was wondering whether you could elaborate on that a little bit and also talk about the demands from the residential side. Thank you very much.
So in the Q2 of last year, there was some very significant metro underground orders that impacted overall market that were very big and that's what we referred to infrastructure. I would say you're right to point out the residential market that's of course the most important one. That now declined slightly in the quarter. And it really relates to what I mentioned earlier in the presentation that the overall business confidence access to financing access to more or mortgage availability in India has been tight beginning of this year, very much related to the kind of general economic uncertainty before the elections and that we see now is impacting our markets. If we then look at what is the situation in India right now, if we look at from a business confidence perspective growth expectations, it has clearly become stronger.
And therefore, we expect that the markets will improve towards the end of this year. If you remember, in Q1, we were actually slightly surprised that the markets continued to grow despite these factors. So the market has really I would say that the financing availability and uncertainty earlier this year was quite clear there, but that situation has now gone to a much, much better direction.
Okay. Thanks a lot. Thanks.
Thank you. Your next question comes from the line of Fang Fang of Taibong Capital. Please go ahead.
Thank you for taking my question. My first question is I heard you talk about pricing pressure ever since probably several quarters before, but I haven't seen any impact on your margin. Actually, I see good margin since last year. Could you talk a little bit about how do you manage to improve the margin while there's pricing pressure everywhere?
I think that comes down again to the kind of systematic development we have done of our competitiveness, redevelop our quality and productivity, develop the competitiveness of our products and solutions. There's not and I think very important has been this competence and process development in pricing. And I think we have been able to compensate some of the price pressure through this. So if again, it's not one thing that you can say that has allowed us to develop and continue to grow profitably. I think first of all, as a company, we're very much focused on when we grow, we want to grow profitably.
That's important to us. That's kind of an important mindset that we have throughout the company. There is developing the competencies on pricing, processes, systematic development of competitiveness, improving our quality and productivity. All this together are the ones that allow us to continue to grow profitably. Of course, also in many of the markets when we have grown, we have been able to achieve some scale advantages.
Okay. Thank you. The other question is, how about because you just mentioned that margin of the new orders continue to be good and maintain at very healthy level. So how about the margins of the new orders compare with like first half last year or full year last year?
So if you look at the situation during last year, we were able to during last year slightly improve. And then now Q1, we overall had slight improvement. China's pricing was more stable and now more stable. So overall that we would be at a year over year similar slightly better situation.
Okay. So it's about the same?
Yes. So during second half of last year, we improved a bit. And now more
Yes. 2nd half last year improved a little bit. So if you look at first half of this year versus first half of last year, it's kind of like similar. Is that right?
Yes. Or just the margin better, yes.
Yes. How about the lead time for Chinese orders?
It depends on the size and type of project, but generally somewhere around 9 months, a little bit shorter. Bigger projects, of course, longer, but not a big change there.
Okay, great. Thank you.
Thank
you. The next question comes from the line of Rizk Mady of Barclays. Please go ahead.
Hi. This is Rizk Medi from Barclays. Thank you for taking my questions. First one, I'm sorry to come back to China. What is the kind of time lag between those construction starts and when and KONE's order intake?
I mean, what is the time lag there in terms of quarters? When are you actually going to feel that slowdown that we've seen in H1?
Difficult to say because if you look at historically there's not a direct link and we haven't been able to establish really exactly how it's the time lag. I would say usually a slightly better indicator has been new construction starts. If you look at inflation out of them, they have been slightly better. But fortunately, if you look at historical trends of new construction starts, elevator escalates, there is not an exact laggy that we have been able to establish.
Okay. Thank you.
Probably depends on what the mix is and geographic region and so forth.
Okay. And maybe a question on your automatic doors business. How big is that business and how profitable it is? And also what is the strategy for that business going forward? And how do you see it fit in within with the other with the traditional elevator business?
So our automatic doors business has sales around €200,000,000 very roughly. Strategy there is to serve our existing customers both automatic doors and elevators and escalators and really improve their people flow. So that's how it relates to this business and that's where we want to grow that business. And it's predominantly a European business for us. We have some small business outside of Europe, but predominantly European business.
And I think that's how we will continue developing it.
Okay. And when you think about the portfolio, I mean, long term, is there an aim to expand it beyond the traditional elevator business? I mean, like similarly to what some of your competitors are doing, expanding adjacent areas such as building automation, security systems, etcetera?
I would say first of all, we made it very clear that our strategy is to be in the People Flow business. That's our scope of business and that we're committed to. If you look at how you're then evolving this business, what PeopleFlow means, you can see that we have expanded the business by, for example, introducing our people flow intelligence solutions, which really help manage people flow and help people to move in a smooth, safe and convenient manner in buildings. Therefore, for example, our BeProfit Intelligence solutions includes combined access control with destination control and also we have clear monitoring on information in that package. In that sense, we do something that makes us stronger in People Flow that's adjacent, but we're not intending to go to any new lines of business.
When it comes to smart buildings, we believe in having a focused strategy in smart buildings to seamlessly integrate into building management systems to make sure that we manage the people flow in the buildings.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Tom Skogman of SHP. Please go ahead.
Thank you. This is Tom. We have touched most important topics during the conference call, but one thing I think is has not been discussed and what is very interesting is the seasonality of orders. Last year, Matti said that the strong focus on orders in H1 that the pricing environment, especially in China was better during the first half of the year, while it intensified towards the second half of the year. But if you look a couple of years back, there was no real seasonality between H1 and H2 when looking at orders at Kone.
So now the Q2 orders are, of course, in a total different level than the Q3 and Q4 orders last year. Is this what we should expect this year also? Or should we more kind of roll over the H1 order level for the second half?
First of all, there is some seasonality to orders at Q3 as you can see from the chart that we have here as well is slightly lower. And as you know, Tom, we don't give guidance of our orders received. So you can see there is some seasonality to orders received and first half, we can see it tends to be slightly higher than the second half.
But is the reason that the share of China has decreased so much more and that seasonality is bigger in China? Or is there some other reason to why the seasonality is so much more significant now than it used to be 3, 4 years back?
China is one where you have higher overall orders seasonally in the first half, which you can see. I think then Q3, of course, holiday periods, of course, impact that then as well. And that's of course one impact in Q3. And if you as you've seen from history, our seasonality that sales more second half weighted orders tend to have been more slightly more first half weighted.
Okay. Thank you.
Thank you. Your next question comes from the line of Guillermo Pele of Please go
ahead. Hi. I am not Guillermo. Guillermo, thank you for taking my question again. Mentioning the statistics that you mentioned before and let's assume that they stay here or do not improve from current levels.
Is it fair to assume that the outlook for 2015 Chinese market will be a lot more humble? I know that I'm making an assumption, but is that fair to assume?
As you know, we don't make any predictions about 2015 at this point of time yet. What I commented on is that we continue to have favorable view both midterm and longer term. We don't predict at this point development of each quarter. And I said the way we develop the company is based on what outlook we have mid and longer term and that would continue to be favorable. Clearly, you can have variation from quarter to quarter.
I can't comment on 2015 yet.
Yes, sorry. The local content, I think we heard some Taiwanese companies complaining about the fact that some of the local governments or some of the agents involved in the order awards were actually giving preference to local providers over let's say, international companies. Is this something that you've seen? Just because you have Giant Kone, probably you're perceived as a Chinese operator. Would you benefit from this?
I must say that I have not heard that that would have been a feature issue in the Chinese market. So I wouldn't think that that's more widely spread. I must say that, that has not been something we have seen and at least I have understood that would have been an issue in our market.
Thank you, Helane. Very helpful.
Thank you. Your next question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead.
Hello. Yes, it's Andre again. Just a couple more questions. One is very hypothetically on China in terms of penetration rates there. Where do you think it can go in terms of the level?
Or maybe another way of asking it, what are the right benchmarks for China in terms of penetration rates, say, per 1,000 people of urban population because obviously Europe, U. S. They're not really comparable? And then I have a quick follow-up as well.
If you look at what really drives elevator penetration, it's really how people live. And why does Europe have high penetration? It's because majority of people live in apartments where you need elevators. If you look at and that's why the United States has a low penetration because very predominant people live in single family homes. If you look at how do urban people live in China, well, they live in apartments.
So I think if you look at overall maintenance base today, I think China represents about 23% of the world's maintenance base today compared to 46% or 47% for Europe, Middle East and Africa. It's clear that you have many more urban people and we'll have many more urban people in China. I think that shows the potential that that market continues to have without having a point of view on exactly where it will go. But I think people live in urban people in China live in apartments. Yes, they live perhaps a bit denser, but still percentage wise, I believe it's going to be the highest share of people living in apartments, of the urban people compared to any other area.
So I think that highlights that there continues to be strong potential overall in the market.
Got it. Thank you. And just on Europe, again somewhat hypothetically, but this sort of new equipment demand pickup, when that translates into revenues in the market and deliveries rising, How quickly do you think it can relieve the pricing pressure in the service part in the service business in Europe? Because you said that everyone's been chasing the same installed base, so pricing has been tough. So how quickly it happened in the past in different end markets just to get some idea on the timing there?
It really depends on I mean U. S. Because it took off market was recovering slow for a while and now we've seen better pricing for the past year in new equipment, first of all. I think the structure in Europe is somewhat different. So I think that when we start to see a first of all, what we see in Central North Europe, we'll be talking about slight.
So it's not very significant yet, but at least right direction. I think when we start to see a better economic environment and we also start to see a pickup in the modernization business, because many of the also small independents and also the bigger ones are involved in both modernizing and servicing elevators. So when you start to have more business going around, I think you can probably start to see a slightly better situation. But I can't say exactly what but conceptually, I would think that that's how it will develop. So I think that we need to see a better economic environment before that happens.
Got it. Thank you very much.
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