Good afternoon, everybody, and welcome to KONE's Q2 results webcast. My name is Katri Saarenheimo. I am IR manager here at KONE, and I am the main contact point from the IR team for these Q2 results. Present here in Espoo, Finland, are our President and CEO, Henrik Ehrnrooth, and our CFO, Eriikka Söderström. 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&A and discussion. Let's start with the Q2 results presentation, and for this, I hand over to Henrik Ehrnrooth.
Thank you, Katri, and welcome everyone to our second quarter conference call and webcast. It's a pleasure presenting the results to you, given the good growth that we achieved in the second quarter and the fact that we continued to achieve profitable growth. In this presentation, I'll go through first our financial performance, then I'll talk again about our market development overall, then I'll touch upon a few highlights from the second quarter, after which I then go to our outlook for our markets and for KONE for the full year. Let me go straight into our numbers for the second quarter. Orders received grew strongly in the second quarter. Orders received grew at 10%, or 15% in comparable currencies, and reached EUR 1.8 billion. Our order book also reached an all-time high of EUR 6.5 billion, and growth was 11.3%, or 15.5% in comparable currencies.
Clearly, a strong order book to develop from here on. Our sales grew at a good rate. Growth was 5%, and 9% in comparable currencies, and reached roughly EUR 1.8 billion. Pleased to say that our profitable growth continued. Operating income reached EUR 263 million, a growth of 8.4%, and the relative operating income improved from 13.8% to 14.2%. I think we can be quite pleased with the profitable growth that we achieved. Also, we continued 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 two last year was at an exceptionally high level. The EUR 280 million 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.
Also then earnings per share grew from EUR 0.37 to EUR 0.39. Overall, we can be, and I'm quite pleased with our second quarter performance. If we 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 first six months. Orders received grew at 5.4%, or 10.1% in comparable currencies, and reached EUR 3.5 billion. Sales grew at 4.1%, or 7.9% in comparable currencies. Clearly, we had a stronger sales growth in the second 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 EUR 443 million, and relative operating income improved from 12.8% to 13.5%. Also, strong cash flow if you look at the first half year.
I would say, what's the reason for our continued good performance? I would say, to 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 KONE employee really has an impact on our performance, and we need to get a good consistency throughout the company. I would say the consistency and strong performance of all KONE employees, again, have contributed to this. I am really thankful and happy for 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 am very happy about that. 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. What I am particularly happy about is that our orders received grew in all geographic regions and grew both in new equipment and in modernization. We have significant growth in both, and that we can be pleased about. We achieved the strongest growth in the Americas, driven by very strong growth in new equipment modernization in the U.S. We also had significant growth in Asia Pacific. In Asia Pacific, we grew in particular in China, Malaysia, and in Australia. We also had good growth in Europe, Middle East, and Africa. Here we grew in the Middle East, Turkey, Germany and the Netherlands.
I think the important point with our growth in orders received is that growth was broad-based, both geographically and both in new equipment and modernization. That's very good, and I am very pleased about that. Of course, always a lot of focus on our China performance continues to be strong. 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%. We continued to have a strong outperformance relative to the market, which is very important. I am 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. That is the case both if you look at the situation globally as well as China specifically.
I am very pleased that we had strong orders received growth, and we achieved that with good price discipline. That's about orders received. Let me then turn to sales. Sales grew at 5% or in comparable currencies grew at 9%. We continued 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% in comparable currencies. We continued to have strong sales growth in maintenance in Asia Pacific. A 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. Our sales in modernization was now about flat.
Important point is, again here, broad-based growth, that we had growth in all geographic regions. If we then turn to operating income, what I've mentioned a couple of times already, the fact that we've continued to grow profitably. Our EBIT reached EUR 263 million. The drivers of our EBIT growth were continued strong sales growth in Asia Pacific, also overall good performance in North America. If we look at our global business lines, also the performance 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, pricing processes over the past years really have a good impact on our results.
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. That's very important, of course, that development continues. If we look at other factors that impacted EBIT, currency translation rates are quite a significant headwind. They impacted our EBIT by EUR 12 million in this quarter. We had a slight benefit from raw materials, but not as significant as the headwind from foreign exchange. 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. Overall, we can be pleased, and I'm pleased with the development of our operating income.
I'll go next to our sales split, it starts by sales by business. Here we can see that the share of new equipment continued to increase, it was now 53% of our sales compared to 52% last year. 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 look at the situation of 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. That is our financial performance now overall in the second quarter. I'll turn next into how our markets are developing, I'll start with Europe, Middle East, and Africa. 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. If I start with the new equipment markets, the Central North Europe markets grew slightly, 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. South Europe continues to be weak. If you look at the Middle East and Turkey, their demand is growing, so a positive situation overall. The modernization markets, we saw some growth in Central and North Europe, but a further decline in South Europe. The maintenance markets, they grew, although significant variation between various countries. 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. There we have, in those markets, we have very strong price competition. That's mainly South Europe, but also some Central North Europe markets. I would say overall, markets in maintenance in Europe, Middle East, and Africa are growing.
To North America, where the positive development continues. We start with new equipment, and we start with United States. There, the new equipment markets continue to grow at a solid rate, really driven by residential and the commercial segment. Canada was rather stable. We have to remember that Canada has never had the big slump U.S. had and has been at a rather good level already for a longer period of time. United States now clearly recovering strongly. Modernization markets also grew, driven by the United States. The maintenance markets grew, although with very strong price competition. If you look at the price competition in North America, 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. Overall, I would say positive development in North America. Asia Pacific.
We continue to see clear growth. As China tends to have a lot of focus, of course, very important market for us. I thought I'd spend again a little bit more time in explaining how we see the Chinese market and what the drivers are in the market. First of all, the Chinese market 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 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. As we had expected, the demand in the affordable housing segment declined. Overall, standard residential, commercial infrastructure, all segments grew.
If you look at it more geographically, we can see a good development continuously in tier 1 cities. If you then look at lower tier cities, situation varies clearly from city to city. 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. That gives us good confidence overall. If we look at the real estate statistics and overall real estate markets in China. We can see that in the second quarter, overall real estate investments continued to grow at a good rate. They grew at about 13%, so continued solid growth in overall real estate investment. However, if you look at total sales area, that declined by 7.5% in the second quarter.
I think what is important to see here is that the situation now has clearly improved from what it was in the spring. In fact, if you look at June, overall sales area was already flat. Also, if you look at new construction starts, they also declined about 10% in the second quarter, but a clear improvement from the situation that we saw in the first quarter. Also that has gone towards a better direction. The drivers for what we see a gradual improvement, numbers are still negative, but less negative, is clearly improved liquidity in the market. I think liquidity has really been one of the main reasons for the decline in real estate transactions and new starts. That we can see it's improving.
Another good factor is 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. We can see that many cities have started to relax their restrictions. 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. We believe in a good development of 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. We continue to be confident about the market overall. 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 it was particularly in the infrastructure segment where there was a 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. Late last year, earlier this year, India market was clearly characterized by economic uncertainty and difficulty to access financing.
That is the situation is now reflected in our markets in the second quarter. 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, and we believe that that will help the market start developing in a positive direction in the second half of this year. Australia continued to grow, and Southeast Asia was rather stable with clear difference from market to market. We have some markets that are growing well, and then we have a couple of markets 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. I would say overall, fundamentals in Southeast Asia remained very strong.
Modernization markets, as you know, the most important modernization market in Asia Pacific is Australia, that was now rather stable. If you look at the maintenance markets, they have continued to grow at their good rate. Overall, good growth in the maintenance market. I would say that's our overall markets. I would say that if we look at the overall situation, we have a good stable situation in Asia Pacific and the Americas, mixed situation in Europe, Middle East, and Africa, but clearly improving now in Central and North Europe, if you look at the new equipment business. Let me then next turn to just a couple of highlights for this quarter.
First of all, which I'm sure many of you have seen, we are proud to be selected partner to deliver elevators and escalators to the Kingdom Tower in Jeddah, which will eventually be the world's highest tower. I think what is most important with this order is that, yes, very pleased to be a partner of the world's highest tower with the highest elevator rides in the world, but also that really this order includes really the latest technology available in the industry, including KONE UltraRope and our People Flow Intelligence solutions. From that perspective, a very interesting order for us and an 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, who did a big survey together with Corporate Knights.
We are 12th overall in the world, and if you look at the manufacturing sector, we were the third greenest company in the world. I think this shows and is a result of the consistent work we've been doing on our developing our sustainability. We can see also that as part of our sustainability that in 2013, our carbon footprint from our operations relative to our sales declined by 3.5%. That is a following on of a consistent improvement we have had each year in our carbon footprint performance. That's a continuation of a good performance. 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. Really at the core of this are our development programs.
As you know, we launched our new development programs in the first quarter of this year. 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 six months and also historically, that we will continue to develop our competitiveness and to differentiate further from our competition. I think we can be pleased with how we are also developing our overall competitiveness. That's about a couple of highlights. Now at the end, I'll go through first the 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 growth in the Middle East. It means that overall EMEA markets grow slightly. North America, we expect to continue to grow. Modernization markets, if you look from global perspective, that they will continue to grow slightly. Maintenance markets expected to develop rather well in most countries, but with clear differences from country to country. Then finally, our business outlook, which we only slightly specified. We expect our sales to be in the range of 6%-9% at comparable exchange rate, which is unchanged.
We expect our EBIT to be in the range of EUR 1 billion-EUR 1.05 billion, assuming that translation exchange rates don't materially deviate from the situation at the beginning of the year. Previously, our outlook was EUR 990 million-EUR 1.05 billion. Overall, that's how we performed in the second quarter. 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 KONE. 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 of September in London. 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. 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. Now, let's go ahead and go to the Q&A part of this webcast. Let's start from questions from those present here in Espoo, Finland. Do we have any questions?
Pekka Spolander from Pohjola 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 worst is over? Can we be confident that the market is improving, even slowly, but it is improving? Can you see that there's still a risk that the market is fluctuating?
This, of course, relates a lot to how the overall macroeconomy will develop in Europe. If you look at Central and North Europe here, perhaps continuously the best markets for me would be Germany and U.K. also developing positively, as well as Sweden. 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, now seems to have reached bottom and developing slightly positively. 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.
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. 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 a year ago, or is it at the still same level?
Well, I would say it continues to be pricey in many markets. Perhaps the priciest price competition we have in the first and maintenance business, as I mentioned, in the markets where we have had a prolonged weakness in new equipment. 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 sites to really have more conversions coming in. Clearly, the fundamentals in the United States are there once they start delivering the equipment that is now in the order book. There continues to be price, but I wouldn't say there is a big change from what it's been previously. It's continued to be similar levels. 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. Eli Mariotte from Evli Bank. Well, you mention always that you keep making investments in certain areas. Can you quantify at all on what levels they are? Are they growing? Are they quite stable over time, or?
Well, they kind of It depends. Over the past years, of course, a lot has been in China, and we continue to expand there. There, perhaps the growth rate or increase of footprint is not as high as you have a big one. I think that if you look at rest of Asia-Pacific, Middle East, perhaps these areas, there, I would say we have continued to invest. It's really developing our footprint. 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. These are the principal investments. Of course, we do a lot of project development and R&D as well. When you ask specifically about this kind of regional investments that we talk 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 taking down your presence or investments because it wouldn't be coming back to the levels we've seen?
It's clear that in the weaker markets, we need to look at our cost base all the time. Our objective continuously has been to have a continuous and good development of our cost base, not to have to take any dramatic moves, because it's seldom good in business. 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 costs under control and make sure we remain competitive.
Yosti Kostinen . About those development programs, you are saying that, "I'm convinced that these programs will drive a continued strengthening of our competitiveness and differentiation." In a way, stronger differentiation even than earlier. In history, this better competitiveness and differentiation has caused global markets increase from 12% to 19%. 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, therefore we need to continuously improve. As you know, our objective is that we say that we are a challenger company in this industry overall, our objective is to continuously grow faster in our markets. We haven't set specific targets or objectives here, overall, I can say it this way, yeah.
That is quite strong statement if you are saying that, okay, KONE had earlier advantage, and I can almost understand about that statement that this differentiation is becoming even stronger. Do I understand it right away?
We need to differentiate in all of our businesses. As I said, the competition is not standing still, we need to all the time find ways to differentiate things. 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. For this, I hand over to the operator. Go ahead, please.
Thank you. If you'd like to ask a question from the phone lines, ladies and gentlemen, please press star one and wait for your name to be announced. If you wish to cancel your request, just press the hash key. Your first question is from the line of Jonathan Hanks. Please go ahead.
Hi there. Thanks for taking my question. Just coming back to China, as you've already elaborated, new starts have been very weak, something like down 20% year-to-date. 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 are maybe not the relevant metric, or is it maybe that you're baking into your guidance that new starts pick up in the second half? 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. 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 as elevator, escalator markets, escalator market never hit the peak. If you compare new starts and elevator/escalator buyers, it's been a more smooth development. I think there is a difference between these two. Clearly, it is a driver for the market. If you look at the Chinese market, the intensity of elevators and escalators continues to increase. The types of buildings that are built have more elevators than escalators. Therefore, that market can grow faster than overall new area started. When we make comments on the mid and longer term, we of course look at the longer term trends. We don't have an understanding how each quarter in the future is going to develop.
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 mid and longer term, continue to be favorable, and therefore we continue to invest in the presence in the market.
That's great. Thanks very much. Just maybe one more follow-up. Can you maybe comment on how the penetration is increasing, and if you could maybe put a number to that?
The reason for the increase in penetration is twofold. One. If you look at the urban development in China, it's going much more from mid and high rise and buildings that have elevators are being used to have elevators. It's the kind of urban development we have has clearly higher elevator, escalator or elevator intensity in particular. Secondly, what is a very strong driver in China is the growth of the middle income consumer. As consumers get more wealthy, they demand, first of all, they buy bigger apartments. Secondly, they demand more out of the service of the apartments, and that means also usually better elevators. 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 sq m built.
Okay. Thank you very much. That's very helpful.
You're welcome.
Thank you. Your next question comes from the line of Guillermo Peinador of UBS. Please go ahead.
It's Guillermo Peinador from UBS, actually. Talking about the currency impact, can you help me out in identifying what was the forex impact on North America and Asia Pacific? Sorry if this number is somewhere in the report, I couldn't see it. Then I'll ask a follow-up.
Yeah. If you look on a sales perspective, if you look at overall for KONE sales, it was the four percentage points difference, and it's clear that then it was over five percentage points difference between reported and comparable both in the Americas as well as in Asia Pacific.
Thank you. 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 continue 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 and order book have grown, which perhaps growing slightly slow or rotating slightly slow, that part of the order book. 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?
First of all, I think that's why we have started to break out now separately service or maintenance and modernization. If you look at first of all, the maintenance that grew at over 6% in the first quarter, it grew at 6.2, now it grew at 5.5% in comparable currencies. If you look at maintenance, it continues to grow at very good rates in Asia Pacific. If you look at the sales split in maintenance, then the clear vast majority of the sales is in Europe and North America, but here growth is slower. Very strong growth continues in Asia Pacific. We are growing in Europe and Eastern Africa, North America, but at a lower rate. Continuous growth there.
I think what is taking the overall services sales down is the fact that if you look at the first quarter, 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 orders received, has grown.
Okay, thank you.
You're welcome.
Last question, regarding the advances that you saw on the balance sheet, I was wondering of the EUR 1.598 billion, how much of that is China? If you disclose that at all, sorry.
We haven't broken down the advances by geographic area.
Conceptually, will it be the majority of it?
I would say, not taking view on the number, but in China, we have a good level of advanced payments, and we have a policy that we don't book orders received unless we have an advanced payment.
You don't follow that policy in other regions?
We follow that in all growing markets.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead.
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 of the new equipment split between new construction, retrofit of elevators into existing buildings and old buildings being knocked down and new ones being built. Is there any way to split that up to see, do you know 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. Old building tends to be rebuilt. I think we have estimated that roughly 20% of all construction volume is tearing down old building and rebuilding new ones. Of course, they are very different. Newly built buildings that tend to be demolish low-rise buildings and then build mid or higher rise buildings instead. That's about 20% of the volume overall.
And-
Hopefully that gives some picture.
Great. Thank you. That feels quite high. 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, 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 what it was historically. It was something we estimated towards the end of last year, this number. Unfortunately, I don't know exactly what it was a couple of years ago.
Got it. Thank you. One non-China question, actually, on new product introductions. You called UltraRope revolutionary, I think, when you launched it. Now, I think a year after the launch, would you confirm that? Secondly, are there other, those type of revolutionary product launches that you have in the pipeline, new products that you have in the pipeline? When can we expect the next one?
I would say the UltraRope, the reception from our customers, interest from developers, architects, has been very high. I think we confirmed that this is definitely a revolutionary innovation. We have a lot of discussions ongoing there. It's clearly something when you develop high-rise buildings, the development cycles are quite long. I think, yes, we can confirm that. Like we said, it is definitely revolutionary. We haven't seen anything similar on the market as of yet. What then comes to other revolutionary innovations, 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 Maslen 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. 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. 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 project. I wouldn't say it's anything widespread, and it's really related to the liquidity in the market. There's no big change in the rotation of the order book.
Okay, thank you. 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 has that flattened out? Is it tougher to raise prices now from a current level? 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, first of all, many of our markets are very price competitive, and I think the fact that we have been able to maintain our order to see margins at good levels, it's a good performance and really relating to the development we've been done in our pricing competencies. 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. I would say overall, I think we continue to have a good level of the orders received that we are, or the margins of the orders received that we are booking.
Thank you. Just a final admin question. I think you said before that you expected a currency impact on EBIT for the year of around EUR 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.
We had in the first quarter, I think we had about EUR 7 million, and now we have EUR 12 million. That's year-to-date. 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 Flueckiger from Kepler Cheuvreux. I was just going to ask you a question on India, a market 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.
In the second quarter of last year, there were some very significant metro underground orders that impacted overall markets that were very big, and that's what we refer 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. It really relates to what I mentioned earlier in the presentation, that the overall business confidence, access to financing, access to mortgage availability in India has been tight beginning of this year. Very much related to the general economic uncertainty before the elections, that we see now is impacting our markets. If we look at what is the situation in India right now, if you look at it from business confidence perspective, growth expectation, it has clearly become stronger.
Therefore, we expect that the markets will improve towards the end of this year. If remembering in Q1, we were actually slightly surprised that the markets continued to grow despite these factors. I would say that the financing availability and uncertainty earlier this year was quite clear there, that situation has now gone in a much better direction.
Okay, thanks a lot.
Thanks.
Thank you. Your next question comes from the line of Fang Peng of Taipan 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 is pricing pressure everywhere?
I think that it comes down again to the kind of systematic development we have done of our competitiveness. Really develop our quality and productivity, develop the competitiveness of our products and solutions. I think very important has been this competence and process development in pricing. I think we have been able to compensate some of the price pressure through this. If you can, 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 very much focus on when we grow, we want to grow profitably. That's important to us. That's kind of a important mindset that we have throughout the company. It's developing the competencies on pricing, processes, systematic development, our competitiveness, improving our quality and productivity.
All these 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, you just mentioned that margin of the new orders continue to be good and maintain that very healthy level. How about the margins of the new orders compare with first half last year or full year last year?
If you look at the situation during last year, we were able to, during last year, slightly improve. Now first quarter, we overall had slight improvement. China pricing was more stable, and now we're more stable. Overall, that we would be at a year-over-year similar, slightly better situation.
Okay, it's about the same.
Yeah. During second half of last year, we improved a bit, and now more.
Second half.
More stable.
Yeah. Second half last year improved a little bit. If you look at first half of this year versus first half of last year, it's kind of similar. Is that right?
Yeah. Just the margin better. Yeah.
Yeah. How about the lead time for Chinese orders?
It depends on the size and type of project, but generally, somewhere around nine months, a little bit shorter. Bigger projects, of course, longer, but not a big change there.
Okay, great. Thank you.
Thank you. Once again, ladies and gentlemen, please press star one to ask a question. To cancel that request, please press the hash key. The next question comes from the line of Rizk Maidi of Barclays. Please go ahead.
Oh, hi, this is Rizk Maidi from Barclays. Thank you for taking my questions. First one, I am sorry to come back to China. What is the kind of time lag between those construction starts and KONE's order intake? What is the time lag there in terms of quarters? When are you actually going to feel that slowdown that we have seen in H1?
Difficult to say because if you look at historically, there is not a direct link, and we have not been able to establish really exactly how it is the time lag. I would say usually a slightly better indicator has been new construction starts if you take inflation out of them. They have been slightly better. Fortunately, if you look at historical trends of new construction starts, elevator escalators, there is not a exact lag that we have been able to establish.
Okay, thank you.
Probably depends on shift, what the mix is and geographic region and so forth.
Okay. Maybe a question on your automatic doors business. How big is that business and how profitable it is? Also what is the strategy for that business going forward, and how do you see it fitting with the traditional elevator business?
Our automatic doors business has sales of around EUR 2 million, very roughly. Strategy there is to serve our existing customers, both automatic doors and elevators and escalators, and really improve their people flow. That's how it relates to this business, and that's where we want to grow that business. Predominantly, a European business for us. We have some small business outside of Europe, but predominantly a European business, I think that's how we will continue developing it.
Okay. When you think about the portfolio, long term, is there an aim to expand it beyond the traditional elevator business? Similarly to what some of your competitors are doing, expanding adjacent areas such as building automation, security systems, et cetera?
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's where we're committed to. If you look at how you're then evolving this business, what people flow 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. For example, our People Flow Intelligence solutions combines access control with destination control. 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, 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, Tom Skogman of SHB. Please go ahead.
Thank you. This is Tom. One thing I think 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. If you look a couple of years back, there was no real seasonality between H1 and H2 when looking at orders at KONE. 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 that Q3, as you can see from the charts that we got up here as well, is slightly lower. As you know, Tom, we don't give guidance about orders received. You can see there is some seasonality to orders received, and first half, as you can see, tends to be slightly higher than the second half.
Is the reason that the share of China has increased 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 three, four years back?
China is one where you have higher overall orders seasonally in the first half, which you can see. Q3, of course, holiday periods impact that then as well. That's, of course, one impact in Q3. As you have seen from history, our seasonality that sales more second half weighted orders tends to be slightly more first half weighted.
Okay, thank you.
Thank you. Your next question comes from the line of Guillermo Peigneux of UBS. Please go ahead.
I am not Guillermo. I'm Guillermo. Thank you for taking my question again. Mentioning the statistics that you mentioned before, 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. I said the way we develop the company is based on what outlook we have, maybe in longer term, and that we continue to be favorable. Clearly, you can have variation from quarter to quarter.
Thank you.
I can't comment on 2015 yet.
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 GiantKONE, 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 or issue in the Chinese market. I wouldn't think that that's more widely spread. I must say 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 then. 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 two 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? 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? Obviously Europe, the U.S., they're not really comparable. Then I have a quick follow-up as well.
If you look at what really drives elevator penetration, it's really how people live. Why does Europe have a high penetration? It's because majority of people live in apartments, where you need elevators. That's why the U.S. 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. 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 will 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.
I think urban people in China live in apartments. Yes, they live perhaps a bit denser, but still, percentage-wise, probably, I believe it's going to be the highest share of people living in apartments of the urban people compared to any other area. I think that highlights that there continues to be strong potential overall in the market.
Got it. Thank you. 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 install base, pricing's been tough. How quickly it happened in the past in different end markets just to get some idea on the timing there?
It really depends on. U.S. we can see the market was recovering slow for a while, 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. I think that when we start to see a, first of all, what we see in Central and North Europe, we'll be talking about slight, it's not very significant yet, but it is 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. Many of the also small independents and also the bigger ones are involved in both modernizing and servicing elevators. When you start to have more business going around, I think you can probably start to see a slightly better situation.
I can't say exactly, but conceptually, I would think that that's how it will develop. I think that we need to see a better economic environment before that happens.
Got it. Thank you very much.
Thank you. There appears to be no further questions from the phone lines. Please continue.