It's a great pleasure to see so many of you here with us today. We also have people following the webcast. A very warm welcome to you as well. We have an interesting day ahead of us. We will have six presentations here in Helsinki, after which we will board buses and go to KONE's elevator factory and showroom in Hyvinkää, which is located about 60 kilometers north from here. During the presentations part of the day, we will be hearing, as said, six presentations from our senior management, starting with a presentation by our President and CEO, Matti Alahuhta. Matti will be discussing how we are managing our business and developing our competitiveness in the uncertain environment of today.
After Matti, we will hear from Pierre Liautaud, Head of our South European business, Pierre will be discussing how to manage and develop our business and identify opportunities and capture them in a challenging environment like South Europe today is. After Pierre's presentation, we will have a 20-minute break, after which we will continue with a presentation on Asia Pacific and the Middle East by Noud Veeger, Head of that region. Noud will be talking about how we are developing our business in that region and also what kind of market trends we have lately seen. After Noud, we will get a China update by William B. Johnson, Head of Greater China.
William will be addressing both what kind of recent market developments we have seen in China, as well as our expected longer-term view of how the market is going to develop and what kind of dynamics we are expecting to see there. After William's presentation, we will break again for a 20-minute break and come back for the final part of the presentations part of the day. That part will start with a presentation by Heikki Leppänen, the Head of our new equipment business globally. Heikki will be talking about how we are developing our offering and our supply chain globally. After Heikki's presentation, it's time for the last presentation of the day, which is by our CFO, Henrik Ehrnrooth, Henrik will be discussing how we develop KONE's productivity and profitability.
We will have time for questions after each presentation, I would also like to kindly ask you to wait until the end of each presentation with your questions. Rest assured, there will be time to ask questions because we also have a separate Q&A session at the very end of the presentations part of the day. Without any further introductions, let's get the day going and about the practicalities and where to have lunch and when, and when to break out for a break, I will come back to all of that. Now let's get the presentations going. Without any further introductions, Matti, the stage is all yours.
Good morning. It is great to see so many familiar faces here. All of you have decided to make a major investment of your time when coming here. Many of you are even joining us to Hyvinkää. Many more of you are following this through video conference. The last five years have been a very exciting time for us. During that period, the development in different markets in different continents has differed a lot from each other. I will now open the day by telling you about our progress from 2007, that was the last year before recession, to 2012. I will tell about our way to develop competitiveness. This approach that we are using systematically in developing our competitiveness has been a major enabler for our progress.
Of course, I will then tell also about our strategic priorities when going forward and our outlook for this year as well as about our long-term targets. Let's first take a first look on our first year results. How has the year started? As you see from here, the growth numbers both in orders, sales, operating income, and cash flow are all strong. We have had a very good start for the year. These numbers are familiar to you, so therefore I don't spend more time with these, but I think that they demonstrate again quite well that we have been able to align our activities and resources in line with how the level of opportunities have developed in different markets. These changes, they have been really significant. Here you see the big difference of the new equipment markets globally in 2007 and 2012.
You see that from 2007, the share of Asia Pacific has grown from 56% to 77%. At the same timeframe, the share of Europe, Middle East, and Africa has gone down from 33% to 17%, and the share of Americas from 11% to 6%. In this five-year period, KONE's global market share in new equipment has grown from 12% to 18%. The difference is surprisingly significant also in the maintenance markets. From here, you see that Europe, Middle East, and Africa continues to be almost 50% of the global maintenance base. However, in 2007, it had an even larger share, 58%. In the same timeframe, Americas has gone down from 17% to 14%, and also in the maintenance base , the weight of Asia Pacific has been growing fast from 25% to 37%.
KONE's maintenance base has been growing slightly faster than the market over this period, from 650,000 to more than 900,000. The way how the markets are developing at the moment is a reflection of a three-speed world. The developments in Europe, Northern America, and Asia Pacific all are in their own different phases. In Europe, in new equipment, the markets in Central and Northern Europe are slightly declining in many countries, although still in most cases, they are declining from rather good levels. Positive exceptions here are Germany, Austria, Switzerland, and Russia. In South Europe, the markets continue to decline in France, Italy, and Spain. In France, this declining started much later than in Italy and Spain. Some kind of positive news is that it looks like the markets in Spain are finally reaching the bottom level. Of course, Pierre, after me, will tell more about these markets.
In modernization in Central and Northern Europe, the markets are slightly declining in many countries. Best development, again, we see in Germany, Austria, and Switzerland. In South Europe, the modernization markets are at a weak level. The economic situation there is preventing the pent-up demand from materializing. In maintenance, the development is rather positive in Central and Northern Europe while the markets are quite flat in South Europe. In North America, the recovery in new equipment in the U.S. is continuing, although it is good to mention that still at the moment, the market level is about 60% compared to the 2007 level, which naturally as a comparison point, we have to remember was the, let's say, last year of the construction bubble. In Mexico and Canada, the markets are at the moment rather stable.
Also, in modernization and maintenance, the development in North America is at the moment positive and better than in Europe in general. I have combined here Asia Pacific and Middle East because they in a way, let's say, create this third group of the three-speed world. The overall comment here is that the markets are growing in all businesses, in all of these countries and areas at the moment. Of course, Bill and Noud will tell much more about these developments. KONE has had a particularly good development during these five years in the growing new equipment markets in Asia Pacific and Middle East, especially in the fastest growing emerging markets there. As a result, our business mix has changed quite a lot during these five years.
First of all, in the geographical mix, the share of Asia Pacific has gone up from 14% in 2007 to 35% last year and up to 38% first half of this year. While at the same time, the share of Europe, Middle East, and Africa has gone down from 65% to 46%, and the share of Americas from 21% to 16%. What comes to the business mix, many of you have followed this industry quite a long time, and you remember that traditionally, the typical business mix for a company such as KONE and also in the case of KONE was 40/60. 40 new equipment and 16 in the service business. Already in 2007, we had 45/55. Last year, 50/50. This fast change has been continuing this year in the first half, where we already had 52/48.
Our fast growth has naturally also required developing stronger market positions and especially in the biggest growth markets, which naturally has also been in developing higher market shares, our primary target, because it is common knowledge that when increasing market shares in growing markets, it is easier to do that in a way where also profits are growing continuously. Here you see how our market positions have developed in different countries from 2005 to 2009 and 2012. If we first take the markets of this last group of the three-speed world, I would start with China and India, which last year were the two biggest markets in this industry. In both China and India last year, we were the leader in our industry. Last year, in addition to this, we improved our position from number 2 in 2011 to become number 1 in Middle East.
In Southeast Asia, we stepped up from number three position to number two position. In addition, last year we were the shared number one in the share number one position in Central and North Europe and in Australia. In South Europe, we dropped from number two to number three position, while we were, let's say, balancing last year also there margins before volumes. We continue to be number four in Russia and North America. I have to say that I am very pleased with the development of our market positions in the new equipment markets. A few words then more about our progress and what we are doing and what we have been doing in China. Naturally, Bill Johnson in his presentation a bit later today will have a much more extensive review of both our activities and especially the development of the marketplace.
The key comment here is that our development has continued to be good also this year. We have been growing clearly faster than the market, not only in the first half, but this development has also continued in July, August. A few comments as a background. Now in this situation where the Chinese market has been last 12 months when several of the key competitors have communicated that they have been dropping prices. Having two parallel operations and having GiantKONE in addition to KONE has made GiantKONE a very important asset for us because the KONE and GiantKONE pricing positions complement each other nicely and help us to protect our margins. What comes to product competitiveness, our new volume elevators, N MiniSpace and N MonoSpace that we launched last year, are making good progress in the markets and the ramp-up.
You remember that when we launched, we thought that our objective is to be in full volumes end of next year, this continues to be the case. I'm also pleased that GiantKONE's new product launched at the end of last year to the affordable housing segment has been a big success. It has been very well received by the market. The rapid growth of the service business in China has continued. Next, ladies and gentlemen, this is now a little bit long story and typically when I see this kind of slide with a lot of text, I don't like it, but I try to make this interesting because this is absolutely something that I want to share with you.
The question is that, how have we been able, what have been the actions to increase our market share from 3.5% in 2005 to 17 last year in China? The answer comes from these actions related to these five strategic directions that I will briefly review. First of all, products. In 2005, our products were very much focused on high middle segments. We had a very small accessible market in China. What was obvious to start to do for us was that we started to expand our product portfolio fast, both up to the high end and down to the volume segments. Now the situation is that we have a broadly competitive offering for all segments.
What has been very essential here is that from 2005, we have taken care that we have always some of our best people who have both a thorough product knowledge as well as market knowledge, these people all the time are in a very tight connection and communication with our global product management and our global R&D. As a result, we have several cases where with good timing, very successful timing, we have been the first to enter the market with a very attractive product to an interesting market segments, providing a lot of opportunities. These kind of moves, they have given us clear growth steps. This will also continue even more actively our way also in the future. Related to geographical coverage, we were concentrated in 2005 in the larger cities. We started to expand fast to the inner parts of the country.
Now we have, I think maybe it's not approximately, it is quite exactly 400 locations, isn't it, Bill, that we have in China, the fast expansion continues. What comes to the market situation at the moment when much of the high growth is also in the inner parts of the country, it has been, let's say, a very good situation for our kind of companies which expanded early also to these markets. I have always said that competition in the big emerging markets is competition about best talent. How to be able to get the best talent, develop the whole personnel actively, and make them loyal KONE people. This is what we started to do actively in 2005, this has developed very well, this has also resulted in improved retention rate and all the time improving employee satisfaction.
Of course, this is the way also how we will continue. I said that GiantKONE has become a major asset for us. When I remember the time when we signed the joint venture agreement in February 2005, I did not have an idea that GiantKONE would become such a key element in our activity in China in this kind of timeframe. We increased our ownership to 80% in end of 2011, the integration phase has gone very successfully. We very actively continue with this not only dual brand, but two parallel operations approach also in the coming years. Maintenance, a very important future opportunity in China. We were rather small, as everyone else also in maintenance in 2005.
We were also one of the very limited number of companies who in the maintenance had started to develop also maintenance business active in China already in 1990s. We had a good background in this respect. We continued with the active development and between 2005, 2012, our average annual growth in the maintenance base has been close to 40%. Of course, we will further expand our maintenance network all the time. In maintenance globally, we have a solid growth in Europe and North America, as well as continuing good growth opportunities in Asia Pacific. We have been growing faster than the market, in maintenance base in all continents. The average annual growth over this period has been, in maintenance base , 6.2%, while the global market growth has been roughly 5.5%. In modernization, we have decided to increase our priority for this segment.
In modernization, our market share has been rather flat during last few years at about 15%-16%. The markets globally have not been growing for many years. As said, there is more and more untapped market potential. That starts to make also this market increasingly interesting. What we have started to do is that we are developing more actively our modernization capabilities and related tools. We are working more actively in order to understand the markets with better granularity and also bring new products to the markets. Many of you remember that already since the beginning of the financial crisis, actually already a little bit earlier when we anticipated that this will last long, in early 2008, we decided that let's try to take this difficult market situation and this difficult and challenging phase as an opportunity.
We have had this approach all the time over these years, and it consists of these three different elements. Working hard in order to have a more granular understanding of the different markets in order to be better in focusing on growth opportunities. Being able to grow also in markets that are not growing. We have accelerated our development programs and since early 2008, all the time increased our investments in developing our people and especially the leadership capabilities everywhere in the organization. Because it was already then very clear that this is very important to do, especially in the coming environment, because people have heard over the last years a lot of negative news from the environment, how the different economies are developing and what companies are doing and all of that.
It is so important to really communicate and lead in such a way that people don't have to guess that what is happening to us, but they know what we are doing. All of this has led to these improving market shares, to the continued strengthening of our competitiveness throughout the business system and continuous improvement in employee satisfaction and engagement. It has also made it possible for us to improve our operating profit every quarter since beginning of 2005, including over the most difficult years of recession, which of course, is also something we as a team are very pleased about. This was the story about last five years in a very exciting environment. Now I will tell about how we develop our competitiveness, which I said to be a very important cornerstone for enabling our progress.
I know that many of you have seen this picture, I am also sure that not everyone, and this is what we call a holistic picture because it has all of the key elements related to our way to develop KONE. It all starts from the global mega trends which are driving the growth in our markets. In early 2008, we defined ourselves a vision which says that in this all the time more urban world, KONE delivers the best people flow experience. This vision not only clearly defines our scope. We have decided always to be a focused company. We continue to be a focused company, being active in this scope and develop to be as good as possible in fulfilling and reaching this vision.
It also helps and has helped us to make as many as possible of KONE people all around the world to see our company with the eyes of the users of our products and with the eyes of our customers. This is essential because always when this is the case, we see a lot of opportunities to make our company better, to making our way to operate better, process better, products and services better. It is also the best source for innovation. What follows from vision is, of course, strategy. Our strategy is very clear. This is what we a little bit further refined in also then in 2008. It says that we differentiate by delivering the best user experience, customer experience, and at the same time develop the cornerstones for our competitiveness by developing our people and our processes.
What is very essential for every company, that how to make the strategy alive. Therefore, we decide every three years what is the best possible set of major development programs that over that three-year period, again, in a profitable growth, bring us towards our vision. In addition, we have three high-priority areas: safety, quality, and simplification. As a basis of everything, our culture, which we develop actively all the time, and our common way of working, which is the KONE Way process architecture. From here, you see what have been the development programs in the different phases. First of all, I think that many of you could ask a question that why three years is not that a long time? Yes, it is a long time, but it is also long enough to get something significant to be developed.
If I take just a few examples from here, for example, in sourcing between 2005, 2007, and in environmental excellence between 2008 and 2010, we got a lot done. We made a major change. Then we have been able to continue very active development in these areas without that kind of internal visibility that we give to these development programs. Another important example here and point to mention is that you see that we have been working with customer focus and customer experience in a way, meaning that transforming KONE to become a customer-driven company all the time. That has been a very important factor in our change. Then, of course, what I already mentioned, starting to make the people development very important activity, and even more important it was earlier than in the beginning of 2008.
Innovations are very essential for every company that has set to itself ambitious long-term objectives. Innovations are essential because they help to differentiate from competition, and they also help to build the brand. A couple of examples here. The new volume elevator offering that we launched last year is bringing us to the top, both in ride comfort, visual design, eco-efficiency, and space efficiency. The UltraRope hoisting technology that we launched in June this year is a revolutionary innovation that enables elevator to rise to new heights. The key aspect in UltraRope related to our business objectives is, of course, that it brings us a lot of opportunities already with all of the high-rise buildings that are 150 meters or higher. Forbes makes the ranking of top 100 companies globally every year, and we were again ranked as one of these this year.
We are at the position of 37. Of course, this is also something that we are pleased with. Next, about the priorities when going forward. In new equipment, it is clear that our target continues to be to grow faster than the market in order to ensure even all the time growing economies of scale benefits. In maintenance, we work very hard to accelerate our growth and productivity development. In modernization, as I said, we are now setting a higher priority also for this business, and the objective is to capitalize on the untapped modernization opportunities on the demand that has been accumulated since 2008. Our current situation in this, what we see as attractive global markets and the development of our markets, they give a basis for very interesting ways to develop our business in the coming years.
First of all, our objective is to continue good growth as a result of future market share gains combined with the market growth driven by the global mega trends. Our strong market position in Asia brings good growth opportunities. The strength in service business brings stability. It is a very strong combination. We continue to have a very hungry challenge attitude and the consistent, active way in developing our competitiveness. We will continue to work very actively in order to further improve our execution of our capital light and cash generative business model. As you know, this business does not require major investments, fixed asset investments. We are working all the time actively in order to further improve our working capital rotation. Overall, the objective is to maintain a good return of invested capital. Now, ladies and gentlemen, finally, the market outlook and our long-term financial targets.
This market outlook is exactly the same that we communicated in July. In new equipment, we expect that the markets in Asia Pacific will grow clearly. The market in China is expected to grow by 10%-15% this year. The market in Central and Northern Europe is expected to decline slightly. The market in South Europe to continue to decline from the already weak levels in many countries there. The market in North America, we expect to continue to grow. In modernization, the market will be stable or decline slightly. The maintenance markets are expected to grow well in most countries. This business outlook we upgraded two weeks ago. In sales, we estimate that the growth will be 11% and 14% at comparable exchange rates as compared to last year. In operating income, we expect to be in the range of EUR 920 million to EUR 955 million.
As you remember, last year, our EBIT was EUR 828 million. This assuming that the translation exchange rates don't materially deviate from the situation of the beginning of September. The long-term financial targets continue to be the same that we have had. Our objective is to continue to grow faster than the market. Our objective is to reach the 16% EBIT level. What comes to cash flow, we are working hard in order to improve working capital rotation all the time. Ladies and gentlemen, this was my story about our progress during the last five years, about how we are developing competitiveness and what are our strategic priorities when going forward. Enjoy the day. Now we have time for your questions. Please.
Good morning. This is Antti from Danske Bank. I would like to ask about KONE and Giant KONE. Outlining your success in China, you started by saying that KONE scaled down its product offering, and then as a second step, you acquired Giant KONE. My question would be, how do these two companies differ from each other, KONE's low-end offering versus Giant KONE's offering? How do you organize these two companies in the marketplace so that they don't actually compete with each other?
Maybe I was a little bit inaccurate in the way I communicated the scaling down of the portfolio. In case of the KONE brand operation, we are covering the market segments from the very high level to almost to the lowest volume levels, but not quite. Giant KONE covers everything in the lowest volumes levels, and there is some overlap. Both of these has also their own sales networks, and of course, they compete in some cases. Again, with careful target setting for both businesses, we have managed to have a, let's say, very good spirit in our total activity.
Hi there. Good morning. Arne Nilsson from Goldman Sachs. I was just looking at your impressive development over the last six or seven years in China in particular, and what you've already done looks very much like what a number of your competitors are now trying to copy effectively. How do you see that you can continue to outgrow the market over the next few years? Are you worried that some of your global or Western competitors are now coming with spreading out in China and doing these mid and low-end offerings as you've done very successfully already?
Yes, let's take back this-
Slide 12.
Yes, slide 12. Thank you. Okay. We have a good combination. We have the challenger attitude. We are not pleased what we have achieved. We want to make more progress. On the other hand, we have very good starting point. In product competitiveness, we have a very good starting point. Our objective is to continue with the same approach even more actively. In geographical coverage, we have already now a good coverage, but more to expand again this year. We have been expanding to many new locations. This will continue all the time. This talent management, recruiting best talent, developing the people, having the stability in management that we have had in China now for many years. I could not be able to emphasize this enough as a starting point also when going forward.
We have two successful parallel activities, but not more. We don't believe that it would make sense to try to have more than two different parallel activities there. The management of those would become very difficult. With GiantKONE and KONE, we are in a very good track. In maintenance, Bill will tell more about what is our situation in the maintenance in China at the moment. That brings us very good basis to continue successfully. If you would ask me that what are our three biggest opportunities globally, I would say maintenance in Asia-Pacific, maintenance China, absolutely in one of those.
Thank you. Erik Golrang of ABG Sundal Collier here. Two questions on the maintenance business. The first one, in mature markets, the fact that you're growing your maintenance base a bit quicker than the market, is that an important element to keep price pressure at a bit of a distance for you that you're sort of increasing your density a bit quicker than the market average? The second question on the maintenance opportunity in China and the sort of legislation in place to make sure that develops, how is legislation from different levels of authorities in China developing now to make sure that elevators are kept at a good quality?
What comes to our growth in the maintenance business. In maintenance, we are very much a challenger because our maintenance base is only fourth biggest in the industry, fourth largest. We have been catching up to a certain extent over the last few years, but our objective is to accelerate this catch-up. I have to say that I'm not totally satisfied to our progress in that respect. This is why I don't see that our maintenance growth as such has particularly helped us in keeping the prices. What helps there is a good level of customer service, good quality, and good customer communication, of course. I would like you to repeat the other question related to China.
Yes. You just mentioned one of your top three growth opportunities was maintenance in Asia Pacific. I'm just wondering of the legislation and the structure of requirements on the quality of the elevators and how they are maintained.
Okay.
Is that developing that you could envision the Chinese maintenance business to be the same as in mature markets at some point?
Okay. Good question. The market structure in China in maintenance, as is familiar to many of you, is different than in most other markets, especially Western markets. That at the moment, only about 25% of the Chinese maintenance base is being taken care by equipment and service companies such as KONE. The rest is divided by the small local service companies and by situations where the customers themselves are doing the maintenance. During the first half of this year in China, new regulations have been developed to a progress of building technologies. During the second half of this year, the work is continuing in how to apply these regulations to the elevator and escalator maintenance. This is why we know more about this in early parts of next year.
What we understand that, as you correctly mentioned, safety is a key driver there, and therefore, naturally also that how to get and guarantee more good expertise in place so that let's say professional people are taking care of the maintenance. These seem to be the priorities, and therefore, this looks like this will be positive for, let's say, professional equipment and service companies such as us but too early to say more.
This is Tom Skogman from Handelsbanken. Based on the industry's experience from Europe and the U.S., you know that there's a great long-term earnings opportunity in maintenance. We have probably never seen such a fast expansion in the installed base in the history as we see in China at the moment, and the race is on there. I just wonder, could you somehow describe your strategy when it comes to developing and growing your service network? Because it must be very tempting to open very many offices early on and then just accept that you have losses in some of these locations early on, and then just because you have such a great long-term opportunity there. Do you accept losses for many years now when you open so many new locations in the service business?
The profitability of our maintenance business in China is good. As we have said, the margins are roughly at the same level as we have in maintenance globally. The expansion of our, let's say, maintenance service locations has gone smoothly. We are doing that actively, and we continue to do that actively. What we decided two to three years ago when we had, in a way, taken a look also that should we speed up our maintenance growth by targeting also their acquisitions in order to accelerate our maintenance-based development then. We did not start to do so because it was actually quite easy to decide that at this phase, it makes much more sense to focus on this organic growth opportunity and focus on making the organic growth with as high quality as possible.
At the later phase, sometimes difficult to say even timing, we start to be interested about maintenance-based acquisitions also there.
Please.
Morning. It is Glen Liddy from JP Morgan. For your 16% margin target is getting the growth in the Chinese aftermarket a key element to get you from where you are today to the 16% margin target?
The Chinese maintenance opportunities is naturally a very good opportunity there. I have to say that Henrik, later today, will speak more specifically about each of these, our long-term targets. Okay, maybe I leave this question more to Henrik, so that you have something interesting to wait. Yes.
Thank you for all your good questions at this stage. May I just remind you that there will be more time for questions later on. We will move to our next presentation with Pierre Liautaud discussing South Europe and what we are doing to identify and capture opportunities there. Thank you, Matti. Pierre, the stage is yours. Please.
Thank you, Karla. Good morning, everyone. My name is Pierre Liautaud. I am the Executive Vice President for West and South Europe. I have been in that position since the month of March 2011. It is really a pleasure for me to be here this morning with you. I have not met you in previous occasions. I have the hope that at the end of this presentation, you are actually more familiar with KONE's business in South Europe, and you are actually quite pleased about our progress. Despite what you might think, there is actually a positive story to tell about our business over there. My purpose this morning in the next 20, 25 minutes is to take you through three major things. The first one is describe the market, the dynamics, what is happening in our area.
The second one is, what has been our strategy, what continues to be our strategy to identify and capture the most profitable opportunities despite the challenging environment. Third, which is to describe our continuous focus on service quality and customer satisfaction that we believe is key to develop a profitable business in our area. Let's start with what we at KONE call South Europe, the countries we are talking about are actually highlighted in blue on the map. Let me tell you key important elements about our market. The first one is that more than half of total equipment in service in Europe actually is in South Europe. Which means that we have about 3 million elevators and escalators in service. Not just KONE, but the total market. That represents a huge opportunity and a huge maintenance base.
By contrast, only a third of the new equipment business shipments in Europe come from the south of Europe, that is a much lower level than it used to be in the previous years. France, Italy, Spain, Belgium are our largest market, both from a service business perspective and also modernization and new equipment. We have certain parts of the territory, which are highlighted in the light blue here, where we do not have a direct presence, but we are represented through authorized distributors. Therefore, the opportunities that we capture in this part of the territory is actually only the new equipment business. What has happened in our market? First of all, when I look at the economic background, it's fair to say that the Southern Europe economies have been badly hurt by the financial crisis.
Even though the economic forecast point to some little recovery in the next 2 years, I would say that we need to be cautious about our own outlook. We are not counting on a lot of tailwind to take our business forward. When we look at the total construction industry in the major markets of France, Italy, and Spain, we actually expect that this construction market will stabilize at a level which is about two-third of what it was at the peak years of 2007. Compared to a EUR 910 billion of construction market in 2007, there is an expectation that the construction industry will stabilize at around EUR 600 billion. When you look 1 level below, you look at the elevator and escalator business, let's start with the new business, the new equipment market.
As you can see here, this is a comparison between 2007 and 2012, there's been a dramatic decline in terms of volumes, right? In every market, with some exception in France and also in Belgium to a lesser extent, there's been a strong decline. If you look specifically at Spain, we can say that the 2006, 2007 kind of timeframe was an anomaly. That was fueled by speculation on the real estate, I would say bad lending practices. Even if we are to normalize it, I would say that the decline compared to the historical level is probably in the range of 50%-60% compared to the base. More or less what we are seeing in Italy, like 50% decline from the peak years. One consequence of this is actually there is some overcapacity in terms of manufacturing in South Europe.
The risk is that there is a trend to lower the prices to fill up the manufacturing capacity. We are obviously monitoring this kind of development, as it might have a negative impact, and it has a negative impact on prices and potentially on quality. By comparison, what we see in the maintenance market, they actually been quite stable in the past couple of years. There has been some growth coming from the net conversions. This is actually a positive element to that. As you probably know, in terms of monetary value, there is, in most European countries, there is actually some price escalation, which are automatic, which are built on general public indices in terms of inflation. The positive impact on the monetary value of the maintenance comes from net conversions and price escalation.
The negative development, the negative factors are more the economy and the competition on prices. As you can see here, when you look at the biggest market, Spain and Italy are very close to almost 1 million units in each of those markets. France is about half of that. We have, again, a substantial portion of the total equipment in service, both market-wise and also from the perspective of KONE. When you look at this kind of background, you might tell, "Well, listen, this is really bad. This is really weak. The development of KONE in South Europe must be pretty poor." Well, actually not. Actually, we have some positive stories to tell, as I said. I think the main rule here is to not look at market averages. In every single business environment, there are always pluses and minuses.
There are always portions of the business that develop better in each business line, in each country. I think it is our responsibility to dig deeper and identify those opportunities that carry the most profitable opportunity and to allocate our resources accordingly. We have a clear focus on profit development, not just market share in terms of volumes. We are actively working on developing our offerings in order to adjust to the customer demands, and to the request of the market. What we're going to do in the next slide is actually to describe to you in further detail how we are developing our business in the three most important business line. That is service, modernization, and new equipment, in that order from the size ranking.
Before we do that, I would like to spend a few minutes to talk about what we see are the latest developments in our territory. Well, first of all, in Spain and Portugal, as Matti mentioned earlier, we see some early signs that the construction market might be bottoming. We are not seeing this yet into our orders. However, some of those signs are that the unemployment seems to be peaking and kind of going down. It's been now certain number of months since the unemployment in Spain has come down. The statistics on where this employment is picking up is actually in the construction industry. That's a kind of positive news.
The other positive news is that when you look at the stock of vacant flats in Spain, we start to see some regions, so it's not a countrywide statement, but we start to see some regions where the stock of vacant flat is getting lower to a level where you might think that there will be more construction going on. When more money flows in, we expect to see better orders. In the service space in Spain, the market continued to be under very strong price pressure, and that applies to all segments. When I look at Italy next, the new equipment business continues to be weak and weakening further. We don't actually see much, again, opportunity or coming from that yet.
The service markets are quite competitive in Italy, but I would say the opportunity that we see seems to be the most attractive at the moment is in modernization. As you probably know, there has been no boost from SNEL in Italy, and therefore, the aging of the equipment provides actually quite a number of attractive opportunities, which are for us to grab at the moment. In France and Belgium, the new equipment markets have actually been relatively strong over the past years. Belgium continues to develop in a positive way. France is starting to see some weakening since the beginning of 2013 in new equipment. We hope that the new equipment will start pick up again next year, but we are not expecting that to happen before the end of the year.
Both in France and Belgium, we have seen some uncertainty in the short-term development of the modernization market. This is mainly due to some rescheduling of the SNEL deadlines. There was, for example, in France, a deadline of July this year for the second phase of modernization, and that has been pushed out to one year later to the summer of 2014. We are actively working with the regulation authorities to work out the best out of this situation. But as I said, there is some uncertainty at the moment about that. When you look at opportunity by opportunity, let's start with our largest business in South Europe, which is the service business. It is very important for us in South Europe, and it's also very important for KONE.
As mentioned, for KONE overall, 20% of the total equipment in service in the world is in France, Spain, and Italy. We have actually very strong presence in France and Italy. We have a lot of upside potential in Spain, given that our position is one of a challenger. The profit opportunities in that business continues to be quite high. We believe that actually there is a continuous opportunity to develop this business. Where is the growth or the profit growth coming from? It's coming from conversions from new equipment business and elevators in free service. It's coming from retention of the existing portfolio. It's coming from selective wins from competition, and we actually focused mostly on extending the share of wallet of KONE with our existing customers. It's also coming from selective acquisitions to increase the density of the portfolio of equipment in service.
As for the rest of KONE, we are actively developing our competencies in maintaining both KONE equipment and non-KONE equipment. Actually, the international training center for third-party equipment is in Trappes, near Paris, in France. We are very committed to continue to develop that part of the business. We have a set of contracts, agreements, and packaged offerings, to maximize the value of KONE service. To set the right balance between the level of service that is expected by different customers at, and different segments. Obviously, a hospital will have more requirements about maintaining their equipment in good state, 24 hours, seven days a week. Where other segments might have less stringent requirements. The second opportunity in South Europe is clearly the modernization business. As you know, the modernization business is triggered by three key factors. The first one is technical obsolescence.
Equipment being unable, actually, to continue its normal life. There are technical changes that are done now and then to improve the technical quality of the equipment. The second one is the compliance to safety norms. The third one is energy efficiency. SNEL, as you probably know, most likely, has been a mandate led by the European Union, to boost that business through compliance to safety norms. It's been enforced at various levels in the various countries where we operate. It's been quite strong in France, Belgium, to a lesser extent in Spain. It's been practically nonexistent in Italy. SNEL is just a boost, an accelerator to our business. Actually, the underlying potential of modernization is there and remains to be there because, every year the equipment gets one year older. The running costs of running an elevator actually increases over time.
The only element that is holding that opportunity back is the lack of financing. If we adapt our offerings to providing the right offering at the right time, with the right financing, we can actually get more out of this modernization opportunity. The third opportunity and, believe it or not, still is in new equipment business. New equipment business has gone to quite low levels. However, there are still opportunities. Let me give you a couple of examples. The first example is this map. You might ask, "Okay, Enrico, that looks like Spain. What does the dark area mean?" The dark area means the number of construction licenses that have been granted during the boom years. The darker the area, the higher the number of licenses granted has been.
If you look at the southern coast of Spain, Andalusia, this is where most of the growth has been coming from. By contrast, as I said, the lighter areas show some potential. I had mentioned earlier, we start to see some provinces in Spain where the vacancy rate has gone down to a level that makes us optimistic about potential growth in that area. Actually, in the Madrid area, there is probably a significant potential that has been accumulated, and will be soon released. In a difficult market, it's very important for us to actually differentiate our offerings and to adjust our offerings to the various level of requirements of the customers. We have, actually, in the KONE, we have three main offerings.
The EcoSpace that addresses the least demanding customer segments, low-end housing, up to the MonoSpace 500, which is the core of our volume business, which addresses most of the segments, to the high-end with the MonoSpace 700. We have competitive offerings, which are tailored country by country to the need of various segments, and which are packaged from the feature and the price perspective to match the requirements of the customers. Our deep understanding of the customer behavior and the customer request help us, first of all, to package the offerings in the right way, and b, to allocate our resources in order to tap the most attractive opportunities. This said, I think we need to realize that the most important currency in KONE business in South Europe is the portfolio of existing equipment and service.
It is our mandate to actually protect it, and our strategy has been to increase the value of that opportunity and to focus on quality of service and the customer experience. I will take the next few minutes to describe this a little further. There is an alternative strategy, which is to lower prices to get more volumes. We believe at KONE, that strategy is synonym of lowering the quality of the product, lowering the quality of the service, and at the end, getting a poor customer experience. In a service business, we are absolutely convinced that customer loyalty comes from quality of service and not the opposite. What can we say about it? We can say that each opportunity to interact with the customer is actually an opportunity to deliver value and a positive experience.
When we hand over a new equipment, when we do a preventive maintenance visit, when we respond to a call-out, when we modernize the equipment, either partially or full replacement, we have opportunities to show high commitment to the quality of service and to get a positive customer experience. We are doing that over the entire life cycle of the equipment again and again and again. This is happening quite often. Think about the fact that in South Europe, each month there is more than 150,000 preventive maintenance visits. There is more than 60,000 individual responses to calls from customers to attend to equipment. Each of those opportunities is an opportunity to deliver value, and we are training our people to actually deliver that high quality of service. It is generally accepted that the costs of running equipment increases over time.
When I say cost of running equipment, I'm not only talking about the maintenance cost, but I'm talking about the spare parts, I'm talking about the cost of the breakdown, I'm talking about the electricity, I'm talking about all those costs. It's very important our customers are telling us, "You need to help us to maintain the equipment in good running condition at the right cost level." We have actually developed a set of modernization offerings that are the right offering at the right time. The right offering at the right time, it's extremely important because you don't want to overspend for something that you don't need, and you don't want to get the risk of your elevator running badly or at a higher cost if you have not provided the right offering.
Depending on the stage of the life cycle, we offer repairs, modernization of subcomponents of the elevators, or actually full replacement of the offerings. We are actually very pleased with the development of our replacement offering, which is based on the MonoSpace 500. It actually has picked up quite significantly across all segments in South Europe. It's actually been a very positive experience for us. As I said before, we are actively looking at customer feedback at any point in time, we are collecting and analyzing the feedback of customers in order to improve the quality of our service and the quality of our products. We have three major ways to do that. The first one, at the left-hand side, is actually the annual customer satisfaction survey. In South Europe alone, more than 6,500 customers are called.
More than that are called, but 6,500 customers are responding to the annual survey to express their views about the quality of the service delivered and quality of experience delivered by KONE and kind of rate their preference about KONE compared to other suppliers. This is done once a year. On a real-time basis, we have two other opportunities to collect feedback. The first one is what we call transactional satisfaction surveys, which means that we are sampling customers that receive a new equipment or a modernization, or customers who have called us for attending to a breakdown in their lifts. We are asking them after the experience, after the job, we're asking them, "What has been your experience with KONE?" We collect thousands and thousands of feedback every month about this.
The last one, thanks to our customer response center, we're tracking complaints and other queries. We have quality levels, quality thresholds, we need to respond within seven days, we need to check with the customer that they are satisfied with the solution that we have provided within 30 days. That is helping us to collect all this kind of information and continuously improving the quality of our service, the quality of our products, whether it's at the global level or it's at the local level. To conclude, I would say I'm actually quite optimistic about the development of our business in South Europe. Not so much because of the economic environment, because as you know, it is not positive. But actually by the focus that we have done on profitable opportunities, on service quality, and on customer satisfaction. At KONE, we call this smart growth.
Smart growth builds on us having three major competencies. The first one is market intelligence. Understanding in a detailed way what are the requests of the various customers, the various segments of various countries. The second one is superior pricing capabilities. I mean, our ability to test at any given point in time, to test the sensitivity of the market to prices, to address sweet spot where we can actually make positive adjustments of the prices, and to managing our pricing policies in a professional way so that we have the right balance between the volumes and the profit. The last one, I think which is super important in our difficult market, is to have an extremely strong operational discipline. That operational discipline addresses many things.
It addresses the productivity of our people. We're investing continuously in process refinement, in tools, in order to maximize the productivity of our employees. We are also working on accelerating the clock speed. What I mean clock speed is that we have sensors in what's happening. We have key performance indicators in each of our businesses, and we are monitoring them on a weekly basis. Not on a quarterly, on a monthly basis, but on a weekly basis, to be able to prevent any deviations to the plan and to react faster to any changes. As I said, I'm quite optimistic about our development. I think by building and continue to build on our competencies, we actually are successful in growing our profit in South Europe. Thank you very much. I think I can take a few questions as well.
Hi there. Good morning. It's Arne Nilsson from Goldman again. Just two quick questions, if I may. One, in the previous presentation, we saw that KONE has outgrown on the service installed base or maintained base in Europe. I was just wondering if there's any chance you can separate between organic and inorganic. Do you believe that you've also outgrown the market organically, or is this a consequence of acquiring?
Yeah, it's both. It's difficult to completely separate. The organic growth comes from conversions from new equipment. As you can see, the new equipment shipments have gone down, and therefore, the positive impact of that is less. Commercial balance. Commercial balance meaning how many equipments we win from the marketplace, how many equipments we lose from the marketplace. There is no one single answer to that. Depending on the country, depending on the market segment, there are different behaviors. We are actually faring better with customers who put more value on the quality of service than with customers that only look at prices. On average, we have in South Europe a competition balance which is slightly negative, but it's actually not so bad.
The acquisition helps us to increase the density and, again, to maintain the total number of units in our portfolio in a positive way.
Thank you very much. Maybe this is a very straightforward question, just because I am curious how it works. How does price pressure or something, Matti, express itself, if I put it this way? How often do you renegotiate? We hear a lot about these automatic resets that you mentioned about 2% a year or something like that, or price inflation. What percentage of your customers in the service space roughly do you actively negotiate with every year? Sit down and discuss offering, pricing, if they want to increase or decrease the service level or something like that?
I would say that, again, that depends very much on the market. In the public bids, it's 100%. It's 100% of the public portfolio is put back to tender on a regular basis, whether it's annual or it's multi-annual. That comes for renegotiation and typically the lowest price win. Right. In the private residential, it's mostly triggered by the price escalation and the percentage of renegotiation there is much lower. In private, non-residential, so commercial offices, retail, and so on, again, it varies widely. There are some countries where less than 20% is renegotiated. There are countries where it's a little more than that. It varies by segment and by country, so it's difficult to give an average.
Again, all my pitch has been forget about the averages, just go segment by segment, country by country, and this is where you get the most value out of it. Thank you for your question.
Thank you very much.
In the back.
Eric Eklund, UBS. If it's possible to give us some more color on the opportunity from an economic recovery in Southern Europe, and if it's possible to quantify the opportunity from pent-up demand over the next one or two years. As a follow-up to that, I wonder if there's a cyclical aspect to the service business and how you would describe it.
Okay. The first part of the questions, frankly speaking, I don't know. Obviously, the economic recovery will have a positive impact on our business, both from a service perspective and a modernization perspective. A lot of, for example, the modernization demand is actually held back because of the lack of financing and lack of money in the economy. The better the economy is, the better that opportunity can be materialized. We have seen these economic outlooks, year after year, say tomorrow is going to be better, right? We do not count. When I do my two-year plans, I'm not building a lot of confidence on economic growth. I'm more building on targeting the right opportunities, working on productivity, right allocation, of course, in order to develop the profit. Your second question was
Whether there's a cyclical element of the service business.
Whether there is
Cyclical.
Oh, cyclical. I would say not so much. As I said, the modernization is an ongoing opportunity that keeps kind of feeding itself from the aging of the equipment. Is there other factors that are more kind of cyclical? I don't think so.
Thank you very much. We will now break for a break. Let's be back at 10:10 A.M. As a reminder, there will be more time for questions later on. If you didn't have a chance to ask your question, rest assured there will be time. Let's be back 10:10 A.M., there is coffee and tea served outside of the room.
Good morning, ladies and gentlemen. I'm Noud Wegman. I'm the Area Director for Asia Pacific and Middle East. I joined KONE in 1999 and have been responsible for Asia in KONE since three years. I'm going to give you today an overview of where we stand in Asia Pacific and Middle East. Then I will go into a little bit deeper, the different parts that Asia Pacific, Middle East consists of. And then developing how we're going to which come very diverse, like the general state urban are in the very from [audio distortion] as people moving from rural areas into urban areas. That is, of course, driving the short, medium, and long-term growth of our business. The majority coming from India, of course, with the biggest population. Also Indonesia and Philippines showing a lot of urbanization potential.
In addition to that, there is the middle income bracket that keeps growing in the whole area, that, of course, also supports the business model of our company. If I look at the opportunities that we have, we have new equipment units market majority coming from India. The total market, we expect to be about 75,000 units every year. That's on the left-hand column. On the right-hand column, you see the installed units in operation, which is around 700,000 units. The majority coming from India in units. As you can see there, the Australian part is a little small in units, but I can tell you it's a lot bigger in monetary value. That skews this picture a little bit, but that's where we stand opportunity-wise.
Market positions, like Matti already said earlier, we've grown to a number one position in most parts, or we have retained our number one position in many units. How have we done that? Over the last three years, we expanded our coverage of selected market segments. Continuously looking and listening to our customers and looking at the markets. What's going on? What can we do better? How can we adjust our products? Let me give you an example. There was a new disability discrimination legislation in Australia implemented a couple of years back. We looked at that, and we've adjusted our offering so that we are now able to offer a standard product to fit that particular need. That's really been received well, and we've been able to increase market share for that particular segment.
That's just an example of how we continue to listen to the market and act on it. Target market share gains in growth markets, of course, I will go a little bit further into India and Indonesia in a few minutes. That's certainly something that we continue to target. Improve value proposition in the high-rise segment. That's also very interesting. A lot of high-rise buildings in my area going on and being planned. I will get to that a little bit later as well. One of the things was already mentioned by Matti, is the UltraRope launch that is specifically for the high-rise segment. A great innovation that KONE's come up with. Heikki will talk a little bit later also about the JumpLift. That's another fantastic solution to customers to improve the efficiency of the installation of high-rises.
These are both examples of great work, how we can serve our customers better. Let me then give you a little bit of flavor of some of the countries that we have. Firstly, India. We've got new equipment and service, of course, to grow there. The most important part of the vast majority of the market consists of residential and infrastructure. If I look at the development of India, a lot of under-investment in infrastructure over the past years with the growth of the urbanization that I've shown or the urban population that I've shown earlier. Infrastructure is key to being able to sustain the growth in the future for India. That's a very important segment for us to be in. Another thing is deepening market presence with branch expansion.
It's key, of course, in a vast country like India as well, just like China, which Bill will cover later. India, very diverse country with many different parts. It's very key to be very deep into that country. That's what we've done. We've got 31 locations at the moment in India, part of which are full branch locations, part are a little bit less full locations, but we are present in 31 places in India, and that gives us the information about the market and the closeness to the customers that we need to build our business.
On the service side, growing market share following the leading share new equipment, being number one in the new equipment market and making sure that we convert all that into LAS, which Pierre also already mentioned, into our Lifts in Service and making sure that we don't lose the Lifts in Service that we have, gives us an increasing market share on the service side as well. For that, we need, or that helps in improving our productivity as well because it increases our density. That's going to be very interesting for us. If I look at that productivity a little bit more also, we haven't touched on wage inflation much yet, but in many of our countries, it's an important issue to deal with, and we're dealing with that through increasing our productivity.
Double-digit wage inflation in India is not uncommon, we really have to continue to work on that. Talent management, I see, or I put here training in two parts. The training of new equipment sales team, the training of service technicians. Talent management in India, in general, is a key issue because the attrition in the country of India, it's not so much an issue. It's an issue, but it's a challenge for us, and we are working with that with very key actions because the attrition in India as a whole is higher than most countries in the world. How we deal with that is through recruitment and starting the training. We offer training, we offer on-the-job training and formal training. We look at career plans, we look at individual development plans. Incentives, of course, as well.
All these things together lead to a lower than industry average of attrition. It's something that is very important, not just in India but in other countries as well. Southeast Asia, another exciting market in Indonesia, where we have the majority of the new equipment units coming in Southeast Asia, coming from Indonesia. Strong urbanization. Already 50% urbanized, the population in Indonesia, yet there's plenty more to come. It's not just Jakarta in Indonesia. It's very decentralized. A lot of urbanization taking place in other parts of Indonesia as well. The only thing is the elevator and escalator market is relatively small compared to the total construction market because of the general lower-rise buildings with sometimes no lift needed. We see that increasing in the coming years as well. As these cities become denser, they tend to go higher.
Malaysia, Singapore, a little bit higher level of urbanization, yet still good opportunities for us, both in the major projects and in the volume segment. We see that with a lot of optimism. Thailand, Vietnam, lower, more rural countries, Thailand certainly growing and urbanizing. Thailand also, the government is very keen on developing their infrastructure. That is going over the next coming years, certainly the right way, both on metro stations and high-speed train lines. In Malaysia, like I said, we're expanding. We have increased our market share there, and we're currently building this beautiful IB Tower in Kuala Lumpur. That's the latest major project that we're building, designed by an internationally renowned architect. We've got more in the pipeline coming in Malaysia as well. Indonesia, like I said, actively working as we do in India.
We're also here actively working on where should we be, which branches should we have, where should we expand? We're continuously looking at that to continue to improve our market position. Australia, a more mature market, still plenty of opportunities there, both on the major projects, also on the volume side, a very balanced market, residential, office, and other market segments. What really is going to be very interesting in Australia is the huge potential for modernization with 45% of the very, again, both volume and major projects. We've got a very good position on the major project side. United Arab Emirates, the market was, of course, a little bit weakened, especially in Dubai, with the financial crisis, Dubai is coming back. We see especially more in the sustainable part of retail and hospitality hotels, where we see a lot of growth there coming.
Even residential over the last six months is picking up again. Things are looking a lot better in Arab Emirates now than it did a few years back. Qatar has continued to develop well. Middle East, in general, is a very important market for us for the high rise. 16 buildings over 200 meters tall have been completed last year, and for the next three years, about double that amount is still to come. Lots of good opportunities there. How we are present, we have our own operations in Arab Emirates, in Oman, in Bahrain, in Qatar, and we work through a joint venture in both Egypt and Saudi Arabia. The rest is covered through distributorships, the smaller markets in Middle East.
Our priorities are very much to capitalize on what we do good and the strong brand in the market on both volume, especially on the high-rise market. Very important high-rise market there. We got a good image there. We got a good brand. Customers trust us, and that's going to give us a lot of pluses in building that business further. Of course, in every country, we put all the new equipment into service base. That is going to improve as well there. This is an example of a project that we built, the Royal Clock Tower in Saudi Arabia. This is the second highest building, tallest building in the world, 600 meters. It consists of seven buildings and the clock tower itself.
The clock, the diameter, just to put it in perspective, the diameter of the clock that you see there is 40 meters, 4, 0. It's a huge building that we built there, and it has 300 equipments in there. Here you can see the amount of impact, or the impact that we have in the high-rise market in KONE. Out of the 10 tallest buildings that have been installed or that have been completed last year, four of those 10 were installed with KONE lifts. We're really getting a lot of traction in the high-rise market, which is very exciting and of course, gives huge potential for the coming years. Three of the tallest four were built in Middle East.
The second building that you see there, the Princess Tower in Dubai, is actually the tallest residential building in the whole world. Lots of things to be proud of there. To finalize, I would like to talk a little bit about the developments that we are taking to grow the business further. On the new equipment side, it's already been mentioned by Matti, the new volume elevator offering that we have introduced last year. That's ramping up now according to plan. We're filling the order book with those, so that's going exactly as we planned it to go. Installation productivity. I mentioned that issue of wage inflation. Not only because of that, but because we want to be more productive anyway. That is going in the right way, and we're planning to continue with the installation productivity improvements.
Training of salespeople, extremely important for making sure that the advantages of our products actually get translated to benefits to our customers, and that we continue to train value selling. I believe, Henrik, you will talk about that later as well, but very important to continue to work on that. On the maintenance, grow the business through these conversions. I don't have to repeat it, moving it from new equipment to maintenance. Develop the competencies, the right where it matters and through open opportunities in Australia that I already mentioned. That's going to be key for us to develop further. On the right-hand side of the slide, responding to challenges from the currency movements and inflation, which have been caused by the recent tapering issue that's come up. We have to continue to look at our contractual terms.
What can we do on the productivity of our operations, but also the price to pay for it and that they know what the value is. The finally, and I think the most important part is this talent management. In Asia, it continues to be key to have the right people in place and the right people engaged, and this employee engagement focus, training of personnel continues to be extremely important. We measure the employee engagement every year, and in my area every year, the employee engagement has gone up, which is great because you need excited people. You need engaged people to bring that engagement to our customers and to get happy customers. That is going to be key for the future as well. We do a lot of training.
We do individual development plans with people to make sure that everybody sees where they're going and why it's so good to work with us. Luckily, we all think that it's better every year. We're very happy with that. The last thought I would like to give you is that the reason why I think that we have a competitive advantage and a true difference compared to the competitors is the stability of our leadership. I see it time and again every month when we have calls. I hear how this company or that company has changed. We have really a stable leadership. Of course, we change leaders as well. Overall, we have a very stable leadership, and that really, I think, drives the success of our company. Of course, we need to continue to listen.
We are globally a challenger in our industry, even though we are number one in most countries in Asia, Pacific, Middle East. I think, and this is what I also put into our leaders' minds, we really have to continue to listen to our customers to make sure that we are open and we don't go like this, but we are open to improve our business further. That, I think, is the key success factor to our business in the future. I'm very optimistic. I think we've got a great team of people to make sure we capture all these opportunities that are in the market. That's what I wanted to share with you. I'm open to some questions. I was too clear. Okay.
Apparently, yes.
All right.
Thank you very much, Noud.
Thank you.
Thanks, Karla. Good morning, everyone, and thank you very much for coming to our Capital Markets Day. All right. Excuse me. I wanted to give everyone a brief update on where we stand in terms of the position for KONE in the market today, in the China market. Briefly touch on what we see are some of the recent market developments taking place within the real estate industry, and we'll give our latest forecast. The third area I wanted to look at were some of the drivers in the market that we see are touching on the long-term elements and why we see that there's continued very good opportunities in China. Finally, give you a sense of what our strategy is going forward in the market.
In the first slide, I wanted to give you an update on where we stand in terms of our growth in the first half of the year. As you can see, we've grown about 30% in the first half. The overall market has grown slightly less than 20%, so we've been able to keep up our good record of growing faster than the market. In 2012, we ended up in a great position in terms of our new equipment market being number 1 in share with 17% of the overall market, up from 15 and a half from the prior year. In addition, this year, another milestone for us, we became number 1 in our service business in terms of units under service in China.
Now, Matti has gone through most of the other factors here that have driven our growth forward over the last 8 years, so I don't want to spend too much time there, but there are a couple areas I did want to touch on. Number 1 was our product offering, which continues to be, I believe, the best and broadest in terms of the strength, the broadest portfolio and offering in the market today in China. Last year, we introduced the N Series, both the N Mono, which will continue to support our number 1 position in the machine-room-less segment of the market. In addition, the N MiniSpace is strengthening our position as well in the mid-rise market. Someone asked earlier about our product portfolio on the GK side and some differentiation.
One of the areas that we've worked on very heavily is introducing GK's own unique product offering. In this case, at the end of last year, we introduced the GPS 33K. This is targeted at the lower end of the market, including the affordable housing segment. Finally, all these products have done very well in the last 6 months, been well-received in the market, and we see very good strength for us on the new equipment side of the business going forward. One thing I didn't want to bypass, though, was the strength of our E-Mini product, which was introduced in 2011. Continues to be a great workhorse for us, giving us very good margin and very good volume. I look at our product offering, and it is really among the best in the industry today.
I want to thank Heikki particularly for his support and team support at giving us these great tools to work with. Another area that I wanted to touch on was our geographic expansion across China. As you can see, we're located mostly along the eastern coast, but we've also positioned ourselves very well in the center and western part of the country. As you'll see in a few minutes, this mirrors very closely to where a lot of the new investment is taking place in the real estate industry. I think what's important here, though, is not that we have all these locations in China, but that we have, I believe, very solid and mature organizations there.
It's very easy to open an office and set things up and try to get people in, but they may not really be able to operate as effectively as I believe the KONE team can. This is one of our strengths, is not just good geographic expansion, but very well-staffed, well-trained personnel in that area. Our approach is to be as close to the customer as possible. We decentralize a lot of the decision-making so that response time is very quick. In addition to good products and good new equipment market and good geographic spread, we've made very good progress, as I mentioned, in the service business. As you can see, since 2006, our growth rate on average has been 39% year-over-year.
This, I believe, gives us a really powerful combination, good positioning in the new equipment market, as well as a very strong service business. Every year, I see more and more of our customers who ask me, "Well, you've told me about how good your products are, but Mr. Johnson, can you tell me who's going to support my equipment once I buy it? Who's going to give me that service?" For our customers in China, service is becoming more and more of a concern, and you can see that we've taken advantage of this growth opportunity. Clearly, we have things that we need to work on. We need to continue to focus on our productivity, our pricing in the market, and of course, make sure that we keep up our industry-leading conversion rate.
Our conversion rate is a little bit less than the global average, but it's still the highest in the China market today at around approximately 60%. Let me now move to some of the recent market developments that we're seeing taking place. In terms of properties sold, we see that there's been a very nice increase year-over-year. The properties in the first half of the year, sale has been up over 29%, so we see good strength in this area. We have heard that prices have increased across a number of cities. The last poll that came out, our last research, was that in about the top 70 cities, prices have increased in all of them. However, what we're seeing is that the prices have been quite moderate. They're still slower than, let's say, the growth of disposable income.
In that regard, we see that this is a positive trend and one that's going to continue to build confidence in the development community for continued construction. Construction starts for the first half, up about 4% year-over-year after a decline last year, but still, I believe, moving in the right direction. Clearly, one of the most important indicators for us to look at is the growth of the investment in real estate. You can see it's up over 20% year-over-year. Again, it's a very positive and bullish sign for going forward. When we take a look at where the investment is going into China, you can see that it's moved from the eastern, more mature markets on the eastern seaboard into the center and western part of the country.
If we relate that again back to our locations across China, this matches very well. We're in very good position to support this kind of growth. There was a question about the liquidity situation in China. Of course, this is a big concern for our customers. We noted that in June, there was a short period of a very tight liquidity crunch, you would call it. That was fairly quickly resolved, and liquidity came back into the market soon after that. That's, again, continued our customer's very strong financial position. Projects have moved forward, and we see that particularly our big developers have benefited well from this, and they're going to have a very solid year in 2013. I think some of the smaller developers, mid and small-sized developers, will have some challenges. They may have to go to some non-banking sources for credit.
In general, it's still a fairly open market in terms of strong market, in terms of liquidity. Finally, as I mentioned here, that we continue to see land sales even in tier 1 and tier 2 cities, which have traditionally been very mature markets, picking up again. There's a lot of movement back and forth. One thing that is interesting is that a lot of our major customers also follow a 2-tier strategy in their development across China. In tier 1, 2 cities, they'll have one kind of product offering. When they go to tier 3 and 4 cities, they have a different, lower cost product offering. Again, this dovetails very nicely with our own strategy of having a KONE brand and Giant KONE brand to serve these different markets.
We're seeing that picking up in volume, and that's a good sign for us. In the affordable housing market, though, we're beginning to see a slight downward trend. This is expected because we're now coming towards the tail end of the 5-year program that was launched in 2010, and a lot of it was front-loaded. A lot of the start were front-loaded, now it's beginning to trail off. We're going to watch any future developments quite carefully. Okay. Now we wanted to go and have an interesting discussion or a little bit deeper discussion on what we see are the long-term market drivers going on in China.
We know in the last several months, there's been a lot of discussion behind this, we welcome this, we think this is a great thing to talk out a little bit more. Today, we want to give you sort of our read on how we see this going forward. Essentially, what we're looking at is, I believe, are 2 buckets in a way. The first bucket looks at the floor space growth taking place in China, that's driven by 3 things, primarily. One, of course, is the increase in the number of urban dwellers. Straightforward. Another one, though, however, is the increase in per capita living space. We'll touch on this in a little bit more, demolition and replacement. This is surprisingly a significant amount of space, what we call new flow, that needs to come into the market.
Intensity of elevator usage in a given space. For every, let's say, million square meters of space built, how is the intensity growing? We see that's growing in 2 different ways. One, you have a mix change. As new buildings come on board, online onto the market, flow into the market, into the stock, you're seeing a change of mix from low-rise to mid-rise. Of course, mid-rise have more elevators than low-rise. This is a very important, significant change in how buildings are being built. The other factor is that across the spectrum of low, middle, and high-rise, the intensity of elevators is increasing in general as well. People expect higher levels of service. They want more comfort. They want more security. This is taking place as well. You have these 2 drivers that are moving the market forward.
Let's go look at this a little bit more in detail. I talked about the number of urban dwellers capturing more people into their net. To 2012, you've seen this fantastic growth in shift in people in urban centers from 250 million to almost 700 million people. In addition, during this period of time, from 1990 to 2012, in the year 2000, 4% of the urban households were considered middle class. By [audio distortion] growth, that in income now, also see a significant intensity of in time . As the market increased and as construction increased, so too did the intensity. By last year, the new flow going in 2012, was now 225 units per million sq m of space. This was really a doubling of the intensity over the last 10 years.
Again, that was driven primarily, again, by change in mix, more mid-rise buildings being built. As well as an increase in demand for comfort and quality of life across the entire range of low-, mid-, and high-rise buildings. Going forward, what does this look like? The experts say that going forward, from 2012 to 2025, we're going to increase the urban population by 210 million people. As you can see from the heat map, you can see where most of that growth will take place. Interestingly enough, that also reflects where a lot of the investment is going in terms of new construction, and it also grows very nicely with where we're located on the maps as well. With all this growth, what does this mean in terms of per capita floor space?
According to McKinsey Global Institute, they see that today, the average urban dweller has 26 sq m of space. By the year 2025, that's going to increase to 38 sq m per urban resident. Again, you get this drive in demand for more personal space. When you take this number and you translate it back to that 210 million people coming into the city, in 2012, we had 22 billion sq m of space, what we call stock, already built. We're going to add to that stock another 20 billion sq m of space, net 20 billion. However, let me come to this slide first. We believe this is a very reasonable trend, and the reason being is that you see that historically, many countries, both developed and developing, have, as they become more wealthy, their per capita demand for living space increases.
As you can see here, we have signs from India, from Korea, Japan, Germany, even the U.S. As people grow wealthier, their demand for greater living space increases. We believe this additional growth is quite reasonable going forward. The sources are coming from McKinsey and The Economist Intelligence Unit and other analysts as well. What's happening here is we're going to see from 2012 to 2025, a net increase in 20 billion sq m of space. Interestingly, well, in the year 2000 to 2010, this grew, adding 11 billion sq m of space. The intensity grew from 30 to 110. Any new floor space coming in, any new, what we call new flow into the stock, will come in at 225 units of elevators per million sq m of space. We see that intensity increasing as we go forward.
One other element we wanted to talk about, what we would call living space in cities. 18 billion sq m of that space represents residential housing. Of that, 40%, or approximately seven billion sq m of space, is obsolete. Even according to China's own figures that said the majority of buildings built between 1979 and 1999 are far short of today's urban development needs and can only last another 10-15 years. During the next 10-15 years, fully 40% of the total stock in place right now needs to be rebuilt, demolished, and rebuilt. That will represent an additional approximately six billion sq m of space. Really, the total amount of new stock, new flow we call it, that needs to be built from the year 2012 to 2025 will actually be 27 billion sq m of space.
If you look at that, and when we look at the intensity of that, it will be at a rate of that new flow going into the stock will be at a rate of more than 225 units per million sq m of space. What we have here is between 2012 and 2050, the next 38 years, twice top floor spaces at a rate twice what was added during the last period of time. This gives us great optimism on the growth of the elevator and escalator market going forward in the future. Chinese say, "A picture is worth a thousand words." I know a number of you have been to China, a number of you have seen this. You can see that in these slides, this happens right before our eyes.
In Shijiazhuang, for example, these low-rise buildings there in the front, there are no elevators in them whatsoever. Behind them, mid-rise and high-rise coming through like a wave. Same thing if you look at Changchun. Those low-rise shanty towns, all demolished and built with high-rise or mid-rise apartment complexes. It's important to remember that in urban centers, virtually 100% of the people live in apartments. There are no single-family homes. We have basically 700 million people living in apartment blocks. When we talk about the urban population, or we talk about elevators, we really see that this is very much akin to very high-density living spaces that you might see, for example, in Europe.
You look at Xi'an, surrounded by low-density housing with nothing, no elevators around it, but an apartment block right in the middle, that will again continue similar profile like the rest of the city, Shanghai and Changsha. Going forward, we believe that the elevator intensity is expected to continue to increase, again, because of this change of mix from low rise to mid rise. You can see here from 2013 to 2025, we can see a significant increase in the amount of mid-rise buildings. On top of that, mid-rise buildings, which go from seven to, let's say, 30 stories, they will themselves have an increase. Right now, there's only one elevator required for a building above seven floors, and above 12 floors, you have to have mandatory two elevators. We see that rate beginning to increase as well from two to three.
I believe this is such a very important concept for us to really grasp, I wanted to just repeat it and essentially saying that again, there are two significant drivers to our growth going forward. One is the growth in floor space, driven by increased numbers of people into the cities. Per capita demand increase. As wealth increases, people want more space for themselves. In addition, we see a significant demolition and replacement market of more than 6 billion square meters of space in the next 13 years as well. In addition to that growth of floor space, we see the intensity of elevators increasing, one, due to the mix, and two, due to the overall increase in demand for better service levels, comfort, and safety. That was the new equipment market, seeing how that is growing.
Clearly, the next part of this equation is the maintenance business, and we see continued great growth in this area as well. From 2010 to 2012, it has grown significantly, and we see that growth continuing on in the future. However, as Matti pointed out earlier, it's still a very fragmented market. Only 25% of the overall market is handled by the OEMs. More than 30%-40% we see is self-maintenance, and the rest handled by small independent service companies. However, we're seeing an increasing trend by the government to relook at that and say, "This is not a sustainable model." They're expecting better qualities of service, more attention to safety, more professionalism. All of this will, I believe, bode well for the major manufacturers in the future. This has, I believe, significant opportunity.
What has, I think, a much longer opportunity is not a priority for us right now, but a much longer opportunity will be modernization. Modernization, as you can see right now, is not very big, but by the year 2030, more than 1.2 million elevators will be in service more than 20 years. Interestingly enough, every year after that, another 300-plus thousand elevators will add to that population. This is not a priority right now, but it has huge opportunities for us going forward. Okay. Where are we going forward? By the end of 2012, we had reached the number 1 position. We would certainly like to hold on to that position. Most importantly, we want to make sure that our growth is profitable. We want to make sure that we have a sustainable business, and in the new equipment market.
In the service market, we want to continue to grow that and again, maintain our number 1 position where possible, but again, in a profitable fashion. The way we see we're going to do that is through our people. We need to continue to grow our people. Today, we have more than 10,000 employees in China. Most of those are in the field. Right now, this represents about 25% of KONE's overall employees globally. We see this as a big responsibility for us. We have to carry a very strong standard, very high standard to make sure we keep up with the KONE values. Half our people are, as I said, are in the field, so technical training, safety training, productivity training, all this is going to be very important for us going forward. We also want to continue to grow our leaders as well.
These will be our future and help make sure we have a sustainable business going forward. Objectives going forward. It will be because we haven't really changed what we want to do. We want to continue to grow faster than the market. We want to grow profitably, Of course, we want to build the world's best service business in China.
I guess that wasn't a huge surprise that I was going to ask a question about that. Thank you so much for all the detail you provided. I'm just trying to understand your numbers a little bit. You're talking about 27 billion, roughly, sq m being added in the urban area-
with an intensity of 225 or increasing.
Yes.
If we do the numbers, we get to around 6 million over 13 years. 460,000 or something units per year. My question is, if you look over the next 10 years, and that which is roughly where we are today, I guess. Do you expect growth over the next few years and then a decline from there, or do you expect us to run at sort of this type of level over the next 10 years?
That was my first question.
Can I take that one first?
Sure.
Your questions are real good, and we want to make sure I give you a good response. I'm very optimistic about the future. The numbers and what we see are the key drivers are very solid. There's no question about that. There could be debate on what the growth rates are, and we're really, at this point, not prepared to give such a long-term forecast. I think generally we have a very optimistic view of the future for the new equipment market in China, for sure.
You don't protest about my math there, dividing 225 by 27.
I'm not going to confirm nor deny.
I was also curious if you had any view of what your competitors or what the market are doing, because you, but in particular many other companies, seems to now finally, 5 years after you have caught up to the Chinese miracle and are gearing up their expansion. I know I asked the CEO this question, but I was just curious if you had a view. I get to maybe 50%-80% capacity being added over the next 2-3 years of the ones that have announced it. Does it worry you at all if you're now looking at, if we do the maths, of a roughly stable demand level over the next 10 years?
I think to that question, I'd like to say, and I know Matti did touch on it in his presentation, which is namely that when you look at the capacity in China, this is not a really heavily capital-intensive business. We don't build to stock. We don't have to have a constant flow, and what we actually do is we build to order. When we get an order, we place it at the factory, it gets shipped. When it's shipped, we get paid. Or in fact, we don't even ship it until we get paid. From that regard, I think it's different than many other manufacturers in which capacity or over capacity, overbuilding. Some of these factories have to keep producing in order to reach a certain level of efficiency.
In the elevator market, yes, of course, we have to have a certain level of production, but it's not as critical as, let's say, some of these more heavily capital-intensive industries. We don't manufacture until we have an order.
Okay. If I ask it slightly differently, are you all increasing your capacity significantly for the next two, three years? I know, on the presentation on Southern Europe, I'm fully aware of the sort of low capital intensity, but it was still mentioned that increased capacity had caused some price pressure. We had the same from the U.S., where you now have a bit of low margins in your backlog because there was weaker markets.
Well, I think there is price pressure for sure in China. There's no question about that. One of the things that We know a lot of the competition has said they want to gain back share. They're dropping price. We're of course very aware of that. What we've had to do is we've really had to go back and look at, okay, we want to make sure that we have the best products, we have the right cost and the right competitiveness for our products. On top of that, we want to make sure we get the right pricing, our own pricing for our brands in the market, make sure we've got the best pricing mechanisms there. That's very key to us.
I think also having this dual-brand strategy has proven to be extremely powerful as we go forward, so that if one brand can't capture a customer, the other one is ready to be right there to capture that opportunity. I think all in all, that's very important. I think it's important, Arne, to also know that this year we've actually been able to increase our prices. Price pressure is there, but we think we're doing a pretty good job of meeting that challenge.
Thank you very much.
Thank you.
Okay, now it works. I just want to address the math that you suggested at the beginning. I think your math when you multiply, yes, that's correct. One thing that we still, I think, have a slightly different point of view is that if you look at the intensity, that has more than doubled if we go from 2000 until now. If you look at Bill's presentation, I think we have pretty strong grounds to believe that intensity will continue to increase as the mix of buildings are changing and as well as the need of what types of buildings these new middle-income people are requiring. I think that that's an important thing to remember.
Thank you. Yes.
Eric Eklund, UBS. I wonder if you could give us some details on your installed base in China and how it's divided between tier 1, 2, and 3 cities, and also how that differs for current orders. It would be interesting to hear your view on how you see the Chinese service market developing in the future as it matures, and what you think would be the main differences versus the European service market.
Eric, we don't break out our installed base geographically or by brand at this point. I'll defer that to another time. The service market is clearly a huge opportunity going forward, both in terms of the rise, the increase, this new equipment flowing into the service market. Elevators, once they're installed, have to be serviced. There's no question about that. That's one. On the sort of the shift in who's going to be doing that service, we see that increased regulation is, I think, a net positive for the OEMs as regulations tighten up. Standards for safety, standards for our response time become tighter by the central government and local municipalities. We think this is really going to work in our favor going forward. We're cautious about it.
We're watching it very carefully, I think we're number one in the market right now in terms of service business. We have the great coverage that we can ramp up very quickly. That's, I think, again, all good for KONE going forward when it comes to the service market.
Thanks.
Yes. Please.
Thank you. This is Antti. Still on the mathematics, I need to start by saying that I don't have a computer here. I only have a cigarette box, even if I don't smoke. When I calculate on the back of that cigarette box, what my math says that basically what you say is that over the next 12 years, there would be demand for, roughly speaking, 600,000 elevators per year in China, and last year, the number was something like 430,000 units or so.
Roughly speaking, you anticipate 50% growth in elevators sold per year over the next 12 years relative to the 2012 figure. Is this about right, or did I miscalculate?
You really want to get me to commit to this. I'm going to have to pull back. I think, yes, you can do some very good calculations there. We think long-term, clearly, there is additional growth in this market. Exactly how much? We're not really prepared at this point to give an exact figure. We'll give some good guidance in early 2014, what we think the 2014 period is. Long-term guidance, what we really wanted to say is that at this point, we believe still very good drivers in the market, very solid ones. That points to, I think, a very strong positive trend as you just indicated from your numbers there. This gentleman. Let me get this one, and I'll come back to you.
Thank you. Erik Golrang , ABG. Will the market grow or not? A question on the market share potentially instead. On the 17% market leader on new equipment, is that given that it's a big country, I'm trying to sort out how happy you are with the regional footprint. I'm guessing within that 17%, you have maybe 30% in some region and 5% or 10% in some other. The map there with your presence, how complete do you feel that is? Is there a big opportunity in certain parts where you're underrepresented? How much room is there to simply grow your presence in the country?
Sure. At this point, we have about 400 locations in China. That gives us, basically on a quarterly basis, we can see about 500-plus sub-markets across the country. We have, I think, a pretty detailed understanding of what's going on across the map of China. We think that when we want to open offices, either sales offices or service stations, we want to do it in a smart fashion. We want to make sure that they're profitable. There was a question I know earlier about do we just open and that they run at a loss. No, we don't do that. We want to make sure that there is a solid foundation of business there in which to support an office, and we can start very small, and then have the office grow up into a larger one.
From there, if we see it grow into more of a regional or full-standing branch operation, we can do that as well. We maintain a lot of flexibility as we grow our offices. I think we're generally very well-positioned across the China market.
Okay. Thank you. One more question. I think that if I'm not wrong, that United Technologies is putting their Otis business together with some of the other commercial businesses-
like the air conditioning businesses, trying to get a bigger piece of the cake in Asia Pacific.
Have you ever experienced that being only an E&E supplier has been a disadvantage in the market?
I can't really comment on what the strategy of our competitors is. We'll certainly watch it. I think our strategy has been to be very focused, to be very clear on what we want to do. I think it's been working so far. We certainly want to see if we can keep this formula going. I think that our strategy is working. I just want to keep doing what we're doing at this point.
Thank you.
Please.
It's Glen Liddy from JP Morgan.
Yes.
Giant KONE and KONE. If we look to the building where you both could potentially supply the same product or product to the same specifications, is there a significant price difference? Secondly, although you're running as separate brands, do you share any resources, joint procurement, any other back office things?
Let me begin that with a story. About 3 months ago, there was a customer who was looking to find a number of suppliers, and they had two different product line, two different apartment offerings they had. One in mature cities and one in more developing, more remote cities. They ended up buying from both of us From both KONE and GiantKONE, because we were able to provide them with one face to the customer with this appropriate situation. Normally we have our own separate channels and our own separate teams, but in this case we worked together. Pricing was appropriate for the brands at the hint. They were very good. This was a large customer, so we certainly wanted to capture the business. Those are increasingly the kind of opportunities that I think are coming in the market today.
Yes, we do have different price points, not so significantly. When you look at our back office operations, we've made a very clear, conscious decision that we're going to keep these operations as separate entities as much as possible. They have their own manufacturing capabilities. They have their own sales teams, their own management teams, et cetera. There is a number of sharing, though, in what we identify as some strategic areas, particularly sourcing, because that allows us to leverage the volumes of both companies. Heikki is very much involved in making sure that we really maximize that kind of leverage. Essentially, we try to leave the entities as individual as possible so that they can operate as independent operations. Remember, the GiantKONE is still a joint venture, so we need to respect our joint venture partner in that way.
With big customers in China, if they have multiple locations-
They decide to have a service contract, are they bundling them together to try and get bigger volumes and discounts?
We're seeing that in some cases. In some cases, we welcome that, because again, that leverages our strength of great coverage across the market and then across the country. We've always maintained that our margin, our service margin is roughly the same as the global service margin. We want to make sure that we can maintain that margin rate. We've turned down some business when it gets a little too pricy for us and we're not very comfortable with it. Generally, when we see opportunities like that, it works in our favor.
Let's take one more question at the back. Thank you.
Hello. [Elena Ryota ] from Evli Bank.
Hi.
Do you expect to see consolidation in China that would change the competitive landscape?
Right now there are about 400 elevator companies in China. This is down from probably about 600, maybe eight to 10 years ago. We're seeing on the low end, more and more people beginning to exit the market. I think in addition, there have been some legislation that came out, Matti referred to it, about the overall equipment in buildings, and this is forcing manufacturers to provide more documentation and more rigorous testing standards. I think this is also going to place an additional burden on some of the smaller players. Essentially the market, the competitors we face day in and day out, maybe 20 or so, we don't really see any significant change in that at this point. Those will still remain. Consolidation we see it taking place on the very small, more regional elevator companies at this point.
Thank you. Thank you very much, Bill, and thank you for your questions.
Thank you. Thank you, everyone.
We will now have another break, and we will be back at quarter to noon, Finnish time. Also for those following the webcast, we will continue at quarter to noon Finnish time. Thank you.
Good morning, and welcome back to start the next session. My name is Heikki Leppänen, next 30 minutes I will give a brief update of our offering development and supply chain development. I will start by giving update status about our new volume range elevator offering, what we launched a year ago. You all remember last autumn, KONE was launching the new volume range elevator offering in Europe, in Asia, in Middle East, in Russia, in Mexico. We are now making the introduction into North America in phases in next 12 months. If you look now the tendering volume, in Europe the new product is covering already now 60% of all tenders in Europe. We are in very good speed. In Asia we are progressing according our expectation, very strong way.
If you look the tender and order time lag, typically there is 3 to 4 months lag before tenders will go to the orders, and there is about one year in Europe, one year from order to the installation completion. We have to still to say that we are in the ramp-up phase, and we are expecting that full volume will be reached at second half of next year in installation and delivery point of view. All of us are interested to know what is our customer market reactions. I have to say, we are very pleased about the first customer feedback and sales feedbacks. Our new values of the offering, eco-efficiency, ride comfort, visual design are concrete and meaningful for our customers and their businesses.
I'm especially pleased about cases what we have seen that our big customers have carefully analyzed our new offering values. Looking how much this is helping their business. And they have selected our offering as a preferred choice. This is very much convincing us that we are really going in good direction. We are all the time collecting the customer feedbacks, sales feedbacks, installation feedbacks, and we are fine-tuning our offerings, our sales training, our delivery process issues, our installation issues based on the feedback. So we are in the learning curve, and that is very important part of our success of the new offering. Let's look the new values, what are these values mean for our customers. I will start by commenting the energy efficiency first. So in this picture, we have this MonoSpace 500 for European market and N MiniSpace for Asia market.
If you look the KONE MonoSpace 500 energy consumption in European residential application, it consumes about 1,000 kilowatt hours per year. If you compare this to the best on the market comparable product, like a gearless permanent magnet elevators, we are 1.8 times better than our best competitors. If you would compare on the hydraulic technology, then we can say that it's 5 times better than a hydro technology. If you look the same application in the Asia residential buildings, the N MiniSpace have about 2,700 kilowatt hours per year. And comparable state-of-the-art product in Asia is about 2.4 times higher. So these are meaningful figures in the kilowatt hour energy, but question is, so what? What is the impact for the customer point of view? Let's look the buildings. Typically, in the residential buildings, there is 2 to 3 elevators per stairway in the block.
If you calculate now in the European case first, what is the annual cost saving impact on the one stairway? We can say it's about EUR 500, EUR 600, EUR 700 comparing the best comparable products in the marketplace. If we count the life cycle cost of the building, or elevator, is typically for 25 years. We can see that the life cycle cost difference is EUR 12,000, EUR 15,000, EUR 17,000 on the life cycle point of view in the per stairway. If you look the Asia markets, where the elevator duty rate is higher, usage is higher, the energy consumption is higher, and of course the saving share is even bigger. When we go into commercial segments, more small offices, retail, hotels, where the elevators are slightly heavier, bigger, and the duty rate is higher, the energy consumption savings are even more meaningful.
I have not counted in this any about indirect cost savings what the customers will have concerning the power supply cabling, main fuses on the buildings, generators on the hospital is a very big thing. I have not counted anything on such power energy cost. All in all, we can say that the energy saving impact is meaningful matter for our customers and in the building cost. If you look the second key objective of our new offering, it was to deliver the best experience, the ride comfort point of view and visual design point of view. As we have launched, we are measuring every single installation, what we are doing. We are measuring the performance on the ride comfort point of view, the noise, vibrations, all these things.
I can be proudly to tell that all our installations have more or less almost all are exceeding our very demanding targets. We can be very satisfied about our ride comfort result and progress. The second key item is our visual design, how attractive our elevators are from builders, users point of view, from tenants point of view, from building image point of view, quality point of view. As you remember, we have launched a new design collection last year covering the different type of buildings, commercial buildings, different market areas, different cultural taste and so on. Now, based on the customer feedbacks and our sales organization feedbacks, our design offering is very well accepted by demanding architects, our customers and different kind of buildings around the markets.
I think this has been convincing us that we have really been able to make the right design solution for our customers. We have got several design awards last 12 months. Just mentioning one, this European Iconic Award 2013 we got this year, that is very much how we will see that progress is moving in a good way. It's not only that we have new product, better product, but this new offering is also creating better delivery process. What I will mean about I want to give some highlights about this. If you look from manufacturing point of view, from our suppliers point of view, or our own supply unit's point of view, this new product platform is covering wider the product range. What this wider product range would help?
It means that we have a very concrete, meaningful cost benefits into certain different corner points on the product range. We have seen that we are really able to make the good steps on the many critical points, what is helping our cost competitiveness. Secondly, this modularity, harmonized product, you remember volume economics of scale. This enables us to make the more consistent quality and of course also cost optimization. In manufacturing point of view, the new platform is making the good progress in overall when we look the whole product range. The second important element is the engineering cost. Typically, there's standard products and customized products. Customized products require engineering. Now this new offering is very wide from flexibility point of view, offering design elements, all the dimensions. The key point is that we have now done the pre-engineered components and modules and solutions.
This means that our process costs are now moving in good way, good direction. We are really going in a good way on this. Secondly, this pre-engineered solution means that we are able to control the quality of the process easier or better. We have a more consistent quality. Thirdly, we have put a lot of emphasis on the installability. I will mention later on about the field productivity, but also the installability means consistency. Consistency means quality, and it means value for our customers and quality end users' point of view. The third element is our customers. If you look the cost point of view first, our customers will see clear benefits on the energy savings and also space efficiency.
We have not discussed that in this slide, but we have also very good progress on the space efficiency and certain applications we are really making the breakthrough step improvement. That is a clear improvement for customer point of view and from cost. Is attractive, good visual design appearance and end-user experience, the ride comfort. They are creating the better value for building, the better image, better quality perception and I think that's why, as I mentioned, our customers have been very pleased after evaluation to take this new offering as a preferred choice. I want to also mention the escalators. We always used to speak about elevators, in escalators we have done same things. We have focused very strongly on the eco-efficiency, visual design, and improving the safeties.
The visual design, we have also defined the same type of design collection for escalators as we have done for elevators. As you can see in the picture, we have a same patterns, same materials, same experience, the user's point of view when they will enter to the buildings. That our products are not like different things. They are harmonized also design point of view. Also, in escalator design it is good to mention that we got this year, recently in China, the Successful Design 2013 Award. It has been seen as one of the leading product on the Chinese design world point of view. We have plenty of improvements on the safeties, escalator safeties. They are the mass transportation equipment and we need to take care that all our products and every element is improved from safety point of view as much as we can.
There we have a lot of good things. I want to also mention this energy efficiency. This new escalator family, what is now launched, we will improve the energy efficiency more than 20%. It might be thinking of what is the energy efficiency? Is it important for escalators? We have to remember, escalators are used normally in daily 20 hours per day. It's only few hours per night time when they are out of the use. Energy consumption is meaningful matter also in escalators and we have plenty of good improvements. We have this direct drive saving the energy on the whole escalator drive system. We are using the efficient tech next generation inverters. We are using handrail drive, what is saving energy, and we are using the LED lighting as in elevators and so on.
Also in escalator side, we have done a good step improvement in same matters like in elevator side. That was shortly about volume range. Now I want to move on to next exciting matter. It's our high-rise. High-rise offering, high-rise opportunities. I want to start by introducing the breakthrough innovation we published last June and what this innovation is all about. Let's look a short video about that.
Keeping pace with the growing demand to move more people ever higher requires far more than just gradual change. There comes a point when existing technology and solutions can be taken no further. A revolutionary breakthrough is then required if the needs of the urban environments of the future are to be met. As buildings rise higher, logistical demands rise with them. A typical ultra high-rise building sees thousands of people moving around, each one using an elevator on average six times daily. That's around 50,000 elevator rides a day. This places huge demands on elevator technology. The moving parts of a single elevator carrying 24 passengers can weigh up to 27,000 kilos and consume 130,000 kilowatt-hours of energy a year. The components used in high-rise elevator systems operate under highly demanding conditions, making durability a huge challenge.
Elevators are also subject to severe strains such as building sway, which can put them out of service on windy days. It's clear that current elevator technology has taken us as far as it can, and that mere refinement is no longer enough. KONE's ongoing commitment to innovation has delivered a revolutionary solution, one that opens a world of new possibilities in high-rise building design. KONE UltraRope, a super-light rope technology that sets a new benchmark for elevator performance. With its durable, lightweight carbon fiber core and special high-friction coating, KONE UltraRope is the revolutionary breakthrough the industry has been waiting for. KONE UltraRope has been rigorously tested under the most extreme conditions and has been approved by independent third-party experts. This revolutionary new technology brings a whole host of valuable benefits.
Not only does KONE UltraRope last twice as long as conventional steel rope, it's also less sensitive to building sway, adding up to a significant reduction in elevator downtime. With an elevator travel height of 500 meters, this lightweight rope cuts the elevator's moving mass by 60% and reduces energy consumption by 15%. When elevator travel heights increase in the future, even larger reductions can be achieved. Moving masses can be reduced by 90%, and energy consumption by 45% for an elevator with a travel height of 800 meters. KONE UltraRope will take elevators higher than they've ever been before. In the future, it can enable travel heights of up to 1,000 meters, twice as high as what's possible with today's technology. This groundbreaking innovation will support the design of more sustainable, higher-performance buildings that are better equipped to meet the demands of the urban environments of tomorrow.
Great, isn't it? Say yes.
Yes.
It's a really exciting matter for engineers like I am, background. This is the breakthrough innovation, what is now eliminate the one limit in the industry. It's steel ropes cannot go higher than 600, 700 meters max. This now enables elevators to go even higher. We are now drastically reducing the moving masses. The one elevator, 500, 600 meter, the rope weight today is 10 full size truck lorries. This new rope is less than one. Our moving masses are going from 10 to one. That is creating huge benefit for our customers, building, planning, et cetera. We will have a time in the afternoon to go into all the details. Let's look at the high-rise market. We can see clearly there's a few key trends we have to think about what is happening. First one is the buildings are higher.
I will show in the next page what this means. Also, the number of the high-rise building is growing fast. Thirdly, typically the high-rise buildings were earlier only office buildings. Nowadays, the high-rise buildings are typically multipurpose buildings, there's residential blocks, hotels, offices, shopping malls. There's also a different demand coming from the user's point of view. This picture describes very well what is high-rise buildings global market. In the middle of the picture, you can see that this is the total amount of the high-rise buildings in the world. Today, the number of the high-rise buildings is four times higher than it was early 2000. Very fast growth on the buildings point of view. In the right-hand side, you can see annual growth rate above 200, 300 meters buildings.
If you look from an elevator point of view, because we want to look at elevator opportunity. High-rise building typically have 20 to 50 elevators, sometimes even more, and few escalators. This growth is also very attractive elevator market segment for us. Growth is very strong. I don't want to now go into details on the UltraRope, but I want to take up what Bernard was mentioning, the JumpLift concept. Sounds that, what is that? It's a elevator concept where we can install the elevators during the construction phase, that when the building is coming higher, we will move the elevator accordingly. Elevator is in used in construction time. Normally between 10 to 15 floors, we will always change the height of the elevator. What that would mean for our customers, which are the builders and developers.
Let's look from builder's point of view. This construction time use JumpLift method limits the need for construction company to have this construction hoist. Direct saving from their operative cost. Secondly, in these high-rise buildings, there is typically thousands of people, workers. In Marina Bay Sands in Singapore, there was 5,000 workers on the same site. It is a huge amount of people moving up and down during the day. It is a productivity of construction work. This enables our construction companies, our customers to make the labor cost lower and productivity better. It is more safe. If you look from a developer's point of view, this means that the builder can also close the facade, the building exterior. It means that the developer can start the pre-selling earlier, attract the tenants, start with active selling. Whole lifetime of the construction project is shorter.
We have seen many cases that in overall, the benefits are so big that the elevator costs are small part. I can see that this is the great thing what we have applied now in almost most important markets, and it will grow rapidly around the world. I want to also take up this project engineering and project management. We have systematically developed our engineering competence centers in Europe, in India, in China, in U.S., and that is very important. We are near our customers, architects, and their engineering to make the final product specifications. Secondly, we have systematically, and we will do systematically our project management training around the world. We have professional persons who are able to drive the project from day one to the completion. Of course, we have developed project management processes on that.
Third important item I like to take up is, we are participating our customer building planning in early phase. Because when customers are planning the buildings, there is always question about what is the capacity, how many people, how many thousands of people, and what is the traffic solution. We have simulation tools, traffic calculation tools. We can really provide the services for our customers in the planning phase. Very important matters on high-rise area. That was the solution part. I want to now go shortly about our supply chain development. If you look, recap what is our KONE supply unit network. Starting from Asia. In China, we have two supply units, Kunshan and Nanjing. I will comment later about Kunshan site. In India, we have a Chennai supply unit. In Europe, we have three units.
Pero, Italy, what is more focusing on the volume elevator production. In Hyvinkää, what is more competence center for high-rise elevators. In Ustka, we have manufacturing units for door and car. In North America, we have in Torreón in Mexico, the manufacturing unit for North America products. In Allen, we have engineering logistics center, R&D, Coal Valley we have a escalator production unit. If you look now our supply chain, there was already a couple of questions today about the capacity and investments. Let's look now what is our supply network. Our suppliers are producing most of our components and modules. They are key part of our success. They have to be flexible, they have to be punctual, they have to have a right quality, right cost level. They are sending the components or modules either directly to the distributor centers or our supply units.
KONE's own manufacturing units are producing only a few components. As manufacturing units are sending those to the distributor centers, distributor centers have a key role in our logistics point of view. They are consolidating the whole material package, and they will send the full material package to the construction site according to installation schedule. Not too early, not too late. We are really also trying to optimize the whole chain, plus ensure that quality is always managed in right way. Of course, the final assembly will be done in your installation phase in the construction site, as we all understand. If you look at the supply manufacturing units in KONE, we are producing a few components, elevator cars, cabins, landing doors, the motors, control system, and also we are making the full escalator assembly in our own premises.
In the afternoon, we can see the Hyvinkää factory where are more or less those elevator cars, but not escalators. Now our supplier network is very key for us and we are about 100 key suppliers. We are working daily to ensure that we are developing the right things, we have the right quality, we have the right understanding, and we have a shared view about what are the requirements from the delivery point of view. A year ago, we opened a new site in China, the Kunshan new site. We relocated the old site to the new area in Kunshan, and it's a competence center. I will start by that. We have very strong facilities and activities concerning R&D, testing laboratories, testing towers. We have a major project engineering center, competence center. We have sourcing, we have quality, we have logistics.
We have a big training center for our train-the-trainers from the installation point of view. Also we have our manufacturing unit producing electrification for elevator, escalator car production and motor production, and also escalator assembly lines. There are about 2,000 people in this whole operation, and it has been fully operational since last autumn in full speed. If you look at India is a growing part of our global network and our deliveries are growing. We are now in process to relocate and expand our Indian supply unit in Chennai, in the new area in Chennai city. The project will start actively to build the new facilities next year, and it is expected to be operational in 2015.
Also in this new site, we are implementing the same processes, same platforms as the rest of KONE, and we are building the same supply chain process in India. Also in this new site, there will be testing facilities and some R&D laboratories in that new area. As I mentioned, we have harmonized and developed global products. We have also harmonized and systemized our supply chain processes and tools. I want to also take up that we have very systematic way to develop our quality. We are developing our quality concerning our suppliers' quality, our engineering quality, our own manufacturing quality, logistics, packing, installation. We are using the best quality tools like 5S, Lean methods, Six Sigma, statistical process control, and so on. We are benchmarking our quality system for the best of the world's leading companies.
That has been and will be always in our focus. We have also as I mentioned earlier in this installation, our installation methods are developed that they are always safe, that we have productivity, and we have a quality. For example, these installation measurements that we are really verifying that all our products are consistent and fulfilling the quality requirement. This has been now implemented in all our new product installation. We have a very important process, it's a demand-supply balancing, where we will tie our suppliers' capacity and our tenders and orders and market forecast that we are optimizing the full chain demand supply process in optimal way. The continued development offering and processes is vital because it creates value for our customers and their businesses, and it will really create, improves the customer loyalty, the customer satisfaction.
In addition of this offering and process, I want to emphasize one important point, is the continuous development all our people, our personnel. End of the day, it's the KONE personnel who are making the difference seen by the customers. The responsive, customer-driven, competent motivated KONE people are really the key success factor on our overall, and that will make our life real. That was shortly my presentation, and now I want to thank you and give time for a few questions.
Thank you. One question on the high-rise market opportunity for you. Could you try and put some figures on how big of a potential that is for you? What's your market share in this area compared to the other segments? How big is this market value-wise? What's the potential if you grow successfully here?
Of course, we don't publish individual segment market shares, but roughly saying, our position in the high-rise segment is the same as in a volume segment. I think it's a very meaningful matter for KONE New Equipment Business point of view. It's very, let's say, important in this urbanized environment when the cities are higher and higher. KONE is and have to be the full chain, the company who is able to cover all the product needs of what our customer's project will require. It's really important part of our business.
Okay. Thank you.
First, I would say that for my part, I think what my colleagues have been discussing is a great backdrop for discussing how we continue to develop our profitability, what our targets are going forward. I think also Heikki's presentation, again, very much illustrated how we have, again, since the last Capital Markets Day, been able to improve our competitiveness in the new equipment business. This is, of course, very important to our overall development of our competitiveness. I will first address our financial targets and how we are looking to progress towards this. I will discuss how we're developing our cash flow and what opportunities we have there going forward. Finally, I will address how we develop our productivity in our maintenance business and also discuss the fundamental growth in this market.
First of all, as Matti already said, we remain committed to our long-term financial targets. These are ambitious, but we definitely believe that they are reachable. I think the same thing I said in our Capital Markets Day last year, it's first important to give a backdrop of how do we think about our long-term financial targets. When I say this, we have to remember the balance sheet structure that a company like us, or particularly we have, where we have less than EUR 270 million of fixed assets. If we look at our net working capital over the past 12 months, it has constantly been more than EUR 500 million negative. In this context, of course, we want to continue to drive good returns on capital. Okay, how does then our financial targets relate to this?
First financial target is to grow faster than the market. It is very important. We are a challenger in this industry, and we have ambitions to grow all the time. As you have heard from many of my colleagues, we have ambitions to grow, but at the same time, we're very focused on pricing. When we grow, we want to make sure that we also look at both our market position as well as our pricing. Comes our EBIT margin target. Here, it's important to remember the balance sheet structure. If we would only focus on our EBIT margin percentage in the short term, we would make different decisions in respect of growth.
The way we are developing it is that we say we want to have the best absolute EBIT over the long term, and we believe that that is what will drive our returns on capital, going forward. You can ask, why do we have a financial target percentage-wise? We think this is very important in order to make sure that we keep an ambition level to constantly improve the profitability of our businesses and to make sure that everyone who runs our businesses have an ambition to raise the margin there. That's why we have a target, but let's be clear. To drive returns, we need to have EBIT growth over the long term. Of course, we have our cash flow target, where continuing to improve our working capital terms is important to continue to develop cash flow.
If you look at how has our margin then progressed if we go back a few years. First, if we take since mid-2005, our margins have improved from about 8% and been quite a strong improvement. You can say, if we look at more clear now, the more recent years, our EBIT margin peaked mid-2011. What has happened since then? We have had both positive and negative drivers. The positive drivers have continued to be the operational fixed cost leverage we have achieved from our growth. That's very important, and we have achieved that. Secondly, we have continued to improve our quality and our productivity in our operations. Finally, we have grown the maintenance business, as I will show later. We have had a number of factors that have actually meant that we have more headwinds in our margin.
The first one, which Matti addressed very clearly in his presentation, is business mix. Just to highlight this again, that if we look at the first half of this year, our new equipment business was 52% of our sales. A year ago The first half, it was 47%. Five percentage point change in one year. That is quite significant. That is the strongest impact on our overall margin. We have continued to invest in areas supporting growth. As Bill discussed, we have, both in China and rest of Asia Pacific, very actively expanded our footprint. We have every year increased our investments in R&D, and we have every year increased our expenditure on process development and IT, because we think that these are very important for our competitiveness going forward.
Of course, another negative driver has been the prolonged weakness we have had in the U.S. and South European markets over the past years. With these drivers, you can then ask, "Okay, how do we then progress? Why are we confident that we will be able to reach our long-term targets?" If I then address that, how do we get to our 16% target? I guess that's the main question. In order to achieve this, there are a few things we need to be able to develop. First one is growth and pricing. I discussed that, how important the combination of these two are. We need to continue to grow to achieve our operational leverage. When we grow a new equipment business, we also create the maintenance service businesses thereafter. It's very important.
They come with a lag, very important to continue to grow to get that operational leverage. In pricing, right balance between growth and price. In this industry, what is very critical is quality, productivity, and overall cost management. Here, we have continued improvement, have had, and will continue to drive improvement in our overall quality, both installation quality, maintenance quality, as well as new product quality. When we look at overall productivity, we have to remember that in this business, a vast majority of our people are daily in the field. It is quite a labor-intensive business, improving the productivity of our installation operations, of our maintenance operations is absolutely critical. In Europe and North America, it's clear it's critical because of weak markets, strong competitive situation. That's very important for us to develop our overall competitiveness.
In Asia Pacific, we also have a very competitive situation, but on top of that, we have labor cost inflation. These are critical items to be able to drive our margins forward. I would say that these four areas are the ones we focus on, and if we're able to achieve this, we can definitely progress towards our longer-term targets. I would again like to remind that we have not set a timeframe for this, but this is our path going forward. Let me then address two specific issues, how we're developing them. First of all, pricing, and then I'll talk about cost management. There's been a lot of questions for many of you that how are we developing our pricing in the environment that we are in at the moment.
That if you listen to both Bill, listen to Noud and Pierre, we have been, in many cases, able to improve our pricing, even in difficult markets, whether it's in price competitiveness. How do we achieve that? Well, there are three things we need to get right in order to be able to improve our pricing. First of all, differentiation on the product side. We need to have a strong product offering. I think that, as you have heard from my colleagues, we are in a good position there. This is not only new equipment, same when it comes to service product offering, which Pierre talked more about. It's about competencies. This is perhaps the most important part of it all.
To really make sure that we have the right processes, we have the right tools, and the right data to analyze what the opportunities are, and a really granular view of the markets. That's building competencies to make sure that our people know how to sell value. The final part is how we manage our pricing policies, how we set targets, how we set incentives, and how we set authorities. There are these three areas that we are working on in order to improve our pricing. I would say that we started this pricing development program in 2011. I would say that we have made good progress, but we still have a good way to go here, good way to improve. Good improvements have been done so far. If I look at how we're managing our costs.
Our objective is all the time to make sure that we have a good cost focus so that we don't get into a situation where we'll be forced to do significant restructurings. The first one is all to make sure we leverage our growth. Sometimes we have had to make some programs in order to manage our costs. Last year, we had our support function development and adjustment in certain weak markets, the program to save cost in those areas. Just an update on that, our target was to save EUR 35 million by the end of this year, run rate basis. At the end of Q2, we were at about EUR 26 million.
We think that the end of this year, we'll be at about EUR 30 million, that there are a couple of programs we have decided to implement beginning of next year, but by mid-next year, we'll be at full run rate. While we are focusing on cost in these areas, we continue to invest in the areas that support growth, our footprint in Asia Pacific, R&D, process development, and IT. That will continue going forward. If I address a couple of more external factors that impact our margins. An update on raw material prices. If we look at the past 12 months, we have now had a slightly more favorable situation following the quite strong headwind we had in 2010, 2011, and still first half of 2012. These numbers are the market prices.
When they come in for us, it comes with a delay before we have delivered our product. Also, our situation has, throughout these years, been clearly less volatile than the overall market, because we have historically been able to lock our prices in a proactive way at more attractive points than what these prices have been. What I would say the situation now is that we have a slightly positive situation. Given this situation, we have decided we are starting now proactively lock prices for the first half next year. If you look at what are we main focusing on, again, to make sure sourcing also is a competitive advantage for us. Bill mentioned that we have one of the areas that we are looking for synergies in Giant KONE is through a combination of our sourcing.
It is not only the scale advantage we get, that's of course very important, but it's also to make sure we have the same supplier quality focus in both operations. That's very important. Supplier quality is the most important focus area for us in our sourcing function this year. If you look at another external factor, foreign exchange. Currently, more than 70% of our sales is in other currencies than EUR. It's clear that the fluctuations we have seen are important to our profitability. The largest currency is, of course, the Chinese renminbi, but also US dollar is a significant one. It's clear that the fluctuation we have seen do have an impact. The first half this year was quite neutral for us from a foreign exchange perspective, that the translation exchange rates were pretty much the same level as last year.
From here on now, if we look at the strengthening we are seeing in the euro, it looks like if it stays at this level, of course, we don't know where it will go, but if it stays at this level, we will have a slight headwind going forward. The good thing in our business is that the transactional exposure is reasonably small given the pretty good matching we have between income and cost, particularly service business, but also in the new equipment business. Let me then turn more to how we develop our cash flow. First of all, if you look back the past four or five years, we can see that we have continuously had a good cash flow level. Yes, it does fluctuate from quarter to quarter, but we have constantly been able to keep it at a good level.
The main driver of this is naturally the improvement we have had in operating income. Another important driver for this is the improvement we have seen in net working capital. If you look at in 2009 was the first year we were able to turn our overall net working capital to a negative level. Here we have been able to improve in most areas, but as you can see from the dark blue line, the most significant area here is our improvement in the difference between our advanced payments and overall inventories. This is a very strong focus area for us to make sure that we keep an attractive cash flow generating model.
This strong improvement has been due to an improvement in most of our areas, but in particular because of strong growth in Asia Pacific, where on average the ratio between advanced payments and inventories are stronger. That I would say is at a very good level and we are very pleased with what we have achieved here. If you look at then our overall working capital items, we see that they have grown. If you look at the turns, we can see that particularly when it comes to inventories, and now recently for the past year, accounts receivable, we have been able to improve the turns. For us to develop our cash flow going forward, it will be critical to continue to get better inventory control, better turns in inventories, and better turns on our accounts receivable.
I would say that the advanced payments we already have at a very high level. I would say that kind of structurally, I think we are at a good level and now we need to focus even more on inventories and accounts receivable in order to improve our working capital turns. If we look at other cash flow items, our CapEx. As you probably remember, historically, we have said that our basic CapEx has historically been at around EUR 60 million per year. We had several years where it was lower, but last year it was significantly higher because of the completion of the Kunshan factory. I would say that if you look at our basic CapEx going forward, given the growth we have seen in our business, has now increased from about EUR 60 million to a level of EUR 70 million-EUR 80 million kind of basic level.
This year we will be at pretty much around our basic level. Next year we have a little bit higher because of the completion of the test tower and R&D center in China. In 2015, as Heikki discussed, we will have our investment in the Chennai factory. The Chennai investment is clearly smaller than the Chinese investment, but still an important investment for us. Another important investment area for us is acquisitions. That remains a priority area for us, and we want to also find further growth and therefore density opportunities in our service business through acquisitions. As you can see, we've completed about 20 acquisitions per year, and our level has been between EUR 150 million and EUR 200 million during the past years. This remains a high priority area for us.
We continue to have high activity in this area to find these attractive service companies around the world. I would say this year so far, we have had less acquisitions, but activity in that area remains high, and it is important for us as a challenger, particularly in the service business. With all of this, if we look at how has our absolute cash flow this year developed, we can see that if you look at the first six months this year, our cash flow has improved from about EUR 450 million last year to more than EUR 620 million this year. Again, by operating income growth as well as improvement in our net working capital. Let me finally turn to how we develop the maintenance business. First, talk about the growth in the market and then how we are developing the productivity in this business.
First of all, if we look at what is the fundamental growth in the world elevator and escalator service business or maintenance business. If you remember, in 2011, the maintenance base was around EUR 11 million. End of last year, it was more than EUR 11 million. Where did the changes come from? Well, of course, it's obvious most of the changes come from conversions, but also we have to remember that every year, and this depends quite a lot on country to country, we have 1%, and some countries up to 2% of the existing base gets taken out of use through demolishing or other reasons every year. In China, as we heard from Bill, that rate is even higher. Those are the drivers.
What we all have to remember that the green bar you can see here, deliveries from 2011, that is what we expect that our new base in the service base. As I will explain, before you see it in one of the company's service base, there is a delay because of the so-called first service period. I will explain that with more detail later. If you look at the growth. We can see that if you look at from 2008 to 2012, the growth in the business, we estimate that it's approximately, and these are approximate numbers, 5.5% over this period of time. As we can see, the growth is really driven by Asia-Pacific and China in particular. Where is the large base at the moment?
We know that Europe, Middle East, and Africa is about half of the world's elevator and escalator base. Here we have a growth of only 2%. We have a large base, and we have had weakness in the new equipment markets over this period of time. That has grown at about 2%. Same story for North America. If you look at China, about 22% growth and rest of Asia-Pacific, about 10% growth. What is important here is naturally that why is it so important to have strong new equipment positions in these markets? Because this is how you can, over time, capture this growth opportunity also in the service market. Again, if would only we have new equipment in Europe, Middle East and Africa and Americas, also our service business would be growing at a slower rate.
How have we grown over this period? As Matti mentioned, our service base has grown over this period by 6.2%, but our sales has grown at 8.7%. Within that 8.7%, we have some currency benefits. If you look at constant currencies, the growth has been 7.2%. To make it more complicated, 7.2% includes our door business, which we have principally in Europe. If we exclude the door business and only look at the elevator and escalator maintenance, the growth over this period of time has been about 8%. We can see that we've grown our base by 6.2%, but our sales by 8% in constant currencies. We have been able to also over this period of time, been able to increase the sales per unit of our base. Clearly faster than the market.
If you look at how are we growing our base, what are the methods? I think Pierre did discuss many of these. First one is, of course, conversions. Here an increasing amount, of course, coming from Asia-Pacific and China. What often gets asked that when do you see the new equipment deliveries in your service base? If we assume that year one, we deliver a new equipment. After that, it goes into the so-called first service period, which depending on market, it's between one to three years. There are even some individual markets up to five years. What we look at, what we get into our base is what we convert after this first service period.
They can be, when a building is completed, it can first take a while before it's taken to use, then starts its first service period, and then we convert. There can be several years lag between this, but it comes with delay. It is important to remember this dynamic, how it works. Of course, we growth through acquisitions, and then we have the competition balance or commercial balance. Pierre discussed that already. That is something that has been slightly negative for us in the past years because of the very high competitiveness in the markets, and because of our focus on making sure we maintain good pricing in the market. This is perhaps one of the most important development areas for us. We have lots of work going on here, how we improve our sales activities, customer contacting abilities, and retention activities.
Of course, the fundamentals for all this is to have good quality service. On top of this is pricing. These are, of course, the fundamental ways how we grow, but I guess the key point was really what are the dynamics of conversions from new equipment into the service base. How do we develop the productivity in our maintenance business? As you can see from the right-hand side, the majority of our costs in maintenance are field costs. That means principally salaries of our maintenance technicians and supervisors. In order to be competitive in this area, one has to constantly improve productivity. How do we do it? The first one, we are talking about density. Increasing density brings better productivity. Here, of course, it is conversions, acquisitions that we do. If we have more density, we can have better route optimization.
The second one is performance management. This is very important. These people are located in many different individual locations around the world and doing a very local job. Performance management, measurement control, very important, and benchmarking to make sure that we can develop all of our technicians and also the supervisors. Very important is maintenance methods. Here really methods to make sure that we improve our quality all the time. I think it is pretty clear that the better quality we have, of course, we will have happier customers. That is a very important factor. Secondly, the better quality also means that we will have less unscheduled call-outs, means that we can better schedule our service visits and the job of our supervisors and technicians, very important.
To do all of this, we need to have technology and systems, which we continue to invest in quite a lot to make sure that we have very strong systems for planning our people's work and dispatching them when needed. This, I guess is the picture, what are the key things for us to develop our productivity in maintenance. If I finally wrap up, I will talk about same thing Matti finalized his presentation with, almost finalized his presentation with. How do we look at this going forward, and why are we confident going forward about the development of our business? First of all, we have continued to have good growth driven by strong megatrends. We have good megatrends in this market driving growth, and we have also captured market share. That is of course, something we continue to be focused on going forward.
Secondly, as you have heard from both Noud and from Bill, our market positions in Asia Pacific are very good, and we want to continue to develop them further. That is where the markets are growing, that is where we want to be very strong. Also we have our maintenance business, our overall service business that is very strong, gives us stability. Let us not forget also the opportunity we get from the new equipment business in Asia Pacific, for our service business. We continue to have a challenger attitude. As I talked, we set ourselves ambitious targets, but achievable targets. By setting ourselves achievable targets all the time, we demand from ourselves to make sure we plan and find ways to deliver that growth.
Finally, very focused on execution, driving the productivity, driving our quality in the business, so we can execute this capital-light business model and continue to have a good cash flow and therefore good returns on capital. With these words, I think we are ready for first a few questions and then a broader Q&A after that. If you have any questions please, questions then.
Michael Hagmann at HSBC. Pricing has of course, been a big topic, you had this extra slide on pricing. You said you started in 2011 with the rollout. Can you tell us how you've been rolling it out across the organization, either by region or by target areas? Where you've had the biggest traction, and how much further you think you have to go?
The way we roll out these programs, if we are not only looking at a few countries, is that what we do is of course, we have someone global who's a program owner. Ability is to make sure that the various area organizations that we have gain that knowledge, then from there, we drive it into our countries. Of course, we look always first at the most difficult countries that we accelerate their development. If we would only look at the gradual approach and let's do that country first and that then it would take quite a long time. That's why we have our area organizations, they gain this competence and skills, and they then drive them out units globally.
I would say, if you remember, I think we started this in 2011, end of 2011 and end of 2012, I think if you spoke to both Matti and myself, we were perhaps frustrated that we were not making more progress. I think from that, we have constantly made good progress when we start to see that our organization started to get these skills, and we improved our competencies throughout the organization. I said we have made good progress in that area more. The more you learn, the more you also understand where you need to strengthen your competencies.
Thanks.
We have here, Arne.
Yes. Hi there. Thank you. I've got just two questions if I may. One is just on the operational fixed cost leverage. I am not sure if this is something you are willing to share, but I am just curious if you could share with you what you actually think that is. I found it a little bit difficult to sort of assess when I look at your numbers so we can maybe separate between the pricing impact maybe and the operational fixed leverage.
Let's take that question first. I think that the way we look at it, we of course, have a certain fixed cost base, and when we grow, we of course, want to make sure that the percentage of fixed cost of sales continuously goes down, that you get the leverage from growth, and that we do not add as much resources, we have growth. That's of course, the key focus area.
because you're sort of in absolute terms, if I try to get like an operating leverage, which for some other companies are relatively straightforward to get, I find with KONE that it's maybe a couple of more moving parts. Would you be willing to say something like an incremental 100 of sales gives you, generally speaking, if we're talking equipment, a certain amount of EBIT?
We have not opened up that. Of course, the operational leverage we get is part of fixed cost side as I mentioned, but also maintenance when we grow. What it means is that the bigger our density, the less we need technicians per certain number of elevators.
Okay. My second question was just if you could elaborate a little bit about this sort of first service period and how it flows through your P&L.
Right.
I'm just trying to understand the two dynamics because my understanding, which may be incorrect, is that you generally attach sort of a service contract when you book a sale, that's included with a provision against it, that's included in service revenues, or how does that exactly work?
The way it works is that when we deliver new equipment, in almost every market, a couple of small exceptions, but almost every market, it comes with a first service period. I think it's usually one, two, three, some markets even up to five years. When we sell the new equipment, that first service is included in that price. We will make a provision of part of new equipment price and accrue that over whatever the first service period is, that you will see then.
Is that when that is being accrued, is that being accrued as a service
Yes
revenue and not equipment?
That's right.
Thank you.
I think we have Jan back there.
Jan Kellen, Nordea Markets. On the previous topic on this accumulation of the service, the maintenance base . You say that the recovery rate is some 60% in China and globally, maybe closer to 80% or something like that on average. If I remember from the top of my head that you delivered a little during the last two years, something like 100,000 pieces of equipment per year. If I look at your service base growth, it's been like 50,000, if I remember correctly. If you apply these recovery rates, it indicates that after the recovery, maybe two years or three years, you lose quite a lot of those contracts afterwards to make the numbers match.
First of all, when you make that match, you have to remember this delay. The delay in China, where of course, big part of deliveries are, is longer than most of the other markets. That you usually have two, easily three years of first service period. It takes longer before you convert. If I look at our overall retention rate, which is what you addressed, our retention rate historically has been around 95%. In the difficult years we have gone through now with increasing competition, it has gone down a little bit, but it varies in most markets between 90%-95%. We continue to have, I would say, quite high retention rates. Yes, as I mentioned, we have in the past years, lost more units in market than we have won because of our pricing focus.
That is something we have ambition to turn. This conversion, it comes with a clear delay from when we have delivered the new equipment. When you take these together, that explains the growth in the service base.
Okay. Thank you.
I think let's take one last question before we-
Yes. Hi there.
Okay.
Just one question on Europe, that it's referring to presentation that from earlier during the day. How have you managed the decline in the new equipment sales in terms of manufacturing footprint? Have you shut down manufacturing footprint in Europe or not? If demand comes back in terms of new equipment, how do you plan to address that issue?
If you look at our European footprint, that has actually been stable over the past five, six years. Our main supply unit for Europe is the one Heikki mentioned in Northern Italy in Pero that delivers the volume equipment. Clearly, they have now delivered less to Southern Europe, but then there have been other markets that we didn't discuss so much around Europe that have grown faster. You have had Turkey, you have had partly Russia and so forth. We have been able to keep the same footprint and, again, given the very low capital intensity here, the difference of what your load is not a huge difference in this industry, given the fact that your depreciation charges are not a significant part of your cost. A very big part of our cost is something we buy from suppliers.
If demand comes back in Europe, there will be no need for major expansion there or, in terms of manufacturing footprint.
Heikki is shaking his head. You have to remember also this industry, given the type and what you will see in Hyvinkää today is assembly operations. If you have a site with space around it, then it is actually quite modular how you can expand. What you need is an industrial hall with assembly equipment and logistics equipment. Okay. Should we, Karla, move on to the next stage?
Now, we have more time for questions on all topics that have been discussed today and basically anything you'd like to ask about KONE. Let's take one question at a time, please. Feel free to choose the topic.
Okay. Sorry, I don't want to monopolize here. Nobody else raised their hands. I have to ask one question, which is a little bit of the elephant in the room. You're referring to expert interview here. I'll refer to Google then. When I look at the Chinese total market and listening to industry experts, the estimate is that roughly maybe 20% of residential is empty or vacant, around 3.5 billion square meters. It is very curious with your huge insights and your big footprint, if you have any sort of idea on the elevators that you have installed, if you're significantly higher than that or if you have a number of how many of the elevators you've sold are actually in use today in this, specifically in the residential space. Thank you.
I think that we have a better expert than myself here. Antti Pirinen, please, if you would comment this.
Antti, would you please introduce yourself with just a couple of words?
My name is Antti Pirinen, I'm the Head of New Equipment Business in Greater China area. Overall, if you're looking at these empty apartments, we think that it is a very small part of the total base, also what is going to be built in the next 10 years to come. Typically, it takes some time before all the apartments are filling up. Some people move in first. Of course, the elevators start operating at that time already. The rest of the apartments are being decorated. The apartments are taken into use. As far as I know, it's a very small part of elevators which are not starting to operate immediately, because already some people are starting to move into the buildings.
Thank you, Antti. Other questions?
One more question on Europe, on maintenance this time. What percentage of the European market in terms of maintenance is being addressed by the major international players? I think it was mentioned before that in China it's around 25%. What about Europe? Let's say on a blended average basis.
In Europe it is much higher. It is at the level of 70%-75%, roughly.
The room for further consolidation is probably limited there in terms of buying out minor players.
In Europe, let's say gradual consolidation has continued, slowly.
This is Tom Skogman from Handelsbanken. You have today said that your China service profitability equals the global average. I remember previously you have said some years back that your Chinese profitability in terms of EBIT margin has been similar to the global level. Is that still the case?
When we take the whole of our China business the profitability the operating income for us in China is roughly at the level of our global operating income.
Okay. Thank you. Second question. We have not heard that much about North America today as your regional manager is not here today, but I've understood that there's a very strong recovery going on there at the moment. Could it be that given the long lead times that North America can be the fastest growing region for you the two next years? Is that possible?
I have to say that yes, we start to be in a very positive phase there. The margins in our orders, they have developed very well especially let's say already from the middle of 2011, but especially during the last 12 months. Therefore our business outlook for how it is developing in the U.S. next year is really positive.
Thank you. First question is a follow-up there on profitability, maybe a clarification from Henrik. You said that business mix was clearly a negative factor on profitability this year, if most of it's related to your new equipment and most of that growth is from China, which you say is group average then the mix element can't be that big.
Maybe you can add then, it is simply so that when in our business mix the share of new equipment has been growing and even though much of that growth has come from China, the share of maintenance has been going down and still today the margins in maintenance are best. It is this change what makes the comment that Henrik said.
Okay. The second question, another focus on China and India where you have a strong position. You have a strong position in Russia it doesn't seem to be a key focus point to grow that. Then also another market in South America which you exited some time ago, maybe an update on how you reason about the potential re-entry there.
In Russia before the two leading companies are local Russian companies and they have very strong position in the low and high volume segments. As such, our business had developed in Russia well. What comes to South America yes, we are interested to let's say start our business more actively there again and we are actively looking for opportunities. Nothing new to tell at the moment. The good relevant question is that how important would it be for us to get back to the Latin American market? The size of the market as such is altogether at about the same level or less than India market. Returning there soon, it is not urgent, but of course, that is among in one of our targets.
What we feel that what is more essential for us at the moment to get prepared to the, as it looks at the moment, fast growth opportunities in Africa next decade, so that we have good local presence in the right countries in Africa in the beginning of next decade when the urbanization will really accelerate there. Tom?
Yes, I could just continue a bit on these kind of segmental margins to get a better understanding what's really going on in the business, because what you basically are saying is that the China new equipment margin is equaling the margins elsewhere. Of course, we know that in China, we have had an exceptionally strong market for many years now while we see that North American and European markets are 60%-70% of the values in 2007. There seems to be some kind of a missing part there. What is holding back the margin to be much better in China than it is at the moment? We know also that Otis has said that their market in China is almost 20%.
Well, I think we now had some kind of misunderstanding here, because what I said that when we take the whole of our China business, our relative operating income level there is at the same level as our global overall operating income level. When we compare the new equipment business in China, the profitability level there is higher than what is our the average profitability level in new equipment in other markets. What comes to one of our competitors that you referred to, it is impossible to compare their profitability and our profitability based on that comment you mentioned and that also we have heard, because it is difficult to know that how much do they allocate global costs to their China activity and all of that. Yes, we are very pleased with our profitability in China. That is clear. Other questions?
I think there's one more.
Over there.
Yes. Hello. Marcus from Danske Fund Management. One question on the balance sheet. It seems to be very liquid for the time being and probably too much cash. What could we expect dividends going forward?
Well, dividends are a board decision. It is naturally impossible to say anything. As we have always said, we want to have a strong balance sheet because we are a challenger. Our objective is to continue growth both organically as well as through acquisitions. Of course, we also take care that our balance sheet is not too strong. Okay, maybe it is time to wrap up the day. We have had today reviews on many interesting areas of our business. In the morning, Pierre was optimistic about South Europe, not because of economy, but because of our strong operational principles, because of our all the time strong pricing capability, because of improving more granular understanding of the different markets. As Pierre said, in business, it is not a question about averages, it is about finding the growth opportunities.
Noud then told about how our new equipment business has been growing and to the leading positions in his area and how this development gives a good basis to the further strengthening of our service business in these countries. It also emphasized the importance of talent recruitment and talent development in markets like India, Southeast Asia, Middle East. That of course, very much is the case. Then Bill. Bill first told about how we have become the leader in China, both in new equipment as well as in the service business in the maintenance base. He illustrated and demonstrated why we are confident about the long-term attractiveness of the Chinese market. Confident that it will continue to grow. However, the growth rate will gradually get to a more moderate level.
Heikki then told about the leading characteristics of our new elevator product range, and then focused on the high-rise business and what kind of developments we have there in developing our competitiveness further. Henrik continued by telling about our long-term financial targets. He said that they are ambitious but reachable. With our systematic way of developing KONE, I believe that we will move towards these objectives. There was a question about our business scope. Our vision is, as I said in the morning, as it is well known to all of you, that KONE delivers the best people flow experience. This defines our business scope. We very much believe on developing a focused business. You have been participating very actively today. Thank you for that. Karla, now I think it is time for lunch.
Yes, that's right. Thank you very much also on my behalf and on all of the other speakers' behalf. I will come back to some practical notes to those of you present here. Before that, I would like to also thank all of those who have been following the webcast. This is the end of the webcast, and in the afternoon, those of you who are present here are very welcome to join us on the factory and showroom tour in Hyvinkää.