Earnings Call: Q4 2012

Jan 24, 2013

Thank you, Karla. Welcome to KONE conference call. We have again many positive news to tell. For example, the growth in orders received was both for the full year last year as well as for the fourth quarter more than 20%. However, this time I am most delighted about our good progress in cash flow. The cash flow before financing items and taxes exceeded first time ever and even clearly the milestone of EUR 1 billion. This time I will talk a little bit longer than typically because it is a full year we are discussing about. I will start first by reviewing our financial performance in quarter four and full year. After that I will focus a little bit more on the, let's say, the transformation that we have had during the last years in our business mix, both by business and by geography. I will give an update about the market development in the fourth quarter and finally look in various ways and analyze in various ways what kind of progress we did as a company last year. Finally, of course, about our market outlook and business outlook for year 2013. Let's start with the quarter four numbers. The growth in orders received was 20.4%, in comparable currencies 16.9%, and we reached a level of EUR 1.32 billion. Excluding Giant KONE growth was at 12.8% and excluding Giant KONE in comparable currencies the growth in orders received now in quarter four was about 10%. The order book went up by more than 16% and to a level of EUR 5.05 billion. I would again like to remind you that we don't include maintenance contracts to our order book. This order book gives us a good basis for this year 2013. Sales growth was 16.9%, in comparable currencies 13.5%, and we reached the level of EUR 1.85 billion. Excluding Giant KONE the growth was 12.8%. The operating income grew by close to 10% to EUR 255.6 million. Also in operating income we had again some favorable impact from translation exchange rates and that impact was EUR seven million here in quarter four. The relative operating income was 13.8% and the cash flow went strongly up also here in quarter four from the already good level of the previous year, EUR 2,012 million to EUR 262 million. This quarter four, was positive development in many aspects, but naturally it is more important to take a look to the full year where the progress was very much in line with quarter four. The growth in orders received was 23.1%, and in comparable currencies 17.4%. Excluding Giant KONE the growth was 13.7% and excluding Giant KONE in comparable currencies. The, let's say real organic growth was 8.5%. Order book I already mentioned. The sales went up by 20.1%, in comparable currencies 15.2% and went up from the level of EUR 5.2 billion to close to EUR 6.3 billion. A relatively good step up. The growth in sales excluding Giant KONE was 14.3% and the growth excluding Giant KONE in comparable currencies was 9.6%. The operating income excluding the one time cost that we booked in quarter two went up by 13.3% to EUR 821 million. The positive impact of changes in currencies was EUR 37 million for the full year. It was rather significant impact here. The relative operating income excluding this one time item was 13.1%. Cash flow for the full year went up from EUR 819 million to EUR 1,055 million. Why did I say that I am most delighted about this achievement? The reason is that, as all of you know, that cash flow with its different items is a very good indicator about the direction of the business. We were developing positively in all of these various items, meaning that the operating income grew, the level of advanced payments as compared to inventories developed favorably, inventory rotation improved, the rotation of receivables improved, the accounts payable went up. The earnings per share in comparable terms went up from €2.30 to €2.46. The board recommends to the annual general meeting a dividend which is €1.75. These were the full year numbers. Let's now again take a closer look in orders received and sales and operating income and what was the development in these three areas. From the visual pictures, we can also see that how the development in this quarter was compared to the same quarter the previous years. Here starting from orders, we first of all see that the level of orders received was at a record level in all of the quarters last year. In quarter four, the orders received had a growth of a little bit more than 20%, the growth was driven by the growth in Asia Pacific. There we had the fastest growth in two big markets, in China and in India. These are the two biggest markets globally in the new equipment area. In Europe, Middle East, and Africa, the orders were stable compared to the previous year. In Central Northern Europe very slightly down. In the weak Southern European markets more down, a bit more, let's say more down. Whereas the orders had a strong growth in Middle East which then has combined resulted in a stable development. In the Americas, the orders received went a bit down because of the negative development in the U.S. The reason there was that, as we have told, we slightly increased prices globally in all continents, but the most significant growth in prices we had in the U.S., and it somewhat impacted to our orders growth. Still we feel that very much the right decision. Next, sales. We had a good sales growth in all of our businesses. In new equipment in quarter four we had a growth of 26%, in comparable currencies 21%. Also in service business, our growth was 8.5%, in comparable currencies more than 6%. Geographically, the growth in sales was fastest in Asia-- was very fast in Asia Pacific. In Europe, Middle East and Africa it was stable. The sales level was stable compared to the previous year in North America in local currencies the sales went slightly down because of the low level of orders when the markets were at their weakest in 2010 and 2011. Finally operating income. We had the growth of close to 10% as a result of good development in all businesses. The relative operating income was 0.8% points lower than in quarter four 2011. The main reasons here were, first of all, the delivery of the lower margin orders from 2010 and 2011. Secondly, the change in our business mix where the share of new equipment business increased by 4 percentage points. Thirdly, the salary and wages inflation in Asia. As a fourth factor, the amortization of the intangible assets of Giant KONE. This about the quarter four numbers and full year performance. I am very pleased with our progress, also in this context, I would again like to express my thanks to all of KONE people in various parts of the world. They have done a very good job, in my opinion. Then I will move to take a little bit, let's say, closer look to what our business makes. As all of us know, the development of economy and hence also the development of our markets has been very different in different continents during last few years. In this situation, we as KONE, we have been able to take a lot of advantage of the strong urbanization development in Asia. This has resulted in a major change and major growth in the share of new equipment sales of our total sales. Geographically, as a result, the share of our sales in Asia Pacific of our total sales has increased significantly. Let's first take a look on last year. Last year, the share of new equipment of our total sales went up from 46%-50% and the share of our service businesses went somewhat down. However, again, here I would like to emphasize that last year also in these service businesses, we had a growth of a little bit more than 10% and even in comparable currencies, more than 8%. We had good development also there. Geographically, the development was even bigger because the share of sales in Asia Pacific increased by 8 percentage points from 27-35. The share of Europe, Middle East, and Africa went down by 6 percentage points to now 49%, and the share of Americas decreased by 2%. This is quite significant, but it is more illustrative if we take a bit longer timescale and here take first a look to the business mix and the changes there between 2005 and 2012. Here we see that new equipment sales was 40% of our sales in 2005. Last year it grew up to 50%. The average annual growth in new equipment over this period has been 13.5%, and although the share of the service businesses has gone somewhat down, it is important to see that also in these businesses, the average annual growth has been about 7%. The change is even more significant in the geography. Here, you'll see that the share of Asia Pacific has almost tripled from 12%-35%. The average annual growth there has been 27.6%. At the same time, although the share of sales in Europe, Middle East, and Africa and Americas has gone down, we have been able to grow also in these markets by more than 5% a year as an average. Remembering how the market has behaved, what has happened in the market size here in 2009 and after that, this more than 5% is relatively good development. We understand this even more concretely if I say this in numbers. In Americas, our sales in 2005 was EUR 700 million. In 2012, EUR 1 billion. In Europe, Middle East, and Africa in 2005, EUR 2.1 billion and in 2012, EUR 3.4 billion. The positive impact naturally is that the current business mix, geographical mix gives us a much better position to growth opportunities when you look at the development of economy and our markets in the future. To the third part of my speech where I will tell you about how the markets developed in quarter four, starting again from Europe, Middle East, and Africa, and from New equipment markets. In Central and North Europe, the market declined slightly but remained at relatively good levels. In Germany and Austria, which have been good markets, the markets also during last years, the market stabilized. In Switzerland, it went slightly down. In Nordic countries, the development was most positive in Sweden and Norway. In Finland, it went slightly down, but remained at a good level. In the U.K., market went a little bit down, but the major project activity was rather strong. In Netherlands and Ireland, the decline continued. In Russia, again, the market developed positively. In South Europe, the demand continued to decline. In Italy and in Spain, the market declined from already low levels and in France, where the market developed somewhat positively during the beginning of the year, it continued to decline. In the Middle East, demand remained strong in Saudi Arabia and also saw good positive signs in Qatar and Dubai. In Turkey, the market continued to develop positively. About the modernization markets, the market declined slightly in Central and North Europe and continued to decline in South Europe. In maintenance markets, the markets continued to grow although there were quite clear differences between countries. Again here, the development in Central and North Europe in general has been better compared to the, let's say, to the countries in South Europe with weak economy development. This about Europe, Middle East, and Africa. Americas, where in New equipment markets, the gradual market recovery continued, driven by small and mid-sized projects in the residential and office segments. Regarding the different geographies, the markets in West Coast and Texas continued to develop positively, and we continue to see positive signs also in Florida and in Midwest after, let's say, long market weakness. In Canada, the market continued to grow, but at a lower rate than earlier during the year, and in Mexico the market was stable. The modernization markets developed somewhat better than in Europe. The market grew slightly. In maintenance the price competition remains very intense, particularly in the non-residential segments. Asia Pacific, where the growth picked up clearly end of the year. I will give a few comments by country regarding the New equipment market development. I will start from China, where the market grew at a higher rate than during quarter two and quarter three, with demand growing in all segments. Many of you remember that in quarter three announcement, so in October, we communicated that our estimate about quarter four market growth in China was that market would grow between 0%-5%. When we look back, our understanding is that the market growth was between 10%-15%, so clearly higher. What happened? We have come to the following conclusion. The positive turn in the economic growth in China has, first of all, impacted in such a way that our customers have accelerated the ordering of elevators and escalators to those projects that had already been started. Secondly, the key statistics related to real estate, they have continued to improve. The development in sales of new sales area has continued to be positive. It was clearly positive also in quarter four. It was positive already in quarter three. The development also in the new construction area has all the time been to a positive direction, so that it was already close to zero previous year's level in quarter four. We estimate that in quarter one this year also that these new construction starts will be positive. Hence our forecast now or estimates regarding the market growth in China for the first half of this year is such that the market will grow by between 5%-10% during the first half and at the moment also the outlook for the second half of the year is rather positive, but it is still too early to say. We will communicate more about that then in April. Regarding different segments, growth was strongest in the affordable housing segment, but growth was good also in the other residential outside the 45 big cities where the government restrictions are still in place. Governments want to get the prices down there and avoid overheating. Actually, the prices have gone a little bit up there, but if we take a longer timeframe, from 2009 to 2012, the growth in prices has been much smaller than the growth in the disposable income. Therefore, also this situation has developed favorably. In these big cities, the growth of the commercial projects has been quite good. What happened in China in the fourth quarter, that was also to us, it was clearly a positive surprise. In India, as we have all the time communicated during the first nine months of last year, the growth was low because of difficulties and tightness in financing. However, as we have all the time communicated, we really saw some, let's say, pent-up demand, especially in the residential segment, which now picked up. Actually, for example, our orders growth in the quarter four in India was very good. In Australia, the market grew, but here the root cause more than a high market level now was a favorable comparison time in quarter four 2011, where the market was at a very low level. In Southeast Asia, the markets continued to grow. In modernization, the demand in Australia declined clearly, and in maintenance markets, the markets in different countries continued to grow. The maintenance market starts to be a rather significant, let's say, business to us already also here in Asia Pacific. One way to illustrate this again is to take China as an example. Between 2006 and 2012, the growth in our maintenance sales has been annually as an average 35%. This was about market growth and then some interesting key highlights and figures regarding 2012. Our new equipment orders received grew last year from 86,000 to 118,000 units, and deliveries went up from 74,000 to 103,000 units. Something interesting to mention is that we think that we are now the leader, the number 1 company in both of the two biggest new elevator and escalator markets globally. We were that already earlier in India, and now it is clear that we became the leader also in China, which is by far the biggest market globally. Especially last year our objective was not to maximize volumes, but as we have said all the time, our ambition and effort was all the time in China to increase our prices and also focus on our margins. This will be our approach also this year so that we develop volumes and margins in a good balance. It is very clear as we believe that the price competition will be intense in China in 2013. Encouraging development of course. The second highlight here is the launch of our new global volume elevator in Europe, Middle East, and Africa and in Asia Pacific and now in this first half of this year, we will start to introduce it in the Americas. The development ramp-up, start of the sales, everything has started well. Customer feedback is encouraging and what is very important here is that we launched and brought into markets this product in a phase when the competitiveness of our current products is very good and hence this new product range has increased our competitiveness further. Also, the move to our new, let's say, and bigger factory in Kunshan in China has gone very smoothly and in maintenance base we grew last year from 850,000 to 900,000. These were some of the highlights regarding last year. Our solid and positive development in our business over the years has been based pretty much on the active work in our development programs where we have clear focus but Actually, with this clear focus, we develop our competitiveness in the broad scope all the time. And here you see our five development programs that we have now been working with during the last two years. This is now the last and third year that has started, and in the middle of the year, we again start to work that what would be the five best development programs for us for the coming years in order to continue to, let's say, build our path towards our vision and enable continuous profitable growth. Here I have listed just a few examples about what we have achieved with these programs last year. And I will start with the improvement of customer loyalty that further improved and also employee satisfaction improved further. In the third development program, as a main example, we had the introduction of the new global product range. In service, we expanded our modernization offering and improved efficiency of field operations. In the delivery excellence, the demand supply balancing is developing well in different parts of the world and has clearly contributed to our inventory management and working capital rotation. In addition to this, I would say a few words about how we think ourselves that was this a good year for KONE or not. As many of you remember, we have decided that we want to have positive progress in five key areas during a year so that we can be pleased that, yes, we are building up a stronger KONE impact into our long-term development also last year. About these five, we know that the customer satisfaction developed positively, employee satisfaction developed positively. We will give our estimates about what was the global market size last year in April in our quarter one announcement, with this development, it is clear that we were growing faster than market. This is how we see it. That is the third area. The fourth is that every year we also are targeting a better development in financial performance compared to our key competitors during the first nine months. This was the case, now we have still some competitors that have not announced their full year results. This we don't know yet, the fifth factor is sustainability, and in that area we made a lot of good progress last year. This means that we can be rather pleased with our development in 2012. Market outlook and business outlook. In New equipment markets, the market in Asia Pacific is expected to grow clearly. The market in Central and North Europe is expected to decline slightly and the market in South Europe to decline further from the already weak levels. The market in North America is expected to continue to gradually recover, and the modernization market is expected to be at about the same level as in 2012 or decline slightly. The maintenance market we expect to continue to develop rather well in most countries. Finally, the business outlook. We estimate that the net sales will grow by 5%-9% at comparable exchange rates as compared to 2012. The operating income we expect to be in the range of EUR 840 million-EUR 920 million, assuming that translation exchange rates don't materially deviate from the situation of the beginning of 2012. In addition, also this year our sales and EBIT will be second-half weighted and the growth in EBIT will be lower in first quarter, growth towards the end of the year. This is now a somewhat long introduction, now we have time for your questions. Please. Thank you very much, Matti. Before we jump into your questions, I would like to inform you of two practical matters. Namely, firstly, we have just launched a new IR app for the iPad that is free for download or available for download for free at the Apple App Store. Please do get it and download it if you're interested in getting easy access to KONE data. Secondly, we have decided on the date for our 2013 Capital Markets Day and our CMD this year will be held on Tuesday the 24th of September. We will send a further note on this, but for your information already now. Next, we are ready for your questions, please. Let's start with the questions from those present here in Espoo, Finland. Do we have any questions here? Pekka Spolander from Pohjola Bank. First, a technical question. I just want to check that your net financial items were negative in Q4. Is it this roughly 19 million revaluation of these options that are included in the fourth quarter? That's correct. In the fourth quarter, we had about a 19 million charge relating to options to acquire further stakes in businesses and requirement for us to revalue those every year. That was what weighed the financial items in Q4. Okay. Second question about the price competition. You mentioned that it has remained at least tight or even increased in some areas. Could you discuss a little bit more in different areas and compared for beginning of last year, for example, how has the situation changed or has it changed? Well, I think that the key developments here in tightening price competition are, of course, let's say markets where the total activity level is low, especially South Europe. In North America, in the United States, although the market is gradually improving, the level of the new equipment market is still low and this has also impacted that the price competition in maintenance is tight. What comes to China, it is clear that in the global situation when some of the big markets are, let's say, relatively weak, the competition is tough also in the, let's say, best growth opportunities. As some of our competitors have, let's say, communicated they made, let's say clear price decreases last year. Because of the size and growth dynamics of the Chinese market, we expect this to continue and try to be ready for that or are working to be ready for that, not only try. Thank you. We are now ready for the first question from the phone line, please. Thank you. If you'd like to ask a question, please press star one. The first question comes from Lars Borresen. Please go ahead. Yes. Thank you very much. I had three if I could, Matti. First of all, in terms of China in Q3 and looking into 2013, can you give a little more granularity as to what has surprised so materially on the upside? It sounds like the affordable housing segment. Specifically, can you talk about what kind of industry volume growth you're currently seeing here? Also perhaps when you expect this segment to peak for the industry in terms of order growth. What comes to the affordable housing markets, it slightly, let's say, increased what was expected, but that was not the big reason. The big thing is that overall in all segments, we saw more or less a pickup because of those reasons that I mentioned earlier. Maybe just here, can I ask, do you expect the affordable housing segment to grow for you in the second half of 2013 and in 2014? We expect that the affordable housing segment will not grow in 2013. The growth will come, let's say, pretty much evenly in all of the other segments. Thank you. Secondly, the midpoint of your guidance for 2013 implies an EBITDA margin largely in line with that of 2012. Clearly, you are seeing a mix shift here that should adversely impact margins. If you look at new equipment and services separately, can you give us a sense for how we should think about the like for like margin development in 2013? In new equipment we have, let's say a couple of points here. First of all, especially during the first half of this year, we continue to have deliveries with lower margins from 2010 and 2011. The times from orders to deliveries they are pretty long, in some cases, especially in case of some markets and especially in North America and especially naturally in the case of major projects. That is impacting the new equipment margins. Secondly, as we have communicated we are taking in this situation when our competitiveness of our current products, new equipment products is also strong. We are taking the ramp up of the new product range smoothly and therefore the volumes of the deliveries of the new product range they are very limited this year. Therefore, we really start to see the positive impact and margin impact of the new product range in 2014 in line what we have said earlier. What comes to maintenance markets, let's say a good impact about the margin pressures is the situation in Southern Europe where the new equipment market has been at very low levels already for quite some time, therefore the conversions from new equipment to maintenance are lower. Also there are, let's say, situations where, not so much, but still situations where some of the elevators are taken out of use. Naturally, when the markets have this kind of dynamics also, as I mentioned also earlier, the pricing pressures are toughest there. In the service regarding modernization, especially in South Europe, the customers are investing to modernization more or less only when they must invest. There is, in Europe, a lot of pent-up demand, but before the economy starts to develop more positively, it is difficult to see that European modernization market would really start to grow. Just one follow-up on that, if I could. You talk about a pricing environment in China on the new equipment side, which has further intensified in Q4. We heard from Otis yesterday that they believe they have regained material market share over the course of the second half in China. Would you say that you have seen a step change in the competitive environment and pricing environment in China over the course of the second half of 2012? I don't think that we have seen a step change. What I did not mention yet, that in quarter four our orders growth in terms of units in China was, without Giant KONE, 25% and overall growth 70%. It was a very strong quarter for us. In monetary value, in quarter four, our growth was even more than this 25%, clearly more. Thank you. Your next question comes from Andre Kukhnin. Please go ahead. Hi. Good afternoon. Thanks for taking my question. Just a quick one on the U.S. Are you seeing any evidence of modernization market starting to pick up there? Those little high-rise buildings that went up in the 1950s there, and some companies are suggesting that these provide an interesting opportunity for modernization revenues, and I wonder if elevators getting involved in that as well. Yes, we are really seeing that kind of positive development or in the case of examples that you mentioned and overall the modernization market is developing more favorably in the U.S. than what is the market in Europe. Thank you. Just as a follow-up on China, on that comment that you made about pricing becoming tougher in new equipment in Q4, if you look at segments of the market and social housing in particular, is there any sort of differentiation across the segments, or is it really broad-based? I would say that it is broad-based. What continues to be, by the way, the situation is that we continue to see development where the demand to a certain extent continues to be moving from the smaller players to the bigger companies. What we are very pleased with is that also in the second half of the year, we had a very good development in orders, both in case of, let's say our, I would not call it main operation, but our traditional operation and at Giant KONE, both developed very well. Really the integration of Giant KONE has gone so far very well, and it has contributed nicely to our development in China. The very final question, what you said about demand shifting from smaller players to larger ones. Is increased pricing competition coming from the smaller players responding to it or larger players competing for the bigger piece of pie? Well, globally large players have a different kind of market positions in China and because China was already in 2011 clearly more than 60% of the global market last year, even more, it is clear that both in terms of New equipment market, let's say, opportunity and an area which have a major impact to global market share and future service opportunity. All of the key players want to develop a strong position in China. Therefore, this is not just a phenomenon of smaller companies, but also let's say some other bigger companies. It is understandable. Got it. Thank you very much for your time. Thank you. The next question comes from Chris Reed. Please go ahead. Hi. Just a question about the margin and trying to understand how it's varied over time. You talk a little bit about the lower margin on some of the projects the orders received in 2010 and 2011. Can you give us just a sense of how that compares with the orders that you received during 2012, which will start to become revenues over the next year or so? What kind of difference do we see there? Then when you think about the orders that you're getting now as we go into 2013, how would that compare to what we've seen? Maybe Henrik, you will now answer this. Sure. I would say, first of all, when we refer to the margins of the orders that we took in 2010 and 2011, I would say that the deliveries we have now are in certain markets more, I would say, in the western part of the world. I think that the difference in margins that we are seeing now between the situation a couple of years back varies quite a lot between different geographic regions. I would say you have to remember that we operate in a business-to-business environment, so we are not looking at any step changes. What I would say is that during the last year, we had a continuous and gradual improvement in all of our geographies. I would say there are certain geographies where the development was even better than the others. Now I'll talk about new equipment. When you think about what are realistic expectations for new equipment orders this year, given current market conditions even implied that there is some pricing pressure, but I think you probably say that every call. What is realistic to expect when we have this discussion a year from now? I would say that during the year, as I said, that we're gradually able to improve our margins in orders received. Again, I would say a slight and gradual improvement, at least in the right direction. I would say that in many markets, I believe that we have started to come to a level where it's probably difficult to get it much higher. I think that we are starting to see clear resistance in terms of price increase in many areas. I think this is an area we need to continuously balance, and I think for us to continue to develop well, what is very important is that we continue to develop our competencies in the area, develop both our processes, but also competencies of our salespeople. I totally agree what Henrik said, and I would like just to add to give a little bit, let's say, background to this situation is that when looking back, we can say that in 2010 and 2011 we prioritized. If you think how we have prioritized volume or let's say growth, yes, volume and margin. In 2010 and 2011, we had maybe a little bit higher priority on volume growth or sales growth. Last year, we had a higher priority on the margins. What Henrik is saying, he's using the word balanced. Now our objective is to be balanced, as is our, let's say, main thinking has been all the time. Okay, thank you. That's helpful. If I can just finish off with a question. In the past, you've indicated that you have a long-term EBIT target of 16%. I mean, clearly as the new equipment business grows, maybe it's a bit of a challenge to get there. How do you think about that target given the current market situation and how you balance growth in the business areas and volume growth versus margins? Yes. This 16% continues to be our objective. However, it is realistic. I would like to remind that all the time since 2005, we have always said that the two highest priority objective for us in this business where we are a challenger, we continue to be a challenger, and where we have a negative working capital. The two top priorities for us are to create, in the long term, as strong market position globally as possible and as strong absolute profit levels as possible. We don't think in such a way that we would try to improve our relative operating income by trying to direct and to really influence that our business mix would be like 60/40, which used to be quite often in this business. Our objective is to develop actively, as actively as possible, all of our businesses. We also know that we have a lot of possibilities to continue to improve our, let's say, competitiveness in terms of product and service offerings. We have a lot of opportunities to develop our internal efficiency, and we develop, of course, our people very actively. The orientation at the same time when I said what are the top priorities is, of course, towards higher margins as well. Thank you very much. Your next question comes from Eric Gollang. Please go ahead. Thank you. Two questions from me. The first one on incremental margins. You've been at around 10%. quarters. Is it a fair assumption to think that you will be on that level for the start of 2013, and then for an improvement towards the second half of the year? The second question then, with Giant KONE one full year in your books now, could you give an update on the segment split for you in China between affordable housing, other residential, commercial, and infrastructure? Thank you. Henrik, maybe you can take this. Okay. First of all, we don't really manage this business by looking at the incremental margin. Again, I think for us, the most important thing is to make sure that when we grow, we continue to grow profitably, as Matti said, and continue to grow with negative capital tied up in the business, that this will increase our return on capital. I would say, mathematically, you're probably right what you say, but I would say you have to always remember there's the current business and the growth that we're both looking at that impacts the margin. I think Matti made a comment already earlier that if we look at our operating income development during 2013, we believe that the growth is slower beginning of the year and then faster towards the end of the year. Hopefully that answers your question on relative. Your second question, sorry again, was- China segments We have not discussed our segments in detail between the two businesses, but if you think about the market overall, if we say that residential in total is about two-thirds and commercial infrastructure is then about one-third, affordable housing is about half of total residential. If we look at our business mix, we are still a bit less weighted towards affordable housing relative to market overall. Okay. Thank you. We have another question. It comes from the line of Michael Harleaux. Please go ahead. Hello. Can you hear me? Yes, we do. Hi. Just what is the contribution for M&A you are expecting in 2013 for sales and EBIT please? We acquired 24 businesses last year. Most of them were very small businesses, the contribution from acquisitions in 2013 both in sales and operating income is quite small. Usually in the first year also, these acquisitions, given current rules on amortization intangible assets, that we tend to have higher- Intangible asset amortizations in the first year, which therefore has an impact a little bit on operating income. I would say that it is not material, the impact of these acquisitions. Okay, thanks. I got another one. Just to know, out of your sales in 2012, of your original equipment sales, what was the share coming out from the backlog of 2009, 2010 orders that were badly priced? What do you expect for 2013? Henrik. I would say if you think about the overall rotation of the order book, North America would be 18-24 months, Europe somewhere around a year, and China 6-9 months or perhaps somewhere in that region. It's clear that if we look at the deliveries in North America, there are more of those, and in Europe still also some of them. I don't have an exact percentage, there are still a number of these projects that have a clear impact on our margin. Okay. Just the last one regarding, again, China, sorry. You mentioned that you were quite confident on orders in H1. Can you give us a bit more flavor on what kind of orders you expect in 2013, and how do you see that split in between H1 and H2? Well, yes. I thought about how we expect the market to grow during first half and said that at the moment, also the outlook for the second half looks promising, but it is too early to say, and we will communicate more in April. Our competitiveness in China at the moment, as was demonstrated also in quarter four, is in a good shape. Our product competitiveness is strong. We have a lot of sales activity. We have been able to develop our people very actively. Therefore, China is so dynamic market that this is a little bit too much said that yes, we are confident about the possibilities to develop our China business again positively this year. The starting point really is good. Okay. Thank you much. You have another question. It comes from Alexis Denault. Please go ahead. Yes, good afternoon. It's Alexis Denault from Exane BNP Paribas. Two questions, if I may. First one, you had a positive development on the working capital. Just wondered how much is that linked to, I'd say, the regional development and the stronger sales in China? If you could give another word, what has been the development of the working capital in each of the region? The second question, you gave us your assessment of your market position and the new installation in China. What is your assessment of your market position in the maintenance business in China? Thank you. Okay. Maybe I'll take the question on working capital. I would say, firstly, we had good development in our working capital in virtually all parts of the world. I would say that it was a broad-based and good development. That's firstly, mostly important. Secondly, as you indicated, the change in the business mix with a higher mix towards Asia-Pacific and China in particular, has a positive impact also on our working capital that, for example, advanced payments are a slightly higher proportion there than they are in other areas. It's both the geographic mix of sales, but also the fact that they've improved in most of our countries. Maybe I continue with the second question that was, what is our position in the service business in China, where, let's say we don't have equally good data statistics concerning different players. Yes, we have a very strong position also in maintenance in China. The reason is that we have developed also in China our maintenance capability and maintenance business from the beginning, from the year when KONE started in late 1990s in China. I said during the last let's say from 2006 to 2012, the average annual growth has been 35%. We are really indeed very well positioned in service as well. That continues to be a very high priority for us. Very good. Thank you. You have no further questions at this time. Please continue. Thank you very much for your active participation and questions. Have a very nice rest of the week and weekend.