KONE Oyj (KNEBV) Earnings Call Transcript & Summary

Good afternoon and welcome to KONE's first ever Virtual Capital Markets Day. I'm Sanna Kaje, the Head of KONE's Investor Relations. Let's first look at the agenda for today. We have altogether 4 presentations and short prerecorded videos from the heads of our different geographic areas. The event will altogether take around 3 hours, a little bit more than that, and we have one 10-minute break in between. We have now been executing our Winning with Strategy -- Winning with Customers strategy for 4 years, and this is the final year of the strategy phase. The presentations will be focusing on what we have achieved in terms of mindset, ways of working and offering during this strategy phase and what will be the next steps going forward. You will have an opportunity to ask questions during the event. You can do that by submitting questions through the form at the bottom of the page during the presentations. And at the end, we will open the telephone lines for more questions. I will now invite on stage, our President and CEO, Henrik Ehrnrooth, for the first presentation. Henrik, please?

Thank you, Sanna, and a warm welcome also on my behalf. Great to have all of you online. Of course, we would have much preferred to see you all in person, but let's make the best out of this situation. I think we have an interesting afternoon or morning together, depending where you are. As Sanna mentioned already, we started executing on our Winning with Customers strategy back in 2017 and we made some good progress since. The purpose of today is to review what progress we have made but also to talk about how do we see our markets developing in the coming years and how are we planning to capture that opportunity by driving further differentiation. So those are some of the key themes you will hear from my colleagues and from myself today. But let's start with looking at what we have achieved during the past almost 4 years since we started to work on our Winning with Customers strategy. And then I will talk about how we're building on the strengths that we have for the next phase in our development, very much as we have done consistently over many, many years. 2017 was a start of the current strategy phase. When we look at the world in 2017, we could see many attractive changes happening that were positive for our industry. And we could see that by further differentiating and bringing solutions to our customers that actually helps them succeed in their business, we can create additional profitable growth. So that's what we set out to do, is to build an even more customer-centric organization, capabilities or really deeper understanding our customers' businesses, and that way, being more consequential to their success and of course, developing our offering to add more value to our customers, and that will also create additional revenue streams for KONE. But perhaps the biggest mindset change for us was one to create a truly outside-in mindset. Outside means that we start always from whatever needs our customers have, and that's how we develop everything at KONE. So those were some of the things that we set out to do almost 4 years ago. What I'll talk about next is how have we developed there. But let's start with a few highlights. So what have we accomplished? I mentioned already mindset, very important. That's always at the heart of everything, how we think about how we serve our customers, how we think about how we develop our company and how we work with our customers. So it's been a lot about creating customer centricity and capabilities around that. Again, we have continued to train actively our people. And when I look at the progress here, I think we made some really nice progress. You will hear much more from my colleagues of how we created capabilities or developing together with our customers for their benefit. So I think we actually made a big step forward here. Mindset alone is, of course, not going to be enough. We need to have an offering for our customers to deliver value-add to them. I think what is familiar to quite many of you is that we have had a very active phase of bringing new value-added services, solutions and products to our customers. I'll talk about those a little bit more, but that has been really a key to this phase, is actually we have brought total new types of services, bring new values to our customers and actually generate revenues that didn't exist in this industry before. And that, I'm very pleased about. And also, [ I mean ] a lot about new ways of working, to have a smarter, more efficient organization, a lot about the Accelerate program, but also how we have further developed our KONE technologies and innovation organization. Let me then take glimpse into our new equipment business, our new services business, what we have done there. In our new equipment business, we're building on the very strong foundation we already had. I think as everyone knows, we have a very strong basic product competitiveness in our industry, and that has been the basis of what we have done. In this period, we have again shown the direction and innovation in our industry. One of the signs of that was that we brought DX Class elevators to the market in November last year. Again, they bring a new era in elevators. But also, we have improved the basic competitiveness of our products, both on elevators and escalators. To bring new value-added solutions to our customers and improve our capabilities in sales and pricing, we have developed a lot our sales capabilities, both pricing excellence, where I think we made good progress and that we can see from the outcomes, and also developed solution selling capabilities, where we sell whole system solutions and outcomes to our customer rather than products only. And we have also strengthened our delivery chain to ensure that we constantly deliver on our customers' promises. That is a big value for us to do it. And also to improve our productivity. And if we look at the outcomes, as you know, that we have gained market share again throughout this period, particularly in the past 2, 2.5 years, even more so. And we have improved margins of our orders received. So we can see that we have provided more value-add and improved our pricing. So outcomes are quite good. In services, I think it's familiar to many people that about 5 years ago, we set out -- actually a little bit more than 5 years ago, we set out to differentiate even stronger in services because actually, we felt that there was, in general, a lack of differentiation. And one of the first things we concluded, and we always have had this a basis, is that services is very much about people. People is the #1 differentiator. How you make sure that they have the best service mines and the best capabilities to serve our customers to focus on right outcomes for our customers. We brought a lot of new value-added solutions for our customers. We've talked a lot about our 24/7 Connected Services and also the adaptable service offering, our new KONE Care, as well as more lately also our DX Class solutions to the modernization business. So again, a lot of new solutions and value for our customers. Much has been about capturing the digital opportunity, which is very significant in services. And we very much looked at that from 2 perspectives. That's how do we have a platform so we can actually add value to our customers. That's really the principal focus. But at the same time, we want to have the best tools for our field technicians for our people who work and serve our customers to have the best information for them constantly and improve productivity. And I think we're actually in quite good shape here. What is the outcome? We are the fastest growing in services of the major players in our industry. We have increased the value per unit, if you look at maintenance. That's a big change to history. And that shows that we are adding value. And also modernization, we have improved our margins in our orders received. So I would claim that the outcomes are pretty positive. Let's take a snap -- peek into our 24/7 Connected Services, how we're developing them. We all know that this is really our flagship service, and we can see that momentum is building very nicely here. The idea with our 24/7 Connected Services is, of course, to add clear value to our customers. And at the same time, when we do that, we can create additional growth for KONE. And we can see it is driving growth for us. Already, if you look at this year, it is contributing about 1 percentage point to our maintenance growth. And it's actually quite meaningful in my view because if you think about our maintenance business, that has been continuously and constantly compounding at between 5%, 6% or sometimes up to 7%. If we can add 1, 2 percentage points of growth through value-added services in the compounding, it is actually meaningful over time. And that is what we're doing, and growth is actually accelerating here. Our penetration is still only a bit over 5%, but we have a number of countries that are already over 10% of our contracts covered by this. And by the end of the year, we expect a lot of our big countries to be over 10%. But what is perhaps even more important is that this is not a static service. The more customers we have, the more we learn and the better service needs and outcomes we can create. So this is something that when you only have 1,000 or 2,000 or 3,000 units connected, you will actually not have sufficient data to create really the best outcomes the service needs. But when you start to have like us, a very significant base connected, you actually learn all the time. And that helps us bring the new services to our customers constantly. Like we recently brought 24/7 planner. That's again a new element, new feature to our service, where we can create long-term asset management plans for the next 2, 3 years for our customers to help them plan what do I need to repair, what do I need to upgrade and predictability to this. And this is a huge thing for our customers, and we've seen very positive feedback as a result of that. But those are really highlights for our new equipment business and services business, a little bit of a look into 24/7. But what I think is familiar to most people is that the way we measure our success is through our 5 strategic targets. Here, we have our 5 strategic targets and we can see actually a good development in most of them throughout this period. So let me actually dive a little bit deeper into each of them, how we create the most to our customers, KONE being a great place to work, how we've grown faster than market, what about best financial development and being a leader in sustainability. Those are the 5 ways how we measure our longer-term success. So let's start with most loyal customers, which is a clear objective of ours. The key way how we measure that is through our Net Promoter Score. We again recently did our annual survey. And we have seen over the strategy period a good development in both our new equipment business and our services business. Latest survey was now in the spring and summer of 2020. And again, we had a slight uptick in that and had an all-time high now in Net Promoter Score. And we are at a good level here. Customers continue to appreciate us for our quality, our focus on them and delivering on what we promise. Many also talk about our innovations. We do have an opportunity to improve in how responsive we are to a very broad and diverse customer base. And that is something that we're working a lot on, how we can be much more responsive to really meet, help our customers we serve even better than they do today. So we have some good fundaments, but as always, good opportunities to improve. KONE being great place to work is really, I would say, fundamental everything. By having skilled, motivated and engaged employees, it's clear with that, we can serve our customers like no one else. We talked in our Q -- in connection with our Q2 results about the results of our employee engagement survey of this year, and the results were just incredibly strong. First, 92% of our 60,000 employees answered it. We were already, before this, for many years, in so-called high-performance category. And now we are very strongly into high-performance category. We had very strong results. Our employees very much appreciate our strategy, direction, innovation. Also said that, our diversity and inclusion scores, they have improved significantly while we still have a lot to be done. But we also did earlier in the year an organizational health survey. Also here, we were in the top quartile with strength, innovation, direction, how we communicate internally where we go and customer competition focus. So we have a very good basis of our culture and engagement of employees, and this is important. Our third target is to grow faster than market. And we have had good development in this period, both in our new equipment as well as our services business. Our orders received which, of course, consists mainly of new equipment and modernization and partly also repair sales, has grown at constant currencies an average of 5% over this period. We know that when we went into this period, the market in China was very difficult. So the first year, we didn't grow. But then 2018, '19, we actually accelerated clearly that growth. And with this, we have constantly been market share, particularly strong market share gains in 2018 and 2019. This year, of course, we need to see, but I think we are on a good path again. In maintenance, our maintenance base has compounded at 6%, which, again, the fastest if you look at us compared to our major competitors. So yes, we also continue to grow faster than the market. Our fourth target is to have the best financial development. Here, we can't be fully satisfied. That's clear. Going into this period, we know that we had a very challenging market in China starting in 2015, then particularly in '16, '17 and partly into '18, where pricing was very much under pressure and raw material prices came up. So that actually put a pressure on our margins. What I'm happy about that, since Q2 2019, we have actually improved now the margins of our orders received, both through improved pricing as well as productivity. And therefore, we are in an improving path, which we could see in the second quarter of this year that despite the crisis, we actually slightly improved our margins. So it's really coming through, but it's clear that we are working hard to come back to levels before this period. Our fifth target is to be the leader in sustainability. That's very important to us. We know that already today, KONE has the most energy-efficient products out in the market and we constantly want to improve. We are looking at sustainability from few different perspectives. First, we're looking at the carbon footprint of our operations. Here, our target is to improve 3% annually compared to our sales. So CO2 per sale should reduce 3% per year. In 3 out of the 4 years, we have exceeded our targets. 1 year, we didn't quite get there, but then we put some more focus. And again, we started to exceed targets. Our target is, by next year, to have 50% of our energy produced by renewable energy. We've gone up from 28% to 37%. So we still have some work to be done this year. In diversity, number of women, this is one of the measures, but number of women at director level position has increased from 16% to 18%, and we have not got to our target of 20%. So we continue to put more effort in this area. And then we want to be a zero accident company. We have improved our industrial injury frequency rate from 2.1 to 1.7. And compared to benchmarks, 1.7 is at a very good level. However, it's clear that we are not happy about this, that we want to be an incident-free company. So again, good development in sustainability. So those are 5 strategic targets. And if I just look at then a snapshot on development this year, we know the market has been very challenging. What I'm very happy about that in the midst of the crisis this year, actually, our business has remained very resilient. Our orders received has declined by 5%, which I think is a good achievement in this environment as sales has been flat. Our adjusted EBIT has just declined slightly. It declined more in the first quarter and then actually improved in the second quarter. And our cash flow has been very strong, by far, the strongest cash flow ever in a 6-month period. So that, of course, gives us a very good fundament to continue developing KONE proactively also in this environment. And let's turn to that next, that how are we building on our next phase and our megatrends and our solid foundation to differentiate it more and continue to drive growth. I haven't talked so much about the COVID crisis, but let's talk about that shortly first. When we started to see the impact of the crisis earlier this year, we immediately made a few fundamental decisions. One, which, of course, the obvious one, which I think most companies are focused on, is the safety, health and well-being of our people and our partners and the general public that there cannot be any compromise there. Secondly, we decided that actually we want to create an even stronger company of KONE throughout this crisis. Because when we look at our history, we can see that many of our big improvements in our market position has come following or during a crisis. And we also want to take this opportunity here. We have a position to do it. We have a very strong balance sheet. We have motivated, engaged employees and a good position overall. So we said cost is not going to be our primary objective. Our primary objective is going to be health and safety of our people, serving our customers and really driving forward our development programs to really make KONE a stronger company. So what have we done? We have increased our training over the years a lot. This year, we've expanded it a lot. Number of completed courses by employees during a crisis in the spring were up like 3x compared to the previous year. Still now, we are more than twice compared to normal levels. So the first objective when people did not have work to do in installation or service was to train them. And that's something we're going to continue. Secondly, we actually accelerated our investments in R&D. Many of our core programs, we've allocated more resources to them and we developed our health and well-being solutions. So we really want to make this an opportunity for us. And if we look at what are the implications of the crisis on many of our customer sectors, we can say that it's still unclear, but there are many trends we're following closely. So if we look briefly, we can say that residential, I believe, that it's going to be a resilient sector because we are spending more time at home. We are going to work more at home. And therefore, people value their homes a lot. And we can see that, that has recovered actually. Residential sales and construction in many countries have recovered quite nicely. So that's probably going to be quite resilient and that's more than 50% of our sales. Offices. What is the future of the office? It's clear that the new normal, we will work differently. There will be more mixed mode of working, partly from home, probably more from offices to ensure that you continue to drive innovation, team spirit, culture and so forth, but it's going to be more mixed mode of working. So the question is, what does the future office look like? How much space do we need? I think that's still unclear. And to me, it's not at all clear that it's going to be less space because the trend during the past 20 years has been constantly less space per employee in office buildings, and we probably went too far. And we're going to need different types of spaces. So I believe really the key here, again, will be adaptability, which we know that modern offices will be well suited to but not necessarily older offices where they need to be upgraded. So let's follow here, but it's going to be a change, definitely. Infrastructure. With all the government stimulus we see, we think that's going to be a robust and resilient sector. And it's clear that travel, leisure and retail are going to be hardest hit, and that's going to take a time before they recover. But we're going to have different situations, and that means there are going to be opportunities that we need to find from this that we think we can do. But also, to really look at what are the needs that have come out, we can see that actually, people flow and the elevator has shifted from being maybe a secondary thought in smart buildings to really a primary role. And that has really been a key thing that -- how can we bring more intelligence? How can we do things more remotely? And how do we actually help building owners have safe flows to bring people back to the office. And here, we've done again a lot. Of course, our 24/7 Connected Services and DX Class elevators are incredibly relevant in this area because it really provides you with adaptability and ability to just seamlessly bring new services. To also support buildings, manage this, we brought out new health and well-being solutions. We also worked a lot with our customers on how do you safely return to offices and what is the office of the future to reimagine that. And we can see that people flow is really at the center of the thinking of many people. So we can see, again, a lot of opportunities coming out of a situation like this. But if we look a little bit longer forward, we can see that our industry continues to have healthy megatrends that we can capture and bring opportunities from. Urbanization, yes, that's going to continue, but in a slightly different way. Sustainability, we can say it's the most important challenge of our generation, hugely important, and technology enabler to solve many of the problems. So these are the megatrends that we believe will drive continuous opportunities and growth in our industry. So what about the urbanization? I've been asked many questions by people that, "Hey, do you think at KONE and do you think, Henrik, that urbanization will continue or people move back to rural areas?" I think the answer is very much urbanization will continue but in a slightly different way. And that is because of demographic changes. More and more people are living by themselves. They want to live closer to services, closer to entertainment and probably to their friends. But it may not be only the biggest cities that grow. Actually, it's probably going to be megacity hubs and clusters. And you'll hear Bill Johnson talk about that a little bit more for China. And therefore, rise of second-tier cities around with good connectivity and connections into the big cities. So we know that high-density areas brings opportunities but also challenges, and that is what we want to resolve with our people-first solutions. So that's the urbanization megatrend that we think is going to continue. But also sustainability. We think that, that is the biggest challenge of our generation. Cities and urban environments, they account for today 40% of world's energy-related greenhouse gas emissions. So they're going to play a significant role in sustainability for the future. And why we think this is going to be such an interesting trend is that we see a lot of commitment in this area, the EU Green Deal with emphasis on building renovation. What is very interesting is that if we look forward to 2050, that 80% of the buildings that are going to exist in 2050, we expect that it exists ready today and less than 1/4 of these buildings meet future or actually current regulations and therefore, they need to be modernized and upgraded for energy efficiency. China has just pledged energy neutral -- carbon neutrality by 2060. That's going to be a huge growth driver. And we can see that capital actually is drawn towards greener buildings. That's what tenants are expecting. And as we all know, at KONE, we have some great assets here. We are already a leader with the most energy-efficient product family in the industry. So we think that this is a great opportunity for us. And also to further show our leadership here, we actually yesterday announced our pledge to science-based targets. We are pledging that our operations will be carbon neutral by 2030. We are planning to reduce our greenhouse gas emissions by 50% of our own operations, so-called scope 1 and 2, and the rest, we will compensate. And of course, there will be a lot about our buildings, a lot about car fleet and so forth. But also, we are committing to a significant reduction across the value chain. So we are committed to a 40% further reduction in greenhouse gas emission from our products and materials life cycle energy usage, so-called scope 3, relative to products ordered by 2030. This is again a very big commitment. Okay, here, we, of course, need to continue to improve the energy efficiency of our products and solutions, of our materials, their circularity, but also engaging with our suppliers much more in detail. But this is a big pledge and very important to us because we think that sustainability and being a sustainable business is not only the right thing to do, it is also a huge business opportunity. That's why we made this pledge because we think it's the right thing to do, and we want to play our part here. But next, before I wrap up. Let's listen to short videos from our area heads, how they see the opportunities in our various geographic areas, and they will all give their own perspective on a specific area where we are looking to differentiate and grow and bring opportunities. So let's have a look at what they have to say.

Hi. I'm Thomas Hinnerskov, Executive Vice President of Central and North Europe. Central and North Europe is a diverse area consisting of 21 countries, however, dominated by some large mature markets like Germany and the U.K. It's also an area where our resilient service business is the largest. Let's have a more granular look at the market and what the outlook is. Maybe before we do so, let me first start by thanking all our customers for trusting us and also our employees for delivering the KONE promise to our customers every day during these very challenging times. Looking at our exposure. Clearly, the residential segment is our largest customer segment. It's a resilient customer segment. It's also when you look from a new equipment market, a segment with good underlying demand. Here, we believe we'll see a stable outlook for the near future. Less favorable so is the commercial segment. Commercial has been softening, and we believe that will continue in the coming months. Governments are looking into currently of support in the economy, and that's where we see that the infrastructure investment will continue in trains and metro stations, et cetera. However, on modernization overall, even though there's a very large potential in modernizing equipment across Central and North Europe, we do see a softening in this market as decision-making is dragging out and taking longer time because customers are taking a pause, just look and see what actually the future brings before making the final decision. So how are we capturing these opportunities in this market? Central and North Europe was one of the first -- where the DX elevator was launched. The DX has clearly helped us differentiate, being more relevant to our customers but also helping solve our customers' problem in a better, more future-proof way. Clearly, when we talk to customers, they are concerned about that they don't really know what the future hotel, office, hospitals [ are going to open ]. They need flexibility. They need adaptability for the future people flow. And that's where the DX will help and can help facilitate that. For example, should there be a need of robots in a hotel or in hospital going forward, that's something the DX elevator can facilitate and accommodate in a very easy way. Also, this situation with the COVID-19 has shown us that we need to be very adaptable when it comes to engaging and connecting with customers. And we've clearly been able to do so. This is something we're going to look much more into and focus and develop in the future, how to, in the best possible way and the most effective way also, connect and engage with customers on their terms. With that, thank you very much. I hope you have a really good day. Thank you.

My name is Pierre Liautaud, and I'm Executive Vice President for KONE South Europe, Middle East and Africa. Our area is fairly large geographically as it spans from Brussels to Johannesburg and from Lisbon to Karachi. It covers large and mature markets such as France, Italy, Iberica and also growth-oriented regions such as the Gulf countries, Turkey and Israel, but also Serbia and Romania. We are doing business under our own name in approximately 25 countries, and we are represented by authorized distributors in another 40, mostly located in Africa but also in countries such as Azerbaijan and Kazakhstan. As you can expect, our business in mature countries is largely driven by the services opportunity. We do have about 30% of total KONE maintenance space in our region, while the new equipment is the core growth engine in our developing markets. Let's look at the near-term market outlook for the region. Our business mix is well balanced in terms of customer segment. Residential, here in dark blue, is by far the largest slice of the pie, seen in terms of volume and in profitability, and that is valid for both the new equipment and the services. Office in green, medical and infrastructure in yellow and retail and hospitality in light blue are of about the equivalent size. When we look at the coming quarters, we see less growth in new equipment than in previous years, especially in developing markets. Within traditionally stable segments such as residential and office, we believe our value-added offering with DX and 24/7 will help us differentiate and develop our market share. Infrastructure and medical segments are the most likely to benefit from government stimulus packages, and we are gearing up to take advantage of those opportunities, especially in modernization. On a country perspective, we see good prospects in several markets such as France, Saudi Arabia, Turkey, while the short-term outlook for Israel and Southeast Europe is less positive. But now beyond the near term, I'd like to represent how we plan to capture more business in our region. First, the investment we made over the past 5 years around customer experience are paying off. Understanding the customer journeys, developing initiatives to engage at the right moment with the right mindset is helping us to increase responsiveness. I'm very encouraged by the ratings we receive from customers through Net Promoter Score. Specifically, our commitment to serve all our customers during the peak of the COVID-19 pandemic that hit South Europe especially hard has earned us very positive feedback. And this is also translating in terms of customer loyalty. Example, how well we're retaining the maintenance contract. That metric is high and it's improving year-on-year despite intense price competition from small and large competitors alike. In fact, we can expect the average maintenance price to rise in the future. In terms of midterm growth, the service opportunity in South Europe, Middle East and Africa is very large. And our core platform with the DX and the 24/7 Connected Services is giving us a lot of benefit to win with our customers. Whatever the age of their equipment, whatever the brand, we can now offer to our customers modernization solution that will deliver the benefits of KONE DX platform and the smart and reliable 24/7 Connected Services. What's really inspiring with the recent DX modernization launch is that modernization is no longer just a solution for remediating to technical obsolescence, but it's also a new entry in the world of digital services. And when you think that the service market in Europe is in the range of several million units, you can imagine the potential. Thank you very much for your attention.

Hello. I'm Ken Schmid, KONE's Executive Vice President in the Americas. The Americas contributes approximately 20% to KONE's global revenue. Geographically, the region is comprised of Canada, the United States and Mexico. We also provide equipment and technical expertise to our distributors in Central and South America. Overall, the United States is the major contributor to revenue in the region. Now let's take a look at our outlook for the markets. As you look at the segment distribution, you see that office and residential comprise a majority of the revenue. However, there are material contributions coming from infrastructure, medical as well as hotel and retail saw good strong diversity across each of the segments. Our outlook in the new equipment business suggests that office and hotel retail will be slightly down. This is driven predominantly by the economic impacts of the COVID-19 pandemic. We think that the residential and infrastructure medical will be rather flat. As we look at the maintenance business, we see it as continuing to be rather resilient. We have good opportunities with our digital solutions, 24/7 as well as our health and well-being solutions. Finally, the modernization business line we see is being slightly down with some recovery coming as discretionary spending loosens. Now let's take a look at an opportunity that we're very excited about in the Americas, lean construction. The technicians that install our elevators and escalators in the United States come with a very high hourly labor rate. So everything we can do to drive productivity and eliminate waste will drive strong profitability. When we talk about lean construction, we really look at it from 4 different angles. The first one I'd like to talk about is around product design. What we're doing now is designing elevators by installers for installers to make sure we standardize the tools and the work practices to drive efficiency. A great example of this is our recently released Mono 300. This is a machine roomless elevator for 2 and 3 landing applications. It gives us access to the hydraulic elevator market that we previously did not have. This product was designed by technicians for the technicians, and we're very excited about the promise it holds in serving our customers and driving profitable growth. The next area I would like to talk about is around scheduling, understanding our customers' pain points, what are their schedules? What are they trying to achieve? When? What are the coordination challenges with their other contractors on the job site? By aligning ourselves and understanding our customers' critical path schedule, we can align our schedule to make sure we're doing the right things at the right time. We also then have the opportunity to set internal priorities for production, optimizing the supply chain and logistics to minimize costs. The next element I would like to speak to involves the visual workplace, something that may seem rather simple but is a challenge in construction. With the visual workplace, we post where our teams gather and review every day visual indications of what we're going to achieve that day and the rest of the week. And then we circle back each day to say that we achieved each of the items that we said we were going to achieve. With technicians on multiple floors and many different points of the installation, this helps us stay aligned so that we can optimize each technician, assuring that they're staying busy. But it also assures coordination with the other trades and our customer, the general contractor. The final element of lean construction is on some of our technology construction solutions. Specifically here, I'd like to point out JumpLift. The JumpLift technology on a job site allows our customer to move people and materials on the job site with up to 50% efficiency. All of these 4 things combined for our lean construction solution to differentiate KONE, understanding our customers' business, their pain points, addressing them, thereby adding value. We get employee engagement. And at the end of the day, we're very proud to say that KONE will continue to be the selected partner of new construction. Thank you.

Good afternoon to all. I'm Axel Berkling, Executive Vice President, KONE Corporation, and I head of the Asia Pacific region, excluding China. This region is one of our growth engines because it is urbanizing at a rapid pace. It has the second youngest population in the world, and the rate of technology adoption is at the highs. It consists of a diverse group of countries, and we have split them into subregion based on the market maturity. India is the second largest new equipment market in the world with an urbanization rate of only 35%. [ Even in ] the Southeast Asian market is fast-developing countries like Vietnam, Indonesia and the Philippines, with an urbanization rate clearly below 50% and somewhat more developed countries like Malaysia and Thailand with an urbanization rate of about 50%. The other extreme are Singapore and Australia and New Zealand, which are highly urbanized countries. With the rapid pace of urbanization, over half of our sales come from the new equipment business. However, we also have a sizable and rapid growing service business with a lot of opportunities. Let's now take a look at how we expect our markets to develop in the coming quarters. Firstly, the COVID-19 pandemic has impacted our area quite severely. Some countries like Vietnam, Thailand, Australia and New Zealand were able to contain the virus fairly well. However, others like Malaysia and Singapore were more impacted but show good signs of recovery. India, Indonesia and the Philippines still struggle to contain the virus and the uncertainty remains quite high. The lockdowns have impacted our project deliveries and caused labor shortages [ at sites ]. We have also seen delays of new projects. Our maintenance business has been resuming as services has been considered as essential. If I look at the outlook for the next couple of quarters, it varies a lot by customer segment and country. As I mentioned earlier, we are still a young and growing region and urbanization continues to create growth opportunities in residential, our largest customers. Vietnam, for example, shows strong growth, and we see some recovery and good opportunities in India and Indonesia as well. Expectations for more remote working are impacting the outlook for our second largest customer segment, office. But we also see some green shoots in countries where the virus has been contained. We also have meaningful share of hotel and retail in the area, which due to the pandemic looks less positive in all countries, especially those with a high share of tourism like Thailand. Medical sector shows positive signs not just from the need for more hospitals but also the need for new technologies. We also expect government investment in [ Asia ] projects to support a good recovery in 2021 in almost all countries. Our service business has been on a double-digit growth trend. The main challenge we are currently facing is the slowness in the decision-making. But the positive side is that we see opportunities in the long term as the markets are still developing and growing. The modernization business has opportunities, especially in the more mature countries, as the building needs are changing post-pandemic. The need for making buildings more adaptable and future-proof is increasing and this is creating opportunities. Overall, I would say that although we are facing some headwinds in the short term, we still see great opportunities for the long term. Today, I would still like to talk about one exciting aspect of our [ diverse solution ]. The opportunities related to smart and green innovations. We are headquartered in Singapore. We have government initiatives to make the country green and smarter, very strong. Singapore has been at the forefront when it comes to sustainability and new technologies and has topped the Smart City ranking for the second year in a row. Singapore has one of the highest adoption rate of our 24/7 service business across the globe and has also been one of the forerunners in the health and well-being solutions we launched during the pandemic. We have an innovation lab in the city, and we are working together with customers and partners to support them in their initiatives. This helps us strengthen our digital infrastructure, adopt new technologies and learn more to support our customers in their sustainability initiatives and how to influence the market. We believe these learnings will be valuable also in other markets. With the high level of customer loyalty, our strong employee engagement, we are confident that our area will be one of KONE's growth engines for the future. I truly believe we are in the right neighborhood. Thank you for your attention.

I hope you all got some good insights on how we see our markets in the different geographic areas and how we are capturing opportunities in these markets. One thing that you probably realized that we didn't have anything on China because we know that China is of big interest and of course, big interest to us given the importance of the business to us. So we have now next a slightly longer review by Bill Johnson of the current situation in China. So please, over to you, Bill.

China. China's all about people and people flow. Hello. I'm Bill Johnson with KONE Greater China. China represents a significant portion of KONE's global business. I will spend the next few minutes with you sharing our perspective on the China market and our operations here. Currently, we have more than 20,000 employees in China, operating 2 factories, 90 branches and more than 500 service stations. We serve more than 30,000 customers, including 9 of the top 10 developers in China. Earlier this year, we were the first elevator OEM to ship more than 1 million units in China. This is a significant milestone for us and for the industry. The majority of our China operation has been led by the new equipment business, yet the maintenance and modernization businesses are experiencing even stronger growth. Let's first look at what has happened to the economy and the real estate market so far this year. Since the end of quarter 1, China has experienced a very strong V-shaped recovery. The real estate sector recovered quickly since quarter 2 and even stronger into quarter 3. This has been supported by favorable government policies related to developer financing, access to land and new investment into infrastructure. The real estate market is linked to China's overall economic climate. Key drivers include regulatory direction, property supply and demand and of course, developers' access to capital. As anticipated, COVID-19 conditions may have material impact going forward. Two macro trends impacting our industry is the continued formation of city clusters as well as the recent focus on infrastructure investment. Growth in these city clusters will drive the elevator and escalator market at a sustainable level. Investment in these key clusters is accelerating, especially for transportation related to infrastructure and affordable housing. The residential segment in these key city clusters has recovered quickly to pre COVID-19 levels. And though the real estate sector has recovered impressively, we continued to see regulatory environment becoming slightly more restrictive going into 2021. One example, the government recently started to pilot a new risk assessment method to monitor debt among large developers. Such measures are likely to put pressure on real estate sector's cash flows going forward. In general, the central government continues its stance of housing for living, not speculation. And we do not expect this to change in the foreseeable future. We remain optimistic going into the first half of 2021, however, are cautious for the second half. The residential and infrastructure segments are expected to remain solid, while office, retail and hotel will remain soft. For KONE China, residential remains a large part of our business at approximately 70%, while infrastructure represents less than 10%. We continue to strengthen our position in China. Despite a challenging first quarter, by mid-February, we were one of the first OEMs to resume operations. This was possible through close collaboration with local governments, customers, suppliers and channel partners. By May 2020, all of our branches had reopened and we were shipping record numbers of elevators and escalators. A combination of sound strategy, strong execution and a great team proved to be successful in outperforming the market. In the maintenance market, we expect continued double-digit growth for the foreseeable future. We are leveraging digital solutions to capture more opportunities. Progress in condition-based maintenance regulations will also help strengthen our position. However, the maintenance market will continue to be very fragmented and vulnerable to pricing competition. Looking at modernization, it is still a small part of our overall business here. However, with a total installed base of more than 7 million units, China modernization is a huge and growing opportunity. As KONE China's installed base of more than 1 million units is relatively young, our opportunity is to capture projects from both KONE and non-KONE [ brands ]. We expect to continue growing our China [ mod ] business at more than 30% a year. We are more focused than ever on winning in the China market. KONE's strategic priorities remain the same: one, win with our customers, improve our added value to them; two, leverage our scale and operational competitiveness, including our dual-brand strategy with GiantKONE; three, capture growth service and modernization segments. And four, continue to attract the best talent to grow and expand our business. In closing, I'd like to express my appreciation to all of our KONE China employees, for their commitment and dedication through this challenging year. They are heroes. I believe KONE China has come out of this crisis stronger than ever. And we look forward to capturing even more opportunities in the future.

So I hope you also felt that, that was interesting and brought some new perspectives throughout our geographies and now lastly, from China. Before we go into questions, let me wrap up. While we know that the economic environment is likely to be very challenging over the coming years, we continue to see great opportunities in this industry. This is a truly great industry to be in and find opportunities. We think in the coming years that we're going to find exciting growth opportunities by being the best partner for our customers in smart and sustainable cities. We think that this is really a growing area, both in new buildings, in modernizing them, as well as maintaining them. We expect that the services market will continue to grow in all parts of the world. So that's an area where we will continue to drive significant differentiation to capture growth. And of course, as we could just hear, throughout Asia Pacific, there continues to be fantastic growth opportunities in services. We will also drive growth by continuing to develop our core offering to make sure that we have the strongest offering in the market that really suits our customers' needs and help them succeed in their business. And on top of that, we're building further value-adding solutions that actually is an opportunity for additional growth and additional revenues as we have done, for example, 24/7 Connected Services, and what we are starting to do now with our DX Class elevators. So we expect that there continues to be great opportunities also going forward. This is just a glimpse into what we are planning from next year onwards once this current strategy phase is over, and we start our next one. You will hear more about this early next year. But with this, we now have good time for some of your questions that now are from online. So Sanna, if you join me here.

Thank you, Henrik. [Operator Instructions] There seem to be several questions on kind of the customer segments and the mix and how it impacts us. And maybe good to start with the big picture. There's a question on the residential exposure that we have. How is it different in new equipment business compared to services?

If we look at new equipment and services and then look in services, both maintenance and modernization, then the residential exposure is higher in new equipment. And that is, of course, because of China. As you could see from all of the pie charts from the various area directors, it was clear it was the highest in China, and that's, of course, a very big part of our new equipment business. But then if I look at between services overall, it's less than 50%. But if we get maintenance compared to modernization, again maintenance, it's higher than it's in modernization. So we can say that the highest exposure, new equipment, then in maintenance and then in modernization to residential.

As a follow-up to that, there's a couple of questions on kind of the impact of the customer segment exposures on profitability and whether the shift perhaps towards more residential will impact profitability. And there's a China-specific question on this but a more general one as well.

Not really. I would say that in most places, there is not a huge difference between profitability between these different segments. So it -- that's not a big driver.

Good. Then a couple of questions on China and the China outlook. And I guess we just upgraded the market outlook for China. So in that sense, things are looking good at the moment. And then Bill talked about the restrictions getting tighter. And here's, first of all, a question on [indiscernible] could you please talk a little bit more what these restrictions mean for you? And maybe we'll start with that.

Well, there are various types of restrictions. As Bill talked about, we have the restrictions on developers and their ability to take on further debt. So that, of course, means that they have more difficulties to access financing. And clearly, there can be some pressure on payment terms. But as you've seen from our cash flow, that has not been a problem for us. And then there are a lot of restrictions on people buying the apartments. So I think that the biggest impact is, of course, the overall demand for housing or real estate in general and therefore, the demand for elevators and escalators for those. So it's more -- that's where it comes rather than a direct impact on KONE.

And linked to this, why are we more cautious on the second half outlook in China versus the -- being more positive, I guess, for the coming quarters?

Of course, we always have more visibility into the coming quarters. And as Bill talked about it, you could hear that currently, the momentum is good, and we expect that to continue for the coming quarters. Clearly, we have slightly less visibility further -- when we look further out. At the same time, we can see quite a lot of restrictions. And we expect that maybe those restrictions have a bigger impact than later in the coming year. But I would say it's -- as we all know, the Chinese market is very dynamic and to have a clear prediction at this point of next year is a bit too early.

Right. Then I guess shifting gear a bit to services, starting from China. Here's a question on, do you want to increase your China exposure further from already high levels by acquiring Chinese service companies and distributors?

As we talked in the past as well is that at the moment, our growth strategy is primarily an organic one. And I think that, that makes sense. At KONE, the way we have achieved results is being quite focused on something. And we want this phase still be very focused on organic growth because there's plenty of it. There are plenty of -- I mean, we install more new elevators in China than anyone else. So capturing that base. And then there is a huge base of KONE and GiantKONE elevators out in the market that we can, of course, recapture. So that is our primary focus. Maybe in the coming years, we start to look at acquisitions as well, but that's not the most relevant point right now.

Yes. Continuing on the same topic, there's a question on how the regulation and -- the regulator is piloting a new way to regulate the Chinese maintenance market. And there's now a pilot going on in Shanghai, and there's a question on why is KONE not on the list of the trial OEMs. My understanding is that we are.

We are in -- so those companies that were announced in 2 different phases, and we are definitely included there. Shanghai is not the only one. There's been many other ones, and we have been involved in a vast majority of these. So we're definitely involved in the Shanghai one as well. We were not part of the first announcement, but further on. So I think we are quite well positioned there as well.

Correct. Then I guess services more globally. Here's a more short-term oriented question on have we seen any changes in the scope or pricing of maintenance contract when they come for renewal and especially for the nonresidential segments?

Nothing major, maybe in some more harder hit segments in the United States, you have maybe slightly descoping of contracts. But that's not, in the end, a huge difference that in some cases, you have a more comprehensive than everything is included. Then if it's descope, then more will be discretionary repairs. So there, there's been some changes, but nothing significant.

Service differentiation, how would you rank KONE's current level of differentiation in services compared to the best-in-class in other service industries outside of elevators? So can we differentiate?

I think we can. And as I mentioned, that it all starts from people. What we can see from our own surveys is that we have a very engaged and motivated workforce. And that is, to me, the most important thing because when you have engaged and motivated employees, they will serve your customers well. I also believe that we are showing the way in terms of innovation, in terms of new types of services to our customers. So I think we're making progress. But also, I think you have to say that why did we start investing so much in services back in 2014, '15? Well, simply that when we looked at the sector more critically, we realized actually, there was very little differentiation there. Maintenance business doesn't move very quickly. But I think we made some determining good steps here, but I think we have a lot still to be done, but I think we are on a good path here.

Good. Seems like you're more focused across various regions on capturing services from other manufacturers. What protects you from them also trying to capture more service on your own installed base? What is the barrier to entry?

I wouldn't say that we are more focused on capturing third-party equipment. And from others, we've always been active and want to win more services, both of course, converting what we installed, winning KONE equipment that is out in the market and also a third party, I don't think that, that has changed. It is a competitive sector. We know that it's very fragmented. The biggest service market in monetary value is Europe actually by quite far the largest still. And we have to remember that the top 4 players are only a little bit of a 50% of the market. So that has continued. But we believe that by further differentiating, we have an opportunity to continue to grow, and we have a good growth track record. But we often say that many of the small local players are very competitive and have a purpose in the local market, and we need to just continue to develop KONE to compete successfully against them and our bigger competitors.

Shifting gears towards the sustainability topic, and I guess the sustainability pledge as well. How much does an average on -- an elevator on average consume of electricity in a building? And related to this, what kind of opportunities do we see in the green deal? Is there an opportunity for us?

Well, first of all, the amount elevator's -- elevator's energy consumption varies a lot. So old elevators that are actively used in a building can be 10% of the energy consumption, even sometimes more. A modern elevator in a residential building is not used very actively, just a few percent. But that's what we see is that really it's the old equipment that actually are consuming a lot and there is a big reduction possibility when you modernize. That's why we think that elevators also play a role in the green new deal in Europe. Details are not out there yet. But I think that everything that contributes to make these buildings more energy-efficient and more sustainable is definitely going to be on the agenda. But it's not only about energy consumption, of course, it's also about accessibility. It's about materials, healthy materials and so forth. So there's so many aspects to this that I think it is going to be -- it is a big possibility for us.

Okay. And I guess, time for a couple more questions. Let's see, there's quite a few, maybe we'll leave some to the end. U.S.-related question, what is the share of U.S. of the total North America sales and the country's share of the maintenance base as well?

So United States is clearly the vast majority of North America because the others are Canada and Mexico and they're clearly smaller. So that's more than 2/3 of our business, actually more than that. And maintenance is roughly 40% of the revenues there. And yes, good and solid business.

And I guess, U.S. has the bulk of the maintenance base as well in that region?

Absolutely. Yes.

Market share related questions. Have we strengthened our position in escalators? And what is our position? Are we the market leader in escalators in China and globally today?

We are not the market leader in escalators today. But if I look at the past couple of years, we've clearly gained market share there. We have clearly improved our competitiveness in escalators, and particularly now in escalators for metros, railways and so forth, so for infrastructure. So we're actually in quite a good position there, and we made a, I would say, quite a big improvement in the past few years in that area.

What about the market share overall? We've been doing well in China, I guess, compared to the market. So who are we taking market share from?

I believe in China, it's particularly smaller and midsized players that have been losing out, given the consolidation of the customer base and the bigger players have been better placed to serve them. So I think it's principal, small and midsized, but I can't point out exactly from whom, but in general, we have grown faster than the market and gained share there.

Let's see. On the guidance, you upgraded the guidance last week. What was the trigger for that?

Well, trigger for that is that the development in Q3 has been better than we had expected when we announced our Q2 results. Both China has been even stronger than we thought. We thought it was going to be very robust and good, but it's been even better. But also the momentum in maintenance has improved. So while maintenance is clear, not back to normal, we've seen an improvement there. So it's not only, only China, it's actually Europe and North America also have performed better than we expected.

Personnel-related question, have we had to lay off people due to the COVID-19 pandemic?

So we -- as I mentioned, that one of the core principles that we set early on is that cost is not our principal objective, that is actually health, safety. And then before, we have actually had people on temporary leave and so forth, we wanted to train them. And our policy has not to be -- we have not wanted to dismiss anyone because of the crisis. So that has been a very strong policy for us, and our objective has been to keep our people employed. Yes, we have then -- they've taken some of their holidays, if they have untaken holidays, or in many countries, we're going to negative work banks. But that's way kept KONE's employees paid all the time. And as I mentioned, that the first objective has been to train them, which I think has worked very nicely. So that's how we have wanted to make sure that we take our responsibility also in this tough time.

Then there's a Net Promoter Score related question. What is the absolute level? I guess we haven't...

We haven't disclosed the absolute level, and it varies quite a lot business-to-business and geography to geography, we can see that you have to usually look at them in regional context. So we haven't shown the total one, but we are at a good level, I would say.

Maybe then the final question that could be a good segue to the next topics. Do you think the new technological developments raised the hurdle for small competitors?

I think that there will definitely be a platform for smaller competitors as well, for example, on the maintenance side. But I think what is the really key here is, as I mentioned, with our 24/7 connected services is that for that type of a service to actually work and to be valuable, you need to have enough units connected. It's not enough that you have 1,000 units connected. It's not enough you have 2,000 units connected. And many of the small players we see here actually have hundreds, not -- so for you to learn and to create value, you need more of the data and insight. And the more of the insight you have, the more you can create value. So I think that the bigger players have an advantage here. Having said that, we all know that this industry has a lot of small residential customers. So the small players will be there. They will have a purpose, and we will be competing against them every day, but it will be slightly different, probably the environment, how we compete against them.

Thank you, Henrik.

Thank you.

We will have more time for questions for Henrik as well at the end of the event. It's now time for a 10-minute break. So we'll be back shortly. [Break]

Welcome back from the break. For the next section, we have 2 presenters. Our Chief Technology Officer, Maciej Kranz, who joined company roughly a year ago and has a strong background in digital transformations and is now looking at the opportunities we are facing with fresh eyes. We also have our former Chief Technology Officer, Tomio Pihkala, who is now heading the new equipment business and bringing these innovations to life there. So Maciej will first talk about the evolution of KONE's innovation approach, and Tomio will then focus on the new equipment business. Maciej, the floor is yours.

Thank you so much, Sanna, and good afternoon, good morning, everybody. As Sanna mentioned, over the next couple of minutes, let's talk about our approach to innovation. Just to set things in context. Our innovation is driven by a couple of key principles. One is our mission to improve the flow of urban life as well as the megatrends that Henrik discussed already. So urbanization, sustainability and technology. And the way we are directing our innovation efforts is to focus on addressing everyday problems that people face, moving in buildings, moving in districts, moving in cities. And some of these problems, we can actually address ourselves with our capabilities, our technologies, but increasingly, we're actually also reaching out through our partners and partnering with city ecosystems, co-creating with customers, co-creating with our partners as well. So when you think about innovation, we're actually very proud of our 110 history of innovativeness and coming to market with amazing innovations and market changing innovations. Some examples, MonoSpace and elevators or UltraRope, where some of these innovations in the recent history. And then building on this innovation history. In 2016, we made a bold decision to create KONE technology and innovation organization, to pool under the 1 umbrella, all of our technology activities in terms of research and development in our core offerings or physical capabilities. Research and development in services, in solutions, in digital capabilities, IT capabilities as well as technology innovation. And to put things in context, at that time, a couple of years ago, most of the industrial players, we're pursuing sort of digital capabilities that were separate from mainstream. Often led by chief digital officers. So we've taken a different path. We've taken an integrated path. We integrated physical and digital capabilities. As a result of that, we were able to start coming out with physical and digital solutions that Henrik talked about. By using digital tools and new ways of working, the agile capabilities, we're also able to reduce our time to market for our innovation capabilities and innovation offerings by up to 40%. And also, we've engaged with roughly 1,300 of our customers on co-creation activities. So now that we've built this physical and digital foundation, we're moving forward. We're moving forward in accelerating and scaling both our offerings as well as our capabilities. We're building physical and digital native organization. And of course, as you can expect, we are bringing all the new digital capabilities to the company when you think about data science and analytics, artificial intelligence, Internet of Things, cybersecurity, user interfaces and user experience. All the kind of new capabilities coming into play here. But we're also spending a lot of our effort on evolving skills of our existing workforce to make sure that our engineers can evolve to become physical and digital natives. Building on the customer co-creation experiences over the last few years, we are also expanding and integrating our co-creation capabilities with our customers. We are in the process of rolling out the network of co-creation labs, we call, KONE WORX, where we co-create with our customers, we co-create with our partners from the sort of business problem statement all the way to a scalable solution. And lastly, we are integrating partner capabilities natively into our road maps as well. So focus on physical and digital integration. In addition to that, we also are balancing our local and global capabilities. If you look at the map here, we actually have 7 R&D locations and many more IT operations. And we've actually chosen these locations very carefully using 3 criteria. The first one was, of course, access and proximity to our customers and partners, so we can co-create with customers and partners; secondly, of course, access to talent and to the right skills; and thirdly, also proximity to our supply chain and to our factories as well. And these R&D units work as a network, focusing on driving our global road map but also on local capabilities. Let me give you an example of our China operations in Kunshan, next to Shanghai. This team is focusing on what we call China for China. So co-creating solutions with our customers and partners to make sure that we address their requirements in China. They also take our global road map and evolve it to meet the needs of our customers in China. But the same team also focuses on what -- on the work, what we call in China, for the rest of the world. For example, our escalator development is conducted in our China R&D facility as well. So we've talked about physical and digital, and we've talked about local and global. So now let's talk about areas of focus. And in a nutshell, we're focusing on 2 key [ threads ] here from the innovation perspective. First, on strengthening our core; and second, creating new revenue opportunities. When you think about strengthening the core, over the last few years, we've gone through the major transition. And if you look at the blue side of the slide here, we've moved from our core being physical to now our core being physical and digital. KONE DX, KONE 24/7 connected services are good examples of our core being physical digital. In addition, these capabilities also are becoming platforms, capabilities that we can build on top of as well. So in addition to establishing our digital and physical platforms, of course, as you can expect, we've been also working on optimization of our portfolio, MonoSpace 300 is a good example of an elevator offering targeting low-rise buildings. So the second area of focus has been around creating new revenue opportunities. And the immediate revenue opportunity and Henrik talked about it as well, is to build capabilities on top of our platforms. Henrik mentioned 24/7 Planner is a great example of extending our 24/7 capabilities by working very closely with our customers, listening to their needs and responding with extended capabilities. Residential flow is another example where we've created contact-free and sort of interaction-free capability for residents and visitors in the building to move around the building. And we plan to continue to focus on these types of capabilities building on top of our platforms. And then last but not least, we're expanding into new opportunities. Two areas of focus. One, ecosystems. We've been talking about it already as well, focusing on 2 opportunities. One is to integrate offerings from our partners into our solution capabilities and bringing these combined capabilities into our customers, our existing buying centers; and the second area that we are starting to look into as well, which is integrating our capabilities into our partner solutions. And our solution -- our partners taking these combined solutions to their customers and to potentially new buying centers. And then outcome-based business models. This is the area that increasingly our customers are actually exploring, and we're exploring with them. It's still early, but we think this is a very potent and interesting opportunity for us as well. So I've mentioned a lot, physical and digital platforms. And as you see here on the slide at the bottom, connected equipment is highlighted. And we've been talking about the strategic importance of us connecting our equipment. Why? Two reasons. One is that by connecting our equipment, then on behalf of our customers and for our customers, we can pull the data out of this equipment, then we can analyze the data. We can look at the insights and use the insights as solutions to our customers' problems. The reverse flow is also true. By connecting our equipment, we can start creating plug-and-play, digital and physical, physical and digital capabilities, like, for example, in our DX class elevators. And the third capability is APIs, application programming interfaces. These are the gateways for us to integrate with our customer systems as well as with our partner capabilities to create joint solutions. We've given a lot of thought to this physical and digital platform capabilities, how we architect it, how we scale it, how we make it flexible. And the reason for it is that these digital and physical platforms then allow us to create and to deliver new value-added solutions at speed and at scale. One example of these kind of capabilities, and Henrik mentioned it already, is health and well-being solutions. We've actually introduced sort of initial wave of these offerings shortly after pandemic hit us. And the primary reason we were able to be so fast is because of the platform capabilities that we had. So let's look at this example of health and well-being in a bit more detail. Here is sort of a list of problem statements that our customers will typically come to us before COVID. So examples would be -- all right. I have a, let's say, a lot of congestion in the lobby or I'm getting some bottlenecks because of meetings or conventions. I would like to offer a fast lane capability for daily users while offering sort of easy access for visitors. And these were the problems that we are working with our customers, and we continue to work with our customers to solve those. But then obviously, over the last few months, we started facing sort of a different challenge. How do we enable people to move, let's say, from a parking lot to a covered optimized office in a safe and timely manner. And there are some couple of other problem statements here. How do we make sure that they can move around the building in sort of a contact-free way? How do we make sure that the surfaces people touch are either sort of are microbial-free or have been decontaminated. How do we make sure that the people can follow physical distancing rules? And we took this sort of a problem statement, and we pooled existing capabilities that we already had at KONE. We've added a few new ones as well. And then we pool them all together through people flow planning and consulting capabilities and design these experiences with our customers and for our customers. But there's more. By using the API capabilities. We were also able to integrate our partner capabilities into these solutions like robotics or smart locks, and Tomio will talk about those in a moment. But hopefully, you see the picture here. It's starting with the customer problem, then figuring out how do we design this kind of experience together and then what capabilities we can use that we have in KONE as well as what capabilities we can integrate with our partners as well. And this is basically what the world will look like. And this is where we're going. In a way, we are already transitioning from being best-in-class product and services company to becoming best-in-class products, services and solutions company. In the process, we are redefining our engagements with our customers from sort of a, I would say, pointed engagements around new equipment or modernization or maintenance into a 360 continuous engagement, where we actually work with our customers to design and sort of optimize their experiences and experiences of their customers. And these experiences can evolve as building uses change, as businesses of our customers change as well. And in the process, we are establishing much more strategic relationships with our customers. We engage much earlier in the sales cycle. In addition to sort of evolving our customer relationships, we're also evolving our internal capabilities by giving data -- the right data in the right place and the right time to our own frontline operations and our sales teams. So they can optimize, increase our productivity, but also sort of serve our customers better. So in summary, by combining physical and digital capabilities, local and global capabilities, by integrating our partner ecosystems and co-innovating with customers at scale. We are designing solutions that allow people to move in buildings, in districts, in cities with smiles on their faces. All right. Thank you so much. And now let me invite Tomio. You can join me here. So you guys are getting 2 CTOs for the price of one. So Tomio, you and I have been actually working a lot, and I really appreciate your help over last year, not only because of your current role driving our new equipment business, but also because you actually drove KONE Technology and Innovation organization for a couple of years. So maybe a quick question before you start your section. You've been there since the beginning of KTI. And what are some of the biggest changes that you've noticed that happened in our approach to innovation in the last couple of years?

Thank you, Maciej, for the good question. I would say it's all in all, the change in innovation culture. And we have seen more people innovating. So it used to be kind of a fairly limited group of people who had a license to innovate. And the second aspect is actually about customer co-creation and customer aspect. I was kind of positively shocked when I saw some of the hard-core R&D engineers in the laboratory, starting to talk about customer value and customer co-creation and really get excited about it. So I think then I know this, hey, there's something going on here. There's a change.

Yes. And I think in some ways, it was also great that our people are open to change, right, that they can shift from sort of thinking technology to thinking customer problem.

Absolutely. I have a question to you.

Okay.

So you have been now working more than 1 year in KONE. And it has been pleasure to work with you. But when you came to KONE, what was the biggest surprise or, let's say, in terms of innovation culture, what did you -- you didn't expect when you came?

Maybe I can give you how much sure I can find sort of one, but I can maybe give you a bit a longer answer that the reason I was so excited about joining KONE because we -- I was excited about our approach to transforming ourselves, our business, our culture as well as transforming the industry, and it turned out to be absolutely true. The second reason was people, it was really easy for me to get integrated in the company and not only us working together, but us working broadly with our KONE colleagues. And also in KTI, I think it's been great to see how open people are, as you mentioned, to sort of evolve their skills and then adopt new ways of working. Maybe one thing that surprised me, and it's actually a big kudos to you and to the KTI team is, when I came here, I thought I would be building, creating a lot of new capabilities. And instead, you've actually built this foundation that we talked about earlier, right? And then -- so now my job is much more into evolution and scaling than building. And it's actually a great place to be. And a personal note, I have to say, I've had fun, lots of fun over the last year or so.

So thank you, Maciej.

Thank you, Tomio.

I think it's this one, right?

Let's -- I think so. Yes.

This one. Very good. Well, Maciej had an exciting presentation, and he talked about how we have been able to increase the new services and solutions in digital space. And this change has been very rapid, and it has become really our core part of our offering. And I would claim that we are leading in terms of how we have been able to scale new digital solutions and services. And also how we have been able to create the commercial success. This one? Yes. So in my presentation, I would like to talk more about how we are really applying these new digital solutions and services in new equipment business. I will talk specifically about DX class elevators, which Henrik already mentioned earlier. And in the second part of my presentation, I would like to talk about the foundation of our competitiveness, without, we will not be global leader. It was November 29, 2019, to be exact. That was the day we started the new chapter in KONE. KONE launched DX class elevators in Europe. So what is this new chapter? Well, elevator is no longer just elevator, but it is becoming platform. And with this platform, we can create new outcome-based business. We can enable us to increase the share of customer wallet. This is a big bet for us as we are replacing all our existing elevator volume offering with the DX class elevators. So what is DX, really? DX has 3 value propositions. Number one, it has built in connectivity. It means that there are unlimited possibilities to upgrade people for experience during the life cycle of the building. And this is done by using application programming interfaces, an entire partnership ecosystem we are building around DX. Number two, we are completely reimagining and redefining the user experience by using digital elements and physical elements, combining them together and creating multisensorial user experience. This design has so far received outstanding 5 Red Dot awards. Number three, partner for smarter buildings. We have been introducing a series of new digital tools to help our customers to plan and design new buildings. We were a bit lucky here. Because we introduced this self-service digital tools for our customers just before COVID hit the market. So we saw a big spike of users starting to use our car designers, our planner tools, and we have seen that not only our products are now becoming digital, but also the way how we are selling and how we are interacting with the customers is becoming more digital. As mentioned earlier, DX Class elevators act as a digital platform and for various services. And we can connect these services by using application programming interfaces. We have 4 type of APIs we are offering for the external users: elevator call, service robot, equipment status and service info. Then we have 3 service categories we are offering to our customers. First of all, KONE's own solutions like 24/7 connected services or KONE Residential Flow, or we have so-called third-party services, so partner solutions, whether they are global or local partners in different part of the world. Then we have a third category, so-called customers' own applications. So these are the customers' own digital solutions, we are able to adapt by using API interfaces in the smart buildings. The beauty of DX class elevator is that every single service will make elevator more valuable for customer and every single service will make buildings smarter. We believe in open ecosystem, where we can bring win-win relationship between customers, partners and KONE. We are building app store of the industry where different partners are creating new services solutions for different segments for different geographies for different customer needs. So here, I have a few examples. We are working in the access control area with a company called iLock. With iLock's smart lock solutions, we can create a seamless user experience in residential buildings. All the way from the main entrance to your personal floor and your personal door. In commercial buildings, we are, for example, in office, hotels, we see more and more customers actually applying delivery robots to do different kind of things like room service. And here, we are partnering with companies like Savio and Robotize. Finally, I also want to mention the company called BlindSquare. This company is doing a really great job to make life of blind and visually impaired people easier and also how they move in the cities and in the buildings. So this leading global leading application for the blind and in visual impaired people are now -- can also call KONE elevators. I have to say that the DX has really received well among our customers so far. This story about DX is resonating well. In uncertain world we are living, our customers are continuously looking how they can actually adapt to the new situation, to the new normal. For example, by creating touchless elevator journey. And here, DX will come to the picture. We can offer that adaptability. In residential segments, the customers are appreciating safety and reliability. And here, we are offering solutions like 24/7 connected services or antibacterial wall panels to improve the hygiene of the car. So we have a very different needs in different segments. And the beauty of DX cost elevator is that you can truly must customize the elevators to the different individual needs. And more, we have this customer project with the DX in each country, more we can demonstrate the value of DX for the wider audience. We have had a really encouraging start with the DX. I would say it has been one of the fastest product launches I have seen personally in KONE Carrier. We have already reached 80% tendering activity in EMEA area. There are many countries which are already 100% tendering and ordering DX class elevators, replacing existing elevators. We have also seen positive impact on margins. In addition, we are also now upselling and additionally selling new services on top of elevators. So our plan is to now expand DX to cover new markets and new geographies step by step. And our goal is to reach and cover the majority of the market by 2021. DX class elevator will replace all our elevator offering and being competitive in affordable housing all the way to the high-end commercial segments. While we are excited about DX and how it has been received by customers, we are fully aware what is our foundation of competitiveness in new [indiscernible] business. KONE is reliable and trustworthy partner. We deliver customer promise, and it is all about execution capability and efficient delivery chain. In other words, supply chain and installation. So let me introduce our recent progress in our operational excellence, focusing on delivery chain. Safety, quality and sustainability. These are essential in everything we do. There's no shortcut here. It requires continuous improvement mindset. In safety area, we have been able to decrease our industry incident failure rate in supply line by 24% in the past years. In fact, there are many factors which have been operating in 0 level for many, many years. And this is thanks to the consistent safety culture development. However, we are fully aware that there's a lot to improve as the industry in the area of safety. It continues to be our high priority area. In the area of quality, we have also seen very positive progress. Early failure rate, which is one of our key quality metrics, has been improving 32% in this period. And this is thanks to the more robust R&D process, investment in supply quality management and also consistent competence development in the area of Lean and Six Sigma, particularly. Then about CO2 footprint. Here, we have been consistently improving our CO2 emission per sales in the past few years, 31% in this period. However, we are going to set a much higher bar in this respect. Henrik already talked about it. In terms of supply line, we are setting the goal to be carbon-neutral supply line by end of 2024. As our delivery volumes have been growing in the past few years, we have been able to leverage fixed cost by improving productivity in our supply units. So we have seen 27% improvement in this respect. Our customers are continuously pushing us to improve our delivery times and lead times and also responsiveness in project execution. This is particularly true in China. In normal cases, delivery times are measured in months, but we have also capability to have much faster deliveries. In China, we are leading the industry by providing broad capability to provide elevators just in 7 days for the most important customers. Efficient installation is hugely important part of our competitiveness. In fact, in China, we are the clear leader in terms of installation efficiency. But we do have also challenges. There is an increasing challenge in labor availability, subcontractors, there is a shortage here. And this is why we have been investing many years in installation-friendly products. Ken already talked about that in his video. For example, in Europe and in North America, where the labor costs are high, we have been reducing standard installation time for the volume elevators. In case of MonoSpace 500 DX, we have been able to reduce the installation hours by 14%. But there are so much more opportunities to improve our operational excellence. Even if we are a global company with the global products and global supply chain, we do see a lot of complexity in our product platforms, in our processes, and we can improve that by harmonization efforts. We also think that we can continue to expand our fast delivery capabilities. And of course, we will continue to drive installation productivity going forward. Then about COVID-19. COVID-19 was the toughest stress test for supply chain in our history. We have been managing all kind of crisis, natural disaster, component shortages, but nothing like this magnitude. I have to say I'm really proud how we were able to restart China operation in February and how we have been able to keep production running in Europe during the most difficult period when most of the other companies were shutting down operations. This was thanks to the strong focus since safe working practices and also strong local accountability. Our local teams were quickly reacting to the issues and proactively managing the business continuity challenges. But to be honest, there were many close calls. We have to move production volumes suddenly to the different factories, to the different suppliers. But I have to say that our people did excellent work. There was a lot of heroic actions by KONE people, by suppliers, and we were able to manage the situation. However, we learned a lot. We learned that there is a lot of opportunities to improve our robustness of our supply chain by harmonizing our processes, by harmonizing also our product platforms. COVID-19 was also causing big disruptions to the logistics. This was caused by different lockdowns, different restrictions. And we had a situation where we have to explore new logistic routes or new distribution centers in extreme time pressure. So this experience reminded about the power of a seamless collaboration between the functions between supply line, logistics, sourcing, field operation. All in all, I have to say there has been lots of learnings, which are going to be valuable in future. Personally, past 255 days have been one of the longest days in my career. So it is time to summarize my presentation. Number one, we had a really good start with the DX. We really feel good about it, how it will help us to differentiate in the future. We will focus on scaling and expanding DX quickly. Number two, COVID-19 has opened our eyes to see more opportunities to improve operational excellence, which is our foundation of our business success. With that, I would like to thank you for listening, my story. And I will go back -- give back to Sanna.

Thank you, Tomio. Thank you, Maciej. There's a lot of questions coming in. Let's see, maybe I'll start with Tomio as you had it going already. Given the building takes a long time to build and design, how critical is it to be able to deliver an elevator to a customer within 7 days? How much of a differentiating factor it is?

Yes. I mean, typically, obviously, there is plenty of time, typically months of delivery times in normal cases. But there are situations where due to the various reasons, customer needs to speed up their own project or they have had some sort of changes in the plan. This is quite normal in construction projects. In this situation, we provide this flexibility. And particularly the big developers in China, they have been appreciating this capability. We are trying to expand that capability. It is also our competitiveness in the market.

Then there's a question on differentiation. And I guess you could both take it from a bit different angles. But maybe, Tomio, you first, there's a question that Otis is also shipping its new elevators with connected capabilities. How does KONE going to differentiate itself from key competitors, I suppose? And yes, how can you keep your product differentiation lead when your new innovations are visible to competitors through the maintenance?

Okay. I will start, Maciej. This is our favorite topic. Well, first of all, obviously, connectivity is important, but that's not itself yet create the value for our customers. So obviously, it's all about what kind of problems you are solving with the digital solutions and technologies. On how you can really add value to our customers. And I think this is where we are trying to really put our efforts and make it scalable. And we will continue to do so. Obviously, data plays an important role, how we can really use the data to create a new insights, how we can really help customers solve different problems. And this is going to be the thing we need to continue to improve. And more we have data, like Henrik mentioned, more we have opportunities to also innovate different new services.

You're absolutely right. I mean, connectivity is just an enabler, right? And we do expect everybody to do this. But the key here is there are a couple of other sort of big trends that I think we need to be paying attention to. One is our customers want to co-create with us. They want to co-create solutions with us not just buy stuff from us, right? And the co-creation is tricky. It's not easy. And I think we've actually worked over the last couple of years, how to make it sort of addressing customer needs, but also scalable, so not a bunch of one-offs. Second one is speed of innovation, right, and speed of responding to market changes and customer needs. And again, we've sort of architected, as we talked about, not just the connectivity, but the overall platform. And thirdly, it's partner ecosystem and integration as well. It takes literally a village to build solutions these days. And then you've seen the example of integration with our partners. And then -- and again, we built the system and capability, and we can do it at scale as well. So it's about customer intimacy. It's about partner ecosystem, and then it's about speed.

About the technologies and partnering, there's a question that you have not acquired any technology companies, I think, ever, says -- it says here. Aren't you thinking of creating a corporate venture capital fund where you would buy stakes in several tech startups? It has worked well for many industrial companies in transitioning to digital industry leaders.

So I've worked with startups for 30 years, dozens of them. And of course, there are different ways of the startups can get funding but what I think startups really look for is for opportunities to partner and to go-to-market together, right? They're looking for ways for companies like us to create revenue opportunities for them. And that's basically what we're prioritizing is we don't have to put money in the startup to work with a startup and to develop a joint solution and take the joint solution to market.

And a little bit on the same topic, Tomio, here's a question that there has been no ecosystem partners added since January. What could be the next ones?

Right. Well, we are working on, and we are continuously expanding the partnership ecosystem, and we will be announcing also some new partnership in the future. So please stay tuned.

I guess we sound very excited about this physical and digital...

We are.

Exactly. So here's one question. What does it mean in concrete terms that our innovation focus is on combining physical and digital offerings. What's changing? How is it different from what we have been doing in the past year?

Sure. Maybe I can start.

Yes.

When we talk about technology, combining technology from physical and technology and digital perspective. But this is just a starting point. What we are working on is basically blending the best of both worlds, so our understanding of the markets, of technology, of customer problems and so forth. But then also integrating sort of digital ways of working. You look at internal startups, you look at sort of culture changes in terms of fast fail, in terms of accelerated sort of funnels of innovation. So what is exciting for us is not only the outcome, but also how we get there and combining the best of the both worlds. And I think we're being pretty successful with it.

Do you think new technological developments would be a hurdle for the small competitors?

No. I think that, in general, for me, if there is competition, means that there are good things happening in the market. So in general, competition is good. And I would expect that there will be some technologies that would -- that our small competitors will be exploiting as well. And I think we need to stay vigilant. But at the same time, from my perspective, and I may be sounding like a broken record here, but I truly believe that what will be defining our industry next couple of years is co-creation with customers, focusing on integrating solutions with partner ecosystems, and sort of integration of best of both worlds, physical and digital, which results in nimbleness and speed. And that's sort of our secret sauce.

I mean I think Henrik already mentioned already about, I mean, even if I'm engineer, I would like to highlight the technology, but this is a people business. This is the people-centric business where at the end of the day, you make a difference in how you serve customers. And that will continue to be the case in the future.

Then on the same sort of ecosystems and partners, isn't it the case that you need to make sure that you have connectivity with all of the large building management system providers? Is this currently the case? And do you have any preferred partners there?

Yes. And I think it's a great question. And the way we've been architecting our API strategy is to be basically BMS agnostic, right? So whatever systems our customers want us to connect with, whether they are homegrown or driven by some of the BMS established players, we will -- we can integrate with them. So -- and I believe that's the right strategy for the market, which is that we use technology as a means to respond to customer needs.

I think it's very much about providing max customization capability for our customers because they choose different partners. So in our API strategy, we talk about quite a lot. That is very much enabling that in many ways, also for building management companies.