KONE Oyj (KNEBV) Earnings Call Transcript & Summary

Good morning, and welcome to KONE's Capital Markets Day 2022. My name is Natalia Valtasaari, I'm Head of Investor Relations at KONE. And I'm very pleased to see so many of you in the audience. It's been a while since we've been able to arrange this type of event. So I think at least I'm a little bit excited. I hope you are, too. We do have quite a few people following on the line. So welcome to everyone on the webcast as well. It has been an event for a couple of years. And well, today, we will be talking about some of the shorter-term actions that we're taking to kind of address the changes in our market environment and our business context. We are also taking the opportunity to maybe take a bit of a step back, provide a bit more insight into what's going on in our market environment, talk about how we're positioning ourselves for the growth opportunities that we see. And of course, to talk about how we're executing on our sustainable successful customer strategy. Very pleased to have quite a few of our EXP members. We have a great lineup of speakers today, but we're also joined by a few of our other Executive Board members. I wanted to take the opportunity to introduce everyone. We have Henrik Ehrnrooth, I'm sure you'll know, our President and CEO; Ilkka Hara, our CFO. Also speaking, then Tomio Pihkala, Head of our new equipment business; Hugues Delval, Head of our Services business; and Bill Johnson, Head of Greater China, will be joining virtually. So he'll join us a bit later in the morning. And then to the other, EXP's Executive Board members here today, Karla Lindahl relatively recently still appointed to head the South Europe and Mediterranean business. And then we have Tricia Weener here in the front, Chief Marketing Officer; Maciej Kranz, our Chief Technology Officer. And you have and the back defender I've done a cancel. A couple of more people who are good for you to know. For those of you sitting here in the audience, Heidi, who you met at the registration. And then we have Lee sitting there at the back, both on the IR team. So if you have any questions on practicalities, please turn to one of us. In the spirit of sustainability, we have not printed out the handouts. They're all available online. You have the KONE website and the Wi-Fi information for the venue in front of you on the papers. So that's good for you to know. One last minute change, unfortunately, to the agenda, Ken Schmidt, the Head of our Americas business was not able to attend. So we're all very excited about that. Hopefully, we'll get him up speaking to you at another event soon. And then maybe finally on practicalities, we have reserved quite a bit of time for Q&A today. So those of you in the audience, raise your hand. The mic will be brought. And those of you online, there's a question box. Please send in your questions, and we will make sure that we get to those as well Q&A session. I think that's all for me here in the beginning. So I would like to welcome Henrik to the stage.

Thank you, Natalia. And also might we have great to see all of you here a fully back room that makes me very, very happy and welcome, everyone online. Great to have you as well. And as Natalia said, we've had exciting and eventful few years behind us. So I'll give today a little bit of a context to how we see the world how KONE has performed and in particular how we are developing according to our strategy. And really, what we think it's going to take to win in the current era that we're going through. My colleagues will then dive much deeper into how we are executing on this strategy. For the past 2, 3 years have been exciting to say the least. We all know that 2020 started off. We thought this is going to be a great year. Then of course, we had COVID. Actually 2020 wasn't a bad year if we look at the second half for us. Then we had 2021 with supply chains being disrupted. And I think the consensus in the world was that we're going to see an improvement this year. But then, of course, things actually got just worse from a supply chain perspective globally with the very tragic war in Ukraine, of course, and all the COVID lockdowns in China, which seem to be opening. So there's been enough movements. There's been enough things to do in this environment. And hopefully, becomes clear that how we've been thinking about it and how we think going forward. But one thing, which hasn't changed, has been that we are in a good space. We are in an industry with fundamentally good growth drivers. Urbanization has continued. There was a lot of question when COVID hit that this organization is going to continue. And actually, yes, very much so. So 70 million people continue to move into the cities every year. That creates a lot of opportunity. And on top of that, which has been an even increasing trend has been the growth in single adult households, which means that people who live by themselves usually want to live closer to the services, close the city centers, which means that, that usual land is expensive. You need to build upwards. And it may be a little secret that we like when people build upwards. So that continues to be a fundamental trend that hasn't changed anywhere. Then we know sustainability. The biggest challenge of our time and that creates a lot of opportunities because buildings are a huge emitter of greenhouse gases. So to build greener buildings to modernize buildings, we can see that this trend is very, very strong. And we can see that over 40% of developers are expecting actually that majority of buildings that will be developed just in a couple of years' time will be green-certified buildings. So companies with strength here will find great opportunities, not only the right thing to do, but a great opportunity. And then technology, a phenomenal enabler for driving change, but also providing better experiences, which are expected by users and customers at the moment. So many good things that are driving long-term growth in our industry. Now also, we can see when we look at our industry, the good thing is that we had the pandemic, many industries hard hit. There was a lot of questions around property, but we can see that the whole construction industry has rebounded. And what I think is even more interesting, if you look at the data, they are right, that is number of elevator starts in various segments and starting from 100, which was beginning of 2019. But I think it's fascinating is that we can see that in all segments, except for offices, we are at 100% or above. So people are moving out and about. And we can see also offices have rebounded, not quite the level where they were, but I think what is even more interesting is that we can see that retail is actually above where it was in 2019. So we can see that our customers are needing services. There is a fundamental need for people to move and to help them move in a better place. So we seem to be pretty much back to normal from that perspective, even though there are many things that are not as they were before, but at least people are moving, getting out and about, which is a great, great thing. Now this environment, which I will talk more about how it's changing is, of course, driving changes in our customer expectations. Changing customer expectations always creates great opportunities to differentiate. And that is always a good thing to remember that while changes can cause difficulties, they are principally an ability to differentiate. In this environment where everyone is suffering from costs, the fundamental need of productivity in the construction trade is just going up. We know the margins are not are not very high there, so very much needing productivity. And you'll hear much more about from my colleagues about that. Then it's all about smart buildings. We all talk about what is a smart building. But for us, it's really how do we improve the user experience and how do we create a adaptability for our customers, which has been a fundamental need in this changing environment. And then we have sustainability, which, as I mentioned already, we started to see is becoming a key design principle. And of course, here, smart building is critical to that. So I'd say it's a lot about productivity and how we bring intelligence to improve the experience of our customers and their users and bring sustainability into their buildings. In this environment, how have we done? If we look in 2018 -- if you look at short term and longer term, we have continued to outgrow the market. In new equipment, there's been only slight growth in the market overall in the past few years, but we have compounded about 4% in new orders. In the services business, we have -- we are close to our long-term growth rate in the past 2 years. The COVID year did cause a bit of a dip but we almost recovered past that. And we could see last year, we grew 7.5%, our maintenance business and first quarter this year, 8.7%. So whether we look at shorter term, longer term, continue to have clearly the industry-leading growth in maintenance, and that is something you will hear a lot about today how we differentiate and how critical this business is in the current environment to us. When we look at our longer-term profitability development, we know that 2017, '18, those were difficult years in China. Then we started to recover, but then we were hit by COVID and, of course, now supply chain disruptions. So it's clear that we are not happy with the trajectory we have on margins right now. that you will hear also a lot about today what we're doing to further speed up how we implement more dynamic pricing strategies, also how we are working more on being able to get the product costs down in an environment where costs are up significantly. Productivity an absolutely fundamental driver even more important in the past and also how we are implementing more dynamic contract models hit it's clear that our industry like many, where we have a long order book, that the order book moves slower than the input costs, how can we get more similarity to the 2 developments here. So you will hear more about both all of these topics how we are driving an improvement in our margin because it's clear that it's fundamental to us to improve our margin and start to get closer to our longer-term targets. So how are we doing it? Well, it's clear that, that's about our sustainable success with customer strategy. What you will hear is that while this strategy was already crafted a little bit over 2 years ago, it is still very much relevant. And I will talk about now what is happening in the environment and what is really going to take to win and how we are executing our strategy to win in this environment. So it goes without saying that the world around us has changed that continues to change. There are a few good things here as well. The good thing is that markets have recovered. And the demand for particularly our Services Solutions is strong. That is great. We can see also that customers' demand for value-adding solutions is continued to increase. Very important. And we can also see that the need for sustainable solutions as urban areas want to be part of the solution in sustainability. These are all fundamentally positive things and I think, areas where we have some fundamental strengths. But the clear that there are some challenges as well. It's clear that we are seeing a weaker economic outlook right now as a result of surging inflation everywhere, the war in Ukraine, COVID lockdowns in China all of those are having a shortage impact on demand in certain areas. We also know that the area of 0 interest rates and abundant seems to be over as central banks are trying to adjust to this situation. It is clear that for many of our customers, this is a fundamental thing. And what can we call the shortage economy seems to be a fundamental thing continuing. As many companies are near shoring that is actually just going to cause even further strain on supply chains in many parts of the world. That is not a thing just for our industry. That is a general phenomenon we can see everywhere. So there are many good things and there are challenges. So how do we navigate this. So what do we think it's going to take to win in this era? In this area, we think the win will take to drive growth even more through value rather than only volume. If you think about the winners in the previous year, which we can say was the China mass urbanization was the era of globalization. And it was very much a volume game. Now on top of you need to have also growth in value with your customers. So differentiation will clearly be the winner. You'll hear a lot more about that today. It's clear that productivity and agility for our customers and also for us has become a fundamental driver. Supply chain resilience goes without saying how important that is, sustainable offerings and solutions great demand for those. In many cases, even a right to play, but has a great opportunity when you get that right. And then in this environment, how are you an employer of choice, a huge, huge thing today. You will hear more about all of these topics today. And the good thing is that we feel that we have some really good assets and positioning to capture opportunities and win in this environment, what we -- how we see that one needs to win right now. And how are we going to do it? Well, it's clearly about executing on our sustainable success with customer strategy. I talked about already the megatrends, what's driving growth in our industry. It talks about our purpose and where we want to get to. And in our strategy, we have what we call our war to wins I'll talk more about those. That is where we expect to find the best opportunities for growth and differentiation in the coming years. And we have our ways to win, which is how we're developing KONE to improve the business continuously. If I take a few examples there, empowered people, incredibly important today, how do we continue to make KONE a better place to work. We have an objective to be a great place to work as a humble that can always be improved. So it's a lot about how we're driving further empowerment of our employees. How we are really in this environment, doubling down on upskilling our people and making sure that we are an employer of choice. Marketing and sales renewal a fundamental thing when we see the customers the way they want to be served is changing. How can we make sure that we are serving them really the way they want to be served in much more efficient and better ways. And then Lean KONE is really about fundamentally how we improve quality and productivity. And everything embedded on the KONE culture. But if you look at the 4 areas where our strategy is really built on areas where we can find the best growth and differentiation opportunities. We talk about our core products and services. That's really the core where we are. We want to re-lead with connected and depth of products and services that are cost and carbon optimized. So that is really a fundamental basis where we want to have a core product competitiveness. Then it's about new solutions for customer value. That is really how we help our customers succeed in this environment. with us various people solutions that you also hear more about today. The third one is about the service business in China, which is the biggest growth opportunity in our industry in the coming years. No one has a position in there like we do. This is where much of the growth will come in a fast-growing, albeit fragmented market. So you'll hear more about that from Bill Johnson today as well. And then about smart and sustainable cities. How can we be the preferred partner for our customers smart and sustainable solutions. So if I look at some examples here, we want to definitely lead our industry with our connected solutions. We have 2 fundamental platforms upon which we build our services and solutions. It's our DX class products, which are now rolled out across the world. started in late 2019 in Europe, Middle East and Africa. Then we started rolling out in Asia and now also North America. So it's available everywhere. Then the other one is our 24/7 connected services. In our subjective opinion, we think that it is the leading connected service in the market. Why do we say that? Well, it's clear that it is the one that the customers are paying the highest premium for right now. That is an objective thing. And we can see that it's resonating for customers across segments. We are very often asked that our people in residential willing to pay for this. Absolutely, they're seeing some benefits or actually a lot of benefits here, but also in all segments and it continues to increase the penetration, and you hear more about that. So fundamental things that are key for our development going forward. And when I say that these are platforms we built upon, they are not static. So if you remember, we launched our 24/7 connected services first time in 2017 that's a while ago already. Although we have constantly then brought new services our 24/7 Planner and now for construction time use or DX class elevators, which is a fundamental platform and you can then bring in further services seamlessly on top of them. So that is how we think about it, and these are ever-evolving services solutions. So you can constantly see smaller or bigger things coming on top of them and also providing our customers with opportunity to bring their own services as well. And then I mentioned the biggest growth opportunity in this industry in the coming years in the China services business. We can see that the China market is definitely transitioning actually quite fast from having been very much a new equipment market to be a market much more balanced between new equipment and services. We only go a few years forward, we can see that half of the world market measured in number of units will be in China. And how do you win in that market? Well, clearly, you need to have a big service base. If we look at both units that we have in service, the dark blue bar or units on the first service period, we have already over 0.5 million units in China, that is clearly higher than anyone else. We have installed in the China market about 1.2 million elevators and escalators. No one comes close to that. Okay. So it is the opportunity to really capture that growth we have like, I would say no one else. We know it's a fragmented market, it will continue to be, but the growth opportunity is definitely there, both in maintenance and in modernization. And as I said, you will hear more about that later today. And then finally mention that sustainable solutions are critical. That's a key design principle for a large amount of our customers. So we can see that there's a huge demand for them and how we think about providing sustainability. It's through connectivity to provide accessibility with connected solutions. It's about further predictability all the time to improve the lifetime because that is, of course, from a sustainability perspective, the most important thing is that how do we extend the lifetime of our products. And we know that when we modernize, we put in new solutions we can improve the energy efficiency significantly. And here, we continue to be the leader in energy efficiency in our markets. We're also focusing a lot on how we can improve circularity of our products. And then last year, we again broke new ground by being the first in our industry to launch first carbon-neutral maintenance options for our customers. And now we also have a carbon-neutral product that we can sell to our customers, again, breaking new ground. And this is, of course, comes as a result of us having the most ambitious pledge in our industry. We have pledges both on Scope 1 and 2, which are direct emissions from our operations, which a lot of companies have. There, we're making great progress. We want to be carbon neutral by 2030. So we need to reduce by 50% our emissions and then compensate the rest. But really actually the big thing here is the 40% reduction that we are aiming for in Scope 3. If you look at that chart, you can see that 98%, 99% of all life cycle emissions are in Scope 3. So that is the big thing. And the biggest impact, of course, the life cycle energy consumption. There, we have a commitment to reduce this by 40% by products sold by 2030. This is incredibly ambitious. How are we going to get there? Well, it's through focusing on what products we sell. It's about fundamental R&D, and it's working with our suppliers to have lower impact on the materials we put in. So stay tuned on this. Do we have all the answers how to get to 40%? No. But I would say the momentum is there and a lot of focus in our organization to get there. So that's how we think about it. I think that this is a fundamental competitive advantage in the coming -- now and in coming years. And nothing of this is going to happen without engaged employees and that is absolutely central to KONE. We don't have this year's results yet. We would have them soon. But we can see that constantly our employee engagement have been above the so-called high-performing norms. So it's about in creating a great experience and journey for our customers. Of course, always based on culture and leadership. We focus a lot on building basic values, how we want to work with one another every day, which is a fundamental to our culture. We work a lot on diversity equity inclusion nowadays. And the fundamental thing for everyone is how do we make sure that all of our employees have the skills that are required for the coming years. So a big focus on our upskilling program -- programs and then, of course, flexibility and well-being fundamental things today. So absolutely critical to be able to be the employer of choice to attract the best people because that's going to be a fundamental competitive advantage going forward. So to summarize, we are taking actions both to counter the near-term headwinds that we are seeing. It's about dynamic pricing strategies and contract models, absolutely fundamental to us. We are making good progress there. But it's clear that the MAR is moving, although we can see that our speed here is actually quite good right now. It's about, of course, in an environment where all costs are going up, how can we fundamentally also lower the cost of our products and improve our productivity. And then, of course, right now, what is a big focus is that do we recover quickly from the COVID lockdowns in China? It's clear that the area where we have a lot of -- we have our biggest factory and a lot of our suppliers have been some of the areas with the toughest lockdowns. So there's, of course, a lot of focus on how do we recover from those lockdowns now rapidly. But at the same time, we are investing in our future to drive differentiation through adaptability, productivity and sustainability. You'll hear much more about them. And then very much where I think that more of the growth in the coming years will come through opportunities in maintenance and modernization. Here, we have continued to grow faster than our core competitors and that is what we intend to do in the future as well. So that's something we're investing heavily in to drive even more growth through services in the coming years. So we're seeing good progress in our strategy execution here. So in summary, market outlook long term is good, in particular in services. There are many changes in the external environment. The way we think about it is that changes create opportunities. If everything just would be stable and the same, it would be we all would look the same after a while, but this creates a lot of opportunities. And we believe that we have some great assets that we are very well positioned to capture opportunities and differentiate with value-added solutions in what our customers are going to look for. So that is a little bit of context for the day. You will hear much more about all the things I talked about from my colleagues. So a little bit going deeper to each of these. But to start with, I now first hand over to Ilkka, who will talk a little bit more about our financial performance and how we are navigating from a margin perspective this environment. So Ilkka, please.

Thank you, Henrik, and also a warm welcome on my behalf to this Capital Markets Day. It's great to see so many of you here physically. It's been too long that we've been able to see each other, but also I know there is many people online as well today. So today, what I will cover is our view and path towards our financial targets. I'll talk a bit about what have we done, but also where do we see opportunities going forward, complementing what Henrik already said, but also summarizing many of the topics that you will hear more about from Hugues, from Tomio as well as Bill perspective of China. But let's start with our financial targets. We have 3 targets. We want to grow faster than market. We want to continue to improve profitability towards our long-term target of 16% EBIT margin. as well as continue to improve our working capital rotation in order to continue to have good cash flow generation for the business. I'll talk a bit more about all of these topics today. Clearly, from a growth perspective, you already heard from Henrik that we're making good progress there and continue to see opportunities going forward. On profitability short term, clearly, the cost inflation has been something that creates a headwind short term, but we continue to be focused on improving towards our long-term target of 16% EBIT margin as well as continue to grow our EBIT on an absolute basis, so balancing between those 2. And then I'll summarize also our progress on cash flow at the end, which has been quite good. And especially in the recent years, I would say, exceptionally good. But before I get to this, I'll talk a bit about the drivers we see that we can leverage in our business to continue to grow profitably. First, we have a very strong position in the key markets. particularly in the markets where we see opportunities to grow our services business. We are the #1 in China, and we have a very strong position also in rest of Asia Pacific, where we see opportunities to grow the maintenance business going forward. We have a solid track record for innovation. You'll hear a lot about DX elevators today and 24/7 connected service as a platform that enables us to continue to grow faster going forward but also improve profitability. We've been on a journey of sustainability for a long time. We've had targets to improve our energy efficiency from products, and we have a product portfolio which is very strong from that perspective. Now lately, what I'm very proud of is actually our KONE Care DX maintenance offering. So if you choose KONE DX elevator with a connector DX maintenance, you get the most sustainable offering in the industry by far. It is a carbon-neutral way of maintaining elevated. And then lastly, it is clear that without the right engaged, motivated teams. We cannot make this happen. We cannot have the most loyal customers. But I believe we were making good progress there as well. And it is a key lever for us to continue to grow our business profitably. So let's look at a bit more in detail what has happened in terms of growth and also our actions to improve profitability. Henrik already talked about how over a long period. Over the last 10 years, we've been able to consistently grow faster than the industry and also compared to our peers. The source of growth has been our new equipment business, which has grown close to 9% in the last 10 years. Also, we've seen good progress in growing our services business, so maintenance growing at 5.9% as well as modernization contributing at 4.9%. That's about the past. We then look forward. We see that the best opportunities to continue to grow are in the side of the services, both on the maintenance as well as the modern sales. Whereas in new equipment business, we do see opportunities to have growth, but it's more a stable to low growth environment, driven by the megatrends of urbanization as well as urban renewal. At the same time, in maintenance, we see opportunities to continue to accelerate the growth. We see opportunities to grow mid- to high single digit the business going forward. We have a steady increase from the maintenance base, but also the digital offering enables us to accelerate that growth. And as Henrik talked about already, we have actually seen a more rapid growth in last year and the beginning of this year. Also in modern station, we continue to see good opportunities to grow. We see that we can accelerate the growth there as well to a high single-digit growth driven by installed base, which is aging as well as the opportunities we see for modernization going forward in China. And you'll hear more about that in Bill's presentation. But that's the base growth that we see in the business. But we also see that we can boost the growth rate for our business. First, in the new equipment business, we are seeing that our equipment with connectivity can contribute more value to our customers. We can also contribute with our productivity-enhancing solutions, more value to our customers to increase the size of the pie and side of the wallet that we're able to address with our customers. So accelerating the growth from the fundamental growth we see in the industry. Tomio will talk more about that. Then second, Connected Service, the platform that enables us to grow our per unit valued in our maintenance space. That is something that is already happening today, and we see good opportunities to continue to do so going forward. And in the modernization, I talked about aging installed base as an opportunity. But we see increasingly our customers also modernizing younger equipment as they want to be having a buildings that are more adaptable to the current needs of their tenants, the needs of their users as well as the need for more sustainability with more modern solutions, we can actually increase that as well. So here, Hugues will talk more about it. But clearly, these are opportunities for us to continue to accelerate the growth for the business. From a growth perspective, we progressed well. At the same time now, we've seen a rapid inflation in the last years. We've seen a significant cost increase since 2020 for us. It is more towards the second half, starting in '21. Material prices have increased. We've seen, especially on the semiconductor side, rapid increase and also shortage economy being in place. So we've been able to supplement our supply from our suppliers with spot purchases that have increased a lot the prices there. Also, logistics costs have increased, and that's a phenomenon that has happened everywhere with particular logistics grows from China to Europe, China to North America, but also within the other regions as well. All of that has meant that our cost increased last year, our input cost increased last year, about EUR 200 million and we continue to foresee that this year, that increase is a further EUR 150 million to EUR 200 million. And that's clearly impacting our profitability. When we look at our EBIT development, we are expecting our EBIT to be positively impacted by the growth opportunities we see. At the same time, this headwind from cost inflation is impacting negatively. We are seeing also labor costs impacting both our field but also subcontracted work impacting our profitability negatively, I'll talk a bit more about how do we mitigate that but then both productivity and the growth of our maintenance business that has a mixed positive impact to profitability than counters some of these headwinds. But all in all, we are seeing an impact to our EBIT in the 2 cost categories that represent the biggest cost items in our P&L, both labor and subcontracting costs as well as materials. But what are we doing about it? So we're taking strong actions and we've talked about actions already previously. First, we're driving pricing actions across all regions and businesses. We are working to lower the cost through sourcing and offering R&D actions that we're taking the products. There, we see also a good progress in the actions we've taken already. And then lastly, it's about continuing to drive productivity in both in our installation as well as in our maintenance field operations. And again, there, not only is the Lean KONE actions that we're taking that Henrik talked about in our strategy, but also overall continuous improvement that we're making is contributing positively. Well, I'll start with each of the items, and I'll start with the pricing and product cost progress. And now looking at where we are in taking the actions to counter the headwinds. And this is now representing our first quarter orders. First, on the pricing actions. If I look at our equipment businesses, so new equipment as well as modernization. We've seen the best ability to counter the headwinds in Americas. There, the pricing opportunities have been the best. Also in Europe, Middle East, Africa, we've been able to drive good progress with our pricing, followed by Asia Pacific and where the pricing has been most fierce has been in China where we have had roughly stable pricing in our orders. All in all, pricing is one side of the coin. In the maintenance side, so this is about the equipment business in the maintenance side, we would be able to see mostly green full circles. The actions that we've taken so far to counter the inflation actually have been very good, and we continue to see good opportunities there. But then when we look at the product cost actions that are the other way of countering the headwinds, we are seeing that in China, we've been able to drive the best progress with those actions, but also continue to see that they contribute positively in the other regions. So this is about pricing and product cost actions to counter the headwinds. Then about field productivity. So if you think about our industry, it is very distributed, highly local industry. It's about maintenance technicians, maintaining elevators. It's about installation technicians installing elevators in the shafts. It is also about manufacturing equipment in the in the central location, but it is equally as much about our suppliers contributing to that material flow. So in order for us to drive productivity, we have to work together with a full ecosystem of partners to at the end, see the productivity in the installation side in the maintenance work that we do. First, what do we do in the installation side. One of the actions that we've taken is that we drive our manufacturing sites as well as our suppliers to manufacture equipment that is easy to install. It is defect free, and it is something where we can see consistent installation methods being used. How to make it easy to get productive. We've actually seen good progress. Over the years, we worked with our suppliers, and we've been able to drive a 90% down the defects from the components that come from the suppliers. That's immediate quality improvement that drives productivity. Overall quality contributes to productivity positively. Second, we were here in virtual I think 2 years ago. At that point, we talked about how in North America, we see good opportunities with our new MonoSpace product to drive productivity in the installation side. In North America, the labor cost is the big highest. So how to drive productivity with the installation hours is the most meaningful measure. And I'm happy to come now back and say that we've achieved it. We have more than 25% reduction in installation hours with those products. So this is about how to drive productivity with the installation side. We are also working to drive productivity in the field operations in the maintenance side. There, it is about every day improving a bit. And I let Hugues dig deeper on these data points in his presentation. But first, we have been able to drive more than 5% increase, a reduction in fixed cost per maintenance unit. Henrik will talk about concrete examples how to make that happen. Similarly, connectivity is about value add. It's about offering something which our customers are willing to pay for, but it is also helping us to be more productive. And with the 24/7 connected units, we are seeing that the call-out rates, the time customer needs to contact us. We need to go to an elevator are reduced by 30%. So not only is the elevate more available to the customer, but also that improves our efficiency of operations. So that's good. So these are the type of actions that we're taking short term to come to the headwinds that we see from the cost inflation. But what are we doing in long term? And how do we work towards our long-term profitability target. So clearly, maintaining this faster than market growth rate is important. We are seeing that we're able to leverage our fixed cost over a larger business that drives economies of scale. So growth from that perspective is important. Secondly, we talk a lot about today on differentiation. With differentiation, we can add more value to our customer and also have more pricing power. So clearly, that is something that helps us to drive profitability up in all of our businesses. We are seeing that growth opportunities in the industry are best in the services side. We want to accelerate this with our value-added solutions. And also that contributes to our long-term profitability target, being able to work towards that. And clearly, overall, connectivity is something that drives value to our customers and also contribute to our ability to both have more value to our customers as an offer, but also working efficiently as I talked about. So all of these help us to work towards our long-term profitability target of 16%. Then a few words about how our financial position actually helps us to support our strategy execution. I guess I wouldn't be a CFO if I wouldn't be also a bit proud of how we can contribute for the company. to continue to be focused on making good progress developing going forward. So first, from a cash flow perspective, we have a good cash-generative business model. We continue to see working capital contributing positively. And I would say that the last years actually have been exceptionally good from that perspective. We have a strong balance sheet that enables us to look forward to focus on the opportunities we see. And that's also something that in the turbulent times that we've seen in the last year's I had to worry about how to finance our operations. We've been able to focus on how to deliver to our customers, how to make sure that we operate in the best possible way going forward. So we have a strong negative net debt position of close to EUR 2.2 billion and also our equity continues to be very strong despite the strong dividend that we paid over the years. But the cash flow is due to our good business model. We continue to invest research and development. We scaled up the investments in 2015, '16 to this 1.8% of net sales level. And therefore, thereafter, had a more stable investment from a percentage of sales perspective. But with the growing sales, we've been able to continue to grow our R&D efforts to continue to differentiate, create value to customers and have leading-edge products and solutions to our customers. Second, in the maintenance business, we've also contributed positively with M&A with bolt-on acquisitions, further increasing our service maintenance portfolio. We continue to be focused on those there. Our appetite continues to be there. The limiting factor has been more the availability of targets to be acquired. It seems to be an industry where many people want to continue to be there. But we continue to see how can we maintain this acquisition speed to consolidate the market. So we continue to invest to develop in the business on the R&D side as well as then on this bolt-on acquisitions. And with that, we've still been able to continue this strong growth of our dividend. Close to 10% dividend growth over the last 10 years with last 2 years with the exceptional cash flow that we've had also extraordinary dividends being paid on top of that. It is something that we continue to be proud of. and see the steady development on dividend as a one way to contribute back value to our shareholders. So if I summarize my message today, we are focused on delivering shareholder value. We're well positioned to capture the growth opportunities we see in the market as well as with a differentiated offering see further opportunities on top of the underlying growth. We have clear actions to restore the margins and secure progress towards the long-term targets. And we're committed to developing our business and ensuring steady increasing in shareholder returns going forward. With that, I'll stop my presentation, I ask Henrik to join me and Natalia on the stage, and I think we're ready for Q&A.

Yes, exactly. We have time for Q&A. I see plenty of that eager there in the front. Before we go to that, just as a reminder to everyone on the webcast, do be active and then your questions via the platform. But with that, Daniela , please go ahead.

Daniela from Goldman Sachs. If I may ask 2 things. One, I want to ask regarding the and how that has contributed to margins lately, I guess, is it still that it was a period of investment, and so it's maybe been dilutive through the launch? And how do you see that evolving sort of contributing to your long-term margin target, how relevant it is? And then the second question, sorry, just a very short-term focused one. But on the margin in 1Q, just to understand tying up a couple of your comments. I guess, service margins have not gone down, I assume, given your pricing commentary. I think you also said before that China margin was still slightly above group. So is it that new equipment at the moment is loss-making in some regions? And yes, sort of what's the from there because it sounds like more of the headwinds are in China, but maybe perhaps the rest that is on weaker profitability?

So if I start with the DX question. So I guess you are referring to the extras elevator. So there I guess it's been a couple of years now that we've rolled out the offering starting from Europe, then to Asia Pacific, China and then North America lately. And to be honest, has been the fastest we've seen so far. And from that perspective, initially, we had still a comparison of products, and we are seeing a premium on the DX offering. Now we can see that it is generating demand. It's a way for us to differentiate against the competition. And then a bit more pricing power. So I see that contributing positively. The investment there is more about R&D investments. So that's mostly been done. And then, we have the 24/7 connected platform, for example, that we can just switch on DX. That is, in my mind, contributes positively to our margins. Then second question was about Q1 and the margin development there. So clearly, the biggest change in our margins in year-on-year. So last year, in Q1, we did not yet see much of the cost headwind in our P&L. We're able to with the sourcing agreement postpone the impact to our P&L. And is a headwind, which was then fully impacting this year's Q1, approximately EUR 80 million of impact on the quarter. Most of that coming from raw material driven increases in the component cost. Yes, maintenance continues to be a development positive from a profitability perspective. But clearly, that's one part of it. Then the second part was that if you compare the development in China, so especially in the new equipment side, so we did not see there a normal growth due to the tightness of the developer liquidity. So that's impacting then also negatively on the mix on the new equipment side.

I think there was another question here in the front row.

It's Miguel from BNP Paribas Exane. Two questions from me on new equipment. You talked about more dynamic pricing contracts. Can you just help us understand a bit better how these are different what do they include exactly? And any differences between China everywhere else? Then my second question on the 40% reduction in emissions per product by changing the materials and packaging, any views on how this will impact product costs long term?

So let me actually start with the second one. So the 40% reduction, it's not only materials and packaging, it's the most fundamental is energy consumption over the life cycle and actually, it's going to reduce cost for our customers. It depends on what materials we go to may be a higher cost for them, but then we need to make sure we can get the premium for them. So that's -- many of -- if you look at steels that are greener, yes, they come with a premium. So we have to see what our customers are ready to for. But the most fundamental thing we can do is on the energy consumption, which is a good thing.

And also, many of the actions that we're taking actually are more redesigns how we use material, how the products work. So it's not only about doing the same thing, but thinking about doing differently. And there, it can be something that comes with a cost or can actually be -- can actually be also more cost efficient.

Sorry, what was the second question?

The pricing contract models.

Yes. Do you want me to take -- I can take it. So the pricing contract model, what it means, as I mentioned, is that historically, not a very big part of our contracts have had indexation clauses. Because usually, what happens is that you have a developer who is committed to develop -- to deliver a building to some tenants at a fixed rent in a few years' time. And they want to get a fixed price contract with a general contractor and then the general contractor wants to get a fixed price contract with us. This we're starting to see is changing. We definitely see clear changes here. That means that you sell today something if you only going to deliver it in 2 years' time, you're going to have adjustments to the price over time so that, therefore, it becomes more dynamic. It's clear that not all customers want to have that or actually not many want to have it. But as they are also getting -- we're seeing changes here. And of course, that's something we're driving that you can get more indexation into your contracts. I said, it's only a small part now, but we see that that's starting to increase clearly now. That's an objective -- I wouldn't expect that to be turned around like this, but the trend is definitely the right one there.

Good. I think we had one more here, and then I promise I'll get to the other side of the room as well.

It's [ Andrew Wilson ] from JPMorgan. I've got 2. I just wanted to start on -- made a question here I could start -- sorry, a comment rather at the start. On talking about this kind of value and volume contributing to top line growth. And I just wanted to kind of understand whether that was -- is that a change in terms of policy with regards to sort of how you're trying to drive the growth? And just being more mindful that chasing volume at any price, if that's been what's happening is definitely changing. Because it doesn't look on the sides that followed that there's any sort of ambition in terms of the overall growth rate. So I just wanted to sort of understand if that's a shift in terms of your thinking from a kind of top-down basis given what we've seen maybe over the last 12 months or so?

It is a slight shift. If you think about the environment, particularly when China was -- when we had the mass migration phase in China, volumes are going like this. Then really, the key strategy was how do you get more volumes because you know that with the increase in volumes, you could get a lot of productivity in your supply chain. When there's less growth in the future, what you need to make sure is that your growth is not going to be smart just to drive it through volume that where you want to get more is through value. And if you look at our maintenance business today, and you'll hear more about that from me actually, why are we growing faster than our competition. Not the only one, but one of the key reasons to that is we are focusing on the value aspect as well. And I think this is something that is critical that if you want to grow with good profitability, you need to focus more on the value-added aspect and we can also see that there is demand from customers for that.

And then the second question just around price development, and thank you for the kind of the regional commentary. It's obviously very helpful. Just interested if you can kind of comment on whether you think that's indicative of what the industry is seeing or whether there are certain areas of where you are either under or achieving, whether that be, I guess, by region obviously helpful as well.

Well, I guess it's hard for me to comment what the competitors are doing. I think overall, if you think about KONE's strategy, it's about value add. So we clearly are a company that continues to work on how to contribute more value. And normally, that means that we are well placed to drive pricing forward. I would say that we've been working on this for a number of quarters and continue to drive that forward. So I think overall, we are doing quite okay compared to the industry.

Let's actually take one from the line because it was around the same talk about pricing and productivity. So a question on China, maybe for either of you to address. And the question goes, there's been little impact on price in China so far, but it has been the best region looking at productivity with kind of pricing declining on new orders, how much can you improve productivity in China?

The chart that Ilkka showed, that was also on fundamental impact on product costs. So clearly, first product cost has gone up because raw materials have gone up a lot. And then what have we been able to do from fundamental R&D perspective is, of course, to work that down a fair bit, and the progress in that area has been the best so far in China, which is important because there, of course, material is higher proportion and labor compared to other parts of the world. So I would say this is something that should continue, but at the same time, I think it's clear also that everyone in China is having a challenge with this with the cost increases. And therefore, I do believe that prices will have to start moving there as well. There have been so many disruptions now recent to the market that I think focus has been more on how do you keep on going, how do you keep on delivering with these very tough lockdowns. And how do you recover out of that? And then we come next stage, how do you start to also drive pricing.

Excellent. Now back to the audience and we have one here in the middle.

[ Philip Gojek ] from [indiscernible]. So you've talked a lot about pricing, about value add -- can you maybe develop a little bit more on what your actual pricing power is in the field today? How much can you be a leader in driving price versus being obliged to follow what the competition is doing? And in terms of differentiation, you mentioned sustainability, digital connectedness. But when you look at the competitors, they are also following on these trends. So how much incremental pricing can you drive not compared to a traditional elevator, but compared to the best model of your competitors?

So I think it varies quite a lot, which our business -- we were in. And pricing in services business compared to new equipment business are very different. In services, there, you have an established long-term relationship with your customer and you can have that discussion. And there, we've seen that we've been able to improve pricing. And there, I would believe that we are ahead of the pack because of differentiation. So we can see a clear premium that we are getting in many cases of that because of the differentiation that we have. New equipment those -- when you sell those, yes, you have many long-term frame contracts on that, but you also have very large proportion will always be based on a tender. So there will be certain specifications that you will have and people with tender against those specifications. What is important to do is to early influence to make sure that customers want to choose solutions that have the value-added aspect. That's why it takes a bit longer. And why it's not as quick as pricing in services business. And I think if we look at our industry, we have very tough competitors. They have differentiating elements, and we have differentiating elements, is that how can we make sure that ours are the ones that are most relevant for customers' needs just here and now. And only time will tell how well we can do. We think we have some good assets. As I said, competition is tough. And therefore, we are really want to focus on what are the biggest needs for our customers right now and here today.

Any number to share maybe on the premium you mentioned in Internet?

You can maybe talk about it more when we are able to sell our connected services, the premium work is quite significant. And we see that we have a different strategy there. I think it talks a lot about the quality of our connected services.

Yes, maybe one way to think about it is when it comes to 24/7 Connected Service. So when we sell that on top of the normal maintenance contract, the good thing has been that throughout the rollout, we've been increasing the penetration. But what we've seen is that the pricing has been quite stable. So normally, when you go through more volume, you start to see the early adopters to becoming more the volume customers and then impacts your pricing. But actually, it hasn't for us. And one reason for that has been that we've continuously developed offering to had more value-added included to that. But we are seeing it's a significant increase to normal maintenance contracts when we add the digital offering on top of it, it's 20% to 30% increase in price depending on the market. So it is, in my mind, a great opportunity to differentiate in the eyes of the customers.

You will hear more about from both [ Tomio and Egan ], you can press them on the same topics.

Is that you're building expectations here? I think we had one more here in the middle, and then we'll move over to the end of the....

It's Panu Laitinmäki from Danske Bank. I have 2 questions. Firstly, on the 16% EBIT margin target. Can you talk about your own assumptions behind that in terms of what kind of sales mix does that require in terms of new equipment services and perhaps what kind of margin levels for China and elsewhere and for new equipment that services even if you kind of go into numbers, can you kind of directionally comment where do you need to improve the most to get there? And then secondly, on the services margin. Obviously, you don't report what it is. But if I look at your competition, who has reported, I think they had more than 22% last year. And the question is, do you see that as achievable for you with the current setup with kind of country mix and the scale that you have in the service units under management or is that something that you couldn't assume?

I'll start with the long-term margin target. First, what I would say that it's not a target where we put on Axel together and drive the targets from that perspective. It's an ambitious target for us. And clearly, if you look at the last few years, we have been working away from that. So it is a more ambitious target right now. But then that being said, clearly, the fact that we see the opportunities in services for growth contributes positively there. And like you said, so our maintenance business has a higher margin than, for example, the new equipment business. So that clearly contributes positively to it. And at the same time, as I always said, we need to balance a bit how do we work between absolute and relative profitability. Just getting relative profitability would be probably making wrong decisions for the long-term growth of the business. So you need to balance between both. But I always say that this margin target is especially internally very good. It gives you an ambition where we want to get to, and everybody needs to work towards that. And clearly, we are committed to it. But I wouldn't say that it needs to be with a certain business mix or country mix. But I think it's where we need to see everybody improving on the profitability towards that target.

And then we had about -- so your second question was about services. As I said, we don't disclose profitability in services. And it's clear that the ones we disclosed have slightly different mix. But I would say that our development has been positive. And when we compare ourselves, yes, it looks pretty okay.

And we had Tom there...

This is Tom Skogman from Carnegie. I have a couple of questions. First of all, I mean, the market really wants to get some confidence that this margin trend is going to turn around. You have showed a lot of initiatives. But I also wonder, isn't it kind of -- shouldn't you do some kind of a larger cost-cutting program to really have -- to restore confidence that the margin trend is turning around next year?

I would say the most important thing for margins right now is clearly pricing and productivity. And that's why we want to keep very focused on those aspects. At the same time, you want to drive efficiency in all parts of your organization and you can do that in various ways. And I think we are pulling many levers that we can right now. But I think pricing is the most important and productivity. Those are the areas where we think that will be the levers you want to pool right now to improve your margin.

Another thing you could do to kind of restore confidence in the longer-term margin trend to be -- to show the service and equipment margin separately or regional margins like some of your competitors do like used the head of the divestment and [ Otis ] show there is margin separate. I mean that would give tools for investors and analysts to really kind of estimate what can happen long term, if there is no growth anymore, for instance, in China. Have you considered this, but I think it would add a lot of value to us?

I think we'll take the feedback on disclosure. And from our perspective, we looked at this as a business where all of the 3 parts of the business contribute to the long-term value creation of the business, and that's how we report it. But naturally, it is something that we need to consider as feedback.

And then finally about consolidation. You obviously have a very strong balance sheet. And in China, we see that the growth period starts to be over. But it's kind of easy to understand that it's probably too early to start to spend money on consolidating the China market. So my question is, would you rather -- if you could choose, would you rather spend your money on the Americas region or in Asia at the moment? If you could choose where would it make more sense to strengthen the position basically now?

I would say wherever you can find good targets. So the problem is that if there are not any targets, then it's difficult to choose.

And also, I would still go back that if you look at the China, I think we have a huge opportunity in the services side, but I'll let [indiscernible] talk about that as well as we do.

I think just behind Tom, we had our first..

Lars [indiscernible] from [indiscernible]. I have to -- after the Toms' questions, I have to ask the one that I always do. When is it time to start buying services as you have done so successfully in the rest of the world?

In China?

Yes, in China.

That's, of course, a question we have to look at, as we said, so far, organic growth has been excellent there and we want to keep our focus fully on the organic growth and -- and now there are a lot of KONE equipment out in the market, so how do we recapture them. But it's probably going to become a relevant question in the coming years. So let's see how and when and what the model will be. So stay tuned on that.

There are a few hands here. I want to turn to this side as well because I feel like I'm facing this way and maybe not fair, but we're good.

You should take some from the line before we began...

We have a couple on the lines as well, but that's good too. [ Tomy ] here and then yes [indiscernible].

[indiscernible]. Still a follow-up on the profitability, not only for the first quarter, but do you think that you are making money or are you losing money? Or are you breakeven on the new equipment and modernization business outside of China this year?

Well, that is, again, I come back to the segment reporting question that we're not giving exact segment profitability. But clearly, with these headwinds, it is impacting negatively overall new equipment business. As you've seen from modernization side, we've talked about how there actually, we've seen very good opportunities to also work with pricing to come to the headwinds. So that's progressed well. But then the size of the new equipment business then overall does impact to the headwind, but we are expecting to make profit there.

And maybe before Bill talks about it, but what is the latest what you hear from China in terms of lockdowns reopening, et cetera, impact on the second quarter?

So reopening, as we've said, lockdowns, particularly in the Shanghai area, where a lot of the elevated supply chain is based have been very drastic. Also in Kunshan, we have our biggest factory. There were several weeks where lockdowns were very, very tight. And of course, then we've been running so-called closed-loop production for the past weeks, where means that people cannot leave the closed loop. So that has an impact. And the biggest issue is still logistics. So from today, restrictions are being lifted actually with quite some speed. So definitely, things are going in the right direction. It's been, of course, a very tough environment in the past weeks. And we have to see that how quickly does logistics normalize. That is really the big thing. And how quickly can certain suppliers ramp up that have been within Shanghai. That's -- those are the bottlenecks right now. But I would say that the good thing is that as of today, restrictions are being eased, it took quite some speed.

This is [ Nithya ] from [ Degen ]. I have a couple of questions on a chart that you put up about the 90% reduction in defects in America. What were you doing wrong to have such a high defect rate in the first place?

I don't think we were -- this is actually a 10 year..

It's a 10-year journey. So it's a long-term journey, and it's not actually Americas. It's a global number.

The second question on the same graph, you mentioned about third-party contractors on the installation side. Can you give us a sense of what percentage of installation is done by third party?

It really varies a lot between markets. So we have some markets where we are doing all the installation ourselves. And then markets like in most of European markets, where a mix. And then, for example, in China, installation is done by third parties, we just supervised the work. So it's a mix between the different countries.

Still staying on the same graph, you mentioned 5% reduction in the fixed cost base. Can you give us a sense on the service side, what is fixed cost or variable cost for you?

Maybe Henrik, you can comment a bit on that in your presentation.

Let's leave it to that because you will hear so much more about.

It's actually the details behind that is, yes.

Yes, a question from my side is you said that the overall maintenance growth for the business on a value perspective, is going to be better than the last decade that we have seen. But at the same time, you also mentioned that the mix of portfolio is going to be driven more by China. And given the pricing premium difference on a revenue per unit basis, it would seem that the mix would be working against you rather than for you. Then how do you grow faster than the 5.9% that you've had over the last decade?

To answer your question, hold that and then you ask is from him, okay. Can we do like that? I think you will get a better answer from him now for us.

Let's try to do one final one from the lines before we go to a break. There are quite a few topics coming in that I can cover in later presentations as well. So be patient, those of you online, I haven't forgotten you. Let's do one on 24/7 Connected Services and on the productivity benefits you mentioned Ilkka in your presentation. Do you think that this is something that will eventually be passed on to customers to reduce price? Or are you actually seeking to improve margins?

Well, I think, first, if you think about our 24/7 Connected offering, we've continued to develop that with a value-add first strategy. So how do we actually use the technology to deliver something that the customer sees the value. Then as a result, the callouts are coming down. But it does mean that also customers are actually -- they don't have to worry about the equipment availability is better than the past. So it actually is something that is value adding and visible to them as well. Yes, do get some efficiency. As a result, we can time when we visit the equipment, how we built the -- and plan for it. But at the end, for us, it's really a value-add strategy. But again, [indiscernible] has more on that one. So I don't want to spoil his presentation.

Perfect. Thank you, Ilkka. All right. I think now we've reached the end of this Q&A session. We have plenty of time after the other presentations at the end of the day, so we can have more discussions then. But now time for a short break, about -- just under 15 minutes. So if we can start again at 10:00, there is coffee and refreshments just outside so enjoy. [Break]

All right. Welcome back from the break. I think people are still gradually making their way in here to the room. Have you had a chance to grab a coffee, speak a bit, talk with -- mingle. I'm very pleased that we'll be continuing our morning sessions now with the head of our Greater China Business, Bill Johnson. Bill is joining us virtually. So let me just -- I see him here. Let me just check that he hears as well, and he sees as well. Does it sound good and clear, Bill?

It sounds very clear. How about my side?

Yes. Perfect. Excellent. Then I will let you take over.

Thank you very much, Natalia. And thank you, everyone. Thank you for coming. I'm looking forward to talking to you a little bit about the China portion of our KONE Capital Markets Day and talk to you why we see us continuing our leadership position in new equipment and services in China. But before we get into the present situation, let me recap some key data points that happen at the end of 2021. At the end of 2021, we were #1 in the China market in terms of deliveries and units under service. We were -- we had more than 23,000 employees. We serve more than 30,000 customers, we have 90 branches and more than 600 service locations across the China geography. And this includes both our brands, the GiantKONE and the KONE brand. Since the beginning of our operation, we have shipped more than 1.3 million units from our factories in Kunshan and in Nanxun, and as mentioned, we maintain more than 0.5 million units under service in the China market, the largest portfolio by far. As you can see, when you look at the right-hand side, the services business only really, at this point, represents 15% of our sales, but it's clearly the one with the greatest growth potential going forward. Now it's clear in recent years, there has been a shift in the market mix. The new equipment market has definitely peaked but we see that and we believe that it will remain at a very high level. We have to remember that the China NEV market is by far the world's largest NEV market, and we believe that will remain the biggest for years to come. In addition, we're seeing the maintenance and modernization markets continue to grow at a very high rate. It's really beginning to hit its stride, and we're very optimistic about what we see for the future in this part of the year -- part of the market. And when I look at how we're positioned, I say that we're in a great position to continue to outperform the market in all of these 3 key business sectors: new equipment, we're going to maintain our leading brand in this market; in our maintenance, we have a solid foundation, and we're going to continue to gain share through our digital solutions and productivity tools; and the all-important modernization market is coming up, and this is where we're also building our brand to capture more opportunities here. When you look at the right side of the page here, you see the chart in terms of this mix. Clearly, services are going to be the fastest growing part of the market. And we believe that by 2025 or so, it's going to be approaching near 50% of the overall market in terms of monetary value. Now one big topic that needs to be addressed, and I've already heard some questions on this already, is the COVID issue and its near-term impact. There is no question that it has had an impact. With more than 50 of the 100 largest cities with some degree of lockdown when you see all the restrictions that have taken place, particularly when it's aimed at logistics, that's certainly going to have an impact on our situation. The good news is, though, that the ports seem to be back to operating situation and easing policies are beginning to be issued by the government, in fact, almost on a daily basis. And today, I have good news that the opening of Shanghai has begun, all the lockdowns have been lifted. It will take some time. We have to ramp up slowly. But I think this ramp-up is going to be measured more in weeks than in months and right now, what we're trying to do is really get our operations and get the city and get everyone back to work and back to normality. Now during this period of time, this lockdown, KONE operations had been very consistent. We have good demand for our products that continues. It's still very solid. Construction sites have been closed, but we've been now gradually reopening them and getting deliveries to them. The good news also is that our service business has really helped to soften the blow when it comes to these sort of impediments and while our factories were closed for about 3 weeks in April and a couple of days in May, they're now pretty much back to full capacity. Our big issue is helping our suppliers get back themselves to business, get themselves back to full capacity and then make sure that we can continue to resolve any lingering logistics issues that are making it more difficult to deliver product or deliver material to our factories. In the short term, there is no question that the property sector has taken a hit. And there's -- with multiweek lockdowns, it has certainly had a negative impact not just on the China economy as a whole, but specifically on our real estate market. And unfortunately, these lockdowns have added additional headwind on that have exacerbated the credit squeeze that began in the second half of last year. As you can see from these charts, if you look at from Q3 of 2021, it began coming down both in terms of property sales and new construction they both came down. And then, of course, in Q1, they continued to come down, then of course, April certainly down. But as I mentioned, almost on a daily basis, we're seeing the government issue, many new proposals and policies to support not just the overall macro economy, but specifically the real estate industry. And on the real estate industry, they're supporting not just on the supplier side, namely the big developers, but also on the consumer side, making it easier for people to get mortgages, lower down payment ratios, many things that will make it easier for people in these cities to buy these -- buy apartments. Oftentimes, when we're in these situations, we want to make sure that we're looking at the overall trends, the overall situation in the market? Because the key underlying trends continue to be there and support this optimism that we have. And I believe it's very much so. When we look at the trend of urbanization, that's continuing. There's no question about that, and I'll go into detail in a minute. But we still have about 10 million to 15 million people a year moving into cities. Another key underlying trend that's taking place are the city cluster formations. And this is the way the central government is trying to target investment and make rational decisions about how to improve transportation, medical, education, all sorts of these important services that help make the economy run smoothly. Another key trend, of course, is developer consolidation. That is a big thing that has happened, particularly as the government has moved to squeeze down credit on those companies that are not -- that are over leveraged. That is also forcing a lot of consolidation. That's going to have an impact on our business going forward. The other final real big fundamental trend that's taking place would be the digitalization and connectivity that our customers are asking more and more for and interestingly, that become a prerequisite by many provincial governments before anyone can do condition-based maintenance. And that's going to have a very material impact on the competitive landscape going forward. Let's take a little bit deeper dive when we look at the urbanization rate. You can see here on the left-hand side, at 2020, we're about 64% urbanized. But I believe that we're going to continue to see that steadily climb up for the next 10 years to about 70%. In addition to actually just the volume of people coming into the cities, we're really seeing the government focus on the living conditions through urban renewal, they want to improve living conditions because they're trying to support the policy of larger families. That means you need larger apartments. And when you're improving the urban landscape, when you're making things more livable, that actually improves elevator density in these cities. And again, we believe that we're very well positioned to maintain our leadership position in each of these market segments of residential, commercial and infrastructure. Another major trend or driver is the city cluster formation. Now this is a policy by the central government, as I mentioned, to focus investment and you can see the first wave of investment and focus are on the top 5 clusters seen here in blue -- blue circles. And these first 5 cities represent about almost 60% of China's GDP in 2020. And you can see where they're well positioned along the coast and actually in the center there, this would be very large population centers in the middle of China. And as you look at those dots, those are where we're located with our branches, our service depots, factories, logistics centers, these are all where we are, and you can see we're very well represented in these top clusters. And then in the future, we're seeing 5 secondary clusters being developed and 9 emerging clusters as well. And we're very well positioned in each one of those going forward. And that's how we're look-- when we look at these city clusters, this is also where we're making our decisions in the future about where to open offices where to set up more service depots to support our customers. Another trend I spoke about earlier was developer consolidation. And this will definitely continue for foreseeable future. Why is that? Well, the market is maturing for sure, and that's beginning to squeeze out weaker players. Another big trend that's happening is that the government and financial institutions want to act as we support the larger players. And as you can see here from 2015 to 2021, they went from about 25% total share in the market to approaching close to 50% by the end of last year. So we think that's going to be a very important trend. Now what's important for us is that these top developers are many of our -- many of them are key accounts and we want to grow with them, and we want to make sure that we're supplying them with the best kind of product and services that we can to continue to be their key partners as well. But I also want to emphasize that well, we are -- we really focus a lot of energies on these top developers. We have a very broad base of customer mix in all city tiers and in all market segments. When you look at the right-hand side, you can see that this formula has been, I think, very positive for us. In 2010, we were about 10% market share. But by the end of last year, we were approximately 20% market share. Now as I mentioned, the new equipment market will decline, and we're expecting this year because of a lot of the lockdowns, a lot of the credit restrictions and certain other policies, there will be a general decline of about 10% to 15% this year in new equipment. That said though, if you look down at the bottom left here, you see that each year, we have been able to outperform the growth in the market. And I believe we will continue to outperform the market as we go forward. I'm often asked, how do we do that? What are the key things that give us confidence that we can continue to outgrow the market? The first one is our dual brand strategy. I think this has been a very powerful combination for us to hit all geographic segments, all customer segments, high, mid-value segments. It gives us great reach into selling to different kinds of markets in Tier 3, 4, 5 cities and then, of course, in Tier 1 and 2 cities. Another key component of our competitive strategy is having the best products in innovative offerings in the market. And I believe that we're very much the leading player when it comes to product quality and innovation. Innovation though was not just on products. Oftentimes, it's how we work with customers. And our customers keep repeatingly saying, "Hey, KONE, you're the easiest people to work within your industry. When we work with you, we're very confident you're going to be able to keep up with us and, in fact, lead us and help us with our projects." Installation productivity is one very key area where we continually focus on. And I've seen some efforts in this area recently, which give me very big confidence that we're going to have additional productivity opportunity, improvement opportunities here in installation, which is very important for our customers. And of course, reliability on the service side that is both a benefit for our customers. And for us, it makes us more effective suppliers and improves our customer satisfaction, but it improves our cost system -- our cost situation, so we don't have to repeatedly take care of problem units. A third tier or third pillar of this strategy is our extensive channel partners. I believe this is a real force multiplier for us when we go out to market. With our more than 2,000 loyal partners, they help us see all the opportunities in the market. Each year, we're tendering hundreds of thousands of project -- of elevators in the market. And by having partners who can help us understand where the opportunities are, this really helps us to be much smarter and much more effective when it comes to selling when it comes to delivering our services. And also they're located with us in many of these city clusters. Moving on to the all important and really exciting growth opportunity in the maintenance market. Maintenance is becoming really an increasingly key driver for our growth here in China. There's no question about that. And if you look at the left-hand side, you see by the end of 2022, we're going to be approaching 10 million installed units here in China. But when you look on the left-hand side, you see, although we're #1 in terms of service units in China, we're still only 6% of this market. This is a fantastic opportunity runway for us to really capture more. And I believe one of the key drivers in this is going to be technology because many of these small service providers will not be able to keep up with that. [indiscernible] I know will talk a little bit more in his presentation about that. But how will we get to this growth opportunity? Well, as you see each year, we have outgrown the market when it comes to adding to our service business. Our maintenance growth has been every year better than the market. And how do we do that? Well, we do that again through our great service network coverage, we invest in our sales network to improve conversion and retention. These are 2 key metrics that I measure all our service teams in all the branches because this is a key winning, it should be done very -- it should be top of mind with our teams at all times because this conversion retention is the easiest way to grow our business. Also, more innovations such as 24/7 remote monitoring. This is a great product that our customers pay us for and they love what it brings to them. And also is becoming more and more of a requirement by provincial governments before any company can do condition-based maintenance. And finally, we've invested over many years to upgrade our field productivity and service quality. Modernization is the next very exciting piece of this aftermarket service business. Why is that? Well, if I had a -- we've always dreamed of, hey, if I had a crystal ball and could see the future, that would really be great. Well, I can tell you, we have a crystal ball right here, and we can see the future. In 2004 to 2020, we had a super cycle of new equipment sales. Well, you look forward 15 years, that super cycle is going to simply repeat itself, but now for modernization. So this is a very exciting opportunity for us. And -- but we haven't waited. We have already really invested in this side of the business. And you can see each year, we have outperformed the market by a wide margin. Why have we been able to outperform so well? Well, because we're not just looking at our own portfolio, which is very young, we've only grown so fast in a very short period of time but we go after non-KONE equipment. We really have a great brand that customers, not just for our brand, but other brands look and say, "Hey, KONE has got the solution that we want." So we're able to really have a great product, we have a great product offering so that our customers want it. And we continue to have a great sales channel to support our growth. And the icing on the cake is that by 2025, 500,000 units of KONE equipment will be more than 10 years old, and that's our opportunity to continue to go after our own service base. In summary, the elevator market in China, the mix is shifting, no question about that. It's shifting towards services. This is where great opportunities are. However, I want to emphasize that it's not so easy to build a service business. It takes years. In fact, I will say it even takes a generation to put in place the infrastructure, the training, the organization, the thinking, the mindset to build a service business. It doesn't come overnight. It takes a lot of time. I believe we are super well positioned both in terms of products, services, organization, leadership to really capture these opportunities and not just in services, but also continue to hold our position in the new equipment business as well. We've got a strong foundation. I'm looking forward to the next few years here in China. Thank you.

Thank you, Bill, and let's head into a bit of Q&A now. Wanted to take one from the lines before we go into the audience. There has been a couple of questions around the market mix and how it's changing. So maybe if we can provide a little bit of clarity on there. So first of all, if we look at the business mix in China, new equipment services or new equipment maintenance and modernization. Do you expect the change towards service to be driven by the decline in new equipment? Or do you expect the services growth will actually accelerate from the current levels that we're seeing?

I think it's really going to be from the installed base that we've been putting in year after year after year. And think about this we've been putting in 600,000 to 700,000 units as an industry into this market and people are waking up to the importance of good service aftermarket. Customers' expectations are rising. I don't think this is at the expense of new equipment. It's very much its only business. It's very much organic. And it's -- and I think we're all going to begin looking at the independent service providers as our opportunity to really grab even more share from them. And we actually, as you've seen, we've already installed more than 1 million units in China. I'm only maintaining at this point, about 530,000. I want to recapture those KONE equipment that is out there. That's a huge opportunity. That's just low-hanging fruit right there.

Excellent. Let's then come to the line, and I think I saw the first hand over here, left side into the room.

[ Ante Kansanen ] [ SCB ]. Just a question on China new equipment, and you demonstrated that you have been outgrowing the market in terms of units ordered. Today, we've been heard a little bit about a focus shift towards more value over volume. So could you comment a little bit about what this means in China new equipment context and kind of reflecting the fact that perhaps the market is not growing anymore going into the next couple of years? Does it mean that you're going to be more selective in terms of markets where you can leverage your brand and your position and perhaps achieve a bit better pricing and profitability?

Yes, absolutely. We have had a lot of internal discussions about how to approach the next several quarters in the market. Clearly, the rise in raw material costs and some labor costs as well have really focused us on making sure that we get our cost structure well, increase our productivity. But we've also come to the conclusion that we can't delay much longer. We have to begin to now ask our customers for higher prices. This is -- and they're facing the same issues that we are. So we're beginning to already open these discussions with many of our customers. I've already been in talking to my teams through across China, and this topic is now front and center in all our discussions with our customers. And our hope is that we can get. At this point, we already have a price premium, but now we need to push it a little bit harder.

But I guess, looking at longer term, how do you kind of balance between -- I mean, the service opportunities, obviously, in China and kind of driving installed bases? Adding to that one, how do you balance between defending your market share independent on pricing or kind of improving the margins, not only by productivity gains, but also by improving pricing?

Right. We don't want to get volume at any cost. We want to make sure that we're smart about how we've done this. And I think over the years, we've been actually very successful at getting the right kind of profitable growth that we've always wanted. Now under this circumstance, if our market share takes a slight hit, but that means that we're giving up more marginally priced contracts that don't make sense for us then unfortunately, that may be something that we have to consider. When it looks -- when it's coming to the maintenance market, we are continuing to provide additional services to our customers. One thing that we've been looking at -- one thing that we're about to launch is a 10-year warranty on key components to customers of ours who take our service. But we're going to ask for a slight premium for that. And we're also going to insist that if we're going to give you this guarantee of components going forward for 10 years that you need to be loyal customers for us for that entire 10-year period.

And last one for me would be on kind of the market mix shift. If there's more emphasis on the state-owned developers and also maybe perhaps higher growth on the social housing side. How does that impact your business regarding your dual brand mix or your service capture rates?

Well, we -- both of the brands have strategic accounts. On the KONE brand, the strategic accounts tend to pay us a premium, and they give us volume, of course. I would say that on the GK brand, they have been able to work with a different mix. They have a lower mix of strategic customers and more mix of independent developers. And so they -- and also, they use more distributors who, from a cash flow standpoint of view and payment terms is much, much stronger. So it's there -- both brands operate independently. Both brands have product portfolios to touch almost all segments. I would say the lowest end, the KONE brand does not have the highest end the GK brand doesn't have, but there's enough of a portfolio for each of these brands to compete well in the marketplace and to find the right customers.

Take one in the corner over there.

It's Joel Spungin from Berenberg. I've just got a couple of questions. I think you mentioned condition-based monitoring. I was wondering if you could talk a little bit more about that and where we are in the process of regulatory change? I've heard some speculation that rules could be changed as soon as next year. I was just wondering what you're hearing with regards to regulation in China and the shift to more condition-based monitoring. And then my second question is, what do you think that means from a financial perspective for KONE service business if you're able to increase the amount of remote monitoring that you're doing on the installed base?

Yes. We're watching very carefully. There have been about 13 cities that have piloted the [ CBM ] and again, one of the key prerequisites for any company to be able to participate in that pilot as you have to have remote monitoring. So we have participated in almost all of those cities. Unfortunately, this lockdown recently has probably set the timetable back a little bit. But it seems that the pilot program has concluded. The feedback has been quite positive. And we're -- our expectations is that as you just said, sometime next year, they'll roll this out nationwide. And again, I can anticipate at that time that unless you're really prepared for that from a technology standpoint of view or organization standpoint of view, it will be -- maybe a bit of a challenge for the smaller operators, particularly on the technology side. We have geared up for this. Since we participated in the pilots, we know what it's going to take. We're also looking at what this means for pricing. Again, I think when we go to customers and we offer more technology, but perhaps fewer scheduled visits when we offer greater reliability, anticipate problems, there's a value there for them that they'll want to continue to maintain pricing and perhaps even offer us a premium. And then as I mentioned, other services like 10-year warranty on key components, we know that our customers find that very attractive already.

So just to clarify, your thinking is that this will help in terms of improving attachment rates and better pricing as you sort of move to condition-based monitoring model over the next few years?

I think pricing may stay flat, but because it's condition-based maintenance, it will have a better productivity impact for us going forward. There's no question about that. And again, because we have to add the 24-hour remote sensing and we're getting constant data, we're going to be able to do more proactive maintenance and repairs. We've seen this. It's quite an amazing result when you put this on a large number of units. You immediately see -- it takes a little time for the team to understand how to read the data. But once they do, the call-out rate really takes a precipitous drop. So this has helped with our productivity at those branches that are using large numbers of remote monitoring units. So I think in net, its going to be a very positive on our overall margin.

I think we had one here at the front.

It's Daniela from Goldman Sachs. Just one follow-up, I think, on your comments regarding both for maintenance and modernization when you do your own equipment, the KONE or Giant equipment versus doing others. Is there a margin differential? So as you grow more of the share of your own is that positive margin event over the longer run?

Just to clarify, we don't do -- we do very few foreign equipment maintenance but we do modernization. Is that what you're referring to actual modernization?

Yes. I thought I understood it that in both cases, you were doing some other brands, not just for unknown, but I'll take it just for modernization, if that's the case.

Sure. Let me clarify. We do very few foreign brands. And when we do it is usually when we take over our larger portfolio from, let's say, a strategic customer, a big developer, and they want one service provider. So we do that. But generally, we -- there are so many of our units out there, and we don't want to add too much complexity to the mix in terms of maintaining foreign brands. It's complicated, and there's certainly safety issues, training issues and things like that. So -- but when it comes to modernizing foreign equipment, we typically go for either a half modernization in which we completely change the machine and the controller out and they retain, for example, the cab and things like that or we do a complete modernization in which we take everything out perhaps except for the rails.

But in general, I think you do modernize a lot of stuff that is not KONE. So is that local brands?

It's everything. Everything.

And can I ask also on the maintenance side? When you had -- you mentioned 15% of your current sales is maintenance. But for the market, it is much more. I think in the chart, it was 25% or 30% in the chart that, that had the whole market. So it's local brands that are maintaining your elevators at the moment? Is that where the capture comes from?

Yes. At the moment it's mostly independent service providers, yes.

Let's take one from the lines again, and then we'll move to the room if -- I think we have time for a couple still. One question on kind of the maintenance markets. As they mature in China, how do you expect this to impact the profitability of the KONE China business or the KONE China maintenance business?

I believe this will have a very positive impact as -- because our maintenance margin is very solid. It's higher than our new equipment margin. So I think this is going to have a very positive impact overall as we add more maintenance to our mix.

Excellent. Thank you, Bill. And I think we have time for one more in the audience. And here, we had a very patient person. Let's see. There's a mic coming from you around the back.

[ Guilhem Delibo ] from [ Capco Capital ]. Just a follow-up on the previous question. Actually, the implication of the new equipment margin as the overall market is going to shift towards more maintenance, which is a higher -- structurally higher margin business, do you expect some players to actually use the profitability from the new equipment market and reduce it in order to capture some new business?

Basically, are you asking is there going to be more price competition in the market?

Yes. New equipment, yes, and declining margin.

In new equipment. It's always been a very competitive market here in terms of pricing. We watch carefully because there are so many rounds of tenders. We're looking at pricing all the time. As I said, we've made a commitment to try to raise our prices within the market. So we're going to watch it carefully. What's the impact? Are some people are going to go for volume at this point? What's the impact on our business? As I mentioned so far, we've been able to actually get a premium from our customers compared to market. My hope is that we can continue with that, but we have to be smart about it. We just don't want to go for volume at any cost. but we certainly do want to defend our market position as best as we can in a smart way.

That's a great way to end the Q&A session. So thank you so much, Bill, for joining us virtually. Happy that everything works out well here.

Our next speaker is the head of our new equipment business, Tomio Pihkala, who will be talking about how we're driving differentiation and resilience in his area of responsibility.

Thank you, Natalia. All right. Is it visible? Yes. Well, really excited to be on the stage in more face-to-face settings this time after some time. So my name is Tomio Pihkala. A few words about myself. I have been working more than 21 years in KONE. Now in my current role since 2019, and you can imagine that it has been quite eventful first few years in this role, including supply chain and sourcing, but very exciting also at the same time, it's clear that the construction industry has been facing some turbulent times. But I'm so proud how KONE teams have been navigating through this period. And it's clear that our very high loyalty among our customers, strong market position overall in markets like China and everywhere, and of course, strong innovative offering has been playing hugely important role during this period. And most importantly, supply chain has been showing resilience during the turbulent times. So in my presentation, I will focus quite a lot about future, but of course, also some important learnings from today. And I would like to talk about what are the key enablers for us to really improve competitiveness in new equipment business and how do we ensure that our supply chain will be future-proof in a way. I would say some of the keywords will be agility, resilience and speed. Those are the winning factors going forward. Henrik and others already talked about overall market development in elevator industry. If I look at new construction markets, we have seen a broad-based recovery. It's very much residential driven, but also actually, all the segments are now recovering. We know that retail segment and the hotel segment actually were mostly impacted by COVID, but they are coming back. Geographically, Bill already talked about China. Clearly, lockdowns and liquidity challenges have caused some challenges there in the short term. If you look at rest of Asia Pacific, very strong rebound from the COVID. North America, actually, we think that is very optimistic near -- short-term outlook. And then Europe, Middle East, Africa, slight growth expected despite the uncertainty caused by Ukraine war. But although demand environment is developing in a quite positive way, it's clear that global supply chain constraints have caused some challenges. There has been significant raw material cost increases. Logistic network has been in a very difficult situation. Component shortages, especially semiconductors, have been causing some headaches. And then, of course, various lockdowns in different stages of the supply chain. These are impacting our customers. Customers are slowing down some of the decision-making. They are also experiencing some delays in construction sites. Finally, of course, they are facing also commodity pressure like we are facing. And this is also impacting us, and we are not immune against these disruptions. However, there are a lot of things we are doing to mitigate these challenges. Ilkka and Henrik already talked about quite a lot, but we are increasing prices. We are increasing our productivity. And also, we are reducing product costs to mitigate raw material headwinds. When it comes to logistics, we are looking at alternative routes to optimize our logistic flow. And also in some cases, we have moved also elevated production or elevated component production to the other supply units to make sure that we can serve our customers in all situations. Semiconductors has been a huge topic also in our industry. Elevators has actually quite a lot of semiconductors. I would say thousands of semiconductors used in single elevator. So it's clear that this has been also a challenge. We have been working very hard to make sure that we can supply. We have done a lot of redesign work of our printed circuit boards. We have searched alternative suppliers for hundreds of chips so far. And especially, we have been keeping very constant dialogue with our key suppliers and ensuring that we are -- all the time, they have the right information, [ right for a cost ]. And we have been operating in more this kind of crisis mode to ensure that everybody is in the same page all the time. Then we have had, of course, these lockdowns. And of course, this Shanghai lockdown has been the very recent case. But there have been lockdowns actually in the different stages of supply chain globally all the time in past 2 years. I mean I don't remember how many lockdowns we have had so far. And they are impacting in sometimes very unpredictable way. And that's why it has been very important to have a proactive risk management. It's about having basically an early warning system where you immediately know if something is happening in some part of the world and able to react in a quick manner. And essentially, we have had -- we have been in a crisis team. I personally have been also joining weekly and daily to those crisis meetings where we basically want to make sure that we communicate very efficiently. We make decisions very quickly. And we make sure that we have a constant dialogue with the key suppliers to ensure that we can react to the situations without any delays. So that has been pretty much operating more in the past 2, 3 years. So definitely, that has been quite eventful. All in all, I mean, there has been a lot going on. And for sure, we are not yet over with all these challenges. But then going forward, of course, we need to make sure that our supply chain can adapt to whatever environment we are living in and I would say to certain new normal where disruptions are more like a norm. And you still need to be able to run your business. You still need to be able to deliver your elevators to the customers. So to do that, we are focusing on 4 key areas to develop our supply chain. I already talked about productive risk management. This is something where we need to continue to work very actively. It means that we need to have a very systematic way of mapping our overall supply chain, including all the sub-suppliers, making sure that we know exactly where are the potential weak points and what are the risks we may face and proactively address those and have a 24/7 risk alert system so that you get immediately notification whatever happens during the supply chain. Second area is the multisourcing. It basically means that you need to make sure that you have an alternative supplier not just in an elevated module level but also in components and parts level. And this is not only applying for us but also for our suppliers and sub-suppliers. They need to make sure that they always have backups and alternatives available. And this is something, of course, we have continued to do. We have had a multisourcing activities in the past few years, and we have been able to reduce the single source portion of our supply chain. The third area is sustainable operation. Already different country requirements and regulations are increasing higher standards and higher bar in this area. Our job is to make sure that we anticipate new regulations, able to, of course, comply with them. But also, we want to make sure that we actually have a competitive advantage in this area. So this is one good example about advantage. So we have set a target to reach carbon-neutral supply chain already by end of 2024. So very soon. And this is one of the way how we want to make sure that we are really a forerunner in sustainability. Then about flexible supply footprint. This is actually quite a big word, including a lot of things. One actually angle for this area is that we want to diversify our Asian supply chain to make sure that we are able to operate in all kinds of environments. I will actually elaborate that a little bit in more detail. What does it mean that we have more flexible supply footprint? To simplify, it means that you're able to produce same product or same components in either supply unit A, B or C, depending on the situation. Now this is easier to say than done because you need to make sure that you have harmonized product platforms. You need to have harmonized supply chain processes and also related to IT systems like ERPs and also product life cycle management systems. We actually have a good starting point as KONE because our supply chain are actually continental as a nature. We have supply chain for North America, Europe and Asia. But then the whole idea is that how do we make sure that this continental supply chain is actually more interchangeable so we can actually mix component production and make sure that we can then operate in a flexible way. And there, of course, things like product harmonization is very important. Actually, was it 2 years ago in the Capital Market Day, I introduced the product harmonization program. Huge amount of efforts, and this has now started to really pay off. It is creating flexibility for us to supply elevators in the future. And then, of course, in parallel, you need to also invest in your manufacturing. And here, we have put a lot of focus on diversifying our footprint in Asia. And I will actually give you some example. What does it mean in practice? This is actually a bit of a simplified illustration. There are actually much more arrows going here and there between supply units. But to visualize what the supply diversification means, we'll continue to have actually quite a major supply chain from China. We are exporting also from China. But then we will make sure that we also have alternative supply units such as India to serve our customers. And this is how we diversify volumes. And why we are going to -- why would we want to do that? Because we want to have this increased interchangeability of component production. And secondly, we want to optimize our logistic flow, essentially optimize logistic cost, and then lower country dependency, secure material availability and maximize product competitiveness. So it's a -- and this is going to be much more dynamic because you may have more capacity available in one moment in the factory B and you want to sort of orchestrate your order volumes to the different factories depending on the different situations. So that's what we are trying to do. All right. I talked quite a lot about supply chain already. Let me talk about my favorite topic, product offering. Product offering continued to be instrumental part of our competitiveness. Ilkka, Bill, Henrik already talked about some of the great things we have been bringing to the market. KONE is known for innovations. We are proud about those. New innovations are born when we understand customer pain points and hidden needs better than before. That's when the innovations were born. So that's why it's very important to hear what our customers are saying. What we are hearing from our customers? What are their key pain points today? I will pick up 3 important pain points. Number one, builders, they are suffering due to the significant productivity change. Actually, the whole industry has not been improving productivity too much in the past decades. Even 70% of the working hours are wasted at the construction site due to the inefficient working practices. At the same time, of course, we have seen the raw material headwind also impacting our customers and increasing pressure. Number two, buildings are a reason for 40% of world's greenhouse emissions. 40%. It's fair to say that the future of this planet depends on how well we are able to reduce the emissions in the buildings during its whole lifetime but also construction time. So it is no question that sustainability is becoming an important priority for our customers. Finally, about the third point. Pandemic has permanently changed the way how we work. There's no really return to the [ old there ], even if we are having now some face-to-face meetings here. Flexibility is going to be the key word, flexible working, flexible workspaces. And that will be sold by technology, by smarter buildings. So that's the third area where customers are very much focusing on. So how we are responding to these pain points. 2 years ago in Capital Market Day, we told how KONE introduced first truly digital elevator in the industry: KONE DX Class elevators. You have heard already quite a lot about the DX Class elevators. That elevator has a building connectivity. It's a future-proof solution. And around that elevator, we build entire ecosystem of digital solutions, which we can offer for our customers to customize the people flow experience depending on the customers' individual needs. KONE DX Class elevators have essentially 3 value propositions: number one, create value with the connected people flow solutions; number two, differentiate with the redefined user experience; number three, partner for smart and sustainable buildings. And now I'm very excited to introduce fourth value proposition, accelerate construction with improved productivity. I'll come to the details very soon. But before that, you may wonder how we have been progressing with DX Class elevators. Well, actually, Henrik already told something, but actually, it has been a pretty exciting journey. It has been really hitting well in the market, exceeding at least my personal expectations when we were first launching it. We have sold over 75,000 elevators. We are now covering all the regions, including North America, and not just the regions but also different segments. And then this ecosystem of digital solutions are expanding. We have more and more third-party solutions, KONE solutions coming. Recently, we launched a solution called KONE Office Flow. And this is really the flagship solution for most demanding customer applications. Very encouraging feedback, super exciting offering. It's fair to say that this is going to be a de facto solution for smart buildings in the future. Then health and well-being offering is also something we have developed a lot during the pandemic due to the known reasons. Finally, Henrik mentioned about that, we have made some really exciting launches in the area of sustainability. We want to be really the first runner in this area. That's why we want to be first with the fully compensated -- CO2 compensated elevator and also maintenance offering. And recently, we have also built the capability to install elevators to the wooden buildings. And the wooden building is not just a minor thing anymore. It's actually picking up quite quickly, especially in Europe, and we have hundreds of installations already. So that's pretty exciting. Now back to the fourth value proposition, accelerate construction with improved productivity. Now this is almost like a new business. I would say service business for builders. And we have built a completely new offering in this area. The flagship solution in this offering is called KONE JumpLift. The idea of JumpLift is that we can help our customers to reduce construction lead time by weeks or even months and offering significant monetary savings for our customers, hundreds of thousands of euros all the way to the millions of euros, depending on the complexity of the project. And of course, customers can also start enjoying the revenue when the prebuilding is completed also earlier. So what is the idea of JumpLift? JumpLift enables movement of materials -- construction materials and construction workers and people while building has not yet reached the full height. They're still under construction. It's not ready. But we're able to put the elevators into use to serve as the construction lifts. And this way, we're able to reduce waste. We're able to also reduce the time for the waiting. And obviously, we all know time is money. JumpLift offering is something we have had already for the high-rise elevators or pretty extreme cases in the past. But now we actually industrialize it. We actually brought it to the -- all types of buildings as a standard solution and as a modular solution. And it's not just that. We actually, as a first company, launched machine room-less JumpLift elevator, which is really nicely fit to the low and mid-rise buildings. So that's going to be a significant opportunity now for our customers to improve productivity. JumpLift, of course, can also offer some other benefits. It's actually improved work safety, quite a lot, which our customers appreciated. It's also much more immune against the weather conditions because now the elevators actually -- construction elevators are in the middle of the building unlike traditional Alimak and traditional construction lifts, which are used by our customers. So this is really something which customers have been waiting for a long time. Builders are also talking a lot about situational awareness. This is a big, big topic. Why? Because construction project has a lot of surprises. It's actually quite chaotic if you go to a site. You see a lot of surprises, issues, and probably now during these times, even more. And one of the headaches of project managers is to know if something is not going well and how do we ensure that we actually learn about those much earlier. So that's why they are talking about the situation awareness and to use the digital means to actually create that. So for this purpose, we have developed Kone 24/7 Connected Services for construction time used elevators. This offers 100% transparency, how construction lifts are working and actually also predictive maintenance capabilities to make sure that the equipment are running. So now you have a situational awareness of how the material flow, people flow are working, where are the bottlenecks? How do we make sure that your site is not slowing down because of the flow? So I could talk more about these great offerings, but it's one thing I want to still say before I conclude my presentation. While we are very excited about opportunities, what this new offering will create, we have also realized that pandemic has changed the way how we need to interact with our customers. Customers are increasing preferring digital touch points. And this is very visible in the early phase of construction process, but there are actually customers who prefer to have self-service from the beginning to the end. And this is actually happening quite quickly. And this is why we have been introducing self-service customer tools like elevator planners, beam tools, car designers. And we actually need to continue to develop a seamless multichannel experience for our customers. It's something we are going to hear more in the future. But if we look at just what we have already offered, we have seen clearly a shift in the lead times. Customer response times have been moving from weeks to hours. So there's much more things going on at much faster pace, and also overall volumes of digital interactions are picking up very quickly. And this is very essential when we are bringing the new offering to the market. How do we make sure that we can do this in a digital way? So time to wrap up. I was basically talking about 2 things: supply chain and product offering. Number one, as you can see, we are very optimistic about the opportunities, what the offering can offer for us financially and business-wise. What do we want? We want to continue to be recognized as the innovation leader, and the customer pain points are really calling for new innovation more than ever. Number two, we have a very realistic view about challenges what supply chains are facing today and tomorrow. And we want to make sure that we build a future-proof supply chain, which is the most robust and most resilient in the industry. So with that, well, thank you, and I guess there's some time for questions.

Yes, indeed, we do have some time. Did we have anything? Let's start here in the room this time around. Yes. There, one in the back.

I'm [ Falcon ] from [ Peak Day ]. So you showed us how you accommodate future trends. What I would like to better understand is the -- your portfolio as a whole. I mean when you -- when I look at competitors generally in the industry, on the one hand, one wants to have a seamless offering. On the other hand, the seamless offering, so kind of increases complexity. And when I then look into you as a leading player, you are exposed to residential, commercial, public, and within that, tons of subsegments, tons of subspecification. And I would like to know in your product development, how you address that. So what sort of number of units you need to be able to sell that you say, okay, it's worth going for it or believe it because it doesn't bring anything? Second question is a percentage of your portfolio is really a global portfolio. And the third question I have is when you look at the portfolio as a whole, I mean, we have always been talking just about the margins being a function just of mix between service and new equipment, et cetera. But as far as I understand, new equipment is also -- the margins there is also a function of where you stand at the learning curve. So at the beginning, you have higher cost, introduction cost, et cetera, and over time, you kind of milk product also. Where do you stand there in the product cycle across your portfolio, when we would need to see a full rejuvenation of it?

Yes. Very good questions. Let's start with the first one. So indeed, I mean, if you want to sort of satisfy all the customer needs and involved segments, that will lead to the complexity. That's why you need to be smart about it. So that's why we have had also a product harmonization program. We're actually reducing the complexity of our offering because basically in a technical platform level, we are going to have much less components, much less component modules used. And then basically, you are going for the mass customization by digital means. So you have digital layer. DX Class elevator is actually enabler for the mass customization. That is a very efficient way to actually customize, and you don't actually create complexity because you do a lot with the software and you do a lot with the APIs and you are using the digital platform behind that. So that's maybe number one question. Number 2 question was...

Related to where we are in the product life cycle, I think.

Yes. So maybe it would be good to...

I'm sorry.

What percentage of your portfolio of your offering is really truly global product that you sell? Take for instance residential that you can sell across the globe?

Yes. It's actually not that easy question to answer. But if you go for a technology or component level, for example, we have motor technologies. We're using all continents, same motors, same technology. And same applies for controllers. So actually, our offering is very global. But then when you then install -- when you configure elevators in content level, you need to consider different code requirements and so on. Then there is some customization to the local market needs. But essentially, we have a global offering. And then I think the third question about because there's typically some learning curve and cost curve when you launch a new product, and so actually a very good question. We really want to avoid that cost curve in the beginning. And that's why we have -- we are investing a lot on product harmonization program. So if you look at KONE DX Class elevator, actually, it is very cost efficient from the beginning because it's not that we sort of rechange everything in elevator technology. We actually use a lot of what we already have and improve. And that's going to be the philosophy because we want to differentiate that scale. We don't want to sort of create beautiful one-off solution, which is not scalable and also expensive in the beginning. So that's something we really want to avoid. So I'm very proud to see that actually DX Class elevators, which are really our mainstream, is actually very competitive cost-wise also.

I think we had Joel over there.

I just wanted to ask about the comments you made about supply chain, which I thought were quite interesting. Maybe just sort of a big picture question. How far through this process of sort of making these adaptations to the supply chain that you highlighted are you? Is this stuff that's just started in the last 12 months? And realistically, how long is it going to take you to do all the things that you would like to do?

Yes. It's a good question. Maybe it will never sort of complete. And frankly, I mean, many of these things, what I mentioned, we have been doing before the even COVID or pandemic started because they just make sense, right, due to other reasons. So we were working on harmonization of our products and also supply chain processes already before the recent events happened. But I would say when you talk about product harmonization, it takes years. And it's typically component by component. You want to do that in a very careful manner so that you don't create any issues. Then if you talk about ERP systems, it takes some time to harmonize. So again, you need to do a component factory by component factory carefully because you don't want to create any disturbance. So yes, but it's a multiyear road map where we are progressing really well. And I would say recent events have been even motivating us to even accelerate so.

And then one here.

I just wanted to ask around the sort of various initiatives that you talked about in innovations in terms of I just wanted to try and get a sense of -- is that just purely about trying to win market share and obviously then the very high attach rates that you get in terms of maintenance? Or is there a pricing and margin angle to this? And it's not really a criticism in the sense of the second aspect if there isn't, but it's just, I guess, to help us understand kind of what the ambition or maybe kind of how you're trying to pitch that is.

Yes. I would say it's a lot about second part. If you think about the DX Class elevators and the fact that we try to sell value-added services on top of the elevator, that's a lot about high-margin service business actually. If you think about JumpLift offering, which I was mentioning in the construction area, which is kind of a new area now where we can explore opportunities as a service business, so this business as a nature is a high-margin business. So yes, we are looking very much at value and differentiation. But of course, we need to make sure that our basic elevators are competitive so that we can get also scale that we need.

And maybe sort of, I guess, possibly link to an earlier question as well. How global are these initiatives? I mean is this -- when you look across -- sorry, this is on the sales post -- in the supply chain. But when we sort of go through the various aspects you've talked about, how global are those offerings intended to be? I mean is that going to be addressing the entire market? Or is -- because it would strike me that some of these may be things that might be paid for in some markets and not others. So I guess interested to get a sense on that.

Yes. Good question. I would say the basic product platforms and basically just like DX Class elevators, they are very globalized. As I mentioned already, it's covering all the continents. Now if you go then to the individual digital servicing solution, there can be actually some local variability. I mean we may have some local Singaporean robot company who want to sort of connect to our DX Class elevator, and that's only for Singapore. But it's done in such a way that we don't create complexity. It's more about adaptability to the customer requirements. If you look at -- if you think about JumpLift, it's very much global. We made a global launch. Actually, our idea is to always try to make it as a global launch at the same time. And that's definitely -- but even in JumpLift offering, you need to consider some of the local regulations and local, let's say, market practices. But essentially, we're always aiming for global.

Thank you. I think that was all the time we had for questions for Tomio. We can come back to them again in the final Q&A. Now we have time for a short break, 15 minutes. Before you all head off, just a quick request from me or rather as a heads up, I guess, at this point in time. We are, of course, aiming for continuous improvement in the IR function, and we would love to your comments on the event. So you all have feedback forms in front of you on the other side of the agenda paper. So if you could fill those out and hand those to the team before you leave today. But with that, approximately 15-minute break. We'll start again at 11:25 Finnish time. [Break]

All right. Welcome back. Time to start our last session of the day before we start to wrap up. You've heard a lot today -- or Henrik and Ilkka speaking a lot about the importance of the service business and the growth opportunities that we see. So I'm very pleased that our last speaker for the day is Hugues Delval, the Head of our Services business, who will be going into a lot more detail about some of these trends that you've already heard about. So please welcome Hugues.

Thank you, Natalia. Good morning, and welcome back from the break. So indeed, we're going to look together through how we at KONE are planning to continue to lead in our service business. And this presentation or this sharing session is 3 parts. The first one is that quick look at the markets and how we see them evolving in the next coming years. The second one is about our performance and basically the strong competitiveness we have entering in the next period, and then last but not least, sorry, about how we are planning or what we are doing in order to develop further our competitiveness and our differentiation. So I guess that on the service market side, we can start with one very positive element, is that all our markets on the service side of the industry are growing across all geographies and both in maintenance and modernization. So it's actually, of course, a very positive environment to be in. When we look at the maintenance business, what we see is that they are slightly less than 20 million units in operations in the world. And when I'm saying units, it's both elevators and escalators, and it has been growing by -- with a 5% growth rate annually for the last years. And indeed, this growth, it has been mentioned earlier, [ the growth ] has been mainly happening in Asia Pacific and in China. And indeed, the average monetary value of a contract in China is lower than the global average. So indeed, it has a negative mix effect, and that's why the monetary value growth of the industry has been growing by around 3% over the last years. When we look at the future, we believe that the growth in units, of course, driven by the slowdown in the construction industry will potentially slow down to roughly 4%. But we actually believe also that the monetary value will accelerate slightly due or thanks to inflation. Okay. So that's how we see the market development for maintenance business. Then we can look at the attractive modernization business, a very promising one, as Bill has also emphasized. So what we see is that the modernization markets will grow, or at least our best understanding today is that they will grow high single digits going forward. And what we see happening on the modernization side of the market is that, of course, the usual drivers behind modernization will continue to be there. So far, we have been very much modernizing for obsolescence, aging of the equipment. And this number of units will continue to grow. And again, China will play a very essential part of the growth of the older units on the market. But what we also see is that many customers are actually looking very much about how do they improve the competitiveness of their buildings, including the younger ones. And we see modernization opportunities expanding into how we can make the elevator or escalator more sustainable, how can we help our customers to improve the user or tenant experience, so how do we help them to make their buildings more competitive on the market. And that's clearly a new trend on the market where we see also a good potential for the modernization business going forward. And I will explain a bit more later about how we are addressing these customer needs. And again, you just saw that the number of buildings or equipment or units, sorry, elevators and escalators in these younger buildings are about 12 million units today. So what about our position? What about our performance in the markets? And again, Ilkka has been mentioning already a few -- already earlier that we have been growing faster than the market on the service side of the business. What's, of course, very relevant now is that this growth has been accelerating over the last couple of years. Of course, Q1 is strong in the maintenance business with 8.7% growth. Actually, 2021 was also at 7.8% growth. So also clearly stronger than the historical trend. And we also see modernization double digits to start the year. And last year, in our volume business, modernization was also double digits. So we see a good trend for the service business again going forward. But I guess it's probably worth to reemphasize the importance in our service business about the growth in the portfolio of the units we are maintaining. So the portfolio of the elevators and escalators we have under maintenance contracts. And as you see on the left side, we have 1.7 million units in service today. We have been used to communicate on the 1.5 million, which is a number of units we have under maintenance contracts. But of course, we are also servicing units which we call in -- lift in first service contract, which means that this is the contract we have with our customers during the warranty period after the construction. And this is, of course, giving you an indication about the amount of units we can convert going forward. And we see that this potential has actually increased over the last year, thanks to the strong performance in the new construction business. Okay. And thanks to this, we have been growing actually slightly faster than the market. But again, for us, it's not only about growing our portfolio in units, which is important, right, because the units are actually the base for a very resilient and profitable business. It's also a strong core where we are then able to sell additional services, value-added services, repairs, modernization. So it's a very important core for the service business development. What we have been able to do over the last years is actually to grow our monetary value faster than the units. And actually, we have 3 levers we are using for that. The first one is the maintenance contract revenue, so basically the pricing and the content of the contracts we are signing with our customers. I will come back again in a few minutes about that. We have the value-added solutions, and of course, the flagship value-added solution is 24/7 Connected Services. And we have the amount of repairs we are selling per unit on average that again is developing positively for us. And to give an example, for example, if we take the entire Europe and Mediterranean countries last year, we have been developing about 3 percentage points above the unit growth. And 1/3 of it is coming from 24/7 Connected Services. So 24/7 Connected Services is adding 1 percentage point of growth to our business globally, which then enables us to counter what you were mentioning earlier about, indeed, there is a headwind from the mix, but we have been able through these different actions to more than compensate these headwinds and develop our monetary value actually faster than our units. Then again, we all understand that we are entering -- or we are in a more inflationary environment. This is, of course, very much true for the material part of our business. But the material cost is not the majority of our cost in maintenance, right? It's labor for almost 80% of our costs, which, again, we expect inflation in the next coming quarters. But again, these capabilities of pricing, of selling value-added solutions and of increasing the repairs per unit are making us very confident that actually, we can treat the inflation as an opportunity in the maintenance business. And that's actually what we have demonstrated over the last couple of quarters and years actually. Well, talking about service before talking about China would not be right. And again, Bill has been mentioning that in his presentation. Some of you have heard actually because I have been asked that I have actually relocated China for the last 15 months. I'm living in China, and having spent most of my time over there for this period, what I can share with you is probably a few insights or main points that Bill has mentioned. So the Chinese markets will be the major part of the service growth going forward. About 40% of the growth in maintenance and modernization will happen in China over the next coming years. We have a very strong starting position. We have a strong construction business. We have very strong teams, good service networks, good customer relationships, good supply units, which is, of course, very important in modernization. We also understand that there are some dynamics in the Chinese market which are different and that we need to tackle differently. Regulations is one of them, definitely the difference -- the diversity of China between the Tier 1 and 2 cities and the Tier 4 and 5 and plus cities. But also the technology offers new opportunities in China, certainly because there are some very advanced technologies, but also the communication platforms like WeChat and Alipay are clearly very different than for the rest of the world. So this ability to offer China for China will also play a very big role in our ability to continue to develop faster than the market in China. So when we look at the present and the future, again, we want to continue to lead through differentiation. And our ambition is clearly to continue to grow faster than the market, and of course, profitably. How do we -- or are we planning to do that? Well, when we say that we want to differentiate it, of course, starts with understanding how we are providing more value to our customers. And you have heard some of the items which are on the slides, but I guess that when I'm listening or when we are listening very specifically to the building owners and the property management companies, we hear 3 kind of outcomes they are expecting from us. The first one is about how do we help them to improve the efficiency, the transparency and the sustainability of both their buildings but also their operations. It's probably top of mind for vast majority of them. Then it's about -- and again, mainly in the office and commercial segment, it's about how do we help them to improve the user and tenant experience. They understand that they need to attract people back to the buildings. And then last but not least, it's, of course, they continue to value a lot the expertise of the professionals which are helping them and also a lot about the convenience to deal with, or can they actually also be more efficient on their side so that they can, of course, be more cost effective and address their own customer needs better. So this is actually critical because this is a very strong foundation to all what we are developing in terms of solutions and offerings. And you will find the -- find these 3 elements back across the next couple of slides. So on the offering side, quick look at the back mill. When we look at -- in 2016, we have launched KONE Care. I will not give too much details. It's, I guess, known by most of you. KONE Care is actually an offering in the past, the entire industry and still today for most of them. It's offering basically 2 contracts. Standard one, comprehensive, and the customer is to choose. In 2016, we have introduced a concept where the customer can completely customize their contract, the services they are selecting, the service options and the service levels. And of course, we mass customize, meaning that we're industrialized on the delivery side of it. Very strong success. Still today, this is very foundational in all the offerings we are building further on top of it. Then 24/7 Connect, I will come back in a minute. It has been already talked about, but I will give you a bit more detail. 24/7 Planner, launched end of 2020, which actually is giving the customers the property management companies, an asset management plan, which is not only built on our people expertise but also on the actual condition and on health of the equipment, very -- or again, very strong success, early success with our customers on this. Then you have heard about KONE DX Class elevators, which are the most eco-efficient and actually the smartest equipment in the industry today. Based on this, we have launched late last year the KONE Care DX maintenance contract, which is actually giving the customer a new service promise, which is the most advanced maintenance for these DX accelerators. It includes, always, 24/7 Connected Services. It also gives the -- or provides the customer the opportunity to select other digital services. And as also Ilkka mentioned, that's the first maintenance contract which offers carbon-neutral maintenance to our customers. And there, we help the customer to measure. We help the customer to reduce the impact of the maintenance operations, and then we compensate for the rest. And I don't want to disclose too much, but of course, we again see very much continuous value that we can deliver through -- with that. And our customers today are expecting even more value, even more from us in terms of sustainability, in terms of how do we help them to improve the people flow performance in their buildings. 24/7 Connected Services. So we are forecasting to reach about 15% penetration in our portfolio by the end of this year, which is clearly more than 200,000 units connected. And we speak about really the real-time connectivity with the cloud, with the analytics. We don't speak about the legacy connectivity or remote monitoring solutions that we also have on the side. And these 24/7 Connected Services units are actually providing very clear value for both our customers and KONE. Actually, when you look at 24/7 Connected Services, it provides a lot of what we call service needs to our field teams. Basically based on the condition of the equipment and the intelligence we have built, it spots potential issues before they are happening. 65% of these service needs are about proactive. So basically, they spot something before the problem occurs and impacts the customer. And that leads to, first, very strong safety value. 40% of the entrapments are actually not happening anymore. So we are reducing the number of entrapments by 40%. And we are also decreasing the number of call-outs, so basically disruptions for both our customers who are managing the buildings but also for the tenants and the users, by 30%. So a lot clearly -- a clear improvement in the uptime and the availability of the equipment for the tenants and the users. Of course, this translates into value for us, not only financially, which Ilkka mentioned already earlier, but also actually from customer satisfaction. So we know -- as you know, we measure the customer satisfaction every year. And we have a 7 percentage point better satisfaction for the customers with 24/7 Connected Services. We have better retention rates. And thanks to the price premium we are actually asking with this, we have better profitability as well. So very positive momentum with 24/7 Connected Services. And again, we continue to develop, to scale but also to ensure that we continue to add value to our 24/7 Connected suite of services so that we keep the customers, I would say, building on it. A very important probably comment is also that for these digital services, it's important for any industry and for us as well to show the value, to demonstrate the value to our customers so they keep using it and repeat the buy. Well, it's an example of a customer. I will let you read the testimonials. But it's Mapletree Industrial Trust, which is located in Singapore. We are maintaining about 25% of their premises, of their assets, which is about 150 -- it's actually not about. It's 157 elevators in Singapore. We have actually created last year about 800 service needs, and we have -- they have enjoyed a reduction of 50% of call-outs, so disruptions for them. So it's a significant impact for their operation, and of course, for the tenants. Another way to look at what we are doing and very much building on what Tomio has explained on the accelerators is that we are looking at this through how do we create value to our customers across the entire life cycle of the building. It starts from the new equipment. Then it goes into maintenance, repairs and what they can do. Then it goes in modernization. And hopefully, it starts again. We want to be in this infinite circle. And I guess what you can take there is the fact that we -- thanks to DX and to other digital developments, we are able to fulfill customer needs or expectations at different steps in this life cycle. And you see solutions to help the customer to improve the productivity, to help the customers to improve the transparency, to help them to improve the user experience. And again, we expect this to improve the stickiness or the retention of our customers -- with our customers. That's what we show -- we already see with 24/7 Connected Services. We expect that to enable us to recapture some of the units we have lost. We expect that to improve the conversion rate. And of course, also something very important is that, as we said, the contribution for the construction -- from the construction business will stay very high for our service business but will probably, I would say, not fuel the growth as much as it was in the past. That's where we are expecting the modernization business to take over and actually to contribute more to the growth of our portfolio in the next coming years. And this is actually, of course, very important, right, because we continue to monetize or to create to generate value and revenues for us. So we have spoken a lot about the offering side and how we are leveraging digital technologies in order to create more value to our customers. Actually, we are also leveraging technology to improve our efficiency but also our service quality. Let me give you 2 very concrete examples. On the field side, to start with. Again, I've explained what 24/7 Connected Services brings to our customers. But actually, when you are a field technician of KONE and you receive first -- thanks to 24/7 Connected Services, you have 3% less disruption in your planning because you avoid call-outs. Then whenever you need to intervene on a call-out, you are actually equipped with insight about what are the root causes of these call-outs and what could be the ways to solve it. Then technology can also help us to help the field technician to understand what is next best job. What -- from a travel time reduction point of view, where should you go next? And of course, there, when -- technology can also help us to identify if they need a spare part and to ensure that they have the spare parts with them. So we see the technology, of course, 24/7 but also much beyond 24/7, will continue to help us to drive not only customer -- not only service quality because, again, all these are leading to a responsiveness, better responsiveness, but also it helps us to drive efficiency. And we all understand that in the maintenance business, when we reduce travel time, when we reduce, sorry, the number of corrective interventions, we actually are also improving sustainability. So this is a very virtuous circle for us. Then again, on the SG&A side, on the fixed cost side, we have moved a few -- a couple of years ago to a centralized or a centrally managed organization for handling all the customer queries. And I don't speak about the call-outs or the technical calls for the moment. I really speak about the customer calling us for tendering, for an invoicing, for changing data, for a question about the contracts. And so last year, we have actually received 1.3 million of these calls, of these customer queries. And thanks to the technology again, we can now not only measure our service performance, and hence, improve the customer service. But now we can clearly qualify why are the customers calling, which means that now we can actually go to self-service capabilities or go to proactive information to our customers so that actually we can avoid them, we can help them to get the information before they need to call, which again, is convenient for them, and it's actually efficiency for us. And we continue to develop that, hence, the discussion on the minus 5% on the fixed cost per unit development, which we see a clear potential ahead of us to continue on this direction. So as a summary from the service business side, again, we see service markets growing maintenance amortization across all geographies, so very positive momentum. This inflationary environment is actually creating opportunities for us, both on the maintenance and amortization through pricing through value-added services and solutions and through productivity or efficiency gains. The importance for us to continue to grow the maintenance portfolio in both units and monetary value. Very essential to the future growth of this business. And again, the resilience of our service business and the profitability. Monetization growth will accelerate both as such, it will be a growth driver for KONE Oyj, profitable growth driver for, KONE Oyj, but it will also -- or it needs also to provide more growth to the portfolio. And then last but not least, and I think that we have shown a few examples that is the way to go for us or the way to continue to go for us, but that's actually what -- the way we have been driving this business already for a few years in order to continue to grow faster than the market.

Thank you.

Thank you, Hugues. And now we have time for questions. We'll start in the audience again this time, lots of hands going up. I see you all. Start with them.

This is Tom Skogman from Carnegie. Otis, your key competitor published their service profitability. It's like 23%. And if I'm not totally wrong about your equipment margin. I mean you're quite far behind that to my understanding. And then I realize they have larger installed base, 2.1 million elevators when you have 1.5 million in your service base. So it's how crucial is really density to close that margin gap? And given your density has, of course, also improved a lot, has there been a positive trend long term in the service profitability.

So I guess that Henrik and Ilkka have already partially answered that, right? But -- so indeed, we don't disclose profitability per business or geography, number one. Number 2 is that -- when, I think Henrik mentioned that when we see or when we look at what's outside, we say in terms of profitability. That's something we are comfortable with and that we have been actually developing our profitability on the service side of the house already over the last years. Indeed, density is contributing positively is a tailwind in terms of margin development. Then of course, you have mix impacts, right? And the level of China, for example, China service business overall is positive at group level, but of course, the pricing is lower than the rest of the world. So it also partially explained the mix impact on the service business.

So just to understand it that the margin is kind of improving over the Western world when your density is improving. But then China growth being faster than other regions, that is kind of a drag for the margin development basically.

Margins are improving everywhere. But again, the mix place the mix is giving a headwind to the total picture of the -- at KONE level, okay? You understand the size of China, including, of course, the growth is also coming very much from the construction business, right? 65% of the Construction business is in China. Which then any get into the service business or the maintenance business tax.

I think we had something here.

Yes. Question on the modernization. The dynamics. I mean you mentioned that it will play a bigger role on capturing maintenance base, if we compare modernization and new equipment market. So -- and I assume that, that means that you are targeting to take market share modernizing also non con equipment. So is there a fear that, that modernization market becomes a bit kind of a price driven in the sense that everybody is seeking these benefits. And overall, how does the tendering activity and the pricing discussions with clients differ from the traditional new equipment market.

So Yes. So indeed, it means that we're going to grow outside of the units we have in our portfolio. Clearly, let's remember that it's both cutting units and competitor units, right? Because we have a number of units which are outside of our portfolio for example, mentioned in China that we have delivered already 1.2 million units, and we have a bit over 500,000 units in our portfolio. So it creates also a potential for us. I think normalization markets are already pretty competitive -- then of course, the dynamics are slightly different than in the new equipment business because, of course, for most of the time, we are discussing the first demonetization business is per essence for the moment, much more, I would say, complex from a technology point of view. And I would say that it's more discussions individually with the customers very, very often building owners directly. All the property management companies. We don't have, or we have very little, for example, involvement of general contractors in the buying process on the monetization. It can happen, but it's actually a limited part of the business.

Okay. And then the second one, perhaps more kind of a short-term focus. I mean as a bit of a talk about need for more dynamic price contracts, and I guess that was a comment on the new equipment side. But are you happy with the kind of the structure of the pricing contracts that you have on maintenance? I mean, if we now see a bit of an acceleration on the labor cost inflation, also, I mean, fuel prices are on a higher level. Are these things that mechanically are corrected on your prices automatically, is there a significant time lags between these? Or is there any need to kind of look back at the contract structure?

So I would say that we are probably in a favorable position there on many aspects. The first one is that in many geographies, we have actually escalation closed or index closed in our contracts. And the time line lag is usually less than 1 year or 1 year. Again, thanks to the KONE Care structure, where we have flexibility in the content and the pricing of the contract. We can actually also introduce added value services to our customers to also back up price increases and value increases. So it helps us quite a bit. So we expect to be able to continue to, I would say, again, see or have inflation as an opportunity rather than a risk or challenge on the maintenance side of the business definitely.

But like if we just compare apples to apples, there might be a bit of a time lag this year before the clause is kicking going into '23.

Sure. But we already have inflation in some places, right? Because again, inflation has been there in many geographies already Asia Pacific, China, India, so of course, we see it more moving on the western side. But as I said, we have other weapons, I would say, in our hands in order to play with that.

We have [indiscernible] here.

Erkki here from Inderes Oyj, Connectivity obviously being a major competitive factor. Could you briefly describe what are the major competitive advantages of your 24/7 connected services Mitsubishi, Schindler or Otis one.

Well, as you know, we don't really compare -- talk about competition, right? But I guess that the approach we have has been since the beginning to focus on the value we are providing to our customers. And that makes a very big difference, right? We have defined since the start, 3 values or we have understood 3 values from the customers. It's about safety, it's about transparency or we have transparency, sorry, and it's about intelligence meaning predictability in this case. And we are really focused on understanding 24/7 can address or answer to these 3 values or can support these 3 values and then demonstrate the benefits to the customers. And I guess that a lot of it is in the intelligence we are creating analytics, [ agri ] and so on and the data we are collecting, of course. And then the ability of the systems to be used by our field technicians, and again, where we have this back loop into the systems where our service technicians are constantly telling us about the quality of the service needs they have received. And that's the core, I would say, of the competitiveness. Then it's from an offering point of view. Then again, it's not only about product and technology, right? It's also about the ability of our people to sell the value and these new offerings to our customers and also on the field to execute on it. So it's not -- it's really -- this change is, of course, about technology and offering, but it's also very much about our people are embracing it and are, I would say, communicating this solution and the benefits from it to the customers. It's a relatively complex system.

Let's take a few from the lines. There's been quite a few questions coming in on 24/7. So while we're on the topic. First of all, do you anticipate a wider push into kind of mass connecting your maintenance base? And what percent of your maintenance do you think needs to be corrected before you have sufficient mass to really make an impact on productivity and/or retention?

Okay. Well, I guess, again, for the moment, our strategy stays to provide the value to the customers and sell this value and sell the added value of the 24/7 to generate additional revenues for us. What we see is that we continue to accelerate and scaling. And of course, again, what Tomio has mentioned about penetration of the DX class elevator is actually helping us, right? Because what does it mean the DX class elevator? It means that the equipment is all the connectivity is there. So we don't have to add any new hardware or anything. We can just switch on 24/7 remotely through a software download. So it's, of course, creating a significant benefit because, of course, all the volumes from the new equipment business will feed our 24/7 and will help us to continue to grow. And of course, when we are modernizing an equipment with also the controllers, for example, we are bringing also these digital capabilities to the older equipment. So for the moment, that's how we are driving this. And again, as we said, our main focus is on the value we're providing to our customers and the monetization of it. But again, we also see efficiency gains in the future. But today, we continue to see more value in the selling and providing value then on the -- taking the efficiency.

Perfect. And are you able to connect customers' multi-branded portfolios to 24/7?

Yes. That's probably one of the advantage of our solution is that indeed, we have solutions which are enabling us to connect, I would say, on equipment from different types of generations, but also non-con-equipment.

Great. And then 1 more from the lines before we move into the room again. Could you comment on how digitalization is impacting the competitive landscape in the maintenance business?

Yes. I can try to take it briefly. It's pretty early, but what we can see is that -- of course, it helps the large OEMs to -- or it should help the large OEMs to improve conversion and retention. And that's what actually we see in the results, right? Which means that indeed, for the smaller players of this industry, either they will need to find a solution or buy a solution from somewhere or they will need to offer different types of values. And what we can say is that the growth of the non-OEM this year has been clearly lower than the OEM. Is it a longer-term trend? Let's see.

I think you were actually asked to wait on our park some of your questions. So this is your opportunity now.

Luckily most of the questions you answered, but I guess, a presentation threw up some more questions. So first question is, what's the kind of churn rate you're seeing in your technician base?

With very, very -- there is a significant variance per country on this. It can go from 2 to 3 to 10-ish, but it's just a very significant variance. But again, I think that what's important for us and you are raising a very big point is, of course, that the service business will continue to be a people business, right? So our ability to continue to engage our teams to train them to give them the new schemes which are needed in this world are very essential, which is also for us opportunities to offer them career paths and keep them with us and retain them. But usually, most of our technician are actually long-term tenure with us.

And I know you're seeing inflation in the wages as well, but a slightly different question. If you look at your technician compensation structure, what percentage is variable in that composite structure.

Again, significant variations per country. We don't have 1 single standard for that it varies so much per country. It can be from 0 to 50 depending on the country.

Or it could be as high as 50%.

Yes. I think in some -- but it's actually exceptions to be honest. It's mostly fixed. But in some places, we have actually a good proportion of the salary, which can be variable. You also talked about industrializing the back end as the KONE customers customize your solution at the front end.

Can you give us an example of either going to a unit level, at a branch level, how it was pre-KONE care. So when it was comprehensive and oil increase contracts, how is it post when the customer customizes it? What's the route density difference at the back.

It's very much -- well, we continuously develop the route density, right? So there are several factors in the route density. And of course, the number of equipment we convert from the construction enables us to constantly, I would say, look at the density. I would say that from a customer point of view, again, they can select number of services and the options, et cetera, there. And how do we make it easy for our teams to deal on it is that we have field mobility solutions for all our service technicians around the world. And when they arrive on the equipment, they exactly know what is included in the contract, what our response time so on. So we are actually driving or, I would say, communicating to our service teams about what's the, I would say, contract options when they -- before they arrive on site.

But it's still a large percentage of your contracts comprehensive and oil in Greece?

Depending very much per geography. So in North America, it's mostly comprehensive. In China, it's mostly stand out. But again, it's all way to -- it's actually the old way to look at this, right? We have significant variations now before we could say, this one is comprehensive, this one standard. Today, it's actually a continuum of different services and options in between, right? And it's actually not only about the spare parts, it's about responsiveness. It can be about many other things.

One last question then.

I was just going to say, let's give someone else a chance as well.

In your presentation, you talked about repairs and spare parts driving growth for you, right? So from a per unit economics perspective, are you better off having a comprehensive contract? Are you better off having repair.

Depending on the customer and depending on the contract. Depending on the price, actually, right? If you have a very good price for comprehensive, then you are better with comprehensive. If the price negotiation is not good, then you prefer to, I would say, go for a bit lower parts coverage. It's very an individual negotiation. That's where, again, in the Concur, the way our tool is -- our tools are built is to actually give this information to more people at the time they are selling this. They know.

All right. Let's take one more from the room if we have one I think I saw a hand here first. Stuart, you haven't asked a question yet. I'm sorry. You've already had one chance and come to Egan during the lunch. We're trying to get a lot variation here in the room.

I'm going to try and sneak in a couple of questions under one topic heading -- just like to know what's the conversion rate in China today? Has that changed over the last couple of years? How do you think that changes over the next 3 to 5 years? And why.

Okay. So the conversion rate in China is around 60%. It has been relatively flattish over the last slightly improving, but flattish over the last years. Although I see it improving. I guess that it will very likely -- or we are working very actively to improve it. I guess that there are a few elements to it. There is, of course, the service density and the customer relationships. There is the technology element. And of course, the more we bring these services like 24/7, et cetera, the more we create a positive environment for us to improve the conversion. And I guess that what Bill has mentioned also about the growing importance of the key accounts and the top developers is also fueling better conversion rates. Mike.

Do you think you need to make any more fundamental changes in how you go to market in China in order to improve conversion rates?

It's a good question. For the moment, we continue to believe that there is clear potential for us to improve with recurrent model. Again, you understand that in the construction side on the new equipment business side, we sell mainly to agents and distributors. What we have been doing for the moment in the maintenance side is that we have invested heavily in direct sales. So this is KONE sales people selling the maintenance. And for the moment, we believe that that's the way to go. But that's, of course, a very good question to keep asking.

I think that's the all we have time for with clearly, I should have allocated a bit more time to this topic. Luckily, we still do have some time still for Q&A. So at this point in time, I'd like to ask Kentek back on stage to wrap up the event before wrapping up, if you have anything kind of in your mind that you still want to ask about, we have all of our presenters here. I think we still have Bill on the line. So please feel free to come back to another topic or continue on services. We have one here at the end.

I just had one -- couple on services actually. That's okay. So I guess the first one is maybe thinking about inflation and obviously, higher labor costs. And I think everyone sort of seems to assume that you've just passed it through its index is all fine. But presumably, if I'm a customer who for the last few years seeing sort of low single-digit inflation in my elevator maintenance costs and now being presented with an increase of 9%, 10%. It's perhaps going to maybe think a little bit more about my relationship. I guess my question is, have you done any work looking at sort of sensitivity to pricing like in periods of high inflation when we've had these kind of challenges before? Does it affect the retention rates within the service portfolio? Or has it not really been an issue?

Hugues, maybe you start answering that and tell a little bit about this year's experience, which is, of course, slightly different than other years.

Well, I guess at the time we have had very high inflation globally is not very recent. But of course, we have also had high inflation in some parts of the world. and we don't really see an impact on the retention performance. I guess that one of the key elements in the discussions in the individual discussions we need to have with our customers is always the question of value versus prices. And in case there is a disbalance or perceived disbalance into it. It's -- the discussion can be both on the pricing, but also on the value we are providing and hence the services we have there, right? So actually it's very much an individual discussion.

I would say also, if you think about the situation right now, it's actually reflecting it recently that what was the outlook last fall? It was the consensus -- was we had different scenarios, but I guess the global consensus was that come first half of 2020 that supply chain issues, logistics issues and things like that will start to resolve themselves and maybe cost would start coming down. And therefore, we could still -- last year, there was still on the customer side and general market, the question is, hey, this situation will end so you cannot increase prices. Now the situation we are in, I will claim that irrespective industry business, the question is no longer that you need to increase prices. The question is how much. So the mindset has changed. And I'm sure we know it ourselves, you get your electricity bill at home, if you would get the increases a year ago where you're getting today, you would have jumped to a roof and I were just, damn it. This is the environment. That's -- I think it does play an impact. So I think that the environment is more there for it now. But of course, we have to see going forward. And of course, it starts to be an overall challenge for the economy and everywhere. But that's the environment we're in.

[indiscernible] So just on the price cost clauses as you -- I mean, just wanted to understand how big proportion of the orders that you take now for new equipment have these in them, it's very significant. And obviously, it takes some time to roll through to revenues. And the other part is -- do you expect this to be permanent. As you said, customers don't like them. At some point, it might be a competitive edge, just to have a fixed price, et cetera. So do you think this is a temporary issue.

We've seen so much changes over the past 3 years that I'm not going to start making a very long range of predictions because the only thing you know is you're going to be wrong. But how big of a percentage do have indexation in contracts today, it's quite a small percentage. The point is what we are saying in tendering now we are increasing it, and we have built the model. So we are driving it there, but before it is a high percent, it's going to take some time, but the point is that that's the direction. We also have to remember if the indices, if costs go down, there's opposite impact. So you also have to be smart about it commercially when you do it, and we don't. At some point, if you have a strong point of view, the costs are going to go down, maybe you want to have indices in your contracts. But I still think that long term, fundamentally to get a better match on the duration of your order book and your cost structure, I think, is a good thing.

We have one at the back there.

My impression is that quality companies typically also are great capital allocators. What is the optimal long-term capital structure of KONE and in which scenarios could share buybacks be part of it?

We haven't defined an optimal capital structure. It's clear that we have a very strong balance sheet. If I reflect on the past 15 years since the financial crisis. I think having a strong balance sheet has been an absolute advantage. We have a single time in this period where there's been a lot of fluctuation had to stop is there something is a balance sheet restricting us from what we're doing. Absolutely not, we can stay 100% focused on the business. Having said that, clearly, we have a very strong balance sheet. But we still think it makes sense because we are interested in driving consolidation in this industry. We think that one day, there will be people also willing to sell in this industry, not only buy. And then we have an ability to move quickly. But also, it's given us an opportunity to pay good dividends. So I'm not giving an exact answer to your question. I'm just reflecting on how we've been thinking about it over the past years. Ilkka, can you have anything more to say on that.

I guess, just complementing the second part of the question was about share buyback. So I guess we have mostly used share buybacks to take out the dilution from our incentive programs, but there's a particular reason why it depends on whether it's a dividend or share buyback way to then return capital to shareholders.

I have questions to Mr. Delval, who made a presentation on services business. So you said that all markets are going what time period you would make that statement. So in the case, what I'm missing is a bit sort of regional insight. In the case of China, I can fully understand it and install population, conversion, et cetera. But when I look into North America to the United States, I think there's something brewing there, and I don't really understand exactly the thing. But I mean, let me share you some observations, pre-pandemic. We've seen more and more retail space in the big cities being emptied due to the whole shift in distribution, then pandemic has accelerated that. And on top of it, now post pandemic we have a hybrid model of working. So we have also then the office space and office, correct me if I'm wrong, is 1/3 of the market. There, you will see raising vacancy rates. I think, quite substantial ones. So I have seen in many cities that I frequently visit actually elevators being put idle. So in a block where you have 8 to 10 elevators and the same also with some escalators in malls. And I mean the question to me is that now looking more down the road 2, 3 years, 5 years, do you still see sort of the same situation or as positive as you expressed today? And when you say all markets going -- can you elaborate maybe a bit on that?

Sure. Well, I guess, as Henrik just said, right, difficult to predict the future in this period. But again, what we see is that there are clear fundamentals behind this growth. then of course, over a certain period of time, we can face adverse development or certainly economy. We know that recession, for example, our economical environment has an impact on modernization business historically. But again, we see clearly also in the U.S., growth potential, both from the maintenance resulting from the strong construction activity, and we know that -- in the U.S., we see some cities or some regions developing very strongly, Texas, for example, is one of them. But we also see that building owners will not stay put, right, with their assets in the office buildings, for example, or retail, they will transform them they will adjust them to add more adaptability to the new usages, which also will create more investment amortization potential. And again, how we did fluctuate over the years? That's a big question that it's difficult to answer, but longer term, I think that we see growth trajectory for that in the different geographies, not only China.

It is -- what you're asking is a very, of course, interesting fundamental question that what's going to happen to all this real estate. And if you saw the data actually I showed earlier is that the number of elevator starts in retail establishments is at or above pre-pandemic level. So many of these units have been already redeveloped. I just have been past week spending a fair bit of time also in North America and talking to some of the major building owners there they are thinking -- they are very proactive about the asset management. And also offices, I was almost surprised how positive they were about the demand and people coming back not every day. But I think what we saw pre-pandemic happening is that the average space per user in an office building had been shrinking all the time. I still remember about 13, 14 years ago, we did a study at KONE. And then benchmark was 13 square meters per head in an office building. Now I know -- and I'm sure many of you have experienced that if you went to the big cities, it went down to 8 square meters, 9 square meters even. And that was too tight. I'm sure many people would agree that we were staffing a little bit too many people into the same space in offices. So now we're definitely going to have more people -- more square meters per person, but people aren't there as much and also the type of -- the way you use the buildings is changing. And how do you manage this? So it's interesting actually how positive many of the developers are on office space in the right places. And as Hugues said, there's a huge difference between different cities. So we continue to see good demand in many places. And if you look at our maintenance business, we don't disclose it by region, but I can tell you that -- in North America, in maintenance, we are growing at really nice rates. Maybe it's just that we are doing a very good job. I don't know, but we are growing at really nice rates there right now.

Yes, I have a few questions. The first one is when you look at the installed base, what proportion of that is corn elevators and the bodies the margin differential Second question is in the residential segment, do you see that buyers are becoming more savvy. So more professional buyers? Do you see that? And if so, do you think this is a positive or a negative for you? Third question is on the modernization business, you track sort of the attach rates there when KONE lift is being modernized how much of that you capture. And then the last one is.

Hold on. If we can start going through these questions that you want to start it was the service base, how much is KONE versus non-KONE? So.

Again, very big differences across geographies. In Asia Pacific and China, were mostly con vast majority in the rest of the world, which we are probably balanced, let's say, 40/60, so 60 KONE 40 non-KONE. And the question was about the profitability. Of course, we don't disclose this. But of course, we can say that, yes, there is a slightly lower profitability in the non-KONE equipment overall -- from an overall perspective, but we continue to work on it in order to absorb this and improve the productivity.

Just said, KONE MonoSpace is such a fantastic product that we love to service it definitely.

And yes, we measure the retention rate after mediation or the conversion rate of demonization as well for sure. And as a matter of fact, for us, clear strategic direction for our teams across the world is that we modernize, and we have the maintenance contract after that. We don't modernize very rarely without maintenance contract.

Okay. Can you tell all about the residential segment.

More professional buyers. Would you to me to say, if you think about. I think. Can you take this, Mike?

Yes. I think overall, the new KONE customers are professional buyers, right? Most of them so I don't think that has, as such, has changed a lot -- but I think we have -- we see some consolidation, obviously, that big developers are becoming bigger. So.

And on the maintenance side.

That's not a phenomenon we observe, no. I would say that more and more the owners of the association of owners play a bigger role in the buying activity. And of course, people are looking and comparing et cetera, but does it make it much more professional than in the past, I wouldn't say so there is no big change in this.

The last question on the people flow, right? We -- when I enter a building, like with a patch, right, the elevator comes down, I get to the right floor and so forth. How do you modernize that? And do you have specific partnerships?

We have certain partnerships for the, for example, access control and others how to do the flow better and certain other services there. So this is something it's a lot about analytics. It's a lot about how you design the units and how much you monitor and adapt because you can always have -- you can have a perfect model that you think how the building is going to work, but the only thing you know is that human beings will work -- behave in a different way than your model. So you need to have constant analytics and update that, and that's what we're doing and then working said, partly with partners, but much of the flow analysis and all that, that's our own proprietary analysis.

Let's take a few from the lines. There are quite a few questions coming in on China. So I think these are maybe Henrik, Bill and Hugues all for you. So that's taken one by one. First of all, maybe, Henrik, if we look at China, could you provide some comments on how you're seeing installation activity developing now in the second quarter versus the first quarter?

Of course Bill can provide more flavor on this, but it was clear that the lockdown started really at the end of first quarter. So we really saw a slowdown in deliveries and installations towards the end of March. And then, of course, the really severe lockdowns were then beginning of April when a lot in the Shanghai area, just ground to a halt. And if you think about supply chain for elevators, overall, suppliers, all that, it's very much around Shanghai. And now in May, we have started to see a ramp-up of that, but there's still a good way to go and now, of course, we have markets opening up. And as Bill said in his presentation that still the big thing to get going is logistics to work seamlessly in the country and all suppliers also being able to ramp up. And of course, what suppliers also dependent on approval logistics. So there are quite a lot of change still there. So this is something we have to see and follow -- and by the end of Q2, we'll know more.

And Bill, can you hear us? I have one for you.

Yes. Please go ahead. Great answer, Henrik. Yes.

Excellent. I think this is actually building on the previous question that I asked. So what would you say, Bill, how much time do you think E&E market needs to normalize after the lockdown? And how would you describe the pace of recovery now versus what we saw in 2020?

Well, the interesting thing about these lockdowns is that even as the city opens up, it's city to city. These borders are the ones that we have to get open because I may be open here in the Shanghai but from my logistics team to take material to another or 2 or 3 provinces away, they have to go through several health checks, and that will certainly take some time to open up. But as I said earlier, I think we're talking more weeks at this time than months. So I think by -- I'm very hopeful by early July, we're pretty much back to full speed.

Excellent. And then maybe still on China, on the aftermarket side this time. We talked a little bit or there were questions around the changes in regulations in the China impacting the aftermarket business. How meaningful is this in terms of driving market share gains versus the independent service providers. So the shift from the current kind of regulation to condition-based maintenance, Bill. Any thoughts on that?

Well, actually, this is one of the things that Hugues and I have been looking at very carefully, and our teams are constantly checking on this. Hugues, I think you probably have more recent data than anybody on this. Please go ahead.

Well, I guess that what we can expect is that the way the condition-based maintenance regulation will be applied in the different places or in the different cities of China will be different. There will be a common frame, but then the application and the rules might actually differ from place to place. Does it actually -- most likely what we can see also today is that the larger maintenance companies are better prepared for the moment because also we have these remote monitoring solutions in our hands that are a prerequisite to enter into CBM. Then again, how fast will this implementation go because regulation is one thing, but I don't expect or at least we don't expect the regulator to say this is now mandatory. What we probably envision and Bill, tell me if I'm wrong on this, but we envision a situation where the regulators locally will open it up for the market to choose the CBM methodology and for the customers to discuss with their own suppliers about what they want to have as a value as an offering. So it will be very much, I would say, relatively slow in the rollout or in the deployment of this, at least that's current expectations.

I think you're right, Hugues I think we're going to probably have to have a hybrid model in which we're going to have to do both activities for a period of time just see how both the market adapts to this and our own teams adapt as well to this new service model.

And the service model is probably -- and Bill, as I said that already had a question which was raised about this is both about the operating model, but it's also about the value and the offering we are providing to the customer, right? It's on both sides.

Right Hugues and Bill for that insight into China in China service. I think that's all the time we have for questions now in this session. So do of course, use the opportunity of the people who are present at the lunch to kind of continue the discussions, but I'll let Henrik provide a bit of a wrap-up and the final words on the day.

Great. Thank you. And I hope you have found it interesting today. You'll hear a little bit more about how we are thinking about navigating the current environment now and how to drive a winning strategy in the current phase. So of course, we talked a lot about services today, but it's clear that we wouldn't have such a strong and well growing service business unless we would have grown and built such a great new equipment business over the years. And that's really particularly true for China that -- as I said, that is the biggest opportunity in this industry over the coming years. That's where a big part of the growth will come. And that is not a business -- a service business, not something you build up over a few years. I must say this is something that our China team has had odor foresight a long time ago. This goes back more than 15 years ago when we started to say that, hey, we're not only delivering new equipment. We're also building a service business because you need to build out your network. You need to build out your technicians. We're training about 2,000 new service technicians every year to put in place all this infrastructure doesn't happen over time. But this is really based on a long, long-term development that we're now able to benefit from and now really want to double down on the growth there. But it's clear also that we want to stay competitive in the new equipment. We want to continue to differentiate there. right opportunities because that's really what fuels the services in the future. Although we have talked a lot about services because just simply, we see that in the coming years in the environment we are, we believe more of the growth will come from services perhaps the new equipment. So a little bit of shift in the market compared to previously. But as absolutely, we continue to see good opportunities there. So I talked about in the beginning, also what it takes to win in this new era. And I mentioned a few things. To drive growth, we want to focus more on value rather than volume. I hope you heard a lot how we do that both in services and in the new equipment business. Productivity and agility, hugely important. And we are focusing not only our own productivity. We really want to show our customers that we are helping them improve their productivity, whether they are building a new building or have a current building because there's just such a fundamental importance in this environment. supply chain resilience, we have been able to deliver to our customers in a very good way despite the tough environment, but we want to make that more and more resilient in the future. And resilience doesn't necessarily mean that you're going to nearshore everything. It means that you need to be able to be flexible and I hope that's what you understood from Tomio's presentation, we want to be flexible and have options where we drive, and that's how you build up your whole system for that. Because you know what, in our industry, China continues to be the most competitive place to supply from. But at the same time, you need to have an alternative. So -- and that's what we want to do just as an example. Sustainability, key design principle for a lot of our customers and what we think is the right thing to do, and we believe we have a great positioning here. And what everything builds on is to have empowered motivated employees, hugely important to us and employees who have the skills for the future, how we continue to develop our culture, how we continue to up-skill our employees. Those are absolutely fundamental things and how we -- what we believe are the ingredients to be a winner in the current era, which is different than what we have seen in the past years. But in the end, we are very happy to be in this industry because there are good opportunities and good things to continue to develop. So with that, thank you, everyone online for joining us. Very much appreciate you taking the time here. And thank you, everyone, for coming here in person and the ones you're in person, you have a great opportunity to ask a lot more questions from all of my colleagues who are here, some of them who have presented, others who have not presented, but I'm sure you have a lot of questions to them. So enjoy the lunch and hope you gain more insights there as well. So thank you for today.

And thank you on my behalf [indiscernible].