Konecranes Plc (KCR) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to our Konecranes Service Investor Update. My name is Kiira Froberg, and I'm the Head of Investor Relations at Konecranes. Before we start, I would kindly remind you that this event is to discuss Konecranes' Business Area Service. Due to the securities laws in some jurisdictions, especially in the United States, we won't be discussing any merger-related topics. For merger-related information, please visit www.sustainablematerialflow.com. Our main star for today is Fabio Fiorino, our Head of Business Area Service. Fabio's presentation will be followed by Q&A. [Operator Instructions] The questions can be sent already during Fabio's presentation, and we'll be moderating the chart. I have also our CFO, Teo Ottola, here with me in case we have any financial-related questions. The content has been designed specifically to analysts and investors, and we have a lot of participants online today. Without any further speech, I will hand over to Fabio. Please go ahead. The line is yours.

Well, thank you, Kiira, and welcome, everyone. I'm really excited to provide you this update on our Service business. Quite frankly, it's been too long since our last session. So without further ado, let's get on with it. Let's start with the agenda. We'll try to walk you through our Service strategy and look at some of our business fundamentals. Then the popular topic of our agreement base, we'll try to unpack that a little bit for you. Move on to the financial performance and provide some further insights on that. And then a very exciting topic, digitalization and how it's enabling growth and profitability. And then we'll summarize the presentation, give you some takeaways and talk about a bit of our ambition level, and we'll certainly leave quite ample time for Q&A. So let's start with the Service strategy and fundamentals. What is the service strategy? That is to provide industry-leading maintenance services for all types and makes of industrial cranes and hoists with the objective to improve the safety, productivity and sustainability of our customers' operations. And this strategy really rests on 2 pillars, one of customer focus and one of delivering on these promises. And let's talk a little bit about customer focus. Our aim is to build long-term relationships. As you probably well know, the service agreement is the foundation of our business. We engage our customers through a consultative and open and transparent approach, deliver measurable improvements and, of course, strive for commercial excellence, continuous improvement culture, driven by KPIs. So now how do we deliver on these promises? How do we execute? First and foremost, lifecycle care, which is our comprehensive systematic approach to managing customer assets. We have created a digitally enabled customer experience, connecting data, machines and people in real time; applying smart technology to transform our customer assets, to optimize maintenance and operations; and last but not least, operational excellence. Once again, continuous improvement culture, very much driven by KPIs. Let's talk a little bit about the service business model, which is really all about managing assets through the -- throughout the life cycle. Let's start with the agreement base. What is the agreement base? The agreement base is primarily made up of inspections, preventive maintenance, predictive maintenance, remote monitoring. The digital services are largely within our agreement base. The agreement base represents about 20% of sales, total sales. It is primarily sold through an outside sales force or our agreement sales folks and we -- supported by an inside sales force that -- and the large part does a lot of the renewals. The base is actually executed, of course, by our inspectors and technicians in the field. From this agreement base, of course, there's the corrective maintenance. Corrective maintenance, largely repairs is another way to put it. And of course, it's our inspectors, technicians that execute that. Most of the -- some of the corrective maintenance is already kind of presold or is preauthorized as part of an agreement base. Otherwise, it is sold by the inspector, technicians, by inside sales, very much either on site followed up by inside sales a little bit. It is all based on -- advice is based on the findings and the condition monitoring. It's all about speed, getting the customer issues corrected as soon as possible. So about 50% of the business, 20% from this agreement base and 30% from corrective maintenance, 50% of the business is pretty much fundamental maintenance services, if you would. Another 25% of sales is represented by a little more of added value type services, retrofits. It's like replacing components, adding components, adding features and functionality to the equipment, consultation services, modernizations, which are, let's say, large-scale retrofits where you're taking on a much larger project to extend the life or bring down the performance of the equipment. And then we also do sell a lot of lifting equipment. Primarily a lot of light lifting equipment is sold through service. Again, we have an outside sales force. We call it service sales, supported by inside sales. This is a little bit more of a consultant-type selling approach. A lot of this is also analytics driven. We can see what's the age of the equipment, what's condition of the equipment. We can look at the maintenance history. And we could create recommendations and suggestions for the retrofits and modernizations, et cetera. And so -- and the last part of the business, the last 25%, a little bit more transactional. It's spare parts and accessories, primarily again sold by inside sales or e-commerce, and e-commerce portion continues to grow. It is all about convenience. Now this 25% is not only the direct channel, not only sold directly to end users, but it also includes the indirect channel. It could be resellers. It also includes the component distributors, we would also call the alpha brands. That spare parts business is included there. You also may have spare part packages that are sold as part of an equipment delivery. Again, very important to note the agreement base is the foundation, and then the service orders flow from the agreement base. Look at the -- our global footprint. We're operating in approximately 50 countries. 40% of sales are coming from the Americas, about 45% coming from EMEA and about 15% are coming from Asia Pacific. As you may well recall, we have had the MHE-Demag acquisition at the beginning of 2020 in order to strengthen our position in Asia Pacific, in particular, within Southeast Asia Pacific. And the integration of that business is going along quite well. The other countries where you would see in gray, those are either addressed by distributors in direct channel, or in some cases, we have some large deliveries. We may service those from neighboring countries as well. We look at the available industrial crane service market. There is still plenty of market out there. We estimate the market to be north of EUR 10 billion. And you know that our sales are closer to 1.2 so we got a lot more opportunity out there. The trends are certainly favorable. They're very much aligned with our strategy and with our actions, whether it's safety, productivity, sustainability, digitalization, regulations and compliance continue to grow. There's aging industrial workforce in many countries. And of course, nothing new the rise of Asia as well. That's again part of our focus. So we're very much aligned with what's going on out there and very much focused in addressing these trends or -- what are the revenue growth drivers? Again, as we've been talking about the agreement base very much underpins the business and is very much -- agreement base expansion is certainly a revenue growth driver. We have -- we are uniquely positioned to tailor to the larger customers, the global companies, the large regional players. But at the same time, we have been tailoring our service programs to address other segments and other customer types. So I think there's still a lot of opportunity when you look at the breadth of industry and the sizes and types of customers that are out there. There's -- of course, we can continue to build on our base coverage. And we'll talk about that when we look at the agreement base. Still opportunity to increase retention, to increase penetration, as well as building much more comprehensive agreements. So there's still a lot of opportunity in the agreement base expansion, which again drives then the orders. Digital service is a very exciting area. And I'll be talking about this in quite in depth later on in presentation, so I won't spend a lot of time here. But this definitely is a growth driver, and we're gaining quite a bit of momentum here. Another exciting area is the equivalent spare parts. These are equivalent replacement parts and components for third-party equipment in OEM parts. We talked a little bit about the Asian footprint expansion. There's definitely a lot of opportunity there. As you've seen, only 15% of our sales are coming from APAC. Smart technologies, another area for revenue growth, whether it utilize and retrofits and modernizations or some of our consultation services. And then, of course, there's bolt-on acquisitions. We're well into the MHE-Demag integration. We're moving into a new phase in the world. And we have reactivated our acquisition engine. We are looking at opportunities, and hopefully, those will materialize in the future. What are our profitability drivers? First is organizational efficiency, a lot -- again, underpinned by digitalization, field productivity, driven by mobility and digitalization, centralization, being able to create virtual teams. Again, it really worked well through this pandemic period. We were well ahead of the curve. And we actually accelerated our deployment and adoption through the pandemic period, our robotic process automation, customer self-service, end-to-end process optimization. And big piece is data quality and data enrichment. All these systems and all the end-to-end processes are really driven by the quality of the data from end-to-end. Still opportunities in branch and warehouse consolidations, sales force performance management. The other area, of course, is material efficiency, very much centered on sourcing, distribution and procurement. We do have cross company-wide, cross-business area procurement excellence strategic initiative, which, of course, we're a part of. Opportunities also in end-to-end process optimization here. Data quality also drives a lot of the opportunities in material efficiency. And as mentioned before, this equivalent parts for third-party equipment to replace OEM parts. As well, worth mentioning the MHE-Demag integration. We promised to deliver synergies there. We are creating critical mass and leverage, optimize and combining the offering. And then as we bring on bolt-on acquisitions at some point, we're able to also leverage the business model and infrastructure that helps us drive profitability as well. So now let's turn the page a little bit focus on the agreement base. Always an exciting topic. Let's -- so here's a different way of looking at it, unpacking the agreement base by hoist brand. The hoist or the hoisting machinery is part of the crane that, of course, does the lifting, does a lot of the heavy work and usually requires the most maintenance and takes the wear and tear. If we look at the agreement base by what's the percentage of the hoist that have been manufactured by the Konecranes Group, that would be 45%. So 45% of the agreement base has been manufactured by the Konecranes Group, whether it be Konecranes brand, a Demag brand or it could be a component brand. Again, as we also referred to these as the alpha brands or perhaps a legacy brand, one of the brands that we've acquired in the past, which, of course, means that 55% of the hoist in the agreement base are manufactured by third parties, right, which, of course, becomes also an opportunity for replacement. Hoist can be replaced when they reach the end of their service life, of course, or before you could replace the hoist to improve safety, productivity, sustainability, reduce maintenance costs, et cetera. So there's a lot of opportunity here to modernize, if you would, the fleet of hoisting machinery that's out there. The other way to look at the agreement base or to unpack it is by asset coverage by the crane brand, if you would. If we go back, as you may remember -- back to 2017, the last time we had this conversation, we have learned a lot. We have since then migrated most of the Demag agreement base onto our -- into the Konecranes systems, applied similar definition, so we're able to compare apples-to-apples. And the way that we have recast a little bit the way that we look at coverage, we are looking at coverage based on the estimated asset install base in operations. So the estimated asset install base in operation, that would be denominator. And then, of course, the numerator is those assets which are under agreement. We are applying a consistent 1Konecranes asset definition. And the asset generally refers to the crane. It could be an industrial crane, it could be a light crane system, it could be a jib crane, et cetera. And it's important to note that a single asset can have multiple hoists on it, back to the previous slide about the hoisting machinery. Hoists have a much shorter life than the crane itself. And the hoist can be replaced several times over the life of the crane. The other thing probably would be important to point out that not all assets are created equal. An asset could be a few thousand euros. It could be tens of thousands of euros. It could be hundreds of thousand euros, it could even be millions of euros. So there is quite a difference and quite a wide range in what we would call an asset from jib a crane over to a nuclear crane or waste-to-energy crane on the far end. So that is important to note. Then we look at here how we made some progress. And if we look at 2017, again, kind of recast into this new definition. We certainly made progress in the asset coverage of Demag, and we certainly believe that there is opportunity to continue that. We've also made progress into the coverage of Konecranes. And also worth noting that once the -- usually the warranty period is over, and the actual coverage starts to move up, a lot of times, sometimes cranes are also sold to EPCs or general contractors, et cetera. So there's a period between when maintenance would start from -- and a period when a crane is actually delivered and then handed over then to that end user. Hopefully, that adds a little bit more color and a little bit more insights to our agreement base. And certainly, I'm sure there'll be some questions on the topic. Now let's shift gears to financial performance. We certainly believe we've had a strong track record of performance and demonstrated resilience through COVID. If we look at our agreement base and we're kind of started with 2017, that's kind of the year of the MHPS acquisition or Demag, which is the Demag brand or the MHPS are just more important to industrial service on the industrial business. So the agreement base has grown over the years. It has performed pretty well. Our focus areas in post-Demag acquisition were, of course, integration, delivering on synergies, finalizing the deployments, digitalization, et cetera. And as we were talking, we were starting to turn from profitability to pivot to growth. And of course, as well, like plans are, we had 2020, and we had to shift our focus like everyone else in the world. And the primary focus, of course, was safety of our people and our customers, business continuity and really addressing essential industries. We serve a lot of essential industries. So certainly, our customers were counting on us, and the world was counting on us, keeping those industries running. We also had to do some very difficult decisions and focus as well on cost flexing. And at the same time, as mentioned before, we accelerated our adoption of digitalization and some of the mobility and virtual ways of working certainly helped us through the pandemic. And if that weren't enough, through that same time, we've been through our MHE-Demag integration, which, of course, started in January of 2020. With all that said, our EBITA and EBITA margin has been able to grow through the period. Now going forward, what are we looking at? Getting back definitely, our main focus is to get back to revenue growth and leverage the cost structure that we now have, continue our continuous improvement journey, commercial excellence, operational excellence and digital services and our digital ecosystem, big, big topics, which will, again, we'll add back a little bit later. If we look at 2021, a little bit more in detail and a little more focus and start with order intake. We can certainly see that the orders haven't been picking up. So we are returning back to post levels. Orders are up close to 12%, 11.7% on a comparable currency basis. So the orders are moving in the right direction. We are pleased with that. The order book is at an all-time high. So quite frankly, we do have good orders on hand and the kind of good order trend. Let's remember, the agreement base is not part of this order. So if you're at a level of 250, 255, 257 orders and our agreement base is 280 range, you need to kind of divide that by 4 and add that 70 on top of this in terms of what needs to be kind of delivered. Of course, there is some seasonality to the delivery of the agreement base. So now when you look at sales, the story is a little bit different. Sales are only up 3.1%. We are lagging behind in terms of the order growth. Base invoicing is up 6.4%. As I mentioned before, I think we mentioned this in June when we closed the quarter, that there's probably another EUR 20 million here that should have happened, again, because of this lag. And where is this lag coming from? There are supply chain challenges. We're not immune to that, like everyone else, not only is our own supply chain, but also in service. As you well know, we are servicing, as we've showed before, 55% is machinery that we did not manufacture. So there is a lot of commercial items. There are a lot of items coming from third parties whether they're hoist or components, they're spare parts. So that definitely is creating some challenges for us. Customer postponements and scheduling challenges as well. They have the same issues we do. You could see many industries in some cases are shut down. In some cases, when they do have their components and parts, then they go full out, and they'd rather focus on their production and creates the scheduling challenges for us. And of course, COVID has not disappeared. Unfortunately, in many parts of the world, there continues to be COVID-related shutdowns and restrictions, specifically in Southeast Asia, there are parts of Latin America, but it's popping up again, unfortunately, in many other parts of the world. Labor shortages is another topic. Of course, the U.S. probably gets the most press. But there are other markets that there is a challenge as well. There are markets they -- also because of the COVID-related shutdowns or restrictions, it's hampering labor mobility where we would be able to move people around and send them to different jobs. With all that said, the adjusted EBITA has increased 8% on a comparable currency basis. And our margin has expanded again 6.8 from 15.5. And quite frankly, again, a lot of it is about leverage. We have very good flow-through margin in service. So if sales would have been where we would have hoped them to be or should be really, that would have been positively impacted. We look a little bit deeper then into what's driving some efficiencies. If we look at personnel, we've gone from 8,000 to about 7,200. Over the beginning of -- from the January levels, you could see the decline started kind of when the pandemic started. But definitely, our business and digital transformation continues to drive organizational efficiency. We -- the MHE-Demag also integration is well underway, so part of the sufficiency comes from that. Continue to apply lean thinking and continuous improvement and continuing improvement culture and process in place. And really, the service delivery model has been transformed by this mobility and digitalization. Brick-and-mortar reductions, opportunities still exist. Our goal is to continue to drive this ratio up where we have the operative-to-staff ratio continues move up. We certainly are in the market to attract more operatives. We're certainly looking into the months ahead to continue to add operatives, but to do so again in, well, improving this ratio and driving efficiencies. We talk many times about monitoring, being able to provide realtime insights to the demand environment. We know that service orders are driven by capacity utilization, more in the short term, and of course, industrial production is in the long term. Really, we're talking about equipment usage, pretty straightforward. With remote monitoring, it does provide realtime insights to -- by customer, by industry and region, which allows for a more dynamic planning allocation of resources. And we have a little bit more foresight and more accurate forecasting than waiting for the data that's generally available. So that's been a good thing for us. Customer satisfaction, of course, first and foremost is the customer. We do have a very systematic and comprehensive use of voice of customer and utilization of the Net Promoter Score. As you can see, it has been improving. Generally 50%, in most cases, kind of considered a world-class level. Of course, you need to look at your own business and how those are trending and what are the specifics. And there's -- we still got a lot of work to do. Still a lot of opportunity to improve the customer satisfaction. We look at responses. We look at resolution metrics. We follow up all customer feedback. We have realtime visibility. Supplemented also, we use natural language learning to identify trends, provide further insights. Customer satisfaction, of course, drives retention and supports premium positioning. So here's the exciting topic, digitalization and how it can enable growth and profitability. Let's start with the big picture. We have created a digitally enabled customer experience, the digital ecosystem that we're very proud of. What's very exciting piece is that, as of last year, we were able to bring the crane operator into the picture, into the ecosystem. What I mean by the crane operator, we're talking about the individual that's actually on the factory floor operating the crane. And we've done so with -- I'll talk a little bit later on this checkout, which for pre-shift inspections and other types of services. Of course, the crane owner had already been in the picture with access to yourKonecranes, our customer portal, e-commerce, being able to receive alerts and notifications from the Truconnect, able to provide feedback to voice of customer. And our own people, if you start to look at this direction, of course, our inspectors and technicians through their mobility apps and tools that they have are able to not only enter inspection maintenance and asset data, they're able to dispatch, able to get troubleshooting support, scheduling and all sort of things, pretty much able be totally mobile and independent. Truconnect, remote monitoring, again, we were able to bring in condition usage and operating data, our sales and operations planning and technical support are all working off the same platform, very much analytics-driven, very automated reporting, et cetera. And with all this data, of course, creates a lot of opportunity to use artificial intelligence, machine learning. I mentioned before, robotic process automation, predictive engines to not only make our sales in operations much more efficient, but again, to deliver on our promise of improving the safety, productivity and sustainability of our customers' operations. So this is really exciting. I think we're at the tip of the iceberg. The infrastructure has been built. We continue to build on it. We continue to improve it. And we are at really exciting times. I think we're here at the tipping point of what is possible. We are seeing increased adoption of this digital ecosystem, how many assets now are under the one KC system. We were a little bit higher. And then now with the acquisition, bringing in more assets, it dropped. And now we're back. And of course, we went through the pandemic, which slowed us down a little bit on our deployments. Now we're back on track to get back towards close to 100% over the next couple of years. We got some of the MHE-Demag countries to do. We already started with 3 of them. We have other remaining countries in other parts of the world that we still need to tackle, but we're pushing 88% right now and continue -- that will continue to grow over the next 2 years to approach 100% as close as possible. The yourKonecranes and the customer portal, the adoption continues to grow. When we look at adoption by the agreement-based monetary value, it's also much higher. We're pushing 60 or more. And that's because there's higher adoption by larger customers, the larger customers, a lot more value and they're enable to manage their fleet. E-commerce also continues higher adoption. This is percentage of order lines going through e-commerce, mostly spare parts and other components and so forth. This is by all brands. So that continues to move ahead. So that's another exciting area. Now we pause a little bit to look at what are the areas that we have focused in the development of digitalization. And of course, it's digital services, which I'll talk about smart technologies, customer experience, sales efficiency, service delivery efficiency and service quality. Let's start with the first 2, kind of customer-facing. CheckApp for daily inspections. Now this is a pretty exciting product of digital service. The -- a preshift inspection or a daily preshift inspection is required by most jurisdictions. This is done by crane operator. This is not done by our personnel. This is done by our customers' personnel. It could be -- it should be a crane operator, production managers being involved or safety personnel. Again, required in most jurisdictions. A good practice nonetheless, regardless whether there's a regulation for that in a particular country. Very difficult to do, though. How do you document it? There's a lot of times with paper, dirty paper in the shop. And so sometimes it's not even done. So we -- now there's an app for that called the CheckApp. It's kind of clever, I think, which allows for a very simple and fast data entry. And of course, all this data is now tied to that asset data. It's tied to all the maintenance data, it's tied to remote monitoring data, et cetera. So it's all -- it's one more piece of the puzzle. Easily report defects. They could add photos. They could add text. Again, this is a big piece of compliance. There are mandatory checkpoints, and you could also add some local -- where you could add local specific checkpoints. So a very exciting product. It's starting to take off. We're at, at the end of June, close to 14,000. For Q3, we continued the trend. So we're doing quite well there. It is a subscription service, call it roughly EUR 100 per asset per annum. But again, it brings the crane operator into the ecosystem. It brings additional data. It brings the full view to the customer and also may -- and it's a quicker way to also identify maybe what's a safety item and also for us to have greater insight into the customer. Here's another, we call it, digitized slings and accessories inspection. Now there's nothing really digital about a sling and an accessory, or at least there wasn't before. What is a sling and an accessories? Kind of stuff you see here is what goes between the hook and the load, so it's what used to secure the load, very much mechanical items, chain slings, there are synthetics type slings as well and other means to secure loads. In a large plant, there are literally thousands of these. Very hard to keep track of them. They do need to be inspected. And we have created a very efficient way to do that. By adding an RFID tag to these items, we're able to easily identify and reliably keep track of them, keep track of the inventory. We've also created a way for our -- this system by our own inspectors for them to enter the inspection data. And then the operator can also use their mobile device to kind of scan the sling or accessory and see if it has been inspected, what's the status of it, et cetera. And again, we sell this as an inspection service per device. And it really varies. They're -- some are complex, some are less complex. And these devices, if they're defective, they're normally replaced. They're not repaired. So there is additional revenue stream from doing that. And we're starting to -- we launched this in a few pilot customers and is starting again to really be adopted by our frontline folks as well as customers. Again, this is just a handful of customers here as we're starting to launch this and really get some traction. The other one, Truconnect remote monitoring. I know we've talked a lot about this in the past. We've focused on building retrofits available for multiple brands and harmonizing the platform for these. We've added brake monitoring in the past. It just launched this exciting product Truconnect Wire Rope monitoring. So what it does is kind of magnetic rope monitoring. It allows us to look inside the rope, to some extent. A lot of times when you have certain failures, they start to occur especially in heavy applications, process-type applications. Failure can start occurring what you cannot see necessarily in individual inspection. So this is a very exciting product, again, very much targeted to process industry, heavy industry, high -- heavy crane users where downtime is extremely important, and they're having very high-value payloads as well. So we continue to add connections to our agreement base. So right now, there's a close to 6,000 at the end of June, let's say, 6,000 subscriptions that are tied to the agreement base. So that is part of the base. And those can run anywhere from EUR 100 to EUR 1,000 per asset per annum. Again, the complexity of the asset, the number of sensors. We could also add life support to that. And then the total number of active connections exceeds 16,000. There's, of course, as the connections go out there, some of them also stop transmitting or something happens, et cetera. Right now, this is the number of active connections. So we -- again, another area of focus. And of course, remote monitoring, condition monitoring drives predictive maintenance. With the remote monitoring, you can drive Truconnect, warnings, the hoist, the break, the wire rope has reached economical end of life and do something about it. At the same time, on top of that, you could add prediction models and be able to create predictive maintenance based on other types of usage information. So you kind of have the direct measurement style here versus also adding prediction models and being able to automatically create a sales growth, for example, to say, hey, this looks like it may need to repair of this item based on the number of hours, based on the usage based on different conditions do the repair quotes. Also, we're looking into the future where we take full responsibility for the maintenance of an asset that then it will just create as a repair order and just go out there and replace that item or repair that item at the most optimal time as well. So very exciting things as well, again, on the cusp of breaking through. Then smart technologies, smart technologies, again, retrofits modernization, you can apply some of this consultation services, again, transforming the customer assets and really all about safety, productivity, sustainability. We could spend a whole morning talking about this topic as well. Some of the examples, sway control, it limits the swing of the load, so it doesn't hit things beside it or individuals, protected areas. You're not able to bring a load into an area that there could be a potential hazard, snag prevention, collision avoidance, where you have cranes on the same runway could create more automation, add remote monitoring, side pull prevention so you make sure you're centered over the load. Again, this is a safety issue, et cetera. So there are a lot of opportunities with smart technologies to improve safety, productivity and sustainability. Equivalent parts. As talked about this a little bit before, we're talking about extending our offering from genuine Konecranes and other OEM parts to cover the replacement parts for all makes and models. Talking about reverse engineered parts as well as cross-reference commercial parts. Now this may not sound very digital. But this asset and component data and the process systems have been really key enablers in doing this and allowing us to build here. So we're -- this is a journey. We continue to add parts and models and so forth. You can see here an example is an equivalent replacement for rope guide. Rope guide is what goes around the drum, it can -- guides the rope on the drum as the name so implies. And if we look at what is the opportunity here, sizing, seizing the opportunity, call it, 300,000 third-party voice in our agreement base, which we maintain and buy parts from. By having the equivalent parts, it gives us both our customers and ourselves another opportunity to perhaps be a little more cost-effective for them and it gives us a little more margin opportunity for us. And also availability, we can certainly have the availability in our own hands, which, again, builds to the customer experience as well. E-commerce as well, we can obviously offer these to not only end users but also resellers and other folks that are -- that may be involved in maintenance. And certainly, we are -- they are already on our e-commerce site. And we continue to add, practically on a daily basis, the parts. So let's talk about a couple of other areas now. The customer experience, sales efficiency, service delivery efficiency, service quality. Customer experience, what are we doing there with digitalization while we're trying to empower our customers and personnel with the right information at the right time. A lot of focus on the digital journey, harmonizing the digital experience across all the touch points, driving end-to-end integration. Again, all of it is driven by -- if you have the right data front, whether it's from a sales case to a part number to a serial number, et cetera, it really drives that end-to-end process that it really drives the customer experience and our own efficiency as well. Customer engagement being able to managed multichannel communications, having a customer 360 view, what's going on with all aspects of that customer with all of Konecranes and being able to manage the support with ticketing and escalation. So this has been an area that we've been deploying and implementing and continue to grow and improve. That -- I think I went too far. Here go sales efficiency, harmonizing the ways of working, again, end-to-end process insurance sales and back-office operations are aligned. We leverage the data we have, utilize automation, a lot of folks are revamping our configurators. Focus on quoting automation, so we're now able to use analytics and systems to suggest, let's say, a part. So if somebody is trying to quota repair, we're looking into the database and the system is actually say here is the part number that you should be able to use there. And here are the recommended hours you should be able to use. As you remember, we're managing assets from the small to the huge, from the simple to the complex, multiple brands spanning decades. So a lot of the efficiency drives us to identifying that part, how long will it take to do the job, et cetera. So the more that we can automate these things, the easier, the better the customer experience, also the speed and the better the more efficient then we are. We're applying -- deploying mobile sales tools both for our field operatives as well, of course, for sales force. Deployed sales-enabled platforms across the company, content management, training, coaching, et cetera. The other area is planning optimization to deliver our total service commitment while optimizing field operative time. And again, also goes to sustainability, right, optimizing the route, going away centralizing planning, removing brick-and-mortar, et cetera. So it also makes us also a more sustainable operation. A lot of cool things here. You can match skills and job alignment, visualization of maps and very much where the operations live. And of course, this can also be -- it has been deployed to -- on a mobile platform. So our folks in the field have full access, whether it's an individual or it's a branch or a larger entity. Another big piece is how do we make our field operatives more efficient, drive efficiency, data quality. Again, I can't overemphasize the importance of data quality. And of course, the employee experience, the employee experience also impacts the customer experience. We're in the process of doing our 2.0 in our mobility platform, and it's going to be deployed here shortly, try to deliver a more enhanced employee experience, providing more feedback, guide the behavior. So it's more intuitive and easier to use, focus on asset data enrichment. We have launched an app that highlights missing asset data and makes the asset structure easier to navigate. Then asset data, quality drives end-to-end process efficiency, the service delivery quality and of course, leads to improved customer experience. So yet focusing on -- make sure we have all the serial numbers, all the model numbers, all the relevant data that makes it easy not only to quote things, but also to deliver and procure. Intelligent troubleshooting, we've launched a platform that helps the field operators diagnose and correct issues in the field. It -- the platform learns and improves as it is used. But of course, we also have humans, if necessary, that we do have live technical support available via video. So again, a lot of exciting stuff. A lot of things that are just in the cusp or have been launched and are being deployed or haven't been deployed for that long. So there's still a lot of opportunity for us to learn and continue to build on these tools. So let's summarize. What's the takeaway from all this and what's our kind of our ambition level? Talking about takeaway, I think, hopefully, it's been pretty obvious that digitalization has really transformed the business, and it continues to do so. We're not done. This is a journey and we continue to build on that. The digital customer experience and ecosystem will drive growth and retention. It has created sales and service delivery efficiencies. They have been locked in. But again, this is a journey, and there's more to come. We are always looking for continuous improvement, continue to build our systems, our processes and ways of working. It's bringing new products and services. I gave you a good glimpse in some of those, some digital services, smart technologies, the equivalent parts. And it also allows us to be more flexible with our offering and more tailored to position and segment our offering to multiple customer segments from the value customer to the premium and being able to perhaps be more efficient in servicing the more value type customer. Also, this MHE-Demag acquisition has strengthened our foothold in Asia Pacific. We've got a lot of room to grow there, of course. And our goal is to increase share of revenue from Asia Pacific. There are some also expanded opportunities servicing non-crane assets, MHE-Demag had other industrial products. So we are servicing those as well. And of course, bolt-on acquisitions reactivated. I think we can now move into a more active phase, and that could, of course, bring additional potential source of revenue and profitability growth. And then last but not least, what is our ambition? Of course, our ambition is to grow, to grow revenue, grow the top line. We have mentioned in the past, high single-digit growth target over the cycle. At the same time, we -- our goal is to continue our profitability expansion. That has been going on for years, quite honestly. A lot of it is driven by leverage. Again, a lot of good flow-through margin and efficiencies, as you can see that we continue to move those. And there's still plenty of runway in both. And higher margins for higher-margin products and services, some of the products and services we have shown you today, we deliver those. So that is my presentation. Thank you for listening. And now we can move to the Q&A part of the program.

Thank you, Fabio. We have a lot of questions coming from the audience.

I'm still new.

So why don't we just do kick off with the first one. You mentioned service addressable market is over EUR 10 billion. How keen are you to serve cranes by other OEMs? Is servicing your own cranes more profitable than servicing other OEM cranes? There was also a question on the penetration of our own install base, but I think you covered that in your presentation.

Sure. First, let's give the direct answer, very keen to service cranes made by other OEMs, absolutely. First of all, we service customers before servicing their equipment, and customers have all types of -- and makes and models of equipment, right? And so to service a customer properly, we want to service their entire fleet, no matter what make it is. So absolutely, we do want to service all makes and very much interested in third party. When you talk about profitability, of course, proprietary parts do -- if we're employing proprietary parts in doing a repair, those generally do carry a higher margin than if we are buying those parts from a third party. However, as mentioned in here, we do have -- there are a lot of parts that are equivalent parts that we can either reverse engineer or acquire as a commercial part. That may be a similar part that we're already procuring anyway. So there's a lot of common parts and a lot of commercial parts as well on equipment. The other piece that's very important, a lot of these digital services are really brand-agnostic. CheckApp, as I mentioned, that should be done in any piece of equipment. And profitability is the same no matter what the piece of equipment is. And a lot of these other things. So this equivalent parts, so it helps us with the margin as well on other third-party equipment. And the other piece is, as mentioned before, there is not just repairing equipment. There is replacing equipment or components, right? I mean there is a limited life to a hoisting machinery and it really varies from some of the larger equipment to the smaller equipment. But there is quite a replacement cycle. And if Konecranes is doing the service and the maintenance and we're there, we have the opportunity when the time -- when the right time comes to replace that equipment with our own and kind of standardize as well for the customer to standardize their fleet so that also makes it more efficient for them. It could also replace that equipment not at the end of the life as well, as I mentioned before. There are other reasons that you may want to improve ergonomics or safety or different types of controls, et cetera. There are a lot of reasons or the production has increased and the throughput isn't. Now you need something -- you need to improve the performance of the lifting equipment. So that's -- this is what we call retrofits and modernizations. As you saw, it's a significant part of our business. So absolutely, the servicing of other third-party equipment is, quite frankly, key and core to our strategy.

Thank you. Next question would be on the agreement growth -- agreement-based growth. Why has the growth rate in the agreement base slowed down recently? And how could the growth momentum be sustained in the early quarter of 2020 H1 during peak COVID? What would you expect the growth rate to be in 2021 and 2022?

All right. A few questions in there. Well, first of all, I think the way to look at this, if you look at our agreement base right now, it is above -- well above 2019 levels, right? And if you look at the performance of orders and sales and not only for ourselves or other industries, there has been that volatility. And the agreement base has not seen that. So that shows that we've gone through the entire, let's say, pandemic cycle. Well, it's not over yet, but most of the pandemic cycle, let's say, as we know it. And we've gone through what we would call a renewal period, and we've been able to come out of that with a very solid agreement base, which again goes back to the resilience. So I think that I would look at it more in a positive way than a negative way where it is at. The -- and I think it was mentioned was there early growth. I mean a lot of the growth -- it's really -- it's all about timing. Sometimes you bring on certain larger agreements at a certain time in a certain quarter. There's also a renewal cycle where we're able to offer at those times perhaps newer products and services, bringing new agreements and scope. So it's quite dynamic. I think there's literally tens of thousands of customers that we had, and it's a very dynamic situation. So sometimes I think it's -- we shouldn't read too much into it in a specific quarter or a short time period. I think we need to look at it on a longer-trend basis. As far as what to look in the future, again, our focus is to grow. We certainly do not comment on a specific number on the agreement-based growth into the future. But you could -- you know what our revenue growth target is. And in order to achieve that, our agreement base, we'll have to grow kind of in line with that.

Thank you. Third question. Taking into account the differences between Konecranes and Demag-branded equipment, is there a major difference in asset coverage potential? What are the targets for the 2 brands? Is the business potential per asset, very different.

There is a little bit of a difference in the sense that the Demag install base, perhaps, the word could be is a little lighter. They do have a lot more chain hoist, light crane systems, et cetera, and their -- in their base than Konecranes. So there is a little bit of that difference. There is a little bit of the difference that there are third -- distributors that have also traditionally sold Demag over the years and continue to do so. So there are some differences from that perspective. But in general, the target would be the same in terms of coverage. There really is no reason not to be. And again, let's just remember, yes, there are some customers that has -- very loyal to one brand or another and they have large parts of your plant certain brand. But in general, most customers and if you go, you look -- you step back and look at a customer across multiple plants, they have all types of equipment and all makes of equipment. So it's -- in essence, we look at, to some extent, more by the customer that we're trying to take care of, rather than just narrowly by the brand because customers, again, are buying multiple brands. But there is no limit to the Demag coverage versus the Konecranes coverage per se from that perspective. And no, we have not really set a target where we should be. I think there's still -- you saw the numbers where we are in terms of coverage or at least estimated coverage. It's not a perfect science. There's still room to expand, and there's obviously a little more room to expand the Demag brand because we're a little bit further behind. And also with the MHE-Demag acquisition, that also helps us in that part of the world with the Demag install base. So I think there's a lot of positive trends, a lot of things to be positive about and we just continue the steady progress.

Thank you. Let's continue with the Konecranes and Demag theme. How has the pricing developed over the past years, differences in pricing of legacy Konecranes services versus Demag branded?

Well, we have aligned the pricing. We have very quickly integrated the service businesses. We went obviously country by country. And the North America was certainly the fastest out of the gate. And we went around the world, basically integrating the business, the same way we are doing it with MHE-Demag now. In terms of pricing, then there is no -- in the end, there is no pricing difference because we are one service organization, we're servicing both Konecranes and Demag and really all brands. We market ourselves as a service company for all makes and types. So the pricing is aligned. We certainly looked at the opportunity to look at best practices and pricing in doing that alignment and getting some insights on which organization -- legacy organization was doing things better than the other, perhaps or different than the other and then try to apply the best-in-class, and that's what we did.

Then let's continue with pricing. So business area industrial service growth has been relying quite a bit last years on increasing spare parts prices every year. How much spare part prices can still increase as individual part prices are getting already up a new equipment? Quite a lot of insights, this questionnaire has.

4 Yes. Well, I mean that's obviously a broad statement. And in terms of -- there are clearly thousands of thousands of spare parts, and each category has its own dynamic. The pricing that we've done certainly is to keep ahead of inflation. I mean if we look at what's going on in the world, the inflationary pressures, certainly their commodities have grown -- pricing of commodities and cost of commodities have grown incredibly. You also look at transportation costs, container costs, again, global supply chains. You look at operating in the COVID environment that we had to in terms of new protocols and other things. So a lot of it has been to make sure that we keep pace with inflation and what's going out there. We also -- when we look at our pricing or spare parts, there are some that we don't increase, there are some we actually reduce. So we try to be very -- to be market-oriented. Yes, we understand spare parts can be relatively expensive. That's in all industries, but we try to also be cognizant of being competitive. We're not alone out there. And we want to make sure that our offering is competitive and also stays in line to make sure that our equipment is competitive, and folks are looking at the total cost of ownership. And also, you can't just look at the part of the -- price of a single part you've got to look at, again, total cost of ownership. What is -- how often does something fail, how reliable is the equipment? Do you have a full program in place to make sure that you have the productivity and the total costs to where they should be? So it's easy to point out one thing. I think you need to look at the whole.

Thank you, Fabio. Then could you talk a little about the demand fluctuations of your various service subsegments, for example, parts, modernizations, maintenance, et cetera, throughout the pandemic? And where are we now versus pre-pandemic levels? What are you expecting in terms of pent-up, postponed demand?

Yes. It's -- so first of all, I mean, it really varies, right? I mean the pandemic was -- had different impacts across the world and continues to have different impacts in different geographies. But of course, right out of the gate, the one thing that does get impacted when you have access issues, right, when you talk back to the pandemic, those -- that is executing on the agreement base, the inspections, preventative maintenance, predictive maintenance, being able to get on site was obviously a limiting issue. There are essential industries that was easier to do. There were others that were totally shut down, you couldn't get at them. And there were also different attitudes of different customers in what they wanted to do. So -- and of course, when you have the agreement base being affected, you're also not doing those repairs and other things. Again, it all goes back to equipment utilization, capacity utilization, et cetera. So if equipment is not being used, it's not wearing, it's not, et cetera. So that, let's say, basic maintenance or fundamental maintenance certainly fluctuates with much more with utilization and with access, right? And that's come back largely, right? But again, we have parts of the world that are still in a different phase. And then there is the more of the CapEx picture where you have some larger modernizations, et cetera. And we are seeing some of that demand come back, some of that pent-up demand come back, maybe not to it. But it's really -- it's a mixed bag. It's a weird environment to be operating it. You've got some folks that are taking a little bit more time with decisions. You've got -- they also began going back to this whole global supply chain issues, you've got a lot of customers that are really focusing on their own operations, their own issues that perhaps are taking a little bit more time to look at some of the larger CapEx stuff. But we've also seen in other areas some pretty good modernization orders being let at the same time. So I like to use the old word. It really depends. It's quite a mixed bag in this environment.

Thank you, Fabio. We have now used almost 1 hour. Would you still have some more minutes time to take a couple of more questions. We have a lot of them waiting.

I do, if you do.

I do. Good. Let's continue. Next question would be on the install base. At the time of the MHPS transaction in 2016, 2017, investors were told that the Demag install base was 15%, 20% penetrated by their service business. Whereas the comparable number for Konecranes was in the mid-30s. Whilst the trend you highlight on Slide 12 is clearly positive, I note that the penetration numbers themselves are noncomparable. Can you explain the difference between these penetration numbers and those communicated to investors in 2016, 2017?