KONE Corporation, a global leader in the elevator and escalator industry, has reported a mixed second-quarter performance but remains optimistic about its future growth prospects.
CEO Philippe Delorme announced during the earnings call that the company experienced strong service sales growth and a record number of modernization orders. Despite a significant decline in the new building solutions market in China, KONE's overall outlook is positive, with stable sales and an improved adjusted EBIT margin.
Key Takeaways
- KONE reported a 9% growth in service sales and a record number of modernization orders.
- The Chinese market for new building solutions is expected to decline by over 10%, while North America's modernization market is projected to grow over 10%.
- Employee engagement at KONE has improved and is above the global benchmark.
- The company's orders received grew by 3.6%, sales remained stable, and the adjusted EBIT margin improved by 20 basis points.
- KONE's updated guidance for 2024 anticipates sales growth between zero to 4% at comparable exchange rates, with an adjusted EBIT margin range of 11.5% to 12.2%.
Company Outlook
- KONE expects stable growth in North America and Europe, with growth also anticipated in the Asia Pacific, Middle East, and Africa regions.
- The company has adjusted its market outlook for China, anticipating a challenging environment with continued price pressure.
- KONE remains positive about its market outlook and profitability, particularly in the Service and Modernization sectors.
Bearish Highlights
- The new building solutions market in China has declined significantly.
- KONE faces persistent cost inflation and potential risks related to logistics costs.
Bullish Highlights
- Strong growth in Service and Modernization segments is driving the company's performance.
- Improved margins in deliveries outside of China and savings from operational model renewal are contributing to profitability.
- Increased investments in R&D and IT are expected to support future growth.
Misses
- The book-to-bill ratio in China for Q2 was slightly below 1, indicating a slower market than before.
Q&A Highlights
- KONE's leadership emphasized the company's talent and reputation as a respectful buyer in M&A transactions, particularly with family businesses.
- The importance of elevator modernization for building attractiveness and tenant satisfaction was highlighted as a key driver for growth.
- Executives expressed confidence in KONE's strategy to drive growth and profitability through its strong Services and Modernization segments.
In summary, KONE (KNEBV.HE) is navigating through a period of mixed market conditions, with particular challenges in China. Nonetheless, the company's shift towards a focus on service and modernization, which now represents over 60% of their business, along with cost reductions and a positive service mix, are expected to support its scalable growth and profitability going forward.
InvestingPro Insights
KONE Corporation (KNYJF) continues to demonstrate robust financial health and market performance, as indicated by several key metrics and InvestingPro Tips. Notably, the company holds more cash than debt on its balance sheet, which is a strong indicator of financial stability and risk management. This is particularly relevant for investors considering the potential challenges in the Chinese market and the company's need for flexibility in managing its finances.
Investors may also find KONE's impressive gross profit margins of 54.78% for the last twelve months as of Q2 2024 to be a reassuring sign of the company's ability to maintain profitability despite market fluctuations. This aligns with the company's reported growth in its service sales and modernization orders, which tend to have higher margins.
In terms of valuation, KONE's stock is trading at a high P/E ratio of 25.31, suggesting that investors have high expectations for the company's earnings growth. The high Price / Book multiple of 10.43 also indicates that the stock may be valued more for its assets and less for its earnings potential in the near term.
For investors looking for stability, KONE's low price volatility may be a comforting factor, as well as the company's history of maintaining dividend payments for 19 consecutive years, showcasing a commitment to returning value to shareholders.
Additional InvestingPro Tips, which delve deeper into KONE's financials and market performance, are available for those considering an investment in the company. By using the coupon code PRONEWS24, investors can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable insights. There are 8 more InvestingPro Tips listed on InvestingPro for KONE Corporation, which can be explored for a comprehensive analysis of the company's prospects.
In summary, KONE's solid financial metrics and the strategic focus on high-margin services and modernization projects provide a strong foundation for the company's future growth, despite the challenges in the new building solutions market in China.
Full transcript - Kone Oyj B (KNYJF) Q2 2024:
Sanna Kaje: Good morning and welcome to KONE's Q2 Results Presentation. I'm Sanna Kaje, Head of KONE's Investor Relations, and I have here with me today our President and CEO, Philippe Delorme, and CFO Ilkka Hara. But before I let Philippe and Ilkka present today, a short notification. We've heard that there are currently some global telecoms issues and there is a risk at the moment that we might not be able to take your questions online. So I wanted to give that as a heads up, but let's see how things develop. With that, I'll hand over to Philippe.
Philippe Delorme: Good morning, Sanna and good morning everyone. Glad to be with you today. So I'd like to start by sharing a couple highlights from the quarter. First and foremost, I'm very pleased that the focus on Service and Modernization is delivering results. We saw again strong Service sales growth at 9% and record high Modernization holders. We also saw the sixth consecutive quarter of profitability improvement which has been and is high on our agenda. The market outlook has mostly remained similar to what we saw three months ago with still a couple updates. The first one is the China building solution market continues to be challenging and we have downgraded the market outlook slightly. At the same time, we have upgraded the outlook for the North American Modernization market. Finally, something I'm very happy about, which is our employee engagement improving and being well above the global benchmark. So now let's take a look at all of this in more details. I'll start as usual with the financial highlights. So for me, the standout of the quarter was the double digit growth in orders in three out of our four areas. As said, we had very strong orders in Modernization, but also some good wins in New Building Solutions, for example in Europe. At the same time, Chinese New Building Solutions market continued to be challenging. Overall, our orders received grew by 3.6% at comparable exchange rates. Our sales were stable in the quarter at comparable currencies with continued strong growth in both Service and Modernization, while as I said, the New Building Solutions sales declined significantly driven by China. Our adjusted EBIT margin improved by 20 basis points from the previous year, now the sixth consecutive year-over-year improvement and the cash flow was solid. Ilkka will as usual elaborate more on the financials in a couple of minutes.
Saint: The second case I want to share is a high rise project, Wasl Tower in Dubai. This is a project where there was a lot of groundbreaking innovation on sustainable construction in a building and sustainability was also one of the key criteria for choosing KONE as a supplier for the over 30 elevators with regenerative drive and four escalators. We also enabled efficient construction during the project with our superfast Construction Time Use elevators and the customer chose also our 24/7 connected service for predictive maintenance.
Denis-Pleyel station: The second case I want to share is a high rise project, Wasl Tower in Dubai. This is a project where there was a lot of groundbreaking innovation on sustainable construction in a building and sustainability was also one of the key criteria for choosing KONE as a supplier for the over 30 elevators with regenerative drive and four escalators. We also enabled efficient construction during the project with our superfast Construction Time Use elevators and the customer chose also our 24/7 connected service for predictive maintenance.
MiniSpace: The last reference is from Chicago in the U.S. where we were awarded a large office redevelopment project, the Thompson Center. Once completed, the building will become a Google (NASDAQ:GOOGL) campus with more than 1000 workers and also in this project sustainability was highly important for the customer. Now let's take a look at some other highlights for the quarter by business lines. So first Services, we had another quarter of very strong growth in our Service base, taking us above 1.7 million units in Service. The recent bolt-on acquisition contributed to about 1.5% to the growth, but also the organic growth remained above 5%. We also continue to scale and to further develop our new digital tool that enables us to perform Services in a smarter way. One example is a remote service that we talked about last time that we are expanding to more countries across Europe and it's a real hit with our customers. In Modernization, the clear highlights were the many project wins that demonstrate both the market potential, but also our competitiveness in the market. We continue to strengthen this competitiveness by developing further our KONE Upgrade partial modernization solution by broadening the coverage of the offering for both KONE and non-KONE equipment. The great thing about partial modernization is that instead of replacing the whole equipment, we can improve the reliability and ride comfort significantly in a sustainable way. Last but not least, in New Building Solutions, we've worked hard to further improve our offering, especially for the highly cost conscious residential segment, to even better match the customer needs in a cost competitive way. And as a final highlight, I want to mention our GenAI assisted tendering tool that we've been scaling. It's quite exciting how we can improve the responsiveness and sales efficiency with the help of GenAI that everyone is talking about. We also got valuable feedback from our employees and customers from our annual surveys and these two points are two key strategy goals for us, so they are really important. So first things first, employees. I'm really happy that our employee engagement improved during this period of many changes in the company and continue to be well above the global benchmark. We saw strong results in wellbeing, inclusion and intent to stay with KONE and I'm also very thankful for the very high 92% participation rate in this survey. In the customer loyalty surveys we improved on many aspects. For instance, we saw a strong increase in Modernization and at the same time the result provided us with very good insight on the areas where we need to work hard to improve the customer experience. Finally, we have also made a new appointment to our Executive Board. So Kaija Bridger has been appointed Executive Vice President, People and Communications for the company as of July 1, 2024. Kaija began her career at KONE in 2015 and has held various leadership positions in people and communications, most recently as Vice President, People and Communications for KONE, Asia Pacific, Middle East and Africa. I'm really happy to have Kaija on board in the executive team and I want to welcome her warmly. She is a fantastic addition to the team. I would like next to hand over to Ilkka who will go through the market development and the financial in a bit more detail. Ilkka, the floor is yours.
Ilkka Hara: Thank you, Philippe. Let's next look at how our markets are developing in second quarter. In the quarter, the market was actually quite similar to what we saw in the first quarter already with a couple of things to highlight. First, in the New Building Solutions, we saw gradual stabilization in Americas and Europe, while the market continued to be difficult in China, actually even slightly tougher than what we expected. The markets continued to develop positively in Services and in Modernization across all areas, with even some pickup in North America. Asia Pacific, Middle East and Africa market continued to be the most positive overall, although there was some temporary slowdown in decision making, for example in India related to the elections that happened during the quarter. Then let's look at the financials for the second quarter. Our orders received grew by 3.6% at the comparable currencies in the quarter, which was a bit higher growth than what we've seen on average during the past couple of years and is a good result given the tough market environment. This good development was driven by significant growth in Services and Modernization. In the New Building Solutions, our orders declined clearly at the comparable exchange rates driven by China. As Philippe already highlighted, our orders grew at the double digit rate in three of our four areas when measured at comparable exchange rates. Our margins of orders received was again fairly stable year-on-year with a decline in China and a slight improvement in the rest of the world. Then to sales. Overall, our sales were stable at the comparable currencies in the second quarter. Our New Building Solutions sales declined by 11.1% as a result of the slow construction market in China. On the positive side, we saw again strong development in Services with 9% growth and in Modernization with 11.1% growth. Geographically, we saw quite a strong growth in Americas at 9.9% and in Europe at 5.8%. Asia Pacific, Middle East and Africa continued to grow well at 6.6%, but this was below the trend for the area and the reason for this was the slowdown in order book rotation due to the for example the India elections that I mentioned already earlier. In China we also saw slower order book rotation due to the slowness in construction market. We also managed the deliveries very tightly to ensure our healthy cash flow for the business. As a result, our sales declined by 17.2% in Greater China. What's probably worth mentioning on China is that the Services and Modernization businesses have continued to develop positively there and now represent one third of our sales in the area. Then moving to adjusted EBIT and profitability. As said, we had the sixth quarter of margin improvement in a row. This is important as improving profitability has been a clear focus for us. The adjusted EBIT margin improved by 20 basis points and our adjusted EBIT increased to €335 million. The positive drivers of profitability were the better margin in our New Building Solutions and Monetization deliveries outside of China, as well as the positive impact from the business mix. We also continued to see some positive impact from savings from the operational model renewal completed last year. On the negative side, our margin declined in China as a result of the earlier seen decline in the margin of orders and overall the broad based inflation increasing our fixed cost. We continued to be focused on product cost reductions, aligning our operations to the current market environment, particularly in China. Last but definitely not least is cash flow. We had a solid cash flow from operations in the quarter at €330 million, which was a bit above last year's level. Year-to-date, we are now slightly down from previous year. Our working capital continues to be strongly negative, although now slightly less negative than in the beginning of the year. The key drivers for the year-to-date change have been the positive we always get in the early part of the year Service invoicing cycle and the increase in accounts payable where we've been working on the payment terms. Our inventories increased somewhat as a result of the challenges with logistics in Red Sea (NYSE:SE) and our accounts receivable increased slightly outside of China. Then let's look at the full year business outlook. For 11 out of our 12 end markets, the outlook is actually positive. Modernization markets are expected to remain very active and the outlook is positive also in services. In the New Building Solutions, the market outlook continues to be mixed with stable outlook in North America and Europe, growth expected in Asia Pacific, Middle East and Africa and China expect it to remain difficult. We have made a couple of changes to our market outlook expectations. We now expect China New Building Solutions market to decline by over 10% in units with continued price pressure. On the other hand, we are even more positive than before on the outlook for North America Modernization market and expect that to grow over 10%. Then to the business outlook. We have specified slightly our guidance for the year now that we have already two quarters behind us. We now expect our sales to grow zero to 4% at the comparable exchange rates in 2024, while previously the range was zero to 5%. The adjusted EBIT margin is now expected to be in the range of 11.5% to 12.2%, while the previous range was 11.5% to 12.3%. The drivers supporting our performance are expected to be the continued strong growth in Service and Modernization, improved margin coming through in deliveries outside of China and a strong order book and the savings from operational model renewal which we saw still in the first half. The drivers burdening our performance are the decline in New Billing Solutions market in China, persistent cost inflation and our decision to increase investments in R&D and IT slightly. I would also like to mention the logistics cost as something where we see some risk related to the Red Sea situation. I would now like to hand over back to Philippe to summarize our presentation.
Philippe Delorme: Thank you, Ilkka. So to summarize, we are happy to show another quarter of strong growth in the resilient Service and Modernization businesses and we expect that to continue also in the coming quarters. When we look at our markets, the outlook is mostly positive while the Chinese New Building Solutions markets continue to be difficult. And finally, our profitability has been on an improving track and that was the case also in the second quarter. Going forward we intend to stay on this positive track. I would like again to say a big thank you to everyone at KONE for driving these results. We appreciate it hugely. And with that, hopefully we are ready to take your questions if the system does work. Let's hear from Sanna about that.
Sanna Kaje: And the system doesn't work. So how we'll do this is that we've been getting some questions by e-mail, so let's go through those and then whatever questions you might have afterwards, please reach out to Investor Relations. We will help with all of your questions.
Philippe Delorme: And we apologize for that.
Sanna Kaje: Yes.
A - Sanna Kaje: I'll try to group these a little bit because there's now a couple on orders, couple on sales, and a couple on EBIT and I'll start with the orders. The first one is, great to see better orders outside China seems to be driven by strong growth in Modernization in all regions and then solid NBS growth in Europe and APMEA. Can I just confirm that the repairs business and the bolt-on M&A is not the key driver here. It's really Modernization and NBS explaining it?
Ilkka Hara: I can confirm that, so that's the case. We have actually had a very good execution, both market opportunities, but good execution also for us to be in a good position to deliver good growth.
Sanna Kaje: Good. And then another on orders, North American orders were weaker in Q2. What drove this?
Ilkka Hara: I'll start, and maybe you want to comment also. But in North America, in Q2, yes, it was a bit weaker, but if you look at the first half, we actually are performing quite well. So particularly in North America, there are relatively larger orders and they tend to be a bit lumpy between the quarters, so I would look at it more with two quarters in mind, so overall good performance there as well.
Philippe Delorme: And great performance in Modernization in Americas.
Sanna Kaje: What about Modernization margins in orders?
Ilkka Hara: I'll take it. So we continue to see actually positive development in Modernization, both in order margins, but also as we're scaling the business, we continue to see profitability improving in the business, so overall very, very good strong quarter in Modernization.
Sanna Kaje: Okay, then let's take a couple of questions on sales. There was a strong drop in sales in Q2 in China versus the rate in Q1, what drove this?
Ilkka Hara: In the quarter we've continued to see construction activity being low if you look at the indicators for that. And as I said, we've also been very focused on cash flow, so managing also our deliveries with a credit risk in mind. So it's a bit both the market as well as our own focus on managing the risk in the market. And I have to say that the team actually has done a very good job, as I already mentioned, and part of the cash flow that we saw continued good performance there in China, given the market environment.
Philippe Delorme: And just building on your answer on China and sales, there is a bit of a good news, bad news, depending on what you say. Basically China is a bit less than 25% of our sales. But now with actually the growth of Service and Modernization in China and the decrease in NBS, now the sales we have in NBS in China are slightly more than 15%. Well, actually they were much more than this four to five years ago. We are more in the 30%. What we are trying to explain, quarter after quarter and actually quarter after quarter, it's even more true that we are more of a Service and Modernization engine in China and out of China. In China, one third of our sales are Service and Modernization, and they keep growing while indeed NBS goes down in line with the market. So every quarter that pass makes KONE actually a more resilient model that relies on Service and Modernization. And we're going to be very repetitive because this is the core of our strategy. And it doesn't mean that we don't keep a fighting spirit in China on New Building Construction, we do. We actually adjust our cost. We are extremely diligent on cash. We think it's -- actually, it's a great way also to be a more competitive company because competition helps to be the best in our business. But it's true that we are remodeling our business and adapting our business consciously to make it a more resilient model altogether. So that's really important to understand.
Sanna Kaje: Good. Thank you. Still on sales the guidance of 4% at the top end of sales growth guidance implies a strong acceleration in second half. What would drive this, if that would materialize?
Ilkka Hara: Well, first, we have a strong order book to deliver on and continue to see good opportunities to drive sales growth. And we are expecting somewhat better sales growth in the second half than we've seen in the first half and of course, there's many parts contributing to it. In the first half we already have very good sales growth in Services. We have good order backlog in Modernization. And I have to say that outside of China, also in NBS business, we've continued to see quite a good development. So all of those combined gives us an expectation for the sales development for the rest of the year. And it's also good to remember that there's certain seasonality in the business, more heavily weighted to the second half.
Sanna Kaje: Good. Then still continuing on sales, and now more specifically, Service sales. So you disclosed that you had 5% organic unit growth, on top of which about 1.5% inorganic growth in Service space, which leaves around 2% of price mix growth in Services. So could you please break this down in terms of pure price, the effect you get from escalation clauses, the digital effort, and then the geographical mixed pricing and then the digital?
Ilkka Hara: Yes. So, first, and Sanna, you're doing good job conveying the questions real-time, so thank you for that. So, if I look at the whole Services business with 9% growth, I think I'm very happy with that. We'll be now accelerating the growth consistently from where it used to be and that in an environment where the NBS business is actually not helping, similar to previously. And yes, like you said, we've gotten the help from very good scale up of our acquisition strategy. So really this bolt-on acquisition is contributing positively, but then mix is negative when it comes to the value we add in all markets, actually more residential buildings they are lower value, but also geographically the mix has a negative impact. I wouldn't comment actually the pricing in more detail. It's also a bit competitive topic where we want to have some magic in our side and sensitive to our competition. But overall in pricing we've developed quite well, but definitely there's opportunity to continue to drive pricing more aggressively going forward. That we've actually seen as we've gone through the last years with inflation, that once you start to really look at it more detail, there's more opportunities to it. And yes, digital contributes to it, but more and more we sell are contracts with a digital and physical maintenance combined. So yes, we get a benefit, but it's the package that we deliver that also then impacts how we are able to provide a better customer experience, better uptime. For example, retention is clearly higher with the connected units. And one of the highlights, by the way, behind the sales growth is that our retention is developing positively and actually very good competition balance, so all of those contributing to it.
Philippe Delorme: And service is a people business and the attitude we have and what I've heard in the past six months is, we seem to be very strong in our customer relationship. We take our customers seriously, they provide us business and we honor that business and we're thankful and we are creating with the tens of thousands of field technicians relationships on the ground that are really important and we take them seriously.
Sanna Kaje: Still on services one more question. How is the M&A pipeline going forward?
Ilkka Hara: We continue to see the market being quite active and see good opportunities, then let's see how those materialize. But I'm actually quite positive about the opportunities. Clearly the fact that the business is digitalizing is giving opportunities for larger companies to make it happen. And then second, what is also visible is that there's a war for talent, skilled labor, and we have been a good, as Philippe was talking about, employee engagement. So, people actually want to be working for KONE and we're in a better position to attract talent, which is an edge compared to some of the smaller companies. And as a result, we've seen good market, active market in the M&A front.
Philippe Delorme: And it's also, I would say, a weapon when we engage with those family businesses because we talk about their life and the fact that we are a respectful buyer, we are demanding buyer, meaning we would keep want to raise a bar on safety, on quality, on digital, but we are a very respectful buyer and we are known for this on the marketplace and for a family business it's very important. So the fact that we respect these people and that we onboard them with respect, we take some time to drive the right synergies is actually making the difference every time in the difficult discussion we're having, because these are critical decisions for these people and we make a big difference here.
Sanna Kaje: Good. Then switching gears to margins and profits. So margin expansion beyond 2024, what will be the key drivers of this as the backlog margin has been stable now and the operating model renewal savings finish in 2024?
Philippe Delorme: First, I'll start from the top. So clearly, the fact that we continue to see very strong growth in Services, in Modernization has a positive mix impact to our results. And also strategically, we want to build scale. The fact that we want to drive growth is also helping us deliver margins. And I would say that the operating model renewal savings from the initial phase has been actually materialized now that we have a full year behind us. But one reason why we actually built these four areas to operate is that they also are able to take their commercial strategies forward, build scale in how we operate in the field. How are we getting the scale in the operations in those four geographical areas which provide us opportunities to drive it further. Clearly, from my perspective, as I've said previously, we want to grow, but we also clearly want to continue to drive the profitability up, so they both are important.
Ilkka Hara: And we do quite a bit of work on the productivity. I mean, the whole negotiation sourcing and so on. So we are working hard on that part of the house also.
Sanna Kaje: Then there are a couple questions on the China margin and how that will flow through in the coming quarters. So price mix headwinds in China amounted to over 10% for three consecutive quarters. How do you see the phasing of the group margins development in second half? What levers will you use to offset this headwind?
Ilkka Hara: I think the first part of the question, which was the levers or the second part of the question, which was the levers? I would just repeat what I just said and all of my comments are taking into account that there's a headwind in China. And yes, price competition, competition in the market is tough and as I said, margins are down in orders received. At the same time, what we've actually been able to consistently now drive is product cost reductions. And that's something which if I compare the history, very high level and of course in this type of markets, they are needed and the teams are working hard on that one. That was a comment on NBS. Then you already, Philippe, reemphasized the fact that actually we have services and modernization that now represent one third of the business already and they are growing, whereas the NBS business has been declining. So the relative weight continues to go up. And relatively speaking now, Services and Modernization in China has a positive mix impact to China. And that's of course then offsetting some of the headwinds from a China perspective.
Philippe Delorme: And to look at the bigger picture, so I repeat, our NBS business in China is slightly north of 15%, but the share of the profit, because this business is at a lower margin than average, is less than this 15% that I mentioned. So I hear the many questions on China. We just have to realize that every quarter that comes where actually indeed our share of business related to NBS China goes down, reduce our dependency both on sales but also on profit. And therefore the impact that we have from that part of the business is less and less as every quarter is going through, because we want to build a resilient model linked with Services and Modernization first.
Sanna Kaje: And a followup on what we just discussed is, where is the profitability of the New Building Solutions margin in China at the moment versus your average?
Ilkka Hara: Well, I've commented China margins in total and already said that China margins compared to a group average are clearly lower than the group margins. So the NBS business is a big chunk of that decline and relative decline compared to the group.
Sanna Kaje: Good. Thank you. And still one more question related to what we've been discussing now can you confirm that margin in orders are still ahead of P&L margin?
Ilkka Hara: So there's not that big difference between orders margin and the P&L margin. If you look at it globally then due to the order book rotation, there's still tailwind. So margins of orders that we book and the margins in the order book are. There's a positive in Americas where the order book rotation is slower. In other markets, due to the order book rotation, most of the tailwind has been now used and it's more similar to orders margin and the delivery margin for us.
Sanna Kaje: Is the Modernization, we've still seen positive development in the margin.
Ilkka Hara: Yes, definitely. So Modernization, that's a good add on that there. We still continue to see positive coming through.
Sanna Kaje: Okay, then there is one on the market. So what are the end market drivers for North American Modernization? We upgraded the guidance for the outlook comment for that part of the market. Why? Which segment is driving it?
Ilkka Hara: Yes, I can start. I guess you were there as well, so more fresh information. But so first, I think overall in Modernization also applies to Americas. We see a lot of opportunities there. We just don't modernize as an industry enough of the elevators. And what I also see and we see in the market is that there's maybe less focus on new construction and there's a need to maintain your assets, be attractive building for the tenants you have, which is impacting the monetization activity. One way to make your building appealing to your tenants is that you have a good people flow. Then second, of course, the fact that the elevators are getting older and older. If you look at the residential segment, for example, you have to modernize the equipment because there's an opportunity to make the elevator availability and quality better. I'm sure you're going to talk about sustainability next.
Philippe Delorme: Yes. So, two points may be to complement. The first one is our growth in North America, but it's not dissimilar to many other places. It's a mix of what we call volume business and major projects. And the major projects are more the transit system. I think we're advertising in Q1, a large order we took in the New York area, which was a transit system. We had in Q2, a few more airport type of stuff can be large malls and stuff like this. So these are actually a piece of the work that we are getting on, which you need a solid track record, solid relationship. Very often these are places where we've been servicing and there is a strong customer satisfaction. And therefore the obvious person to go modernize would be KONE because we have a relationship with those customers. And then there are other segments. It's a bit, frankly, across the board and clearly sustainability and behind sustainability, making sure that owners sustain the value of their assets, because assets that will be non-retrofitted, a bit old fashioned, will really not be attractive and it's a market that's very competitive today. And it's a bit of a personal learning for me because I was in energy before. But an elevator is really important in a building. So when this elevator is not working properly and so on, it's the first thing, it's the first experience you get when you get into the building after the lobby. And if that elevator is crappy, doesn't work well, it's frankly a detractor to attract a new tenant. So it's very simple, very basic, but it works and we see it clearly happening in the U.S.
Ilkka Hara: Yes. And we can increase the energy efficiency, which is making it also cost efficient. In North America it's more the cost efficiency rather than sustainability driving the market.
Sanna Kaje: To summarize, we see good opportunities in all of the segments, right in North Africa.
Philippe Delorme: Including infrastructure.
Sanna Kaje: Yes, exactly. One more on China and then one to conclude. So you've been getting strong orders, especially compared to the market in China. Last year's second half was strong. When do you expect to see these flow-through to P&L?
Ilkka Hara: As I already said, in the context of Q2, you see a bit similar. So there are orders where we need to then constantly look at how quickly are the construction activity progressing, which is impacting the order book rotation. And then frankly, also we do manage carefully that, hey, the orders we take in, that we deliver, that we can also manage the risk. And if we see risk with a project credit reliability, then we actually are slowing down the order book rotation on those cases somewhat as a result of that. Also, the order book rotation in China right now is slower than what we've seen in the past.
Sanna Kaje: Thank you. Actually, there were a couple more. I think we still have time for a couple quick ones. What was the book-to-bill ratio in China in Q2?
Ilkka Hara: Book-to-bill ratio in China, we were slightly below 1, but we are developing still there quite well.
Sanna Kaje: And then cash conversion in the quarter, what is the outlook for the rest of the year? Will cash conversion recover to 100% or above?
Ilkka Hara: Of course, in our business, if you look at the seasonality for the cash conversion, so for example, the service invoicing cycle impacting that. But clearly we want to continue a business where there's a positive cash conversion and we see good opportunities and we quite often talk about only the advances which are more especially related to the NBS business. And the more we grow, the more we get advances and vice versa. But I think we also do see good opportunities to drive further improvements in other items in other businesses. So I think there's definitely a focus on continuing to have a positive cash conversion.
Sanna Kaje: Thank you. And then a final one to Philippe. Now that you've been at KONE for some time, what are the key priorities for you? Is there scope for self-help in the new building solutions? What else can be done in service?
Philippe Delorme: Well, I guess when you look at the summary in this page, they are very, very close to our priorities. So I would say, if I have to really simplify, KONE used to be, a couple years ago, largely dependent on NBS in China, and this is what KONE was known for. And I think when we started this, but we are accelerating this. We are moving the company to being first and foremost a resilient engine made of Service and Modernization, which today is more than 60% of our business and a large part of our profit. Now with this, we see an outside world where the market are largely positive. There is still one big market that's negative, which is China NBS, which is slightly more than for us, 15% of our sales, where it was much more before. So we keep adapting ourselves to the new market reality. I'm very optimistic about the future when I look at how things are developing. We have work to do, we have work to do to keep digitizing our services, to keep accelerating further on Modernization. But I'm really energized when I see the success while driving what I call scalable growth, which is a growth needs to deliver more profit and more cash. So that's basically the game plan. And I hope it's simple. Now the proof is in the pudding. I'm happy to see that we are building, let's say, our legitimacy with quarters after quarters of delivery, reducing this dependency on China NBS, and then the rest will follow.
Sanna Kaje: Good, great. Thank you, Philippe. Thank you, Ilkka.
Philippe Delorme: Thank you.
Ilkka Hara: Thank you, Sanna. Well-adjusted the situation.
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Sanna Kaje: Thank you. Yes and big apologies again for not being able to take your questions through the teleconference line. I hope I was able to cover most of what I got through email and in case you have more questions feel free to reach out to us at Investor Relations.
Philippe Delorme: And thanks for your patience.
Sanna Kaje: Thank you and have a great rest of the day.
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