KONE Oyj

Katri Saarenheimo - IR Henrik Ehrnrooth - CEO Eriikka Soderstrom - CFO

Lars Brorson - Barclays Eric Carlson - Bowden Martin Flueckiger - Kepler Cheuvreux Andre Kukhnin - Credit Suisse Manu Rimpela - Nordea Phil Wilson - Redburn Guillermo Peigneux - UBS Matthew Spurr - RBC

Good afternoon, and welcome to Kone’s Q3 Results Webcast. Here in Espoo, Finland we have today our CEO, Henrik Ehrnrooth; and CFO, Eriikka Soderstrom.

We will again start with a review of the highlights of our result as well as the recent developments in the market environment after this we will have plenty of time for Q&A and discussion. So Henrik let's get started.

Okay. Thank you, Katri.

And also welcome on behalf to our Q3 results call. I am very pleased to present our results.

As you can see in Q3, our strategy and execution continue to bring good results, so we have positive news to tell. I’ll start with going through our key numbers, after that I will little bit deeper into the numbers as well as development of our businesses, our markets and then how we develop Kone and finally our outlook.

Let’s starts with looking at the key numbers. In Q3 we continued our profitable growth and we had very strong cash flow.

Our orders received they grew close to €1.8 billion, growth of about 12% or 3.6% in comparable currencies. Our order book is at a strong level of more than €8.3 million, growth in comparable currencies of about 14% compared to last year.

So this naturally gives us a good possession going forward from here. Sales close to €2.2 billion, growth of 16.3% or 7.7% in comparable currencies, so we are able to slightly accelerate the growth compared to the previous quarters this year.

Our profitable growth continued EBIT of €326 million and as you can see our EBIT margin improved slightly from 14.8% to 14.9%, it’s a good performance also in this respect. Very pleased with our strong cash flow of €432 million, continued very strong cash conversion which shows that we have continued to maintain healthy business practices throughout our operations.

Earnings per share €0.50 compared to €0.41 last year. This is Q3, we know one quarter is a short period of time to look at performance, so if you look at from a little bit longer prospective for the first nine months of the year, we can see -- and as you know we had a strong development on a broad basis.

Orders receive in the first nine months, more than €6 billion growth in comparable currencies of 5.2%. Also continued good sales growth, sales of also more than €6 billion in the first nine months and growth in comparable currencies of 7.2%.

A good EBIT 863 million, an improvement from 13.9% to 14.2% in the EBIT margin. And cash flow for the first time in our history in nine months period, we had over €1 billion of cash flow in the first nine months of the year, it's a good performance yet.

And EPS increased from €1.07 to €1.30, so overall strong development on a broad basis is what we have achieved during the first nine months of this year. At this stage again we would like to express a big thank you to all of Kone's employees for the great work they have done for the continued good development of Kone executing on our strategy and executing our projects which has resulted in the good achievement we have had, again first three quarters of this year.

So those are the key numbers, if you then go into starting with orders received into our numbers in a bit more in detail. Orders received, as I mentioned we had a growth of 11.9 or 3.6%.

Here the highlight is that we had a slight slowdown in our orders received in China, but we are able to accelerate our growth in many markets to compensate for that. We continue to grow our volume business and our strongest growths were in the modernization business.

If you look at our development geographically we continued our strong growths in North America and we were able to achieve very strong growth in Central and North Europe that was a good achievement, also if you look at the volume business that’s grew very strongly in Asia Pacific outside of China. So as you can see a broad base development was able to compensate the slight decline we had in the Chinese market.

Price competition continued particularly in China, but elsewhere as well, despite that give the improvements we have had in our competitions, the focus we had on pricing meant that we have been able to maintain good margins of our orders received. Then if you turn to sales, here we had good development in both our new equipment business and our maintenance business.

Our new equipment business grew at about 10%, it's a good growth continued there. And I am pleased to say that in our maintenance business we were able to slightly accelerate our growth which is pleasing we now had 6.7% growth in comparable currencies in maintenance.

Modernization was now seasonably more stable. If you look at the growth regionally, as you know we have had growth in orders received in North America for couple of years, more than two years already and now we can see that this is coming through in sales.

So our sales growth in North America was almost 20%, it's a very good growth. And we continued a double-digit growth in sales in Asia-Pacific as well.

So, again here at broad based good developments. If you then go to our EBIT operating income, what is the most important point here is that our profitable growth continued.

We had a broad base good development in our EBIT driven by strong development in our new equipment business and also good development in our maintenance business. If you look at the development geographically, it was good on a broad basis, so that is something that I'm very pleased about.

Exchange rates continued to contribute positively to our results, about €30 million in the quarter came from translation exchange rates, but even if you take out the impact on exchange rates we can see that we had a good development in our EBIT. I’m also pleased that we've been able continue to significantly invest in the development of our future competitiveness and keep up a profitable growth at the same time.

So we have continued to increase the investments in research and development, process development and in I.T. and also in North America, we are also resourcing our organization stronger to deliver on the strong growth that we've achieved in orders received over the past years.

I guess the highlight here is the broad-based good development. And if you look at our business mix, I’ll start with sales by business.

Here we can see a continuation of the trend that we've had for while already, which is in the share of new equipment, the new equipment business continues to increase. The share of new equipment increased to 57% of our sales.

Now the increase in the share of new equipment was mainly driven by changes in exchange rates that is due to the fact that we have more of non-euro sales in new equipment than we have overall for Kone. If you look at it geographically, we can see that now Asia-Pacific was 45% of our sales, the largest geographic region and here the change in the mix was most due to the exchange rates as well as the underlying growth and the increase from North America from 14 to 16, it's naturally due to the strong growth we've had in the first nine months in the Americas.

So, overall as you can see, solid good financial performance across the board throughout this year. If you then turn to our businesses and the market development in the various businesses, so first of all, new equipment, orders received in new equipment was stable overall.

We grew in the volume business but major projects declined slightly. In the volume business as I mentioned, we had good growth on a very broad basis.

In many European countries, very strong in North America and strong growth in Asia Pacific in the volume business. But that strong growth than compensated for the slight decline in China and the decline in our major projects.

If you look specifically at China, orders received if you measured that in units, was stable, and we had a slight decline if you measured that in monetary value. If you then look at the development of our markets overall, starting with Europe, Middle East and Africa, here we continue to see positive development in Central and North Europe, particularly in the residential segment.

Middle East also continues to develop positively and South Europe is slightly recovering from a low level, I believe that France has found its bottom and we continue to see a recovery in Spain although from a low level. North America, markets continued their good development and Asia Pacific, if you look at the volumes overall there were slightly -- declined slightly because of decline in the Chinese market, although we had growth in other Asia Pacific markets such as India, Australia and some South East Asian markets.

India continues to grow, not quite as fast as we had predicted at the beginning of the year, but at least the direction is the right one. At this stage as always, rather than pause [ph] a little bit and talk little bit more in detail about what's happening in China.

First of all situation is very much what we discussed at our capital markets day about a month ago in Shanghai. So, overall market continues to be challenging as we had expected.

If you look at the market overall in Q3, it declined slightly and also if you look at the first nine months markets decline slightly. We have continued to outperform the market.

In Q3, we were stable when the market decline slightly and in the first nine months also markets slightly declined compared to a close to 5% growth for Kone overall. So if you look at the markets what do we see there?

Well it's exactly as we discussed at the capital markets day in Shanghai, is that they remain mixed. Much better development in the higher tier cities, particularly tier 1 and most of tier 2 cities where we continue to see a good development.

Inventory levels are at a pretty good level, we can see a good improvement in the overall real estate markets. However, if you look at many lower tire cities, particularly northern parts of China, we see a much more challenging situation and a situation where inventory levels overall are at a quite high level.

But the good thing is that the market is large and have continuously good opportunities in the higher tier cities. Competition for market share in China remains as you know it remains intense and pricing trends have continued to be pretty similar in the third quarter as they were earlier in the year.

If you look at our development, we can say that given the improvements we have continuously been able to drive in our total competitiveness, we have been able to retain healthy margins in China. If you look at the segments with closer in China similar trends to what we saw beginning of the year is that standard residential is declining slightly affordable housing more stable and also stable slight decline in the commercial markets.

The infrastructure markets on the other hand are growing well due to government stimulus. So if you look at the property markets as a whole, not only our market, but the property market as a whole we see both better and less good news.

The good news is that for seven months already we have seen continued improvements in overall transactions in real estate markets and we have also seen a continuous improvement in the pricing in real estate markets, and this is positive so we can see that the markets are going forward and developing. On the other hand when we look at overall real estate investments and new constructions starts we see a more negative picture.

So and again we continue to see different in situation and different tiers of cities, so situation continuous to be as we have discussed before uncertain and our expectation for the full-year is that the markets will decline slightly. So that’s a little bit more in detail again on China.

Next I'll turn to our maintenance business. First of all in our maintenance business pleased to say that we grew in all geographic regions and we continue to have strong growth in Asia Pacific.

Here we’re achieving strong growth because of the strong deliveries of new equipment we've had over the past years. Most significant growth continues to be in China where our growth continues to be at about 25% in the service business continued very strong growth there.

If you then look at the maintenance markets as a whole first of all Europe and North America really no change to the market environment, markets continue to growth slightly overall and in markets where we've had a more difficult new equipment market over the past years as we see a more difficult pricing situation. So very much the same trends that we’ve seen before.

On the other hand Asia Pacific also as we've seen before continues good growth in the service business due to the high level of instillations in the past years, so positive growth here and we’ve been able to capture that growth in a very good way. And in modernization business first of all our performance, we had good growth in all geographic regions in modernization business.

Now seasonally modernization sales were more stable with slightly better performance in Europe, Middle East and Africa with overall quite stable sales. If you then look at the markets North America continues to grow so similar good trends we’ve seen before.

In Europe, Central North Europe the market is growing and South Europe market remains weak, here we can see a nugget of positiveness through Spain where the market is recovering from a low level, but overall South Europe is weak. So that’s about our markets and our businesses.

Then in connection with quarter results we usually highlight one area where we have strengthen again our business through our development programs. This time we’re highlighting our preferred maintenance partner, development program and as you know one of our important strategic objectives is to strengthen our differentiation in our service business.

Here we have further improved our capabilities to service our customers and drive productivity. We are -- during this year we continue to rollout our next generation -- what we call our field mobility device to our service technicians to improve the connectivity of them, provide them with better information, with faster problem per solution times and that way be able to serve our customers in a more effectively way and improve our productivity.

As you also know we have over the past years invested significantly in developing our sale setups, sales management and also in our customer interactions. Now we are -- we have those implemented throughout Kone and now driving benefits of this and again giving us a better opportunity of understanding customer requirements offering better services to them and this way driving a better growth.

Again, I think in the maintenance business, we have a very strong development agenda and we can see this moving forward. And then finally our outlook, which is the same that we discuss in connections with the capital markets day in Shanghai recently, slightly specified related to what we said in Q2.

Asia Pacific, we expect the markets to decline slightly in 2015 due to the slight decline in the Chinese market. Other Asia Pacific markets overall we expect continued growth.

Europe and Eastern Africa, expect them -- that market to grow as a whole slightly and Central North Europe to continue to grow, market in South Europe gradually recovers from a low level and similar trend to what we see now at Middle East, continued growth. North America, we expect at the good trend will continue throughout this year.

Maintenance markets have very much the same trends that I talked about earlier, continue to expect to see those, there is some growth in Europe and North America and continued good growth in the Asia Pacific markets. Modernization, if you look at Europe as a whole, rather stable with growth in Central North Europe and a weaker market in South Europe and continued growth in West North America and Asia Pacific, so very much the same outlook that we have seen before.

If you then look at Kone’s business outlook that we have only slightly specified, if you look at our sales here we have kept our outlook unchanged, so we expect our sales to grow between 6% and 8% for the full year in comparable exchange rates. And if you look at our EBIT here we have slightly specified our outlook, we now expect our EBIT for the full year to be in the range of €1,200 million and €1,250 million, again assuming that there won’t be a significant change to translation exchange rates compared to the average of January-September.

And previously we had lower end of the range €1,190 million, so small improvements in the bottom end of the range. So with this outlook, what we can see is that we have good confidence that we will deliver strong results for the full year and continue our strong execution and deliver upon our strategy.

So with those words, we are ready for questions.

Thank you Henrik, we are indeed ready for the Q&N and unless we will have questions from those present here in the room, I think we can go straight and take questions from those listening via the phone lines, so I am handing over to the operator please.

Thanks very much. Hi, Henrik, it's Lars here from Barclays.

I was a little late on the call, so I apologize if you've covered this, but I wonder whether you could give a little bit of granularity on the mix impact on your margins both in the quarter, but also on the orders received, in terms of orders received margins that's been flat since mid-2014. I wonder whether again, if you could give some granularity around that regionally, presumably your overall margins in the US are improving quite nicely and probably Europe is or EMEA is coming off the lows.

Should we think about overall margins in APAC as weighing negatively on that? That would be my first question, thank you.

First of all, overall we’ll be saying is that our -- despite the competition we see, we have been able to keep our margins at a good level. So we continue to have a healthy and good new equipment business.

When we look at the margin of our orders received, we very much look at that still -- what we doing in the various regions, we have to remember that China is clearly about close to 40% of our order receives, so that has a big impact. I would say that where we have seen improvements is in North America that’s the most positive story.

I wouldn’t say that there hasn’t been any significant changes in other markets.

Thank you and then secondly and finally just on pricing in China, can you give us an order of magnitude of how that’s declining year-over-year on an apples-to-apples base, I think in the first half you talked about pricing in China down some 2% to 5%, where are we currently?

So we are looking at similar trends, I would say 3% to 5% approximately year-over-year, so that’s where sales trend, we have seen earlier in the year, is pretty much the same what we continue to see.

And on China, when you look into 2016, you’re obviously not getting a formal outlook as just of yet, but at the CMD you talked about the same trend, which purely means that you are seeing the market down again in China slightly OT [ph] is obviously talking about a double-digit decline in 2016, but with different mix there. Can you give a little bit of an update as to what you see?

I know its early days still, but based on some of the leading indicators you talked about earlier, is there perhaps say an opportunity be a little more optimistic here relative to what you were seeing at the Capital Markets Day.

I think what we said in the Capital Markets Day as I mentioned in the presentation now all as well. The situation we described there is very much intact, so when we look at next year it's -- we will give our formal outlook in January, it's too early for us to give a formal outlook for that, but as I said during the Capital Markets Day we expect a similar to trend to continue and we don’t expect any dramatic changes to the market overall.

Hello, thank you very much for taking my questions. I wanted to ask you about the development of the maintenance business, if we think about Kone in the very long-term, maintenance is clearly the biggest value driver in the business.

And if we look at the local currency growth in the maintenance business. It's accelerated over the last 12 months here it was 5.3% in Q4 last year accelerated to 6.1% in Q1 this year, than 6.4% and know 6.7% could you just help us understand a little bit more what is driving the acceleration and how we should think about the maintenance business going forward here?

Okay. So when we look at what's driving the growth of the maintenance business, but it's -- the most important reason is a growth in number of new conversions, we’re converting from new equipment’s sales to our service business.

As you know we have grown a lot with our installations over the past years and that we can see coming into a service base, so that's perhaps the most important part of that. We have also been able to be more proactive in our service business, have improved our sales competencies which we can see a slightly better development in pricing compared to the prior year.

But still the most important part is the improvement in conversions year-over-year.

And could you just help us what is the commercial for the group now?

So we are -- if you look at -- I think it's worst while looking at China separately because it's such a big market and dynamics are different there, so as you know if look at the rest of the world we are somewhere north of 80% on average, Europe quite at the high level. Than China conversion rates remain pretty much -- has remained pretty stable roughly at 60% for the Kone brand, if you look at Kone overall in China around 58%.

Yes, good afternoon gentlemen Martin Flueckiger from Kepler Cheuvreux. Few question I will take them one by one, first one I suppose the slight downgrade for the China market, new equipment market was probably less surprising for most people, but considering further worsening in real estate investment growth in Q3 and do you expect a larger deal in the new equipment market growth in China in Q4?

That would be my first question.

So first of all the outlook for the Chinese markets is, we have markets declined slightly at the beginning of the year and that's our outlook for the full year as well. So we didn’t expect a significant changed to the trend for the fourth quarter.

So pretty much similar trend to what we’ve seen in the past quarter.

Okay thanks and looking at EMEA sales they were down 0.5% in Q3 in the constant exchange rates and could you elaborate a little bit on the main drivers in terms of markets please and also if you could mention the acquisition impact on the EMEA sales growth in Q3. Thank you very much.

So acquisition driven sales growth throughout Kone, it’s small, it doesn’t have any material impact. Now if you look at Europe, Middle East and Africa, I’ll start with Central and North Europe, first of all we had strong orders received growth.

So that's positive, so we are building a stronger order book and now seasonally we had some of the weaker sales than earlier in the year. I would more say this is a seasonal matter because we are building up our order book overall if you look at Europe, Middle East and Africa.

So this is 0.5 negative in the comparable currencies, that’s pretty much the organic development overall.

Okay, thanks. And then finally, looking at the financial results and the tax provisions they were significantly higher year-on-year in Q3 and could you explain that trend in more detail please?

About the taxes, our effective tax rate was 23.5% and last year it was under 3.3%. So of course the business has been growing.

There we have been specifying especially withholding taxes related to dividends because we are towards the end of the year and also we have seen growth in our North America business. So that is also increasing somewhat our taxes.

Okay. Thanks and the financial result that was also some 20 million higher year on year in Q3?

You're to also address it.

Yes sure. So, our financial income was stronger now in Q3 due to two reasons, we had dividends coming from Toshiba, where we are having minority shareholding and also the other issue was related to the valuation, the Fx valuation of the auction liability on acquisitions and that has been now this quarter slightly positive.

Yes, good afternoon. Got a couple of questions, so, take them one at a time.

Firstly, on the maintenance business, operational gearing and related to that pricing. Can you just walk us through that sort of related to previous questions about growth accelerating and is that yielding operational gearing within the groups that is consumed elsewhere given that the margin progression has slowed down a little bit, if you could talk us though that, that would be great.

If you look at our maintenance business overall, it has continued its profitable growth, I think we've developed most of our business unit in a good way. We have a good profitable growth in our maintenance business, the difference in mix hasn’t actually changed that much if you take out currencies, little bit even more still on new equipment, so that's perhaps the biggest impact on our overall margin.

The good things is that both our new equipment and our service business continued their profitable growth, both first nine months and also in the quarter.

Got it. So, just to confirm, within the overall EBIT, your maintenance operating profit margin has expanded year-on-year in Q3 with the 6.7% growth?

As you know, we don't open up our margins by business and we look at business as a whole, I would say, what you can see and what the most important point is that, we have been able to slightly improve our growth in the maintenance business.

Got it. Thank you.

And couple of questions on broader market. I think, there was a new standard coming up in next year for elevator equipment, and it looks like it's going to be a global standard.

Could you talk us through the impact of that on Kone and on competitive landscape as well as, it looks like something that's some of the smaller players may struggle to keep up with and whether do you think that China will actually implement them fully to the standard?

Yes, there is a new so called EN 81 Code being implemented, that has some implications on safety devices mainly for elevators and I believe that this could have some impact on the market, but I don't think it will be dramatic, as far as we know most competitors are able to deal with those changes. China is implementing most of these.

Again I think, if you look at the structure of the market, I think many of the suppliers -- large suppliers in the market will be able to resolve it for most players. I don't think that there will be a significant impact from that change.

Got it. Thank you.

And last question on specific end market on Iran, actually it looks like it's going to be opening up soon. Could you tell us, what your position is currently in this market and if it becomes more widely open to international suppliers yourself, what will be your plan for that?

So, of course I think lot of companies are watching the situation very closely. We don't have our own subsidiary in Iran, but if the market opens up, I think we're ready to move, following that market and we know who the partners are and we think we can move quite fast if the market now opens up on a more broad basis.

My first question would be on a maintenance pricing, could you just maybe help us to understand a bit better that in those markets where we are, are starting to see some growth like in the U.S., in the equipment side and maybe some countries in Europe. Are you starting to see any sort of improvement in maintenance pricing?

And how do you see that working if you see kind of more sustained equipment growth in those markets?

So first you have to remember that even though we have seen a good development, now in orders to see in the United States and now we can see more deliveries at the service business comes with quite the delay with that, because they are still being delivered to the market and then when you start them, they come off their so called first service period. So therefore pricing continues to be challenging in these markets and same way it has been before, so we haven't seen significant changes overall.

Would it be fair to say that if the U.S. market is seeing deliveries now, than maybe 12-month onwards, we should see an improvement?

Well, let see how the market develops, we are of course continuously developing our competitiveness and differentiation so that we can have a good development that is what we can impact. I can’t make a prediction of what's going to happen in the market overall.

Okay and then second question on the [indiscernible] revaluation which I think Eriikka mentioned that was a positive item in the third quarter so I think that’s been a headwind over the last year or so. Would you be able to give us any sort of a guidance?

How do you expect that revaluation to impact the financial expenses line maybe this year and for the next couple of years?

Guiding that kind of items is not necessary the right thing to do here, but just as a remainder, so on quarterly basis we have the Fx valuation and then at the end of the year we do the whole valuation for the -- this acquisition related option liability.

We don’t predict currency exchange rates, so that depends very much on those.

Okay and then final question on the balance sheet, the customer remains very impressive. At what point do you start feeling that the balance sheet becomes too heavy in terms of the cash position?

We have a strong balance sheet and we are comfortable we think that the world has many uncertainties, we have growth ambitions and therefore we think it make sense to have a strong balance sheet to be able to capture opportunities should they present themselves in the market. That’s how we think about it.

Good afternoon, Henrik and Eriikka, its Phil Wilson from Redburn. I have got three questions, I’ll say one a time.

Firstly, can you quantify the maintenance sales growth in comprisable Fx that you saw for EMEA and Americas in 3Q, you said 25% for China. What was it for EMEA, Americas and how has that changed during in year?

Thank you.

So we don’t break out those sales, but as we said we have grown in all geographic areas so the growth is experienced lower, the growth rate in Europe, Middle East Africa and North America and overall, so we talk about a slight growth overall in those markets.

Thank you, all I was trying to understand was that given the EMEA returned negative minus 2.5%. Has that been driven by maintenance slowing sharply or is it just because of the timing of major projects and new motorization business?

It’s the later, so pretty steady, the development in the maintenance business.

Okay, thank you and just turning to the U.S in terms of new equipment, I assume you're seeing double-digit growth and clearly talking about 20% growth when you look at 2016 and you think about the drivers of these good growth, I assume it's things like the shift from single to a multi-family homes did you think the U.S can sustain the double-digit growth next year. Just having a sense as to what your thoughts are next year in the U.S.

So first of all it's same as the China, we’re not making prediction of what we expect for the Chinese markets for next year. If you look at more longer term I think that there are continuously good opportunities as you mentioned in the shifting patterns of how younger generations live and increase in single households where only one person leaves.

All of this is driving a need for more smaller apartments and more multi permit housing over the long term how it's going develop next year I think that we need to come back to in our prediction in January.

But we should still think about the U.S. being a growth market next year?

What we expect for this year is a continued good growth market with good trends and again let's look at next year in beginning of January.

Thank you and then the final technical question, you talked about the new technology and innovation you’re starting from next year. Can you just get all the instrumental cost that we should expect from this, just in case material?

We haven’t given a specific guidance as you know we have continues increased our investments in this area, so we're not looking at a step change from this and once we have all those plans and strategy clear we may get some more insight into that.

Hi, good afternoon. It's Guillermo Peigneux from UBS.

I wanted to ask about credit days and an evolution of prepayment terms in China. How are they progressing as we speak?

I have follow-ups, but I'll wait for your answer first.

Okay, so first of all as you saw and I think the most important sign of that is continues strong cash flow, which means we’ve been able to maintain healthy payment terms under healthy business practices. It’s clear that the credit in many parts of the Chinese market is tight and that’s putting some pressure on payment terms and maybe there has been some small adjustment, but no significant changes for us and you can see through our cash flow that we have been able to have good terms.

But there is -- given the tightness of credits it always gives some pressure on it and one has to deal with it, but I think we've been able to deal with it pretty well.

Thank you. And second, some of your peers in the industry both local competitors and the international players are in a way suggesting that they may temporarily break the discipline in the market when it comes to returns regarding China obviously, when it comes to returns and operating margins and I’m willing to understand whether you are ready to walk away when they become irrational on that behavior or would you compete with them on that -- on the same basis?

First of all we haven't seen, yes we have seen a price competition for market share but we haven't seen on a broad base any irrational behavior, what we are focused on all the time is to provide value to our customers to differentiate, believe if we have -- if we continue to have very strong product competiveness with good and quality products, we deliver upon our promises which is in one of the hallmarks of Kone. We believe that we can maintain a good development in market, that’s what we focus on and that’s how we want to differentiate overall.

Thank you and my last question actually, what's in tier 1 cities that you mentioned is at the moment looking a little bit more solid when it comes to fundamental, or more solid when it comes to fundamentals, for you what's the best brand, is it GiantKONE or is the Regular Kone brand?

If you look at the higher tier cities, that’s also where we have more of the larger developers larger customers that’s where Kone would have a stronger presence in this markets.

Okay, there is no aim to try to address that market with maybe a lower price ranged products at all right?

Well I would say that, of course GiantKONE is also present in there, but we have to remember that we have a dual brand strategy and that is with a purpose, we want to have a dual brand strategy and we want these two brands to be differentiated. That gives us a broader market coverage and I think that is how we will continue with.

Yes thanks for taking my further questions. Coming back to the Chinese property market I have been look at the latest statistics from the national bureau of statistics and I’ve seen some contradicting signals that leads to [indiscernible] I was wondering what your view was on this, if you think it look at real estate investment growth, that decline has been accelerating slightly in September, but on the other hand based on my calculations, new construction area was up in the mid-teens and I thought that was pretty surprising after quite a number of months now where we’ve seen some pretty hefty declines.

My first question here would be how would you interpret this, is just a one month flip burn or how do you see this?

I think with all of this statistic you may have some differentiates in national holidays, something like that, so just looking at the one months, month-to-months figure is not always the best pictures, it always makes sense to look at them over a little bit longer period of time and that tends to give a better picture. But as I said we have two different messages coming, one is the total sales area that has been sold number of transactions sales area on pricing, that is developing -- has been developing for about seven months in a positive direction and a pretty good positive direction and then we have as you mentioned real estate investment, look at Q3 to slightly negative and it continues negative start.

So there is of course a timing different between these two, I think it's important and positive that sales area is improving. We are just fundamentally -- naturally has an impact on overall inventory and then on the willingness for developers to start new projects.

Okay thanks, and then coming to my final question on M&A, I seem to remember that Kone had previously argued that M&A has continued to be one of the main thrust going forward and even though in the last few months it's been rather quiet, if I remember correctly I was wondering what your aspirations here are and whether there has been any strategic shift or changes, how do you see M&A going forward for Kone?

We continue to be interested in acquisitions and we have been continuing to do number of acquisitions this year, mainly for smaller independent company on the service side and also some of our former distributors, but as we continue we want to have high activity there, it's a question of the supply of this opportunities in the market.

Okay and then if I remember correctly you use to say that you were also interested in bigger players, if they were willing to discuss the issue, is that still the case?

If they were some bigger opportunities in the market available, yes we would be interested, but you need to have a willing seller to be able to buy something.

Yes hello again it's Andre from CS, so thanks for taking further questions. I’ve got a couple of them invariably on China, first thing could you tell us how your own brand versus Giant performed in Q3 and the year-to-date?

So as I mentioned here earlier, Kone is more prevalent in the higher tier cities, GiantKONE perhaps more in the lower tier cities. So based on this we of course look at china as a whole market, but here we see it now the markets where Kone operates and the customer base they have, they are in a better situation, therefore the performance of the Kone brand has now been stronger than sort of GiantKONE brand.

But if you go a couple of years back the situation was reversed and therefore we want to continuously have these two brands so we can address different market situations and this is precisely the reason why we have a dual brand strategy.

Yes, absolutely. And just on -- acquiring the service portfolios in China, our understanding is that, sort of distributors or sort of inner layer between you and the customer, they sort of buildup service portfolio of up to a couple of 100 units or 500 units and then they are willing to sell.

Are you seeing any change in that behavior at the moment or do you seeing maybe some more of these portfolios coming to the market or those players willing to sell out given the incidence that took place and given the increased scrutiny on them -- on the maintenance of the equipment?

So we have not actively started to buy maintenance portfolios in China. Our organic growth remains very strong and that's what we’re focusing on and that's what the strategy makes sense to focus at the moment.

So we have been buying maintenance portfolios mainly in Europe, Africa and some bolt-on [ph] countries in North America that's where we’re mainly active. China we have not yet become active in buying these maintenance portfolios and there hasn’t been that many of those transactions, there are some that move hands, but not the lot of activity there yet.

And again I think when you have an organic growth like we have, the main focus needs to be on growing the organization, building up the capabilities so you can continue to do that with the very good quality that we do at the moment.

Right, very clear and that’s -- and not pursuing those maintenance portfolios in China is because of I guess the share capacity constraint of how many technicians you have to train to satisfy your own demand or is there some other reasons, because I presume there are some of them that contain a lot of Kone elevators?

As I’ve said we haven’t seen lot of activity there yet and these may change, but currently we remain focused on our -- on the organic growth in that market.

Hi there, it's Matthew Spurr at RBC. Your growth built up over the underlying of equipment market in China and referring to the Slide 15, your graphic there, perhaps a few percentage points this quarter and previous quarters, it looks like it's five or more.

Do you have any additional insight why you think that slight change was the case, perhaps in terms of segments or large profit projects and I understand of course the limitation of looking at one quarter in isolation there, anything else you could add there would be helpful.

Well first of all I think you said it exactly, its one quarter. We have to remember that we are the market leader in China, we have by far the largest volume.

If you look at the absolute growth we believe that we have had the strongest growth of anyone in China, if you look at absolute numbers. When you have our scale and size you need to [Indiscernible], absolute volume grows so much faster than the others to keep up the percentage rates.

So we believe that we have had a continued good performance and one shouldn’t stare as one individual quarter. There are always going to be difference quarter-to-quarter, very much dependent on what pervious and how stronger previous year was and so forth.

So it's based to look at it over a little bit longer period of time. And I believe that we have continued to outperform the market in a good way in China.

And just in your statement you mentioned that some of the larger major projects was slow, was that talking globally or was that specific to China as well?

That's globally, if you look at both quarter two and quarter three last year, we had a high proportion of very large projects and so we have had continues good activity of where we have had even better performance this year, there has been enough standard volume business that is in the end I assume the majority of the business.

Thanks for taking another question. You mentioned in the report you had good margins on new orders won in terms of new orders, I was just curious to know does that vary by region?

So that margins are going up in some regions and down in some and they are stable overall or are they stable in most of the regions?

Yes, off course we always have variation in business, no business has a liner trends in all markets at the same time. As you know if you look at our margin overall the best margins we have in our new equipment business is in China and here we have been able to maintain good margins overall where they've had a slight improvement has been in overall already in a couple of years’ time has been in North America.

Thanks for letting me come back. Just two final questions.

Just looking at your maintenance base growth. Can you say a new opening in the U.S., what level of performance [ph] you see from your maintenance base on an annual basis?

So what we see in developed markets is a very rough number, but perhaps one percentage point of the maintenance base gets retired every year, so that's a number of buildings that gets taken out of use, either temporarily or permanently.

And how's that change, I imagine it hasn’t changed much.

That hasn't changed much. No, it stayed at pretty fair constant.

Okay. Great and then just actually changing gears, just going back to China and you talked about the higher grossing Kone, GiantKONE and I know when you acquire GiantKONE you disclosed the 10% EBIT margin in that business and I imagine that can’t be little bit, but given your commentary on overall Chinese profitability you’ve made in the past, I imagine that Kone is doing a higher margin than GiantKONE still.

Is that the case and if so going forward as your orders fit into revenue, should we also expect a tentative margin benefit from that mix shift?

First of all, we haven't disclosed our margins for China, for the business. We have a good business in China both for Kone and for GiantKONE.

Kone’s benefits compared to most of our competitors and we have very good volumes there. And yeah, we have a good business in China.

Alright, are they same or is Kone higher or lower than GiantKONE, just a rough sense?

Again, I said that Kone has a benefits compared to, I think everyone else given the volumes and the scale that we have.

Thanks, sorry I’m going to sneak in another two in, if I can. Just on the affordable housing segment in China, the preliminary numbers we hear is that ahead of the '13’s five year plan that this program would be down from 20%-25%, in unit terms from the current program, is that your view too and if so how are you positioning your business and inevitability your go to market strategy for that?

We don't have any specific information on that. So, I think we have to wait and see what the government plan are in that respect.

And finally, can you give us a sense for how much of your China sale is tier 3 to tier 5 cities in rough numbers?

The majority of our sales, well over half is in tier 1 and tier 2 cities, but of course we have important business there in the lower tier cities as well.

Okay. Thank you very much.

I believe we are ready then to conclude this call. So we would like to thank you everybody very much for your active participation and wish you a very good rest of the day.

Thank you.

Thank you.