xsl-for-each-group in xslt 2.0

Hi

I am having difficulties implementing xsl-for-each-group in xslt 2.0

My XML is as follows:

<list1>
<listitem>A</listitem>
<listitem>B</listitem>
<list2>
<listitem>C</listitem>
<listitem>D</listitem>
</list2>
</list1>

Every <listX><listitem> combination corresponds to one step.

So I want this to transform into:

<step1>A B</step1>
<step2>C D</step2>

I tried

<xsl template match="list1">

<xsl:-for-each-group select="." group-by="listitem">
<step1><xsl:apply-templates/></step1>

</xsl:for-each-group>
<xsl:template>

Can someone please help me understand where i am going wrong here?

Thanks