Good afternoon, and welcome to KONE's Q4 2020 Results Presentation. I'm Sandra Kaye, the Head of KONE's Investor Relations. As always, I have here with me our President and CEO, Henrik Enrut and CFO, Ilkka Hara. Henrik will first present to you the Q4 2020 highlights. Ilkka will then walk you through the numbers.
And in the end, Henrik will talk about the outlook for 2021. As we also announced today that we entered a new exciting phase in KONE strategy, Henrik will also Talk a little bit about that at the end. And then we have time for your questions. Henrik, please.
Thanks, Sanna, and welcome everyone. Thank you for joining us online today. We have some good news to share with you today. Today's presentation will be a bit longer than usual because as Sanna mentioned, we will not only talk about Q4 last year's achievements, I will also look more forward into the coming years and what our strategic focus areas will be. But let's get started immediately just with some of the highlights for Q4.
With highlights to me where we grew our orders received and also our earnings continue to grow in what I would call a tough environment. China continued to be good for us. We performed very strongly there. We had some good performances in many other places as well, but it was mixed elsewhere. We have today announced that we enter a new phase in our strategy.
As we have done every 3rd or 4th year consistently, Namor, our new strategy is sustainable success with customers. And I'll talk about that at the end a bit more. Because of our very strong financial position, because of our good performance last year, our Board has today proposed That would pay a dividend of €1.75 plus an extraordinary dividend of €50 for every Class B share. So in total €2.25 But let's start with the key figures for last year. We had a good growth in our orders received, just shy of 2,100,000,000 and growth of 7.9% in comparable currencies.
In this environment, I think this is an excellent outcome. Our order book is solid at 7,700,000,000 In comparable currencies, it is actually up 0.7% year over year. So that again gives us a great situation going into the new year. But after a year like this that our order book has actually grown slightly, I think is a great achievement. Sales of $2,600,000,000 or 0.8 percent growth, so slightly less growth now than the prior quarter, but still growing.
And our Operating income improved from NOK 356,000,000 to NOK 367,000,000 and adjusted EBIT from NOK 368,000,000 to SEK381,000,000 and here we will highlight was the improvement in our adjusted EBIT margin from 13.7% to 14.5%. This I'm very happy about shows we had a strong performance in Q4. Cash flow continued to be solid. It wasn't as exceptional as in Q2 and Q3, but at a solid level and €0.55 per share EPS for the quarter. 1 quarter is a very short period of time.
Now we have a full year behind us gives longer perspective. I would like to say what a year it's been. A year ago when we looked into the year, we expected that we will have a very strong year actually with improvement across the board, but that was just when the pandemic was starting to hit. But despite the pandemic, we have performed strongly. Orders received just shy of 8,200,000,000 and decline of 0.6%.
If you remember, we had a good first quarter, then bigger decline in Q2 and then Recovery with a strong finish to the year in Q4. Sales, NOK 9,900,000,000 growth of 1.4 percent, Also a good achievement in this environment and our operating income grew by 1.7%. Adjusted EBIT from 1,237,000,000 to $1,250,000,000 and a slight improvement in our margin. Here also Q1, we were down about 1 percentage point year over year. Q2 and Q3, we started to recover and a strong finish to the year.
And then our cash flow, exceptionally strong. This really tells a lot about how operations have been running and the fact that we've been able to deliver on our customer promises. If you don't do that, you're not going to have cash flow like this. So this is something that very proud of as well. And EPS of EUR 1.81 compared to EUR 1.80 before.
At this stage, as usual, I'd like to extend my thanks to KONE's employees, I must say I could not be prouder of the team that I am right now or what they've done in a year like this. There's been everything from incredible care for each other to help each other out in tough situations and showing that your colleague is doing well. Incredible teamwork, Recovery from adverse situations and a very strong persistence delivering on customer promises. This is what this result is based on. So a heartfelt thanks To our teams, they've done a just tremendous job.
So some business highlights for 2020. Last year, we sold in total 180,000 elevators and escalators, up 4% year over year. It's a new record there as well. Maintenance base continued to grow at 4.5% and was now Over 1,400,000 units, so also good growth there. So overall, we can say that our business was very resilient despite restrictions.
And some of the highlights were that our connected services and solutions that deliver Additional value for our customers that we clearly improved there again, built some strong momentum. We rolled out our DX class elevators throughout Europe, Asia Pacific and Middle East, a very fast rollout. And I must say this has been very important for us in the past year. We have seen the customers taking this very well and that has enabled us to perform strongly also in a tough environment. Reliability, safety, transparency for our customers through 20 fourseven connected services really picked up speed, particularly in the second half of the year.
Now we have over 100,000 units commercially connected under 20 fourseven connected services. In total, as you know, we have about 500,000 connected units, but the ones that we have sold to our customers and are now revenue generating is around 100,000 units. And we have a very strong pipeline of what we have sold through our new equipment business that comes when the equipment gets installed or that we have sold through services that we are about to install now. So this growth has really picked up very nicely and creating some real good revenues for us today. And end of last year, we launched our KONE Office Plus solution for smart and adaptive offices.
And the smart and adaptability will be really a key word going forward. We can talk about it more, but I believe that offices Have a very big role in the future, and we can see the longer this pandemic goes, the more we see the need for offices. And here adaptability and intelligence will really be key words. We also significantly raised our ambition in sustainability last year. In the second half, we made our science based we committed to science based targets To be carbon neutral by 2,030 and significantly reduce the lifetime carbon footprint of our products and services.
And we were again on the CDP A list, a small number of companies that gets this top mark on CDP. So overall, many highlights Of last year and sustainability, I'll talk about more when we come to our strategy. I mentioned dividend €0.75 and extra dividend of €0.50 Continues our good payout and continues the growth of the dividend. And then because of our Very strong balance sheet. We are paying this extra €50 or that is the proposal from our Board of Directors to annual general meeting in the beginning of March.
We also had some changes in our Executive Board. It started by 2 of our Executive Board members retiring, Claus Kaven after 37 years at KONE and 29 years as a member of the Executive Board And Pierre Liotour, after 10 years of leading South Europe, Middle East and Africa, are both retiring. Claus will continue as an Executive Advisor to KONE, but both have been privileged to work with these phenomenal leaders And I thank them for their massive contributions to KONE. Thomas Hynerskuhv, who has currently led our Central and North European region will take over South Europe, Middle East and Africa. So move a little bit south here in Europe.
Axel Berkeling, who has been leading our Asia Pacific, excluding China region It's taking over Central and North Europe. Then 2 new appointments, Johannes Frende He has been appointed EVP General Counsel, succeeding Claus and Samir Halabi He has been appointed EVP for Asia Pacific, excluding China, and he's succeeding Aksel. Very happy to have both Johannes and Samir joining the team. 2 accomplished leaders will strengthen our team. So these are some positive rotations that we announced recently.
So those are about KONE's developments. Let's then next go to how the overall markets are developing. As you remember in Q3, we also showed the same graph where we look at the number of elevated starts in a few countries Just to show the activity we are seeing. Why is this important? Well, clearly, this activity has an impact on repairs and maintenance and part The modernization, so the more discretionary aspect.
And we also want to understand, of course, how the situation looks from our customers' perspective. So after a sharp drop Last spring, in usage of elevators, we saw a clear recovery throughout the summer And early fall, and we can see Germany got close to normalized levels. And now we again see stronger lockdowns, but it's clear we're not at the same levels as we were Last spring and we can see therefore situation from that perspective is better although we know that the COVID situation is critical in many parts of the world. Then about our markets. New equipment markets continue to have mixed North American market, which we all know is very much driven by commercial construction for our business, it continued to decline significantly.
Europe, Middle East and Africa, we saw somewhat better performance than in Q3, for example, only slight decline. Central and North Europe from previous quarters, South Europe also continued to decline significantly, although we start to see some green shoots in some places, Same thing in North America and Middle East also declined clearly. Asia Pacific again highlight China continued to grow not quite Strong growth as Q3, but still mid single digits growth and for the full year high single digit growth in China in the market and Restoration Pacific continued to decline significantly. So very mixed market. Services maintenance growing slightly or at a good rate in Asia, particularly China is the strongest, but slight growth everywhere.
So again, showing seeing the resilience of this market. The North American market had been dropping a lot in modernization Significant major projects. Otherwise, the normal modernization business continued to decline there. Europe, Middle East and Africa modernization market performed now better. Some recovery, so only a slight decline in Q4 and stable market in modernization in Asia Pacific, Good growth in China, actually very strong growth in China and then the big Australian market was more challenged.
So what about China? So as I mentioned, units ordered, the new equipment market continue to grow slightly year over year. And Market as I think is familiar to all of you continues to be very competitive. It's clear that everyone who's looking for growth have been looking for it in China. What is driving the market?
It's really residential as well as infrastructure, but residential is clearly the biggest market. And then the major hubs, the 3 major hubs and the slightly 3 small hubs, that's where much of the activity is happening. Well, we continue to have a lot of restrictions in the residential market, both for developers as well as for consumers through mortgages and other purchase restrictions and price restrictions. So they're really trying to keep a lid on the residential market. Real Estate Investments, which is a good indicator for growth, continues to grow much because of land purchase.
And we can see the residential market is active and prices are going up slightly. But I would say restrictions are still quite tight. The trend we've seen of consolidation amongst our customers has continued. And that has been something we've been able to benefit from. So overall, a solid and robust Chinese market and continued strong restrictions from government on residential.
So that is about a little bit our performance or highlights for the year and the market. And next, as usual, I hand over to Ilkka to talk more about our financial development in Q4.
Thank you, Henrik, and also warm welcome on my behalf to this Q4 results announcement webcast. I'll go through financials in more detail and I'll start with an overview as I did last time. And I think the highlight from this page is that we continue to see very strong performance in China. Henrik Henrik was talking about the market, but it's also visible in our performance. So both orders as well as sales continued to strong growth over 10% growth in the 4th quarter.
At the same time, both the restrictions As well as the uncertainties in the market has impacted the other markets and especially in rest of Asia Pacific and in America That's been visible. But all in all, I think it is good to note that we saw growth in our orders received in all businesses in the Q4. Let's look at the numbers in more detail And start with orders received. So orders received for the Q4 was €2,669,000,000 representing on a reported basis 4% growth and on a comparable basis, strong growth of 7.9%. In EMEA, As you saw on the last page, we saw slight growth in orders received.
We saw significant growth in Americas In our orders received, driven by major projects as Henrik was highlighting, which were driving the performance there in the Q4. And then also clear growth in Asia Pacific driven by strong performance in China, where our orders received grew significantly, both measured in units as well as in value. This quarter pricing in China like for like basis was stable And the mix had a slight negative impact to our orders. And then lastly, For the Q4, the margin of our orders received was stable. So we've been able to see disciplined pricing as well as good productivity actions that have been able to then neutralize the impact of increasing raw material prices that we've Into sales.
Our sales for the 4th quarter were over SEK 2,600,000,000. On a reported basis, a decline of 2.4%. As you see, the currencies have a negative impact, but on a comparable basis, 0.8% growth. Asia Pacific was had a strong growth of 10%, driven by our performance in China and our sales grew in China, approximately 10% in the quarter. So the recovery and strong activity levels that we've seen since Q2 continued to be continued to be a case in China also in the Q4.
At the same time, in other markets, we continue to see decline And EMEA declined by 2.7% and Americas 8.7% in sales. From a business perspective, new equipment grew 1.6%. We saw resilient sales in maintenance at 2.3% and monetization declined 4.7%. Into adjusted EBIT. For the Q4, SEK381,000,000 growth from previous year, 1.1%.
And most importantly to me, adjusted EBIT margin reached 14.5%, up from previous years, SEK 13.7 billion. So clearly, we've seen now that our profitability has been improving and that trend continues also in the Q4. The key drivers for this development Growth had a slight positive impact, but clearly the improved pricing, which has been visible in our orders received earlier as well as overall cost efficiency, both productivity as well as Efficiency driven by quality improvements and overall productivity has developed positively. For the last quarter, now we're at the end of our accelerated program. The cost for the program were NOK 13,500,000 and the savings approximately NOK 15,000,000 in 4th quarter.
Then finally, the cash flow. For the Q4, we had a solid cash flow of NOK368,000,000 slightly down from previous year. But for the full year, we are at €1,900,000,000 that's exceptionally strong cash flow. And I'm happy to see that Net working capital broadly contributed to this positive development. So several Net working capital items having a positive development there.
But with that, I'll stop the financial part And hand over to Henrik to go through our market and business outlook as well as few words about our new strategic phase. Henrik?
Thank you, Ilkka. So let's first wrap up 2020 and look into 2021 with our outlook. Markets, we expect that China market In new equipment is going to be stable or grow in the coming year. We continue to see at least beginning of the year now a good momentum there. So that's positive.
Rest of the world in new equipment, we expect the market to be down in Q1. You probably remember that Q1 in 2020 was actually a very good quarter in most parts of the world. So we have high comparison points, so we are still down on that. But after that, we expect the market to start recovering. Maintenance markets are expected to be resilient as they have been.
Of course, lockdown measures impact repairs and other discretionary activity. So how that develops will depend much on how the economy and lockdowns and pandemic develops. Modernization fundamental growth Drivers are very much intact, but the uncertainty means that decision making has been delayed in many cases. So that's a market. And then KONE's business outlook, we expect our sales to grow between 0% 6% in comparable currencies And we expect our adjusted EBIT margin to be in the range of 12.4 percent to 13.4 percent.
So our message with this is that we expect A continued good development at KONE, although we know that there are risks in the market and uncertainty. We have many good things that are driving our performance. Our order book is very solid, actually slightly up year over year despite the year And our maintenance base has grown and is in a good shape. The improvement we have had in our margins of our orders received in the past couple of years, We can see that that is impacting our performance and we expect that to continue to drive positive improvement and then the continued improvements in quality and productivity, which we see good development in again, we expect to continue. But then there are the uncertainty factors, COVID-nineteen.
Don't need to talk about it anymore. Then I think you've also seen a lot about very sharp increases in raw material costs and logistics costs recently. And we continue in a positive sense to invest in our capability to sell and deliver digital services solutions Despite the environment, we are definitely committed to this and putting in the investments here. Exchange rates, if they stay at the current level, they're going to impact about €20,000,000 negative on our result. So overall, We expect to continue a good development in the coming year.
But of course, we know that there is uncertainty in the markets. So then more forward looking. We are entering a new phase in our strategy, but let's first Close the previous strategy phase. We've been now for 4 years working on our winning with customer strategy and there were many good achievements. One important aspect of the strategy was to really build and foster an outside in mindset.
And we've seen that we developed A lot in customer centricity, really understanding better how we can help our customers succeed in their businesses that way add value to them and grow with our customers, Build new capabilities of co creation in creating solutions that really fits our customers' individual needs. Here we've seen a big step in 4 years. On our offering side, we have had many Important launches and introductions to market. 20 fourseven connected services, we will change the market with that. That's core part of our maintenance.
Our DX Class elevators are office flow, many important strengthening of our competitiveness. And then our Accelerate program has made us Made our organization smarter and more efficient really help us succeed in the faster moving environment. So Those are some positive changes. But as you know, we measure our success through our 5 strategic targets. And if I now look back over the past 4 years, most loyal customers, we've seen a constant improvement in our Net Promoter Score, great place to work.
We finished the period with a very positive development in employee engagement. Before that, we were already in a high performance category and now we went much above the so called high performance category. Faster than market growth, we have clearly taken market share in new equipment during the period and We continue to be the fastest growing of the major players in the services business. So we have grown faster in the market. Our best financial development, we cannot be fully satisfied.
As remember, beginning of the strategy phase, the 1st couple of years, our margins We're burdened and did come down because of the very tough situation in China at that point. But even in a COVID-nineteen environment, we have now started recovery path and we go in the right direction. Leader sustainability, we continue to be the leader in eco efficiency. We have constantly reduced our carbon footprint relative to our sales. We have clearly improved in safety and we are making some improvements in diversity and inclusion, although we still have a long way to go here.
But overall, we can say that broad based development, but of course, we can always improve And we can always renew ourselves and that's really the key. And that's what our next strategy phase is all about. Next strategy phase is very much building on our winning with customer strategy, but taking it to the next level And we call it sustainable success with customers. It tells a lot what we are driving towards in this strategy phase. And as I think you've become used to through our previous strategy phases, we have one big picture through which we can talk about our strategy overall.
The most important thing is that we continue to be in a good industry With megatrends that continue to drive growth, urbanization is continuing. Over the next roughly 10 years, almost a 1000000000 additional people are moving into cities, Continuing to drive opportunities throughout the world. Sustainability is really becoming a business imperative. That is something that we can see very important for our customers, for societies. And we simply believe that the winning companies will be the ones that embed sustainability in all Of their business.
Here we are raising our ambitions a lot and we think this will be a significant growth driver. And then always change is important. That creates new opportunities. And we see that many new technologies are creating a lot of opportunities for us to solve many of the problems that we can see in societies and that our customers are facing. Our mission is very clear.
We say it's to improve the flow of urban life. And our vision, Very clear, we create the best People Flow experience. A slight word change here, but the point with our vision is it's very end user focused. When we can help and create the best experience for our users, then our customers benefit. We help them succeed in their business and we become good partners for them.
Top right, we have strategic targets, which are unchanged, just slight change in emphasis That we have placed Great Place to Work to be the 1st target because that is always the starting point. Engaged, motivated, skilled people Ready to succeed in a changing world is absolutely the most important driver for success. And the leader in sustainability, we've simply raised our ambition level a lot. Then really the beef of the strategy. You can see in the middle are where to win and to write our ways to win.
That's really how we execute our strategy. And I'll talk about those a little bit more. And then everything is based on our culture, On our core principles, safety, quality and sustainability, where we never compromise. Those are absolutes for us. And there are values of care, Customer collaboration and courage.
But then I probably should talk about the beef, the where to wins and the ways to win. I will not go in detail into this, but I think this is important for our framework. Aware to Win, that's where we expect to find The biggest growth opportunities and the best ways to differentiate and that way drive profitable growth. And the good thing is that there are many good growth opportunities in our industry. Our core products and services, it's about further strengthening our competitiveness here Through our connected products and services, sustainable products and services to deliver Solutions and services that meets our customers' individual needs.
When we do that well and even better than today, We can constantly build new solutions for customer value and really bring new services to our customers that helps them succeed in their businesses, such as KONE Office Flow recently that build on our 20 fourseven connected services and DX Class elevators And those 2 are core for us today. Sustainable City Development is a huge growth area. There's a big need for cities to drive this. We simply want to be the best partner in this area And that way strengthen our market positions in several key cities. Here we see great growth opportunities.
But the biggest growth opportunity of them all It's the service business in China. We know that this is a fast growing fragmented market. We're starting from positional strength Given where we are in new equipment and given where we are already in services, so a clear ambition here is to be a clear market leader in China Services and drive significant growth from there. Our ways to win, those are KONE wide transformations that helps us to Sure. The growth opportunities and succeed in a very dynamic environment.
It starts with empowered people where we provide continuous learning opportunities for people to help everyone at KONE succeed In a changing world, a lot of focus on skills. We also want to simply have the most Engaged and empowered people with a lot of focus on diversity and on inclusion. Marketing and sales renewal. It's about creating a unified strong experience for our customers Across channels to simply serve our customers even better the way they want to be served and really raise our game in digital marketing and digital lead generation. We simply want this to be a clear competitive advantage for KONE.
Lean KONE It's about continual improvement, even strengthening our capabilities here. By reducing waste, we can make the work For every KONE employee, even more meaningful and that way they can deliver even more value to our customers through lean practices, mindset and leadership. And then digital plus physical enterprise, as we call it. It's about enabling our strategic transformation by leveraging Much more data and analytics in our business and having a platform through which we can scale new service and solutions even faster and make sure that we have an infrastructure that is ready for the future. So many exciting things where we expect to find growth And how we will do it.
But again, we are in a good industry. There are A lot of good growth opportunities despite the overall economic situation in the world. So with that, if I summarize, Q4 was a great finish to the year, a very tough year, but the year Which we showed again that we can perform also in difficult circumstances and where really Every KONE employee really rose to the occasion. And I must say, I'm so proud and thankful for what they all have done. And we are entering our next phase in our strategy from positional strength and also optimism given where we are.
So with that, I close the presentation now and Happy to open up now for your questions.
We can take our first question From Klas Bergland from Citi. Please go ahead.
Yes. Henrik, Ilkka Sandler with Transat Citi. So The first one is on the project side of the business. So if I look at orders, you had slight decline in the volume segment, but more than offset by strong project orders. Can we talk, Henrik, about these a bit?
Was this strength at year end, completions, catch up post a slow activity at the start of COVID? Or was this actually an underlying improvement? It's just interesting as the commercial side of the business was very weak in the 3rd And I totally get that Americas was still weak there, but I wondered whether the commercial side in EMEA saw an underlying improvement or if it was just catch up. Thank you.
Well, I
would say, 1st of all, as you know, that larger projects that they can fluctuate a lot quarter to quarter. If you look at the previous quarters, we have had clearly better development in the volume business and then there's been Weaker major projects. Now it was a little bit the other way around. I would say that particularly if I look at Europe, Middle East, Africa and even some cases in North America That people are starting to get their confidence back that they had had things on the table, but now decided to move forward. So there was Some further optimism.
But I think usually, as you know, Klas, that these can fluctuate quite a lot quarter to quarter particularly larger projects and now we just happen to have a bit more.
Okay. My second one is on the 0% to 6% guidance. If I look at your backlog growth of 0.7% organic end of the year versus Your growth guide. It suggests a lot of orders in for out. And I totally get that maintenance outside of the backlog is facing an easy comp through the year and you have Pricing on Connected, but the upper end still looks a bit punchy.
So have the lead times, Henrik, changed at all across the regions? They're still pretty short in EMEA and China, they're longer in Americas. But isn't the backlog pretty weak on equipment in EMEA going into 2021?
I'll comment the rotation. But actually, if I look at the backlog in EMEA, it's actually in good shape as well. So clearly, beginning when the crisis hit, there was a slowdown in deliveries. So actually backlog is in good shape in EMEA as well. On the rotation
side, I think we discussed a bit about this in the Q3 as well. But In China, the rotations are clearly the fastest and we are below 9 months on the rotation. As we've spoken, some of the customers actually really appreciate us being able to deliver materially faster even in 7 days Orders when needed. And then for the rest of the world, so next rotation in EMEA And then the longest rotation in North America. But as said so, we have an order book, which is in a good position for this year.
Particularly new equipment. Perhaps you can we start to see already some impact in modernization, but new equipment backlog and service business very resilient, and that gives us confidence going into this year.
And then to add, so obviously, with this information, we do need to have orders as well in the first Quarter and maybe some in 2nd quarter as well that will be delivered also this year.
Yes. No, for sure. It's just the biggest gap between year end backlog growth and the high end that I've seen in a long time. I was just curious about that in for out. But okay, China is obviously a big backlog.
We had a lot of strong growth there. My third and final question is on raw material. There is no guide explicitly, Ilkka, but I have a EUR 50,000,000 headwind starting second half with upside risk. Can you comment a bit on internal sensitivity and how this will be spread through the year given the head shift?
Well, this is one where there's still quite a bit of uncertainty both in exactly in which time we deliver, which orders and where. And as you've seen, also raw material prices have been very volatile lately, but plus or minus €50,000,000 is a good Proxy of the headwind at this stage for which we're facing in 2021, And that's including raw materials as well as then the increased logistics costs that we talked about in Henrik's comments about the headwinds for 2021. But naturally, it's something that still fluctuates, so we'll get more visibility as we start the year now.
Okay. Thank you.
Thank you.
And our next question comes from Lars Borsen from Barclays. Please go ahead.
Henrik, Ilke. Lars from Barclays here. Three questions, if I can. If I can just follow-up, Henrik, on the prior question with regards to large Projects. And excuse me for pushing back a bit on your answer.
You're sort of brushing it off as a bit of a one On larger projects, so we've just had 4 consecutive quarters of significant declines in your major projects business and now it's showing strong In both new equipment and modernization. So I wonder whether you can give a little more color as to how much sort of pent up Demand do you see when you look at quotation activity, postponed projects and the broader pipeline, could we see another couple of quarters of strong growth around major projects?
I would still come back to this fluctuate quite a lot quarter to quarter. There was maybe some pent up demand that Where customers made more decisions and perhaps we performed a little bit above the market as well in Q4, but Still not a huge shift. As I said, we're starting to see in some parts of the market some green shoots where customers are starting to plan more, But it's still, I would say, in the opportunity phase. When we overall look at the opportunity book and tender book, those have actually stayed At pretty healthy levels. But it's clear that as you have in situations such as this, that decision gets delayed.
Some projects Don't go forward, others go forward. So I would not actually make a huge point out of this. We had This quarter, we had good performance here.
Understood. That's good color. Secondly, if I can ask you to your China market outlook for 2021 flat to up. I appreciate the construction date in China as we got out of 2020, perhaps a bit Better than we were expecting. So the run rate going into 2021, clearly quite strong.
At the same time, it feels like a year of 2 halves, As I think you alluded to at your Capital Markets Day back in September, you had a concern around second half. Question really is, What sort of visibility would you say you have at this stage of the year versus prior years? Are we still to see an impact? And I assume we are around Three red lines policy on the developers and what that goes to your residential business. And maybe you can help with a little bit of segmental color For the year, residential versus non res and a bit of commentary around your infrastructure business as well.
Yes, I'll probably hand over to Ilkka, then I'll start first, but Ilkka can comment on the impact of the 3 red lines policy, what there is and what we think the impact may be. When we look at 2021, we can see that we're going in with a good momentum in the markets. But as we know that Regulation in China is incredibly important. We think that residential will be the most important segment. We think that infrastructure will be active, but probably not as active as in the past year.
So residential will be important. That is, of course, dependent On government policies, which I think they've again steered it very well. And that means that we don't have Full visibility or so much visibility in the second half, but we can see that we expect that beginning to be solid.
And then to add to that on 3 red line policies. So at this stage, it is a pilot phase. So we have About a dozen companies that are piloting it in China, and it is not clear how the government will take it forward as such. But clearly, some of these companies that are within the dozen, obviously, they are in a phase that where they need to assess How they go forward if they're breaking the red lines with the measures. And clearly, we've seen some action being taken as such.
But overall, I would emphasize that the goal for 3 red lines is about health of the market. So delevering companies, which are maybe too levered, and I think that's good overall and for long term.
Finally and thirdly, if I can ask, Henrik, just a slightly bigger thank you, Ilkka a slightly bigger picture question around China new equipment pricing and the environment as we go into 2021, whether you can help us frame sort of what you see. I recall 5 years ago, as you were In 2015, pricing on your new equipment business was sort of flattish, not dissimilar to as we exited 2020. But of course, that was followed by a period of mid single digit pricing decline on a like for like basis through 2016 2017 at a time when steel price inflation was The question really is what do you see is structurally different today from what it was back then? Should we be braced for something similar? I can clearly see domestic OEMs perhaps a little more rational, but I also assume some of your key competitors perhaps better positioned today And they were 5 years ago from a cost or modularity standpoint in the new equipment business, notably Schindler and Hitachi.
So a little bit of color would be helpful if you would.
I think the big difference is that if you go back to that time that you mentioned, There, the markets were also declining and actually started to come down a fair bit, the overall volumes. And also mix was going in an unfavorable situation. What is similar now is that raw material The costs are coming up and there's clearly there's competition and there's always been strong competition in China. If you want to find significant growth from somewhere It's been China and clearly everyone's been focusing on that. And I think we've done it.
Our team there has done an excellent job in the past year in finding those growth opportunities and having stable pricing.
Thank you, both.
Thank you.
Our next question comes From Andrew Wilson from JPMorgan.
Hi, good afternoon, everyone. Thanks for taking my question. I've got a call please. If I start with the comments you made actually on the new equipment in EMEA and Americas, I'm expecting to see a pickup from the Q2 onwards. Now appreciating there's obviously comps
at play here. But just interested
in terms of, I guess where the confidence on that comes from given some of the fairly bearish, I guess, forecasts around particularly non resi construction. Just interested how much of that is driven by expectations in ready markets. Just interested in terms of sort of where the confidence comes from there.
Clearly, residential is the biggest segment and that is the most important one. And you have to remember that then the comparison starts to be at the lower level. That is the expectations we see when we talk to customers, opportunities being created. Of course, if this pandemic continues the way it is, that recovery may be delayed, but that is our Current expectation.
Great. And then maybe just of questions, probably for Ilkka on the kind of 2021 margin. I just wanted to check, do we have any remaining cost savings to come through The Accelerate program, I appreciate it. The program itself is complete, but wondering if there's some sort of incremental benefits to compare. And I guess Anything else you'd kind of call out in the bridge just in terms of helping us, obviously, with all these moving parts around Walmart and pricing as always?
Thanks. And from I'll start with in order of your questions. So first on Accelerate. So On the cost side, now the program now is at its end. At the same time, we're obviously benefiting from All of the benefits that we've had from the program in terms of being faster, more customer centric.
And we do expect also a bit of tailwind On the program in terms of cost savings, so maybe a few tens of 1,000,000 in 2021 to be there. And then for the bridge in terms of profitability or profit, so we talked about our Orders received margins, so we've seen good pricing in the past and that's positive. And then also we are Expecting growth with this guidance, so that's contributing positively as such. And then at the same time, for raw materials, there will be a headwind For us, as I said, at the same time then productivity is something we continue to working hard and that will then be a positive.
Our next question comes from Andre Kukhnin from Credit Suisse. Please go ahead.
Good afternoon. Thanks for taking my questions. Can I start with a broader one? On China Services that you flagged as the kind
of biggest opportunity for the next Strategy cycle.
Do you anticipate any change to your approach there that has been strictly organic omni or any other changes in how you Attack that market?
Clearly, when you put emphasis on something, we will invest, of course, more in that In developing that market than in the past, of course, we've done a lot, but we still think we can do more. The main growth is going to be organic. Are we then going to look at some other things? Perhaps, but that's not top of the agenda, at least right now. Now it's about developing even stronger differentiation there and really solutions that are even better suited to the Chinese market.
So a lot of focus on investments going into that area now.
And if I may follow-up, in terms of shifting towards more acquired growth there, is that an agenda
I would say, as I said, it's not top of the agenda right now. If we find some good opportunities, Then yes, and we would have to figure out what the model would be then. So I would say primary focus is on organic At least at the moment.
Thank you, Henrik. And the other question I had is just on the order book mix For new equipment now, could you give us just a rough idea on how much is DX versus non DX now?
I would say what we sell in Europe today is DX. And we rolled it out during last year, started in some countries in Q1 and then went out. So what we sell is DX class But last year, our total we sold, it was over half in Europe. But that means that it's still less than half of the order book, but that's, of course, increasing all the time.
And also we've seen in some cases customers actually switching To DX when offered their old order. So but I think that's a good proxy of it.
So roughly half of the order book if you include China?
No, no, no. Because China, we just launched it. So we're just rolling it out in China now.
And does that kind of drive that similar sort of lowtomidsingledigitpremium on ASP In China as well as you mentioned in Europe before?
We expect that to have a slight premium. That's of course has really helped us in a very competitive market in Europe and other places to defend our pricing with More value to customers with new solutions. So that has been critical. And we expect, of course, it will have some positive impact in China as well. But let's see.
We just launched it now very recently and starting to roll it out now.
Great. Thank you. If I may, just very last one. On digital, you mentioned investing in digital on the Slide with Kjell with headwinds. But also we've got the new converted units revenue contribution coming in as well.
And before, I think you talked about this business coming digital as a business coming to breakeven, I think, about This time, could you update us on that where kind of digital is right now in terms of revenue versus Generated versus costs incurred? And which way do you expect that to move in 2021? Do you
want to take that?
Yes, I'll take it. So I guess just to be specific, you're saying that cost incurred. So Cumulatively, I think it's still we're not in breakeven yet. We've been investing to development before we launch it and so forth. But then from a profitability perspective, we are still, I would say, neutral impact to profitability.
So we're continue to invest and that's something that we look at opportunities where we are going forward. So I would say that it's not yet improving profitability.
But still, I would say a good situation is that we are generating real revenues from that to be able to finance our development cost. So From that perspective, a fast growing new service, I think we are in good shape. And because we see the opportunities, We continue to push forward and drive growth now and really build our base here.
Great. Very helpful. Thank you very much
to both of you. Thank you.
Next
question Next question comes from Lucy Carrier from Morgan Stanley.
Good afternoon, everyone, and thanks for taking my question. I have Three questions and I will go one at a time. The first one was actually on the share in the maintenance market. We have observed for The past few years that the share of new equipment that go into your maintenance base keeps on being kind of negative in terms of The units you acquire versus the units you don't convert. And I was hoping you could give us some color On whether that phenomenon is driven essentially by the fact that the conversion rate and probably the structure of the market in China for maintenance is quite different or whether you are also seeing what I would call some erosion of your overall share For maintenance in the year and in North America?
So I would like 1st of all separate 2 different things. First of all, Our conversions from new equipments we have installed to our service base continues to be strong. And that is of course the fundamental growth driver where Service base continues to grow year after year. Then the other aspect you have is always in the market. You're going to win units in the market And you're going to lose some units in the market.
And particularly in the countries where there's a lot of small players, Yes, there's been a slightly negative balance that we've lost a little bit more in the market than we won in the market, but that's totally separate from Conversions. But despite this, we have constantly grown at 5% plus. Usually now in this year was a little bit lower 4.5%, But a constant good growth in our maintenance base because of conversions. And yes, that's really What's been driving the growth? And yes, conversion rates are slightly lower in China, but there also we have them at a pretty good level.
Thank you. Just to follow-up on the Unit lost and the Unit won. The negative delta you have, To go back to my question, is that driven overall by China? Or is it also you have a negative or deficit Also in EMEA and in North America?
It varies. It kind of varies year to year, market to market, but it can be in All of those markets, I would say if it's in EMEA, it tends to be the small players, very small regional players that win And it can be North America as well. And it varies. North America, you have bigger commercial contracts and depends on how you win and lose some of those. It will have impact.
So It's across the world.
Thank you. My second question, a follow-up on the China service strategy, which you highlighted as the next phase. Can you maybe comment on how you see the changes, notably around policy to Obviously, encourage more professionalized kind of property management, but also similarly the large developer is very interested In capturing this for themselves and whether you think in the long term that the China maintenance market could be Similar from, I guess, a profit standpoint to what you have in North America and in EMEA.
First of all, we have a good and profitable maintenance business in China. And so therefore, we want to grow it. There are many different types of competitors in China, small players, larger players and even self maintenance. The way you succeed in a market like this is that you show constantly that the service you provide is superior to the alternative that you have And you have it at right price point. So there's a lot of development that probably needs to be quite China specific because it's quite a specific market And a very large market.
So it makes sense to develop for that. And you need to be competitive compared to all of this. And we have seen that We can be that because when you really do a good service and you have services that add value to your customers. China is a very fast digitalizing market where Customers are very prone and happy to take on new services, but very often do they need to be quite specific for China. So you need to develop them locally for that local market.
Thank you. And lastly, on to go back, please, On your KONE FIS flow, can you maybe give us a little bit more details about that, I. E. Is that something that you now systematically Offer to kind of all of your customers. Is it something that are you able to communicate any Additional revenue that maybe you could generate from that.
And is it essentially kind of software based? And how does that position versus Other kind of offering in terms of a building management system or occupancy building management system that are out there in the market?
So that's something we launched in Q4 last year. And but we have some pilot Offices where we are installing it already, aspects of that and it's both a new hardware and Total new architecture behind the hardware and quite a lot of software and mobile based services, Which means that you can expand them over time. And yes, you can have in a very basic form, which just means it's a new destination control system, but We think superior to what it is in the market, both in terms of performance and in terms of design. So That is the first point. But then the actually additional is that all the additional services to create a smooth journey, both For communication and different types of access for polling and information that you can provide And adaptability, how you can do steer those things.
So there are all different kinds of services you can build on top. And given the Digital platform we have, we have a certain set of services now, but they're definitely going to develop over time. So you launch One package and then that's going to evolve as time goes by. And therefore, you can add services and that is, of course, our ambition to therefore add revenues from it by selling additional values that are valuable to our customers to their operations.
Our next question comes from Daniela Costa from Goldman Sachs. Thank you very much for taking my question. Good afternoon. I wanted to ask 3 quick things. First, you've mentioned 100,000 20 fourseven installed base now.
I think in the past, you had comment on the ASP of when you sell an elevator with the 20 fourseven contract Being up on the double digits, I guess we've seen more market participants launching things in The same type of offer, are you still seeing through those double digit price increases? That's question number 1. I can ask the others.
Good double digit price increases and they have prices have continued to be good. So we think that And of course, I'm a bit subjective here, but we think this is the market leading solution. We have a lot of proof that Customers are appreciating that they can see benefits and therefore pricing has stayed good. And therefore this 100,000 we have clearly sold many more than that, But this is now what is installed and revenue generating today.
Thank you. And then a follow-up from a few of the questions that have been asked about your new strategy to focus more on the service opportunity in China, I guess, at the moment, is only a couple of percentage points. On your earnings, you've mentioned you're more focused organically. I think historically, conversion rates in China were somewhere between 50% to 60%. So how meaningful can this be in the Strategic plan.
And I guess, does it pass through increasing conversion rates significantly? And how do you do that?
But there are many aspects. It's not only maintenance because we think that modernization will be a very big opportunity in the coming years in China. And that is really It's a market that is growing already. It's not huge yet, but we can see that it's growing fast. So we want to really capture that growth In a leading way.
So it's both maintenance and its modernization and it's retrofitting buildings with elevators, all of those aspects. So It's of course about conversion rate. It's about capturing units in the market. It's about selling more added value services and modernization. So all of these aspects And really to build this very strong market position now in the coming years.
And of course, it's a long term bet, How it's going to impact, but we see good growth opportunities there in the coming years.
Thank you. And finally, I'm just interested on how did you decide on the sizing of the special dividend? Like why EUR 0.5? Why not a bigger one given your financial position and strong cash generation, if you could add any color there?
I think our Board thought that, that was a good number. As I said, we continue to have a strong balance sheet. What we said is we had an extremely strong balance sheet. Now we paid a, I would say, very good Dividend and then this extraordinary on top. We continue to have a strong balance sheet after that, which means that if there are opportunities arise in the market, We are interested and we are ready.
Okay. Thank you. We can now take our next question from Jeff Sprague from Vertical Research. Please go ahead.
Thank you. Good day, everyone. Just 2 from me actually picking up On service attachment, could you actually level set us here and be specific on what your service attachment rate was In 2020 in China,
and this is something I
think we all want to watch closely given your new priorities. So if we could Have the baseline precisely defined here? That would be helpful.
Yes. So in China, and we About conversions is the word Henrik used earlier. So in China, conversions for the KONE brand are about 60% And then for Giant KONE, it's lower. So on average, about 50% is the conversions.
Thank you. And then on the large maintenance projects in North America that you called out, Is that a multi quarter revenue impact for you? Or was most of that benefit actually incurred in the quarter? And perhaps you could just give a little bit more detail on what those projects are?
So those are just large projects. We don't Usually mention individual projects unless our customers want us to do that. So these are Large projects and usually in a major project is something that also has a longer term revenue impact that you install over multiple years Rather than just in one go.
Great. Thank you.
And our next question comes from Joel Spungent from Berenberg.
Yes. Hi, good afternoon. I was wondering if I could just come back actually on one of the earlier questions about the connected units. Just To clarify, I think you said you've clearly sold more than the 100,000 that you're currently earning revenue on. Is that the 500,000 number you mentioned?
Could you just clarify that?
The 500,000 includes what I would call legacy connectivity. So always when it talks about In our industry, there are so many different types. We have had connected units for a long period of time. So there are the ones Not with the latest generation of connectivity, about 400,000 installed and installed now Around 100,000 revenue generating 20 fourseven connected units. When I said the pipeline, when we sold a lot 20 fourseven connected services in connection with the new equipment.
So those will come into service once that new equipment is Installed, there's a good pipeline. And of course, also the services, if we sell something today, it may take some weeks or months or so or 2 even before it's installed. And that pipeline is very strong. So we are now growing that base at quite nice rates every month.
Okay. Understood. Thank you for clarifying that. If I could just maybe ask another one on the Smurfit. You mentioned obviously that you think that the service that your connected service
is obviously
superior to your customers to your competitors, sorry. I mean, I suspect if I asked Otis or Schindler, they would tell me that they have the best connected technology. Can you maybe Just help us understand why it is that you think you can differentiate in the connected market versus some of the other things that are out there at the moment?
As I said, when I said that, I said it's a very subjective opinion because I think you're absolutely right there that we're All proud of what we do. We've been doing this now for a few years and we have quite a lot of connected base out there. And the more you have units, the more you learn. And this is really a game that we have realized that every month, the more units we have there, the more data we have, the better our service needs become, The better our execution becomes and here therefore scale is hugely important and the rate we are increasing, we are Staying at a good rate. And we've just been developing this very actively for several years.
And it's always when you have a new service like this, it's There are some things that you learn that don't work, other things that work and then you build on those and a little bit different things how technology works in some countries. So A lot of differences here, but I think we've learned a lot and we can now show very tangible benefits That we seem to really hit a positive note With our customers.
And here to add to Henrik, so also data plays a key role. So the more data we get, which is behind the intelligence of the service, so the more we can actually add value as well. So in my mind, this is a very interesting area where the scale really matters.
Okay. Thank you, Ralph. That's very helpful. Maybe just one final one, changing topic slightly. With regards to the new strategy, obviously, I noticed In the press release, you're still talking about a long term aspiration for a 16% EBIT margin.
I mean, And then maybe just to be clear, I mean, is there a road map to 16%? Or is that something that you think is We'd like to get to eventually, but there's no sort of plan or long term plan to get there.
Clearly, we have a plan to constantly improve our margins, and we think through more value added services and through growth, That is how we do it. We haven't committed to a certain timeline. Of course, we can have internally some targets, but we haven't committed to a timeline because again, Margin is very important to us and we want to improve that. On the other hand, as we said that the most important thing is absolute profit growth because we don't really employ much capital in this business with over a €1,000,000,000 negative working capital. So therefore, to generate return on capital, Most important thing is to improve the absolute operating income.
But of course, a good way to do that is improve your margin. So That's what we focused on both of these and we haven't given a timeline, but I think the message is that margin expansion is important to us.
Okay. Thank you for that.
Next question comes from Mady Singh from Bank of America.
Yes, hi. Thank you for taking my question. Just a couple of questions. Firstly, if you could talk about the outlook for nonresidential market overall as well as regionally? And if you could also state the importance of nonresidential market as well, like what portion of your orders overall are from Nonresidential segment.
And secondly, if you could talk about your market share in the aftermarket Maintenance space within China, given the increased activity from the smaller over the top maintenance providers, If you could talk about if that is a potential threat and how would you rate their ability to Prevent Kona from increasing your share of maintenance market, especially given the price sensitivity of Chinese market. And I presume these OTT players do offer cheaper prices.
Okay. So in total, it's a globally residential for us is 60% plus?
Plus, yes.
So residential is clearly very important. Non residential, particularly retail, Tourism related, of course, those are very challenged. And also offices, all of those are decline have been declining, I would say, across the world. And what has been growing has been residential and infrastructure. So those have been trends.
But of course, residential is by far the biggest segment and China probably 70% plus today. So that just gives a flavor how important it is. When we come out of this current situation, I would expect that The office segment is probably one of the first ones to recover. So I still believe that offices, as I mentioned, are very much needed. Obviously, it will be different.
They will need to be much more adaptable, not static places where you sit and work and have your own spaces. Even in open space, it needs to be More dynamic, versatile and you can adapt it to the needs of people getting together, resolving problems. And that also means that there's going to be opportunities for us to help our customers make sure that their buildings are more adaptable. And that's why I talked in the beginning that adaptability is hugely important And that's been a real focus area for us. But then it goes without saying that retail and will take some time.
That's probably going to be weak in the coming years. Travel, tourism, that I think we have to still wait and see. And then a question on China Services
and I guess, competitiveness and pricing related to that.
I I think in our maintenance business throughout the world, we have always had a lot of competitors. They've been the big Players which we compete with and they, of course, compete with us and then there are small local players. So I don't see a big difference. You always have new players coming in Competing sometimes more self maintenance and new players. So from that perspective, I haven't seen a big change in the overall competitive dynamics because competition Has always been there and of course, always been the same threats that someone comes and takes it.
And of course, the only way we can continue to succeed is very active development at KONE And driving forward our agendas as we have done and in a humble way and recognizing we have some tough competitors and that we constantly Need to run fast and smart.
I also meant to ask, Especially with regard to the completion of the digital maintenance space, given how much you are focusing on the connectivity side, There are OTT players coming on that side as well. How do you see this around that area?
Again, I mentioned, of course, we are always looking with respect to every competitor and taking everyone seriously. Well, as I mentioned, we always have had small and midsized players in this industry. And only thing I would say when it comes to data driven business models, As Jota mentioned, just the amount of data and what we learn every day is hugely important. And the scale we have that compared to smaller players is quite an advantage. But we are Look at everything seriously and continue to develop KONE as actively as we have.
And if I were to just ask the last final follow-up on that. Given lower market share in the New equipment market and comparing that with your market share in the maintenance market, would you Give yourself what kind of how many years would you think it will take for you to bring that gap to minimal possible. And what should be that gap in New York? What would be the acceptable gap for you, let's say, in 3 to 5 years' time as well?
Maintenance markets have always been more fragmented and new equipment markets just given a number of players. So I don't think anyone in our industry have had Service market share has matched the new equipment market share. But of course, given the strong position we have in new equipment gives us a very strong growth potential for services. So you can hear that our ambition is to grow our market share. But again, we haven't quoted any number, just that we want to clearly outgrow the markets here.
Next question comes from Antti Suttelin from Danske Bank.
Yes. This is Antti from Danske. I struggle with your growth guidance for 2021, because the way I understand is that your order book was up 1%, and This should be a fairly good proxy for your equipment sales and modernization sales. And even if your maintenance sales would grow a lot, it makes your upper end 6% a really, really Demanding target, it would seem. So can you explain what is your logic in putting the 6%?
What would need to happen KONE to reach 6% growth this year.
Very strong orders intake in China in the first half of the year.
And is that something you think likely Just reflecting back on what you say on your outlook for China equipment market, you say stable to potentially grow. So what is your China view then if I ask it that way?
Well, as you know, Antti, we don't give any guidance on what we think our order intake is. Now we talk about the market. And as I said, I think we think the market overall has good momentum beginning of the year. This flat to up means what we also said in Capital Markets a while ago, we think the first half at least looks Pretty solid. 2nd half, it's too early to say simply.
Yes. Just that I understand, is it that you think you have a chance to win a lot of market share in the Chinese Market in the first half.
Antti, I just said that we make no comments on that.
Yes, market in the first half.
It's not as linear. I remember we have had many questions in the past that said, hey, your order book has grown X%, but why do you think your sales can be lower? So it's not Linear, it depends on what projects you have there, which geography and all of that. So it's not quite that linear. It can fluctuate by a few percentage points what your order book And so therefore, but still to get to the top end of the range, clearly we would need to have Strong order intake beginning of the year that we can still deliver during the year.
And we say we don't know if it's going to happen, but we want to have it within the range.
Yes. Okay. Thank you.
Thank you.
Next Question comes from Wazee Rizvi from RBC Capital Markets.
Hi. Yes, thanks for The detail. A couple left from me. One just following up on kind of maintenance growth and I think you answered in Some detail on China, but I guess if I think about markets like China, certainly kind of North America and EMEA, where you think Volumes will be challenged. How does if I think about the components of maintenance growth, there's conversion of your installed base, which from what you guys say doesn't really change that much.
Then the other two components, the churn, some you win, some you lose, but also pricing. And how do you think they might be impacted at the moment? Is there any change in the dynamic there? I mean, Do people want to go with bigger service companies? Are people afraid of using smaller companies?
Or is there not really any meaningful change In that dynamic? And then the second one on bolt on M and A. I mean, do you think the environment is any different? I mean, are there more Potential candidates that you could be buying at the moment in terms of acquiring smaller service companies? Or is it kind of no change to the normal situation?
To your first question in terms of growth and capturing the market, I don't think there's a big change in dynamics. What's been positive is that we've seen that our Value Added Services has helped us to drive pricing in a positive direction. And I think that's a And that of course we are aiming to continue. Bolt on acquisitions, of course we would hope that they would be more Smaller and midsized companies for sale, but I don't know, maybe we're a strange industry where no one wants to sell, everyone just wants to buy.
Okay. But in terms of the pipeline, are you seeing more things in your pipeline? Or is it not really going to change
Not a meaningful difference, unfortunately.
Thank you. Okay. Thank you.
There are no further questions at this time. I would now like to turn the call back to the host for any additional or closing remarks.
Thank you, everyone. Thank you.
Thank you, Henrik. Thank you, Ilkka, and thanks, everyone, on the lines for active participation. If you have any further questions, please don't hesitate to reach out. Have a great rest of the
week.