Good afternoon, welcome to KONE's Q4 and full year 2017 results presentation. My name is Sanna Kaje and I'm the Head of Investor Relations. I have here with me today our President and CEO, Henrik Ehrnrooth, and CFO, Ilkka Hara. Henrik will first go through the Q4 and full year 2017 highlights, as well as the market environment. Ilkka will then talk about the numbers, Henrik will then present the 2018 outlook and how we are progressing with the strategy. In the end, we will have time for your questions. Henrik, please.
Thank you, Sanna. Also my pleasure to welcome you to our Q4 and full year results presentation. We have some interesting news to share with you today. In particular, we know that some of our largest markets have been very challenging for a good while. We also know that we have taken determined action to improve our performance in these markets, in these tough markets, and I'm happy to share that actually we're making good progress. With that, let's go straight into the highlights for the fourth quarter. Most important highlight for the fourth quarter was that our orders received grew. They grew in all markets and in all businesses. Also that after several quarters of declining margins for orders received, our margin for orders received now stabilized. That's good. We can see that our pricing actions are working.
However, our profitability is burdened by a number of headwinds. We are taking actions here and we're making progress. What I'm also happy about is that our rollout of our new services is clearly gaining momentum. Finally, our board of directors have proposed to the annual shareholders meeting that we will pay a dividend of EUR 1.65 for last year. Let's go straight into the highlights, if we look at the financial numbers for last year. As already mentioned, our orders received grew, also our sales grew in all regions and all businesses. However, our EBIT margin declined. Orders received was roughly EUR 1.8 billion. In comparable currencies, they grew by 5.3%. Ilkka will go a bit more in detail into that. Our order book remains at a solid level of EUR 8.2 billion.
In reported currencies, decline of 4%, but growth a little bit over 3% in comparable currencies. We can see that the strengthening of the euro has quite a significant impact on our numbers. Sales a little bit shy of EUR 2.7 billion and a good growth of 6.8% in the last quarter. Our operating income, EUR 366 million, down from 392 year before. If we exclude the program costs from the Accelerate program that we'll also talk a bit later about, our adjusted EBIT was EUR 376 million compared to EUR 392 million the year before. Our relative margin was 14.1% compared to 15.1% a year ago. It's clear that we cannot be satisfied with the fact that our margin is declining. It's something we continue to take very seriously and work on.
Earnings per share in last quarter was EUR 0.55 compared to EUR 0.58 the year before. One quarter is always a short period of time, and now we have the full year numbers for 2017, gives a little bit longer perspective of how we are doing. Orders received of EUR 7.5 million, growth of 1.7% compared to 2016. That's good. We got back to a growth path, particularly in the second half of the year. Sales just shy of EUR 9 billion, 4.2% growth, and an EBIT of EUR 1.217 billion, compared to EUR 1.293 billion the year before. The adjusted EBIT, again, when we exclude the cost from the Accelerate program, was EUR 1.230 billion, margin 13.8% compared to 14.7% the year before. Here, the same comment that we see a clear need that we need to improve our margins. Cash flow, EUR 1.263 billion.
Obviously at a solid level, but clearly not as strong as the, I would say, exceptionally strong level of 2016. Ilkka will dive a bit deeper into this as well. EPS was EUR 1.89 compared EUR 2.00 the year before. At this point, again, I like to extend my thanks to all KONE's employees. We know that the market is moving very rapidly. Expectations of our customers are changing very fast. That's good because in a changing environment, we can see a lot of new opportunities. I can see a great spirit and momentum within the organization to find new and better ways of capturing these opportunities and drive differentiation. I believe our people have done a great job again in 2017 taking KONE forward. If you look at our business mix, not a big difference. Share of service is growing a bit.
Share of maintenance, now at 32%, up a bit year over year. Both maintenance and modernization are growing faster than the KONE overall. Also, if you look by geographic area, it's Europe, Middle East, and Africa, and North America that is growing overall faster. Clearly, North America being our fastest growing region at the moment. No significant changes here. If I then look at the highlights for 2017. I will start with our new equipment business. Last year, our total number of elevators and escalators ordered were about 158,000 units, about at the same level as in the year before. As you know, our objective last year was not primarily to increase our share of units. Our explicit objective was to increase our share of value of the market. That, I believe, we did, and I believe we clearly outperformed the market here.
A share of value of the market that we get when we can add value better to our customers and increase prices. In a stable or actually sometimes declining market, that makes much more sense than fighting for increasing share. I think we achieved that objective. Last year, we delivered 141,000 units to our customers, up 5,000 units year over year. Our maintenance base continued to grow at a good rate. It grew again over 6% and was clearly over 1.2 million units at the end of the year. Here, I believe we are growing clearly faster than our key competitors. If I look at the business highlights, what I've mentioned already is that the actions we are taking to offset the margin headwinds, they are starting to show positive results. The actions, actually the most important one is pricing and also gaining productivity.
In pricing, we started to take very determined action over a year ago, particularly in the large and very heavily competed Chinese market. To be able to increase prices in a stable or sometimes declining market that is highly competitive requires many things. It requires that you have your competitiveness in good shape. Your strong competitiveness. It requires a strong and capable organization. You have to be very determined, and in particular, you need to have courage. You need to have strong courage to every day push that forward. I think our team has done an excellent job here. We can see that we are going in a different direction than most of our competitors. That I'm quite proud of. We are showing the direction where we need to go in the market.
Also, our service business overall continued to develop very well, and our strong growth in China continued. What we decided to do ourselves was to invest more than ever in innovation and new technologies. I'm very happy to say that we can see results out of that. As you know, in February last year, we brought to the market a set of new services, very cutting-edge, I would say in many cases, a revolutionary service for our industry. We're really showing the way here, partly with our flexible KONE Care maintenance offering, but also our KONE 24/7 Connected Services. We had then several other smaller launches during the year, for example, the KONE Residential Flow towards the end of the year, all of which are very important. We see that these larger investments are already bringing very interesting results.
We launched our Winning with Customers strategy a year ago, and it's resonating very well with our employees and with our customers. The customers can really see that when we work in this way, we are helping them succeed. That's the whole essence of that strategy. In order to speed up the execution of this strategy that we see is taking us in the right direction, we decided to launch a program to accelerate it. We call it Accelerate Winning with Customers. That we did back in September. Then our dividend. Our board of directors has proposed to again increase our dividend to continue our good track record for dividends. Their proposal is EUR 1.65 per Class B share, up EUR 0.10 year-over-year. If we compare it to the share price at the end of the year, that will give us a dividend yield of 3.7%.
Feel quite a good and attractive dividend once again. Let me move over to markets. That was KONE's development. Let's turn over to what's happening in the markets overall. Europe, Middle East, and Africa. Here we can see that markets are growing slightly, particularly in South Europe and in the Middle East. Central and North Europe, more stable at a high level. North America continue to grow slightly, is at a good level, both in residential and commercial segments. Given the good growth, we're already in eighth year of market growth in North America. We can also see a more favorable pricing situation there and in many other markets. In Asia Pacific, the new equipment market in China was now more stable in unit, and we also saw stabilization in market pricing as well. It remained highly competitive, the market.
What I'm very happy about is that the India market now turned to growth in the last quarter. We know that the India market had three significant reforms within a 12-month period. Each of these reforms, I believe, are good long term, but they did cause a lot of turbulence short term in the market. We saw that in Q4, market started to get over this and grow at a good rate. Southeast Asia markets are growing, but situation varies a lot country to country. At this stage, always good to take a little bit a deeper look into the Chinese market. We know it's by far the largest market in new equipment and very important to us. I would say there are two specific things I would like to bring up, trends I would like to bring up with the Chinese market overall.
First, I believe that the Chinese market has gone into a healthier direction over the past year or two years. What I mean with this is that the housing inventories, ones for departments, has gone in a better direction. They're actually at a pretty good level in tier 1 and tier 2 cities. They have improved in lower tier cities, but gone clearly in a better direction. I believe that the fundamentals of the market is healthier than it's been, for example, a year ago. If we look at the activity in the market, that is the second important trend to understand. Activity in the market underlying is strong. However, government has imposed significant restrictions in many of the cities.
We have restrictions now about 100 cities around China, and it's clear that the government's objective is to restrict the growth, particularly price growth, in many of the larger cities to ensure that bubbles don't occur. We believe it's the right thing longer term, even though it's clearly cooling down the markets right now. If we look at both of these trends, what we see in our market, we see that our market has been more or less stable. When we go into 2018, we expect a similar-ish trend to continue, that we expect the 2018 market to decline slightly or be stable. The key drivers is what I talked about first. If we look at the service markets, here not much new to say. Europe, Middle East and Africa, and North America both growing slightly. Of course, various market to market.
Asia Pacific continues to grow strongly in maintenance. Same modernization, slight growth in both North America, Europe, Middle East and Africa, and strong growth from a lower level in Asia Pacific. That's what's happening in our markets. With that, I will now hand over to Ilkka to review with more detail our financial performance for Q4 in 2017.
Thank you, Henrik, also welcome to the call on my behalf. I'll look at the financials more in detail for the fourth quarter, but also as it is a full year 2017 result announcement, I'll look at some of the figures in context of the full year as well. Let's start with orders received. Henrik already talked about how our orders received reached over EUR 1.8 billion in the quarter, and that we are seeing growth in all of the regions as well as in all of the businesses in our orders. On a comparable basis, we grew 5.3% of our orders. Clearly something where we are seeing good momentum towards the end of the year. Also, one of the things to highlight is that the margin of orders stabilized in fourth quarter. That's clearly something where we're now seeing a trend turning.
We had six quarters of decrease in margins, and now we're seeing stabilization happening. Clearly that's good development where we're seeing the pricing actions having an impact. Also, I would highlight at this stage the good performance in China. We grew 7% our orders received in China, and majority of that is pricing. We captured value. Our volumes were stable, and mix only had a very small positive impact to that. Clearly, that's something where we're seeing good progress being made in our business. We look at sales. Similar to orders, we saw growth in all businesses and in all regions in sales. We reached EUR 2.657 billion in sales in the quarter. That represents on a comparable basis 6.8% growth in the quarter. We look at it in more detail. From a new equipment business, we saw 7.1% growth.
As you know, we pre-announced our results, so that growth was more than we expected in the quarter. We thought we were able to deliver more orders than we expected, and that was one of the positive surprises for us. Also, our maintenance business grew 5%, as well as the modernization business grew 9.1% in the quarter. From a geographical perspective, first of all, we need to highlight America's strong ending to the year, 17.1% growth in sales. Asia Pacific contributing 5%, and Europe, Middle East, Africa, 3.6% growth. Looking at EBIT and our operating income. Clearly can't be happy about the result. We reached EUR 376 million, which is down compared to equivalent period in last year. That's something where we're seeing more headwinds than tailwinds in our results.
We are seeing the similar drivers for that development in fourth quarter as in context of the full year. Let me take the look at the full year 2017 and talk a bit more about how our EBIT developed during the year. Starting from 2016 and what are the key drivers in 2017. First of all, growth clearly is positive, and we saw growth in all businesses contributing to improved operating profit. At the same time, the strengthening of the euro, especially against Chinese renminbi and the dollar, had a negative impact of EUR 37 million into our results. Also, as Henrik highlighted, we invested more than ever to R&D and IT and continue to see good opportunities to drive value with those investments. In this 2017, those had about EUR 40 million negative impact to our operating income.
That's the increase we talked about, the 40 basis point increase as a percentage of net sales that we've highlighted. Increasing raw materials had an impact of more than EUR 50 million to our results. There's also other factors that contributed to the development. I would highlight the fact that the productivity improvements that we've been making continue to deliver results and clearly positively contribute to our operating income. Pricing actions are starting to see a positive impact on profit, but as said, now we are getting the orders to stabilize in terms of margin. It takes some time then to get those to be delivered. The fact that our maintenance business increases in our business mix has a positive impact.
Also then at the same time, pricing pressure that we've seen in earlier quarters in China is having a negative impact as well as the fact that China is a good profitable business to us and the share of that has decreased in the business mix and that's negatively contributing to operating income. To draw this all together, if you look at the impact of currencies as well as the increased investment to R&D and IT, that's pretty much a large part of the development in operating income, close to EUR 80 million. Lastly, talking a little bit about the cash flow as well. It's good to look at it in a context of a year. We know that there's fluctuations quarter by quarter, but now that we're ending the year, it's good to look at it.
We reached almost EUR 1.3 billion of cash flow in the year, which is down compared to previous year. We continue to see healthy commercial terms with our business. We have a good positive cash flow generative business model as KONE. Let's look at the drivers that caused us to see our cash flow decrease in the year. Clearly the fact that our EBIT decreased has a negative impact of EUR 76 million. We saw our networking capital having a EUR 68 million negative impact. If we look at it in more detail, our advances to receipt to inventories ratio actually improved slightly and now reached 145%, which is up one percentage point compared to the previous year. We did see our receivables increasing somewhat.
I highlight the fact that the deliveries at the end of the year were somewhat stronger than we expected, so those increased our receivables from a networking capital point of view. What we didn't see this year was as big of an improvement in working capital as we saw in the previous year. We maintained the good level that we've had in negative networking capital, but they didn't improve as much as previously on a high comparison point in 2016. Overall, we continue to have good cash flow generative business model for the business. With that, I'll actually hand it over back to Henrik to talk a bit more about the market and our business outlook for 2018 and the expectations for the business going forward.
Thanks, Ilkka. I'll start with outlook for 2018, both the markets and KONE's outlook. Then we'll head over to how we are developing KONE going forward. I'll start with the market outlook. New equipment market in Asia Pacific. We expect in China markets to decline slightly or to be stable in units ordered, the competition remaining tense. Rest of Asia Pacific markets are expected to grow. Here India is expected to be a good growth market in 2018. Europe, Middle East, and Africa markets expected to grow slightly, particularly in Southern Europe and in Middle East. Central and North Europe, probably more stable. North America continued slight growth from a good level. That market continues to develop well. Maintenance markets and modernization markets, very much the same trends we've seen in 2017.
The growth in all markets, strong growth in Asia Pacific in both. Variance market to market in Europe and North America, still slight growth in all markets. If we go to KONE's business outlook. In 2018, we expect our sales to grow at similar rates as in 2017 in comparable rates. Our adjusted EBIT margin is expected to continue to decline in 2018 in a similar way that we witnessed in 2017. We expect that the margin pressure will start to ease towards the end of 2018 because of the pricing actions and productivity actions that we have taken and actually we see that are already yielding results. What is driving our performance? It's the solid order book we have, the good maintenance base naturally. It's a good growth we have in our services business, the continued improvements we have in our performance.
We have a number of factors that are burdening our results, which is putting pressure on the margin. Clearly, the most important ones are the pressure on our margins because of the orders received we have booked earlier, particularly in China. Also the fact that raw material prices are again expected to be clearly higher in 2018 than in 2017. We expect that the headwind from raw materials is about EUR 100 million in 2018. Also translation exchange rates expected to be a clear headwind. For revenues, about EUR 300 million, for EBIT, roughly EUR 40 million. We are planning to give a more detailed outlook in connection with our Q1 results. Before that, we will publish figures that will be in line with the new accounting standard that we will have from 2018. In 2018, we go to IFRS 15, which will slightly change our revenue recognition.
The comparative numbers for 2017 will be out in March. In Q1, based on those, we will give a more concrete outlook. If I look at how we develop KONE going forward. As you know, we launched our new phase in our strategy exactly a year ago. We call our strategy Winning with Customers. It's good to look back and say, why did we choose that theme? We chose that theme simply because when we look at the mega trends in the world, urbanization, technological disruption, what do they mean? What are the implications of them? We can see that customers and consumers expect to receive services, solutions, and products that fit their individual needs. I must say that I think the most exciting thing with new advanced technologies is the ability to deliver solutions that fit the exact need of individual customers.
That is where we're going. That is how we're developing our strategy. We say that when we develop our solutions, our ways of working, we call it collaborative innovation, new competencies. That means that we collaborate much more with partners than with customers, and we're constantly building new competencies within KONE to do this. When we do it, we can come up with solutions that we can tailor-make to the individual needs of our customers. The new services that we launched last year, several of them are exact examples of this. They are services that we can tailor-make at scale to our customers to fit their individual needs. That is what people expect today. That is what each of us expect also when we receive services. The next one we call fast and smart execution.
Our customers expect us to be role models on how to execute on site, so how to perform maintenance services, and we need to do it constantly faster and smarter. We have great development here, how we're constantly giving better capabilities and tools to our people, and how we are helping them to perform out in the field in a much faster and smarter way. We've again made great progress forward to make sure that all of our people who should be out in the field can be mobile out in the field all the time. We have developed that over many years, and we start to be in a pretty good shape here. The last one is true service mindset that KONE is known for someone who always meets and exceeds customers' expectations.
That is both how we work with each other and how we work towards our customers. The good thing is that the strategy is resonating very well with our customers. We can see very concretely that when we work in this way, then we benefit and get good long-term relations with our customers that benefit them because we can help them improve their business. That's what it's all about. We benefit as well in pricing and in growth. We see good benefits of this, we decided in September to launch a program we call Accelerate Winning with Customers. The idea here is threefold. We have three objectives with this. Improve our customer-centric capabilities to increase speed and efficiency. It's really about how we speed up our strategy. Why is it important to improve customer-centric capabilities?
When we come with advanced services, it is about providing totally new outcomes to our customers. It's not about selling features anymore. It's about selling outcomes and performance. That requires new capabilities and requires more development in our front lines. We want to provide even better capabilities for people in our frontline units to serve our customers. Speed is about getting our service and solutions faster to the market. We have a better pipeline than ever in bringing new service and solutions to the market, and we want to do it faster. Of course, always in a competitive market, we need to constantly improve our efficiency. That is why we've done this, and we're progressing well. One of the first concrete outcomes of this is we have renewed our HR organization, went live with that in September, sorry, November.
Here concretely, we designed it so that our HR organization can help every KONE employee do the best job for our customers and help support our business in the best way. We are driving this constantly forward. To wrap up, instead of showing any specific service and solutions, I thought that we actually go through a number of customer cases where we can highlight how we have worked with these customers and why we have won their trust, and how we add value to them, because that is important, how we add value to them. The first one to left is China Zun, the landmark of Beijing, highest tower in Beijing today.
We started to work early on with this customer. Because of the solutions that they purchased from KONE, they can finish the building faster than planned several months ahead of schedule and save a lot of labor time. What does it mean? They get the commercial revenues faster. They can save on interest costs, huge benefit for them. It's not only that, it's also how that building is designed for long-term performance and have the best experience for everyone moving in that building. It is all KONE's latest solution. I think it will have an experience for moving around the building like hardly any other building in the world. Next one, Science Museum in Denver. They had a big challenge that they needed to change their escalators, but did not want to move their exhibits. No one else could do this. Everyone wants to rip up everything.
We modernized all the escalators in place. We call it a KONE EcoMod solution. They could keep the museum open with guests coming in and all the exhibits in place. We did it faster and cleaner than anyone else could do. Next one, Harmony of the Seas. One of three sister ships. We have delivered the elevators and escalators to all of them, the largest cruise liners in the world. Here, you truly have people flow challenges, boarding and unboarding thousands of people in a short period of time with all the luggage and all the food and so on. You also need to have an experience while they are cruising on the ship. How we help them during the construction phase and how we work with them to make sure that their guests have the best experience throughout the journey.
It is a very unique solution and something where we're working very closely with Royal Caribbean Cruise Lines that owns this ship. Next one, we have Humlegården Fastigheter in Stockholm. They were one of our first customers on the KONE 24/7 Connected Services. They own a lot of A-class properties around greater Stockholm area with very demanding tenants. They wanted to ensure that there are never any unscheduled call-outs or unnecessary services that interrupt the flow of the building during the day. That's why we worked with them, a very advanced property owner and manager who we are helping ensure that their tenants has the best constant experience. Next one is Royal Adelaide Hospital, a fantastic, very advanced hospital in Adelaide.
Here again, not only during construction phase, but planning how patients are moving around, how they have intuitive, good people flow throughout the building, but also support them through the construction phase to do it efficiently and safely. Helping to ensure that the hospital really serves its purpose. The last example here is the Oslo Airport that was expanded during last year. It's one of the fastest expanding European airports today. Probably one of the world's most, if not the most sustainable airport in the world. They have very specific requirements and targets, what they want to achieve. Working closely with them during construction, expansion, and planning the people flow has again helped them achieve their targets. That is what we are very proud of.
These are examples how we want to work with our customers, how we add value to them, how we benefit as a result of that. This is what our strategy is all about. In summary, we have a good order book, good maintenance base, so our sales growth is continuing. We have started to take very determined action to counter the margin headwinds, and we're starting to see positive results. We talked a lot about the pricing we have improved, for example, in China. Our latest solution services resonate well with our customer. We are strengthening again our differentiation. With that, we are ready to go to your questions.
That's right. Questions from the telephone line, I would kindly ask everyone to state one question at a time. I'll hand over to you, operator now. Thanks.
Thank you. To ask a question, please press star one. If you wish to cancel your request, you may remove yourself from the queue by pressing star two. Star one to ask a question. Our first question comes from Klas Bergelind of Citi. Please go ahead.
To start with the pricing question, I think you referred, I can talk quite generally and then specifically China. If I start with China, I think as we mentioned, our orders received in units were pretty stable. In value was up about 7%. Actually, most of that was pricing. Mix, actually some even adverse things, but it always goes a little bit in both directions. We said now that our margin is stable. We can see that over the past 2 years, costs on raw materials have come up significantly, and it is starting to come through now. We had quite successfully been able to lock it down to delay the impact. We can now see the impact really coming through. Pricing is not something that you say that you put the list price and increase it today and then you stop.
It's something you work with every day. If you need to be able to get momentum pricing, I talked about it. You need to have good competitiveness. You need to have a strong organization. You need to have customers that appreciate the work that you do, and then determination and courage. When you get the momentum, you continue growing. Of course, it's our objective. Sometimes you have, I would say in Q4, we did really well, and some quarters you may do a little bit slower and then a little bit faster again. It's always going to fluctuate, but clearly it's not a one-time thing. It's an ongoing thing that you need to do. Cost inflation beyond R&D, you talked about increase in personnel.
Actually, as you mentioned already, a big part of this increase in personnel is because of a fast-growing service business in China. When that business goes more towards services, we have more own people. In new equipment, much of the installation work is subcontracted. In services, it's all our own employees. That will then increase it. The question is that otherwise you have a cost for subcontractors, which of course there's a wage bill, and then you pay for yourself. You have to remember this balance. I would say rest of the world, we have actually had quite good discipline in where we have increased and how we have increased. Also you are right that actually labor costs are going up, particularly in Europe, where they've been quite moderate for many years. Now that the economies are clearly stronger, we can see increases.
That's what's happening in the markets.
Henrik, how should I think about if EMEA cost inflation is going higher, and we see that particularly in Germany. Orders in equipment are flat, modernization is slightly higher. Northern Europe, central Europe is at a quite high level, and we have continued price pressure in maintenance. Should we be concerned that price cost can be a problem in Europe now all of a sudden?
If we look at Europe, we have actually been quite successful in offsetting this so far as well. I would say the maintenance business in many markets, actually, the fact that you have increase in labor cost and if it comes through in inflation is usually not a bad thing for our maintenance business. Constantly, of course, if economies are stronger, usually you get a little bit more favorable pricing environment as well. I think clearly we are working on offsetting this, and I think that we can do quite well.
My question
Sorry, Ilkka wanted to just add here something.
Sorry, Klas. I just wanted to highlight on top of what Henrik said, that we continue to see good opportunities to further work on the productivity also on the maintenance side, which is something where we every day have to make sure that we're making progress to continue improving that.
On mix in China, I'm not talking about price, I'm talking about mix. There is a trend to build more rental in China, which should mean lower margins for the developers. At the same time, there is less available land, which should push up the cost of land even more this year. Could this drive a mix negative for you going forward with the developers maybe trading down to cheaper products and solutions? Mix was an issue in 2016, it improved, I wonder whether mix can return as a negative in 2017.
I'm not sure the market overall has changed mix so much as I said that most of ours was due to pricing. I wouldn't be too concerned about that. We know that the affordable segment has anyway been the largest segment already in China. I think it's with the type of customers we work, how we'll be able to find the right solutions for them and work with them. I'm not too concerned about that specific trend.
Okay. Final one, a quick one, I promise, is on new equipment and modernization in EMEA. New equipment flat, modernization slightly higher on new orders. At the same time as Europe is seeing very solid macro, where PMI is at record highs, capacity is very tight when we look at the manufacturing sector. I understand that Central and Northern Europe is at the high level, if you could reflect a bit on the slow development elsewhere in Europe, effectively flat versus this solid macro backdrop, it looks a little bit odd.
You're talking about the market overall now?
The market, yeah.
You have to put it in perspective. If you look at the Nordics, for example, construction-wise, very strong, very high level, and we expect it to stay strong. Same Germany. U.K. has been quite strong, even though there's still a chronic need of apartments, but clearly Brexit is having some impacts there. I actually think that many of these markets, what was early on in the economy, what started to drive them was construction going up, and that's now staying and now actually consumer sentiment, the rest of PMI is also getting stronger. I think to stay at a good level is pretty good. We can see the good demand for apartments out there. Where the biggest difference, I think, in the European economy is clearly in South Europe, that South Europe is recovering, and there we see growth in the market.
I think it's quite consistent with the improving economies, and also we can see improving markets in new equipment for us. Okay, thank you.
Our next question comes from Lucie Carrier of Morgan Stanley.
Hi, good afternoon. Thanks for taking my question. As per Sanna Kaje advice, I will go one after the other. The first one is on operating leverage. I have the sense that this has improved sequentially throughout the year. I was wondering if it was maybe due to your productivity measure, if you could give us a bit more color on how should we think about that as we go into 2018. The improvement we've seen during the year, whether that could kind of continue as we go into 2018.
When we look at operating leverage, it's all about productivity, make sure we get leverage out of our growth. That is something we have been getting constantly year-over-year. Of course, it always fluctuates a little bit quarter-by-quarter. Now, we executed pretty well in Q4. That is a constant that we are driving, we want to continuously improve how we do our business. Yes, again, in 2018, it will fluctuate, but clearly, we have ambitions and beliefs that we can continue to drive that forward. Ilkka Hara, is there anything more specific you'd say about-
No, I think the seasonality is something that is always there. We had a strong quarter in deliveries. If we look at them next year, I think one of the things which comes out of the IFRS 15 is actually a little bit more stable seasonality in terms of the revenue recognition.
Okay, clear. If possible, I want you to come back on the point on the pricing in China. Last quarter, you said you were starting to increase price. This quarter, it's +7%, so it's definitely a big step up here. My question is more for how you see the market and how you see yourself in this market. Do you think the price deflation could stop in China in 2018? Maybe if not for the market, how do you see your own situation? Also, I'm curious to have some color in terms of which segment of the market maybe you were more able to pass on prices and really which initiative, whether it was more on the volume business, on new offering, just to have some color on what has helped you here to pass the price.
I would again like to remind that prices are not something you say that you're going to increase by a few %, and then it happens. It's a systematic work with good analytics, particularly add value to your customers. That's an ongoing work. As I said, I think Q4, particularly, it went really well. Some quarters it goes better, otherwise it went a little bit plateau, you go up again and so forth. To be able to achieve it's not something you go out and announce that anyone can do. In a highly competitive market that's stable, what you need to do is you need to have your competitors in good shape. You need to have a competent organization with a determined drive to do it. As I talk about courage, it's probably one of the most important things here.
That's what we continue to drive day after day. It's a daily work, the most important thing is to understand, to work with your customers to, again, see how you add value to them. When you add value, when you improve their business, they are willing to take you and pay you a premium. That's what it's all about, we continue to work on that then. It's not about passing on costs, the reason people have to increase prices is that costs have increased significantly. We know therefore that margins for players in China have had a significant impact, clearly people have to fight against that. We don't comment on what we think pricing going forward because there's always individual negotiations between us and our customers.
If we look at just the trend towards the end of last year, we started to see that the market pricing was stabilizing; that I think it was coming more to reality that, hey, the trend before that was not okay.
Thanks. Just the last question, maybe to understand a bit better the raw material impact in 2018. I remember for 2017, you had guided initially for EUR 50 million to EUR 100 million and ultimately kind of ended a little bit above EUR 50 million. I would like to understand a bit better why you're guiding pretty much about the double so far in 2018, whether there was some hedging that has played out or whether there is some changing in your supply chain or in your contract that are kind of creating that pretty much that doubling.
You want to say that?
Yeah. You're right. We were very successful actually in 2017 in the way we locked the pricing for our raw materials. Yes, we were a bit above EUR 50 million in the impact in 2017. Clearly good job there. We don't use hedging, but we do lock pricing and lock pricing for the components as we don't really buy raw materials as such. Our best estimate now is that there is an increase in the impact in 2018 to around about EUR 100 million, as we said. If you look at our 2017, we had very little impact of increase in raw material prices in Q1 in 2017, some impact in the second quarter, it got worse towards the end of the year. I think we were able to push and delay the impact into our results.
That's the difference between the two years.
Just to understand, does that mean that in terms of securing your contracts with your suppliers, it was more difficult for you this year to get as good as a price? Is that the message?
No, I think we were successful in delaying and did a good job in 2017. In 2018, I would say less than half of the prices are locked for 2018, and we continue to work on it. Let's see how things develop and how raw material pricing develops to see how the full impact.
You have to remember, Lucie.
Thank you.
what we had for last year is we had locked the India's prices when the markets were at a much more favorable level. Our market has continued.
Yes
to come up, that's usually when you lock or hedge, that you can delay. Now we see it coming through.
Okay. Understood. Thank you.
Manuel Ringvella of Nordea, please go ahead.
Thank you. Relating to the previous question on the pricing and raw material cost inflation. Should we think that there is a lag impact that goes into 2019 as well, that if you're now having EUR 100 million cost inflation in 2018 from raw materials, you're raising prices. How should we think about the lags, or do you expect that they will still be just a mathematical lag in 2019?
I think it's a bit too early to see. We have no idea where material markets will go that, and as Ilkka mentioned, we have probably 50% of our prices locked in for this year. It's too early to talk about 2019, I'm afraid still.
Asking it the other way around then, how long do you think it will take for you to raise your prices to match the kind of current spot rates that you are buying in your raw materials? Can you comment on that?
Well, it depends on where they are at the moment. As we said that now our margin stabilized. Clearly, what we have been delivering so far has been at higher margins than what our orders received had been. Now we're going in the right direction, but we still probably have a bit to go.
Can you then comment on pricing in maintenance? Obviously, you have this program, you are starting to put this new pricing strategy in place. Can you talk about the countries where you have had this strategy in place for some time or where you started implementing it and what kind of an impact that has had on pricing in maintenance in those regions?
It has had a positive impact. We can see that in maintenance, particularly in Europe, in the countries where we introduced this, that we saw a positive impact on pricing there.
Does the program come with added costs, or is that also a net positive impact on the margin?
It is a net positive impact on margin. We have to remember that to change our country maintenance base, that takes many years. At least we can see that overall, both through that and other actions, that overall in Europe, we did better in 2017 than in the prior years.
Final question, can you just talk about the maintenance pricing in the U.S. and Europe just as standalone. Are you seeing maintenance prices actually increasing in many places in the U.S.? I think you delivered a lot of equipment there over the past years, but we haven't really seen that filtering down into the maintenance business?
Yes, we have seen it filtering down to the maintenance business, but it's growing slightly faster. We have to remember, though, that still the absolute volumes in new equipment, in number of units, is not quite as high in North America as in other markets. We are starting to see a slightly better maintenance market, highly competitive. It always comes with a delay, but we're seeing some slight positives there. Actually, we're growing that business as well. It's moving forward.
Are you able to expand the margins with the pricing impacts you're taking?
Last year, probably stable-ish there. I would say in that market, there are gives and takes. There are some segments that are doing quite well. You have some segments such as retail, for example. It's quite a big segment in the U.S. It's clearly very challenging. I would say probably more stable overall.
Okay. Thank you.
Omid Vaziri of Jefferies, please go ahead.
Yes. Good afternoon, gentlemen. It's Omid Vaziri from Jefferies here. Thanks for taking my questions. I had two questions. First one, taking the focus back to China. I was wondering if you could help us understand what % of your China sales came from maintenance service in full year 2017 or the fourth quarter. Generally, what are you seeing in terms of the large foreign OEM's share of the maintenance service market in China? You're seeing positive development there, share being taken. Can you please tell us what KONE's current share is of that market, if possible? Also, what about OE to maintenance conversion rates? Are you seeing positive development on that front as a result? My second question relates to the OE margin development outside of China.
Excuse me. I think you had three questions already. Let's take them one at a time, and then we move forward.
First question was share of services in China, I guess.
Yeah.
Yeah. That's around about 10% of the sales in China.
Yeah. You talked about the share of international players. The top OEMs maybe have quarter a little bit more. The market is a very fragmented market still, but they are constantly slightly taking share. We are the market leader or maybe a joint market leader in the market, and our market share is still not that high, so there is clearly room to expand. If we look at our conversion rates in China, they improved slightly last year, particularly for the KONE brand.
Thank you. Are you able to tell us roughly what range conversion rates we're looking at now in China and where they are outside of China?
What we have been communicating about China for the KONE brand, we are a bit over 60% overall for KONE, around 50-ish. Rest of the world, it's 85-ish.
Thank you. Second part of the question related to the OE market, OE margins rather, OE margins outside of China. Could you please just high-level comment on the developments in EMEA and North America, please, in fourth quarter?
Well, if I look at just instead of specific markets, specific quarters, I would say the trends, North America has continued to be positive. Europe, Middle East, and Africa, mixed. Some markets improving, some markets continue to be challenging, and it depends really on what stage the markets are. The long-term trend, what we have achieved in North America has been we've been taking market share there, and we have been improving our pricing.
Thank you. Just to clarify, your comments relate to margins, not just pricing. Is that right?
Yes.
Okay. That's all my questions. Thank you very much.
Thank you.
James Moore of Redburn, please go ahead.
Yeah. Thanks for taking my questions. I'll go one at a time. I know it's coming in March, will IFRS 15 adjusted EBIT be above or below the EUR 1,230 you reported today?
As said, release the comparable numbers for 2017 in March. We still have some work to be done to put those numbers together, as we wanted to first focus on getting these numbers out. If I look at the numbers overall, just to give you an idea of the impact that we see. From a revenue perspective, we're now estimating that there's around about EUR 150 million negative impact to our revenue in 2017 compared to where we are today with the current recognition. We don't expect to have an impact to margin as such, that would come then to a similar margin.
Okay. Thank you. On savings, you've got your EUR 100 million target. What was achieved of that in 2017, please?
We started that program very late, I would say a very small portion. Most of the impact you will start to see as run rate coming out of this year then. A much more substantial part. Jukka can probably comment on exactly what we expect there.
Yes. We don't see really coming out from 2018 much savings yet. There's a lot of work ongoing to push those forward and really make them tangible. What I look at this is really the end of 2018, that what's the run rate savings coming out. We're now estimating and targeting something in order of magnitude of EUR 50 million coming out of 2018. The impact to 2018 is not going to be much. It's going to be latter part of the year when we start to see those materializing. That's the current understanding. We'll update you as we progress with the work as well. We'll continue to keep transparency on that progress.
Okay. When you talk about the order margin being stable, does that include the EUR 100 million raw material and the whatever the 2018 saving number is all embedded together in that statement?
When we look at the margins of orders received, we look at a contribution margin. You look more at, okay, what is the margin of the orders received? You look at, okay, what happens on the input cost? It's more the raw material and the orders received that you look at then.
If you save, I don't know, EUR 30 million-EUR 40 million, that's on top of that's incremental to that?
That's the idea.
Okay, thanks. You say that the pricing market's tough in China. Are you talking about sort of basically stable market pricing and you being 5%-6% market price is quite a difference. Am I right about that degree of difference between you and the market for China order pricing?
I think Q4, there was clearly a probably bigger difference than in other quarters. We Q4 did really well. Always difficult to exactly say what market pricing is, but there's clearly a gap that we are outperforming. If we look at last year, we'll come with the exact market share numbers with Q1, but with the information we have today, in units, we're probably about stable. It's clear that when we look at monetary value, I think we took share. That's clearly was our objective as well, that when you have a stable or actually slightly declining market, then it very seldom makes sense to go for unit market share. You want to go for value market share. That's what we have done. Yes. I think there is a gap between us and the market.
Thanks. Two more quick ones. Can you say what China maintenance growth was in the quarter?
Jukka, you want to?
Yeah. We had good maintenance growth in China. We were around about [inaudible].
So it was-
12%, 20%.
high double or clearly double digits. The revenue growth and the service base increased by about 25-ish%.
25.
A number of new service contracts. We have to remember that what's happening in China. We are growing our service base again by about 25% in the quarter, while sales growth is not the same. I think you remember in CMD, we talked about also the first service period given that new equipment orders have been stable. The first service period revenue is not growing, but the contract revenues are growing.
Yeah, I understand. Okay, thank you. Lastly, free cash flow, a bit below EUR 100 for the year. Do you expect that to sort of reverse to being above EUR 100 for this coming FY 2018, or do you think around EUR 100 or sub-EUR 100?
Well, from a cash flow perspective, clearly the fact that we had very strong deliveries that impacted the working capital and receivables is something that is more of a timing difference was related to this fourth quarter. We continue to have good commercial terms. We haven't seen a change there. In that respect, we continue to see good cash flow generation for the business. We don't give guidance for the exact cash flow. From a fundamental business terms, we haven't seen change there.
Very helpful answers. Thanks.
Thank you. As a reminder, to ask a question, please press star one. In order to provide an opportunity to ask and take their questions, please limit your questions to one. Our next question comes from Andre Kukhnin of Credit Suisse. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. I'll limit to a couple, if that's okay. Firstly, on your growth guidance, you expect similar growth in 2018 versus 2017, yet your orders have been collected from -1.6% to +1.7%. Just wanted to check if you expect anything to slow down in kind of outside of the order book in the maintenance business, or is there a lead time extension, or is this just conservatism?
If you look at actually, we grew quite nicely this year compared to what the orders was in 2016. There's always going to be fluctuations in lead times. I don't think there will be any significant change in lead times. You always have some timing differences, what size, do you have more larger projects, geography, and so forth. All of these come into the mix, and with that, we think it to be about the same level.
Got it. Thank you. Just on the margin evolution guidance with the message of sort of margin pressure beginning to ease towards the end of the year. If your contribution margin, as you've just described, stabilized in Q4 2017 and with lead times of sub a year overall and nine months in China, shouldn't that drive margin to be stable by Q4 2018 with potentially, as we talked about, savings? Is there anything else in there that can sort of come into this equation that we're not seeing?
Well, I think what you explained, it's quite consistent probably how we see. It's clear that the margin pressure is going to be more significant beginning of the year, first parts of the year than really towards the end of it because of the better orders received now and the fact that we've been able to turn pricing. When that starts to come through, it should start to contribute more positively.
Great. Thank you. Can I just, if I may, just one more. On GiantKONE, specifically in China, how did that perform in Q4 and maybe in the year? Generally, we've picked up some talks about the sort of similar name competition ramping up from the ex-partners and generally that sort of slice of the market being probably a bit tougher. Would be keen to know how that business has done and how you're thinking about that in the context of your guidance.
Actually, well, as you know that the smaller players have had a tougher period of time in China overall, and we can see the same. Actually, if I look at last quarter, actually GiantKONE had a really good performance. They also grew nicely and we continue to have a very clear strategy in China where each of our brands have a clear purpose and we continue to invest and develop GiantKONE, and I think it's in a pretty good shape. I think actually it had a pretty good end to the year.
Great. Thank you very much.
Our next question comes from Daniela Costa of Goldman Sachs. Please go ahead.
Hi, good afternoon. My first question, I just wanted to check if it's sort of fair to say that when you look at the 2017, the margin drop, it is the vast majority is concentrated in China. Are there also sort of slight decreases in other regions because of, for example, your R&D, the sales step-up spreads across the board and some regions ended up also being down? Just we'll start by that one, and then I'll ask something else.
Clearly the biggest impact, given the size of the new equipment business, is China. Clearly also when you have headwinds from, for example, raw materials, they impact all businesses, but the impact is not as significant as in other parts. In most other parts, we're able to compensate that almost. China was clearly, or I would say Asia was clearly the biggest impact. As you mentioned, when we look at total cost, we also had an increase then in R&D and IT costs, which is a global cost for us.
Okay, thank you. Just to sort of sum it up with this and some of your earlier comments, this is probably a follow-up to what people have already asked, you've clearly said a couple of questions ago that orders margins could stabilize towards the end of this year. What is the evolution of R&D and IT to sales now? Is it fair to say that you think 2018 is the trough in group margin?
First, just to clarify, I think there were many aspects in your statement. To be clear, what we have said about the market, first of all, is that we're starting to see a stabilization of pricing in the market. What we have said about ourselves is that we've been able to increase prices to be able to then stabilize margin. That means to offset the increasing costs. This is all 2017. Going forward to 2018, if you look at share of R&D and IT-
In 2017, we did see an increase of 40 basis points to R&D and IT. We don't see similar increase. If I would have to give a number, it would be around about 10 basis points of increase, mainly on the IT side. Clearly more stable than we had in 2017.
Regarding whether margins could drop in 2018, what's your view for the group?
That would mean we would have to give guidance into 2019. That we are not doing. I think our ambition level is pretty clear.
Okay, thank you.
Thank you.
Our next question comes from the line of Martin Flueckiger of Kepler. Please go ahead.
Yeah. Good afternoon, gentlemen. Thanks for taking my questions. 3. I'll take 1 at a time. Can we just go through your China new equipment market outlook again, preferably, if you could highlight your main concerns there going forward, because it seems to me like nothing has changed really in terms of dynamics over the last few quarters. Is that a correct perception, or am I missing something here? That's my 1st question.
I think you are pretty correct there, and that's pretty much what our view is. That's our view. Let's see what ends up being the case. If we look at the Chinese market, we can see a pretty healthy demand. At the same time, we can now see that the restrictions that the government has imposed has continued to be rolled out. We are in about 100 cities now. That clearly is cooling down the market. If I look at what we expect for 2018, I don't think it's that different from 2017. Perhaps a slight decline or stable. Similar trends, yes.
Okay, thanks. My second question would be, if you could elaborate a little bit more on the latest developments in your KONE 24/7 Connected Services, i.e., your digital maintenance platform. I think you've launched it, if I remember correctly, in February, and you've already given some tidbits on the developments in Q2, Q3. What was the particular highlight for Q4 in that respect?
I think the particular highlight for Q4 is that it's now available in over 10 countries, and particularly in our largest countries, to a very significant part of our maintenance base. To build up the capability to sell it's not only that we have a technical solution that we put into an elevator, it's a whole organization, how we work to be able to drive all the benefits and show the value to our customers here. Now we have changed our organization, put them in place in 10 countries. We're ready to sell, and we are selling in these countries. That's perhaps, again, how we have spread the reach of it, and now we can clearly see that in the countries where we have launched earlier, it is really clearly building momentum now. That's perhaps the most important development right now.
Okay. Just to clarify, in terms of the financial impact, I suppose it's not significant yet. Could you provide a ballpark number, how much it's been helping your EBIT line?
We don't still talk about big numbers, but when it starts growing, what we have seen and what we have been very clear on is that we are actually not rolling it out just as fast as we can, just putting it everywhere. We are taking it forward. We are selling it as a value-added service to our customers. Therefore we have good commercial prices for them. That is very good. Therefore, for last year and beginning of this year, impact not so big, but towards 2019, we should start to see a clear impact for revenues here.
Thanks. My final question. I've heard some comments about the cost savings from restructuring only expected for 2019 to be significant. Could you talk about the restructuring costs you're expecting? Maybe I've missed it, but I haven't seen it yet. The restructuring costs you're expecting for 2018?
Yes. For us, like you said, we're expecting the savings to ramp up during 2018 towards the latter part of 2018. At the same time, we continue to see we need to invest to make those happen. We're estimating around about EUR 50 million impact from the Accelerate program during 2018.
Those are the costs, yeah?
Yes.
Thank you very much.
Thank you very much.
Daniel Gleim of MainFirst, please go ahead. Your line is open.
Good afternoon. Thank you very much for taking my question. Apologies for belaboring the margin commentary on the order intake. When you said the order intake margin is stabilizing, I understand this is a group statement. Do you refer to local currency comparison, or is this actually reported? Before you included raw mats into that, what is the FX impact, i.e. mix of the China share, is this included in there, or is this a local currency statement?
We always make these statements in local currency because if you remember that, for example, China, we know that's the biggest market. What we sell there, vast majority of the costs are also local. It's local cost versus local revenues. The only thing makes sense to talk about what happens in local currency. When we talk about stabilizing, it means that we have been able to increase prices to a tune that then compensates for the increasing input costs.
Yeah. With the softer yuan, the impact of China will be less then. This will act dilutive on the overall order intake. This is what I was referring to. The reference point for the stabilizing margin. I was not sure because during the call, you referred to the current sales. Is the reference point the order intake one year ago, or the current sales?
It's always we refer to what it was a year ago.
Okay. What does this mean for the order book in China in terms of quality? I mean the order book, not the order intake. Has this already stabilized, or will you only see this stabilizing down the road?
As we mentioned in Q4, our deliveries were still at a higher margin than what we're ordering. As we go forward, clearly, if we can improve pricing, we will start to see a stabilization. Of course, we want to see a stabilization more through a better margin rather than it averages out. Yes, in fourth quarter margins where deliveries were higher than for orders.
Thank you very much. My last question would be on acquisitions and service in China. I think we saw a turnaround in terms of communication in the last quarter. Have you made any progress in terms of staying on targets? Is this something you can report on? Is this something that is being continued?
As we said, we again grew our maintenance base by about 25% in China. We are growing really well there organically. That is our objective in the maintenance business in China, is to grow organically. In other parts of the world, as you know, particularly in Europe and North America, we continue to be very interested in finding also acquired growth.
All right. Thank you very much.
Thank you.
The next question comes from Tomi Railo of SEB. Please go ahead.
Thank you. Most of my test questions have been answered. Coming back to the Chinese maintenance, can you be a little bit more specific in terms of absolute level, for example, how much the maintenance business for you is in China? Because I would assume that it surely must be bigger than around about 10% of your revenues as you suggested, given the growth you also commented.
Also we grew our new equipment business quite nicely. Of course that it was a relative how the two are growing. It's roughly 10% of our sales in China. That's where it is. It's been growing nicely. As said in revenues, we grew at very solid double-digit numbers in monetary value and maintenance base up about 25%.
Okay. Thank you.
The next question comes from Glenn Levy of JP Morgan. Please go ahead.
Good afternoon. Two things. In America the aftermarket growth service business is much lower than your area installation growth. Is that purely the timing of when your new installations have the service contract included for the first period and then the growth picks up later? Or is the competitive landscape in the aftermarket much tougher?
I don't think it's those. I think it's actually we're converting very nicely everything that we are installing in North America. As you have seen, we have grown very strongly there. It's just the absolute numbers of new equipment. The whole market number of units is actually not that large. In monetary value, it's quite high. Then it's not that big of a percentage of the installed base. If you think about the new equipment market it is maybe in North America per annum little bit over 3, but less than 4% of the total service base. Just you have to put those two in perspective.
Okay. The other thing is your balance sheet. Yes, you've increased your dividends quite nicely. You still have a phenomenally strong balance sheet. Are you still hoping to be able to do some larger acquisitions?
I think it's pretty clear what our ambition is and what we would like to do. We think it makes sense. We think that there could be some attractive targets. As we said before, you need both a willing buyer and a willing seller. We are definitely interested to expand. We continue to do acquisitions, and in this environment, we think it makes sense to maintain a strong balance sheet. At the same time, I feel that we are also proposing a very attractive dividend.
Okay. The message was the same a year ago, and the potential targets that we can see don't seem any more likely to change their vision of their business anytime soon. Do you see something different today to what you saw a year ago?
Not necessarily. I don't think it makes sense to comment on individual cases, things change.
Sure.
Hopefully, this just shows what our desire and ambition level is. So far, the determination of board of directors has been it makes sense to maintain a very strong balance sheet.
Thank you. That's great. Thank you very much.
Thank you.
The next question comes from Erkki Vesola of Inderes. Please go ahead.
Thank you. I would have just a clarification question. You have abandoned the previous practice of providing a numeric EBIT guidance for this year. Could you briefly walk us through the reasons why you made such a decision? Considering the order backlog size and the visibility you have with those margins, is there increased uncertainty somewhere else, or is it all about the raw material prices and foreign uncertainty we have already discussed?
No. Actually, the reason is the fact that we are now stepping in, starting from 1st of January 2018, with IFRS 15, which is changing the way we recognize our revenue. We want to get out the comparable numbers for 2017, which are coming out in March. As we get those out, then we give guidance, compared to the comparable numbers, as we announce our results in conjunction with first quarter. That's the reason for it.
That's very helpful. Thank you.
Thank you. As a final reminder to ask a question, please press star one. We will pause for just a moment to allow you to signal. The next question comes from Lars Brorson of Barclays. Please go ahead.
Hi, Henrik. Just a couple of questions for clarification. I'll keep it short, but I was struck by the 20% growth in your China maintenance business in Q4. I think we have talked about a sort of a growth deceleration over the course of 2017, down towards what I understood was very low double-digit growth in Q3. Obviously, I don't know what the comparisons are year-over-year, but am I right to, A, say that the growth here has accelerated towards the back end of 2017? B, am I right in saying it's primarily driven by your modernization business? Or are you separating that out from the service growth you're talking about when you talk about 20% growth?
What we said is that. First, I would say yes, we accelerated growth towards the end of the year. Number one. Secondly, we are talking only about the maintenance business here, so not about modernization. When we talk about revenue growth, it was in the strong double-digits. When we look at maintenance base, it grew by 25%. As I commented earlier, why is revenue not growing as fast as the maintenance base? Because a significant part of the revenue has come from the first service period, and that is, of course, more now stable because of stable new equipment deliveries. Yes, we did accelerate towards the end of the year. We had a strong finish also here for the year.
Maybe to add to that, from a modernization point of view, we grow faster, clearly. It's about 30% in the quarter.
That's clear. I just wondered whether, Henrik, you could elaborate very briefly on beyond the fact that first service period is less of a drag today. What is really driving that underlying growth? It's quite impressive that you're growing at these rates now in your maintenance business, despite what we've been through from a first service standpoint.
I would say we have a strong and good service business in China. What I think is important is that what we've talked about is that on the developer side, the Chinese market is consolidating, which can create more competitiveness on new equipment side. These large developers, they clearly need a good service because they have a brand to protect. They want to compete with each other. For them, a high-quality service and reliable service and reliability is extremely important. They actually are going more up the service, and that is clearly one of the ways we differentiate because of the capabilities we have in service, the scale of our service business, and the quality of our service. Those are some of the things that are driving it.
That's helpful. Just finally, on your OR margin, could you help me quantify how much of that margin stabilization you saw in Q4 was due to pricing actions? The 7%, I think you mentioned in China, new equipment Versus how much is really down to other self-help measures, working with suppliers, et cetera?
There are always both things you need to get. The 7%, that was just the difference between volume. Volume was pretty stable, but monetary value was up 7%. That is all clearly difference in mix compared to last year and the pricing, and we said most of that was pricing. To stabilize margin, you need to both get price up and you need to manage your cost, and I think we did a good job in both ends.
On that basis, do you think you can offset all of the EUR 100 million raw material headwinds you're facing in 2019?
That is quite a tall order, we are of course fighting it. Still a lot to go for the year. We have to see where we end up for 2017. We were able to compensate a big part of the headwind. Of course, you say, why did our margin go down? Clearly that was the impact from pricing that had happened earlier and was in our order book.
Understood. Thanks.
We will now take our final question today from Tom Skogman of Carnegie. Please go ahead.
Thank you. I hope you could just quantify the P&L impact on the cost savings in 2018 and 2019 as it looks now. How large share of that comes from equipment? Finally, can you elaborate a bit about this productivity improvements on the equipment side that you're implementing this year?
Let me answer this in two ways, then I'll hand over to Ilkka. When you talk about productivity on equipment side, we have productivity in all parts of our business. That is something we do year in, year out, and it's a must. Always there are pressures, salary costs going up and other cost pressures. We need to, of course, have pricing and productivity. That is a constant in our business, and we're getting it everywhere. We're making pretty good progress in many areas on that, and that we will continue. Second one, we have our Accelerate program, which is about speeding up our strategy. Biggest impact of that will be how we can increase our growth going forward, and that way get back to profitable growth. Also it has cost saving impact.
Ilkka, again, if you highlight how much you expect this year costs and run rate and so forth.
To summarize what I said earlier, from a cost-saving perspective, we're not expecting much savings in 2018 yet to materialize, but we're expecting to get to a place where the run rate impact of those savings is about EUR 50 million at the end of 2018. Delivering on savings in 2019.
Okay, thanks.