Good afternoon, and welcome to KONE's 2016 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. We have changed the structure of the presentation slightly for today. Henrik will start with the 2016 highlights and market environment. After which Ilkka will go a bit deeper into the numbers. Henrik will describe the 2017 outlook. In the end, Henrik will give a bit more color into the new strategic phase that we are entering, and that we announced earlier today. After that, of course, as usual, we have time for questions both from the audience and from the telephone lines. Henrik.
Thank you. Also welcome on my behalf. Today, again, a lot of good news to tell. It's been an eventful day for us. We have not only announced our results, we have also announced our next phase in our development of our strategy. We have announced two new appointments to our executive board. All of which I think are again, good in taking KONE forward. If you look at the highlights, what we're going to talk about. First, we look at Q4 and full year with continued good development in our profitability. Strong performance overall. One of the key highlights for us was that our services business continued to develop very positively with strong growth in both maintenance and in modernization. Our board has made a proposal for paying a dividend of EUR 1.55 for each class B share, which is an 11% increase over last year.
We launched our new strategy also today. I also mentioned that we have made two new appointments to our executive board. I'm very pleased to welcome Susanne Skippari, Executive Vice President for HR. She is succeeding Kerttu Tuomas, who has been head of HR for KONE for over 15 years. Kerttu has been a very important person for us in developing our vision, developing our culture, and in coaching and developing a lot of KONE people. After 15 years, she's now taking the next phase in her development. Susanne has a broad and strong leadership development within HR within KONE. Announced that Jyri Kivihalme will become Executive Vice President for our services business. He is succeeding Pekka Kemppainen, who is retiring at the end of April. Many of you have met Pekka.
He is someone who's been for a very long time with KONE and been very instrumental in many of our breakthroughs throughout KONE's past 20, 30 years. I would say that with both Susanne and Jyri, we have two very experienced KONE leaders. Susanne has been leading many of our functions in HR, and Jyri has been leading our maintenance business very successfully. Before that, he was heading our French business. With that introduction, I think we can go straight into the highlights for the numbers for the fourth quarter of the year. The fourth quarter again had a solid development in our profitability. Our orders received, they were a little bit over EUR 1.8 billion. They declined at 5.5% or 2.9% in comparable currencies. Our order book remains strong at close to EUR 8.6 billion and has grown at about 5% year-over-year.
Our revenues developed well, close to EUR 2.6 billion for the quarter and growth in comparable currencies of 3.6%. The environment we are, I think that's a good growth rate. Perhaps most importantly is that we improved our profitability again. Our EBIT was EUR 392 million, and the EBIT margin improved from 14.8% to 15.1%. I'm also very pleased about is that our cash flow remained very strong at close to EUR 410 million. A strong cash flow again is a sign that we have maintained healthy business principles despite a challenging new equipment environment that we have. That I'm very pleased about. Earnings per share was EUR 0.58. If we compare it to last year when it was EUR 0.71, that EUR 0.71 included EUR 118 million extraordinary dividend from Toshiba Elevator Company.
If we exclude that extra dividend that we received, the comparison number was EUR 0.49, also a good growth in our EPS for the fourth quarter. As we have always said, as the approach we have is that one quarter is a very short period of time to measure performance, now we have a full year to look at, the good thing is that we had a strong performance in the full year. All of our businesses contributed to the growth in operating income. Orders received for the full year at about EUR 7.6 billion, a decline of 1.6% in comparable currencies. Our sales at about EUR 8.8 billion, a good number, the growth of 3.9%, which I think is a good achievement in the environment that we have. Also our EBIT, good growth in our EBIT.
EBIT was EUR 1,293 million, EBIT margin improved from 14.4% to 14.7%. Also, if we look at the full year, we can see that our cash flow was very strong. It was over EUR 1.5 billion. Our EPS at EUR 2 per share compares to EUR 1.79. We excluded Toshiba dividend, also a good growth in our EPS. Again, results like this, if you look at the environment that we have, would not be possible without motivated, engaged people who are all working towards a common goal. As we can see, the KONE people have done again and again, very pleased. My heartfelt thanks to all KONE employees for a really great job done during 2016. If you look at how our business mix slightly changing, given the market environment and given our growth, we can see that the share of services is increasing.
Services contributed to 45% of our revenues in 2016. In particular, it's the share of modernization that increased. Also, if you look by area, we had a slightly more balanced mix. The share of North America growing to 19% and pretty equal shares for Europe, Middle East and Africa and for Asia Pacific. Those were the highlights of our numbers. If you look at some of the highlights of our businesses for 2016. If you look first at the new equipment business, here we continue to improve our competitiveness, new equipment overall. We had new and successful product launches in each geographic area. A couple of highlights of this were the new MonoSpace 500 that we launched in North America that has been very well received by our customers.
A broadening of the so-called I range in India that has also been very well received by our customers. In Europe, Middle East and Africa and in China we did have many good additions to our product range. If you look at new equipment business last year, we all know that the global new equipment market, which we do to China, was challenging last year and we are still able to perform very strongly. That is because we were constantly able to improve our competitiveness. This helped and definitely was a key contributor to the strong performance last year. We had some good extensions to our People Flow Intelligence solutions, a next generation destination solution for the commercial segment and also a broadened KONE Access, where we can now integrate to virtually all commercial access providers and bring a broader offering to our customers.
Our orders received, number of units last year was about 158,000 units in total. Last year we delivered to our customers about 136,000 elevators and escalators. Again, to remind what that means is that in a year we have about 120,000 working minutes. Every working minute we deliver more than one elevator or escalator. Again, while we have been here, we have probably delivered another dozen or so. Services business did very good development there last year. Solid growth in maintenance in all geographic areas. That I am pleased about because not only about Asia Pacific, good growth in both North America and Europe as well. That was due to a continued good growth in our conversions overall, and also that we improved our competition balance clearly last year. Our modernization business has grown strongly.
This has been driven by much better proactiveness we have in our sales and how we segment our market. I believe that this has been a clear success story for us. What we talked about in the capital markets day is that we have started to launch and pilot new service concepts to our customers. The more we do this, I can tell you that the results are very encouraging and that is why we continue to expand our activities for new solutions, new services, because the results we can see are positive. Our maintenance base continued to grow at over 6% last year, and at the end of the year it was clearly above 1.1 million units. Again, good growth in the maintenance base. Then final highlight, dividend continued a solid growth in dividends.
Our proposal to the shareholders meeting or the board of directors proposal to shareholders meeting is to pay a dividend of EUR 1.55. That is a 78% payout ratio and again, a good growth over the last year. About 11% growth. Again, a good and attractive dividend given our strong results and strong cash flow. Those were highlights of our business, our results and our dividend for next year. We go into market development, how that has developed during the last quarter of the year. Let's start with the new equipment markets. Now in Q4, the global new equipment markets were overall rather stable after having declined for the first three quarters of the year. Europe, Middle East and Africa markets were pretty stable in new equipment. Slight decline in Central and North Europe, particularly countries such as U.K. that is more uncertain at the moment.
We continue to have good activity in the Nordics, in Germany and some other markets. South Europe also continues its slight recovery. The Middle Eastern market here, even though it's rather uncertain, I would say it was pretty stable overall. Overall that made the Europe, Middle East, and Africa market pretty stable overall. North America continues to be a growth market, the seventh year or coming into the eighth year of growth. We can see that the market is at a high level, and this has also continued to drive a good development in pricing. If you look at the Asia Pacific market. Market in China declined slightly if you measure in units, but clearly if you measure in monetary value. Their pricing environment remained tough in China in Q4. I will come back to China a little bit more in detail.
India, the market now declined slightly in Q4 and was mainly a result of the demonetization in India towards the end of the year. We could see that this resulted in some uncertainty, but if you look at the underlying trends in India, our belief is that it will recover rather quickly from this. Southeast Asia markets are growing but clear difference market to market due to uncertainty. Now, promised I'll talk a little more about China. We know it's an important market for us and for our industry overall. If you start with the Chinese property market last year, as you all saw, transaction volumes continued to be good in 2016, almost throughout the year. Beginning, it was more about the higher tier cities. In the end, it spread more throughout the country.
We can see that as a result of this, between tier 1 and tier 2 cities, inventory levels are actually at a very good level if you compare it to the history. If you look at the lower tier cities, inventories continue to be high, but they have clearly improved. Market is becoming more healthy. We can also see that the price level of the markets increased throughout the year, and in some markets, some parts of the country, prices increased very significantly. Because of this, government measures towards the end of the year restrict the markets and to cool them down. We can see early signs that is having an impact. We can also see that real estate investments overall grew last year. Now the question is then of course, why is the elevator and escalator market not growing faster?
What we see in higher tier cities, there the volumes have actually been good and quite stable over some years, but they've been at a good level. Lower tier cities' focus has been on reducing inventories, and this has happened. That's why construction activity there hasn't substantially increased. We look at the real estate investments, a very big impact on the increase in real estate investments is increase in land prices. It's included there, and that has had a very significant impact on overall real estate investments. Overall, we continue to see a challenging market. However, now when we see that raw material prices are increasing or have increased clearly, we can also see for many players that they feel that pricing has gone probably too low. We probably are looking at a somewhat better environment in 2017, although we expect competition to remain strong.
The dynamics are probably going to improve as we go into 2017. That is what we expect. That is about China and new equipment market. We go into service markets, here we have a good and positive story to tell. Maintenance, all the markets are growing. Europe, Middle East, and Africa and North America, we have slight growth. Strong growth in North America. Modernization, a growth in all geographic regions. Europe, Middle East, and Africa, it is particularly Central and North Europe that is developing very nicely. North America and Asia Pacific is also developing nicely. As you can see, and what you will hear from Ilkka in more detail, is that we have really been capitalizing on these growth opportunities again. With this, let me hand over to Ilkka to go a little bit deeper into our Q4 2016 financials.
Thank you, Henrik. It is my pleasure to be here to walk through, in more detail, our financial figures for fourth quarter. What we will go through is first orders received, look more details into the sales development for the quarter, as well as operating income. As it is a year-end, we also want to look at the key drivers for cash flow in KONE. Let us first look at the orders received development for the quarter. As Henrik already highlighted, we saw a 5.5% decrease in the orders received in the quarter. However, if we look at that in more detail, we see that all regions outside of China actually grew in both fourth quarter and in 2016. Let us look at the figures more from a comparable currencies point of view and the geographies first.
Europe, Middle East, and Africa, we saw slight growth in orders received for the quarter. When we look at North America or Americas, driven by North America, we saw clear growth in orders received. An already good base given the environment there. Finally, for Asia Pacific region, we did see a clear decline mainly driven or driven by China, which obviously has a big impact to the area there. Outside of China, Asia Pacific was growing slightly. Let me comment a bit about the development in China for us. First of all, from a unit perspective, we saw orders declining a bit more than 5% in the quarter. Also pricing as well as the mix shift to lower specification products had a significant impact to our orders received market value or monetary value, excuse me.
If I look at the perspective of a business, I would highlight modernization as one of the highlights for the orders received in the quarter. Clearly, providing growth, in our orders received. From a FX point of view, FX having a negative impact in the quarter of EUR 54 million into our orders received. I look at the profitability of our orders received in the quarter. The relative margins of orders received declined slightly overall in second half of 2016, but remained at a good, healthy level overall. Let us shift gears to look at sales in more detail. Our sales in historical exchange rate grew 1.2% in the quarter. Really as highlighted already by Henrik, services was the key driver for sales growth for both fourth quarter as well as the total 2016.
If we then look at the sales development in comparable currencies, we saw 3.6% growth in our sales. As said, both modernization and maintenance grew in the quarter. Modernization growing more than 12% and also maintenance contributing by more than 7% growth in the quarter. Overall, new equipment business was roughly flat in terms of its development. From a geographical point of view, I would first highlight the strong development in Europe, Middle East and Africa. Over 9% growth in sales. Good progress from our perspective. Clearly starting to see a positive trend there compared to the past that we've seen. Americas continued its strong performance at over 14% growth there in the quarter. Finally, Asia Pacific decreasing by 6.9%, really driven by our performance in China. China overall having sales decreasing more than 10% in the quarter.
Finally, the currencies continued to have a negative impact to our sales as well as the orders received. But in sales the impact was EUR 60 million for the quarter. Let's look at operating income development in the quarter. First of all, overall EUR 392 million of operating income in quarter, up 3.6% in historical currencies is good progress and really reflects the progress we're making as a business. All of the businesses contributed to this EBIT growth and the trend continued to be the same for 2016 and fourth quarter both. If we look at the drivers for the growth. Services growing on an absolute basis, obviously contributing to the operating income as well as the progress we're making on the side of the new equipment that increased from a profitability point of view, our operating income.
That being said, while we actually increased our investments to both R&D and IT, as we've highlighted both in our capital markets day as well as in the third quarter result announcement. FX had a EUR 14 million negative impact to our quarter and overall EUR 44 million impact to the overall year. Let's finally look at cash flow. As said earlier, quarter is a fairly short time to look at cash flow as it does fluctuate quarter by quarter. But now that we're closing the year 2016, it's good to look at the key drivers for our cash flow. First of all, the EUR 1.5 billion of cash flow from operations up 2% is good progress. Obviously, a key driver for that was our good profitability from an operating income point of view.
I would also highlight the contribution our advanced received compared to inventories progress has made. Reaching 144% up from 138 in the previous year is really helping us to positively drive the cash flow further. Our receivables continued to have stable cycle times during the year. I would also want to highlight our investments in CapEx. Up from 1.1% to now 1.5% of net sales in 2016, really driven by investments that we're making to R&D in China, in U.S., as well as in Finland. Really further improve our capability to develop product competitiveness, especially in the area of high-rise capabilities. Also, we made investments to our manufacturing facilities and supply chain. Really further drive our capabilities to automate them and use robotics there in our facilities in U.S., Italy, as well as in Finland. Lastly, we did close 19 acquisitions in 2016.
With really a focus in acquiring maintenance base, both in Europe as well as in U.S. GK, our GiantKONE acquisition is not among these as it was already consolidated. All in all, I think a good progress and really the cash flow reflects well the work and the progress we're making as a company in this year. With that being said, I'll actually hand over back to Henrik, who's going to look more towards the future as well as our expectations for 2017. Henrik, please.
Thank you, Ilkka. You've seen good performance we had last year on a broad basis, and that's something I think we're quite happy about. Let's look into next year. First, if we start with the market outlook for next year, we start with the new equipment markets, how we see them. If we start with Asia-Pacific and China, we expect the Chinese market to decrease slightly, so between 0% and 5% in units, we expect the intense competition to continue. If we however, look at the trends with increasing raw material prices and the impacts of reductions in prices for the past couple of years, we expect that the environment is probably somewhat more constructive in 2017 than 2016. Rest of Asia-Pacific are expected to grow. Europe, Middle East and Africa, slight growth, same thing with North America from a high level.
In the maintenance markets, we're not expecting to see any big shifts there in the trends. Continued slight growth in Europe, Middle East and Africa, North America, and good growth in Asia-Pacific. Modernization markets, we have now had strong market growth for close to two years. We expect the markets to grow next year, perhaps slightly slower than this year. We turn to KONE's outlook, we expect that our sales to grow from -1% to +3% at comparable exchange rates. We expect our EBIT to be in the range of EUR 1.18 billion-EUR 1.3 billion. That assumes that translation exchange rates remain about the January 2017 level. To that level exchange rates are not expected to have a big impact based on level where we are now.
If we look at our guidance, where we can see that based on this, we would exceed only 2016 results at the top end of the guidance. Why is this, given the good development we have within KONE? We have many areas that are developing positively. We're growing our services business at a good rate and developing that in a good profitable direction. Europe, Middle East, and Africa, North America are developing well, as well as many Asia-Pacific areas, countries. Also our quality and productivity is developing in a good direction. However, we also have headwinds. One of the key headwinds is that our orders received in China has declined clearly in 2016. During the second half of the year, we saw some pressure, a slight pressure on the margins. That is clearly a headwind next year.
Other important headwind for us going into 2017 is raw material prices, and then also a slight headwind from the fact that we are expanding our activities in R&D, IT, and other development, and that is also then burdening the result somewhat. I guess the most important point is that we expect that our competitiveness and our execution to remain strong and develop in a positive direction in 2017 and continue to make KONE an even stronger company. That is main part with our financial performance, markets, and our outlook. It's time to look more forward. What does this new phase in our strategy mean? Before we go into that, I think most of you remember that we launched three years ago our latest set of development programs. We launched them three years ago.
We could already see that the global new equipment markets, because of development in China, was getting more challenging. That has really developed largely in line with what I'd expected. Therefore, we also saw that objective was to expand our growth in other geographic regions and also to accelerate our growth in our services business. If you look at the results over that three-year period, you can see that our top line has over that three-year period grown by 8%, and growth in all geographic regions. Europe, Middle East, and Africa started to grow now better towards the end of the period. What I'm very happy about, if we look at our services business, is that we can see that we have been able to accelerate our growth, both maintenance and modernization.
Also, what is important is that our operating income has grown on average at 11% per annum, exceeded that of our sales growth. Overall, we can see that the objectives we set ourselves three years ago, we have largely achieved, and it's been good performance over that period of time. At the heart of our development programs were these five programs that you see, we have talked about many times, and they have helped us again, improve our competitiveness and drive good growth. I will not go through all of them, but I'll just make a couple of highlights. In our winning team or true professionals development program, here our objective was to help every KONE employee to perform at their best. Here we made some really good achievements. One of the areas was to ensure that every KONE employee has a personal development plan.
We are close to 100% of KONE's employees has a documented development plan that will follow up how they need to develop as individuals. Also, at the beginning of the period, we launched a new e-learning platform, and we now have very active use in that. That is incredibly important in an organization such as ours, where we have a lot of people spread out geographically, how we can bring new training programs, new capabilities to people in a broad, distributed way. In our preferred maintenance partner development program, you can see that we achieved solid growth. We have continued to improve the technology and tools for our technicians to help them serve our customers even better. We are quite far with that. Also, we have equipped our customers with new online tools to provide them with much better transparency, understanding of what's happening.
Towards the end of the period, we have started to launch new service concepts that have created very encouraging results in our top modernization provider. We are very happy about how we accelerated growth in modernization and have very good momentum in that business. That is now history. It's time to look forward. It is time to think about our new phase, what is happening in our world around us. We can see that new technology is bringing a lot of new opportunities, how we can add value for our customers in totally new ways. We can also see that customer expectations are changing quite fast in good direction. Our customers are expecting all the time an increased transparency. They're expecting an increased predictability. They're expecting increased uptimes. We can see also that our customers are more and more starting to buy specific outcomes rather than product features.
We can also see that the need for smart and sustainable urbanization is definitely there. Cities are getting more crowded. How can we help them grow in a smart and sustainable way? All of these are important fundamentals in helping us drive our change. This objective is to continue to increase our differentiation and to increase the speed at which we can bring new services and solutions to our customers. When we look at the world and what we can see from our activities is that when we deliver great service or solution or product to a customer, and we help our customers succeed in their business, then we will win. We have a lot of great examples for that when our customers succeed, then we will also succeed. That is why we have chosen this name for our next phase of our strategy. Winning with customers.
We also believe that in a fully connected world that we're living in, that the most sustainable form of growth comes from customers advocating on our behalf. We've seen that already, and if we can drive this even further, we think that that is an incredibly powerful growth driver. That is why we believe if our customers succeed, then we will succeed. That's why we call it winning with customers. For this phase, we have again created a large holistic picture which tells the whole story. Up to the left, there's this familiar theme of urbanization. It continues to be a strong driver for our industry. 200,000 people every day move into cities. That's 70 million people a year. We can see that the need for small, affordable apartments is increasing all the time as more and more people are living alone.
We can see that elderly people are moving back into cities to get better services. All of this continues to be great growth drivers throughout the world. We can also see that technological disruption is changing all of our lives and is changing our business also quite profoundly. We see great opportunities how we can drive change as a result of this. These are the main mega trends that are driving our industry. At KONE, we have a clear purpose of our business, something we launched in 2016 to say our purpose, that's our mission. We said our mission is to improve the flow of urban life. That's why we do our business. At the top of the building, you see our vision. That remains unchanged. KONE delivers the best people flow experience. Deliver ease, effectiveness, and experiences to our customers and users throughout the life cycle.
We have our strategic targets. That is how we measure our success. Our strategic targets as well as our financial targets, they remain unchanged. At the bottom of the building, you can see a very strong foundation we have at KONE. Something that really defines us as a company. That's our culture. Our culture we define by the very strong commitment we have to safety and to quality, as well as the four values which we live by and how we conduct our daily business. About delighting the customer, KONE, we are energized by our customers' success. We say energy for renewal. This is what we've been doing throughout our history, constantly renewing ourselves by finding better ways of working and serving our customers. We have passion for performance. We set the bar high, we want to achieve, and we want to stretch ourselves. It's about winning together.
It's about winning together, collaborating as a team, but also winning together with our customers. That sets the foundation for everything. Now, the way we make, again, our strategy concrete, how we bring it alive, is through we call Ways to Win. That is in the middle that I zoom into now. We have introduced four Ways to Win. That is how we will win with customers. These Ways to Win, they provide a very clear direction of all of what we do at KONE. The first Way to Win, we call it collaborative innovation and new competencies. We all know that the world and technology is moving faster than ever. We want to harness this in the best way everything is happening around us through innovating much more together with our partners and customers.
We are doing that already, and we can see great results. Perhaps remember the innovation strategy that we launched a little bit over a year ago, fully in line with this, and we can see great results when we collaborate with partners and customers to develop solutions in the best way. We can also see that it's the KONE people that need to bring this to life. In a more technologically advanced world, more connected world, that is requiring new capabilities from all of us. How we do our business technology and business models. That's what we call the second part of this Way to Win, is new competencies. We'll continue to relentlessly focus on developing our people. What I talked about, what we have in our previous development program, is a great foundation for this.
Our second Way to Win, we call it customer-centric solutions and services. This we have chosen because we believe that customers choose partners who are the best of resolving their individual problems and meeting their individual needs. Here, that is what we aim to do. What I think is the most interesting thing with new technology, enables us deliver specific solutions that meet specific needs of customers. You can call it mass customization. That is already what we have started to do in our service business with great results. It's working even closer with our customers to be able to meet their specific and individual needs. I think this is very powerful. Third Way to Win, we call it fast and smart execution. Customers expect us to improve all the way, the way we do our business and how we serve them, how we manage projects.
We can be the best project managers, help them succeed on sites, how we can be the best ones at managing maintenance operations, for example, and how KONE is the easiest company in the industry to deal with. It's also how we can make our company even more lean. That we call fast and smart execution. The fourth Way to Win, we call it true service mindset. It is about having the absolute best customer service in our industry. This is what we want to be known for, and I think what we are known for in many cases. With this Winning with Customers program, we're taking customer centricity to a new level in our industry. We have been developing our customer service very actively over the past years. That's a good foundation.
I think this is taking us totally to a new level, somewhere no one is in our industry at the moment in the way we serve customers, everything starts from their needs and how we develop value for them. What I'm most excited about this is when we start to communicate this within KONE, it's creating a lot of, again, energy, passion, and drive going forward. This is hugely important time, a very exciting time at KONE. To wrap up, our mission is to improve the flow of urban life, and that's what we're doing. 2016 was another strong year. Looking very much forward to our next and new strategic phase to differentiate even stronger and develop even stronger customer centricity. Technology is bringing a lot of opportunities to deliver more value to our customers.
This, we will continue to do with a challenger mindset, humble, straightforward, working as a team at KONE. With this, I think we have time to go to questions.
Yes, indeed. Do we have any questions from the audience?
Jussi Koskinen. You mentioned about the conversions, and if I remember right, in China, conversions rate has been around 50%, and rest of the world around 80%. Has that actually improved since last, let's say, months or years?
Not a significant change in the conversion rate. If you look at the total number of units we're converting, there we continue to have a strong growth again year-over-year.
Thank you.
Any other questions here? If not, let's take questions from the telephone line. I'll hand over now to the operator.
Thank you, ladies and gentlemen. To ask a question, please press star one. We will take our first question today from Klas Bergelind of Citi. Please go ahead. Your line is open.
Yes. Hi, Henrik. Hi, Ilkka. It's Klas from Citi. A couple of questions, please. Firstly, on the pricing there in China. One of your competitors yesterday talked about better pricing driven by higher raw materials, you're still reporting -10% price mix, and you're underperforming the market again on volumes. Is your underlying pricing weaker quarter-on-quarter, or is there something going on with respect to mix that we should be aware of? If you could comment on the ASPs, whether developers in tier 1 and tier 2 are still trading down to the same extent.
First, we have to look at one quarter is quite a short period of time. If you look at China overall for last year, I think we developed pretty much in line with the market. Now, if you look at Q4 specifically, we continue to see strong price competition in the market. As I said, when we look forward, we probably are seeing a better dynamics because of the many factors you mentioned, such as raw material prices and the fact that prices have come down a lot. We have to also remember that there is about a three to five-month tender book that you are delivering. The orders that were booked in Q4 were something that were tendered later on.
Looking forward, we probably see something that is slightly better dynamics, we continue to see price pressure that was similar to the previous quarters in Q4 and also this mix impact. We have to remember it's year-on-year, that trend really started out of Q2, Q3 to be stronger. That year-over-year, we still see a clear shift in the mix of what type of solutions our customers are ordering.
I think Otis said negative 5%-6% on price, which would be similar to 2016. You have higher raw materials. Would you say 3, 4, or have you thought about this?
I think it's too early to say. We have to see how the market develops. Based on indications that we see and where the market has gone and some price pressures, we would expect that the dynamics are more favorable. I think to predict where a market price goes, I think it's too early. Remember, pricing is always an individual negotiation between us and our customers.
My second question is on productivity and also trying to look beyond 2017 if possible. The negative price mix is 9% for 2016 in China, and this will gradually impact the backlog for delivery in 2017. China is 35% of orders. This is 3% negative price mix at group level. Raw material is one thing, let's say that we have to cope with another year with similar negative price mix in 2017 for delivery in 2018. What cost actions do you have to put in place there? Are you happy to just let the margin drift from a high level? My question is really, you have improved productivity a lot already. Can you improve productivity more?
First, actually, of course, we are not happy to let margins drift. As you can see in 2016, we had a good development in productivity and quality and overall cost level. We are all the time working very actively on this. I think it's always the more you develop something, the more opportunities you see. It's clear that there continues to be opportunities in developing the competitiveness of the products. In the past two years, there's been a tailwind from raw materials that has helped it. It's been only part of the story. Now that's a headwind. That's why we have a little bit more challenging situation. Underlying improving quality and productivity, that's a constant game, and we're by no means at the end there. That can continue.
We can also see that in our services business, that is growing nicely and developing well in actually all parts of the world at the moment.
Okay. My final question is on the outlook for EMEA. You still see slight growth. I appreciate that you had a tough comparative last year on equipment, looking ahead, shouldn't we start to see more improvement? Construction PMIs are strong. We have others reporting about better activity in construction. Is this just a lag of your business to construction activity that explains it? Are you a little bit cautious perhaps because it's early in the year? I'm just trying to understand the upside risk to Europe.
As you know, our industry comes a little bit later. Usually for standard particular residential constructions, you can order your elevators when you are some way down in your construction. We come a little bit later usually in that. We see positive construction trends throughout Europe. If you look at Central and North Europe, there are actually a lot of markets that are at a good level. If you look at the Nordic markets, they're at a good level. Germany is clearly at a very strong level. You have headwinds in countries such as the U.K., and then I would say it's mixed elsewhere. There are many other strong markets, and South Europe is starting to come up. I would say overall, we see slight growth, but we don't see strong growth.
Also, if you look at construction activity, I think that is in line with that. Our comment is on the market. If you look at actually our performance and our growth in the past year, that has been very strong. If you look at our new equipment business, excluding China, we have a strong double-digit growth in sales in last year.
Thank you, Henrik.
Thank you. We now move to our next question from Erik Karlsson of Bodenholm. Please go ahead. Your line is open.
Thanks for taking my question, gents. The growth in the maintenance is really impressive. We have seen an acceleration in the growth there in constant currency terms. I think it was 7.2% the last quarter. Could you help us understand the reasons behind the acceleration and whether you think it's sustainable to keep it at this new higher level?
Of course, there's always fluctuations quarter to quarter. For the full year, we're at 6.2%. We believe that if we have a business with a maintenance base, we can continue to compound that at about 6%. That is strong. That is our objective. We see that we have good growth opportunities there. What is driving this growth? It's clearly good conversions. Asia Pacific, China is a good growth driver here. Actually, we're also improving our growth in both EMEA and in North America as new equipment volumes have increased. We see good opportunities there. If we look at what is driving growth in maintenance, clearly conversions is an important one, but also activity on repairs in that, we've been able to improve those as well.
That's clearly an area where we have continued to have high ambition levels, and we believe it's an important area for us to continue to grow.
Very good. One more question, if I may. What's the biggest factor of uncertainty for the EBIT margin for 2017, do you think?
We look at, clearly, and this is not necessarily in order of importance, but clearly raw material prices are one uncertainty. Those can quite fluctuate. We clearly lock them for some period of time. Clearly also the development of the market in China, because there the order book rotation is faster. Other than that, we of course have pretty good visibility into the coming year. Except for if there will be any bigger impacts on the markets overall.
If I may there, is the service margin actually, particularly the maintenance part, going up? Is that more stable and you're growing the top line there?
In most markets, we are improving profitability as well. The mix effect may have some other impacts, but the majority of top line growth is clearly a key driver, but we also have opportunity. In our services business overall, we have improved our profitability.
Very good. Thank you very much.
Thank you. We will now take a question from Guillermo Peigneux of UBS. Please go ahead.
Hi. Good afternoon, Henrik. Good afternoon, Ilkka. Just a question on transport costs and referring to China. I think we found out that the regulations on pollution or the environmental protection policies that have been put in place have resulted in a more restricted environment for transporting goods, amongst them actually elevators. I was wondering also if there is an impact, not only in the transport cost of elevators to be thinking about going forward, but also on the logistics around the service operations. Do you have any thoughts on that?
It has not been a big focus area. I don't think it has a big impact on the service business that is so local. If we look at the new equipment business, yes, we have one factory, but you have to remember, we take a lot from our suppliers, and we have several distribution centers within China. It's not that everything is shipped from our factory in Kunshan. On the contrary, there's quite a lot of local suppliers close by. This has not been a key focal area or big challenge, at least so far.
Thank you. When it comes to pricing competition, can I ask, is it local competitors or is it the Western players that are putting pressure on the pricing?
Again, I don't think you can point a finger towards anyone specific. We have a market with many large players and many small players. I think most companies have ambitions in China, and when the markets have been shrinking, it has resulted in a tough environment. I don't think you can point a finger towards anyone in particular.
Thank you very much. Last one, actually. You mentioned raw material, IT investments, and R&D investments, I know you gave an update in your capital markets there about IT and R&D. I think raw material is clear. If I'm not mistaken, it's around about EUR 50 million-EUR 100 million impact there, and I was wondering whether you could update us on the cost increases coming from IT and R&D. Thank you.
Ilkka, do you want to take that?
Yes. Certainly, I'll try to bring more clarity to that. You already see for both R&D and IT that we have started the investments, as we told earlier, and see, relatively speaking, that both of them have a roughly 0.2% impact to our costs relative to sales. That's roughly where we are, and we continue to invest now to 2017, as we've done already, started in 2016.
Thank you very much. I go back in line.
Thank you. We now move to Andrea Ricci of Bank am Bellevue. Please go ahead.
Good afternoon, guys. Thank you for taking my questions. I would actually have three, if you don't mind. The first one is the following: I would like you to comment possibly whether you see any pricing pressure, especially in maintenance for Europe and in North America as flagged by Otis actually yesterday. Whether you still see a good pricing environment there or you see a fierce competition there as well. More, let's say, related to China. I would like to understand whether you feel that this pricing competition that has been going on in China has somehow contributed to put out of business some of the smaller players there and therefore driven consolidation. If so, to what extent? The last question, more like a confirmation. You showed inventories in tier 1, 2, and 3 cities.
It looks from your plot that they have actually not really improved sequentially in Q4. I would appreciate if you could confirm on that. Thank you.
Thanks. If we start with our first question you had about price pressure and maintenance, particularly Europe and North America. As we have been saying for a while, price pressure in maintenance been particularly tough in southern parts of Europe. There, because we had a prolonged weakness in the new equipment market, there's very little new units coming in and a lot of small players. That has driven those quite competitive. Despite that, we have developed nicely in those markets. North America continues to be price competitive but not quite as bad as it was a couple of years ago. We're starting to see, of course, more conversions coming in now and more activity on both modernization, new equipment. That's helping a bit. I would say South Europe continues to be challenging.
Rest of Europe, I would say it's mixed and North America also mixed, but overall there's tough competition overall in that market. Your second question was about China. We have seen some small, one or two, a few players maybe go out of business, but very limited. We have to remember there are hundreds of new equipment suppliers in China. Consolidation has not been significant, at least as of yet. We could probably expect some, but when there are so many players, I don't think that has a big impact particularly yet. We are quite happy with the position we have. Your last question was about inventories in tier 3 and tier 1 and 2 cities. I think this chart, better to focus on the little bit longer-term trends because they can fluctuate quarter to quarter.
we do see that transaction volumes continued to be positive in the last quarter as well and improving year-over-year. I think those are charts it's worthwhile always looking at little bit of a trend over a few quarters.
Thank you. Thank you very much for your answer.
Thank you. We now take a question from James Moore of Redburn. Please go ahead.
Yes, good afternoon, everyone. Thanks for taking my questions. Perhaps I could go one at a time. My first question is about the slight decline in order margins for the second quarter in a row. Is there any way you can define slight? Does this just reflect the China price decline or both the price decline and the EUR 50 million-EUR 100 million raw material impact?
When we talk about changes in the margin, we of course look at how has our cost developed and how has our prices developed. Then there's of course, always margin is the difference between those two. Still, cost changes weren't that big yet in Q4. I think we're starting now see from this year more pressure on raw material prices. I would say mainly a function of prices. Slight means that it's not significant. When you look at a contribution level, but it's still slightly down.
Okay. Can you say what proportion of your full year 2017 raw material purchases are locked in by hedging or contracts and how much could fluctuate with changes in spot prices?
Take that.
That's a good question. From our perspective, we obviously continuously lock our prices and roll them forward. The normal cycle from a timing perspective is something in between six to nine is probably the longest lockups that we have for our raw materials. Roughly where we are in it as of today is that we have locked about 50% of the prices already. Obviously we'll continue following that throughout the year and Roll them further.
Thanks.
Raw material prices started to grow, increase already second half of the year. Those have started to come through now even though we have more prices under contracts.
Thanks. On productivity, your slide, helpful slide that sort of suggested 14 million of productivity in the fourth quarter, which I'd annualize at 50 million-60 million. You talk about some productivity objective for 2017. How does that number compare to that annualized number? Is that the same sort of magnitude, or do you think you can accelerate that? What are the biggest buckets in that productivity?
That is, of course, the net number of many things. I think what Ilkka showed was there was one that came straight from growth and then one part that came from margin. Of course, part of that is productivity. It can be pricing and many things. Clearly we want to get several percentage points of productivity in all of our operations every year. We are largely getting that. Partly you need to do that all the time because of price pressures in the market. That's a natural thing. We have clearly in this environment, we have ambitious targets for our productivity. What they exactly are, they vary from business to business, so you always have gives and takes as well.
Great. Just finally.
Obviously.
Could-
That's actually one of the areas which, as a newcomer to KONE, I've been really impressed by the capability that the company has in every day looking for efficiencies and more efficient ways of working. That's really at the heart of it. I think I would also highlight and step a bit backwards and highlight the fast and smart execution that Henrik talked about as one area for the next three years that we invest in and further developed. That's really at the heart of it. It's about how do we serve our customers more efficiently and effectively. Both of them actually contribute the same financial outcome in my mind.
Thanks. Just one final technical question. Your cash flow from financing items and taxes was EUR 331 and quite a big swing year-on-year. I couldn't think what that was. What's behind that big number?
Clearly, from a financial income point of view, last year, we had the large dividend from Toshiba Elevator Company at EUR 118 million, which is the biggest swinger.
That still leaves EUR 150-ish. Is there anything behind that we should be aware of?
No, nothing major there that I would highlight.
Thank you very much.
Thank you. We now take a question from Mannin Rimpella of Nordea. Please go ahead.
Good afternoon. I would have two questions. Firstly, could you comment on how do you see your ability to pass on the cost inflation outside of China? I mean, if order pricing still remains challenging outside of China, we see raw material prices going up. Are you expecting to see margins being squeezed outside of China as well?
Actually, we have to see how the overall market picture develops, clearly, as you know, we don't comment on pricing going forward. That is always individual negotiation between us and our customers. In an environment like this, clearly we have objectives and targets, and that is one of the areas how we want to develop our margins, and the other one is through productivity. That's a focus area throughout KONE in all geographic areas.
Okay. Maybe a follow-up question on that. Do you have an historical example? I mean, we had previous times when raw material prices have been volatile. What do you see as the lag when raw material prices stabilize that you are able to kind of recover that in pricing?
2012 is one comparison point. You can see how it developed there. Of course, there were many other factors. There was one factor if we go back to that period. You can say that if you think if we today book an order on average, we're going to deliver it in one year. That's one way of looking at from a sales perspective, the delay. Of course, you have a little bit longer delay because if you tender something today you can probably book it as an order in three to five months, and then from that it's then a year. There's a clear lag, but that's part of this business. Sometimes it's a positive and sometimes a negative for you.
Okay. On the new measures that you're taking in terms of these R&D investments and all of these step-ups in efforts in service and maintenance. Could you just help us understand when do you expect to see some tangible benefits from these? We obviously are seeing the cost coming in this year, but do you expect to see also benefits already in 2017, or is that more later?
In the services business, what we're doing, we can see some benefits already, and that's something you need to do all the time. In the service business, you have to remember that before you roll out the new service concept too broadly to your customer, it takes many years because you have so many individual customers and many small customers. I think that when we start with them, we can start to see on a small scale, we constantly see that we're moving forward. Some of them, of course, takes longer and longer term in nature. You always have a portfolio of some really long-term measures and some shorter-term measures, and it's a combination of both of these.
Okay. Final question. Is this something that you're seeing also that you just have to do in order to stay competitive? We know that your main competitors are also investing, or do you feel that you actually have been able to invent something new into the industry?
Of course, our objective is to differentiate. Everyone always in market have slightly different approaches, as you have. I think what we're seeing is that opportunities for us to deliver totally new value to our customers in a better way, it is there, and that's why we're investing in them. Obviously we're not the only ones that are seeing that. Again, all of us have slightly different approaches, and clearly we believe strongly that with our approach, we're going to continue to differentiate and develop well compared to our markets overall.
Okay. Thank you. No further questions.
Thank you.
Thank you. We will now move to Andre Kukhnin of Credit Suisse. Please go ahead.
Yes, good afternoon. Thanks so much for taking my questions. I'll go one at a time. Firstly, just a clarification on pricing in China and what you're saying there in terms of seeing more positive dynamics or dynamics improving. What are you doing with your pricing in China this year in tendering or in the orders that you're booking?
Here again, pricing is always something between us and our customers. I would say our approach in this type of environment, it's clear the approach needs to be more that you're focused on value rather than just volume. What we do on pricing is, again, between us and our customers.
Okay. Just to understand it a bit better, when you talk about dynamics improving, is this improvement in terms of a lower rate of decline of prices, or is this improvement in prices absolute year-on-year that you're seeing?
We have not seen that yet. What we're saying is that we expect the market to remain competitive and we can't predict where market is going to be in 2017. I think what we can say is that for us, focus is really more on the value rather than just volume of what we sell. That's one point. Secondly, we look at the environment, we can say that that is more supportive and perhaps better dynamics than we've seen before because of what we have talked about the market. Where exactly it will go, I think we have to see.
Got it. Thank you. Can I just check, in terms of your China margin during 2016, has it turned out to be much different to where you were in 2015?
As you can see from our overall performance, we had good margins and good performance in China. Yes, we could see pressures on prices and volumes. The way we continue to develop our competitiveness, we actually had a good development in China.
Got it. Just to follow up on the productivity, what you said about several percentage points that you target to achieve every year. Thinking about the base for that, would it be right to think about total cost base excluding the materials and components purchasing?
There are different types of productivity. Clearly, in our type of industry, lot of it is field operations, both in maintenance, modernization, installation, and both in new equipment and in modernization. Clearly you want to constantly improve your quality. When you improve your quality, you can improve your productivity, having better operations. Of course, a lot of those are labor costs. You have, of course, on the product, you want to also constantly find improvements on the product cost in having either better productivity in your supply chain or new designs and so forth. It comes from many different streams, and all of them need to work in order for you to develop well over long term and that's what we've done.
Okay. It sounds like it's broader than sort of involving some of the component purchasing lines as well.
You need to constantly have activities in all fronts because you have to remember also in most countries, unless you have productivity, you're going to have increased cost all the time by labor cost increases. What our objective is to clearly more than cover those.
Great, thank you. Then just a final question on the extra investment in R&D and IT. I know we went through it in some detail at the Capital Markets Day, but there has been a more time sort of passed since then. Could you share with us whether your return on investment in these step-ups in investment is kind of comparable to KONE's return on investment, KONE Group's, or is it higher? Where are we in that phase of investment versus payback? Is this sort of investing this year, payback in 2018, 2019, or are there some quick opportunities or maybe in fact, some of this acceleration in growth and service that we're seeing is already an effect of some of that? Just to understand that component a bit better.
I think over the past three years, we have constantly increased our activity, how we develop our service business, both maintenance and modernization. The growth we have had would clearly not have been possible without those extra efforts that we put in. Therefore, that is clearly what we look at going forward. Return on investment, this tends to be good. Well, you've seen that from our track record. Clearly, when they go up, we also push them out a little bit, but it's not a big area. We have to remember that for last year, we talk about in R&D in total 1.6% of sales. We are not talking about any massive numbers here.
Okay, got it. Thanks very much, Henrik.
Thank you. We now take a question from Martin Flückiger of Kepler Cheuvreux. Please go ahead.
Yeah, good afternoon, Henrik. It's Martin from Kepler Cheuvreux. Thanks for taking my questions. Actually, I got three questions as well, and I'll take them one at a time. Just coming back to your market outlook for the Chinese new equipment business. You're looking at a decline between 0% and 5% in units. At the same time, you're talking about an improved environment. I'm kind of wondering, 0% to -5% still looks pretty grim if you ask me. I was just wondering, what are the key assumptions for your forecast of a decline between 0% and 5% in China?
Last year we saw a decline in the market of close to 5% overall. A bit worse than a range, it could be similar. Now in Q3 and Q4, we saw a slight moderation in decline, and we are somewhere in that range going forward. I agree with you, market expected to remain challenging next year. You said that we have had the improvement in property markets last year. However, that has led to lower inventories, which is good, healthy for the market. Now we see that the government is actually putting in clear restrictions to cool down the market. We can see the first indications coming out from that is that is having an impact. With that overall, when we look at it, we expect that markets growth will be in the range of 0% to -5%.
We say that, again, people have said before that the pricing environment, we believe that the dynamics are better. Of course, we have to see where it goes. We can continue to see a very high competition for the market share in China.
Okay, thanks. Got it. Just looking at new construction area, I suppose you would agree that new construction area is some sort of maybe loose leading indicator for your business in the new equipment space that, based on the data that I've seen, it was up around 7% in 2016. Is that not a contradiction to your outlook for the new equipment market?
If you look at new construction area, it started to grow then in 2016, that came after two years of declining. If you look at longer term and take an average, you can see a link. Over the short term, it's usually there's not a strong correlation. This is based on the outlook we see, based on feedback from many of our large customers, particularly with the big developers, we have a strong market share there. Feedback from them, what we see from markets and our expectations, we put it all together. This is the best view we have at the moment.
Okay, thanks. My next question would be. I think you just touched upon it in your last answer, maybe we could dive into that subject a little bit more. We've heard some news about China's Central Bank coming out to curb excess leverage in the financial system, i.e., to strictly control new mortgage lending. What is the feedback you're getting there? What are your views on the impact on the property market and new equipment growth going forward, just from that latest development?
The early signals are that it is starting to have an impact on transaction volumes and prices. It's still early days. It's clear that you have restrictions on mortgages, particularly for second and third apartments. Also, you have restrictions for developers in how they can finance purchase of land. We think that this will have an impact. Again, it's early days, so I think we have to follow how that develops.
Okay, thanks. Coming to the U.S., I think if I remember correctly, you are guiding for slight growth in new equipment in the U.S. I'm a little bit surprised with that because if I understand correctly, the multifamily housing also has an important impact on your growth or on the market growth in new equipment in the U.S. Here, we've seen building permits weaken considerably over the last few months, even turn negative in the second half. Why do you still think that the North American market in new equipment can grow slightly in 2017?
We always look at new permits. Those can be volatile and are very leading indicators. There are other leading indicators such as Architecture Billings Index, which in most parts of the U.S. continue to be in positive territory. This is again what we see from our customers, what we see from the backlog, what we have in the market. It's clear that after a growth period that we have had, that the growth is slower than it's been before. We still expect the market to move a little bit further in a positive direction. You have to also remember that from a building permit to when it impacts us, there can be a clear difference between that.
Okay, thanks. Just final one on financials, maybe CapEx. Could you provide us with the latest update on CapEx and net working capital guidance for the foreseeable future? Many thanks.
Thank you. From a CapEx point of view, as I said, although we made investments last year, that didn't really fluctuate that much as a percentage of sales. We continue to be in the same range going forward as we saw in 2016. From a working capital point of view, I think we made good progress this year and plan to continue making progress, but I think it's a good level already.
Thanks very much.
Thank you. We'll now take a question from Rick Meidey of Berenberg Bank. Please go ahead.
Hi. Thank you very much for taking my questions. I have three. I'll take them one at a time. Firstly, just on the backlog. You started the year with a 5.4% increase in the backlog, and yet you're guiding for a -1% to +3% organic growth for this year. Can you just give us a sense for the conversion or the duration of the backlog and how you see that flowing into sales this year?
Anyone take that?
Yes. I think what I would highlight there are a few things. First of all, geographically, we've seen good progress geographically, especially in North America, which has a somewhat slower circulation time from order to then fulfillment. As well as we've seen good progress in our major project business, which also has a longer cycle time. Those are influencing our guidance for 2017. In addition to that, we did see some slowdown in China in our order book, I would highlight maybe the two first ones first in terms of importance.
Okay. Secondly, on the guidance for 2017 for EBIT, can you share with us the assumptions for raw materials and FX impacts?
As I mentioned, FX, very negligible and raw material, clear. Jonas.
Raw materials, we look at the market price there and where we are in terms of having contracts on raw materials, which I already commented. I think that's our best understanding as of today, and then we'll see how the year develops on both of those items.
Okay, thank you. Lastly, just on the maintenance business in China, can you share with us the level of growth you've seen then in Q4, and how big the maintenance now is as a % of the overall Chinese business? Thank you.
Now if you look at maintenance, it starts to be over 10% of our revenue. It has continued to grow at a good rate at over 20% last year. It's a good growth throughout the year. It's clear that the growth % comes a little down as the base underneath it has grown a lot. Continued good development in our maintenance base in China and our maintenance business, and that now we surpassed the 10% mark of its share of revenues.
Thank you.
Thank you. Our next question comes from Glen Liddy of JP Morgan. Please go ahead. Mr. Liddy, your line is open if you'd like to ask your question.
Hi, it's question on the aftermarket in Europe. Is the pricing pressure spreading north in Europe?
If we look at the pricing environment overall in Europe, we haven't seen any major changes in the trends.
So you-
The markets where when you have more conversions, where you have had stronger new equipment markets for a while, that tends to be a more supportive factor because there's more new units coming in. In the markets where you have had a prolonged weakness in new equipment, those tend to be the most challenging ones, such as the South European markets.
In the U.S., you've had volume growth for some time, but you flagged that the aftermarket pricing is tough. Is there any particular factor behind that? Are you getting more independent service agents appearing in the market?
Hasn't been a big shift in there. It continues to be the U.S. market is more consolidated perhaps the others, but you still have a lot of independence there. I think we're probably going slightly in a better direction given that many of these units that have been installed have now come to the market. Usually there's a clear lag, but we're probably going to be looking at a slightly better environment.
Final question on the aftermarket. Are customers trading down in terms of the value-added nature of their service contracts? If they enter into a long-term service contract a couple of years ago, are they entering into the same quality of contract on your new service contracts today?
There's not a huge difference. Again, it's not necessarily a big difference in the business. If you have a fully comprehensive contract, for example, then you have everything included. If not, then you pay separately for the repairs. One is more like an insurance contract and the other one you more pay as you go. For us, clearly, it has some impact, but there's no big changes in the trends there.
Okay. Thank you very much.
Thank you. Lars Brorson of Barclays has our next question. Please go ahead.
Hi. Thanks. Hi, Henrik, Happy New Year. A couple of things from me. Just first of all, on market share in China. I presume we'll get market share data as you often provide with your Q1 results. It looks like based on what we've seen in 2016, you didn't gain. Perhaps you lost a bit of share this year or last year. That's the first time in the 10, 12 years you've been providing market share data there, and we've been able to track it. Why do you think that is? Where are you now as far as product portfolio is concerned? What do you see competitively? Maybe just linked to that I'm still a little bit puzzled with your commentary around an improving pricing outlook for 2017. I don't want to belabor it, but I appreciate we see raw material price inflation.
Perhaps we see volume declines a bit less than we saw in 2016. Why would you imply, if that's what you're doing, that we are seeing an underlying improvement to the pricing environment? Sorry, that was two different questions, but I guess somewhat related.
We start on your second question, what I was very clear is that we have to see where prices go. I said if you look at the environment and you look at the impact it's had on many companies and the raw material, I said we are probably seeing a somewhat better dynamics. Of course, we have to see how it goes. That is how we see the situation. I think we are not the only ones who want to focus more on the value rather than the unit volume in the market. When you look at market share, if you look at over last year, we believe there's some preliminary basis that we developed roughly in line with the markets. No big changes. Look at 2015, our market share increased by, it was a little bit over one and a half percentage points.
Sometimes you take more. Now in this challenging market, we have not sought to maximize our market share, and this is very much based on the approach we have taken. If you look at our competitors in the China market, we continue to have a broad and strong product portfolio. I feel actually pretty good about that.
Okay. Just to the first point, that you don't think it could get much worse. If you're running at OE margins in China in the high teens, Otis in the low 20s, the industry probably at least among the global OEMs in the mid-teens. I just don't understand why it can't get much worse, perhaps we can leave that for a separate discussion. Secondly, I just wanted to ask you about balance sheets. I was a bit surprised not to see any commentary around that. You obviously last paid out a special dividend in 2012. You've been very clear about your appetite to do a larger deal. It's also quite clear that there aren't any willing sellers. Perhaps we get a fourth seller in 2017. It looks like we might. I guess my question is, how much patience do you have here?
How much patience do you think shareholders have to continue to wait for that larger opportunity to materialize? At what point do you think it's time to deal with what seems to be a rather overcapitalized balance sheet?
Well, I would say we feel pretty good about our balance sheet. With this dividend, we're going to pay out another about EUR 800 million. I think it's a pretty good payout. Clearly, our balance sheet will remain very strong after that as well. As we have said, there's a lot of situations happening in the world, uncertain world. If there are opportunities, we are very keen to capitalize on them. Therefore, we still think it makes sense to maintain a strong balance sheet. It's of course, always up to our board to decide how we think about payouts. What we've been doing is that we've been increasing our dividends. If you look at the compound annual growth rate over the past years, it's rather high and good, and that we feel good about.
Then we've also done some buybacks on top of that. Overall, we have to see what opportunities comes, our board of directors have to make decisions in accordance.
Certainly. Finally, if I can just ask to India. I thought it was interesting to hear the comment around that. Can you give us a sense for how much India declined in Q4 versus perhaps where you're running earlier in 2016 and that impact of demonetization? It sounds like you see that as more of a temporary phenomenon. What's your view on 2017 for your new equipment business in India?
Let me address the markets overall. The markets were growing. They were not growing strongly, but they were growing slightly throughout 2016 until the demonetization occurred. That clearly had an impact, as many of you I'm sure have read, on the property markets overall and caused some cautiousness amongst developers. Over time, it's probably going to be a good thing, but it had a temporary effect, and we expect overall the markets in 2017 to grow. Let's see when they recover, but we still see positive underlying demand and dynamics in that market. That was a little bit of a hiccup there in the short term.
Just how big was that in Q4, if I can just ask?
Was some single-digit percentages of the market declined.
Yeah. Okay.
It wasn't a strong decline in the market. It was just some more uncertainty from a growth.
That's clear. Thanks, Henrik.
Thank you.
All right. Let's take two really quick questions.
Hi. I think that was me. Sorry. Just hi, Henrik, Hi, Ilkka. On the backlog, you said the relative margins of orders received in the second half of the year declined slightly. Do all of those deliveries flow into 2017 and are caught in your guidance for this year, or does some of that kind of weaker margin flow into 2018 as well? That's the first one. Thanks.
Most of it will be in 2017 because of the faster rotation from order to delivery.
Thank you. You mentioned the competition balance in the presentation. If I look at your chart, it looks like if it grew by 6%, the maintenance space, that's maybe 70,000, 80,000 units. It's still a long way below the 130,000, 140,000 that you delivered both in 2015 and 2016. I know there's a lag and I know that some buildings get demolished, it still seems to me like the competition balance is quite negative. Maybe can you give us a figure on where that is and just more color around how much it's improved this year? Thanks.
It was only slightly negative. We're not talking about a big number. If you look at the puts and takes, you have to remember, it's quite many years, the delay from delivering a unit until it comes to the service base, particularly China, where first service periods can be two to three years long. From when something has been installed until it comes there. Therefore, our conversions continued to grow, and they grew again at a good rate last year. Net competition improved is only slightly negative. It was a clear improvement year-over-year. Perhaps last year we had even slightly more demolitions and buildings taken out of use than normal. That's a little bit over a percentage point impact. Those are the main impacts to the maintenance base that grew clearly over 6% again.
Thanks. Just very quickly, you outperformed the market very clearly in Q3 and underperformed again in Q4. Why are there such big swings in market share? Is it you push harder in some quarters? There are some very large orders that come in and out of the order book? Or is this your kind of tactical approach to the market and pricing and the need to build a backlog? Why do we get these big swings? Thanks.
First of all, I don't think that they are big, the swings, we have to remember, one quarter is quite a short period of time, there are some natural swings in the market, we may have a slightly different approach. Mainly, I wouldn't read Again, one quarter in our industry is a very short period of time, always worthwhile looking at it. As we said also during our fastest growth periods, hey, let's not look at only one quarter, let's look at a little bit more over a few quarters. That's what makes sense.
Got it. Thank you.
Thank you. Our next question comes from Bernard Horn of Polaris Capital Management. Please go ahead.
Yes, I have two questions. One is a little bit more detail on the service development in China, and the second is export competition from China. Let me ask the first one, then we can ask the second later. On the development of service, historically, you've had a situation where the new equipment sales are often accompanied by service contracts, which may or may not be fully charged for, and it's the conversion of those at the end. I know you talked a little bit about conversion, I'm wondering if you might just give us more detail on how that development is working and the competition from some of the local service providers, because it seems like you've made progress there.
Okay. What you're referring to is when we deliver a new unit, the KONE brand, 100% of those units will come with a first service period that is included in the new equipment price. That can be anywhere from one year to three years. We will be servicing those units after the first installation, all of them that we sell and install over the first one to three years. The conversion rate is how many of those we then get into a paid maintenance contract at the end of that period. Important part of our maintenance revenues in China come from this so-called first service period because, of course, that's where we recognize the revenue for the work we do there.
The conversion rates at the end of this, they have remained pretty stable, we are at roughly 60% for KONE brand and clearly lower for GiantKONE, which brings the overall to around 50 as was discussed here in the beginning.
Okay, thanks. The second question is on competition that we seem to be seeing from China into the traditional Western elevator manufacturer's market. For instance, in Southern Africa, we've heard of situations where wholesalers who have been very traditionally loyal, let's say, Western elevator brand customers have switched to Chinese exports. A couple of weeks ago, I was in Sweden, unfortunately, I had to walk up six flights of stairs with my luggage, when I got to the top, I asked the service techs what kind of elevator it was, and they said it was a Chinese elevator. I was kind of surprised that in a Nordic market that we'd start to see actual Chinese competition. It was a relatively new building.
I'm just wondering. I know you can handle the competition as it's exported, but on the other hand, I'm just curious if you can maybe give us some factual details on where you're seeing export competition from China, which markets, and how big has it been up to this point?
Thank you. Chinese, this, of course, mainly the local manufacturers, not the global OEMs you talk about. Of course, the globals also export some from China. If you look at these local Chinese brands want to penetrate other markets, its volumes are very small. We see them sporadically coming in and out of the markets. We have to remember that there is a segment that has been long-term served by component manufacturers, for example, in Italy or Spain, that have put together entire elevator packages and then sold them. Many of them have then been replaced by these Chinese imports where we talk about very small volumes. In some new markets, they may have some distributor who imports their products. Again, we're not seeing any significant volumes or progress from them.
What we have to see, make sure that if we can be very competitive in China, then there's no reason we can't compete against them abroad. Again, we're talking about a very small phenomenon, at least until now.
Okay. Thanks very much. That handles my questions. I appreciate it.
Thank you very much for your questions and your time. We wish you a very good rest of the week. Thanks.
Thank you.