I am
Kristin Hao, the name of Sandvik Investor Relations. As you can go on to start with a brief introduction to our quarterly figures and the trends in the market as we saw during Q1. After this, we will have plenty of time for Q and A and discussion. Henrik, please. Thank you,
Patrick, and also welcome on my behalf. It's my pleasure to share with you the operating performance we had again in the Q1. I also shared with you some exciting news of how our market share developed last year, something we have to do in connection with our Q3 results. But as usual, what I'll start with is going through our key figures, then to go a little deeper into order to seed sales and EBIT. I will talk about how we're developing Conant, how markets are developing, our financial market share and then finally, our outlook.
Let me turn into how our year started. With some OpEx performance in the Q3, although orders achieved declined slightly, over at a good level of €1,900,000,000 So orders received declined at 5.4% or 4.3% in comparable currencies. Our outlook remains strong, except more than €8,500,000,000 in quite exactly the same level as it was last year, but in comparable currencies, it has grown by 7.6% from last year. Our sales has continued to grow. It was now €1,700,000 growth of 3.4 percent or 4.3% in comparable currencies.
Looking at the point with our sales growth, was it continues to be profitable. As we can see from the taxes are EBIT continuous growth, it was €200,000 and the EBIT margin improved from 12.5% to 12.7%. Our cash flow was strong at about €306,000,000 and that shows that also a more changing environment that we have had in less crisis challenging and competitive environment, we have maintained good and healthy business practices and therefore maintained a very good price conversion in that business. Also, our earnings per share grew very well from €0.29 to €0.37 Strong growth gained maximum improvement in Helix, but also in our financial items, we now had a positive impact from reevaluations of options related to acquisitions, whereas that same line had a negative impact last year. So we'll take negative impact from this one as well.
And I would like to say that a weak performance such as this in a challenging environment is not possible without a motivated, dedicated team with a clear direction how to solve the business. So again, a very big thanks to all of the nice employees for very well, very good to have done during the Q1 of the year. Such a few figures delivered deeper into forward received to start with. Forward received declined at 5.4% or 7.3% in comparable currencies. The decline in China, The market in China declined at about 8%.
ROCCs declined in units, which is over 10% and the market value is a bit more than that. However, that was good if we were able to compensate by the loss of this with disruption again in both North America as well as the Europe, Middle East and Africa and few other markets. Europe and Middle East and Africa, we had broad based good development, strong growth in the Middle East, high functioning good development in Central and North Europe. And also in North America, we continue to grow we grew from a high and strong level, so that was positive. Also, it will affect the specific outside of China, the development in particular in the important senior market growth and good growth.
In other businesses, the best performance was in our major projects business as well as in modernization. And then we had a decline in our valued new equipment business. In a continuing environment, we are leaning in, of course, pricing is very important. In this environment, we have been very focused on pricing and finding good opportunities. And especially in our competitive network, we have been able to maintain healthy margins at a relatively stable level given in this environment.
Again, the performance shows that our competitiveness is strong and we have better position going forward from here. Turning next to sales. We continue to grow 3.4% above our achievements in comparable currency. Our total growth is getting geographically. The strongest growth was in North America at 11.3% and also grew somewhat in Europe, Middle East, the sorry increase in Asia Pacific where Europe, Middle East and Africa was more stable.
In this quarter, we now have the fastest growth in our services business driven by very strong growth in modernization. Our maintenance business also continued a healthy growth, although it was slightly lower than we had last year. We had continuous base from growth in Asia Pacific, solid double digits in China over 25%. The slightly lower growth was to achieve a slightly slower start in Europe. So we have to remember that the end of last year was very strong and a fast track that impacted the beginning of this year.
The strategic is now more stable. And again, here, you have to remember that follows a base from growth in quarter 4. So, overall, I would say, good progress in sales as well. In terms of gross margin, our profitable growth continued. EBITDA was $221,000,000 and we improved our margins from 12.5% to 12.7%.
And here perhaps the most important factor was that improvement was very broad based, across geographies and across businesses. And that improvement was in North America and in Asia Pacific. We will continue to increase our investments in areas that support our competitiveness in future such as R and D, IT, business development and also by expanding our footprint in some of the key growth markets around the world. Last year, we had good headwinds from currencies, and now we have a slight headwind from currencies this year. There was a slightly negative impact from that overall on our EBIT.
Overall, the strong growth here is up, profitable growth continues. In the interest of our businesses, In the winter, we saw our businesses. Here, as we have seen for many years, is the share of new equipment, including our now strong growth in modernization. The share of modernization increased by about 13%. Maintenance was stable and then share of new equipment slightly lower than last year.
Geographically, also what we saw was trend during the second half of last year, the share of North America growing and at the end of the year was now 18%. And that is true, this is a bit of balanced overall sales for various geographic areas. 2nd, plus, the financial development for the Q1. We will enter next to how digital sub business and how markets overall develop. Let's start with some highlights for our development programs.
As you know, we started our current startup programs in 2014 for 3 years with development programs, so we are in the final year, very much pushing an accelerator to the strong finish. We have achieved growth in these development programs, but there's still a lot to be done. Some highlights. Our winning team, working professionals, development program continues to have high activity and strong coaches. Our objective is that our people is a key differentiator for KONE than our customers look at us.
We have continued to ensure 2 key opportunities for development through drug rotation And also, we have over the past years now and rolled out more broadly in mobile training tools to be able to bring better training to our people and in particular people who work out in the field. More than half of our employees are out in the field every day. And again, what we have done is again supporting every 1 employee to perform their best. Of course, we have many other areas we are taking action to help every employee to perform their best, which is again a teacher in how we're bringing to the Training Solutions quarter. In Aperture's Maintenance Partner, here an important milestone was the agreement that we signed with IBM with part of cooperation with them and using their Watson IoT Cloud Platform.
We think we will collect data from our equipment to be able to improve the quality, reliability of our equipment, improve the performance for our customers, but also keep providing new services in ways of working with our customers. This has started very well, and it will truly transform how we do service and what's happening in our industry over the coming years, an important and good milestone and development for us. This last year, we have achieved high key technology programs, and then we are looking forward already to the next phase. Let me then turn to what's happening in our markets. Let's start with the 2% markets and what's happening to those in the Q1.
Let's start with digitalization, that's naturally very important new equipment. And here the market is different following the market decline in China. I mentioned already that the market decline in China has been reversed in a while and going to the GDP more in Houston. Our markets in India and Australia continue to grow. Other markets still in the region remains more varied.
In China, growth in Central and North Europe, as we saw also during the second half of last year, that has continued. Also in South Europe, we're starting to see the markets are now stabilizing. They're no longer declining as they have been, but more stabilizing. And in Middle East, there are still good opportunities in that market. North America, 2 markets, they grew slightly, driven by United States.
But remember that with the U. S. Markets are at a strong high level and grew a bit further from there. We see good momentum in that market opportunity. And also because of the strong markets, pricing has improved somewhat in the U.
S. Market. Let me go through the now and look more into China. As I mentioned already, the market in China declined measured in units by about 8% in the Q1. And it was very much in line with our expectations.
The market remains challenging and the competition for market share is high. Again, it is important to remember that China is not one homogeneous market. We are very divided markets with a strong situation in Tier 1 and many Tier 2 cities, whereas the situation in many Tier 3 and 4 and lower tier cities is very challenging. So the overall market situation remains challenging in China. However, if you look at the property markets, you can also see some positive news.
Real estate investments decreased by more than 6% in the Q1. New construction starts after a clear decline last year now has started to grow, were 19% in the Q1. And property transactions have increased by 33% in the Q1. So the increase in transactions has reduced inventories in all Tier 1 cities. The inventory situation in Tier 1 and many Tier 2 cities is a healthy good level.
So in Tier 3, 4 lower tier cities, inventory levels continue to be high. So then we set up ONET. Our order to see it declined by a bit over 10%. So we declined more than the market. Why is this?
After a very long and consistent outperformance of the market? So first of all, as the largest player in the market, we clearly took the approach beginning of this year that the priority for us was to maintain a commercially healthy business. We are, by far, the market leader, and we felt that this made a lot of sense in the Q1. I would say this quarter went very much in line with how we had expected. When we look at the situation going forward, well, the priorities for us are to have a very deep understanding of the market so that we can find the good opportunities and we can continue to find good pricing.
To protect our ambition, that hasn't changed at all. Our ambition continues to be to grow faster in our markets and to grow profitably. Those are important parts of our ambition. And I must say that I have no doubt that we can't that this wouldn't be possible. We can certainly do it because we have a strong competitiveness, we have a strong brand, we have a very broad distribution and we have a good team in China.
So overall, we have a good situation in a market that is in the moment quite challenging. So that was the new equipment markets and China a little more in detail. Let me now turn to the service market. And we'll start with maintenance. Here, the trends in the maintenance markets have remained pretty much the same In both Europe and Middle East and Africa and in North America, markets are growing, although clear variation from market to market and price competition continues to be intense.
Our Asia Pacific markets continue to grow at a good rate, following the strong use of the market over the past years there. But the good thing is that we are really capitalizing for this good growth in the markets in Asia Pacific. In modernization, we already indicated in connection with our Q3 results that we are starting to see a bit better market development from a global perspective,
and this has
continued. And here we particularly see Central and North Europe, and the markets are improving, particularly driven by markets such as U. K, Germany and a few other markets. And also, if you look at South Europe, we're seeing more utilization now following a decline over the past over the past years. In North America, monetization market grew slightly from a high level and continue to grow in Asia Pacific.
Overall, penetration is going in a slightly different direction. As I promised in the beginning, I'm happy to share some exciting good news about our market share in 2016 overall. If you look at the global European markets in 2015, the total market was about 840,000 units compared to about 850,000 units in 2014. For the ones of you who are reading carefully now, remember that last year, we said that the global neo footprint market was 815,000 units, an outage of 850. So we have slightly reassessed the market based on our understanding of a number of markets, including Iran, that is a little bit bigger than we expected a year ago.
But the most important one is the development of the market. So if we look at our development, the market declined by about 1%, where we improved we grew by 1.5%. So we continue to take market share by over 1 percentage point. So our market share increased from about 18% based on year over year to a little bit over 19%. The most important thing here is that our market share grew on a very broad basis.
We grew our market share strongly in China. We grew our market share by about 2 percentage points in the U. S. And also grew our market share clearly in Europe and Eastern Africa as well as in Asia outside of China. So a very important feature of last year was that we were able to grow and increase our market share on a very broad basis.
And I think this speaks a lot about the competitiveness we have in the market. In terms of cash investment base in the world, it's about end of last year, there were about 13,500,000 units in service overall, growth coming, of course, mainly from Asia, up continued good growth in the total service base in the world. You can see that Europe and Middle East and Africa continue to be the largest market in the world by 43% of all installed equipment and China is now 28%. It's very exciting to look at this picture and see what growth opportunities we continue to have in our industry. If you think about where the majority of world's urban population are and where they're growing, it's in Asia, where things develop and is happening.
And we have more people living in urban environments in Asia than in Europe, for example, where more and more people, of course, live in buildings higher buildings, electric elevators. We can see the penetration improvement that can still happen for long term in Cobro East Pacific and in China. And as we also see, we're also growing markets in Western Europe. We're going to continue to see good continued growth opportunities in the services business in this industry. If you look at our market positions, these are strong.
If you look at core market positions in newhooks and business, Europe and Latin Africa, we are number 8 player. In North America, we have clearly strengthened our positions and now we have caught up with the competition, and we already have the shared number 3 place, a very strong improvement over the past years. In China, we strengthened our market leader position and also we grew in reservation position to also the market leader. You can see new equipment, we have very strong provisions. In maintenance, we continue to be a challenger company.
And because of that, our ambition is to continue to grow faster in the market. And we've achieved that we are number 3 in Europe, that is Africa, number 4 in North America. Although in Asia, we have strong positions in both China and rest of Asia Pacific. And what is so important from this picture is knowing we have very strong positions in New York in Asia Pacific overall. And that, of course, gives us great opportunity to continue to capitalize on the growth in the maintenance space in the years going forward.
Again, this picture shows our good positions we have when we look at the situation going forward. Good news on market share. And if we can finally touch on our outlook, which is unchanged. So let's start with marketing outlook, which is unchanged from what we said in connection with the full year results. Here, we see a good market in Asia Pacific to decline, driven by a decline in China of 5% and we expect the price competition to continue in that market.
Resolute specific, we expect to see some growth, particularly in India, Australia. Europe and Asia Africa, partners expect to grow slightly. Due to a good growth in Central and North Europe, and we start to see more stable markets in Eastern and South Europe and as stable as the Middle East. In North America, it gets the margins to grow somewhat from a strong and high level. Nature is very much the same trend as we have seen before.
Home growth also varies in both North America, Europe, Middle East and Africa and continued good development for the market in Asia Pacific. Any modernization, we expect the markets to grow slightly in Europe, the mix in Central North Europe, hot labor in South and continued growth in North America and Asia Pacific. So very much the same as we said at the beginning of the year. And our business outlook is also unchanged. We expect our yields to grow between 2% and 6% in comparable currencies and we expect our EBIT in the range of 1,220,000,000 dollars to $320,000,000 The only slight change here is how we say that we assume either translation exchange rates remain approximately at the average level of January to March, and when we previously said, of course, the average level of January.
Euro has slightly strengthened since the beginning of the year, which means that currency headwinds are a bit more than we predicted at the beginning of the year, so maybe €30 ish million at these rates, but we're still maintaining our outlook impact. So with that, we can see continued operating performance, strong development in market share last year and the good development we had in many parts of the world able to, in a very good way, compensate the decline in China. Then very good confidence on looking forward. Competitiveness is strong, good brand, good distribution and a strong team across the world. With that, I hope you turn to questions.
Hello. Jim Marietta from Edvardanc. The comment about not wanting to maximize the growth in China in this in the Q1. And then that against your ambition still to grow faster than the market. Is it fair to assume that during this year, you would have the same attitudes as in Q1, if you wouldn't be looking to maximize growth in this market situation or before the market gets stronger?
How should one see that?
We don't really comment on the commercial approach we're going to take going forward as important. But it's what it continues to be at an extra level and then we have to see how we develop.
Thank you. And we're transferring to the questions from those who haven't on the line. Operator, please.
We will now take our first question from Lars Borysen of Barclays. Please go ahead.
Hi, good morning and afternoon, Henrik and catch a quick things. If I could just on pricing, Henrik. I mean, I take the point you're being more disciplined on pricing. Obviously, the loss of market share implies that others aren't. Can you talk a little bit about where in the market you're seeing pricing pressure and also where we are on pricing?
I think earlier
we talked about down to
the mid single digits year over year on an apples
to apples basis. Have you
seen that sort of deteriorating in Q1? And what's different here in your approach from what you're doing in Switzerland? Thanks.
First of all, let me talk about market share. Let's remember, as we have always said, that we don't measure market share on a quarterly basis. That is too short of a period. Our development looks pretty much in line with what we ourselves had expected beginning of the year. Pricing trends overall have remained the trend overall has remained pretty similar to last year.
So we're talking about probably pretty rough and depends on segment and geography and so on, but average probably roughly 5% -ish on average. Okay. And just to comment
a little bit on the competitive situation. As I said,
I mean, obviously, I appreciate your point that the quarters will swing around. Obviously, Q1 takes a trend of 5 years of outperformance in China. So it's important only from a fact that you're underperforming the market versus 5 years of outperformance. What are you seeing competitively and particularly as relative to Western competitors in terms of pricing approach?
Right. So we don't comment on specific competition. It's clear that we're saying that the competition market share is high in the market. But I would again remember, we talked about 1 quarter of orders, good overall orders achieved were at a good level of SEK1.9 billion. Last year, we increased our market share strongly in China.
So I think our drop in to see very good. And with the push down in quarter 1, I think it makes sense because we took actually the largest player in the market. It's really we have changed that the price competition is up in the market, strong competition, core market share. A lot of players with high ambitions there and in a declining market is usable.
Got it. Just on secondly,
on your sales type for
the year, sorry, the 2% to
6% growth. Can you just talk
about whether that is predicated on an
improvement in your order intake in Q2? Obviously China down, it must be 15% in value terms in Q1. Let's say, 3rd of your 2016 sales, it should be, of course, lead times here are shorter, so it should impact your invoicing this year. Talk to them about what is embedded in
your guidance for the year as
far as your China development in Q2's return?
Again, earlier, we don't guide our overseas. We are very committed to our sales guidance. We have a strong order book. We are growing our service business. We have good confidence to get to our guidance for this year and we are maintaining it.
I think that's what I had here. As you know, we don't guide or comment on how we expect our orders to see it to get off. It's coming in good order. That's important.
I just wondered whether it was a predicated on
the churn in China in the future.
I understand. Just finally from my side, in EMEA new equipment, I was a bit surprised to see new equipment sales decline significantly. You've obviously grown orders in India in the last couple of years. So for sure, you have some more driven by modernization. Can you talk to
us about what the sales there
is in India and what's driving that new equipment significant decline in the quarter, please?
Yes, remember that when we look at our new equipment overall that we had a very strong growth in Q4, so partly seasonal. We have a good order in EMEA as well. So obviously, it's lower sales now both in EMEA and other parts of the world. I don't think there was anything dramatic related to this. Thank you.
Our next question comes from Andre Kukhnin of Citrix. Please go ahead.
Yes. Good afternoon. Thanks so much for
taking my questions. I will go one at a time, please. Firstly, on China, obviously, could you let us know how did the Coney Pines do versus Giant in Q1?
Well, as you know, we have 2 brands or sometimes one brand is doing better than the other. It's easier to do what last year was slightly different development for the KONE brand and Giant KONE, perhaps slightly reversed. But that's why we have 2 brands They are going to develop in a different way in each kind of the market. So let's not say, it's a big deal which one is developing better. We have 2 strong brands and that is how we approach the market in China.
Sure. I thought we sort of sensed and given that the Tier 1, Tier 2 50s are doing much better and my understanding was that you skewed the other way. Just trying to understand, was that just a comp effect, certainly having done particularly well in Q1 'fifteen?
Citi? You always have some tariffs and effects and others. So that was, of course, you have to remember that Q1 last year for China overall and for the Corona brand was very, very strong.
And could you just help us calibrate where you are right now across the whole portfolio in China in terms of the mix of Tier 1 and 2 cities versus Tier 3, 4s?
Mark, it is probably about half and half, but we would be a little bit more in the higher tier cities overall as we have been in the past as well.
Got it. And the second to the area of question was just on cash side. Your orders declined and that normally, I'd say, should lead to slightly less cash with prepayments, but the opposite seems to happen when you're working capital. So could you help us understand the movement there a little bit better?
Eric, do you want to answer that? First of all,
and also good collection of receivables. And I think what is important to note that we saw this improvement from all parts of the world. And from China, I think that we saw good strong cash flow from there as well.
Right. And my sense is that what's been happening in China just so late is that there's acceleration in national construction activity trying to capture the higher 2 prices. And that is resulting in kind of faster or step up in new fixed payments and
milestone payments to actually get production going on
a regular basis. Is that something that you've seen in Q1 in your operations?
I'll continue. So on the payment terms, I would say that it's still at the price. Yes, the competition has been intense, but we have only attracted, in some cases, the payment terms for our important customers. Nothing is there. So I
think, Andre, what you're saying is that we could see that we had good deliveries in China. Yes, customers are taking deliveries and healthy cash flow is very competitive because we have maintained good commercial discipline in our business.
Right. So would you think this is sort of the trend that can continue because we have an extension in the backlog to sales conversion for 3 years,
I think. And
now it looks like we may be accelerating
the other way, I.
E. The orders to sales should be shrinking. Is that something that you think is a sustainable trend?
It depends on which part of the world you look at. If you look outside of China, the share of midsize and larger projects has increased over the past years, particularly well, partly in each market but also because of the strong growth in U. S. China, rotation continues to be good. We can see that our delivery starts at a good level.
So overall, we looked at a slightly compared to the historical trend, slightly longer order book rotation is also the mix on the order book. But again, no dramatic changes here. Great.
And very final question is, I think you launched a kind of low end product in China recently, a Z Mini, sort of more price sensitive customers. How would you expect margins to evolve on these sort of products that I think sounds like it's completely spread to renewables?
I can tell you that the diminishes for the residential segment It's actually a very good product. It's very it's more standardized and that's why we can make sure it's very price consuming. But it's actually, when you see it, when you use it, it's a great elevator. So we can deliver very good value to our customers at good pricing if by very high standardization, we can become a cost to deliver in that. So I will call it Shipt product.
It's a very good product with a great ride comfort and good value to the customer.
Got it. Thank you. With secondhand knowledge, I didn't have a chance to test in myself and hence the question. But it sounds like profitability on that should now be consistent to kind of view average of the portfolio
for the results?
We have a good product from the A and S overall.
Got it. Thank you very much.
Thank you. We will now take our next question from Phil Wilson of Redburn. Please go ahead.
Thanks for taking my questions. I'll do one at a time. Thanks for your help on Chinese pricing for market. Can you comment where your pricing was for the Q1 and how that compares to the Q4? Thank you.
If we look at Pierre commented earlier on our pricing trends. If you look over 2nd half of last year, beginning of this year, I believe we have outperformed the market in terms of pricing slightly. We can't say by exactly how much, but here they are price pressures and price declines for everyone. But at the same time, we've been able to work quite well on our competitiveness and therefore, we have kept a good profitability in the business.
So has the outperformance fallen a little bit into the Q1 as markets become a bit more intense?
I mean, overall, we had a pretty good performance in the Q1, if I can say is actually what our understanding is that we have when we look over this period that we have outperformed the market.
Certainly, Sorry to speak to China, but China seems to have taken some reconfirming actions in property given the very high price rises that we should be selective. I know Tier 1, 3,
3, 3 demand for you
is quite strong currently. But are you seeing the impact of the pooling Can you look at your 4th indicators like tenders or customer dialogues? So maybe some of the strong Tier 1, Tier 2 demand may not be sustainable?
The cooling measures have not recently taken, but at the same time, there are 2 approaches the government is taking at the moment, which I think is very sensible. Cooling measures in some of the people, prices have been rising very fast, such as Shanghai and Shenzhen and Beijing. But at the same time, they are working very actively on reducing and in ways to reduce inventory in resources. So this is something we see as a fundamental driver in the Tier 1 and maybe Tier 2 cities. It's one of the level of inventories and a lot of people want to move into these cities.
So that's not changing overnight. And what we're doing on cooling some of the markets, I think, is quite sensible. Sure. And have you seen
that impacting your tender activity? Yes, or not?
We continue to see pretty good development in those markets. And I think we don't comment tender activity. This is because it was good to see that
in those markets, too. And then just a final question. Maintenance growth to the group level slowed in the quarter from 7.5% to 5%. And I would suggest just to carry on accelerating because the Chinese business, Chinese maintenance business is becoming a larger part of the mix and growing faster. So can you give some detail where maintenance flow increasingly, what growth that you're seeing in Chinese maintenance?
And why are we seeing this slowdown in your maintenance pressure? Thank
you. So our maintenance growth in China continued to be very strong. As I mentioned already, it was over 25% in the quarter, so continue to compound up at a very good level. We had a very strong finish to last year, 7.5%. And very strong finish to last year into the maintenance growth probability at the beginning of this year.
So I wouldn't read too much into it. And the main impact was in Europe where growth was now a little slower than last year. Maybe if I just
have one final question. I've got some missing cost of 1 really. Residential construction increased in the quarter, already looking at start, investments, completions, working progress. Why don't we comment the elevated market for any real improvement? Is there a structural trend going on that's fast that we need to think about?
I'd like to remember that we've seen 1 quarter of solid improvement in new construction area. They started a little bit last year, but now very early in the first, following a decline in both 2014 'fifteen. So when the markets were declining, carbon margin wasn't declining as much. And therefore, we don't see immediately a tough turn either. Of course, it's a good positive indicator of improving the fundamentals of the market, but we don't expect that to impact in the same way that when it came down, it didn't impact the small car market either this or other way.
So it's still good that the market is developing. I think the corporate indicator is that growth in terms of real estate investments, which shows more money is going into the sector. Developers are driving their projects forward and also customers from buying apartments. Therefore, total transactions are going up. But you can't read the direct link due in the short term between our market and new constructive Okay.
Thank you very much.
Our next question, ladies and gentlemen, comes from Ennichi Suttelin of Bank. Please go ahead.
Yes, thanks. This is Antti. I mean even if you play down the importance of the Chinese stimulants actions, I would like to ask your view, what do the Chinese really want? Do you think this stimulus, which we now clearly see impacting the construction numbers and statistics, Is this something with this short term only or is this beginning of a new big construction boom in China? What way are you looking at this?
PSC's dealers in China, that is the deal is a bottleneck in infrastructure and that's of course serious to drive urbanization going forward. And we also see stimulus to help the real estate sector and help people buy apartments. If you look at if we understand right what the Chinese government is trying to do, then very sensible target is to continue to improve urbanization and get more and more people to live in cities and work in cities. And therefore, they have this target of BRL100 1,000,000,000 bucos over the next 5 years, which is very fundamental change. So the way I understand it is to make sure that the economy continues to develop by improving the organization, having people move into cities, now they further help them get quite started to relax the HUKO rules.
And that is what we've seen. Simulance, of course, can have more shorter term impacts, which what I talked about are more longer term drivers. What we see what we continue to see, higher efficiencies, good demand, people want to move there for more than it's even possible And then actions to reduce inventories and lower percentages, but these inventories are quite high. So that is why we still need to see some type of improvement before that cemented situation in the crude. So I think that's more of a broad answer to your question, Antti.
Yes, thanks. May I ask differently? Did you expect the strength that we have seen in Q1 in statistics, I mean, 5% up to 19%, for example. Would you expect that strength to continue over
the next several quarters?
Or would you expect that strength
to eventually fade during the remainder of this year?
I think we have to see we are not the best forecasters of macro statistics for that market. I think where we give an estimate where we have a good view, where we understand the government is to go to elevate the escalator market, there we have given our clear outlook of what we expect aftermarket. And that's what we feel we have a good understanding on and good confidence in. Would like to comment on where we expect some of these other initiatives to move over the coming months.
Yes. And you can't raise this guidance even if the Chinese construction market has clearly picked up. Does this mean that you don't expect this pickup to last or does this mean that you don't think the pickup will yet in Switzerland 16 affect the elevator demand?
Let's put it this way that the way the markets have been developing in the Q1 has not been a great surprise for us. And what we expected in the beginning of the year, we've seen that trend and we expect that our outlook is quite accurate for the full year between the 5% and 10%. And of course, it can be within that range. It's of course positive that things are going in the right direction. The inventory levels are reducing in some of these lower tier cities.
I don't think we're going to quite see it yet in our industry. Thank you.
Our next question comes from Marcin Bircher of Kepler Cheuvreux. Please go ahead.
Good afternoon, ladies and gentlemen. Many thanks for taking my questions. Again, I'll take one at a time. First one, coming back to the question in China regarding market performance of Tier 1, Tier 3, Tier 4 cities. Could you provide the best estimate of new equipment market growth in these two categories, please?
Well, if I would first give by perhaps if you look at the segments in China, so where we see growth is infrastructure, more stable commercial and then you find it in residential. Would you, Patrick, or Eric to have a comment on what we say about impact growth rate by on a higher tier versus lower tier?
I believe that is quite a lot. So you have differences depending on the Collins, depending on the same question. Like Henrik described already, I think the general picture is that the higher tier cities are somewhat stronger.
In those cities, when we look at the map of various provinces and areas, there are very significant differences, some that are quite stable, some declining a lot and then we have markets really far in the West and on the East Coast that actually have pretty decent growth rates. You can't really be one, it's really the difference between the developments of different markets and provinces.
Okay. And just to come back on the issue of maintenance business or maintenance market in China. Could you talk a little bit about the competitive environment and the situation regarding pricing in the Chinese maintenance business? And also, if you could update us on your current share with respect to maintenance in China.
So the competition in China, the maintenance market is quite different from the new equipment market because most of the competition there comes from small independent players. Most of the OEMs compete for their own brands in service and then small independent companies and that's where there's strong competition and that continues. Of course, a lot of people see the growth opportunity there and therefore want to grow in that business. Not a big change in that market overall in the dynamics, and we have to, of course, constantly improve our business, which we have been doing to remain competitive and drive our business in a profitable way going forward as we have done. That's what I can say.
So your second question was related to
Your share of the maintenance business in China. Is it still it used to be below 10%. Is it now 10% or above 10%?
It has been quite below 10%, yes. Although the share has increased, but it hasn't quite reached 10% 10% adjusted relative to the maintenance. If it's a service overall, we are probably at that level or not.
Okay. And then finally, my last question on Europe. If I look at building permits and housing starts in important European markets,
I believe this would suggest a healthy recovery for
the new equipment market going forward. Do you share this view? Do you see any signs of this? What's your view, let's say, 12 to 8 months on the European new equipment market?
So for this year, as a turning outlook, we continue to expect a good development in Central and North Europe, Spain continued recovery and a more stable market in France and Italy. Also, as I said in France, we have now building permits have improved a bit. A little bit too early to say how that impacts their market. But I agree with you, many central North Sea market, the trends are positive. You can see that there are many cities for the same issue that there is a lack of apartments in the cities with potential activities where we should do activities.
Okay. And just a final one, if I may. What do you think is
a good proxy for the
time lag between building permits being granted and new orders received by you guys for instance?
I don't know. There's clearly a time lag because you get to get your permit first and then you start planning it and then you're planning quite far and you only order elevator. Usually, it is a very standard vision when you have when you're starting. So there can be a clear lag between the timings of those 2. I can't say exactly how long that would be.
Our next question comes from Luke Maddie of Berenberg.
Please go ahead.
Just a follow-up on the China maintenance and on the conversion rate there. So if my memory is correct, I think the combined conversion rate for KONE and Chinese KONE brand is roughly 60%, and that number has remained stable for the past 2, 3 years. Correct me if I'm wrong, but I think December should be going up as time goes. And secondly, just a question for you Henrik. Do you think we'll see a further consolidation in the Chinese elevator market now that
the new equipment submarket has kind
of matured? And if so, it's going to keen to play a rolling consolidation game?
If you look at our conversion rates, they have remained quite stable. Of course, we're working hard at improving them. This depends on what segments are growing and so forth. The Kone brand, 50%, no significant changes over the years. And the consolidation, we may probably see the consolidation in the market.
I would say that we are very focused on our organic growth with very strong market positions in China, very strong brands or 2 brands in fact, they are both very strong. So we are in that sense in a good situation. On the maintenance side, we have strong organic growth and that's what we focus on how we drive our growth going forward.
The next question comes from Manu Gimpela of Nordea. Please go ahead.
Good afternoon. Just one question
for me. Can you comment about the maintenance pricing? I mean, being U. S, I think you mentioned the prices are going up, so what is also for the maintenance or mainly for new equipment and also what's happening in China and Europe and that one?
So the pricing and maintenance in the U. S. Obviously, the strongest price competition, not quite as in Europe, relatively South Europe. South Europe continues to be challenging. There's a lot of small companies that are fighting for the business.
No big changes in the trends in China overall.
Can I just follow-up on the U? S. Pricing? So why are we not seeing business prices to recover if you're starting to see a meaningful uptick in the market in terms of the new equipment?
Yes. We see that the new equipment deliveries have only now started to pick up in the past 6 to 9 months. So they are now still in the 1st service. So I think you would start to see that or you would hope you would start to see some of that impact going forward. But you have to remember that the Aesop had strong orders achieved over the past years with the rotation in the U.
S, it started to only come through now. So let's see. It's we do not give any forward looking comments on where pricing may go. We have pricing. It's an individual agreement between us and customers always.
Okay. Thank you.
Our next question comes from Ben Mafflin of Morgan Stanley. Please go ahead.
Thank you. Good afternoon, Henrik. Just a question please on China revenues and what the growth was did they indeed grow in the quarter? I think you've given Asia Pacific growth of 4.3%. I just wondered how China revenues grew within that adversely.
So China's share of revenues was about 30% and I would say they were stable ish in China overall revenues.
And then if orders stay down 5% to 10% for the next few quarters or for the year as is your guidance, At what point would you expect revenues in China on the new growth side to go into negative territory?
Well, the outlook we have that for the market overall, we haven't guided our orders received. But the clarification, you have orders in China. Of course, if the orders received go down, it will be reflected in your revenues today, let's say, 6 to 9 months life. Okay. That's 6 to 9 months.
Okay. Even shorter. Thank you.
And then just going back to cash flow, can
you give us what is
the typical cash flow profile of an order in China, if there is such a thing? How much you get upfront? And what are the stage payments, I guess,
is the phasing of the
cash, if you can generally
say? For Konec, we don't put an order unless we have a down payment. And there's usually down payment that's not the largest part, then it would have throughout when you start manufacturing, you have a down payment and then by the time you deliver, you have quite a significant further payment. And that means that you want to be focused on covering your risk as you go forward. And the opportunity to sell to the order is, let's say, on average, we do get minimum 5% down payment to your booking order.
And then you have milestone payment after that throughout the process of delivering a new equipment.
And a final one, in EMEA, you mentioned a significant pickup in modernization demand during the quarter. I just wonder what was driving that? Is there any
kind of legislative components to that?
Or is that consumer demand? And is it sustainable? Thank you.
There hasn't been any regulatory change. I mean, it is market demand. We know that the modernization markets have been challenging for many years, while there is a lot of need for modernization. You can see in the economies, they are doing somewhat better. This demand you can see that demand is coming through.
U. K. Is a good example of that. Germany is another. And you can even see in the weaker South U.
K. Markets, those markets are now stabilizing. There's a lot of opportunity out there, and it's good to me to see this starting to come back through in the markets now.
Thank you. Our next question comes from Austin Arl of Marshall Weiss. Please go ahead.
Weiss. I just wanted to confirm and so I understand this issue
that you talked about after the full year results about easing the incentives in China for the salespeople. So you wouldn't do so first half weighted in terms of growth. And I just want
to understand how much of
an effect you thought that that might have had on
your orders and whether that will continue for the year and therefore whether you would expect your market share maybe to improve as the year progresses?
As I said earlier, we don't make any predictions or any indications about how we expect our market share to develop or our orders achieve to develop. Only thing I would say that the development in the Q1 was in line with what we had expected. We will
next take our next question from Daniel Klein of MainFirst Bank.
There are actually 2 of them. Could you give
us a little bit of guidance how sustainable the China maintenance growth of above 25% is? I mean, now that orders are coming down to new equipment, new installations probably at 1 point slowing and you're not actively the acquiring maintenance business in China. Are we going to see a zero growth in maintenance probably in 2017? What is your opinion on that? That would be my first question.
Yes. Look, I would say that even if you think that we have had a slower growth in many markets outside of China over many years, we have been able to grow our maintenance business in other markets. So remember that we have a maintenance base, the margin does become to maintain your growth rate. You, of course, need to have more and more growth each year. So over time, the growth percentage will come down, but there is a lot of potential to continue to grow that business in a good way.
And there's lots of equipment that is being installed or has been installed that is coming into the so called commercial maintenance space over the coming years. So we continue to see good growth. And as you can see, we have been able to continue to compound it at a good rate. But again, bigger the underlying base in sum, the challenging all the time is to have the same growth rate, but the growth is there's not a growth opportunity there. Okay.
And with regards to
the order book inflation, you mentioned it is getting longer at the moment.
If you look at the
overall group order book at the end
of the Q1, which did have home price differential,
Can you give us some guidance
on an adjusted number?
Do you have any feeling how the longer order documentation has impacted the order book?
Not only has increased the order book per se, but it seems that when we book an order, it does an order book, it takes a bit longer before it's recognized as sales. So in that sense, I don't understand how we would adjust our order book. It's just a longer term, a little bit longer for orders that are booked. I think we finally recognize as final sales in the course of somewhat larger
projects. We now have a follow-up question from Andre Kukhnin of Credit Suisse.
Just two quick ones. Firstly, cash and value sheet. Could you just share with us how you're thinking about this for the rest of the year and sort of what the opportunities are?
I wouldn't say there's any change here. We have a strong balance sheet. We are okay with that. And if there were to be any good acquisition opportunities, we are ready for them, and we are ready to find growth opportunities. But overall, we're pretty comfortable with the balance sheet we have.
It's strong and very good.
I think historically, at this level, you've kind
of released cash back to shareholders.
So what's also in place at
the moment? Is that anything?
That's, of course, always a question to our Board, how they deliver this, but those are all in one off decisions and nothing more I can say on that. We have recently paid out our dividend. So we have just paid out, what is that, dollars730,000,000 to our shareholders. So that was a good dividend payout within only a week ago.
Yes. Just last question on modernization in China. I understand you've given the numbers so that we're looking and make some differences on what is what size of it is that services,
the buckets are all together and the majority of
that is maintenance. But what do you
think the market share is
in the modernization market in China?
It's not very high. I don't think anyone has a very high market share. It's a very fragmented, mainly focused on component replacement and modernization. But as the expense base changes, we see a good opportunity there. We don't see anyone that really would have a strong market share in modernization today.
As there are no further questions, I'd like to hand the call back over to the speakers for any additional closing remarks.
Thank you very much everybody for the active discussion today. So let's conclude the call. Thank you and have a great rest of the day.
Thank you.