Good afternoon, everybody, and welcome to Kone's Q4 and Full Year Results Presentation. Here in Espoo, Finland, we have today with us our CEO, Henrik Anruth and CFO, Erika Soderstrom. I am Katri Sorenheimmer from Investor Relations. As usual, we will first go through some highlights from the Q4 as well as our past year results. After this, we will have plenty of time again for Q and A and some discussion.
So let's get started with the review of Q4 and the full year. Henrik, the stage is yours.
Thank you, Patrick, and also a warm welcome to everyone from me, those here in the room and people who are following the webcast. First of all, it's a great pleasure for me to present our full year results. We had a very good performance throughout 2015, and we had a great finish to the year in the Q4. I would say that in the Q4, we performed strongly on a very broad basis. So I'm very pleased about that.
As usual, I'll go first through our key figures. After that, I'm going to be deeper into some of them. I will also talk about then our businesses, our markets and a few highlights from 2015 and after that, about how we're developing going forward and our outlook. So diving straight into what happened in Q4. As the heading says, we had a very strong finish to the year.
We continue to grow. Our orders received were more than €1,900,000,000 growth of 14% or 7% in comparable currency. We have a very strong order book at €8,200,000,000 and it's grown in comparable currencies almost 12% from last year. This, of course, gives us a good position to continue from here. Our sales growth accelerated in Q4 and was more than €2,500,000,000 on more than EUR 400,000,000 we continue to have a very strong cash conversion, which shows that, again, in the last quarter of the year, like we've done throughout last year and last years, is that we have maintained very healthy business practices, and this, of course, shows in our cash flow.
Earnings per share, €0.71 But in these earnings per share, we had a onetime gain from a dividend we received in December from Toshiba Elevator Company. So if we back out that onetime gain, our earnings per share was €0.49 compared to €0.40 a year ago. Now that's quarter 4. What about then full year 2015? Again, gives a little bit longer perspective of our development.
And as you can see, I think the highlight here is that we had a profitable growth in a changing environment. As you know, our market environment changed quite a lot during last year. And we showed that also in this kind of environment, we can perform strongly. Orders received grew almost €8,000,000,000 5.6 percent in comparable currency. Our sales, good growth throughout the year, 8.3 percent and sales was 8,600,000,000 euros And also throughout the year, we had profitable growth and we had a strong EBIT of €1,241,000,000 And our EBIT margin improved from 41.1% to 40.4%.
And also for the full year, very strong cash conversion with a good cash flow of almost €1,500,000,000 So we had €1,473,000,000 in cash flow on an EBIT over EUR 1,200,000,000 again shows the health and strength of our business. Earnings per share is €2, but again here we had the onetime gain for the Toshiba dividend. So if we back that out, it was 1.79 earnings per share compared to €0.47 a year ago. And given the good improvement in our EPS and our cash flow and our results, our Board is proposing to the Annual General Meeting to increase our dividend to €1.40 when it was last year €0.20 Again, the great development we had in 2015 in a changing environment would, of course, not have been possible without great contributions from our employees. I must say that what we can see from all of our operations and from our how we lead the company is that we have a great spirit and strong motivation and commitment amongst our employees.
And I would actually argue that we have the best team in this industry. And that really has helped us perform very strongly and will help us perform strongly in a So a very big thank you to all of our employees for a very good job done during last year. So that's the highlight of the results. Let me first go into our orders received a little bit more in detail. So quarter 4, again, strong growth in orders received as we had throughout the year.
And now our growth was driven by continued good growth in North America and also a strong growth in Europe, Middle East and Africa. Our growth in North America, Europe, Middle East and Africa was in both geographic areas, strong double digits. Orders received was now more stable in Asia Pacific, and they were stable due to a slight decline now in our Chinese orders received in China. But if you look at the developments in China, we continue to outperform the market. The market in the Q4 in China declined at a little bit over a little more than 5%, and that's the number of units.
If we measure our development in a number of units, we increased a little bit, but the monetary value was a slight decline. So good development also there in a challenging environment. If I then turn to our sales. As I mentioned, we were able to accelerate our sales growth in the last quarter. In comparable currencies, it was 10.8 percent.
And of course, we had, again, good headwind from currencies. But the good thing here is that we had growth in all geographic areas. We grew at almost 19% in North America, 12.4% in Asia Pacific and 6% in Europe, Middle East and Africa. So good growth across the board. Growth was very strong in new equipment.
So we can see we're delivering on a strong order book. Growth in new equipment was 15%. And what I'm very pleased about is our maintenance business, we're again able to slightly improve our growth rate. So our maintenance business, we grew at 7.5%. So a constant improvement in the growth rate in our maintenance business.
For the full year, growth in maintenance was 6.7%. Overall, strong development and good acceleration of sales growth in Q4. And the good growth in sales resulted also in a good development in our operating income, in our EBIT. And here, development was due to a broad based positive development. I would say the biggest contributor was again in new equipment because of the strong growth there, but we also had good contribution from services.
And when we look at geographically, a good development overall. So very good profitability improvement and very good profitability in both new equipment and our maintenance business. When we look at overall our EBIT, you can also see that we have continued to invest in our future. So what is burning our EBIT is a continued increase in our investments in R and D, process development, IT, And we also continue to strengthen our resourcing in areas where we're growing and where we have a strong order book to make sure that we can continue to perform well in this market. We also, in this environment, continue to invest strongly into the future.
Throughout the year, translation exchange rates were a strong tailwind for us. And for the full year, positive development of about $120,000,000 a positive contribution from exchange rates and in the last quarter, about $25,000,000 But even if you back these out, you can see that in comparable currencies, losses and EBIT had a good development in 2015 and in the last quarter. So overall, strong profitability development. Our business mix. The change in our business mix continued along the same patterns you have seen before.
So the share of new equipment was now 57% compared to 55% a year ago. Now the shift in mix, the 2 percentage points, was as much due to underlying growth as translation exchange rates causing new equipment to have more non euro sales than the other businesses. And the same thing when we look at sales by market. For the first time in ConAg's history, Asia Pacific became the largest geographic area for us and was now already 44% of our sales compared to 39% for Europe, Middle East and Africa. Here again, about half of this change in mix was due to currency.
And North America share increased due to the good growth we had in that area. So that's about 2015. And when it's a full year result, it's always also good to look a little bit a longer perspective of our development. And here I have since 2,005 how our sales has developed by market. And as we all know, a very significant growth driver for KONE over the past 10 years and the past 5 years has been our growth in Asia Pacific.
Since 2,005, if you look to today, our business has is tenfold today compared to 2,005. But as important as that is that we can see that we have compounded at a good rate in both North America as well as Europe, Middle East and Africa. In fact, if we compare 2,005, our North American business is double. And we have compounded that over 5% also in Europe, Middle East and Africa. So I would argue, and it shows that our growth has actually been quite broad based and not only Asia Pacific, but of course, strongest growth from Asia Pacific.
This, of course, changed KONE a lot over the past years in a very positive sense. If you then look at sales by business, similar story, strongest growth in new equipment due to growth in Asia Pacific, a 16% compound over this period of time. But here also, our maintenance business has been growing at 7.9% for this period. So over this period of time, it doubled. And also, polymerization business at 6.7%.
Again, to highlight, yes, new equipment, Asia Pacific have been great growth drivers for us, continue to be important to our growth. Of course, we are growing in other parts of the growth in all of our businesses. So that's about a little bit longer perspective. Now I'll turn back to Q4 and our various businesses and what's happening in the markets. And let's start with the new equipment business.
I commented already on our overall orders received, but if you just look at the new equipment business, here, same story, growth in Europe, Middle East and Africa and North America. Asia Pacific, previously a level due to a slight decline in China. But as I discussed already, China, we clearly outperformed the market. But then what's happening in our markets overall in new equipment? Europe, in Latin Africa, in new equipment, we have a clear growth in Central and North Europe.
Their market was stronger during the year. Some growth in Middle East, and South Europe is then more stable at a weak level. North America has been the strongest growing market over the past couple of years. Still markets continue to grow and it's at a high and strong level at the moment. And if you look at Asia Pacific overall, now the whole market weakened slightly due to declining markets in China.
For the rest, we saw some growth in Restoration Pacific. And let me here, as usual, now pause a little bit and talk a little bit more about what's happening in China because I know many of you have a lot of questions about this, and I'll try to answer some of it here upfront. So first of all, as I mentioned earlier, the market in China for the full year declined at about 5% and in the last quarter at a little bit more than 5%. Price competition in markets continue to be very intense. Competition market share in this market has been very tough, and we can see that in the pricing.
However, in this environment, we performed very strongly. For the full year, our growth was a little bit less than 5% in units and in last quarter, just a little bit in units and then slight decline in monetary value. If you look at our sales, very strong deliveries are continually strong. And also in this market, we have continued to improve our profitability. So very good development in a challenging market, and that speaks a lot about the great competitiveness we have in the Chinese market.
And I believe it continued to improve last year. So what's happening in China? First of all, again, as we discussed many times before, it is not one homogeneous market. If you look at the higher tier cities, Tier 1 cities, we're in pretty good shape. Inventory levels, pretty normalized levels.
Transaction volumes have grown very well throughout the year. And the same story for the majority of Tier 2 cities. In China overall, we've seen 10 months now of improvement in transaction volume for real estate. And that means that Tier 1 and the majority of Tier 2 cities, actual development is quite okay. However, if you look at the lower tier cities, Tier 3, Tier 4, smaller cities, situation is challenging and it's tough.
There, the inventory of unsold apartments is at a high level. And despite the increase of transactions, it has not significantly changed. So that will take a while before this market turns healthier. If you look at what do we think about going forward, when we look at year 2016, you will see it in our outlook, but our expectations for the market this year will decline between 5% 10% and that price competition will remain tough. So what's then our strategy for this year?
Our overall, if we look at, again, a longer period of time, full year or even longer, our objective continues to be to outperform the market, to grow faster than the Again, this is not on a quarter by quarter basis. It's on a full year basis. If you look at historically and also same thing in 2015, our outperformance compared to markets tends to be the strongest in the first half of the beginning of the year, and that has worked well for us. We're probably looking at the more even development this year, but let's see. Overall, if you look at a longer period of time and full year, still clear ambition to outgrow.
And I feel good about our ability to do that because we are in a very good position, we have a very strong team and we have a very good product competitiveness. That is a great combination to have. So that's a little bit more in detail about China and the new equipment market there. So let me turn next to our maintenance business. Here, as you can see, the headline growth accelerated in the maintenance business.
Very happy about that. That's a key strategic objective we set 2 years ago for ourselves. So we were able to grow in all geographic regions, and strongest sales growth was in Asia Pacific overall. In China, our maintenance business continues to grow at clearly above 20%. And in Rest of Asia Pacific, growth was also strong double digits.
So good development there. What's happening overall in the market? If you look at Europe and North America, maintenance markets grew somewhat, but pricing environment continues to be very competitive in many of these markets. So we have clear differences market to market, but that's the general trend. Asia Pacific markets continue to grow as a result of good new equipment deliveries over the past years.
And what we can see is that we have been very good at capturing good parts of this growth. And then finally, our modernization business. Here, same thing as our maintenance business, our objective is to accelerate our growth. And what we can see now in the last quarter, in particular, we're able to accelerate our growth in order to see it. We had good growth in order to see it, and we grew in all regions.
Sales didn't grow so fast, but in North America, we grew at a good rate. The order book has strengthened here. If you look at the markets, I'd say in Europe, overall monetization market got slightly better, would underline slightly, but slightly better during the year, So this is Central and North Europe. Here, the market continues to grow. However, in South Europe, it remained weak and not much improvement in size there.
North America market continued to grow as well as in Asia Pacific, very strong market. So as you can see from our various businesses and markets that there's lots of different situations. And of course, what we need to do is find the good opportunities in this varying market environment that we operate in. And as a full year result, let me share a few highlights from last year and start with the new equipment business. First of all, overall, we were able to strengthen again our offerings in the new equipment business and strengthen our competitiveness.
At the end of the year, we launched important products for the Indian market, the I Monospace, later in the year, the I Mini space, also for the Indian market. For the Chinese market, second half of the year, we launched the Z Mini space, which is for the affordable housing market. And all of these new introductions, these are just some examples of most important introductions, were very well received by the market. In China, also, we know that the fastest growing segment is the infrastructure segment. Although it's not a huge segment, but it's growing because of government stimulus.
Here we brought to the market an updated version of our infrastructure escalator, the so called TransitMaster 100 and 40. Also, as I think most of you are aware, in the last quarter, we inaugurated our new test tower in Kunshan in China. That's 100 of the highest test towers, 236.5 meters. It's not only a useful tower. It's really a landmark where it is the most important thing.
It is a truly a world class R and D and testing facility. So it will again help us further strengthen our competitiveness and improve our capabilities. So it is an important milestone again how we can develop going forward. In 2015 overall, our expectation with data we have is that the new consumer market declined globally slightly for the first time well over a decade. But we were able to increase our new orders received.
So in total, we booked 100 about 161,000 orders for elevators and escalators. It's about 5% increase over the prior year. And last year, we delivered to our customers about 137,000 generators and escalators. And here, to just put a little bit in context, in a year, there's about 120,000 working minutes. So that means that during working hours, we deliver more than 1 elevator or escalator per minute.
So during this presentation, we would have delivered 25, 30 elevators and escalators, just to put it in context. So we're moving forward all the time. So good improvement in our competitiveness in our new equipment business during the year. Our services business, we were able to accelerate our growth. As I mentioned, that is important objective of ours, and that was because of good conversions from new equipment into the service space.
We also improved our so called competition balance, how many units we win and lose in the market with existing base. It was still negative but an improvement over the prior year. And the reason we've been able to do this, one of the reasons is that about 2 years ago, we started a program to sharpen our focus in sales, give more clarity on sales roles, sharpen our sales management, and we can see that, that is leading to results. And we have been able to accelerate by growth in services. Also, as a one important development last year, we were able to improve the response time of our technicians and the speed of problem resolution by the introduction of a new generation of field mobility device.
Of course, the only device that they have that's important, but it's the whole process and system we are behind it that provides them with better capability of serving our customers. Our maintenance base at the end of the year was close to 1,100,000 units, but it's a bit over 1,000,000 a year before. So good growth also in the maintenance space overall. So good development, I would say, both in our new equipment and our service business. As you also know, 2 years ago, we launched our latest set of 5 development programs.
We've been developing these now for 2 years. We're coming into the last year, so putting in a final push here. We have still a lot to be done in each of these programs, but we have had also good developments. In our 1st in customer loyalty program, we have been able to improve our customer loyalty very strongly in the past 2 years. So we can see we're making improvements here.
In a winning team of crew professionals, one of our key objectives here is to help every Kona employee to perform at their best. And we can see that now virtually all of our employees have an individual development plan, and we have continued to increase our investments in training and development. So we can see from our surveys that we're making also good progress here. In the most competitive people flow solutions, a couple of objectives. We have the most competitive elevator and escalator offering and brings new solutions for smart buildings.
I talked earlier about our competitive position in the new equipment market, which is very good, and we have also brought important solutions for smart buildings that we call People Flow Intelligent. Preferred maintenance partner, we have a lot of activity here to bring a new and absolutely much better customer and end user experience through developing our service business and it's a lot about digitalization. But it's the end goal here is to improve the customer and user experience. And again, we have good development here, and we can see that we have been able to accelerate our growth. And a top monetization provider here is saying to make sure that we have improved our capabilities.
We can see that our order to see if it's starting to grow here as well. So we still have a lot to be done in each of these programs, but we can also see a good development overall. So with that, let me finish with our market outlook for 2016, what do we expect of overall markets. So first of all, Asia Pacific. I already talked about China.
Here, we expect the market to decline by between 5% 10%, and that price competition would continue to be intense. Western Asia Pacific, we expect to see some growth. Europe, Middle East and Africa, market is expected to grow slightly with growth in Central and North Europe and a more stable development in South Europe and the Middle East. In also Americas market is at strong high level, so we expect that to continue growing a bit from here. In the maintenance market, we expect to see very much the same trends we see in this year, good growth in Asia Pacific, but also growth in most other areas, although clear variance outside of Asia Pacific.
And modernization expected to grow slightly, Europe, the market and continue to grow in both North America and Asia Pacific. So a mixed environment overall, as we can see. And then finally, our business outlook, what do we expect, what are we committing to deliver this year. We expect that our sales growth is in the range of 2 percent to 6% in comparable currencies, and we expect our EBIT to be in the range of 1,220,000,000 to $1,320,000,000 And this now assumes that translation exchange rates will remain approximately at the average level of January 2016. And as all of you know, translation exchange rates have a very significant impact on our EBIT.
But we expect if it stays at the level average level of January 2016, then in this year, we now have some headwinds from currencies. With this current rate, it would be roughly €20,000,000 on a full year basis. So with that, let me summarize. We can see that we have a changing market environment, but in that environment, we have been able to perform very strongly. We have been able to accelerate our growth in our maintenance business.
And despite a challenging environment in China, we have performed very strongly. So I feel that overall, we are in a very good position. So with that, happy to turn over to questions.
Thank you, Henrik. And let's start with questions from those present here in Espoo, Finland.
Hello. Elena Ryota from Everly Bank. You mentioned on China that the first half of the year tends to be stronger for you. And just out of curiosity, why is that?
That has been I think it's partly target setting and partly want to get very strongly out of the box. But that has been if you compare previous years' market share, 1st half versus second year. It's not a huge difference, but a little bit stronger.
Okay. And then still on China. Are there any changes now in behavior in the Chinese market in how competition acts? Or is it has it been similar all year?
Well, we have to remember that 2015 was the first time in a very long time of I don't know how far back in history would go to see the market decline. So of course, it was a new situation for everyone in the market. And competition with market share is a start there. So we can see that a lot of companies with growth ambition. But despite this environment, we could see that we had a good development, both in new equipment and strong growth in services.
Okay. And then finally on the Middle East. Can you talk a bit about what you're seeing? You say in your outlook that you expect it to be relatively stable. Is it with a lower oil price, what kind of attitude are you seeing?
It's a good question. And what we see now in Middle East is, first of all, last year, there was quite a lot of infrastructure investments, and we have a growing population, so they need that. But also, we can see that a lot of the countries continue to invest in their tourism industries to compensate for the oil price, but also quite a lot of good standard business, housing and so forth because of the growing population. So I would say development has been quite good in many segments, but perhaps the strongest in more standard business now rather than standard business and in infrastructure rather than high rises and such.
Pekka Spadry from Pohihela Bank. Coming back to China again, first about the pricing there. If I recall right, during last year, you talked about the price decline to be somewhere from 3% to 5%. Is it still the same? Or have you seen more deeper declines in the prices?
I would
say if you look at the market overall, we probably talked about a little bit more than that, but not particularly somewhere. I mean, it's difficult to say exactly where the market is, but probably a bit more price decline than what it's also about.
And your own price decline, are they in line or still smaller than the market on average?
Well, it depends on always quarter to quarter how you adjust. But actually, in the last quarter, we had a pretty good development compared to the market. That's our understanding.
And then about the projects and their progress in China. Have you seen any delays in the projects that people are becoming more hesitant to continue? And have you seen any cancellations in the projects in China?
So first of all, cancellations, again, throughout last year, continued to be at a very low level. So no change really there. If you look at our top line growth and how important China is, about 35% of our revenues for the full year, essentially, actually deliveries have done well. We are perhaps seeing a slight increase in the rotation, but it's nothing dramatic. But overall, what we can see from our top line and our profitability is actually deliveries have done well last year.
And the last question about this competitive balance. You mentioned that it has improved but still somewhat negative. This year's assessment, what are the reasons behind this to be negative and what you
should The most challenging area is clearly South Europe. Here, we have a weak new equipment market and weak modernization market, a lot of smaller independent players. So there's just very high competition for them and also a lot of price competition. And perhaps we are very strict on where we are willing to go with our pricing. And then we have bought a little bit more than we have won, particularly in South Europe.
So the market there continues to be challenging and competitive. A lot of small independent players who historically have installed some elevators and modernized for that business alone. So a lot of people chasing the same business.
Thank you. So let's then move ahead. And now we are ready to take questions from those present on the phone lines. I hand over to the operator, please.
Thank you. Will take our first question from Andre Kunin from Credit Suisse. Please go ahead.
Hi, everyone. This is Tian Tian's asking question on behalf of Andrew. Our first question is that in your 5% to 10% decline in China order outlook, what kind of underlying concerns do you have behind the outlook? And is there anything happened at the end of the year that would make you feel that this decline would accelerate into next year? Thank you.
So first of all, that's the whole market, 5% to 10%. So that means that at the best end, we're saying about the same as 2015, at the worse end, the decline would be worse than this year. I would say that if you look at the underlying market, we expect largely to see the same trends as in 2015 if you look at by tier of city or if you look at by segment. So most challenging areas are lower tier cities, higher tier doing better. Also affordable housing, commercial and infrastructure doing a little better than standard residential is more challenging.
This is what we largely similar trend that we expect for the coming year.
Great. Thank you very much. The second question is that on outlook, you said that the modernization market in Asia is expected to grow strongly. We were just wondering what is that mainly driven by? Is that mostly Australia, Southeast Asia or that includes China too?
Do you see any change in the underlying market trends there?
Yes. So first of all, as you know, the modernization market in Asia Pacific outside of Australia is still quite small given a lot of new much newer equipment base there. So Australia continues to develop well. It has developed very well over the past years, and there we continue to see good development. But also, we're starting to see good growth in China.
The market is not huge yet, but it's growing at a good rate as in other markets. But also, you have to remember that China also, the equipment starts to age there or is aging every year. So the opportunity will improve year by year. But clearly, the largest modernization markets are Europe first, then North America and then Asia Pacific.
Sure, understood. Thank you very much. And the last question would be on Iran. We know that the sanction has been lifted and you have been supplying to that market before. We're wondering if there's been any progress going back into the market?
And when would we expect you to have any meaningful progress there? Thank you.
So Iran is a very interesting market. It's a large elevator market, and we see good opportunities there. We are monitoring the situation closely, and so we're staying close to the situation.
So there is nothing material at this moment?
No, nothing material to announce right now.
Okay. Thank you very much.
Thank you.
Thank you. We will take now our next question from Guillermo Peigneux from UBS.
Good afternoon, everyone. Guillermo Peigneux from UBS. Just a question regarding your backlog. As China goes down and as you say or North America has continued to grow or grow the rest of the industry or regions. Is it fair to assume that the margin in the backlog, the mix in the backlog is deteriorating as we speak?
Thank you. So clearly, as you know, our new equipment profitability in China is very strong and stronger than we have in other parts of the world. But on the other hand, also in North America, we're clearly improving, but the margin is not as good there. So from a mix perspective, yes, that's a slight headwind.
And it will be a headwind more for 2017? Right.
We have to see how orders received develop in the coming year, and we have to see how we're able to improve our competitiveness. So on the other hand, we are also growing many of our other businesses. So that's one aspect of it. But if you just look at new equipment there, yes, we have strong growth in North America, which would be, from a new equipment perspective, a slight headwind, yes.
One more question regarding currency contribution to your EBIT in Q4. I maybe missed it in your commentary.
About €25,000,000 full year roughly €120,000,000 quarter €25,000,000
Okay. Thank you. And I think I'll leave it at that. I'll come back if I have any.
Thank you. We will now take our next question from Ben Maslin from Morgan Stanley. Please go ahead.
Yes. Thank you. Hi, Henrik. Firstly, just a question on China pricing, if I can, which you say is difficult and maybe at the market level got a bit worse in Q4. Have you been able to offset this, do you think, with lower raw material prices over the last 12 months?
And how are the gross margins in China that are in your backlog trending at the moment? That's the first question.
Okay. So as you can see from our profitability development, we have done very well in that market to improve our overall competitiveness, Raw materials is actually one aspect of it, but that's only part of it. Also, the actions we have taken on our products, on our sourcing and so forth have resulted in a good situation. So the relative margin has stayed at a good level. Clearly, though, if prices are lower, then the absolute contribution is somewhat lower.
But we have been able to perform well in that market. And of course, you can see it from our results.
Thank you. And probably it's about Misteko. And then on orders, you said in the statement you're seeing much faster growth in large projects at the moment. So the €8,200,000,000 order book, can you give us any sense of how much of that is large projects and how much falls into 2017 and beyond in terms of deliveries? And I assume the length of that order book
is still extending? Thank you. Eric, why don't you comment first on the structure of the order book and I can then talk about the trend.
Communicated earlier already, so the situation is about the same. So from the order book, about onethree is this longer major project. They usually take from 2 to 5 years to complete.
And when you said then that we see now more growth in major projects, again, that's a quarter to quarter question. If you remember when we had our Capital Markets Day, we talked about this. Then until then, year to date, our growth had to be more driven by the volume business. Now in the last quarter, it was more larger projects. So again, I wouldn't it's quarter to quarter fluctuation between these two categories.
But as we said, over the past years, structurally, transfer rotation has become a little bit longer as if you look over 2 years, then order to see if the major project has grown even faster.
Got it. And then just finally on the services on maintenance market in China.
Sorry, I missed it earlier.
Can you say how fast that's growing? And would you expect it to slow down with a lag as the equipment business starts to slow down? Or do you see opportunities to penetrate that market further?
So we were clearly above 20% again growth in maintenance in China. You have to remember that the units that we're converting now are what has been installed perhaps an average couple of years ago. So we continue to see a good backlog of conversions. And we see that, that opportunity is definitely there. The market is developing well and it's growing.
We have to also remember that every time we get the higher maintenance base, we have to convert even more every time to maintain that growth rate, but we have been able to maintain a very good growth rate over the past year.
Got it. Thanks, Hamrick.
Thank you. We will now take a question from Erik Karlsson from Bode Capital. Please go ahead.
Thanks for taking my question. I had a question on the maintenance business and specifically about the competition balance. I think you said the competition balance was negative in 2015, but less so than in 2014.
I mean, we know you're
a very ambitious company. What's the target here for 20 16? Do you think you can go into net positive competition balance this year potentially?
Well, if you have a target, Anything but positive would be would not be like us. So clearly, we have a target of being positive and capitalizing all the good actions we take in our maintenance business. Is it easy? Absolutely not. Are we going to get there?
Let's see. We are working very hard on that. I think the most important thing is during the maintenance business last year was kind of good improvement we had for overall growth in number of units we converted. So that was what was really driving our growth.
Can I just ask a follow-up on that? You talked about the maintenance market that is broadly similar in growth profile 2016 versus 2015. Then on top of that, we'd have conversion at continued good levels, maybe even a little bit higher in some regions such as China. And then you have a competition balance potentially moving from a small negative to, let's hope then, a small positive back. Is there any reason to believe that maintenance growth would not be higher in local currencies this year than it was last year?
We don't guide each individual business, but clearly, our ambitions are we continue to be ambitious. You just remember that the maintenance, there are many different aspects to our maintenance growth. There is the conversions, there is a competition balance, then there is acquisitions, then the units taken out of use, which continues to run at about 1% of the maintenance base. And then we have repairs and spare parts and things like that. And there we also performed well in the past year.
So there are many different things that come into it, but of course, the most important thing is conversion. So of course, we have a good objective to grow. So when you said the markets are growing, where is the market growth coming from? It's clearly coming from the conversions. And then the point is that we need to, of course, capture as many of those conversion in the market as possible.
Sorry to harp on this. But on the conversion rates then, are you seeing declining conversion rates anywhere?
No, we're not seeing declining conversion rates anywhere. If you look at the total mix for Kone, given that China also here becomes more important than the overall average, perhaps not moving forward because China conversion rates are lower, but overall, good growth in absolute number of conversions.
Very good. Thank you very much.
Thank you very much. We will now take our next question from Manu Arenthella from Nordea. Please go ahead.
Good afternoon. Can you
hear me? Yes.
Okay. A few questions from me. Firstly, can you give us some better understanding on the visibility that you have into the pipeline in China of new projects? And what kind of monitoring systems do you have in place? So last year, you fine tuned the outlook for China as the year progressed.
And just wondering kind of how are you assessing the outlook for 2016, a 5% to 10% decline? And what other monitoring you have in place in order to kind of see that you're progressing along with that?
So of course, there's not one source of information we use. You have to remember, we have a very broad organization in China with a network throughout the country. So of course, we look at, well, everything from macro data. We look at feedback from our customers. We look at our tendering pipelines and so forth, and all of this goes then into what is our best view of the market today.
Okay. The second question, could you give us some light on how the profitability by the different reporting segments that was compared to the previous years? I mean, you mentioned that you saw Chinese new equipment margins still improving and it was new equipment as a whole saw improving margins. So just help us understand where the improvement came on divisional level.
First of all, we don't break down our margins by various businesses. What I wanted to highlight, the reason I highlighted China was that we know it's a challenging market, but what we showed last year is that also in that kind of market, we performed very well. And I wasn't we improved our profitability last year. Our EBIT improved because of improvement on a broad basis, both in service as well as in new equipment and in many different geographic regions. Given the absolute growth of new equipment, which was for the full year, our new equipment growth rate was double digits.
It was about 11% in comparable currencies. That clearly had a strong contribution. And the strengthening of our competitiveness in new equipment meant that we were able to perform extremely well there.
Okay. And final question, just to clarify. When you mentioned the Chinese maintenance growth was more than 20%, so is it on an organic currency basis or organic basis and not including currency impact or including currencies?
Local currencies, so all organic local currency growth.
Okay. Thank you. No further questions.
Thank you very much. We will now take our next question from Justin Bracken from AllianceBernstein. Please go ahead.
Thank you. Good afternoon, everybody. Good afternoon, Henrik. I'd like to ask 3 short questions, 2 about engineer availability and one on China maintenance growth. I'll start with the engineer availability.
So looking at your business model, Henrik, and having a sufficient number of qualified engineers is fundamental to your growth rates in terms of the impact of them or constraining your growth rate, particularly in high growth countries. Could you comment upon how big a concern is a potential shortage of engineers to Kona's growth rate? And how you can reassure investors that you're able to build up a sufficient number of qualified engineers in high growth countries, particularly with the increasing safety standards in a few places?
I think that where do you need capacity to be able to grow new equipment business? You need in engineering when you design the products, particularly if you have nonstandard products, then you need to have competent field people, supervisors and installers, but very much the supervisors who are supervising and then testing and commissioning the installation of the new equipment. If you look at our development over the past years, I think we have a pretty good track record of doing that. We invest quite a lot in field competence development to make sure that we have those competencies there. And of course, we are able to move around resources around the company when growth rates between different areas change.
Where do we need most new competent people on supervising and testing commissioning and so forth? Clearly, countries such Southeast Asia, where we have had a lot of growth over the past years, but we are building it up. North America is also growing, so we're building it up. It's something we've been dealing with for a long time. So I'm not of course, it takes a lot of effort, but I'm not too concerned about that.
Okay. And lastly, a quick question about what's driving your maintenance revenue in China. You're quite positive about maintenance growth here, as you mentioned in your presentation. Could I ask if this revenue is purely driven from your own installed base? Or are you acquiring maintenance, if I can use that phrase from other people?
100 percent organic. Converting Kone and installed equipment to our maintenance base. Virtually all of our units we service in China are KONE OR Giant KONE branded.
Wonderful. Thank you very much.
Thank you. Our next question comes now from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Yes. Thanks for taking my questions. Markus Kluge here from Kepler Cheuvreux. A couple of questions, if I may. I was firstly wondering what you think about the growth rates currently seen in the European new equipment and modernization markets?
And I know you've talked about it in qualitative terms, but I was wondering whether you could put some numbers to it. That would be my first question. And the second question would be on orders received. I think if I read this correctly, you started to register orders received differently now. If you could explain what exactly has changed and why you've decided to change that format?
And then thirdly, on orders and receipts, again, that grew by 5 points. Sorry?
Sorry to interrupt. Can we take the first two questions and then you can come back to the last one. Okay. So first of all, Europe growth. There are some markets that are growing well.
It's particularly in Central and North Europe, where we're growing well. And there, we have been able to, in the second half, particularly of the year, we have clearly had strong double digit growth rates. Germany is doing very well. U. K, Sweden and some other markets around also doing quite well.
So in the good markets, we are clearly growing at double digit rates. Then we have not changed anything in our principles of how we look our orders received. I think what you probably referred to is that we just explained it a little bit more in detail in the interim report. But otherwise, no changes to that.
Okay. And then my last question would again be on orders received. They grew by 5.6% in local currencies in 11.9% in 2014. And yet, you're guiding for net sales growth of 2% to 6% of comparable exchange rates for 2016. So I'm wondering why does Kvaerner think that sales growth will be below order intake growth over the past few years?
Many thanks.
First of all, remember, order intake covers only parts of the business, the order bound business. But I would say that, first of all, we expect to continue to grow in 2016. Secondly, what we discussed a little bit earlier, what Guillermo was asking about was more mix towards major projects and North America. There, the rotation of the order book is slower than in some other markets. So we're seeing a little bit of a shift in the order book from a mix perspective and perhaps in China, a slight slowdown in the rotation.
But as I said, the key thing last year was a very good continued good deliveries. So all of this bring the mix, and with that, we expect to achieve the growth that we are guiding for.
Thank you. We take our next question now from Antti Suttelin from Danske Bank. Please go ahead.
Thank you. China, China, China, you said you improved your China margin in 2015. Where are we now, China versus rest of KONE in terms of EBIT margin? That's my first question, please.
China has a very good margin. It would be above KONE's average margin.
Okay. So KONE China is higher than KONE on the average. And then we know that China is very much tilted towards new equipment. So new equipment margin must be the driving force there. Do you really think that the Chinese new equipment margin can remain on a strong level given that the market is now falling for the first time in the history?
Well, you saw what I explained what we did last year. We have very good competitiveness, so we're working for that all the time. But I would also say that we are improving in other parts of the world. So of course, our overall profitability comes from mix, what we deliver from various parts of the world. We are globally, we are in a good position from a competitiveness perspective, and that's how we plan to drive our business going forward.
But specifically on China New Equipment, are you budgeting for still improving margin or same margin in China New Equipment as you had in 2015? Or how are you thinking about that?
First of all, Antti, as you very well know, we don't guide for various businesses or go through what we have as a specific budget. I think our commitment is the overall guidance that we have. And clearly, the market is more challenging in China. But as I said, in China market, we are in a pretty good spot with our competitiveness. Do we have to continue to improve that?
Absolutely. So our margin development will be dependent on how we can continue to improve our competitiveness in that market. It's as simple as that.
Yes. I just wonder what is the reason that the Chinese equipment margin wouldn't converge
to the same level where it's globally? Well, I don't know if everyone has margins like us in China. I think we are very competitive. And then we have this, of course, when services become a larger share, and that's also a good business in China. No question about that.
So we see opportunities from many different perspectives. Yes. All right. Thanks a lot.
Thank you. We take now our next question from Phil Wilson from Redburn. Please go ahead.
Good afternoon, everyone. Thanks for taking the questions. I've got 3, please. Firstly, your U. S.
New equipment market outlook for 2016 appears to have been turned down a bit compared to the growth you saw in 2015. Can you give some commentary why you see a slow rate of growth in the U. S? As I mentioned, the residential side, your exposure still should be pretty strong given the multifamily shift. First question is a question.
We expect a continued good development of the North America and U. S. Market in particular. But remember, the market is already at a high level. So we continue to expect a growth from a high level.
I think that, that's quite a good situation. That's just in summary how it is.
Okay. So no particular end markets within the U. S. That you see as softening?
Not necessarily.
Okay. Secondly, I'll pause on the third question. But did you say that your growth in China in 2016 may be more in line with the market than it has been in the past for your market share gains easing. And if that is the case, can you comment why you expect this to happen?
What I said is that our ambition continues to be able to outperform the market. And that feels pretty good when we look at full year, for example, too, that we can do that. What I said is we'll probably look at a more even development throughout the year rather than a very first half weighted.
Okay. Thank you. That's clear. And then finally, I mentioned the strong maintenance growth, 7.5% in the quarter is helped by the mix of this Chinese growth growing at 25%. As this mix changes in your maintenance revenues, are you able to maintain the same level of EBIT margins in maintenance?
In our business, of course, they vary from market to market. But overall, we have good margins in our maintenance business. But I think the most important thing is that to achieve on a maintenance base that you have a growth of 7.5%. It was not only China. We actually grew in all geographic areas.
So it was a good performance across the board.
And then I know this
is often asked, but as it becomes more material, can you give
a little bit more color as
to where the Chinese maintenance margin sits?
It's at a good level.
Okay. Thank you very much.
Thank you. Our next question comes from Daniel Gleim from MainFirst. Please go ahead.
Yes, hello everyone. Thank you very much for taking my question. The first one would be on the lease period in China. I think during the Capital Market Day, you mentioned that the lead period between order intake, new equipment and revenue recognition for new equipment is around 6 to 9 months. And you mentioned in the call today that there has been some changes in the order book rotation.
Could you please comment within your guidance for 2016, what is the expected lead period between order intake and revenue recognition in China?
As I commented first, there's no significant changes. What I said we experienced last year was a slight lengthening. But at the same time, it's important to remember that if you look at our top line growth, our deliveries have been very strong in China last year. Actually, we did very well there. And so no dramatic changes.
The biggest difference from a rotation perspective is the geographical mix, and mix between, if you look over the past years, between volume business and major project business.
So given that the order intake has been rather stable the last quarter and this quarter, we should expect flattish revenues in the second half of twenty sixteen in China. Is that the correct way to look at it? Or am I missing something?
Well, we don't cite specifically quarter by quarter or by market. We have our overall guidance, and we have to see how the Chinese market develops. When we look at our overall situation, we're looking at a 2% to 6% growth for the full year. And this, of course, as always, there are fluctuations quarter to quarter.
Okay. Maybe then briefly on the recognition of maintenance revenues in China. Am I correct that there is difference to the recognition in the maintenance phase? That is that after you have installed the new equipment, you would record revenues during the initial service period in the maintenance business already?
So you accrue a part of the new equipment revenue and then you recognize that over the 1st service period, which is part of your new equipment price when you sold it.
But it's recognized within the maintenance businesses.
Thank you.
Thank you.
We will take now our next question from Tommy Rylo from SEB. Please go ahead.
Yes, good afternoon. Hope you can hear me. I think I need to come back here on the China and 2016. Are you expecting revenues to grow in China in 2016? We don't we are guiding for our full revenues.
We're not guiding for a specific market. But have your order backlog been filled up in China in
the end of the respective season?
Strong order backlog both in China and rest of the world as well. We're in a good situation there. Thank you.
Thank you. We now take a follow-up question from Guillermo De Neu. Please go ahead.
Thank you very much. Just a follow-up on pricing again. Is there a month or a period in the year in which the main operators in the Chinese market announced those price decreases? Or is that on an order by order basis, please?
There are no such thing as people who announced prices or like that. We have to remember that pricing is something each individual order is a negotiation between us or somewhere else and a customer. And when you have enough of these, it becomes a market price. And that's where pricing is then formed. And we, of course, make a view of what's our understanding of all of these transactions at what prices have happened.
So it's naturally safe. It's an ongoing process. It's not a step change at any point in time. Okay. Thank you.
Thank you.
We have now another follow-up question from Andre Kukhnin from Credit Suisse. Please go ahead.
Hi, it's Tian Tian again. Yes, what my question I have 2 quick follow-up questions, please. How much is of China revenue at the moment? Is it still below 10% or has it grown positive?
Slightly below 10%, yes.
Okay. And the second question is that what's your suite between Tier 1 and Tier 2 versus Tier 3 and 4 cities at the moment?
So the Kone brand, in particular, would have more than 50% of the business in Tier 1 and Tier 2 cities. What do you say, Erika?
Our second grant will be the opposite. So the total will be about 50.50.
The total will be 50.50.
Thank you. Has that been answered your question?
Yes. Sorry, I just got my broken. Thank you very much.
Thank you. We will now take another question from Erik Karlsson from BoDeutsche. Please go ahead.
Thanks for taking on the question. I wanted to know on the North American market, you showed very good developments also versus the market growth. Of course, the trend to machine room elevators
are helping you here. Like are
there any other ways you're strengthening your competitiveness that you can explain the strong performance versus the market here?
Yes, good question. So one of these areas actually shift from hydraulics towards machine roomless, and we have been very strong in machine roomless, so that's why we're taking bigger market share all the time there. But I think we have also if you look at North America, our product competitiveness, particularly for the segments are growing well, is strong. And we have had good development and strengthening of our field operations, so to strengthen that with also our overall competitiveness. So again, as you know, in this business, it's not only about the product, it's how we can install it in the field.
And I feel that we have had good development in both and the segments that are growing, that's where we have a good competitiveness as well.
Another question now also from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Yes, thanks for taking my follow-up question. Just a clarification question very quickly. Did I understand you, Henrik, correctly that you were mentioning a €20,000,000 headwind from currencies on EBIT in 2016?
What is included in our guidance? And that's we said that if currencies would stay at the average level of January, that's what would happen. Where are currencies going to be for the full year? That's unfortunately, we don't know. But with the current level, it will get roughly €20,000,000 headwind.
On EBIT, EBIT.
On EBIT, yes.
Thank you
so much.
Thank you. We now take a question from Michael Kalagueros from Bank of America. Please go ahead.
Hi, good afternoon. Thanks for taking the question. I think I think you highlighted the very strong cash flow in the year and you basically ended the year with net cash of €1,500,000,000 I mean, my first question would be at what point of infrastructure would you consider doing something with that cash, maybe returning it to shareholders? And my second question is, if you don't see a return to shareholders as imminent, Are you seeing anything in terms of transaction activity, especially on the maintenance operators in Europe, for example, now that the market has kind of stabilized?
So first of all, I think we're again handing out quite a lot of cash to our shareholders in March, so long as the shareholders' meeting decides on the proposed dividend that, that would be, I think, about SEK730,000,000 or something like that, that we would pay out in March. So that's, again, a good growth in our dividend. But yes, we will continue to have a strong balance sheet also after that. And nothing has changed here. We continue to be interested in finding acquisitions.
Last year, we bought, I think, 23 companies again. So we continue to buy. They are small, but also naturally have appetite for bigger targets. And that's why we think it makes sense to maintain a strong balance sheet.
Coming out of time soon. Is there still a final question from the line?
We have one final question in the queue. Yes. We now take the final question from Daniel Kline from MainFirst. Please go
ahead. Yes. Thank you very much for taking my last question. Erika, could you please elaborate on the disconnect between reported net interest and the cash interest within your cash flow statement? I assume it has something to do with the dividend payment from Toshiba, potentially a revaluation loss on option liabilities.
Could you elaborate on that, please?
Sure. So we have 2 extraordinary items now reported in our 2015 number. In that sense, that impacts and well, the lease option liability related acquisitions we have had and the impact there is €137,000,000 FX impact about €10,000,000 But the bigger one, which is at the exception of 2015, is this a dividend almost €120,000,000 coming from Porciba, as Henrik was describing earlier.
Okay. And maybe one last on the order intake. Has there been any extraordinary high orders in the 4th quarter or would you call this business as usual?
Business as usual, Rohit. Sometimes you have bigger orders, sometimes not, but that fluctuates quarter to quarter, but I would call it quite business as usual.
All right. Thank you very much.
Okay. Thank you very much everybody for your participation today. It is time to conclude the call. So we would all like to thank you very much and wish you a good rest of the day. Thank you.
Thank you.
Thank you. Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now