Good afternoon, everybody. Welcome to KONE's Q4 and full year results presentation. Here in Espoo, Finland, we have today with us our CEO, Henrik Ehrnrooth, and CFO, Eriikka Söderström. I am Katri Saarenheimo 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&A and some discussion. Let's get started with the review of Q4 and the full year. Henrik, the stage is yours.
Thank you, Katri. Also 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 fourth quarter. I would say that in the fourth quarter, we performed strongly on a very broad basis. I'm very pleased about that. As usual, I'll go first through our key figures. After that, I'll go a little bit deeper into some of them. I will also talk about then our businesses, our markets, and a few highlights from 2015. After that, about how we're developing going forward and our outlook. Diving straight into what happened in Q4.
As the heading says, we had a very strong finish to the year. We continued to grow. Our orders received were more than EUR 1.9 billion, growth of 14% or 7% in comparable currency. We have a very strong order book at EUR 8.2 billion and growing 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 EUR 2.5 billion, which was more than EUR 400 million. We continued 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, EUR 0.71, but in this earnings per share, we have a one-time gain from a dividend we received in December from Toshiba Elevator company. If you back out that one-time gain, our earnings per share was EUR 0.49 compared to EUR 0.40 a year ago. That's quarter four. What about then full year 2015? Again, this gives a little bit longer perspective of our development. 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. We showed that also in this kind of environment, we can perform strongly. Orders received grew almost EUR 8 billion, 5.6% in comparable currency. Our sales, good growth throughout the year, 8.3%, and sales was EUR 8.6 billion.
Throughout the year, we had profitable growth. We had a strong EBIT of EUR 1,241 million. Our EBIT margin improved from 14.1% to 14.4%. For the full year, very strong cash conversion with a good cash flow of almost EUR 1.5 billion. We had EUR 1,473 million in cash flow on an EBIT a little bit over EUR 1.2 billion. Again, shows the health and strength of our business. Earnings per share is EUR 2. Here we had the one-time gain from the Toshiba dividend. If we back that out, it was 1.79 earnings per share compared to EUR 1.47 a year ago. Given the good improvements in our EPS and our cash flow and our results, our board is proposing to the annual general meeting to increase our dividend to EUR 1.40 when it was last year EUR 1.20.
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 how we lead the company is that we have a great spirit and strong motivation and commitment amongst our employees. I would actually argue that we have the best team in this industry. That really has helped us perform very strongly and will help us perform strongly in a continued changing environment. A very big thank you to all of our employees for a very good job done during last year. That's the highlight of the results. Let me first go into our orders received a bit more in detail. Quarter 4, again, strong growth in orders received as we had throughout the year.
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. They were stable due to a slight decline now in our orders received in China. If you look at the developments in China, we continue to outperform the market. The market in the fourth quarter in China declined at a little bit 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 in monetary value, it was a slight decline. It's a good development also there in a challenging environment.
If I 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%. Of course, we had again good headwind from currencies. 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. Good growth across the board. Growth was very strong in new equipment. We can see we're delivering on our strong order book. Growth in new equipment was 15%. What I'm very pleased about is in our maintenance business, we were again able to slightly improve our growth rate. In our maintenance business, we grew at 7.5%. 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. The good growth in sales resulted also in a good development in our operating income, in our EBIT. 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. When we look at geographically, a good development overall. Very good profitability improvement and very good profitability in both new equipment and our maintenance business. When we look at overall our EBIT, we can also see that we have continued to invest in our future.
What is burdening our EBIT is a continued increase in our investment in R&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 these markets. We also in this environment continue to invest strongly into the future. Throughout the year, translation exchange rates were a strong tailwind for us. Over the full year, positive development of about EUR 120 million of positive contribution from exchange rates, and the last quarter about EUR 25 million. Even if you back this out, you can see that in comparable currencies also, EBIT had a good development in 2015 and in the last quarter. Overall, strong profitability development. Our business mix. The change in our business mix continued along the same patterns you have seen before.
The share of new equipment was now 57% compared to 55% a year ago. Now the shift in mix, the two percentage points, was as much due to underlying growth as translation exchange rates, because in new equipment, we have more non-euro sales than in the other businesses. The same thing when we looked at sales by market. For the first time in KONE'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. North America share increased due to the good growth we had in that area. That's about 2015, and when it's a full year result, it's always also good to look little bit a longer perspective of our development.
Here, since 2005, how our sales has developed by market. As we all know, a very significant growth driver for KONE over the past 10 years and the past five years has been our growth in Asia-Pacific. Since 2005, if you look to today, our business is tenfold today compared to 2005. 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 you compare 2005, our North American business is double, and we have compounded that over 5% also Europe, Middle East, and Africa. 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 has, of course, changed KONE a lot over the past years in a very positive sense. If you 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. Here also, our maintenance business has been growing at 7.9% for this period. Over this period of time, it's double. Also modernization 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, but also we are growing in all other parts of the world in all of our businesses. That's about a little bit longer perspective. I'll turn back to Q4 and our various businesses and what's happening in the market. Let's start with the new equipment business.
I commented already on our overall orders received, if we just look at the new equipment business, here same story, growth in Europe, Middle East, and Africa and North America. Asia-Pacific at previous year level due to a slight decline in China. As I discussed already, China, we clearly outperformed the market. What's happening in our markets overall in new equipment? Europe, Middle East, and 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. Their market continue to grow, and it's at a high and strong level at the moment.
If you look at Asia-Pacific overall, the whole market weakened slightly due to declining markets in China. For the rest, we saw some growth in rest of Asia-Pacific. Let me here, as usual, pause a little bit and talk a little bit more about what's happening in China because I know many of you have lot of questions about this, and I'll try to answer some of it here up front. 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 market continued to be very intense. Competition for 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 the last quarter, just a little bit in units and then slight decline in monetary value. If you look at our sales, very strong. Deliveries have continued to be strong. Also in this market, we have continued to improve our profitability. Very good development in a challenging market, and that speaks a lot about the great competitiveness we have in the Chinese market. I believe it continued to improve last year. 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, are in pretty good shape. Inventory levels, pretty normalized levels. Transaction volumes have grown very well throughout the year.
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. That means that tier 1 and the majority of tier 2 cities, actually development is quite okay. However, if you look at the lower tier cities, tier 3, tier 4, smaller cities, situation is challenging and is tough. There, the inventory of unsold apartments is at a high level. Despite the increase of transactions, it has not significantly changed. That will take a while before this market turn healthier. If you look at what do we think about going forward? When we look at 2016, you will see it in our outlook, but our expectation is the market this year will decline between 5%-10%, and that price competition will remain tough.
What's then our strategy for this year? Our overall, if you 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 market. Again, this is not on a quarter-by-quarter basis, it's on a full-year basis. If you look at historically, also same thing in 2015, our outperformance compared to market tends to be the strongest in the first half or beginning of the year. That has worked well for us. We're probably looking at a 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.
I feel good about our ability to do that because we are in a very good position, we have very strong team, and we have a very good product competitiveness. That is a great combination to have. That's a little bit more in detail about China and the new equipment market there. Let me enter 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 two years ago for ourselves. We're 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. A good development there. What's happening then overall in the market?
If you look at Europe and North America, maintenance markets grew somewhat, pricing environment continues to be very competitive in many of these markets. 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. What we can see is that we have been very good at capturing good parts of this growth. Then finally, our modernization business. Here, same thing as our maintenance business, our objective is to accelerate our growth. 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 modernization markets got slightly better. Would underline slightly, but slightly better during the year. This is Central and North Europe. Here the market continued to grow. In South Europe it remained weak, and not much improvement in sight there. North America market continued to grow as well as in Asia Pacific where we have strong markets. As you can see from our various businesses and markets, there's lots of different situations. Of course, what we need to do is find the good opportunities in this varying market environment that we operate in. As to full year results, let me share a few highlights from last year and start with the new equipment business.
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 India market, the KONE I MonoSpace. Later in the year, the I MiniSpace also for the India market. For the Chinese market, second half of the year, we launched the Z MiniSpace which is for the affordable housing market. All of these new introductions, these are just some examples, our 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 140.
As I think most of you are aware, in the last quarter we inaugurated our new test tower in Kunshan in China. That's one of the highest test towers at 236.5 meters. It's not only a beautiful tower; it's really a landmark. It is the most important thing, it is truly a world-class R&D and testing facility. It will again help us further strengthen our competitiveness and improve our capabilities. It is an important milestone again, how we can develop going forward. 2015 overall, our expectation, the data we have, is that the new equipment market declined globally, slightly, for the first time in well over a decade. We were able to increase our new order to sales. In total, we booked about 161,000 orders for elevators and escalators. It's about 5% increase over the prior year.
Last year, we delivered to our customers about 137,000 elevators and escalators. Here to just put a bit of it in context, in a year, there's about 120,000 working minutes. That means that during working hours, we deliver more than one elevator or escalator per minute. During this presentation, we would have delivered 25, 30 elevators or escalators, just to put it in context. We're moving forward all the time. 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 base. 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. The reason we've been able to do this, or one of the reasons, is that about two years ago, we started a program to sharpen our focus in sales with more clarity in sales roles, sharpen our sales management, and we can see that that is leading to results. We have been able to accelerate our growth in services. Also, as 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. That's, of course, only device that they have, that's important, but it's the whole process and system we have behind it that provides them with better capability of serving our customers.
Our maintenance base at the end of the year was close to 1.1 million units, when it's a bit over a million the year before. Good growth also in the maintenance base overall. Good development, I would say, both in our new equipment and our service business. As you also know, it was two years ago, we launched our latest set of five development programs. We've been developing this now for two 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 first in customer loyalty program, we have been able to improve our customer loyalty very strongly in the past two years. We can see we're making improvements here.
In a winning team of true professionals, one of our key objectives here is to help every KONE 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 investment in training and development. 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 offerings 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 Intelligence.
Regarding our maintenance , 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. The end goal here is to improve the customer and user experience. Again, we have good development here, and we can see that we have been able to accelerate our growth. Top Modernization Provider, here the same, to make sure that we have improved our capabilities, and we can see that our order to see if it's starting to grow here as well. We still have a lot to be done in each of these programs, but we can also see a good development overall. With that, let me finish with our market outlook for 2016. What do we expect of overall markets?
First of all, Asia-Pacific, I already talked about China. Here we expect the market to decline by between 5% and 10%, and that price competition will continue to be intense. Greater Asia-Pacific, we expect to see some growth. Europe, Middle East, and Africa, markets is expected to grow slightly with growth in Central and North Europe, and a more stable development in South Europe and the Middle East. North America market is at strong high levels, 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've seen this year. Good growth in Asia-Pacific, but also growth in most other areas, although clear variance outside of Asia-Pacific. Modernization expected to grow slightly. Europe, the market, and continue to grow in both North America and Asia-Pacific.
A mixed environment overall, as we can see. 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%-6% in comparable currencies, and we expect our EBIT to be in the range of EUR 1.22 billion-EUR 1.32 billion. This now assumes that translation exchange rates will remain approximately at the average level of January 2016. As all of you know, translation exchange rates have a very significant impact on our EBIT. We expect it, if it stays at the average level of January 2016, then in this year, we now have some headwinds from currencies. With this current rate, it would be roughly EUR 20 million on a full year basis. With that, let me summarize.
We can see that we have a change in 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. Despite a challenging environment in China, we have performed very strongly. I feel that overall, we are in a very good position. With that, happy to turn over to questions.
Thank you, Henrik. Let's start with questions from those present here in Espoo, Finland.
Hello. Elena Riutta from Evli Bank. You mentioned on China that the first half of the year tends to be stronger for you. Just out of curiosity, why is that?
I think it's partly target setting and partly want to get very strongly out of the box. That has been, if you compare previous years, a market share first half, first second year. It's not a huge difference, little bit stronger.
Okay. Thank you. Still on China, are there any changes now in behavior in the Chinese market in how competition acts, or 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 it would go to see the market decline. Of course, it was a new situation for everyone in the market. Competition for market share is tough there. We can see that a lot of companies with growth ambition. Despite this environment, we could see that we had a good development both in new equipment and strong growth in services.
Okay. 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. With a lower oil price, what kind of attitudes are you seeing?
Good question. What we're seeing now in Middle East is, first of all, last year there was quite a lot of infrastructure investment and you have a growing population, so they need that. Also, we can see that a lot of the countries continue to invest in their tourism industries to compensate for the oil price. Also, quite a lot of good standard business housing and so forth because of the growing population. I would say development has been quite good in many segments, but perhaps the strongest in more standard business now and in infrastructure rather than high rises and such.
Pekka Spolander from Pohjola 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%-5%. Is it still the same, or have you seen a deeper decline in the prices?
I would say if you look at the market overall, we probably talk about a little bit more than that, but not significantly somewhere. It's difficult to say exactly where the market is, but probably a bit more price decline than what we talked about.
Your own price decline, are they in line or still smaller than the market on average?
It depends on always quarter to quarter, how you adjust. Actually, in the last quarter, we had a pretty good development compared to the market. That's our understanding.
About the projects and their progressing in China. Have you seen any delays in the projects that people are becoming more hesitant to continue? Have you seen any cancellations in the projects in China?
First of all, cancellations again throughout last year continued to be at a very low level. 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, you can see that actually deliveries have done well. We are perhaps seeing a slight increase in the rotation, it's nothing dramatic. Overall, what you can see from our top line and our profitability, that actually deliveries have done well last year.
The last question about this competitive balance, you mentioned that it has improved but still somewhat negative. This year assessment, what are the reasons behind this to be negative and what you
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. There's just very high competition for them and also a lot of price competition. Perhaps we are very strict on where we are willing to go with our pricing. Then we have lost a little bit more than we have won, particularly in South Europe. The market there continues to be challenging and competitive. A lot of small independent players who historically also have installed some elevators and modernized, but that business is low. A lot of people chasing the same business.
Thank you.
Thank you. Let's then move ahead, now we are ready to take questions from those present on the phone lines. I hand over to the operator, please.
Thank you. Ladies and gentlemen, as a reminder to ask a question via telephone, please press star one. We will take our first question from Andre Kukhnin from Credit Suisse. Please go ahead.
Hi, everyone. This is Tian Tian asking question on behalf of Andre. Our first question is that in your 5%-10% decline in China orders, what kind of underlying assumptions do you have behind the orders, and if anything happens at the end of the year that would make you feel that the decline would accelerate into next year? Thank you.
First of all, that's the whole market, 5%-10%. 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. Most challenging areas are lower tier cities, higher tier doing better. Also affordable housing, commercial, infrastructure doing a little bit better than standard residential is a bit 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 trend there? Thank you.
First of all, as you know, the modernization market in Asia Pacific outside of Australia is still quite small given There's a lot of much newer equipment base there. Australia continues to develop well. It has developed very well over the past years, and there we continue to see good development. 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 another market. Also we 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. Clearly, the largest modernization markets are Europe first, then North America, and then Asia-Pacific.
Sure. Understood. Thank you very much. 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 on going back into the market, and when would we expect you to have any meaningful progress there? Thank you.
Iran is a very interesting market, a large elevator market, and we see good opportunities there. We are monitoring the situation closely, and we're staying close to the situation.
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 slows down as USA or North America continue to grow or outgrow 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.
Clearly, as you know, our new equipment profitability in China is very strong and stronger than we have in other parts of the world. On the other hand, also in North America, we're clearly improving, but the margin is not as good there. From a mix perspective, yes, that's a slight headwind.
It will be a headwind more 2017, right?
We have to see how order to see it develop in the coming year, and we have to see how we're able to improve our competitiveness. On the other hand, we are also growing many of our other businesses, so that's one aspect of it. If you just look at new equipment there, yes, you have strong growth in North America, which would be, from a new equipment perspective, a slight headwind, yes.
Thank you. One more question regarding currency contribution to your EBIT in Q4. I maybe missed it in your commentary.
About EUR 25 million. Full year, roughly EUR 120 million; quarter, EUR 25 million.
Okay, thank you. 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 Maslen from Morgan Stanley. Please go ahead.
Yes, thank you. Hi, Henrik. 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? How are the gross margins in China that are in your backlog trending at the moment? That's the first question.
Okay. As you can see from our profitability development, we have done very well in that market to improve our overall competitiveness, including cost competitiveness. Raw materials is actually one aspect of it, 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. The relative margin has stayed at a good level. Clearly, though, if prices are lower, the absolute contribution is somewhat lower. We have been able to perform well in that market, and of course, you can see it from our results.
Thank you. Apologies about this echo.
On orders, you said in the statement you're seeing much faster growth in large projects at the moment. The EUR 8.2 billion 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? I assume the length of that order book is still extending. Thank you.
Terhi, why don't you comment first on the structure of the order book, I can then talk about the trends.
As we have communicated earlier already, the situation is about the same. From the order book, about one-third is these longer major projects. They usually take from two to five years to complete.
When you said, Ben, 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 been more driven by the volume business. Now in the last quarter, it was more larger projects. Again, it's quarter-to-quarter fluctuation between two categories. As you said, over the past years, structurally, the categorization has become a bit longer as if you look over two years, orders you see with the major projects has grown even faster.
Got it. Thank you. Then just finally on the services or 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? Thanks.
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 have been installed, perhaps on average, a couple of years ago. We continue to see a good backlog of conversions. We see 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. We have been able to maintain a very good growth rate over the past year.
Got it. Thanks, Henrik.
Thank you. We will now take a question from Eric Carlsson from BODE Capital. Please go ahead.
Thanks for taking my question. I had a question on the maintenance business, specifically about the competition balance. I think you said the competition balance was negative in 2015, less so than in 2014. We know you're a very ambitious company. What is the target here for 2016? Do you think you can go into the net positive competition balance this year, potentially?
Well, if we have a target, anything but positive would not be like us. Clearly, we have a target of being positive and capitalizing on 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 during the maintenance business last year was the good improvements we had or overall growth in the number of units we converted. 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. On top of that, we have conversion at continued good levels, maybe even a little bit higher in some regions such as China. You have a competition balance potentially moving from a small negative to, let's hope, a small positive back. Is there a 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, clearly our ambitions are, we continue to be ambitious. You have to remember that in maintenance, there are many different aspects to our maintenance growth. There's the conversions, there's the competition balance, there's acquisitions, there are units taken out of use, which continues to run at about 1% of the maintenance base. We have repairs and spare parts and things like that. There we also performed well in the past year. There are many different things that come into it, but of course, the most important thing is conversion. Of course, we have a good objective to grow. When you say the markets are growing, where is the market growth coming from? It's clearly coming from the conversions.
The point is that we need to, of course, capture as many of those conversions in the market as possible.
Sorry to harp on this, 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.
Thank you very much. We will now take our next question from Manu Yrttiaho 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? Last year, you fine-tuned the outlook for China as the year progressed. Just wondering how are you assessing the outlook you have for 2016, a 5%-10% decline, and what other monitoring you have in place in order to see that you're progressing along with that?
Of course, there's not one source of information we use. We have to remember we have a very broad organization in China with a network throughout the country. Of course, we look at everything from macro data, we look at feedback from our customers, we look at our tendering pipelines and so forth, 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 developed 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. Just help us understand where the improvement came on divisional levels.
First of all, as you know, 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. 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, the strengthening of our competitiveness in new equipment meant that we were able to perform extremely well there.
Okay, final question, just to clarify, when you mentioned the Chinese maintenance growth was more than 20%, is that on organic currency basis? Organic basis and not including currency impact or including currencies?
Local currency, 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 three short questions, two about engineer availability and one on China maintenance growth. I'll start with engineer availability. 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 KONE'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 you need capacity to be able to grow a new equipment business, you need in engineering when you design the product, particularly if you have non-standard products, you need to have competent field people, supervisors, and installers, but very much the supervisors who are supervising and testing and commissioning the installation of a 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. 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 as Southeast Asia, where we have had a lot of growth over the past years, we are building it up. North America is also growing, we're building it up. It's something we've been dealing with a long time, of course, it takes a lot of effort, but I'm not too concerned about that.
Okay, thank you. 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% organic.
Okay.
Converting KONE installed equipment to our maintenance base. Virtually all of our units we service in China are KONE or joint KONE branded.
Wonderful. Thank you very much.
Thank you. Our next question comes now from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Thanks for taking my questions. Martin Flueckiger 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. I know you've talked about it in qualitative terms. I was wondering whether you could put some numbers to it. That would be my first question. The second question would be on orders received. I think if I've 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. Thirdly, on orders received again, they grew by 5.
Sorry to interrupt you. Let me take the first two questions, and then you can come back to the last one.
Okay.
First of all, Europe growth. There's some markets that are growing well. It's particularly in Central and North Europe we're growing well. 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. In the good markets, we are clearly growing at double-digit rates. We have not changed anything in our principles of how we book our orders received. I think what you probably refer to is that we just explained it a little bit more in detail in the interim report, but otherwise, no changes to that.
Okay, thanks. My last question would again be on orders received. They grew by 5.6% in local currencies in 2015, 11.9% in 2014. Yet you're guiding for net sales growth of 2%-6% comparable exchange rates for 2016. I'm wondering, why does KONE 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 part of the business, the order-bound business. 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. 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. As I said, the key thing last year was a very good continued good deliveries. All of these bring a mix, and with that, we expect to achieve the growth that we are guiding for.
Okay, many thanks.
Thank you. We take our next question now from Antti Suttelin from Danske Bank. Please go ahead.
Thank you. 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. KONE China is higher than KONE on the average. We know that China is very much tilted towards new equipment. 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, we're working for that all the time. I would also say that we are improving in other parts of the world. Of course, our overall profitability comes from mix what we deliver from various parts of the world. Globally, we are in a good position from a competitiveness perspective, and that's how we plan to drive our business going forward.
Specifically on China new equipment, are you budgeting for still improving margin or same margin in China new equipment as you had in 2015? How are you thinking about that?
Well, first of all, Antti, as you very well know, we don't guide for various businesses or go through what we have as specific budgets. I think our commitment is the overall guidance that we have. Clearly, the market is more challenging in China. 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. Our margin development will be dependent on how we can continue to improve our competitiveness in that market. It's as simple as that.
Yeah. 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, we have to, of course, when services become a larger share, and that's also a good business in China, no question about that. We see opportunities from many different perspectives.
Yeah. 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 questions. I've got three, please. Firstly, your U.S. new equipment market outlook for 2016 appears to have been toned down a bit compared to the growth you saw in 2015. Can you give some commentary why you see a slower rate of growth in the U.S.? As I imagine the residential side of your exposure, Phil, should be pretty strong given the multi-family shift. First question.
We expect a continued good development of the North America and U.S. market in particular, because remember, the market is already at a high level. We continue to expect a growth from a high level. I think that's a quite good situation. That's just a summary of how it is.
Okay. No particular end markets within the U.S. that you see as softening?
Not necessarily.
Okay. Thank you. Secondly, the point is on the third bit, 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? Your market share gains easing? If that is the case, can you comment why you expect this to happen?
What I said is that our ambition continues to be 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're probably looking at a more even development throughout the year rather than a very first half-weighted.
Okay, thanks. Thank you. That's clear. Finally, I imagine that 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. Overall, we have good margins in our maintenance business. 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. It was a good performance across the board.
I know this is often asked, but as it becomes more material, can you give a little more color as to where the Chinese maintenance margin sits?
They're sitting at a good level.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes now 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 lead 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 six to nine months. You mentioned in the course of day 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, if you look at our top-line growth, our deliveries have been very strong in China last year. Actually, we did very well there. No dramatic changes. The biggest difference from a rotation perspective is the geographical mix and mix between, if we look over the past years, between volume business and major project business.
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 2016 in China. Is that the correct way to look at it or am I missing something?
Well, we don't guide 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%-6% growth for the full year. There's, of course, as always, there are fluctuations quarter to quarter.
Okay. Maybe 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.
You accrue a part of the new equipment revenue, and then you recognize that over the first service period, which is part of your new equipment price when you sold it.
It's recognized within the maintenance business?
Thank you. We will take now our next question from Tomi Railo from SEB. Please go ahead.
Yes, good afternoon. Hope you can hear me. I think I need to come back on the China and 2016. Are you expecting revenues to grow in China in 2016?
Tomi, we are guiding for our full revenues. We are not guiding for a specific market.
Have your order backlog been still up in China in the end of 2016?
A 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 Peigneux. Please go ahead.
Thank you very much. Just to follow up on pricing again. Is there a month or a period in the year in which the main operators in the Chinese market announce those price decreases, or is that on an order-by-order basis?
There is no such thing as people will announce prices or anything like that. We have to remember that pricing is something, each individual order is a negotiation between us or someone else and a customer. When you have enough of these, it becomes a market price. That's where pricing is then formed, and we, of course, make a view of what our understanding of all of these transactions at what prices that happen. That should say it's an ongoing process. It's not a step change at any point in time.
Okay. Thank you.
We have now another follow-up question from Andre Kukhnin from Credit Suisse. Please go ahead.
Hi, it's Tian Tian again. I have two quick follow-up questions. How much is maintenance of China revenue at the moment? Is it still below 10%, or has it grown past it?
Slightly below 10%, yes.
Okay. The second question is that, what's your split between tier 1 and 2 versus tier 3 and 4 cities at the moment?
The KONE brand in particular would have more than 50% of the business in tier 1 and tier 2 cities. What do you say, Rikka?
I would say our second brand would be the opposite. The total would be about 50/50.
The total would be 50/50.
Thank you. Has that been answered, your question?
Yes, sorry. The line broken. Thank you very much.
Thank you. We will now take another question from Erik Karlsson from BODE Capital. Please go ahead.
Thanks for taking our question. I wanted to know on the North American market, you've shown very good developments also versus the market growth. The trend to machine room less elevators are helping you here, are there any other ways you're strengthening your competitiveness that can explain the strong performance versus the market here? Good question. One of these areas naturally shift from hydraulics towards machine room less, we are being very strong in machine room less, that's why we're taking bigger market share all the time there. I think we have also, if you look at North America, our product competitiveness, particularly for the segments are growing well, is strong, we have had good development and strengthening of our field operations. That strengthen that way also our overall competitiveness.
Again, as you know, in this business, it's not only about the product, it's how we can install it in the field, I feel that we have had good development in both the segments are growing. That's where we have a good competitiveness as well.
Thank you very much.
Thank you. Another question now also from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Yeah, 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 million 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 our currency is going to be for the full year, that's unfortunate we don't know, but with the current level, it will be at roughly EUR 20 million headwind.
On EBIT?
On EBIT, yes.
Thank you so much.
Thank you. We now take a question from Michael Haloggyros from BofA Securities. Please go ahead.
Yeah. Hi, good afternoon. Thanks for taking the question. I think, Henrik, you highlighted the very strong cash flow in the year, and you basically ended the year with net cash of EUR 1.5 billion. My first question would be, at what point of financial structure would you consider doing something with that cash, maybe returning it to shareholders? 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?
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 would be, I think, around EUR 730 million or something like that we would pay out in March. That's again, a good growth in our dividend. Yes, we will continue to have a strong balance sheet also after that. Nothing has changed here. We continue to be interested in finding acquisitions. Last year we bought, I think, 23 companies again. We continue to buy. They are small, but also naturally have appetite for bigger targets. That's why we think it makes sense to maintain a strong balance sheet.
Thank you.
Running 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 Gleim from MainFirst. Please go ahead.
Yes, thank you very much for taking my last question. Eriikka, 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 from option liabilities. Could you elaborate on that, please?
Sure. We have two extraordinary items now reported in our 2015 number, in that sense of impact. The option liability related acquisitions we have had and the impact there is EUR 37 million, FX impact about EUR 10 million. The bigger one, which is at the exception of 2015, is this dividend almost EUR 120 million coming from Toshiba, as Henrik was describing earlier.
Okay, thank you. Maybe one last on the order intake. Have there been any extraordinarily high orders in the fourth quarter, or would you call this as business as usual?
Business as usual. As always, sometimes you have bigger orders, sometimes not, but that fluctuates quarter to quarter. 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. 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 disconnect.