Good afternoon, everyone, and welcome to KONE's results release for Q3 2013. We will work as usual. So we will start with a presentation by our President and CEO, Matti Allahouta, and we will continue with your questions. So without any further introductions, Matti, please go ahead.
Thank you, Carla. Welcome to our conference call. We have again many positive news to tell. We are pleased with the COP 3 in with the core business progress on a broad basis and particularly with the strong growth in operating income. I will now tell you about the development in our financial performance.
I will tell also about market development, about how we are developing competitiveness at the moment as well as what is our market outlook for and business outlook for the full year. But let's start with the financial numbers and development here. In orders received, we reached a level of 1 point more than €1,300,000,000 the growth was 2.4%, but in comparable currency 7%. The key reason for orders received growth not being higher than 7% in comparable currencies was that decision making in several major projects in Europe move forward from quarter 3. Order book growth was 6.8% and in comparable currencies 12.2%.
And the order book at the end of the quarter was more than €5,600,000,000 As you remember, we don't include maintenance contracts in our order book. Sales growth was 6.5% and in comparable currencies 10% and sales exceeded 1.7 €1,000,000,000 In operating income, we have had good growth through the year and this strong growth continued. Now the growth in operating income was 13.7% and we achieved a level of € 257,500,000 in this quarter. Also the operating income percentage improved nicely from €13,900,000 to €14,800,000 And after a few minutes, I will tell you why this happened, what made it possible. Cash flow was also strong at €349,000,000 dollars slightly less than a year ago.
But we have to remember that while typically in our case quarter 1, 1 and quarter 3 have been strong quarters. In our case also quarter 2 was strong this year. And therefore, we get the full picture about the cash flow development only when we take a look at the January September performance. I underline this cash flow development all the time so much because the key elements of cash flow they are so important early indicators of how the operative quality of the business is developing. So this was the development in quarter 3.
We have all the reasons to be pleased with that. But of course, 9 months is always much more informative. And here we have January September development and it is rather strong. In orders to see it, we have been growing 12% and in comparable interest rates by 13.5%. It is clear that in this 9 months period, we have again been growing faster than market, which is our objective every year as a challenged company.
Sales growth has also been strong 10.9% and in comparable currencies 12.4% And sales during these 9 months is close to €4,900,000,000 I mentioned that operating income has been strong all the time. During these 9 months, the operating income has been growing by 15.6 percent and the operating income is €660,000,000 Also in this longer period during these 9 months, the operating income is somewhat higher the relative operating income is somewhat higher than what it was in the same period 1 year ago. And cash flow. Cash flow during January, September was close to €1,000,000,000 From 804,000,000 that I think was a record then last year's number to €972,000,000 I have I am pleased with very pleased with this development we have had in our business progress. And also in this context, I want to say my I want to thank all of KONE employees for a work well very well done.
But now let's take a closer look at how the orders received, sales and operating income developed during quarter 3. In orders received, the growth was 2.4% in comparable currencies 7%. The growth in orders received was strong both in Asia Pacific and in Americas. In Asia Pacific, the growth was strong both in India, Australia, Malaysia and in Indonesia as well as in China. So this is quite essential.
As we have always communicated, our objective is to grow particularly fast in the big growth markets, because in those cases, it is best possible to simultaneously increase market share and also improve operating profit. In China, which already last year was almost 2 thirds in volumes about the global new elevator and escalator market, our growth continued to be strong. It was significantly above the market growth. So this means that while we reached the number one position in China last year, we are on the way on a good path again this year increase our market share in that important market. The strong growth in orders in Americas was driven by strong development in the United States.
In Europe, Middle East and Africa on the other hand, the orders received declined. It declined both in Southern Europe as well as Central and Northern Europe. And the key reason here was what I already mentioned earlier the delays in decision making of several major projects. In Middle East, the orders received developed positively. Next sales.
We have good growth rates in both in new equipment and maintenance. The new equipment sales was growing 10.5% and in comparable currencies 14%. The service sales was growing by 1.8% and in comparable currencies 5.7%. But it is very important to say that the growth in maintenance continue to be at its all at its old good typical old good levels, meaning that it was well above 5.7%. On the other hand, the growth in modernization was clearly lower, although also that was positive.
Later when I will tell about market development, you will see that the markets modernization markets, especially in Europe, have been weak. Geographically, the growth was strongest in sales was strongest in Asia Pacific and also significant in Northern America. In Europe, Middle East and Africa also sales was a bit declining and the reason being that also the projects which are in the implementation phase slowed down in terms of their progress in some cases. And finally, operating income there, we again took a bigger step up to €258,000,000 with this growth of 13.7%. The growth in operating income was driven by new equipment sales growth in Asia and the positive development in Service Business Global.
I wanted to come back to the reasons why the operating income percentage grew from 13.9% to 14.8%. At the same time, the new equipment sales was growing clearly faster than the service sales. So what made this possible? What were the key factors here? We have here 3 key factors.
First of all, I have also earlier sometimes mentioned in the context of some quarters that the quarter was just very good in terms of operative execution. And this was one of those quarters. Then second reason is that the work that we have been doing in developing pricing competence and taking the pricing actions is bringing really continue to bring benefits. And the third reason was that the in terms of new equipment sales, we had these delays or slower progress in some of the major projects. And this meant that the share of major projects about the total Luegne and the sales was lower than planned and what is typical.
And as we have said, typically, the margins in major process are somewhat lower than in delivering the standard volume new equipment. Now then moving forward to quarter 4. First of all, the share of new equipment of total sales in quarter 4 is higher also in this time than in quarter 3. And we expect that in the Q4, the share of major projects will again be a little bit bigger out of the total new equipment deliveries than in quarter 3. Although we at the same time see that this kind of delays in the major project execution in some cases will to a certain extent continue.
Regarding the impact of changes in exchange rates, we had a minus €7,000,000 negative impact this quarter. On the other hand, we had a positive impact of a similar roughly similar size in the material cost development. So this brings me to the changes in the business mix. Because of the fast growth continuing fast growth in new equipment sales, the share of new equipment sales has increased in January September to 53%. And the share of service business hence has been 47%.
Geographically, this change is even, I would say, more interesting. The share of Asia Pacific has now gone up to 39% and the share of Europe, Middle East and Africa has gone down to 45%. And Americas continues to be at 16%. It is not so long ago. In the middle of last decade, when the business mix was roughly like 10% in Asia Pacific and about 2 thirds of the business in Europe, Middle East and Africa.
And this is one of the big things that we have been able to do. We were we accelerated early enough our business our investments and our business development in Asia Pacific and have been getting advantage of the continuing fast market growth there and been able to increase continuously our share in the Asia Pacific market at the same time when many of the Western markets have been weaker. Now also now when we think about the current market situation in different continents, it is clear that Europe at the moment is the weak element in terms of market levels. North America is improving a little bit positively all the time, although there is some uncertainty. And Asia Pacific is providing and will provide the best growth opportunities also in the future.
Okay. This brings me then to the next topic in our agenda, which is market review. And I will start with Europe, Middle East and Africa and with the new equipment markets. The new equipment markets in Central and North Europe continue to decline. Germany continued to be strong.
Also Russia developed somewhat positively. Scandinavia. Scandinavian countries, Switzerland and Austria were stable. But in most of the other countries, the markets at least to a certain extent declined. In South Europe, the market demand continued to decline in some big markets like France and Italy and also in Spain.
But in Spain, I mentioned 3 months ago that we saw the first signs of market being close to reaching the bottom levels. And now we have seen more of these indications. And especially, this is the case seems to be the case in the central and northern parts of the country. In the Middle East and Turkey markets were growing. In modernization, the market declined both in Central and Northern Europe and in Southern Europe.
In recurring maintenance, the price competition continued to be tight, especially continued to be tight in South Europe. But now it was tighter than earlier also in some Central and Northern European countries. In Americas, in new recurrent markets, the market in the United States continued to develop positively. The positive development throughout the country was driven by both smaller and larger projects in the residential and office segments. Canada, the market was stable.
And in Mexico, the demand declined. Also modernization markets developed better than in Europe, the markets were growing. In maintenance, the same kind of similar kind of situation. Then during the first half, the markets grew, but the price competition remained intense, particularly in the non residential segments. And then Asia Pacific, where growth continues to be at good levels, but where it continued at good levels, but was lower than during the first half of the year, totally in line with our expectations.
Now a few country specific comments. First, China. In China, the market growth was between 5% to 10%. The growth was stable in the affordable housing segment and or the affordable housing segment was stable. And the growth was best in the rest of residential in the medium sized cities in different various parts of the country.
The markets in the big cities continue to be impacted by the central government measures aimed at managing the development in the markets. When we look at the real estate statistics of China for quarter 3, the developments are I would say very encouraging. The new land purchases was growing at 11%. And both new construction starts and new sales area continue to grow by about 15%. So very positive development indeed.
In India, although there are difficulties in economy, the market growth continued and it was driven mainly by the residential segment. In Australia, the demand continued to grow. And in Southeast Asia, markets continued to grow in many countries. In modernization, the market in Australia turned to a more positive development. And in maintenance, the markets the maintenance in all other markets in this geography continued to develop well.
Now about our competitiveness development and what a few examples what we are doing at the moment. As many of you remember, this is now the 3rd year we are working with these 5 different these 5 development programs. And now we already have started the work in order to decide that what will be the 5 programs 5 GL1 programs for the next 3 years. This simply has proven to be a very good way to develop new competitive assets in the business. And this is why we continue with our systematic development with this approach.
Now I would just like to mention you 3 very in a very simple, but at the same time important examples of what we are doing just now in developing our customer experience. First of all, we are taking into use at the moment more advanced ways to handle customer requests and customer feedback. Secondly, we have taken into use new tools to give better information to our customers and to users of our equipment about our maintenance and repair actions. And thirdly, we have a major maintenance global maintenance sales training ongoing. As I said, these are 3 very simple examples, but this is what competitiveness development is.
It is both targeting for new innovations and at the same time developing and getting the basics in place in a more solid and consistent and high quality way. Then in January, when we announced our full year results, I will tell you what these 5 new programs will be. Now about market outlook. This is pretty much the same as in July. We have no need to really change it.
The slight difference what comes to new equipment and Central and North Europe. In new equipment markets, we expect that the market in Asia Pacific will continue to grow clearly. The market in China is expected to grow by 10% to 15% this year. The market in Central and Northern Europe is expected to decline and the market in South Europe is expected to decline further from the already weak levels. Whereas the market in North America, we expect that it will continue to grow, although there are uncertainties.
In modernization markets, we expect that they we expect that the modernization markets will be either stable or slightly declined this year. And regarding maintenance markets, we expect that they will continue to be developed rather well in most countries. And now here finally the business outlook. This is naturally what we communicated in September when we gave the more positive outlook for the full year. In sales, we estimate that our net sales will grow by 11% to 14% at comparable exchange rates as compared to last year.
And in operating income, we expect that we will be in the range between €920,000,000 €95,000,000 assuming that translation exchange rates don't materially deviate from the situation of the beginning of September this year. So ladies and gentlemen, this sorry, I almost forgot one slide. So but it is always good to get some help from the team. So finally, another kind of news. The Board of Directors has made today decided to propose an extra dividend and share split.
The proposed extraordinary dividend is €1.30 per b share and EUR 1.295 per AA share. The proposed extra dividend would amount to €332,800,000 in total. And this will be decided in extra Senegal meeting to be held in December. The proposed issue the proposed split is 1 to 1, which means that we are doubling the shares outstanding. The reason for this dividend proposed extra dividend simply is that we have had a very strong cash flow this year and the balance sheet is also very, very strong.
So now ladies and gentlemen, this was what I wanted to start with. And now we have time for your questions. Please.
Thank you.
Thank you, Matti. And we will start with the questions from those who are present here in FPA Finland. Elena, go ahead please. Yes. Hello.
In recent quarters, you have commented on both the growth in the Chinese market, how much that has been and how much your growth has been. Now you say that your growth has been significantly higher than market growth. Would you be willing to give a number for that as well?
Okay. The Chinese a few more data about China. I will give more than what you are asking. So the market growth in terms of volumes in quarter 3 was between 5% to 5% 10%. And our growth was very, very close to 15%.
Then what comes to the sales in China. In January September, it was about 30% of our total sales. And in quarter 3 a bit over 30%. In orders, the orders between January September or January September period were close to 40% of our orders total orders and in quarter 3 over 35% of our orders.
Thank you.
Please.
And I think we are now ready for the questions from the lines please.
Thank you.
We have a question from Ben Maslin. Please go ahead.
Thank you. Good afternoon, Matti, Henrik, Carla. Three questions please. First is on currency. I think you said that there was a €7,000,000 negative impact on EBIT.
Just remind us if you get any hedging effects in there, any hedging gains and just how you actually hedge the business? Obviously, you have fairly long lead times. Secondly, just on China. When you raised your guidance a few weeks ago, you said that deliveries had picked up as the financing situation improved. Can you just talk a little bit more about what you actually saw in June July in China when the kind of financial tightening was going on?
Because at the time, I remember, you didn't really communicate it to us with the Q2 results. So just when you see a spike in Shibo or Chinese interest rates, what does happen to the market? That would be very interesting. And then finally just on China. Just may have got the calculation wrong, but it looks like the book to bill was below 1 in China for the quarter.
I know there's some seasonality in there. Just when was it last below or at one times? Thank you.
Okay. Maybe, Erik, you will start with this hedging. Hedging. So when we talk about this currency impact, we talk about the impact from translation exchange rates. So just purely from when we translate foreign currencies into euro.
And now the euro was on average at a higher level than in prior year and that impacted about €7,000,000 on EBIT. Our policy is that when it comes to transactions, we do hedge them all. And so therefore, there wasn't any currency gains or losses included in this number. It was purely a translation rate.
We also continue with the China.
Okay. Then the China question. So I would first of all say that when we started to see that deliveries picked up, I would say that we started to see that they went they continue to went back to a normal level. We had expected during the summer and that was reflected in our overall guidance that the Chinese growth would slow down as a result of a tight financing situation and of course the increase in interest rates that we saw over the summer. This situation of course quite quickly reversed at the end of the summer and we then started to see that actually liquidity for our customers their financing was actually normalized quite fast and went back to a normal situation.
So it was not necessarily an acceleration from the situation we had seen before in the summer. It was just we went back to a more similar situation that before the increase in interest rates in June.
Okay. So it was more that you expected it to slow rather than you saw deliveries getting pushed off by developers?
We started to see early we started to see signs of that happening, but I would say that the situation very quickly
normalized. And then coming then to your final question about the book to bill in China. The Chinese market as we have often discussed is has its let's say growth and slowing down phases all the time. And this is how the real estate activities is managed in China. And now as we have expected the whole year, the market growth is lower than what it is what it was early this year late last year.
And therefore, this book to bill is just a question of let's say seasonal chases.
Got it. Thanks very much, Matti. Thanks, Henrik.
Thank you.
Thank you. Our next question comes from Andre Kunein. Please go ahead.
Hi. It's Andre from Credit Suisse. Thank you for taking my questions. Firstly, on pricing. Could you just run us through the timings of your pricing increases?
I think from memory, you put prices up earlier this year, but you also talked about it as kind of a 2 year price sort of excellence program. And a follow-up on that. Obviously, at the same time, you're flagging a tough pricing environment in the markets overall. So could you just share on how sustainable those price increases can be and why?
Okay. Okay. By the way, could you it would be could I propose that you give questions 1 by 1, so it is always easier? So the first the answer to the first question about timing of the price increases. We as we have communicated, we started our, let's say, pricing competence development program in the spring of 2011, so a bit more than 2 years ago.
And we started to see first signs of the or first results about that the activities are developing well and the actions are working early last year. And since then, we have been in most of the markets been able to slightly improve our prices. And what is significant also in some situations in some markets where the competitors some of our competitors have decreased prices. So therefore, this what we are now seeing and continue to see, it is a result of as I mentioned of work over 2 years in a very, very active way in all of our country operations globally. Then you asked about the pricing environment as a whole.
And I would like to give an update here. Let's start with the new equipment markets. What has been happening here is that the pricing in both Asia Pacific and Europe has been getting slightly tighter or in a way been rather stable. In the Americas where the pricing has let's say improved a little positively in the marketplace from the late or middle of 2011 to these days the price levels have been stabilizing. As we said in as we have communicated now during the last quarter in Nuviktivent, our prices in Nuviktivent have been stable.
Naturally with some sensitivity so of course, with the sensitivity that in some countries, we have been moving a little bit down and some up, but stable overall. And in maintenance, the well, the situation is certainly challenging everywhere, but the tightest price competition continues to be in South Europe. And now also in some countries in Central and Northern Europe. In Americas, the price continues to be intense in nonresidential segments. Also in maintenance, our prices have been stable during the last months.
Then what comes to modernization. Modernization price levels have been rather stable or slightly tightening in Europe and same kind of development in North America. And also in modernization, our prices have been rather stable.
Great. Thank you, Matthew, for such a comprehensive answer. Just one other question I had, please, is on the mix effect that you mentioned between within new equipment between major projects and kind of standard products. It doesn't usually shift towards major projects in Q4 for you. And if that's the case, we haven't really seen any meaningful kind of negative seasonality in your margins in Q4 versus Q3, at least in the recent years.
So just trying to assess the size of that mix impact, how much it helped in Q3 and how much it could become a headwind in Q4?
Well,
it is true that in while our sales have been almost, let's say, from year to year second half weighted, the new sales in the second half and especially in Q4 is higher share of total sales. And this is also the situation in what comes to major projects. Now what I said is that in the 3rd quarter, the share of major process sales was lower than typical and it will be at a normal seasonal level again in quarter 4. Also, we will continue we expect to continue to see some slowness in the progress of some major projects in Europe.
Got it. So it's back to normal mix in Q4 rather than the catch up sort of further negative effect in Q4 versus Q4? Yes. Great.
Thank you. Indeed. Thank you.
Thank you. Our next question comes from Lars Brorson. Please go ahead.
Thank you very much. Three questions if I could, Matti and Henrik and Karl. First on your margin development in your order backlog, Matti. You note in your report you've seen margins on orders taken unchanged from the first half. That obviously compares to slight improvements in the 3 quarters prior to that.
This obviously comes despite the rollout of your new product portfolio from last year and of course, recovery in North America and still high growth in China. Can you give us a little more granularity, notwithstanding your granularity on pricing to the earlier question, but specifically on margin. What has been the general trend in Q3? And what's the outlook for Q4? And can you give us a sense for regional developments here in terms of that, shall we say, slightly negative margin observation you're making in your report?
Thanks. Henrik, would you answer this? So I
would say when we comment on this, we comment on the underlying margin development excluding mix. What I mean with this is that when we comment then we look separately at the various geographic regions and separately at new equipment, the volume business and major project business. So therefore, if we look at what's happening in each of the regions and take out the mix effect. If you think if you look at the situation overall this year, so we have if you look at year to date, we have been slightly able to improve our margins of orders received. And now this quarter in many situations the development was more flat from a pricing perspective.
This is I would say we have to remember in an environment where overall if you look at all of this year pricing competition has been quite strong.
And just in terms of regional development there, Henrik, can you give us a sense for between Europe, China and North America where you're seeing the greatest, should we say, deterioration, if you like? I appreciate it's stabilizing sequentially, but where is it sort of deteriorating, if anywhere?
If you look at the overall pricing competitiveness from a market perspective that is of course also that's the market situation we're living with. It's clear that many of the European countries where we are seeing markets weakening are the most challenging ones. In North America, if you look at the overall market pricing because of the growth in the markets, we have a more stable situation. And also here our situation has been positive. And then Asia Pacific, it's clear that overall market pricing competitiveness as must be discussed has been challenging all this year perhaps more stable now recently.
And we have again I think, been able to a little bit outperform the market situation.
Okay. Secondly, if I could, just on your market outlook for Central and Northern Europe. You now talk about a declining market versus previously slightly declining. Your recent at your recent Capital Markets Day less than a month ago, this was unchanged. Can you talk a little bit of what has changed here?
When we look at the development in quarter 3, we can't use the word slight anymore. The decline is has the negative decline has increased to a certain extent, meaning that
we
have in Central and Northern Europe a few countries where the market is declining now more. Markets like the Netherlands for example.
Thank you. And then finally, if I could just on China. I wonder what's embedded in your current market outlook. You talk about leading indicators encouraging in Q3. Is your current assumption from the 5% to 10% market growth in Q3 that the market will accelerate in Q4 and into 2014?
Well,
our full year estimate is that growth will be 10% to 15%. In the Q1, the market was growing a bit over 20%. In the second quarter, a little bit over 15%. Now sorry exactly a little over 10%. And now in 3rd quarter between 10% 15% 5% to 10%.
So there naturally you see as a conclusion that we expect that the market development in the Q4 will be roughly at the same kind of levels as in quarter 3.
That's useful. If I could just one final one on that. I mean Schindler talked about assessing the market growth in Q3 still above 10%. You're talking about 5% to 10%. Do you think that that's a matter of definitions?
Or do you see something slightly different from your competitors there do you think?
Well, it is difficult to know what they are basing their estimate. But we are quite confident with what we are saying that the growth in volumes in the marketplace was between 5% to 10% in quarter 3.
Thanks.
Thank you. Our next question comes from Guillermo Vigna. Please go ahead.
Hi. Good afternoon, Matti, Henrik and Carla. Just one question looking at your order book. I think you tend to guide every quarter on margins. And I was wondering, since I think early 2012, you've been guiding towards margins in the backlog slightly going up.
And I see here for the first time since again 2012 margins in terms of orders at the moment unchanged versus previous quarter. Is that a trend in which basically new growth is coming at a more let's say higher cost or higher effort in terms of SG and A, so your margins look a little bit weaker?
I think that it is not good to make total conclusions about this because of course we are let's say following the market development day by day and week by week. And now during quarter 3, this what we have mentioned has been the development. It is impossible to say that what the development will be then going forward. Our what comes to the new equipment, our product competitiveness is very good. This also comes to the base how to balance the growth versus margin in each different phase in various markets.
Thank you very much. And when I look at potential order intake into Q4 and just Kopi with that comment on flat growth quarter on quarter for China, is it fair to assume that the order intake in Q4 is going to be around the same levels as this quarter?
Well, we are not giving guidance in orders received. But our objective is all the time to grow faster than Marc.
I think to clarify what Marcio said is that growth in Q4 is likely to be at similar levels to Q3. I think you mentioned that growth would be flat in Q4, but we think it's at similar levels to Q3.
I was sort of referring to growth. So growth 5% to 10% of the market, which will be again in the Q4 the same.
Okay. Yes. Okay.
Thank you.
Thank you. We have a question from Eric Goulan. Please go ahead.
Thank you. I have two questions that haven't been answered. Firstly, on the modernization market for you in Europe, which is declining. Could you possibly quantify the drop here? And what do you think is needed for growth to return here?
Is it simply a function of general economic conditions improving? Or is there something more to it?
Well, it's first coming in a little bit about the past development. Before the difficult more difficult economic period started in Europe In 2,008, the market in Europe was the modernization market was growing in Europe about 10% a year. Since those days, the market during most years has been flat, 0 growth or during a couple of years, 1 or 2 years, minus 5% or something like that. All of this naturally means that because the elevator and escalator base in Europe is old, requiring modernization that there is an increasing number of so bigger and bigger underlying demand. And now the customer behavior in modernization kind of decision seems to be that the decisions are being done only if it in many cases only if it is a must.
And therefore, also the negative deviations in the market development has not been big. It is clear that when someday the European economy starts to grow more than slight. So I mean, starts to have some clear growth. The modernization growth potential for sure to be quite sizable.
Okay. Thank you. Then the second question is just finally an update on the growth rate for maintenance in China in the quarter.
Henrik, maybe you'll take this.
Our growth rate in maintenance in China continued to grow at a very good rate. What we have been discussing in the past is that if you look at our historical growth rate over the And at a good rate very good rate in China our maintenance business.
Thank you.
Thank you. Our next question comes from Arren Ibbotson. Please go ahead.
Yes. Hi, there. It's Aron Ibbotson from Goldman Sachs. Apologies for a bit of background noise I'm out and about. I've got a couple of questions if I may.
The first one is just on your organic growth rate. And I was hoping to get a clarification on sort of if any or how much is acquired growth. So if you look at the order intake of 7% in constant currency, I wonder what that number was sort of on an organic basis. And second a very related question, it was just relating to the service growth. And I was surprised about the sort of big FX impact.
I was just hoping if you could get some clarity on that. So the difference between constant currency and reported was about 4 percentage points, I think. But my understanding was that some half of that or more is in euro terms. I was just wondering what the big FX impact was. Thank you.
Okay.
Good question. So first of all, the acquired growth meaning coming from acquisitions is a bit less than lower than 2%. Actually lower than 1%. Lower than 1%. Yes.
Correction.
Yes. Sorry.
Okay. And then if you continue with the FX rate.
If you think about Europe as well, there are many of our large service markets in Europe are also in non euros, if you think about all the Nordic countries, the U. K. And so forth. So therefore, we have a substantial part of our service business is other than Europe. And of course, we have a large business in Asia Pacific and the U.
S. As well. So that's simply where it comes from.
Sorry, but if it is okay if I just probe a little bit there because if it's a total service market in Europe, I think it's 2 thirds roughly. So I was thinking roughly 50% actually is in euros. And if I look at the big FX move, even the dollar has only moved about 6%. So I'm just trying to understand if there's any big markets that I'm missing where you've had a big impact. Because in particular, I would have thought that the sort of FX impact on orders would have been a lot greater than it is on services because of the much bigger impact waiting towards Europe.
But Well, you have to remember in order to see that the Chinese RMB has been strengthening against the dollar slightly. So that of course therefore the currency impact on that would be less than you expect whereas then there are quite large service markets where currency has declined substantially. And for example, U. S. Dollar is 1 and then you have Australia and so forth.
And the currency, we always we consolidate as year to date currencies. So I don't think there's anything more special behind that difference.
Okay. Perfect. Thank you very much. Finally, just because we've had quite large FX moves and obviously you have quite seasonal order intake. I was just curious to hear your view a little bit on whether you think from sort of a seasonally adjusted basis that we are still seeing growth in the order intake over the last couple of quarters because I guess it was down a bit in Q4 and now down I don't know what it was FX adjusted Q on Q, but 19% reported.
So if I look historically, you've seen about 8% growth in Q2 and sort of 10%, 12% decline in the Q3. Those who think if you look at current order intake over the last couple of quarters, do you feel that you're actually sort of growing on a sequential basis I. E. Seasonally adjusted obviously because it's always down in the 3rd quarter?
I don't quite know if
I understand your question, but it's clear that the way we look at our growth given that there are seasonal differences in both sales and orders received is that we look at our growth compared to the prior year same quarter and that is the relevant we feel the relevant comparison to have and we continue to grow at 7% in comparable currencies. That is of course the underlying growth. So yes, we definitely continue to believe that we have continued to grow in the 3rd quarter.
Yes. And I would just like to remind that when we take January September, the growth in orders received in comparable currencies is 13.5%. What it has been from in each quarter is highly impacted on the timing of major projects.
That's very clear. Perfect. Thank you very much.
Thank you.
Thank you.
Our next question comes from Austin Ell. Please go ahead.
Yes. Hi. Good afternoon, everyone. I just had a couple of questions relating to comments you made about Europe. Firstly, just to understand what you think is causing delays to new project orders being given?
I think that's something we have observed many times in this business is that when you have a more challenging economic environment, of course, people think longer about projects. You need to have higher confidence that you get tenants and so forth. So it is just the confidence to make investments. I think that's quite normal and that's what we're seeing is that it seems to be more pondering over them, more thinking They seem to happen, but seem to happen with slight delay. I think that this is something we have experienced many times in markets that have been declining.
Okay. So it's just a sort of cumulative over I guess several years of slow growth. The second question is also related to Europe. I don't quite understand what you mean by existing projects slowing. I mean is that because they the client hasn't made a milestone payment?
Or I don't understand what sort of stops or slows an existing project?
Well that also tends to be so that it particularly in weak markets. And then we're now looking at probably some of the more weaker European markets. What we sometimes see is that developers or general contractors slow down. The progress of the building will be to preserve cash flow. If they are not certain, they will have a certain level of tenancy upon completion.
So if they are not fully if they don't have full tenants when the building would be ready, sometimes have incented a little bit delayed the project. These are not huge delays. They are just some gradual situations we see here and there.
So very normal variations. Yes.
Understood. Great. Thank you very much for your answers.
Thank you. Our next question comes from Fang Fang. Please go ahead.
Thank you. I have a few questions about China market. I wonder why you guys can grow much faster than the whole market growth in China. Are you continue to taking market share and why you can take market share from your competitors? That's the first question.
And I also want to see if you also see price pressure in China market as well. As China has been a quite fast growing market, so what's your like long term growth outlook for the China E and E market, let's say, in the next 5 to 10 years? And the last question is about EBIT margin. I wonder if your EBIT margin for the new equipment in China is higher than the new the whole new equipment margin or it's similar? And I noticed that you acquired Giant Kone in China.
Is the EBIT margin for Giant KONE and KONE is the same or different? Thank you.
Thank you. So the first question was that
we have
been growing faster than the market in China. And are we continuing to increase market share? And why have we been able to in a consistent way to grow faster in the market. A few factors here. 1st of all, we are all the time very agile to follow that follow-up and try to be proactive in seeing how the market opportunities are moving in order to have a very competitive product portfolio in the marketplace.
And this is what we have also at the moment. The second important point here is that we have already early last decade. We expanded actively to the inner parts of the country where at the moment we see good all the time good growth opportunities. We now have 400 different locations in China throughout the country. Then the third important factor is that we have been developing our people also in China as in everywhere else very actively.
And we have been able to have a stability good stability in the management positions there and that is also very essential. Thirdly or fourthly, because China is such an important market, also our key people from our global business teams and global functions are in let's say particularly active giving particularly active support there naturally also to other markets, but particularly to China. Then about price development in China. In the new equipment markets, the price situation has now been getting slightly tighter or been relatively stable. Again, during this year when we take this 9 month period, we have been able to slightly increase our prices.
In maintenance, the situation is also such that naturally pricing is challenging. But we have been developing in a similar way as in Loeghmann, our pricing competencies and our if I understood correctly, our longer terms, 5 to 10 years ambitions in Chinese market. And the way how we see our, let's say, longer term target setting is that our objective is to grow faster than the than the market every year also in also and especially in the markets in China. Finally, you asked about the EBIT margin of our new equipment business. And you asked whether that is the EBIT margin is higher or at same level than in other countries.
And in China, as we have said, our EBIT margin in new equipment is higher than what it is globally, meaning in the rest of the world. We have also said that our EBIT margin in China overall, majority of that naturally comes from Thank you. Thank you.
Thank you.
Thank you.
Thank you. We have a follow-up question from Ben Maslin. Please go ahead.
Yes. Thank you. Two very quick follow ups if I can. Just on the backlog and the mix in the backlog at the moment and what it means for deliveries next year. I guess you would have more a higher percentage of sales next year delivered to China.
Do you also have more large projects? I'm just trying to understand if you say they're lower margin what the mix in the backlog looks like as you see it at the moment? That's the first question.
Yes. Our share of major projects has been increasing as our share of our overall backlog. I would say that if we look at our margin as we have said that that has improved during this year. Of course, there's a slight mix impact, but not a very significant one.
Thank you. And then just on the you're paying a special dividend, which obviously keeps the balance sheet very efficient or more efficient and shareholder friendly is obviously a positive thing. I just wonder for you the trade off between doing that and more M and A, why you don't do more M and A given the accretion that you get and the benefit you get as your service density would grow? Is it a lack of targets? Is it pricing is too high?
Or in turn it's just very difficult
active in our acquisition activities. And related to this SPV dividend, our balance sheet is very strong also after this dividend. And therefore, this doesn't have any impact to our very high activity level in the acquisition front. It is we are active. We evaluate every market and we are willing to move in every let's say attractive case.
No, it doesn't relate in any way to integration difficulties. This is something that KONE has done for decades and the different countries in our global network have learned the integration practices of this kind of acquisitions.
Got it. Thank you very much.
Thank you, Ben.
Thank you. I have a question and then a follow-up from Andre Kunehen. Please go ahead.
Hi, it's Andre from Credit Suisse. Thanks for taking my follow-up questions. 2 please. 1 is on China Social Housing. Looking at the starts and sort of government indications, what is it pointing to for 20 14 as a run rate of installations plateau?
Or is there a chance of a slowdown?
I don't think that there are targets for next year published, but I think it's clear if you look at the trends we have been seeing now exactly as we had predicted is that we had very fast growth in affordable housing last year in new situations and the growth has slowed down. If you look from a kind of more of a market growth that was not anymore the driver for growth. It was still an active market, but not a growth driver in Q3. So it's clear we know that we are more at the tail end of this program. And what we have seen now is that actually the more standard residential or residential other than affordable housing is the one where we have seen higher activity and growth more recently.
Actually, if I will add a little bit to what Erik said, the new starts in affordable housing in China, they have been in the highest level in 2011 and completions in 2012. So totally in line with what Henrik said, just an addition.
Got it. And secondly on new product introductions or new product pipeline, we obviously had Ultra Rogue launch this year and you had the new low rise product launched a year before. Is this kind of the sort of pipeline we should be thinking about sort of going forward for next year in 2015 that there will be sort of sizable new product launches every year? Or should it go sort of quieter for a while now that you've launched these products?
Well, what comes to the new standard elevator product range, I think that the launch that we had last year was very important one and very let's say very, very essential and very, very broad. As we said in the time of launch, when we will be in full volumes with that product range end of next year, that will represent about 60% of our new elevator deliveries. Also what is essential, this new product range has a new platform, meaning that, of course, we will after getting this to full volume, we will have an opportunity for several years to further work with the cost side and get the cost down. So we don't see any reason as such in terms of the global Elevator platform too fast to create something new. Then another question is that in all of the key markets, we have to closely follow whether we are competitive in every, let's say, height and weight and speed combination.
And that, of course, may require some every now and then some new efforts. Then what comes to Autorobe that naturally is a revolutionary innovation, which and its importance will grow in the business to something a bit more significant in terms of volumes in as we say in about 2 to 3 years' time. In the beginning of October, we launched in Singapore had a global launch for our access control and intelligent people flow platform platform concept, which brings access control and destination control together in the high rise segment. And we have also other interesting developments that we will then talk later on. We see this kind of let's say both innovative as well as continuous improvement in our product management as very essential of course and necessary in order to be able to continue in our Nuvecto business in a way as we have developed and want to continue to develop.
Great. Thank you.
Thank you.
Thank you. We have a question from Guilamo Pino. Please go ahead.
Hi. It's Guilpin here from UBS. Thanks for taking my question again. Just seeing all the encouraging signs you see on particularly in China. I was wondering whether you plan to hire or expand capacity into next year?
You mean expand capacity in the field or in the factory or?
In the factory and in the field or actually expand your operation in terms of headcount in China?
Well, we are continuously expanding our headcount in China especially in the field. And of course also the factory capacities are growing all the time. We have we will invest some expansion in China in our escalator capacity, which where we also have good progress. We talk more about elevators, but also the escalator competitiveness has developed well. The Chinese activity also for next year looks like continues to mean recruiting more poor people.
Thank you very much.
Thank you. A question from Lars Brosson. Please go ahead.
Thanks. Just a quick follow-up if I could Henrik to my earlier question about your assessment of the margin development in your order intake. It sounded here as though the incremental weakness were coming perhaps more from Europe, your modernization business there and of course, China and your equipment. Can I also ask you to give a kind of an assessment of what you see margin wise for your maintenance business in Q3 and going into Q4? Thanks.
[SPEAKER JEAN FRANCOIS VAN BOXMEER:] I think as we stated in our overall results that our service business, our maintenance business in particular, has continued to develop in a positive direction globally. So I would say we have had good development in that area.
Thanks.
Thank you very much for all your questions. I think the time has come to first of all thank you and secondly wish you a very nice rest of the week. Thank you. Thank you. Bye bye.
Bye bye.
Thank you. Ladies and gentlemen, thank you for your participation.