Good afternoon, everyone, welcome to KONE's results release for Q3 2013. We will work as usual, we will start with a presentation by our President and CEO, Matti Alahuhta, we will continue with your questions. Without any further introductions, Matti, please go ahead.
Thank you, Karla. Welcome to our conference call. We have again, many positive news to tell. We are pleased with the good business progress on a broad basis, 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 and business outlook for the full year. Let's start with the financial numbers and development here. In orders received, we reached a level of more than EUR 1.3 billion. The growth was 2.4%, 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 moved forward from quarter three.
Order book growth was 6.8%, in comparable currencies, 12.2%, the order book at the end of the quarter was more than EUR 5.6 billion. As you remember, we don't include maintenance contracts in our order book. Sales growth was 6.5%, in comparable currencies, 10%, sales exceeded EUR 1.7 billion. In operating income, we have had good growth through the year, this strong growth continued. Now the growth in operating income was 13.7% we achieved a level of EUR 257.5 million in this quarter. Also, the operating income percentage improved nicely from 13.9% to 14.8%, after a few minutes, I will tell you why this happened, what made it possible. Cash flow was also strong at EUR 349 million, slightly less than a year ago.
We have to remember that while typically, in our case, quarter one and quarter three have been strong quarters, in our case also, quarter two was strong this year. 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. This was the development in quarter three. We have all the reasons to be pleased with that. Of course, nine months is always much more informative. Here we have January-September development it is rather strong. In orders received, we have been growing 12% in comparable currencies by 13.5%.
It is clear that in this nine-month period, we have again been growing faster than the market, which is our objective every year as a challenging company. Sales growth has also been strong, 10.9%, and in comparable currencies, 12.4%, and sales during these nine months is close to EUR 4.9 billion. I mentioned that operating income has been strong all the time. During these nine months, the operating income has been growing by 15.6% and the operating income is EUR 660 million. Also in this longer period, during these nine months, the relative operating income is somewhat higher than what it was in the same period one year ago. Cash flow. Cash flow during January-September was close to EUR 1 billion. From EUR 804 million, that I think was a record then, last year's number, to EUR 972 million.
I am very pleased with this development we have had in our business progress and also in this context, I want to thank all of KONE employees for a work very well done. Now let's take a closer look at how the orders received, sales, and operating income developed during quarter three. 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. 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 two-thirds in volumes about the global new elevator and escalator market, our growth continued to be strong. It was significantly above the market growth. This means that while we reached the number one position in China last year, we are on a good path again this year to increase our market share in that important market. The strong growth in orders in Americas was driven by strong development in the United States. 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. The key reason here was what I already mentioned earlier, the delay in decision making of several major projects. Middle East, the orders received developed positively. Next, sales. We had good growth rates 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%. It is very important to say that the growth in maintenance continued to be at its 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 modernization markets, especially in Europe, have been weak. Geographically, the growth there in sales was strongest in Asia Pacific and also significant in Northern America. 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.
Finally, operating income, where we again took a bigger step up to EUR 258 million 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 globally. I wanted to come back to the reasons why the operating income percentage grew from 13.9% to 14.8% at the same time when new equipment sales was growing clearly faster than the service sales. What made this possible? What were the key factors here? We have here three 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.
Second reason is that the work that we have been doing in developing pricing competence and taking the pricing actions continue to bring benefits. The third reason was that 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 new equipment sales was lower than planned and what is typical. As we have said, typically, the margins in major projects are somewhat lower than in delivering the standard volume new equipment. Moving forward to quarter four. First of all, the share of new equipment of total sales in quarter four is higher.
Also in this time than in quarter three, we expect that in the fourth quarter, the share of major projects will again be a little bit bigger out of the total new equipment deliveries than in quarter three. Also, 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 EUR 7 million negative impact this quarter. On the other hand, we had a positive impact of roughly similar size in the material cost development. This brings me to the changes in the business mix. Because of the continuing fast growth in new equipment sales, the share of new equipment sales has increased in January-September to 53%. 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%. Americas continues to be at 16%. It is not so long ago, in the middle of last decade, when the business mix was roughly 10% in Asia-Pacific, and about two-thirds of the business in Europe, Middle East, and Africa. This is one of the big things that we have been able to do. We accelerate early enough 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.
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. Developing positively all the time, although there is some uncertainty. Asia-Pacific is providing, and will provide, the best growth opportunities also in the future. This brings me to the next topic in our agenda, which is market review. I will start with Europe, Middle East, and Africa, and with new equipment markets. The new equipment markets in Central and North Europe continue to decline. Germany continue to be strong. Russia developed somewhat positively. Scandinavian countries, Switzerland, and Austria were stable. 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. In Spain, I mentioned three 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. Especially this seems to be the case in the central and northern parts of the country. In the Middle East and Turkey, markets there are growing. In modernization, the market declined both in Central and Northern Europe and in Southern Europe. Regarding maintenance, the price competition continued to be tight, especially continued to be tight in South Europe. Now it was tighter than earlier also in some Central and Northern European countries. In Americas, in new equipment 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. In Canada, the market was stable, in Mexico, the demand declined. Modernization markets are developing better than in Europe. The markets are growing. In maintenance, similar kind of situation than during the first half. The markets grew, price competition remained intense, particularly in the non-residential segments. Asia-Pacific. Their growth continued to be at good levels, was lower than during the first half of the year, totally in line with our expectations. A few country-specific comments. First, China. In China, the market growth was between 5%-10%.
The growth was stable in the affordable housing segment, or the affordable housing segment was stable, 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 price development in the markets. When we look at the real estate statistics of China for quarter three, the developments are, I would say, very encouraging. The new land purchases was growing at 11%, both new construction starts and new sales area continue to grow by about 15%. Very positive development indeed. In India, although there are difficulties in economy, the market growth continued, it was driven mainly by the residential segment. In Australia, the demand continued to grow, in Southeast Asia, markets continued to grow in many countries.
In modernization, the market in Australia turned to a more positive development, in maintenance the maintenance in all markets in this geography continued to develop well. About our competitiveness development and a few examples what we are doing at the moment. As many of you remember, this is now the third year we are working with these five development programs. We already have started the work in order to decide what will be the five development programs for the next three years. This simply has proven to be a very good way to develop new competitive assets in the business. This is why we continue with our systematic development with this approach. I would just like to mention you three 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. Thirdly, we have a major global maintenance sales training ongoing. As I said, these are three 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. In January, when we announce our full year results, I will tell you what these five new programs will be. 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%-15% this year. The market in Central and Northern Europe is expected to decline, the market in South Europe is expected to decline further from the already weak levels. The market in North America, we expect that it will continue to grow. Also, there are uncertainties. In modernization markets, we expect that the modernization markets will be either stable or slightly decline this year. Regarding maintenance markets, we expect that they will continue to develop rather well in most countries. 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%-14% at comparable exchange rates as compared to last year. In operating income, we expect that we will be in the range between EUR 920 million and EUR 955 million, assuming that translation exchange rates don't materially deviate from the situation or the beginning of September this year. Ladies and gentlemen. Oh, sorry. I almost forgot one slide. It is always good to get some help from the team. Finally, another kind of news. The board of directors has today decided to propose an extra dividend and a share split. The proposed extra dividend is EUR 1.30 per B share and EUR 1.295 per A share. The proposed extra dividend would amount to EUR 332.8 million in total, this will be decided in extra general meeting to be held in December.
The proposed split is one to one, which means that we are doubling the shares outstanding. The reason for this proposed extra dividend simply is that we have had a very strong cash flow this year and the balance sheet is also very strong. 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. We will start with the questions from those who are present here in Espoo, Finland. Elina, 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?
A few more data about China. I will give more than what you are asking. The market growth in terms of volumes in quarter three was between 5% and 10%. Our growth was very close to 15%. What comes to the sales in China, in January-September, it was about 30% of our total sales. In quarter three, a bit over 30%. In orders, the orders between January-September period were close to 40% of our total orders, in quarter three, over 35% of our orders.
Thank you.
Please.
I think we are now ready for the questions from the lines, please.
Thank you. Just to remind participants, that is star one to register your question and the hash or pound key to cancel. We have a question from Ben Maslen. Please go ahead.
Thank you. Good afternoon, Matti, Henrik, Karla. Three questions, please. First is on currency. I think you said that there was a EUR 7 million 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 very 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 and July in China when the kind of financial tightening was going on? At the time, if I remember, you didn't really communicate it to us with the Q2 results. Just when you see a spike in SHIBOR and Chinese interest rates, what does happen to the market?
That'd be very interesting. Finally, just on China, I may have got the calculation wrong, but it looks like the book-to-bill was below one 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 Henrik, you will start with this hedging. When we talk about this currency impact, we talk about the impact from translation exchange rates.
Just purely from when we translate foreign currencies into EUR. Now the EUR was on average, at a higher level than our prior year, and that impacted about EUR 7 million on EBIT. Our policy is that when it comes to transactions, we do hedge them all. There wasn't any currency gains or losses included in this number. It was purely a translation rate.
Got it.
Also continue with China.
The China question. 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 the continuum 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, we then started to see that actually, liquidity for our customers, their financing was actually normalized quite fast, and we went back to a normal situation.
It was not necessarily an acceleration from the situation we had seen before the summer, it was just went back to a more similar situation that, before the increase in interest rates in June.
Okay, it was more that you expected it to slow rather than you saw deliveries getting pushed off by developers.
We started to see signs of that happening, as I said that the situation very quickly normalized.
Then, coming then to your final question about the book-to-bill in China. The Chinese market, as we have often discussed, has its, let's say growth and slowing down phases all the time. This is how the real estate activities is managed in China. Now, as we have expected the whole year, the market growth is lower than what it was early this year, late last year. Therefore this book-to-bill is just a question of let's say, seasonal changes.
Got it. Thanks so much, Matti. Thanks, Henrik.
Thank you.
Thank you.
Thank you.
Once again, just to remind participants, press star followed by one to register a question and the hash or pound key to cancel. Our next question comes from Andre Kukhnin. Please go ahead.
Hi, it's Andre from Crédit 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 a kind of a two-year price sort of excellence program. A follow-up on that. Obviously at the same time you're flagging a tough pricing environment in the markets overall.
Okay.
Could you just share on how sustainable those price increases can be and why?
Okay. By the way, could I propose that you give questions one by one, it is always easier?
Sure.
The answer to the first question about timing of the price increases. As we have communicated, we started our pricing competence development program in the spring of 2011, a bit more than two years ago. We started to see first signs or first results about that the activities are developing well and the actions are working early last year. Since then, we have been, in most of the markets, being able to slightly improve our prices. What is significant also in some situations, in some markets where some of our competitors have decreased prices. Therefore, what we are now seeing and continue to see, it is a result of, as I mentioned, our work over two years in a very active way in all of our country operations globally.
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 been rather stable. In the Americas where the pricing has, let's say, improved, developed positively in the marketplace from the late or middle of 2011 to these days, the price levels have been stabilizing. As we have communicated now, during last quarter in new equipment, our prices in new equipment have been stable. Naturally, of course we are sensitive that in some countries we have been moving a little bit down, in some up, but stable overall.
In maintenance, the situations are to a certain extent 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 non-residential segments. Also in maintenance, our prices have been stable during last month. 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, Matti, for such a comprehensive answer. Just one other question I had, please, is on the mix effect that you mentioned within new equipment between major projects and standard products. Doesn't it usually shift towards major projects in Q4 for you? 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. 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.
It is true that while our sales have been almost, let's say, from year to year, second half weighted. The new equipment sales in the second half and especially in fourth quarter is a higher share of total sales and this is also the situation in what comes to major projects. What I said is that in the third quarter, the share of major process sales was lower than typical, and it will be at a normal seasonal level again in quarter four. Also, we expect to continue to see some slowness in the progress of some major projects in Europe.
Got it. It's back to normal mix in Q4 rather than the catch-up further negative effect in Q4 versus Q3.
Yes.
Yeah. 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 Karla. 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 three 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? Can you give us a sense for regional developments here, in terms of that, should we say, slightly negative margin observation you're making in your report? Thanks.
Henrik, would you answer this?
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. Therefore we look at what's happening in each of the regions and take out the mix effect. If you look at the situation overall this year, if you look at year-to-date, we have been slightly able to improve our margins of orders received. Now this quarter, the development was more flat from a pricing perspective. We have to remember in an environment where overall, if you look at all of this year, pricing competition has been quite strong.
Just in terms of regional development there, Henrik, can you give us a sense for between Europe, China and North America, where are you 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'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 overall market pricing, because of the growth in the markets, we have a more stable situation. Also here, our situation has been positive.
Asia Pacific, it's clear that overall market pricing competitiveness, as Matti discussed, has been challenging all this year, perhaps more stable now recently. We have, again, I think, been able to little bit outperform the market situation.
Okay. Thanks. 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. 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 three we can't use the word slight anymore. The negative decline has increased to a certain extent, meaning that we have in Central Northern Europe, a few countries where the market is declining now more, markets like the Netherlands, for example.
Thank you. 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%-10% market growth in Q3 that the market will accelerate in Q4 and into 2014?
Well, our full year estimate is that the growth will be 10%-15%. In the first quarter, the market was growing a bit over 20%, in the second quarter a little bit over 15%.
10.
Sorry. Exactly. A little over 10% and now in third quarter between 10% and 15%.
5%-10%.
5%-10%. There naturally you see as a conclusion that we expect that the market development in the fourth quarter will be roughly at the same kind of levels as in quarter three.
That's useful. If I get just one final one on that. Schindler talked about assessing the market growth in Q3 still above 10%. You're talking about 5%-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?
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%-10% in quarter three.
Thanks.
Thank you. Our next question comes from Guillermo Pino. Please go ahead.
Hi. Good afternoon, Matti, Henrik, and Karla. Just one question. Looking at your order book, I think you tend to guide every quarter on margins. 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 it a trend in which basically a new growth is coming at a more, let's say, higher cost or higher effort in terms of SG&A so your margins look a little bit weaker?
I think that it is not good to make topic 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 three this what we have mentioned has been the development. It is impossible to say that what the development will be then going forward. What comes to the recruitment, our product competitiveness is very good. This also comes to the ways how to balance the growth versus margin in its different phase in various markets.
Thank you very much. When I look at potential order intake into Q4 and just coping 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. Our objective is all the time to grow faster than the market.
I think to clarify what Matti 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 similar levels to Q3.
Yeah, well, I was sort of referring to growth. Growth 5%-10% of a market which will be again in the fourth quarter the same.
Okay. Yes.
Okay. Thank you.
Thank you. Final reminder to participants that star followed by one to register a question and the hash or pound key to cancel. We have a question from Eric Bolan. 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, first comment is a little bit about the past development. Before the more difficult economic period started in Europe in 2008, the modernization market was growing in Europe about 10% a year. Since those days, the market during most years has been flat, zero growth or during one or two 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 bigger and bigger underlying demand. Now the customer behavior in modernization kind of decisions seems to be that the decisions are being done, in many cases, only if it is a must. Therefore, although the negative deviations in the market development have not been big, it is clearer than when someday the European economy starts to grow more than slight.
I mean, starts to have some clear growth, the modernization growth potential will for sure be quite sizable.
Okay. Thank you. The second question is just finally an update on the growth rate for maintenance in China in the quarter.
Henrik, maybe you 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 past, let's say five, seven years, that we have been growing in excess of 30% and we continue to grow at a very good rate in China, our maintenance business.
Thank you.
Thank you. Our next question comes from Aaron Gibson. Please go ahead.
Yes. Hi there. It's Aaron Gibson 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. I was hoping to get a clarification on sort of if any or how much is acquired growth. If you look at the order intake of 7% in constant currency, I wonder what that number was sort of on an organic basis. 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. The difference between a constant currency and reported was about four percentage points, I think.
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. First of all, the acquired growth, meaning coming from acquisitions, is a bit lower than 2%.
Actually it's lower than 1%.
Lower than 1%?
Yeah.
Correction.
Yes. Sorry.
Okay. 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. 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. That's simply where it comes from.
Sorry, is it okay if I just probe a little bit there because if the total service market in Europe, I think is two thirds roughly. I was thinking roughly 50% actually is in EUR. If I look at the big FX move, even the USD has only moved about 60%. I'm just trying to understand if there's any big market 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 weighting towards Europe.
What you have to remember in orders received that the Chinese RMB has been strengthening against the USD slightly. That of course, therefore the currency impact from that would be less than you expect. Whereas, there are quite large service markets where currency has declined substantially. For example, USD is one and then you have Australia and so forth. The currency, we consolidate as year-to-date currencies. 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 a large FX move, and obviously you have quite seasonal order intake, I was just curious to hear your view a little bit on whether you think from 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, now down, I don't know what it was, FX adjusted quarter-over-quarter, but 19% reported. If I look historically, you've seen about 8% growth in Q2 and sort of 10%-12% decline in the third quarter. I was just thinking, if you look at current order intake over the last couple of quarters, do you feel that you're actually growing on a sequential basis, i.e., seasonally adjusted obviously, because it's always down in the third quarter?
I must say, 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. That is we feel the relevant comparison to have, and we continue to grow at 7% in comparable currencies. That is, of course, the underlying growth. Yes, we definitely continue to believe that we have continued to grow in the third quarter.
Okay, perfect.
Yes, I would just like to remind that when we take January to September, the growth in orders received in comparable currencies is 13.5%. What it has been in each quarter is highly impacted on the timing of major projects.
That's very clear. Perfect. Thank you very much.
Thank you.
Cheers. Bye.
Thank you. Our next question comes from Austin Earl. Please go ahead.
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.
Henrik, maybe.
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. It's just the confidence to make investments. I think that's quite normal, and that's what we're seeing, is that there 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. It's just a sort of a 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. Is that because 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 particularly in weak markets, 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 a little bit to preserve cash flow if they are not certain they will have a certain level of tenancy upon completion. If they don't have full tenants when the building would be ready, they sometimes have incentive to little bit delay the project. These are not huge delays. They are just some gradual situations we see here and there.
Very normal variations.
Yeah.
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 competitor? That's the first question. 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. What's your long-term growth outlook for the China E&E market, let's say in the next 5 to 10 years? The last question is about EBIT margin. I wonder if your EBIT margin for the new equipment in China is higher than the whole new equipment margin, or it's similar. I noticed that you acquired Giant KONE in China. Is the EBIT margin for Giant KONE and KONE the same or different? Thank you.
Thank you. The first question was that we have been growing faster in the market in China.
Right
Are we continuing to increase market share and why have we been able to, in a consistent way, to grow faster in the market? It is a few factors here. First of all, we are all the time very agile to 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. 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 all the time good growth opportunities. We now have 400 different locations in China throughout the country. The third important factor is that we have been developing our people also in China as in everywhere else, very actively.
We have been able to have a good stability in the management positions there. That is also very essential. Thirdly, or fourthly, because China is such an important market, also the key people from our global business teams and global functions are in, let's say, giving particularly active support there naturally also to other markets, but particularly to China. About price development in China. In the new equipment markets, the price situation has now been getting slightly tighter or been relatively stable. During this year, when we take this nine-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 new equipment, our pricing competencies and our prices have been this year also stable there.
You asked about, if I understood correctly, our longer term, 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 market every year also and especially in the markets in China. Finally, you asked about the EBIT margin of our new equipment business, and you asked whether the EBIT margin is higher or the 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 new equipment business, is at about the same level as what is the EBIT margin at KONE overall.
Thank you.
Thank you.
Thank you. We have a follow-up question from Ben Maslen. Please go ahead.
Yeah, 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 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 has improved during this year. Of course, there's a slight mix impact, but not a very significant one.
Thank you. 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&A, why you don't do more M&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's too high or in turn it's just very difficult to integrate lots of small deals simultaneously? Thank you.
Good question. We are very active in our acquisition activities and related to this extra 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. We are active, we evaluate every target, 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 these kind of acquisitions.
Got it. Thank you very much.
Thank you, Ben.
Thank you. I have a question, another follow-up from Andre Kukhnin. Please go ahead.
Hi, it's Andre from Credit Suisse. Thanks for taking my follow-up questions. Two, please. One is on China social housing. Looking at the starts and sort of government indications, what is it pointing to for 2014 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. 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. The growth has slowed down. If you look from a kind of mobile market growth, that was not anymore the driver for growth. It was still an active market, but not a growth driver in Q3. It's clear we know that we are more at the tail end of this program. What we have seen now is that actually the more standard 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 Henrik said.
The new starts in affordable housing in China, they have been in the highest level in 2011 and completions in 2012. Yes. Totally in line what Henrik said, just an addition.
Got it. Secondly, on the new product introductions or new product pipeline. We obviously had UltraRope launch this year, and you had the new low-rise product launch the 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 quiet for a while now that you've launched these products?
Well, when it comes to the new standard elevator product range, I think that the launch that we had last year was a very important one and very, let's say, very essential and 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 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. We don't see any reason as such in terms of the global elevator platform to too fast to bring something new.
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. That of course may require every now and then some new efforts. What comes to UltraRope, that naturally is a revolutionary innovation and its importance will grow in the business to something a bit more significant in terms of volumes in, as we say, in about two to three years' time. In the beginning of October, we launched in Singapore, had a global launch for our access control and Intelligent People Flow platform concept, which brings access control and destination control together in the high-rise segment. 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 improved work in our product management as very essential, of course, and necessary in order to be able to continue in our new equipment 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 Guillermo Pino. Please go ahead.
Hi. Yeah, it's Guillermo Pino 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. Of course, also the factory capacities are growing all the time. We will invest some expansion in China in our escalator capacity, where we also have had good progress. We talk more about elevators, but also the escalator competitiveness has developed well. In the Chinese activity, also for next year, looks like continuously recruiting more good people.
Thank you very much.
Thank you. We have a question from Lars Brorson. 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 was coming perhaps more from Europe, your Modernization business there, and of course, China, New Equipment business. 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.
I think as we stated on overall results, that our Service business, our Maintenance business in particular, has continued to develop in a positive direction globally. 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.