For the Q4 and the full year twenty ten results. We will start with a presentation by the President and CEO, Matti Allahuchta, and continue with questions and answers from the people present here in Espoo Finland and from the people following the conference call on the lines. Please, Matti, go ahead.
Okay. Thank you, Carla, and welcome all to again to KONE's conference call. We have, again, many positive news to tell. We had a record year in operating income, in cash flow and very encouraging development in order to see it towards the end of the year. But of course, I will tell about all of this much more.
Now I am planning to talk a little bit longer than normally because now we are in the end of the previous 3 year period with our development programs and now beginning of this year starts the next new renewable phase. This means that I will start with the quarter 4 and full year numbers, followed by a few comments about the market development. Then I will tell you a few comments about the what we have achieved in our development program during the last few years, and we'll introduce the new set of 5 development programs. Finally, of course, a few comments about market development and KONE's business outlook. So let's start with quarter 4 results.
And we have here many positive news. The first positive is in orders received. The growth was 23.7 percent in comparable currency 16, and we exceeded €1,000,000,000 and this means that we have 2 positive news here. First of all, this SEK 1,600,000,000 is all time high for orders received in quarter 4. And secondly, we had growth in all geographies.
The order book went up by 8.7% in comparable currencies, slightly up. But I will say that this 3 point €6,000,000,000 order book provides a good business basis for us to start this year 2011. One important comment is that because of the changes in our market mix, the order book cycle has become faster. So that because in the fastest growing market, the time from order to delivery is shorter. The operating income is the next point of good news.
The growth also in quarter 4 here was good, 12.1% growth, and we achieved a record high level of SEK 227,300,000. This also naturally led to a good development in operating income margin, which was 15.3%, while a year ago, it was 14.2%. Also, cash flow remained at a very strong level. But let's move now from 3 months to the 1 year full year numbers because, of course, they are more essential. And also here, the orders growth was double digit, 11%, and in comparable currency, 6.
Percent. Oropuk, I already mentioned, sales went up by 5% in historical currencies and being so that we got very close to SEK 5,000,000,000 And then again, very good news, the operating income growth. Now remembering that also in 2,009, 2,008, 2,007, every year, every quarter, we have been able to grow in operating income even in this difficult environment. So we consider that this 16% growth in 2010 is something that we are very pleased with. And we ended up with SEK 696 1,000,000, and this also then led to the achievement of the long term operating income target of 14%.
The cash flow, I would say that if we had 2 positive surprises to ourselves last year, it was so that the first one was, of course, operating income, but the second equally important one was the strength of the cash flow because as many of you remember, we had strong progress in cash flow, very strong progress in 2,008 'nine and again, now to a record level, I have to say that our people also in this respect, everywhere in the world have done a great job. And also in this context, I want to say thanks to them. The dividend was in 2,009 In a way, it was a double dividend, as we called it already then, 65 plus 65. Rather, 65 was because of the KONE getting 100 years old, the centennial year. And now we moved this base level to Let's now take a look a little bit closer look to orders received and sales and operating income and how these have been developing in different quarters over the last few years.
And starting with orders. Here you see from this picture why I said that the SEK1 billion level was positive news to us. And as I said, we had growth in all regions. And the fastest growth this time, we had in Americas and in Asia Pacific. In Americas, all of the we had growth in all countries, including United all key countries, including United States, Canada and Mexico.
Naturally, we have to remember that the point of comparison was favorable because the orders received in quarter 4, 2009 was at the low level there. We had equally high growth in Asia Pacific, and the fastest growth there was now in China and in Southeast Asia. Also in Europe, Middle East and Africa, the orders were growing. Sales. Small growth in sales, naturally, only small because it was impacted with the very difficult market and lower order intake in 2,009, but still some growth and by far fastest growth, of course, in Asia Pacific.
And then operating income, where I think that our strongest development has happened. And I would say that we when talking about the full year 2010, this year related to operating income was a successful combination of almost everything going well in our own business, management and business performance and also some of the external factors, this time being favorable for us. And I'm here especially the changes in the foreign exchange currencies, which had an impact of just more than SEK 30,000,000 positive impact to our operating income, which means that onethree of the operating income growth came from favorable currencies. In addition, we have one factor that is partly external, partly internal, and that is sourcing. And as we have mentioned during the year, also sourcing costs were somewhat favorable last year and also had a small positive impact to the operating income growth.
And about these internal factors, maybe also comment, and it is that the internal development was very much, of course, based on the very active work on the development programs we have had. It resulted in it has resulted in continuous improvement in quality of our products and operations and in productivity improvement. And another factor was the fast growth in Asia, which resulted in economies of scale positive impacts of economies of scale. Now coming to the business mix and the changes there. I again have several positive comments.
Let's start with the right side of this picture. The share of Asia Pacific about sales went up from 17% to 21%. And this means when combining with the fact that fact with the fact that we are very pleased with our operating margin in also in Asia Pacific, this means that our business portfolio is becoming more and more balanced, both what comes to sales as well as to operating income. And as we have seen during the last 3 years in the case of KONE, this kind of strengthening balance makes it possible and helps in managing business in a favorable way also in a tough and difficult business environment, even in this highly integrated globally integrated world of today. The second important point is that also here you see how well the level of the new equipment sales has kept it and itself.
And I will say that the combination of continuous development of our product competitiveness and the successful focus on the fastest growing opportunities has been the key factor here. The 3rd key point is that in service business, in maintenance, we exceeded the 800,000 level in the maintenance base. So good development also there. The maintenance business was growing at the good previous growth rates and whereas the modernization sales declined somewhat. And that was because of weakness in Southern Europe and especially in France I mean, market weakness in Southern Europe and especially in France.
Next, a few comments regarding the different markets and how they developed end of last year, starting from Europe, Middle East and Africa. Maintenance markets continue to develop well, but of course, price competition in this environment was strong. Modernization markets continue to be quite stable. This is how we estimate that how we see at the moment. However, I have to say that at this time of the year, it is very difficult to get an accurate estimate of the modernization market.
So during the coming weeks, we will get a better picture. In new equipment markets, the key point is that we had there was some positive development in Central and Northern European markets, while the Southern European markets continue to stay at weak levels. More specifically, the residential market was growing in the U. K, Sweden and Norway, And the market stayed at good level continued to be at good levels in Germany and Finland, where the market has been and was good throughout the year. On the other hand, in Southern Europe, for example, market in such big markets, countries like France and Italy, remained stable at the low level.
So no signs of turning to more positive yet. And the decline in Spain further continued. On the other hand, the development in many markets in Middle East was positive. Next, Americas. The maintenance markets developed also there rather well, but they are very competitive.
Modernization markets grew slightly. And then when we come to new equipment markets, the key point regarding Americas and quarter 4 market is that, as you remember, the decline, the fast decline in Americas market and especially in the U. S, started already in early 2,008, and the decline was quite strong up to the middle of last year. Now in quarter 4, we saw the first time that the trend has changed to somewhat positive. And many of you, I'm sure, have seen that also the architectures billing index has now gone up to the level of 54, which also is an indicator for more active market.
In Canada, the market nukewarm market remained at a good level. And in Mexico, where the market was at a very weak level, the recovery has started quite strongly. Next, Asia Pacific, where modernization and maintenance markets continue to develop positively. And in the new markets, I will take 2 countries separately. In China, all segments grew, and the growth was fastest in the affordable housing segment.
The growth in China during the first half of last year was exceptionally strong. And you remember, when actions were taken in China to slow down economic growth and construction growth, and that happened. But still, I would say that the market also in the second half was clearly stronger in terms of growth rate than what we estimated in the middle of last year. So the growth was still good in the second half of last year. Now when looking forward, we see that the market growth will continue in China, however, at a lower rate than what it was last year.
And there are many indicators which indicate and which are, let's say, clear signals of the discontinuing growth. In India, growth slowed down due to increasing interest rates and funding constraints, and there was similar signs in Australia, although the tendering activity was there at a healthy level. In Southeast Asia, growth strengthened primarily driven by the residential markets. So the growth in Southeast Asia started to become strong in the beginning of last year. I think that Q1 was the turning point from the low levels of the previous year, and that strong growth has continued over the year.
So this is about markets. And next, I will come to our development programs. The key point here is that the very intensive work that we have had in our development programs has improved our competitiveness during the last 3 years extensively. And this work has also been the key reason why we have been able to grow in operating income from quarter to quarter and from year to year, even in this financially difficult or in this difficult economical environment. We have also achieved some, let's say, got some great achievements in these development programs, and I now will mention a few.
In customer as a result of the work we have done in customer focus development program, our customer loyalty has been developing positively all the time. And this has been and continues to be our objective. The more loyal customers we have, the higher our customer satisfaction is, the less we have to participate to a tough price competition. In People Flow Solutions, meaning how our product portfolio has been developing, I think that our continued great success in the new equipment markets, even those most competitive new equipment markets, is a great proof that this work has helped a lot. Regarding operational excellence, we have continuously commented about the positive impact of quality and productivity.
In environmental excellence, we have taken big steps, especially in energy consumption of elevators, where we went down from 2,008 by 50% in 2010. But after all, I believe that maybe the most or the biggest impact of all of these development programs we have got from this people leadership activity because before the difficult time started in 2,008, we increased our investments in developing our people's leadership skills, and this has been a very big element in making it possible to continue to keep a good spirit and a good atmosphere and challenge and mindset at KONE over the last years. So up to now, I have talked about the past. Last year and last quarter 2008, 2009 period of development work. And now will the rest of this presentation now will be about the future.
And naturally, the first question is what next? And I have to say that during the second half last year, we worked very actively in order to find the best possible combination of 5 Mustang or the best possible set of new 5 new Mustang battles, which will bring us towards our vision again, during the next years in the best possible way and will enable continuing profitable growth. And these 5 are customer experience, employee engagement, innovative solutions for people flow, service leadership and delivery chain excellence. And next, I would like to give you some arguments why we have taken just these 5. First of all, this industry and hence, this business has much more complexity in its than what an outsider would easily believe.
And much of this complexity is in the customer's end customer end of the business system. And our objective is to become the leader in our industry in creating the best customer experience. Regarding the 2nd development program, the nature of this industry and hence the nature of KONE is that we are global, but this is a thin organization. So we are global and thin, globally thin, meaning that because our people have to be because of the needs of the service business, we have to be close to customers. This means that our people are located in more than 1,000 offices all around the world.
And in this kind of environment, it is extremely important that how we can empower and motivate our people everywhere in the best possible way. So therefore, this employee engagement development program, it will have a broader focus than this leadership. It will be broader. Regarding a third one, urbanization will lead to a lot of exciting market developments during the next decade and even further. We will see an increasing number of complicated high rise buildings, which means that this even all the time more and more important to develop our products in such a way that it makes it easy for people to move in this kind of complex urban environments.
We also see continue to see a lot of possibilities to improve and develop our service businesses. Again, there, Our objective is really to target industry leadership. And again, we will have the whole business system scope, whole business system breadth in the way how we are identifying new opportunities. When I talk to you about cash flow, naturally, one important factor in that strong development is that also our inventory rotation has continued to improve. And as you know, the first step was that we did a major improvement in our global production network.
And now we have already been working for quite some time in the whole end to end chain, starting from suppliers down to the customer sites. And over the next few years, our objective is to develop extremely flexible, cost competitive and high quality global delivery network and end to end logistic chains. And this is now an updated summary about our development map. And as I have always said, our objective is to help every KONE person, every KONE employee to understand how we develop KONE's competitiveness and what are the essential factors here. This all starts from the left high corner from understanding the megatrends as well as possible.
Now we have added environment there because the environmental requirements have a big impact to some of the megatrends, especially to urbanization, how it is planned and implemented. Urbanization led us to our to the definition of our vision 3 years ago. And now these new in our everywhere development and in our everywhere work so that we move in the best possible way towards our vision. Then we have 3 high priority areas, which we take into account in everything we do. In addition to safety and quality, we have now taken simplification.
Because in our process development, we start to be very much in the phase where we continuously look for opportunities to simplify our processes. And it is quite pragmatic because always when we simplify, make our processes simpler, typically the quality improves and the productivity improves. And what this simplification also means that we make it easier for our people to do their job well. And then as a basis, we have KONE values and the KONE Way Uniform Processes. Next, I will come to the new long term targets because we promised that when we reach 14, we will communicate our new targets, and here they are.
The background is more broadly that we defined our long term targets first time when we had the remerger in 2,005. And then our objective was in EBIT to grow from 8 to 12. We reached 12 in 2,008. Then we set the targets to target to the level of 14. We reached that last year, and now the new target is 16.
And the 2 other key long term targets are same as during the for the previous 3 years, growth in growth grow faster than the market and in cash flow, continuously improving working capital rotation. Quite obvious set, easy to understand, I believe. Finally, then about market outlook and business outlook. The new in the new markets in Asia Pacific, we expect that the good development will continue, although there will be some regional differences. In Europe, we expect that in Central and Northern Europe, the recovery of the new equipment markets will continue in most countries where most markets in Southern Europe will continue to be at the weak levels throughout the year.
The new equipment markets in North America, we expect to continue to recover after the, let's say, promising start of the recovery end of last year. The modernization markets, we expect to be at about last year's level. And maintenance markets, we expect to continue to develop well. In business outlook, we say the objectives are that in net sales, we estimate to grow 0% to 5% at comparable exchange rates as compared to 2010. You could easily ask that why.
The key reason is that we have some markets where the average time of from order to completion of delivery is more than 1 year. And especially in big major projects, big projects, it can be 18 months or so. And this means that such a market, especially in North America, and we had a low order intake, especially second half of 2,009. We did quite well during the first half. And we will see some of the impact negative impact of this in 2011.
The operating income is expected to be in the range of SEK 700,000,000 to SEK 750,000,000, assuming that the translation exchange rates don't deviate materially from the situation of the beginning of 2011. So thank you. Now we have time for your questions.
Yes. And let me start by apologizing to those of you who are following the webcast. I understand we have experienced some issues with the slides. We will have the whole presentation with the slides available as an on demand version on our website. So please have a look at that later on if you had some problems.
And now we're ready for questions. Let's start with some questions from here in Espoo.
Thank you. Edkos of Swedbank. A couple of questions related to your cost structure in 2010. The share of material and external services of our sales came down quite a bit in 'ten. Is this a temporary phenomenon due to currencies or more sustainable?
That is the first question.
And then Let's take 1, 51, you can take. Henrik, would you like to comment this?
Well, it's clear if you look at direct materials, we as we have said, that material costs were favorable still in 2010, and that is, of course, the key reason for that. And then I would say continuous actions that we have made in our sourcing function has made our made us more productive in that area as well.
And now without that you have to ask it. So now what comes to 2011? The material costs are somewhat higher. We have again taken fixed price contracts with a maturity of these materials, but and we know and to a little bit higher levels than what was the level last year. So last year, Matarekost was in favor, positive to us, And now they are somewhat negative, not dramatically, but somewhat negative.
The same situation as what is in about currencies, we don't know yet naturally, but last year also currencies were favorable. Okay.
The second one would be employee costs per employee, they came up by more than 5%. Is this also due to currencies and or perhaps wage inflation in China? And what's the outlook regarding this?
Okay. So first of all, if I start with wage inflation in China would not have a material impact on the overall number. I think if you look at our costs per employee, they have not materially changed over the past year, and I think 2010 was a year when we had very moderate changes in salaries and wages. I think that because of our strong performance in 2010, we would naturally have somewhat higher incentive payments than in the prior year.
Okay. Thank you. Yes.
Do we have more questions here?
Yes.
Tekas Brannen from Porgerlab Bank. About the price competition, would you comment that is it at the same level as last year throughout the whole last year? And what how do you see that situation in 2011?
Very difficult to say much about 2011. But as we have said in our reports, the price competition was tough in all businesses. And I would say that everywhere, it was particularly tough in the major project business, as we have said, especially in the Americas, but also in some cases also in outside Americas. Please.
Yes. Elinari of Air Liquibank. In Asia Pacific, do you see any changes in the competitive situation? Or is it similar as it has been throughout the year?
I think that when we, let's say, consider the 10 key players in the market, we have not seen any major changes. We have been doing well in the big markets, so in China and India, also in Southeast Asia, also in Australia. In China, the structure of competition I mean, market positions is pretty much the same as it was 3 months ago. So that there is the group of 4 key players, then a big gap and then the other players.
Okay. Let's take one more question here and then let's look at further questions on the lines.
Yes. Jan Koehler, DNB Markets. Just a couple of maybe the market share has was mentioned somewhere. Usually, it's been mentioned once a year. Is there any change there?
Yes. But we always say it somewhat later because we are the best company in the whole industry, I think, to announce our numbers, and it is too early to say. However, we have a belief that we have been growing, again, last year faster than the market, but naturally, we need facts.
Okay. Thank you. Second question, just on China. Last year, we discussed several times this Chinese way of managing the growth and how you see it and how you don't see it and so forth. Last year, we had a period when there was tightening of the market, and I think you might have commented that you saw that impact in the marketplace.
Now very lately, we have had alarmingly strong growth numbers from China, which would have indicate further measures by the authorities. Are these something that you see in your day to day business, these changes in the growth rates and also the government efforts to curb it down sometimes? Is it something that is visible to you as
well? We have as we have as we have discussed earlier, we have seen the impact of the various actions, either stimulating actions, which were taken in the October 2008 and then the actions to try to limit growth in end of 2009 early 2010, we have seen the impact to all markets. But as I said in my presentation, the impact that we expected in terms of the growth rate in the second half of the year was lower was less than what we expected. So the market in China new market in China in second half of last year was somewhat bigger than what we estimated in the middle of last year. I think that many others have done the same.
I don't know if it is mid-segment, but in a way, surprised positively.
We are ready for questions from the people who are attending the conference call. Please.
We have a question from Mr. Tom Schuldman at Handelsbanken. Please go ahead, sir. No, it was Matt Williams at HSBC. Please go ahead.
Hi, there. It's Matt Williams at HSBC.
A couple of questions, if
I may. Firstly, it's obviously been a while since we've seen even light or genuine growth in newbuild in the United States or the Americas segment, Germany. It'd be great if you could possibly talk about the differing profitability in Newbuild amongst the different regions you operate in and what we should be thinking about in terms of different operating environments if we do see that growth come through. And secondly, if I can also ask about raw materials costs. Obviously, not just in terms of where hard commodity is going in terms of steel and such like, but also what your expectations are going forward this year in terms of fuel for the maintenance fleet because those costs don't look too good, obviously look somewhat challenging.
And that presumably is how you've arrived at an implied margin through the guidance for next year, if I've done my sums right, of 14%.
So first of all, I'm quite sorry if I read everything correctly. But what comes to the margin guidance, we don't give guidance on margins. We only communicate our long term targets. Then what comes to growth in oil price, I think that it is very difficult to speculate with that. Would you like to, Henrik, say something?
First of all, you started with material costs. And as Matti answered here one of the other questions already, so for the majority of our material purchases for 2011, those we have fixed already before going into this year. So there we have, of course, a view of where we are, and we're going to see somewhat higher cost of material prices. It's clear that fuel for cars is also a cost that is important for us. And we don't we can't predict where the oil prices are going, of course, and currently, the trend is not positive there.
But I think the outlook we have given for our sales and operating income, they take these matters into account.
Okay. And as far as the if you can talk a little bit about the different profitability that gets seen in different regions as far as newbuild is concerned? Because obviously, looking at newbuild growth in the Americas for the first time in a couple of years.
This, we have not communicated.
Okay. Thanks.
We have a question from Mr. Lars Blushon at DMD. Noord. Please go ahead, sir.
I have 3 actually. I'll take them 1 by 1, if I may. First, can I ask you to comment on the visibility of the fundamentals in your residential exposure in China and specifically your expectation on the implications of slowing growth and mix shift towards more affordable housing? And within that, can you comment on what that means for lead times, pricing points and margin development in your Chinese market?
We have realized, I would say, early enough the importance and growth potential of this affordable housing segment. And therefore, also at the moment, our situation is that our products in all aspects are very competitive in that specific segment. That segment is really expanding fast. It is expanding faster than the market in general, and it is a great positive opportunity, positive factor for us.
Can I maybe ask more specifically, do you see lead times lengthening as the mix shift towards affordable housing? And do you see pricing points come down, but margins overall stay the same?
Well, in the affordable housing, it is low end of the market. Price points are lower. But as I said, our product mentioned our product competitiveness is good there, and our and we are pleased with our margins there. Then what comes to the cycle times, I think that we have seen a lot of growth in our business in this affordable housing segment, and it has been one reason why the cycles have become globally faster.
Okay. Secondly, could I ask you to your margin targets maybe to give slightly greater visibility, if you can, on your regional assumptions for the 16% target? And specifically, if you could comment again on your expectations for normalized margins in the Chinese market compared to the rest of the world?
What we have said about China is that our margins in China, they are at a good healthy level, pretty much at the same kind of levels which we have globally. And then to the other parts of the question, I just feel that we give our we give quite a lot of accurate information about our objectives, but I think that it is fair that we always get questions which we can't answer because this is something we have not really communicate and unfortunately, don't communicate margins by region and so on.
First of
all, I think you're talking about the long term 16% target that we haven't set a specific time frame for achieving that. And as we always have said that for us, the most important target is to continue our growth of our absolute operating income because given our balance sheet structure effectively, that is the best way for us to improve our return on our capital.
And just to continue furthermore, as we have always said, we are a very long term oriented company. And therefore, the 2 key objectives for us is in the long term to develop KONE to become as strong player as possible in this attractive industry and with high absolute profits.
Could I ask a third question? And just briefly, again, on the margin target of 16%, could I ask you to comment on what the assumption is as far as mix shift away from new equipment towards more normalized levels of mix between new equipment and modernization and maintenance away from historically high levels of new equipment of about 48% in 2,008, a mix shift away towards something that looks like 40% to 41% of new equipment would apply 100 basis points improvement alone from mix shift. Is that something you care to comment on as far as your longer term target is concerned?
If our objective would be to optimize or maximize our relative operating income, then we would think this kind of questions. But we don't even think because we are a challenger in this industry, long term oriented challenger. Therefore, our objective is to get as possible progress as possible in all of our businesses, including the new equipment business. And our good progress over the last few years in new equipment business has naturally supported a lot of our maintenance based growth. So therefore, although these are managed as separate businesses, they are also interconnected.
We simply this in these terms, we don't even think about our business. We are pleased if Neutmann business goes in a great way and it's 50% of our business. In another situation, we can be pleased with 45% and whatever in between or even less than 45%. Okay.
Thank you.
We have a question from Mr. Klas Bergelind at RBS. Please go ahead, please sir.
Yes. This is Klas Bergelin from RBS in London. I have a question first on the U. S. Market.
You were talking about the strong December. But does it mean that you're up in terms of orders year on year? Or is this a sequential improvement from what you saw in the previous months? Also, the second question would be on raw materials coming back on that. I mean, you are using fixed contracts, but I was just wondering when in 2010 did you start to sort of fix these contracts on a rolling basis?
And then the third question on your development programs. Sorry not to ask any questions on your new programs, but I was just wondering that one of the previous programs was operational excellence. And here, you were talking a lot about productivity, particularly in the service organization, working with installation efficiency, bringing materials at the right time, being more efficient. What is the kind of delta left in that particular program going into 2011? Or are we basically done looking at productivity?
Thanks.
Okay.
When I discussed about your Americas and United States market and orders, I discussed about 4th quarter And the reference in terms of market picking up is naturally based on both month to month as well as year to year comparisons. I have to just repeat that we started to see gradual improvement. Our order intake growth was much higher, but it was just due to our good success in the marketplace, including some major project contracts during the Q4, which we did not have in 2,000 end of 2,009. And then what comes to these material costs, I think that we have done these agreements during, let's say, during gradually in different phases during the second half of last year. And then what comes to productivity of installation, productivity of maintenance, I think that, that delta continues to be rather big.
It requires a lot of work, a lot of work in the development programs. The naturally, the maintenance is now part of service leadership, and installation is part of the People Flow Solutions. And the very active work continues, And we need to work very, very actively on this in order to continue to improve. Basically, our way of thinking about developing a business is such that the more advanced the company is becoming, the more it is possible to see further opportunities to do the business better.
Okay. Just a quick follow-up on the U. S. Comment. Can you give us a split on the recovery between residential and nonresidential if there was any particular change between the two segments?
Okay. The 2 most important, let's say, trends or shifts were that we started to see that the infrastructure market where which was stimulated during the recession time, that started to that stimulation started to come to the end, and infrastructure market went somewhat down. And then again, in some parts of the country, in the residential segment, we saw the market somewhat picking up.
We have a question from Mr. Sasu Ristimaki at Carnegie. Please go ahead.
Yes, thanks. Actually, I had a few questions, if I can take these 1 by 1. First on the revenue guidance for 2011, your guidance range actually would indicate that the conversion rate on your backlog would come down on the numbers that we've seen in the recent years, including the conversion rate for 2010 on the entry backlog. This seems a little bit inconsistent what you were saying earlier that you're looking at shorter conversion periods on a lot of the order intake coming in at
the moment. Henrik, what do you comment on this?
Okay. So I think when we commented on our 2010 results, it's clear that then our conversion times have become faster as a result of Asia Pacific growing clearly faster than the rest of the market. If we look at now the stronger order intake we had towards the end of 2010. And also, if you look at the market outlook that Monty mentioned during his presentation, we're also looking at a slightly better environment also in North America and some of the European countries. And this will, of course, again then again a little bit take it in the other direction.
No dramatic shift there. But I think that the big shift was really what happened in 2010 compared to prior years.
So that
yes, exactly. That made the cycle brought the cycle to a faster level. Short and I made it shorter.
Okay. Then can you give us a rough idea that was order growth in China in the 4th quarter significantly higher or lower than it was in the 3rd quarter?
No major change. It was at a critical level in both.
Okay. Can you comment at all on your the magnitude of your exposure to the affordable housing segment in terms of your Chinese business?
Segment is some 60% of the Chinese market. And our the residential segment in our sales in China is more than 60%. And again, the affordable housing segment has been the fastest growing segment in the residential market. This means that, as you remember, that was also part of the stimulus package already in October 2008. And what has been done there is that the mix in the residential market has been directed to become more, let's say, in line with the needs so that the Operable segment to enable and speed up urbanization.
And again, what has gone down is the luxury segment, especially in the big cities in the eastern parts of the country that 1 year ago had relatively high vacancy periods. So the situation is this means that the situation is healthier. More than this, we can't quantify this.
Sure. That's good. Henri, one last final question, which relates to North America. In the Q3, you seem to lose a bit of ground to your principal competitors in terms of order growth. Now in the Q4, you seem to be actually outgrowing some of your key competitors on today's news.
Is there any focus on market share in that market? Or is this just kind of normal fluctuation that it depends on which company gets which orders in which quarter?
And now you refer to North America.
Yes, Yes, North America.
In North America, our development has been quite interesting because we were strongly increasing market share up to the middle of 2,009. So this means that our orders level remained quite stable still in the second half two thousand and eight and first half of two thousand and nine, although the market was declining quite strongly already from early 2,008. And then as you referred, we had a weaker period of 5 quarters and now strong development. The market just simply went to a very low level in this declining development in 2010. And I would say that the all of this then that sometimes we have had a little bit lower Oriente growth and now maybe faster, It is just part of this big part of this is this quarterly variation.
Quarter is a very short time in this kind of business.
Great. Thanks very much for your answers. Very helpful.
Thank you.
We have a question from Mr. Timo Pilskanen at Deutsche Bank. Please go ahead, Mr.
Yes. Hi. This is Timo from Deutsche. I would have a one question basically regarding the SNEL in Europe and now especially in France. I mean, I'm somewhat surprised that basically now we have had kind of 2 low volume years at the modernization markets while the SNEL regulations should have been spreading to new countries in some kind of resistance basically within the member countries?
And what is now behind the fact that France basically kind of has still gone zero part of the required upgrades of the aging equipment base uncompleted? And perhaps taking this thought one step ahead, could this then mean that there also could be some pent up modernization demand coming from countries like France later on in 2011 or 'twelve?
Okay. Very good. The weakness of modernization market 2010 was pretty much in Southern Europe and especially in France, partly also in Italy. And in France, the situation was that in France, the SNL is part of the legislation. And during last year, we expected that almost all of the customers who have this requirement to modernize based on this law, they will do it by the end of the year.
This did not happen as extensively as we believed. And naturally, this means that the remaining market opportunity is bigger. And this is also why I think that your the second part of your question was quite good. It is possible then that when the situation in the economy in Southern Europe becomes starts to become better, that the modernization market growth could turn to become quite attractive.
Okay. Thank you. We have
a question from Mr. Volcan Gerkman at Helvea. Please go ahead.
Yes, good afternoon. Congratulations I had a question on the modernization market in the U. S. Why is that not picking up more? I mean, the background of my question is actually looking at the vacancy rates in the office sector is on historical rise.
And at the same time, the office sector itself is actually from a population point of view, from installed population point of view, one of the biggest. So I thought that this high vacancy rates would at least now start to stimulate a little bit more for the modernization business. What's your observation there?
Again, I think that you are quite you have quite good thinking in your question. The modernization market in the U. S, it became more and more attractive during the year. Then it is still too early to say how much the growth was And to be a little bit, let's say, on safe side, we have communicated that it grew slightly. The trend in that segment in the U.
S. Has been good.
Okay. Thank you.
We have a question from Mr. Jari Harun Pa at Erman. Please go ahead.
Jarrod Harned Paa,elman. First of all, congratulations on good set of numbers. I would have a question regarding balance sheet. If we are looking at your basically what you're guiding on growth, that is fairly slow growth in that sense. And you are still actually having quite a lot of cash in your balance sheet and definitely very strong cash generation capability.
So what's the plans with that one? Could you elaborate that a little bit?
Well, the you're right that the balance sheet is strong, and we are a very growth oriented company. And that is why we feel good about the strength of the balance sheet. So last year was good also in that respect that we were able to use or to, let's say, to successfully complete more acquisitions in terms of acquisition size and had some of the more medium sized acquisitions also. And this is definitely our objective also this year.
Okay. That's exactly what I was a little bit after. Could you actually say something about the growth in 2010? How much was actually from acquisitions? That was basically quite a small share, but could you elaborate that a little bit?
Yes. Do you mean growth in sales or growth in
In sales.
In sales. As we say in our reports, the growth in net sales coming from these acquisitions was relatively small. These were maintenance companies. And therefore, that's accumulating then year after year. And we have to more say so that they did not bring much last year, but they will increasingly, let's say, pay back now over the years.
Okay. Thank you. That's all.
We have a question from Mr. Sasolisti Macchi at Carnegie. Please go ahead.
Just back to your margin guidance for 2011. In terms of internal measures, do you see those as kind of significant contributing factors in a way, let's say, continuing the trend that you've had in the last few years? And then of the external factors, is there anything you can say about your assumption of pricing as a margin contributor in 2011?
Could you repeat the first part of your question?
Yes. I suppose that the principal part of the margin improvement that we've seen in the last few years can be attributed to various internal measures that you have taken in the company. Would you see that those types of issues are going to be a continued positive in 2011 profitability development?
Yes, definitely. We will continue to work very actively in developing the quality and profitability in such big activities like maintenance and installation and while improving all of our processes that also improves the productivity of the whole
organization. Good. And then any comments about the pricing environment for 2011?
I would say that it's very we have not been seeing anything, let's say, dramatic recently in that aspect. So very difficult to say.
We have a question from Mr. Zvi Hingorani at Standard and Poor's. Please go ahead, Mr.
Yes. Hi. Thanks for taking my question. Most of them have been answered. I wondered if I could just press you a little bit more on the acquisition side and see if we can try and get some idea of relative size that you might pursue.
We've talked in the past about trying to bridge the gap with the largest competitor in terms of maintenance base. Might we see some sort of a move there? What would be the thinking behind that?
Maintenance base is an important, let's say, expansion opportunity for us in many aspects. And one of the aspects is also density because density of the maintenance space also is one factor in developing the productivity of the maintenance work. The way how we are looking at the acquisition opportunities is naturally primarily related to the development and strengthening of our maintenance business, as you said. And we are attractive both we are interested both in small companies, which quite often are the size of 1,000 to 1,500 size of the maintenance base up to as high as possible. Last year, our highest biggest acquisition had a maintenance base of 12,500.
Hopefully, this year, we will get some bigger ones than that.
Okay, great. Thanks, sir. Thanks for that. There are no further questions at this time. Please go ahead, speakers.
I think we have time for 1 or 2 more questions here in Espoo. Please go ahead.
Yes. Very good, very rapid housekeeping question. Any guidance for 2011 group tax rate?
We expect that to stay quite stable, same guidance we had before at around 25.5%.
Is there any further question here in the room? If not, I would like to thank you for your very active participation. We had a lot of questions today and a lot of answers to them. Thank you very much, and have a nice rest of the day and of the week.
Thank you.