Hello, everyone, and welcome to KONE's Q2 Results Review. We will start with a presentation by President and CEO, Matti Allahouta and continue with your questions and our answers to them. Matti, please go ahead.
Okay. Thank you, Carla. So welcome to KONE's Q2 conference call. We have again several positive news to tell. This time, I am personally most pleased with the 60% operating income growth and the major growth in the cash flow.
I will now first tell you about our the development in our financial performance in the Q2 and during the first half and about the market development from April, June. At the end, I will tell about development in our development programs and about our market outlook for the full year and our business outlook for the full year. But let's start with the financial development and quarter 2. The airline here is continuous strong progress on a broad basis, which refers to the rather good growth numbers in all of the different areas. Orders received had a growth of 8.2% in comparable currencies 8.7 percent and reached 1.1 more than €1,600,000,000 book went up by 10.7 percent in comparable currencies 14.1 percent and went up close to close to 5 point €9,000,000,000 Sales growth was also strong more than €14,000,000,000 reaching more than €1,700,000,000 €1,76,000,000 And operating income growth was also strong as I already referred to 15.5% and reached close to 2.43 €1,000,000 The relative operating income was 13.8 percent, a little better than a year ago.
But as many of you remember last year, our business was burdened by the amortizations of the intangible assets of Giant Kone. And hence, the better comparison point is operating income before amortizations and there the situation was development of basic flat. The level was 0.1% points lower than last year at the same period. The primary reason for the relative operating income not improving was a significant change that we have had in quarter 2 and in the first half in our business mix with the share of Novecrant business clearly growing and the modernization business share of the modernization business coming somewhat down. The cash flow was very strong at $325,000,000 60% up from the already good level of close to $200,000,000 last year.
The good point again here is that all of the different elements improved, operating income had a good growth and also we had a slight positive improvement both in receivables as well as in receivable rotation and in the rotation of inventories. So overall good development, but let's take a longer time frame January, June where we had where we have had a very strong development. The growth in orders received in this time period has been more than 16% and the level of orders received is €3,350,000,000 The order book, I already mentioned. The sales growth has been 13.5% and was at the level of has been at the level of €3,160,000,000 Operating income growth has been close to 17% and the operating income in this period is more than €400,000,000 The relative operating income in this period is 0.4% more than in the first half of last year. And the operating income before amortizations is also slightly more than last year.
The cash flow for the 1st 6 months of this year is more than $600,000,000 and naturally I'm very pleased with that. Overall, I have to say that I'm very pleased with this development in our business and I have to say that our people have again in different parts of the world done a great job. And it has again been great to see the continued strengthening of the commitment of the people and the will to learn and develop our competitiveness. Now let's take again a closer look at the orders, sales and operating income and comparisons to the previous quarters in the during the previous years. Here, we had the order season level of €1,64,000,000 This is the 2nd highest quarter we have ever had taking into account all of the quarters.
And only the Q1 of this year, which as I said in April had an exceptionally, let's say, high growth in major projects and especially in that case in North America. So this is a good level. The fastest growth clearly saw we had in Asia Pacific where the growth was strongest in China and in Malaysia. The growth in orders was also slightly developing positively in the Americas. The growth in volume moving market was at a good level.
However, the orders in the major projects in the U. S. Were at a low level in quarter 2. In Europe, Middle East and Africa, the orders were rather stable and the best development we had in Germany, U. K, Middle East and Russia.
Next sales. Here we had a strong growth in new equipment and also good growth in the maintenance business. We had all growth in all of the different geographical regions. The fastest growth we had in again in Asia Pacific and there in China where the progress in deliveries was very much in line with our plans and in some cases even a bit faster. And in operating income, the our consistent growth took already again a big step upwards by this 15.5 percent growth.
And the biggest contributors to this growth were the strong strength of deliveries in new equipment in China and also the positive development in service business globally. The relative operating income, the primary reasons or primary factors turning the relative operating income development in this quarter where the change in the new equipment service business mix that I will come later to and also the continuation of deliveries of projects that were taken in 2010 2011 with lower margins. As you know, our objective is to strengthen our global market position every year, so grow faster than the market every year. This to this naturally the fastest growing peak markets offer best opportunities. And these markets have been and are in Asia Pacific, where urbanization and the growth of the middle class population and the income middle class income are both contributing essentially to the construction market and hence also to our new equipment market growth.
We have been doing well in these markets. And here you'll see that during the first half of this year, this good progress has had a significant impact both to our business mix as well as geographical mix. In the business mix, the share of new equipment in the first quarter first half of the year went up by 5% points from 47% to 52%. Although, also the service business was developing well. The growth in service business in comparable currencies was 4.8%.
In the geographical split, the share of Asia Pacific also went up by 5% points to 38%. The sales in China represented close to 30% of our sales. It is naturally quite obvious that when looking at this geographical split also when moving forward, we are rather well positioned to what comes to growth opportunities. So now I have thought about our development during quarter 2 and during the first half of the year. And now I will tell give a review about short review about how markets developed in quarter 2.
And starting with Europe, Middle East and Africa and from the new equipment markets. In Central and North Europe, the market declined slightly, but remained at a relatively good level. We had strong good markets had strong development, let's say strong level and good development in Germany. And the markets were rather stable in Nordic countries and Switzerland and Austria. Also the Russian market was growing.
In South Europe, new equipment demand declined further, much like France and Italy and also in Spain. But in Spain, we have started to see first half first signs of possibly the market approaching the bottom level. In the Middle East, the markets developed well. The best development was in Saudi Arabia and in Dubai and in Qatar. Also in Turkey, the markets developed well.
In modernization, the market development was weak in Europe, Middle East and Africa. We had a slight decline in Central and North Europe and a little bit, let's say, stronger decline in South Europe. In maintenance markets, the markets grew, but with a significant variation between countries. Price competition remained very intense particularly in South Europe. Next North America.
The new immigrant markets continue to grow. In the United States, the markets continue to new markets continue to grow by the residential and office segments. The office vacancy rate starts to be at a rather good level in the U. S. In Canada and Mexico, the market was stable.
Also the modernization market developed better compared to Europe, Middle East and Africa. The market was clearly growing. And in maintenance, the markets grew, but price competition remained intense particularly in the non residential segments. And then next Asia Pacific, where rapid growth continued, but at clearly lower growth rate than in quarter 2 in line with what we expected. And now a few country specific comments starting from China.
In China, the markets grew rapidly revamped by positive development in all segments, but as we communicated already in April at a clearly lower rate than in quarter 1 this year. Now as you remember in quarter 1, the market growth in China was a little bit higher than 20%. Now in quarter 2, the growth was a little bit more than 10%. And now what comes to let's say thinking about growth opportunities for the rest of the year, we have some new interesting statistics. During quarter 2, the strong growth in the sales of new construction area continued to be strong.
In quarter 2, that growth was more than 20%. But the another positive news is that the growth in new construction starts was at 8.8%, so close to 10%, while in quarter 1, it was still slightly negative. Now what all of this means is that this naturally indicate good development for the market for the second half. However, what comes to quarter 4 order decisions, it is we have to remember that the end of last year was a high growth peak and therefore the comparison point is rather tough in quarter 4. As a conclusion based on all of this, we have slightly upgraded our estimate what comes to the full year growth in the Chinese market, our previous estimate was that the full year growth market growth there would be about 10% and now the new estimate is that the growth will be between 10% 15%.
In India, the market grew at about 10% rate and it was driven by residential and infrastructure segments. The market growth was not higher there because of, let's say, some limitations in financing and overall uncertainty in the economy. In Australia, it has had a bit uncertain period. In the market, the demand turned to growth. And in Southeast Asia markets, the growth good growth continued and it was fastest in Indonesia.
The modernization markets developed well in Australia. It had some growth. It is the biggest, let's say, modernization market at the moment in Asia Pacific. And in maintenance, the markets continue to grow. Now China last year was China was last year close to 2 thirds in volumes about the global new elevator and escalator market.
And therefore, we decided that to have a brief review about the different factors that are drivers for the further future market development dynamics in China. And I have a few interesting points here. First of all, it is naturally well known that the target in China is that China's urban population is estimated to reach $1,000,000,000 by 2,030. Now, so the second point is interesting. The urban development model in China is based on an increase in density in cities, which is better also in terms of environmental factors.
This means that the cities will be built so that there are buildings are close to each other and the buildings are high. And also the sub urban areas will be built based on similar architecture. We also it's also good to remember that the residential market in China is about 60% of the total elevator and escalator market. The third point is also very important. The construction of new buildings is driven by both urbanization and middle income growth.
Now when the fast growth in the elevator and escalator market started about 10 years old slightly more than 10 years ago, It was driven in the beginning mainly by urbanization, but then increasingly much an increasing significant factor has started to be the middle income growth. About the Chinese urban consumption, it is estimated that high middle class will consumption that represented some 20% last year will grow to 56% in 2022. This naturally also means that, let's say more modern residential buildings are needed more and more. And the 4th factor is equally interesting and important. In addition to new buildings, a very significant part of construction growth comes from the rebuild of existing buildings.
The average lifetime and this is a very interesting data point, the average lifetime of buildings in China is clearly shorter than for example in Europe. The average lifetime is about 25%. We have also seen numbers like 20 about 25 years. We have also seen numbers like 23 years or 25 to 30, but whatever of these, these are short lifetimes. And indeed, a large stock of existing buildings is required to be rebuilt as the buildings don't meet today's urban development needs.
And again, many of these old buildings that have been built before year 2000, they don't have elevators and the new buildings will have elevators. There is also a code which requires that all buildings that are higher than 11 floors have to have 2 elevators at least. So as a conclusion, the longer term outlook for the elevator and escalator markets for China remains favorable, because demand for new construction and rebuild is strong and the elevator and escalators per capita density is expected to increase significantly from current low levels because of these drivers. So as a summary, the China's market outlook is favorable also in the longer term, but the market is naturally transitioning from the exceptionally high 20% a year market growth rate to a more moderate growth. So this is about the market development and now about our development programs.
The active work in all of these 5 development programs has continued. This is now the 3rd year we are working with developing these competitive assets. And beginning on next year, we will start a set of a new set of 5 that again will in the best way lead us towards our vision and enable continued profitable growth. And last time I gave you an update about the progress in employee engagement. Now I will give an update about the development in innovative solutions for People Flow.
The and here I have 3 important comments. First of all, we launched in June a revolutionary innovative Kone Ultra rope hoisting technology. And it this story has 2 different kind of parts. First of all, this hoisting technology enables now single elevator rides that go up to 1 kilometer. It is quite obvious that there will not be a huge number of buildings that will be so high or even close to that level.
But for the considering the business, the big thing is that with this technology, we have got very strong competitive strength in all buildings that are 150 meters or higher. These include lower energy consumption, lower space requirements, longer lifetimes lower lifetime costs, faster installation and also lower sensitivity to building sway in high buildings. And this of course is significant because number of these kind of opportunities is quite significant both in the new equipment markets as well as in case of modernization markets. Second point is that the as you remember last year, we introduced our new global volume elevator offering and the ramp up of this offering has developed exactly in line with our plans and
we will
be in full volumes end of next year. The third point relates for escalators where also our business has been developing well. Now we have a new escalator offering, which also has lower energy consumption and versatile design options. A lot of different design options that represent the same design language than our visual design to our elevators, which I am very pleased with as well. Now finally, first market outlook and then business outlook.
In this market outlook, we have compared to April, we have done only one change that relates to China that I already mentioned. But let's revisit this what this outlook says. In new equipment markets, the market in Asia Pacific is expected to grow clearly. The market in China is expected to grow by 10% to 15% in 2013 And the market in Central and North Europe is expected to decline slightly. And the market in South Europe will is expected to decline further from the already weak levels.
The market in North America is expected to continue to grow. Regarding modernization, we expect that the markets will be either stable or decline slightly. In maintenance, we expect that the markets will continue to develop rather well in most countries. Finally, business outlook. Here we have, let's say, further specified upwards slightly both sales outlook as well as operating income outlook.
In sales, our previous estimate was the window of 7% to 10% and now it is from 9% to 11%. So net sales is estimated to grow by 9% to 11% at comparable expense rates as compared to last year. In operating income, we have had a window of from $870,000,000 to $920,000,000 And now we have, of course, again, a better visibility to the full year than what we have had in April. And we have good reasons to upgrade the 8.70 to 8.90, but we have also good reasons to keep the upper limit at 9.20. Percent.
And all of this assuming that the translation exchange rates don't materially deviate from the situation of the beginning of this year. So thank you. That was the introduction to this teleconference. And now we have a good time for your questions.
Thank you very much, Matti. And let's start with the questions from those present here in Espoo, Finland.
Tomi Reylo, SEB. Just on China, can you tell what your own growth in China was in the Q2? You mentioned the market growth of more than 10% and how much of the total orders China represented? The our orders in the growth in our orders in China was 20%. And this means that it was almost double compared to the market growth.
The orders in the second quarter represented a bit more than 40% of our total orders.
Hello. Elena Ryokta from Evrybank. On the Ultra Rope, a question. Of the buildings coming of age for modernization in that market, how much of that base is buildings that are over 150 meters high? Is there potential in that base for?
In the current base, good question. The modernization opportunity, let's say, over the next years basically this decade is roughly about 3,000 houses. And naturally these or 3,000 buildings and naturally these buildings because they are big buildings there are quite a lot of elevators. So it is not a sizable opportunity.
But AltaRope specifically if I would be thinking that ULTAROOPE is an advantage for you in gaining market share in the modernization market?
It is a good opportunity for gain share in the modernization markets of the high rise buildings. Yes indeed.
Thank you.
Pekka Sponder from PO Hellenic Bank. In the report you mentioned in quite many places the tight price competition. Could you discuss a little bit more has the situation changed during the Q2 and specifically in different market areas?
The price competition is toughest in South Europe. In China also as some of our competitors have told they have some of them have decreased their prices already in the beginning of the year. What so I will say that nothing dramatic has happened during the Q2. What our situation is that during the first half of the year, we have continued our pricing competence development and our prices have been slightly developed positively during this half. In most markets including China.
So in China, I could actually tell what we have done. In the beginning of the year, when we saw some of our competitors prices and we anticipated that the competition will increase, we decided that let's be extremely active in sales in the early parts of the year. And that's actually did well in the first half with the prices slightly increasing and we continued the same approach, meaning slightly higher prices also in the Q2. And also in this quarter, results were something that we can be very pleased with. Our competitiveness also there is really strong.
Thank you. And second question, you probably have already told earlier, but just to check this lower margin deliveries you still have in the sales in the first half. When will the last of these projects? When are they out of the order
book? That is of course a very good question. And let's just saw that this year is still quite a lot of loaded with those. And next when we come to next year, there are still a number of those and especially then some of the major projects are a bit longer, but I would say that after the middle of next year very little.
Thank you.
We are now ready for the questions from the lines please.
Your first question comes from Arren Ibbotson. Please announce your company name and ask your question.
Yes. Hi, there. Good afternoon. It's Aaron Ibbotson from Goldman Sachs. I had two questions, if that's okay.
The first one was just on your general service growth, which if I'm correct, slowed to 2% year over year on a constant currency basis. And I wanted to sort of try to understand, is this only driven by slower modernization in Europe? Or is it the actual sort of maintenance bit? You said that it continued. I guess I would have expected it to accelerate a little bit considering the strong growth in deliveries installed base.
That was my first question. And then secondly, I just had a follow-up on your sort of discussion on China and sort of appreciated your thoughts on the average age of the Chinese buildings being much lower around 25 years. I was wondering if you could let us know roughly today how much you would expect that your orders today, order intake or revenues is for replacing old buildings and maybe how you see that develop over the next couple of years? Thank you.
Okay. I will start with the latter one. As I said in my review, the Dynamics call saw that the increasing share of the market is from the rebuilding of the totally new buildings. And what comes to the first question, particularly the maintenance growth during the first half was at, let's say, at good earlier good levels. The modernization sales growth was lower.
The as an additional bit of information, I can say that in China, it starts to represent quite a lot of our conversions. The sales growth in maintenance sales in the first half of this year has been about 30%.
But does that mean that it's been declining quite sharply in Europe then because you say that it's down overall year over year in the Q1 in the second quarter?
Sorry, excuse me.
What is what did you say that what is down in Henrik maybe your head? So just to clarify that maintenance sales continued at a previous good rate. You have to remember that still the majority of our existing base in the maintenance business is in Europe, Middle East and Africa because that is still if you look at the world market the biggest part of the maintenance business. That is also continuing to develop in a positive direction, but the new growth is of course increasingly coming from Asia and China in particular. But the reason for the 4% growth overall in service business was that our modernization sales declined slightly.
And of course, that's quite a significant part of the overall service sales.
Okay. So but it was growing 30% instead of in Asia. So it must have been declining a bit then in EMEA.
I think Matti said in China specifically, no, it did not decline in EMEA.
So where does the decline come from then? I don't understand.
It did not. We did our maintenance business did not decline. Our maintenance business continued to grow at a previous good rate. The modernization sales declined slightly. Yes?
Yes. Okay. That was my question and that was centered around Europe then or?
You have to remember most of the modernization sales is Europe because of so much of the installed base of elevators in Europe. So of course Europe is quite a significant part of the overall modernization world market.
Okay. Thanks. Your next question comes from Lars Bruce. Please announce your company name and ask your question.
Thank you very much. Hi, Matthew. Hi, Henrik. A couple of questions from my side if I could. Matthew, first on your market guidance for China.
I wonder whether you can give us a little more granularity by your 3 main segments: Portable Housing segment, Residential and Commercial. Effectively, your guidance implies mid single digit growth for the second half. And if we assume that the quarter of the market which is affordable housing segment declined slightly. That obviously requires high single digit growth in the rest of your market. To me that looks quite optimistic particularly for your residential segment in light of the tightening of liquidity in that market and the implementation of property measures.
Can you give me or can you give us some thoughts on how you see your 3 segments develop in the second half?
It is quite much in line with what you said because the affordable housing market has had a growth in the early part of the year and it will be slightly negative most likely in the second half of the year. Then what comes to residential and commercial, both residential market and the commercial market, I mean by commercial hotels and offices. And so they have been growing very well during the first half of the year and we expect them to continue to grow well, but at a lower lay rate than during the first half of the year because of these, let's say, financing constraints that you mentioned.
And in terms of your visibility on the market, would you say that that has improved versus the visibility you had at this point last year? I note of course that the last year the market ended up quite significantly higher than your mid year expectation.
Well, I feel that when we look back to the last several years, our visibility has been, let's say, a good overall with the end of last year the very end of last year as an exception. And I will say that we have a good visibility to the second half market.
That's useful. Henrik, if I could just follow-up on it with a second question. I wonder whether you could help us with a bridge for the year over year development in your EBITDA margin which is flat. If the main headwind here is the mix shift which on my numbers you'd have caught some 100 basis points of your margin year over year, can you give us some sense for the order of magnitude of the other 2 or 3 main head here?
Well, we have not specified the order of magnitude of headwinds, but it's clear if you look at the shift in our business mix 5 percentage point more in the first half of this year in new equipment relative to last year, it is clear that that is the most significant impact on our margin. But again, that is not something that is necessarily a worry because that is still good profitable growth that we have achieved in the new equipment business. So it's clear that that is the most significant one. And then the other ones are the ones that we have discussed previously. We still have some of these deliveries that we took in as orders in 2010 and 2011 in North America in particular and then headwinds that we see in South Europe.
So I think these are probably in the order of importance.
But are those headwinds intensifying in the second half? I mean, your upgraded to 2013 guidance effectively implied flat EBITDA margins in the second half. That's obviously on par with Q2, but it's down from the 40 basis points year over year improvement on Q1. Can you give us a sense for whether these headwinds particularly the margin headwinds from particular rates are intensifying in the second half versus what we saw in the first half?
Well, I think that what you of course see is continue to see is the mix shift. So I would say that is the most significant one. And that of course is the trend has been quite clear in that of the past years.
So the margin headwind from project deliveries are easing from this point on?
Not necessarily, but I would say it's an order of magnitude that's smaller than the mix.
Thanks.
The next question comes from Guillermo Pina. Please announce your company name and ask your question.
Hi, good afternoon. It's Guillermo Peigne from UBS. A question on market sales in China. Have you been losing market sales specifically to Japanese or Chinese players? Interested not on the, let's say, Western companies, more on the Asian companies?
Have they been rougher in the market during the quarter? And then secondly, with regards to recent studies done by the central government in Wanshu and some of the provinces of China and regarding the accidents that were occurring over the last 2 years, Some of the Chinese companies are talking up the service revenue that is going to go to the liftmakers rather than the other than liftmakers service providers. Have you seen any recent activity of aftermarket pickup in terms of growth from previous growth rates? Thank you.
So the first part of your question related to the that how our market share has developed and how the Japanese companies market share and local Chinese companies market shares have been developing if I understood correctly. So our during the first half, we have been growing close to double compared to the market growth. So that is clear that that is clearly faster than the market. Then our policy is really that we don't comment on specific competitive The trend seems to continue that the smallest competitors are losing some markets here and then some of us bigger ones are winning.
Did you answer the question the first question regarding market sales with regards to China only or was it the general market coming from New South?
So this I thought that your question was about China.
Just China. Thank you.
Yes. And then the other part regarding the aftermarket, I don't think that we have seen any major let's say pick up all change there.
Okay. Thank you.
The next question comes from Austin Earl. Please announce your company name and ask your question.
Hi, good afternoon. It's Oftan, Marshall Weiss. I have two questions. I can perhaps take them 1 by 1. The first regarding your comment.
You said regarding the guidance that you had reasons to raise the lower end. But you also mentioned that you had reasons not to the upper end of the guidance. And I just wondered given that you just made the comment of good visibility in the second half, could you explain why you think there are good reasons not to raise that trend of the guidance?
Okay. Okay. Very good and fair question. We just have seen that our credibility in staying within the limits of our guidance and has not been the best possible and we have been seeing sometimes a little bit conservative. And I just wanted to underline that this 819-920 is our transparent and very let's say solid view.
But are there I mean, are there possible reasons that there was a comment recently just you just made or your colleague did about the mix and more new equipment dampening the margin mix. But are there any other headwinds that you see particularly for the second half?
Henrik already gave good comments about the primary reasons. Okay.
Then the second question I had was just about the comment you made on China about the density of elevator and escalators. And if my understanding is that the density at the moment is roughly around the level of the United States, which is a level which is clearly lower than Europe or in Japan. And I just wondered if you could just comment if my statistic is right that you're about the level of the U. S. And therefore then if that is correct, where do you see the penetration going that you see it going higher?
I mean will it go up to the level in Japan or more maybe the level in Europe?
The key point is that the density of elevators and escalators is increasing clearly. And that is a clear direction also in the coming years, just coming from these drivers that I mentioned for and the reasons being that the urban development model is based on increasing density in cities. And in addition to urbanization, the middle income growth is also a key driver for construction and that the rebuilding of buildings will also be a significantly bigger part all the time about the total market. And all of these factors, they are drivers for increasing density. Hendrik, would you have
And I think, Austin, you had a specific question there. I think based on our information, it's I think it's similar to what you're saying that we probably China is somewhere a little bit less than the United States at the moment.
Okay. But business in the U. S. But I mean, I know you're often reluctant to give information on your long term planning, but you clearly for many years now been investing in China and therefore presumably to have a view. And I just wondered is it that you're not sure how far it's going to go or that you just rather
keep that information private? Okay. You realize what is the point. We wanted to give a review about how we what are the key drivers for the further development, but we have the policy that we always communicate, let's say, with definite numbers and very specifically about the year that we are having. And then for example, the first time about next year, we will tell more again in January.
This has been our way to communicate now from the beginning of 2,000 5 and this is how we will continue. I think perhaps
I could add that we don't have we're not giving a specific number, but that must be said very specifically when he reviewed this that we expect the density to increase significantly from where it is right now. Exactly.
Okay, great. Thank you very much for your help. Next question comes from Michael Hackman. Please now your company name and ask your question.
Thank you very much. It's HSBC. I was wondering about the rollout of the new volume elevators. You're saying that they are progressing according to plan. So I was just wondering if you could give us an update which tells us where in the rollout we are in the different regions.
And then also if you could give us a bit of a feel where we are moving on the cost benefit curve. So when how far away are we from the point in time when the new elevators will actually have a positive impact on the margin?
Okay. So in orders, the new product global product family is already representing quite a big part of our new elevator orders. In deliveries, the share of those is still relatively small. Then and this is the case both in Europe as well as in Asia. Then what comes to North America, where we will launch this new product family during the first half of next year when we have done all of the work required for the codes and getting the acceptance and all of this.
The impact on the margin how far away are we from?
Sorry, sorry. This year, the impact to margin is neutral. And as we have communicated, the let's say some kind of more significant positive impacts in margins we will start to see after we have reached a full ramp up so from the beginning of 2015.
Your next question comes from Ben Maslin. Please announce your company name and ask the question.
Yes. Thank you. Afternoon, Max and Henrik. Two more on China, please. Firstly, just on China.
Are you choosing now maybe to talk about a slower growth outlook going forward? Slide 11 still sounds very positive. You say starts and land sales are still looking fairly healthy. So I just wonder what you've seen that makes you think we're going to move to a more moderate phase of growth now? That's the first question.
Okay. This year's estimate okay. When we look back, we have seen all the time the as we have also discussed in these calls, the market growth to developing like a sinus wave. So market developing to higher growth and then avoiding any overheating getting lower. And so the growth angle has been changing all the time.
The growth that we are estimating for this year 10% to 15% is naturally a good level, but not and it is natural in this kind of phasing development. We just want to point out that the growth at exceptionally high 20% per year market growth level that have now continued for 10 years that that kind of levels can't continue. But as I very much wanted to underline, the outlook is favorable also for the future coming years because of these strong drivers that we see in place. Helmut Q1, Clive. Ben, just a small comment when you say why we
chose this time to communicate about slower growth. I don't think this is anything new. I we have been talking about this for a long period of time that we have seen or not for in the recent past that we have seen, as Matthew said, a growth of about compound growth of about 20% if you look at the past years that we are now coming to the face of a more moderate growth. I don't think this is anything new. We're just going a little bit more in detail today.
Exactly.
Just wanted to give an update.
Thank you. As a follow-up to that, if we move now to a phase of more moderate growth, I mean, what do you think will happen to the pricing environment in China, which as you say is already pretty difficult? And new equipment margins, which are very high by global standards in China, there's a lot of new capacity coming into the market. I mean, why wouldn't the market lead start forcing new equipment margins down more towards Western levels? Thank you.
A couple of comments and maybe Henrik can kind of add because possibly there are several factors. But first of all, capacity. The production capacity in this business, in this industry is not a big factor. This is an industry with a very low level of investments and therefore very different to some capital intensive industries where this question is very relevant. And then secondly, the our message is that because of its drivers, we don't see any dramatic changes in the coming years in the Chinese market.
So therefore, in that market, we don't see any step function in any way.
Got it. Thank you. Have a nice one.
Thank you.
We have no further questions registered at this time. Please continue.
Thank you. Do we have any questions here? Any more questions? If not, I think we are ready to close the call. Thank you very much for your attendance and active participation and have a great weekend.
Thank you.
Thank you.