Hello, everyone. Welcome to KONE's Q2 results review. We will start with a presentation by President and CEO Matti Alahuhta, and continue with your questions and our answers to them. Matti, please, go ahead.
Okay. Thank you, Carla. Welcome to KONE's quarter two conference call. We have, again, several positive news to tell. This time, I am personally most pleased with the 16% operating income growth and the major growth in the cash flow. I will now first tell you about the development in our financial performance in the second quarter and during the first half, and about the market development from April to 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. Let's start with the financial development and quarter two. The headline 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%, and reached more than EUR 1.6 billion. Order book went up by 10.7%, in comparable currencies, 14.1%, and went up to close to EUR 5.9 billion. Sales growth was also strong, more than 14%, reaching more than EUR 1.7 billion, EUR 1.76 billion, and operating income growth was also strong, as I already referred to, 15.5%, and reached close to EUR 243 million. The relative operating income was 13.8%, a little better than a year ago. As many of you remember, last year, our business was burdened by the amortizations of the intangible assets of GiantKONE. Hence, the better comparison point is operating income before amortizations. There, the development was basically 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 two and in the first half in our business mix, with the share of new business clearly growing. The share of the modernization business coming somewhat down. The cash flow was very strong at EUR 325 million, 60% up from the already good level of close to EUR 200 million 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. Overall, good development, but let's take a longer timeframe, January, June, where we have had a very strong development.
The growth in orders received in this time period has been more than 16%, the level of orders received is EUR 3.35 billion. The order book I already mentioned. The sales growth has been 13.5% and has been at the level of EUR 3.16 billion. Operating income growth has been close to 17%, the operating income in this period is more than EUR 400 million. The relative operating income in this period is 0.4% points more than in the first half of last year. The operating income before amortizations is also slightly more than last year. The cash flow for the first six months of this year is more than EUR 600 million, naturally, I'm very pleased with that.
Overall, I have to say that I'm very pleased with this development in our business, I have to say that our people have, again, in different parts of the world, done a great job. 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. Let's take again a closer look at the orders, sales, and operating income, and comparisons to the previous quarters during the previous years. Here, we had the order system level of EUR 1.64 billion. This is the second highest quarter we have ever had, taking into account all of the quarters, only the first quarter of this year, which, as I said in April, had an exceptionally high growth in major projects, and especially in that case, in North America. This is a good level.
The fastest growth clearly we had in Asia. Asia-Pacific, clearly 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 equipment market was at a good level. However, the orders in the major projects in the U.S. were at a low level in quarter two. In Europe, Middle East, and Africa, the orders were rather stable, 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 a growth in all of the different geographical regions. The fastest growth we had 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.
In operating income, our consistent growth took already, again, a big step upwards by this 15.5% growth. The biggest contributors to this growth were the strength of deliveries in new equipment in China and also the positive development in service business globally. The primary factors burdening the relative operating income development in this quarter were the change in the new equipment service business mix, that I will come later to, and also the continuation of the deliveries of projects that were taken in 2010 and 2011 with lower margins. As you know, our objective is to strengthen our global market position every year, grow faster than the market every year. To this, naturally, the fastest growing peak markets offer best opportunities.
These markets have been and are in Asia-Pacific, where urbanization and the growth of the middle class population and the middle class income are both contributing extensively to the construction market and hence also to our new equipment market growth. We have been doing well in these markets, and here you will see that during the first half of this year, this good progress has had significant impact both to our business mix as well as geographical mix. In the business mix, the share of new equipment in the first half of the year went up by 5% points from 47-52. 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 when it comes to growth opportunities. Now I have talked about our development during quarter two and during the first half of the year. Now I will give a short review about how markets developed in quarter two. 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. Markets had a 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 in markets like France and Italy, and also in Spain.
In Spain, we have started to see 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 equipment markets continued to grow in the U.S. New equipment markets continued 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. Next, Asia-Pacific, where rapid growth continued, but at a clearly lower growth rate than in quarter two, in line with what we expected. Now a few country-specific comments, starting from China. In China, the markets grew rapidly, driven by positive development in all segments. As we communicated already in April, at a clearly lower rate than in quarter one this year. As you remember, in quarter one, the market growth in China was a little bit higher than 20%. In quarter two, the growth was a little bit more than 10%.
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 two, the strong growth in the sales of new construction area continued to be strong. In quarter two, that growth was more than 20%. Another positive news is that the growth in new construction starts was at 8.8%, so close to 10%, while in quarter one, it was still slightly negative. What all of this means is that this naturally indicate good development for the market for the second half. However, what comes to quarter four order decisions, 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 four.
As a conclusion, based on all of this, we have slightly upgraded our estimate when it comes to the full year growth in the Chinese market. Our previous estimate was that the full year market growth there would be about 10%, and now the new estimate is that the growth will be between 10% and 15%. In India, the market grew at about a 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. In Southeast Asia markets, the 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. In maintenance, the markets continue to grow. China was last year close to two-thirds in volumes about the global new elevator and escalator market, and therefore we decided to have a brief preview about the different factors that are drivers for the further future market development dynamics in China. 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 billion by 2030. Also the second point is interesting. The urban development model in China is based on increasing density in cities, which is better also in terms of environmental factors.
This means that the cities will be built so that buildings are close to each other and the buildings are high and also the suburban areas will be built based on a similar architecture. It is 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. When the fast growth in the elevator and escalator market started about 10 years or 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 the high middle-class 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. The fourth 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 years. We have also seen numbers like about 25 years. We have also seen numbers like 23 years or 25 to 30. Whatever of these are short lifetimes. Indeed, a large stock of existing buildings is required to be rebuilt as the buildings don't meet today's urban development needs.
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 two elevators at least. 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. As a summary, 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. This about the market development and now about our development programs.
The active work in all of these five development programs has continued. This is now the third year we are working with developing these competitive assets. Beginning next year, we will start a new set of five that again will in the best way lead us towards our vision and enable continued profitable growth. 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. Here I have three important comments. First of all, we launched in June a revolutionary innovative KONE UltraRope hoisting technology. This story has two different kind of parts. First of all, this hoisting technology enables now single elevator rides that go up to one 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. 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. 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, 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 to escalators. Our business has been developing well. 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. 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. Let's revisit 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%-15% in 2013 and the market in Central and North Europe is expected to decline slightly and the market in South Europe 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 markets will be either stable or decline slightly. In maintenance, we expect that markets will continue to develop rather well in most countries. Finally, business outlook. 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%-10% and now it is from 9%-11%. Net sales is estimated to grow by 9%-11% at comparable exchange rates as compared to last year.
In operating income, we have had a window from EUR 870-EUR 920. 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 EUR 870-EUR 890. We have also good reasons to keep the upper limit at EUR 920. All of this assuming that the translation exchange rates don't materially deviate from the situation of the beginning of this year. Thank you. That was the introduction to this teleconference and we have good time for your questions.
Thank you very much, Matti. Let's start with the questions from those present here in Espoo, Finland.
Tomi Railo, SEB. Just on China, can you tell what your own growth in China was in the second quarter? You mentioned the market growth of more than 10% and how much of the total orders China represented.
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. Elina Ruuttu from Evli Bank. On the UltraRope, 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?
In the current phase, a good question. The modernization opportunity, let's say, over the next years, basically this decade is roughly about 3,000 houses and naturally these 3,000 buildings because they are big buildings there are quite a lot of elevators so it is not a sizable opportunity.
UltraRope specifically, if I would be thinking that UltraRope is an advantage for you in gaining market share in the modernization market.
It is a good opportunity for gaining share in the modernization markets of the high-rise buildings.
Okay.
Yes, indeed.
Thank you.
Pekka Spolander from Pohjola Bank. In the report you mention in quite many places the tight price competition. Could you discuss a little bit more, has the situation changed during the second quarter and specifically in different market areas?
The price competition is toughest in South Europe. In China also, as some of our competitors have told, some of them have decreased their prices already in the beginning of the year. I will say that nothing dramatic has happened during the second quarter. 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. In China, I could actually tell what we have done. In the beginning of the year, when we saw some of our competitors telling about decline their 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.
That succeeded well in the first half with the prices slightly increasing, and we continued the same approach, meaning slightly higher prices also in the second quarter and also in this quarter, results were something that we can be very pleased with. Our competitiveness also there is really strong.
Yeah. Thank you. Second question, you probably have already told earlier, but just to check. These 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?
Let's say so that this year is still quite a lot loaded with those. When we come to next year, there are still a number of those. Especially then some of the major projects are a bit longer. 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.
To ask a question on the telephone, please press star one. Your first question comes from Andreas Koski. Please announce your company name and ask your question.
Yes. Hi there. Good afternoon. It's Andreas Koski 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 percent] year-over-year on a constant currency basis. 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've expected it to accelerate a little bit considering the strong growth in deliveries, installed base. That was my first question. 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 go slow that the increase in share of the market comes from the rebuilding of the totally new buildings. What comes to the first question, particularly the maintenance growth during the first half was at, let's say at earlier good levels. The modernization sales growth was lower. As an additional bit of information, I can say that in China, which 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%.
Does that mean that it's then declining quite sharply in Europe then? Because you say that it's down overall year-over-year in the first quarter, in the second quarter.
Sorry, excuse me. What did you say that what is down in? Henrik, maybe you heard.
Just to clarify that maintenance sales continued at its 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. 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. The new growth is, of course, increasingly coming from Asia and China in particular. The reason for the 4% growth overall in service business was that our Modernization sales declined slightly. Of course, that's quite a significant part of the overall service sales.
Yes.
Okay. It was growing 30% just 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.
Where does the decline come from then? I don't understand.
Our maintenance business did not decline. Our maintenance business continued to grow at a previous good rate. The modernization sales declined slightly.
Yes.
Yeah. 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 so much of the installed base of elevators are in Europe. Of course, Europe is quite a significant part of the overall modernization world market.
Okay. Thank you.
The next question comes from Lars Brorson. Please announce your company name and ask your question.
Thank you very much. Hi, Matti. Hi, Henrik. A couple of questions from my side, if I could. Matti, first on your market guidance for China, I wonder whether you can give us a little more granularity by your three main segments, affordable housing segment, residential, and commercial. Effectively, your guidance implies mid-single-digit growth for the second half. If we assume that the quarter of the market, which is affordable housing segment, declines 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 three 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. What comes to residential and commercial, both residential market and the commercial market, 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 rate than during the first half of the year because of these, let's say, financing constraints that you mentioned.
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 know, of course, that the last year the market ended up quite significantly higher than your mid-year expectation.
I think that when we look back to the last several years, our visibility has been good overall with the end of last year, the very end of last year as an exception. I would say that we have a good visibility to the second half market.
That's useful. Henrik, if I could just follow up 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 should have cost some 100 basis points of your margin year-over-year, can you give us some sense for the order of magnitude of the other two or three main headwinds here?
We have not specified the order of magnitude of headwinds, it's clear if you look at the shift in our business mix, five 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. 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. It's clear that is the most significant one. 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, then headwinds that we see in South Europe. I think that these are probably in the order of importance.
Are those headwinds intensifying in the second half? Your upgraded 2013 guidance effectively implies flat EBITDA margins in the second half. That's obviously on par with Q2, but it's down from this 40 basis point year-over-year improvement on Q1. Can you give us a sense for whether these headwinds, particularly the margin headwinds from project deliveries, are intensifying in the second half versus what we saw in the first half?
Well, I think that what you continue to see is the mix shift. I would say that is the most significant one. That, of course, the trend has been quite clear in that over the past years.
The margin headwinds from project deliveries are easing from this point on?
Not necessarily, but I would say as an order of magnitude, that's smaller than the mix.
Thanks.
Guillaume Pezin, please announce your company name and ask your question.
Hi, good afternoon. It's Guillaume Pezin from UBS. Market share in China, have you been losing market share specifically to Japanese or Chinese players? Interested not only, let's say, Western companies, more on the Asian companies. Have they been rougher in the market during the quarter? Secondly, with regards to recent studies done by the central government in Guangzhou and some other provinces of China regarding the accidents that were occurring over the last two years, some of the Chinese companies are talking up the service revenue that is going to go to the lift makers rather than lift makers' service providers. Have you seen any risk activity of aftermarket pickup in terms of growth from previous growth rates? Thank you.
The first part of your question related to 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.
Yes.
During the first half, we have been growing close to double compared to the market growth. That is clearly faster than the market. Our policy is really that we don't comment on specific competitors. The trend seems to continue that the smallest competitors are losing some market share, some of us bigger ones are winning.
Did you answer the first question regarding market shares with regards to China only, or was it the general market coming from your side?
I thought that your question was about China.
Just China. Thank you.
Yes. Then the other part regarding the aftermarket, I don't think that we have seen any major, let's say, pickup or 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 is Austin Earl at Marshall Wace. I have two questions. I can perhaps take them one by one. The first regarding your comment, you said regarding the guidance that there you had reasons to raise the lower end. You also mentioned that you had reasons not to raise the upper end of the guidance. I just sort of 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 end of the guidance?
Okay. Very good and fair question. We just have seen that our credibility in staying within the limits of our guidance has not been the best possible. We have been seen sometimes a little bit conservative. I just wanted to underline that this 890 and 920 is our transparent and very, let's say, solid view.
Are there possible reasons that there was a comment recently you just made or your colleague did about the mix and more new equipment dampening the margin mix. Are there any other sort of headwinds that you see particularly for the second half?
Henrik already gave good comments about the primary reasons.
The second question I had was just about the comment you made on China about the density of elevator and escalators. My understanding 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. I just wondered if you could just sort of 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. That is a clear direction also in the coming years, just coming from these drivers that I mentioned. 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. All of these factors, they are drivers for increasing density. Henrik, would you like to add?
I think also you had a specific question there. I think based on our information, it's similar to what you're saying, that we're probably trying somewhere a little bit less than the U.S. at the moment.
In the U.S. I know you're often reluctant to give information on your lengthy long-term planning, but you clearly, for many years now, have been investing in China, therefore presumably have a view. I just wondered, is it that you're not sure how far it's going to go or that you'd just rather keep that information private?
Okay. You realized what is the point. We wanted to give a review about 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. 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 2005, and this is how we will continue.
I think perhaps I could add that we're not giving a specific number, but as Matti 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 Harleaux. Please announce 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. I was just wondering if you could give us an update which tells us where in the rollout we are in the different regions. Also, if you could give us a bit of a feel where we are moving on the cost-benefit curve. How far away are we from the point in time when the new elevators will actually have a positive impact on the margin?
Okay. In orders, the new 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. This is the case both in Europe as well as in Asia. 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?
Sorry. This year, the impact to margin is neutral, as we have communicated, 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. From the beginning of 2015.
Very much.
Once again, hit star followed by one if you wish to ask a question. Your next question comes from Ben Maslen. Please announce your company name and ask your question.
Yeah, thank you. Afternoon, Matti and Henrik. Two more on China, please. Firstly, just on China, why 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. 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. When we look back, we have seen all the time, as we have also discussed in these calls, the market growth developing like a sine wave. Market developing to higher growth and then avoiding any overheating, getting lower, the growth angle has been changing all the time. The growth that we are estimating for this year, 10%-15% is naturally a good level, and it is natural in this kind of pacing development. We just want to point out that the growth at the exceptionally high 20% per year market growth level that have now continued for 10 years, that kind of levels can't continue. 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. Henrik, you want to add?
Ben, just a small comment when you say why we chose this time to communicate slower growth. I don't think this is anything new. I think we have been talking about this for a long period of time, or not for, but in the recent past, that we have seen, as Matti said, a compound growth of about 20% if you look at the past years, that we are now coming to a phase 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, what do you think will happen to the pricing environment in China, which, as you say, is already pretty difficult? New equipment margins which are very high by global standards in China. There's a lot of new capacity coming into the market. Why wouldn't a flattening of the market lead start forcing new equipment margins down more towards Western levels? Thank you.
A couple of comments, maybe Henrik can add because possibly there are several factors. First of all, capacity. In 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. Secondly, our message is that because of its drivers, we don't see any dramatic changes in the coming years in the Chinese market. Therefore, in that market, we don't see any step function in any way.
Got it. Thank you. Have a nice day.
Yeah. 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.