Schindler Hldg Ag Akt

Ladies and gentlemen, welcome to the Q&A session. On Q1 results 2020, I am Moira, the caucus call operator. I would like to remind you that all participants will be listening on remote and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Utterly, Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to our first quarter 2020 results conference call. My name is Thomas Utterly. I'm the CEO of the Schindler Group, and I'm here together with Urs Scheidenker, our CFO, who will update you on the financial situation. and provide an outlook for 2020. I don't need to tell you that we have experienced some extraordinary times over the last few weeks as a company, but also as individuals. Hence, I couldn't be prouder of all the Schindler colleagues globally as they do the best they can on the given circumstances to serve our customers and continue to ensure the elevators and escalators we install and service are kept in good working order. Our services are systemically important and it is vital that we can continue to deliver on our promise to customers and passengers. During these times, solidarity is imperative. We all must work together, first to defeat and then to rebuild. Colleagues across the globe are fully engaged to do just that as they go above and beyond to help their communities fight back and stay resilient. News reached me the other day of our colleagues in Indonesia. They have helped turn the athletes village of the 2018 Asian Games into an emergency hospital that will be able to treat as many as 22,000 COVID-19 patients. Meanwhile, our call center staff in Spain has opened its phone lines to anyone in need also for topics that go beyond elevator business. Additionally, there are initiatives throughout the world to collect cash donations and to donate personal protection equipment to the public. These are just a few examples of many more from across the Schindler family. The world has changed dramatically in recent months. but high engagement and solidarity continue to make up the Schindler culture. This was also evident in the results of our recent employee engagement survey. We have launched a relief fund for employees to support individual hardship cases related to the COVID-19 pandemic. As an initial contribution, the Executive Committee and Supervisory and Strategy Committee will waive 10% of their fixed salaries for six months starting in May 2020. Other senior leaders around the world can also participate. Each contribution will be matched by the company. After these introductionary remarks, let me turn to slide number two now and focus on the first quarter results. Like many companies across the world, Also, Schindler has felt the impact of COVID-19 as this pandemic has become a truly global challenge. As countries implemented necessary quarantines and social distancing practices to contain the pandemic, the world has gone into a great lockdown. This has severely reduced overall economic and construction activities globally significantly impacting the elevator and escalator industry. Subsequently, we have seen delays and postponements, particularly in new installations and modernization, as the absence of physical meetings has prevented the signing of contracts. Moreover, there has been a temporary shutdown of construction sites in many companies. Asia-Pacific, particularly China, suffered first and the most. Since early March, other regions and countries have been following similar patterns. That said, however, our service business has shown resilience, particularly since elevator and escalator service was declared as system-critical service by most governments. This is a crisis like no other and there is substantial uncertainty about its impact. What can we do? We will continue to focus on what we can influence. Our key priorities are summarized on slide number three. The safety and well-being of our employees, their family members, of our customers and the passengers who use Schindler elevators and escalators throughout the world every day continues to have our highest priority. And our crisis management efforts continue. We have established crisis management teams on corporate, regional, and country level who are orchestrating actions to overcome the crisis with priorities set to our employees and customers, the supply chain, and, of course, the liquidity. And I can say that these teams have done an impressive job. Meanwhile, the preparation of the company for the post-COVID-19 pandemic era has started, as some countries have plans to or already started to loosen restrictions. I would like to move to slide number four, which provides an overview on the regional order intake development in the first quarter 2020. It reflects the situation I described at the beginning of my speech. Order intake in the new installations business and in modernizations declined in both Asia-Pacific, particularly driven by China and the Americas. EMEA still showed positive development. While Asia-Pacific was early in the cycle of the pandemic development and already started to show first signs of a recovery towards the end of the quarter, markets in the Americas and in EMEA only start to feel the impact from the COVID-19 pandemic from early mid-March. All countries followed similar patterns, depending on severity and degrees of government measures to contain COVID-19 spread, resulting in complete lockdowns, closure of factories, delays in project awards or postponements, and shutdown of construction sites. Schindler production sites in China were temporarily closed in February, while factories in India have been closed since end of March and so far have not been reopened. At the same time, the service business remained resilient and continued to grow across all the regions. Let me pause here and hand over to Urs Heidegger. He will talk to you how these developments have impacted our financial performance in the first quarter of 2020.

Urs, over to you. Thank you, Thomas. Good morning, ladies and gentlemen. I would like to draw your attention on slide number six with the key figures as of March 31st, 2020. In the first quarter of 2020, the order intake decreased by 8.4% to 2.7 billion Swiss francs, corresponding to a decline of 3.2% in local currencies. Our intake includes all product lines, new installation, modernization, service, and repairs. The EMEA region reports pleasing growth, thanks to strong results in the new installation, the modernization, and the service business. And this is partly compensating the COVID-19 impact on the region, or the intake in Asia-Pacific, particularly in China and in the Americas region declined, since service business growth could not compensate for slow performance in the new installation business. Revenue amounted to 2.5 billion Swiss francs, which is equivalent to a decline of 5.2%. Negative foreign exchange translation effects amounted to 130 million Swiss francs, particularly due to the strong system against the euro, the US dollar, Brazilian reais, Chinese RMB, and the Australian dollar. Supported by the resilient service business, revenue in local currency was stable. In the Asia-Pacific region, revenue was below prior year levels, but developed positively in the Americas and EMEA regions. Operating profit was significantly impacted by special effects and decreased by 39.4% to 166 million Swiss francs, previous year 274 million. Restructuring costs of 51 million, previous year 4 million, were recognized for the closure of a production plant in Spain and efficiency initiatives in selected countries. Foreign currency headwinds as well as additional costs for protective measures related to COVID-19 pandemic had further negative impacts on EBIT. The decrease in local currency was 34.3%. The EBIT margin reached 6.8%, VVC at 10.6%. Before restructuring costs and expenses for building mines, operating profit reached 221 million Swiss francs versus 282 million and EBIT margin was 9.0% versus 10.9% in previous years. The decline versus prior year is primarily due to less revenue and margin resulting from the temporary shutdown of production plants in several countries, as well as the closure of new installation construction sites. Results from financing and investing activities improved in losses on financial hedges in the first quarter of 2020 were much lower than in the previous year. Net profit totalled to 125 million Swiss francs and cash flow from operating activities reached 323 million Swiss. With this, I move to the outlook for the year 2020. COVID-19 pandemic has created a high level of uncertainty regarding economic developments and their operational and financial consequences on the Schindler Group. The company has initiated measures to counteract the negative impacts as effectively as possible. Depending on the severity and duration of government measures worldwide to contain the COVID-19 pandemic spread, revenue growth is expected to be contained within 0% and minus 10% in local currencies. Guidance for the 2020 net profit will be provided with the publication of hobby results. Considering COVID-19 pandemic impacts, foreign currency headwinds and higher restructuring costs, net profit for the year should be expected to come in below 2019 in the order of a magnitude of 20%. With this, I'm handing back to Thomas. Thank you very much.

So we could now start with the Q&A.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Lars Broson from Berkeley. Please go ahead.

Good morning, Thomas and Urs. Hope you're both well and healthy. Thomas, I wanted to ask you first off on service pricing. You talk about service business facing increasing pricing pressures. Can you help me a little bit with where you see that geographically and by segment? In terms of segments, I think it would be helpful to understand a bit what you're seeing between your core maintenance contracts your repairs business not covered by service contracts and your modernization business?

Good morning, Lars. Thank you for the question. Yes, we are all here in still healthy and good shape. So in the service business, we have mentioned that also in our annual CREPS conference, we have experienced in individual cases that certain customers were asking for rebates. And this usually is happening for those customers who are in the commercial sector. So hotels or retail business, these are in fact the two customer segments where the risk of such requests is the highest. It has been in the first quarter only a couple of individual cases. starting in Asia, and there were some individual cases already in the U.S. in March. This, of course, can further develop in the coming months, depending on the length of the lockdowns in the different countries. Key reason is, if you look on a hotel, occupancy rates in hotels are less than 10%, There is no income coming for the customers, so they also try to save costs on their side. And we have mentioned that we do have a very good experience from SARS, when we had the SARS pandemic in southern China and Hong Kong. And there we saw that if we support our customers in such a difficult time, we can create a lot of loyalty. But these are individual cases. We also have issued a policy internally how to deal with such requests. So we only have that in those customer segments and we only consider that for large accounts where we have long established very healthy relationships.

Can I ask a follow-up, Thomas, to that? How do you think about the duration of these rebates? Are we talking about a few weeks and then revert back to normal post-lockdown or something longer than that? And maybe you can talk a little bit specifically about China as an example. Are you already seeing a reversion back to, shall we say, more normal pricing after the discounts you pushed through in February?

I think it depends really on the individual situation of the country, but also of the customers. I remember when we had SARS, in fact, it was very often coming slightly after the real lockdown, because when you think about the hotel, it usually takes some time until tourism, for example, is coming back, until people are traveling also for business reasons. So this can be a couple of months, but what we usually do, we do only a rebate for a certain period of time, and then we are reassessing the situation. If there is still severe impact on the customer side, we might be willing to provide support for another quarter. But you can expect that this can be one or two quarters depending on the country's situation.

Secondly, can I ask to your 2020 revenue guidance, within the context of that overall sales decline of 0 to 10%, as a follow-up to my earlier question, how do you think about services within that? Maybe you can give a little bit of color around both the maintenance part but also the modernization part as you see it this year.

I think the main impact is coming from the project business. So the project business where you have new installations or you have modernization projects, there are delays or postponements. You know, in some countries, when you look in Europe, in some countries, construction sites are just shut down depending on the restrictions of the government. We have seen that also in China, where for Depending on the province, one to two months, you know, there was a severe impact on the activities on construction sites. So the key impact on our top line is mainly coming from this project business, new installations and modernizations. There is also an impact in our service and repairs. Service, I think we have just discussed that there might be some temporary rebates being offered to customers But also if there is less activity in buildings and less usage in buildings, it could be that there are less repairs happening because customers maybe at the moment don't want that you are entering a building and as the elevators are anyway not used so much, you know, and you have maybe in a building three elevators or four elevators and you have with one elevator a breakdown, they say you don't have to repair it now Let's do it maybe on a later stage when we have a higher occupancy again in an office building, for example.

I think your repairs business was flattish in 2008, 2009. Do you think it would track down sort of mid-single this year in the base case?

I think it's very early, you know, to make a forecast or a prognosis. Honestly, I... I do not dare really to say in detail what will happen all over the world. I think your assessment is quite right, what happened to the financial crisis, but I think this time we have a little bit another type of a crisis where the magnitude is not yet fully predictable. But yes, of course, it also will have some impact on our repairs.

Can I ask a third and final question to Urs, please? I was quite impressed with the cash flow from operations, Urs, presumably despite a meaningful headwind from lower down payments in China in the new equipment business. Can you help us a little bit with the moving parts in Q1 and also your thoughts on 2020 as a whole? Thank you.

Thank you very much, Lars. So you have seen our cash flow was 323 million. Please be noted that like for like to 2019, you would have to add back the pension settlement, which we did in one of our European countries of 157 million. So like for like, we had a drop of about 100 million. mainly driven by the operational profit decline. We are, as you know, working on our networking capital initiative already since last year. This was timely to further optimize commercial terms and have fixed controls from quote to cash. For the first quarter, I must say the situation is different country by country in terms of cash collections, but it was still doing quite well around the world. This may decline now a bit further depending on the lockdowns in the countries.

That's helpful. Thank you both.

The next question is from Andrew Cookling from Credit Suisse. Please go ahead.

Good morning. Thanks so much for taking my questions and I also hope you're very well. I wanted to come back to aftermarket and if we take the rebates issue aside and if we think about standard maintenance, do you expect to be able to continue kind of bill and recognize revenue there in situations where there are lockdowns and maybe where you can't go out and visit maybe in that particular week. And kind of related to that, how has the experience been so far in countries like Europe and Spain on that regard?

Good morning, Andre. Very good question. At the end, you know, in most of the countries we were able, not only ourselves, but the industry was able to declare that maintaining elevators and escalators is a system critical service so it has been excluded in most of the countries from restrictions there are some exceptions at the moment we do have the exception in india we also have exceptions in in peru there also has been exceptions in new zealand and in and and temporarily also in some other countries but most of the time we have been able to perform service. And in those countries where you really have a lockdown, we could do in minimum entrapments. When we have entrapped people, we were able to go out and to put the elevator back into operation. And it is also our key strategic goal. We want to keep the elevators running because otherwise, also from a social point of view, you know, cities are getting into real trouble. If you have buildings with elderly people and you cannot anymore, you know, go for your grocery or pick up at the ground floor, it's very important that those elevators are running. And then you have elevators which are really system critical, like in hospitals, for example. So we have tried to push as much as possible resources into our service business to maintain the elevators also to do preventive repairs in order to keep the reliability of the elevators as high as possible. We are measuring our so-called fulfillment rate. This means planned service and actually performed service as high as possible, and we are measuring that every single day worldwide.

very helpful thank you and just on that in particular on the us side has that been the case across the whole of us all states that elevator service has been classified as systems critical in the us what we have established was we have like globally we have established established the classification of

of severity of lockdown. So we started with white, you have no impact until red, where you have complete travel bans, no work is possible. And in the US it is the case that it depends from state to state. So we do have at the moment some states where there is a complete lockdown, but in most of the cases, it impacts our new installation business. and not our service business. So for example, in New York at the moment, you cannot work on the construction side or very, very limited, but we can still do basic service. And most, so most of the states in the US, this still works. But I have to admit also the new equipment business now is more and more impacted there. The good thing is that our factory, we do have a supply chain entity in the US, in pennsylvania and we were able to achieve an agreement with the government that this is also system critical so we have full operation of our factory which delivers new equipment but also modernization packages and also repair kits for our service business got it thank you and just to close on that so if i again take rebates aside and look at standard regular maintenance

It sounds like largely it should be up with the number of units, even in 2020.

This is correct. This is correct. This should be possible because we still have conversions of new equipment into our service portfolio. And you might have, let's say, a stop. for one or two months, depending on whether you can close your jobs in the new installation business, but then you can hand it over to your service portfolio. However, what you have to consider is, and I don't know what will happen now in the next couple months, of course, we have to observe very, very deeply how our customers are acting and behaving. And we probably, can also expect that the one or the other customer might be in financial troubles and maybe has to shut down or to close the one or the other building. And this would have an impact on our service business in terms of units and value.

Thank you. And I just also wanted to ask about China and Asia-Pac performance versus your original early expectations of 200 to 400 million top line impact. How's that developed?

Well, I mean, when you look on China, I mean, even if you look on the figures of the Bureau of Statistics, it's quite clear that Q1 has been tremendously impacted in terms of floor space started, floor space sold, you know, it went down more than 25%. quarter one 2020 to quarter one 2019 also real estate investments went down not so much because interesting enough prices went a little bit up but what is good to see is that the biggest negative impact was in February and in March it already has started to soften a little bit And in April, I think it's already on a quite reasonable level. And so the key impact, of course, in terms of order intake and in terms of operating revenue was mainly coming from China, but also some other countries in Asia Pacific have been impacted so far, like Indonesia, Malaysia, Vietnam. also partially Hong Kong. So, but I think we come closer to an end of the negative impact in these areas. And then it's like a traveling, the pandemic is traveling and has now traveled to Europe and is traveling to the US and to America and we will have some similar impact also now in the other areas.

And my last question is, the reason I ask this is that when I look at your EBIT development in Q1 compared to prior year and take FX out and some strategic investment that you guided to already, then I think we're down by 40 million. And I think the initial kind of expectations for how much of the impact China will have in Q1 was kind of starting with 50 million. So apart from service kind of growing in the meanwhile globally, I just wondered if it's kind of China had not as much as revenue impact as feared at the time, or did you handle it better with less operational gearing?

It's probably both. I hope we have handled it very well. But we also have seen that the market was coming back. More or less, according to our expectation, maybe even slightly better towards the end of March, I can say.

Got it. Thank you. Thank you for your time. Thank you.

The next question is from James Moore from Bradburn. Please go ahead.

Yes, good morning, everyone. You can hear me, Thomas. Glad you're healthy. It's James from Bradburn. Thanks for taking the questions. Given the changing dynamics in all the different regions, could you help us? I'm going to ask this directly with how you see organic sales growth and your adjusted EBIT margin developing in the second quarter compared with the flat demand and the minus 190 bits you saw in the first quarter.

Well, I can repeat. Good morning, James. I can repeat, of course, the first quarter had the major impact in Asia Pacific. and predominantly it was happening in china and we have just stated that somehow it is coming back there but now i mean everybody of us is experiencing that that we do have now in april may we will have impact here in europe i think in the us it has not yet reached the peak it's still a little bit unpredictable how it will further develop so We would expect that also our second quarter now, maybe not so much by China, but by the Western world, let's call it, will be impacted. But at the end, to do a quarterly guidance is very difficult, I have to admit, at the moment. I mean, that was the reason why we did a yearly guidance, which we keep. quite meaningful, but the impact is now shifting more in Q2 from Asia-Pacific to Europe and North America especially.

Thanks. I thought that might be the answer. Maybe I could just try a different way. Are you able to help us with the exit rate, maybe the last week or the last two weeks for organic sales growth in Europe and the US? I was particularly surprised with Europe orders and sales developing positively. But I wondered within the quarter whether Europe changed a lot and whether you could give us some color as to whether they're down low single digits in the last couple of weeks of March or down 20%, just trying to get a flavor for the exit rate.

Well, it depends extremely on the country, I have to say. And I fully understand that, of course, you have a high appetite to have all types of granularity. I fully understand this. Maybe to say that Central Europe, still was quite strong, so in Germany, Switzerland, in that area, it was quite good, I have to say. You did not see so much of the impact, whereas other countries had a huge impact. So you can imagine that Italy was struggling a lot. We also have our marine business, for example, managed out of Italy, where you have all the cruise ships, and you can imagine how difficult it is now to get an order intake in cruise ships at the moment. Also in Spain and France it was more difficult. But then in other countries there was not so much of an impact in March because the real coronavirus impact in Europe came only in March. So a lot of jobs were very close to finish or to sign and we were able to do that. This will have some impact in quarter two, yes. I think this might be possible, but what we also were focusing was a lot on big projects because big projects have a long-term horizon and we have been quite successful in securing the one or the other larger project all over the world and this is one of our key focus areas also in the next quarters to come.

Very helpful.

And in the US, we still see there are some large projects in the market. There will be some impact on the volume business. Yes, this we can expect. But as I said before, it's very difficult to predict at the moment how the US economy will really develop.

Thank you, Thomas. And just finally, if I could. If I strip out the currency impact, I think your organic adjusted EBIT fell 49 million and your sales fell 29 million. So that's a drop through of 170%. And I understand that we've had supply chain issues. And I understand that variable costs in the very short term are fixed. I'm just trying to think about how the relationship between demand and profit might change. behave in the coming quarter and how quickly you think some of these supply chain and cost-based issues can flex more in line with the demand picture.

So maybe it's true we had some supply chain issues in China because the new installation business and everything has been shut down for a couple of weeks. So there was a demand side and a supply side. which was erased, you could almost say. And today we have a similar picture in India, because also in India everything has been shut down, so you have a similar pattern. The whole demand side is down, and also the supply side is down. In Europe and in the US it's a little bit different. It's mainly driven by demand, it's not driven by supply. We have achieved in Brazil, in the US, but also in Europe, we have achieved that we were able all the time to keep our factories in operation. But you do have a demand issue if construction sites are closed down. Then even if you can produce, you cannot deliver because also logistics was impacted. I think that the demand side within Q2 will come back. But it's very difficult to say when exactly this will be the case. But we are hoping that if there is not a second wave coming, we are hoping that within the second half of Q2, demand will pick up again for deliveries in the second quarter, in the second half of the second quarter.

And just to follow up on that, I mean, if we look at the organic profit decline, 50 million, Is the bigger impact supply chain or is the bigger impact demand? It's demand. It's demand. It's demand. And given that maintenance is high margin and up and equipment is lower margin and down, I'm just trying to understand. And the overall revenue is relatively flat on an organic basis. I'm just trying to understand that a bit better.

Well, you know, the... Now I understand, you know, you do have, of course, less, you have more decrease of your new installation business operating revenue with the margin, but you are still also sitting on your fixed cost. So it's not your EBIT margin, it's in fact your gross margin. And the gross margin, we mentioned that on our annual press conference, you know, the gross margin is something like maybe But on top of that, we also had one-time investments in the second quarter to buy all these personal protection equipment. This was also impacting our results. And of course, we had this less operating revenue with the respective margin. And so it was mainly driven by our project business. with the respective margin plus one time costs we have in the first quarter and we also will have some of it in the second quarter.

And maybe to add, maybe to add James, your resource, since we are losing operating revenue and related contributions, particularly in China and towards Asia in quarter one, those volume is coming with goods new installation margins and therefore you should not assume that we have a better profitability because we lose NI volume.

Yes, I understand. Okay, thank you very much Urs and Thomas. Thank you.

In the interest of time, we remind participants to limit themselves to three questions. The next question is from Lucy Carrier from Morgan Stanley. Please go ahead.

Hi, good morning, gentlemen. Thanks for taking my question. I have actually a couple of follow-ups. The first one is on the maintenance business. We've spoken a lot between the contracted maintenance and the repairs call-out. Can you maybe help us to understand how much within your maintenance revenue, how much is actually really contracted, And how much is actually repairs and call-out?

Good morning, Lucy. We usually do not make that, let's say, deep dive separation between normal contractual maintenance business and related repairs. We all consider everything together in one big pot.

But considering you are saying you could see some disruption around the repair and pullout, I guess, just to have a bit of a sense how much of the revenue base could be potentially under pressure.

Well, we believe still that our, we have said that before, we believe that our service business or service and repairs will also grow in 2020 in local currencies, of course. we do not see that we will have negative growth in that area.

Okay. My second question maybe was to some extent some sort of follow-up on what James was asking earlier on the profitability, because I guess the biggest impact you had in the first quarter has been on APAC and China specifically, where overall the share of your maintenance business is lower than the average of your group business. Historically, and maybe this is incorrect, but historically, there was a view that maintenance and service margins were higher than OE. Can you maybe explain to us how we should think about the margin dynamic into the second and the third quarter if we are seeing maybe a bit more pressure in EMA and North America where your share of service tend to be a bit higher than your OE business.

I think your assessment of China is spot on. It is clear that we had mainly the impact on our new installation business. This is correct. So there is a higher share of new installation business in Asia, and of course, especially in China than in the other regions, if you look on the total operating revenue. and you have a higher share of service and repairs in the Western world, so in Europe and in the Americas. This is correct. But what you should not forget is that there is a third element in our business mix, and this is modernization. So we do have a bigger share of modernization in Europe and in the Americas. And of course, this piece is a little bit more under pressure because it is more connected to, shall I really do it now? Do I have to do it at the moment? Or maybe I can postpone it by a couple of weeks or a couple of months. So we might have a similar impact like in Asia on the new equipment business. We have a little bit more impact on the modernization business. And there is probably a little bit less impact on new installation business because the share is less and maybe a little bit more impact on the modernization business. That's what we can expect in Q2. We believe, you know, still what we have said as our guidance, we stay to that overall for the total year, zero to minus 10%. This is something we believe is the right guidance at the moment.

Thank you. And when we think about, just as a follow-up, When we think about the relative profitability by region, would you say that the service margin in China or the modernization margin in China are at the same level that EMA or Americas or they are at a lower profitability level?

The modernization business is still a small business in China, but it's fast growing and I think it has great opportunities for the future. But at the moment, this has not yet such a big impact on the overall EBIT in China. In terms of service, we do have a decent margin in service in China, very good margins overall, I would say, in general in Asia Pacific, and not so much away from our average service margin we have.

Thank you. Just maybe my last question around trying to have maybe a bit more quantification around the numbers. You said APAC and China were down significantly in the first quarter, India and America. Are you able to provide at least some ranges around this decline or this growth level? we have a sense of, you know, what is the kind of the comp effect sequentially, but also how much of a disruption, you know, can impact the top line. Because I guess probably if I look at consensus and based on the comments you had made beginning of March, there were maybe an expectation that the impact in China and Asia Pacific would be a bit bigger or would impact more your your top line. So just to try to have a sense, you know, when you think about one month lost in a quarter, how, how it impacts you basically.

I'm not fully sure I have understood, but you can say in terms of top line, the major impact in Q1 is coming from Asia Pacific. And so we do not expect that this will continue over the next quarter. There will be still an impact in Q2. Yes. But the major impact in Q1 was coming from Asia-Pacific. So this you can almost tick off and say, okay, that was the APAC impact. And now in Q2, we will have more an impact in Europe and in the Americas, and we have given a guidance up to how much this could be overall. So, and then I think in Q3, Q4, we believe that we have to come back to a more normal level again. So you can expect that in Q2, the growth impact in operating revenue will mainly be in Europe. The negative growth impact will mainly be in Europe and in the Americas. But there should not be so much anymore in Asia-Pacific.

Sorry, maybe to ask a slightly different way, are you able to give us any range to quantify how much APAC and China were down in the first quarter, numerically, and how much India and America as well? As a range.

Well, I think this detail we would like to provide.

Excuse me?

These details we would not like to provide. Otherwise, maybe you also contact afterwards Marco Knutson from Investors Relations. Thank you.

Thank you. The next question is from Fabian Hecke from UBS. Please go ahead.

Yes, good morning, everyone, and thank you for taking my questions. I hope you can hear me well. first on the Chinese market, some local Chinese competitors report a sales decline of 30% in Q1. Do you see them suffering over proportionally and do you see the Chinese market now with the COVID crisis being further consolidated?

I think that there is a different, of course, there is a

There are different impacts depending on the players in the market. We do have a very conservative business model at Schindler. So we usually only record order intake when we have received a down payment. Maybe some other companies are behaving differently, especially Chinese local competitors. sometimes already booked when they have an award, and then if the award does not materialize, then they have to make a negative booking. Some others maybe do not always book immediately, or the intake, if the books are full for the last year, they may take something to the new year. So it's difficult really to assess what was in the books of other companies. For us, I can say we are, you know, focusing a lot on the past. Historically, we are very, very strong in public transport. We have a very good reputation in large projects. And so I think we have, of course, we also had an impact because we did not get any signatures. It was very difficult to get signatures from government officials when you have a public transport job. It was just not possible to do. even if it has been awarded. I think overall we were able to grow faster than the market. I think this we can say. But I have to admit Q1 was probably, it's very difficult to really assess. I think I'm not sure that a three-month look really makes sense at the moment. Maybe with the half-year result, we all will have, let's say, a better assessment about performance towards the market. But could that be a consolidation, second part? Yes, if you think that a lot of the local companies anyway had already last year a decline of their share in the market and the overall profitability of the local competitors were plus minus zero, I can imagine that there have been now some there has been some financial pressure on them. I'm pretty sure. Which then leads me maybe to ourselves. Maybe that's one of the questions nobody wants to ask this time. But we do have a very strong balance sheet. We do have a very strong liquidity. And what has been blamed in the past, probably now I give some claps on the shoulder. We are very strong and we are also able to fight in a more challenging market. And this could bring us some opportunities in our position for the future because we don't have a liquidity issue as we always are very, very careful and very conservative in maintaining a certain liquidity level.

Thank you. Then my second question would also be on China. Some construction companies are reporting or seeing quite a swift recovery in China, pretty optimistic tone. You also said the birth is over, you see recovery, but your tone is a bit more cautious. Can you share a bit with us? Have you been positively surprised by its recovery? Or how do we describe this recovery?

Well, the question is, first of all, what is the recovery? And there is a lot of discussion. Are we coming back to the normal level that we have been before the COVID-19 crisis? That's the big question. And we do have some confidence that we come back to a similar level where we have been before. We said that our assessment was that the overall market without COVID would not grow. It would be more or less latticed. And we believe there is a good chance that the market will come back to the levels we have been before the corona crisis. Now, the big question will be, do we recover what we have lost? in one or two months, not only from ourselves, but also from a market perspective. And we do believe that there is like a shift of everything what was in the pipeline. Everything is shifted by one or two months. So it will not gain back what we lost, but it will go back to a level we have been.

Would you say this is just viable for China or also for Europe and America going back to old levels?

I have to admit it's too early to make such an assessment. It's really a little bit into the crystal ball. A lot will depend, you know, how the overall economic situation will be. And if you look on, you know, all the economic experts, half of them say we are in the deepest crisis ever, and others say we are in a U shape. So very terrible this year, but it all comes back next year I think we have further to observe how these restrictions will be lifted in the next coming weeks in the different countries, and I hope that we can make a better forecast with our half-year results.

I fully understand. Thank you. Just a last one on your financial result, which was better in Q1. For your 20% lower net profit guidance, what should we model as a financial result, kind of stable or better than last year? Can you give here maybe an indication? Well, thank you for that question, Fabian. So, I mean, you have seen Q1 was benefiting from the very strong, this rank, and we were booking FX hedge games. looking forward i mean we had a finance result and the investing result of 57 million negative full year 19 i am expected will be better now this year with the continued strong this rank um but you should not expect that the very high um fs gains will will continue like this So you rather should take into account some quarterly negative results, maybe rather similar to last year going forward. Thank you. Thank you very much.

The next question is from Martin Flueckiger from Qatar Shabir. Please go ahead.

Yeah, good morning, gentlemen. Thanks very much for taking my questions. I've got three and I'll go one at a time. Just coming back to your explanations about the differences in development between services installation and modernization, I was just wondering, you know, particularly with the focus on new installation and modernization, what are the similarities and what are the differences in how the government measures impact the two businesses in the field? That would be my first question.

Okay, so new installation and modernization do have, let's say, an impact from the government if the government says lockdown of construction sites. This can be for both businesses. But it's mainly in the new installation business, even more severe than in the modernization, because in the modernization, you are in a building. So sometimes there are exceptions that within the building you can still work, but you cannot work on the construction side. But the modernization business is more driven by whether it grows or not, it's more driven by demand, whereas new installation is more driven by the government restrictions. Because if our customers are in an uncertain time, because they maybe have to lay off people, maybe they do not have people or no income, you can postpone a modernization. Once you have started really with a new installation construction site, usually you want to finish it because you also want to sell or to rent out and you want to get income. The modernization usually does not generate additional income. It only generates on first side additional costs. The modernization business is more driven by customer sentiments, whereas the new installation business, the constructions are more driven by government restrictions. That's a key difference. In the service business, I think, as we mentioned before, we have performed service almost everywhere all the time. because we also believe this is an essential contribution from us to the functioning of the cities. And only a few countries have really generated or implied a lockdown. However, if you are in a shopping mall at the moment or if you have a hotel, you do not have at the moment so much need of an elevator, I have to say. Does that answer your question?

Yeah, perfect. Thank you so much. My second question would be on national economic stimulus programs that may already be starting to surface in a number of countries. I was just wondering what kind of new infrastructure projects are you seeing based on these new economic stimulus programs?

there is not a change of what type of infrastructure projects you have. You know, at the end, it's all about public transport. And, of course, public transport includes new railway stations or expansion of railway stations, metro lines, and also airports. At the moment, of course, you can ask yourself, well, do you really want to expand an airport if all the airports we have at the moment are somehow not operational? But I think the different governments are thinking long term. It's a quick cash. They can invest because they also have possibilities to speed up all the approvals. And you have seen that we have been pretty successful also with one big job. We were able to secure the Melbourne Metro, a very big job, the biggest, in fact, public transport job ever in Australia. And we believe this will continue and we see there is a pipeline of such governmental finance public transport jobs all over the world, by the way, in Europe, in Asia, but also in the US.

Okay, great. But I was just wondering, do you see a step up in programs as a result of the COVID-19 pandemic?

Not yet, not yet.

Okay, great. Then my final question would be on the composition of your organic growth rate, which was pretty much flat. So I was just wondering, for the group overall, without going into specific details by business, but for the group overall, was your pricing still positive, flat, or negative in Q1? And what do you expect for the full year?

You mean in order intake? or in operating revenue?

Sorry, in operating revenue, I'm sorry.

Okay, so in operating revenue, of course, we had a positive pricing impact in our service and repair business. With the tax tax, we also had some organic growth. So, in fact, our service and repair business was developing positive, clearly, and our new equipment business was developing negative. So we had a negative growth in new equipment business mainly. And now in terms of pricing of new equipment, if you talk about operating revenues, these are of course jobs which have been sold one or two or sometimes even three years ago. So actual pricing has not really an impact on our operating revenue. This is more an impact on order intake. And there we see some pricing pressure, especially in China we have seen After everybody came back to the market, somehow everybody wants to catch up with the gap they have generated in one to two months. So at the moment, pricing pressure is quite high in the new equipment business in China.

Okay, that's great. But just to follow up, to clarify, I'm sorry. Overall, as a ballpark number, operating revenue growth, organic growth and new order intake growth across the group, is it positive or negative or flat?

You mean now towards Q2?

Just to clear one, what you saw in terms of overall pricing, you know, I'm trying to do an eBay bridge here.

Pricing was slightly positive. So impact was definitely positive in service and repairs and it was probably more flattish in the new equipment business.

Okay, that's operating revenue, right?

Yeah. And similar, when you look on order intake, I would say it is a similar picture. Although in China it was slightly negative, we can say that in some other areas we were able to compensate.

Perfect. Thank you so much.

Thank you.

The next question is from Daniela Costa from Goldman Sachs. Please go ahead. Ms. Costa, your line is open. We cannot hear you.

Can you hear me now?

Yes.

Hi, good morning. Thank you so much for taking the question. Sorry about the mute. I have three questions as well. Sorry if I'm laboring on some of the earlier points, but at some points the line was not very clear. But I just wanted to go back to your sales growth guidance of the 0 to minus 10s. If I heard correctly, so you're slapped in one queue. In two queue, you see some impact. But from the second half of two queue, I think I've heard you saying that you would expect demand to start coming back and more normal levels in three queue, four queue. So is it fair to say that zero to minus 10 is just overly cautious and you're more towards the lower parts of that? Or how shall we tie up all these comments with a zero to minus 10? question number one. I'll ask question number two, which is somewhat related, but I think most of those comments were about deliveries, but what about tendering? I imagine tendering at least, or sort of orders for OE modernization are coming down significantly, so can we still be back at more normal levels in 3Q, 4Q despite that, or... What shall we look into that for 2021? And then the third one is unrelated to revenue. So I'll pause here and I'll ask the third one after you comment on those.

Okay, so I think our guidance from zero to minus 10 for the total year is based on different type of scenarios. So of course, everybody at the moment is working on different scenarios where we say, okay, what happens if, you know, government restrictions last for this time of period, for this type of business, country by country. So we have, and then we have applied certain probabilities, but this is our assessment. I mean, you can expect that we also do our assessment, the best guess, I would say. And so we came to looking on the different scenarios, this gives you quite a wide range. And I do not believe that at the moment we don't want to change this. I admit a little bit wide range, but it's also extremely unpredictable. We have to expect that also in Q2, as we have said, the pandemic has now traveled to Europe and to the Americas. We will now have an impact on our order intake and operating revenue in Europe and Europe. especially also North America and now also happening in Brazil. But then you have less in Asia-Pacific. So this can have some substantial impact also in Q2 in our operating revenue. And the same, of course, as well in our order intake. Now coming back to the second part, can we expect that in the second half also a modernization business comes back to normal? This will depend a lot on the economical situation in the countries and the economical situation of our customers. If we come back quite quick, then I think we also can expect that modernization or the retail comes back to normal levels. If this is not the case, then we would have to expect pressure on our modernization sales, and they would then probably not grow, but maybe even have a slight decline.

Okay, thank you. And my final question is regarding, I think when we met you in March, when you were over at least in London, You've commented on, obviously, some of the margin headwinds we have in 1Q, 2Q, that drives margins down year on year, but towards the back end of the year, maybe getting back to some stabilization and getting closer to what the levels were last year, where we were starting to see some stabilization on the drop year on year, on the back end of last year. How your view changed versus then? Are we still sort of expecting that towards the end of Q4 we will have on the midpoint of your guidance maybe to just use that as an anchor point? Would we be back at sort of similar levels to what we have last year, or that is now

I think this is what we have said early this year, that we have all the operational measures we have in place, and we are also executing them. So there is no reason why we should not be able to compensate some headwinds we have with wage inflation, with the material price development, which anyway we have to see how they develop. I mean, we have unique times when you look on oil prices. So it's quite unpredictable at the moment, but there is nothing we speak against that we will deliver according to our operational promise. This is correct. There are two factors which are uncertain. One is the demand side, whether we come back to the levels, you know, we just have discussed now in the previous discussions, whether the demand side and operating revenue really is coming back to a reasonable level. And the second topic is ethics. The ethics, of course, has a huge impact on our Swiss franc figures and also had in Q1 an impact on margin. So we lost about 20 basic points due to the ethics. But if you take that ethics element out and let's assume we are somehow back to a normal revenue level, then you can expect that we are delivering an operational performance similar to where we have been before the crisis. Correct.

Thank you very much.

The next question is from Angelica Gruber from Tamedia. Please go ahead.

Thanks very much. I know Schindler is a global company, but in terms of sourcing of components on your supply chain, do you see a trend of de-globalization because of the corona crisis? I think if I'm correct, you mentioned at your annual press conference that the whole elevator industry was dependent on a special component coming from China, which you could not get for a while. So I was wondering whether you changed that and whether it's even possible to do so. Thanks.

Thank you for that question. Good morning. Yes, sourcing, of course, is a big, big topic. And I have to admit, you know, if I would have known what happens, then we probably would have managed even in a better way the sourcing. But we have, in fact, done a lot of topics in the supply chain. We already started before we had the crisis, but, of course, we have to speed up some of those activities now also during the crisis. Now if you look on sourcing or on the supply chain, there are two different elements. One is where are your suppliers based and the suppliers of your subcomponents and where are your factories. Now we have the advantage that in all the big markets, we have our factories who are supplying dominantly the local markets. So we have a manufacturing or a supply chain In China, we do have one in India, we have one in Europe, one in North America, one in Brazil. This gives us already a certain leverage. So if in a country like India, the demand is down, it is not such a big impact if also the supply chain is down. So that's good news. And then you have the supplier side, where we also work a lot on different topics. We have worked on dual sourcing, so we try for all the components to have a second sourcer. This is not everywhere exactly the case. We have a limited number of suppliers which are single source. And there, of course, if they fall out, then you really have an issue. So what have we done? We have immediately, first of all, we have increased our own stock, but we also asked them to increase their stock. So they were producing in advance. And in Europe, we have the advantage from the learnings out of China and we have acted very fast. So we were building up safety stock. And although the one or the other supplier in Northern Italy or in France or in other areas had for a short period of time, maybe a couple of days or a week or even two weeks could not supply, thanks to the safety stock, we always were able to operate. So this was a was really a big, big effort by the team, and I think they have done a fantastic job. The third element is the sub-suppliers. And there, of course, we were impacted by the effect that the sub-component 70% is coming out of China and 100 kilometers around. And we had the fear, if there would have been a longer lockdown in China, that this also would impact our supply chain in Europe or in America. This has not been the case. We were able to mitigate that and at all times we were able to supply. Now looking forward, of course, we are rethinking our supplier structure. We don't rethink our supply chain structure with the factories, but we are now working on plants where we do have single source to have now also a second source. And last but not least, The beauty of our ongoing modularity program is, of course, that we do have similar or the same component produced in different supply chain entities. This will help us in the future. If in one side we would have a lockdown, we could produce on another job site. And on top of that, with our project of the digital twin, if we introduce a new component, as we have digitally stored all this data, we could ramp up a new manufacturing of such a component somewhere else in the world very, very quickly in the future. So these are all long-term initiatives, and we have mentioned that many times. Also, in difficult times, we don't deviate from our strategic direction. We do those investments into strategic initiatives because we believe And now even more that it keeps us in front of industry standards and industry performance.

Thank you very much.

So thank you very much. I believe there are a lot of questions still to come. Ladies and gentlemen, I would like to close now and thank you very much for following us today. I'm looking forward to our next event. I'm sure it will be a lot of interest also then. Then we have a little bit more insight how the first half year was going on and maybe also a better outlook or a more precise outlook for the total year. So we do have our half year results conference call on July 24. I know there are still some follow up questions and please contact Marco Knuchel, our head of investor relations He is at your service anytime. Thank you very much, ladies and gentlemen. Goodbye. Stay safe and keep distance. Thanks a lot.

All the best.

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