Schindler Hldg Ag Akt

Ladies and gentlemen, welcome to the Full Year Results 2021 conference call and live webcast. I am Alice, the Chorus Call Operator. I would like to remind you that all participants will be listening on remote and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 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 Marco Knuchel, Head of Investor Relations at Schindler. Please go ahead, sir.

good morning ladies and gentlemen and welcome to our full year 2021 results conference call my name is marco knuchel i'm heading investor relations agenda it's the second time that we do this in a virtual setup and i think i can say we miss you we miss the face-to-face discussions with you the face-to-face interactions So, eventually, we are quite a small group in here. I'm here together with Silvio Napoli, our chairman and CEO, and with Urs Scheidecker, our CFO. Silvio will do the introduction at the beginning, and Urs will then lead us through the financials. After the presentation, we are happy to take your questions. I would like to ask you to limit yourself to two questions only. Thank you very much in advance. With that, I would like to hand over to Silvio.

Thank you, Marco, and good morning, everyone. Thank you for being with us today. Thank you for being with Schindler. Building on Marco's comment, I, like him, would like to say that we miss you meeting in person. And since it is for me... kind of a return to this opportunity, I'd like to say I look forward to meeting again those of you that had a pleasure to meet up until 2016, and I look forward to working together with those of you who haven't had the pleasure to meet so far. So today, the objective, of course, is to speak about our annual results 21. And of course, this is also the time of the year where traditionally companies also speak about the plans going forward. But this year, of course, there is another question, and that is the question about a new structure. One that we announced last January 22nd and one that understandably gave room to many questions. Some of these still unanswered because in fact we were during the blackout period. So today's agenda will be somehow different than usual annual presentations. Today I'd like to really focus, at least from my section, on explaining the reasons that led us to the decision of bringing in the new structure. And so I'll address that. And to do this, I'll first talk about our challenges, the unprecedented mix of challenges we're faced with, and then explain how that led to the new leadership structure decision that was communicated. Thereafter, Urs Scheidegger, our CFO, will take us through our financial results, and then, of course, we'll provide you with an outlook, and then move on to the Q&A session. But so let's first start with the first question. The first question is why? But before we do that, let's just step back for a moment to last year in April, where we announced the launch of our Top Speed 23 project. And to be very clear, the objectives that we announced then are still very much valid. And you can see there were six modules. We can go through that afterwards if you like. But they range from new installation growth, sustainability, digitization, portfolio, into the service management, product innovation, all things which remain absolutely vital to us. And these are the core initiatives. And then among the goals, you see there was the customer experience, there was the sustainability, and there was the competitive margin. And now there is a famous quote attributed to Churchill, even though after checking, it's actually not clear that he said that. But the quote goes, well, it's nice to talk about strategy, provided one occasionally looks at the result. And now if you look at the results, There is here a red circle around competitive even margin. And there we have to say we have not yet been able to progress. As a matter of fact, you can see from the chart, but I'm sure as keen followers of our industry, you observe yourself that over the last three years, the competitive margin to our competitors has actually worsened. Now, I'm a big believer, and some of you probably heard me saying that, that strong competitors make better companies. Absolutely. But to do that, to become better, one has to first acknowledge the issue, and second, understand why are they stronger. And third, of course, take the measures necessary to close this gap. Well, we've already taken one measure, that's the structure. I'll come to that in a second. But today's focus will be on understanding exactly this. What are the issues that basically cause us to be, unfortunately, falling behind? So that is, of course, a state of mind. And this is something that, together with a new team, we've already embarked upon over the last four weeks since the new structure has been put in place. So what is really the situation? And to do that, I like to describe a very unique environment where there are five key challenges that require an immediate, thorough and impactful response. And the challenges are the following. Number one. dealing with foreign exchange burden. Number two, regain competitive new installation margins. Number three, resolving the supply chain disruptions that have been affecting our industry and many others. Number four, streamlining a product portfolio complexity. And finally, this is something that occurred over the last few months, adjusting for China and high market contraction. So, again, if you look at those, some of you may say, hang on a second, but this is well known. It's not that special. Admittedly, yes. As a matter of fact, in my career, I've dealt with each one of these, in some cases, even twice. But what makes it unique? is the mix of all five coming simultaneously. What makes it unique is the speed of change and in some cases the magnitude of the impact that each one of the challenges carry by its own, so not to mention the overall impact. So let's start with the first challenge. Foreign exchange burden. There again, you can say, well, it's a Swiss company. What's the big deal? Well, there is one. Let me just first start on the left-hand side of the chart to highlight the magnitude. Since 2008, Schindler lost 3.8 billion top line. and 507 million EBIT due to foreign exchange impact. Probably some of you have it in your models. Now, that's a staggering number. This is the size of a company. By the way, if you look at the top line and EBIT, quite a profitable one. And why did it happen? And you can see on the chart, we highlighted the progression or rather the digression of the exchange rate with the Swiss franc of some of the key currencies affecting a business. And of course, they range from the minus 8% of the RMB to minus 74% for the Brazilian reais, a country which is a key market for our industry. Now, very good, but you can say many Swiss companies are faced with that. But please bear with me for a second. Look at the right-hand side. The fact is that less than 90% of our revenues, sorry, less than 10% of our revenues come from Switzerland. And of course, we do have, because of our quarters, an operating expenditure based in Swiss franc as well. And it is the... gap between these two that creates exposure. And then once more, our exposure is what? Our exposure is one of translation, not transaction. Transaction, we've been quite successful in mitigating that by systematic hedging of all our transaction. But so this translation is there, and that's one that we are not complaining about. We're just saying it is a strategic issue to be tackled head on. Moving on to the second challenge, and perhaps the most complex one of them all. and that is regaining competitive and high margins. I showed before the difference in margins between us and our competitors, and I said in order to become stronger, and come back we need to understand why and one thing we believe is a key reason for our competitive gap is NI margins now NI margin in itself is a complex aspect as you know we have a complex value chain ranging from design factory and then now comes installation So let me just break it into three fronts to explain the challenge. Front number one is what you have here on the slide is the raw material and cost of component increase. In this case, we can speak about inflation. So on the left-hand side here, you see what we call the raw material index. This is a blended index taking into account the different impact of all the different raw materials in our value chain for a new installation. And you can see here, this has gone up 47%. since beginning of 2020. So that already gives an indication. And look at the speed at which it went. And economists predicted it should have started to slow down in Q1. It's not happening. So one better be humble and take a look head on. And then just to give an example, because raw material index can be a bit abstract. So we have shown here The price of one little microchip, one that we use for our controllers, which within the year 2021 has gone up from 1.4 Swiss francs to 36. This is a 26 times increase. Again, it's an issue that we have to confront. Others are confronted with that, and we have to find a way to bring it into practice. the solution for NI margins. Second front over NI margins is logistics. Now, logistics, as you probably also know, has had an explosion of cost as well. As a matter of fact, here, taking the example of X Shanghai Continentalized Index, you see they went, they increased five times since 2020. So major challenge, which happens at the same time as everything else. Now, we often say that because of a regional manufacturing strategy, we are less exposed to this type of issues. Yes, we are, because indeed we produce in China, in India, in North America, South America, and of course Europe and India. But in fact, you can see that on the right-hand side are made-by-strategy, one that was developed, one could argue, under the former paradigm of manufacturing and logistics is based on an 80%, 20% shift. In other words, 80% of our supplies are from external suppliers, and they don't have all the same manufacturing footprint we have. That's why this aspect of logistics cost, and by the way, we don't speak about delays here, is a major issue which affects RNA margins to be tackled with. Front number three, pricing. Now here, this chart may surprise some of you that follow our industry. Often people talk about the global prices, let's increase prices, but as I'm sure you understand, but we wanted to make sure it was visually explained here, there is no such thing as a global elevator and escalator price. It is very much a regional consideration. And of course the granularity makes all the difference because at the end the overall effect is the blended effect. And here we showed three strategic markets with their individual price level over the last 19. This is based on attenders on the way we observed the market. And you can see that not all have the same development in spite of our effort to increase prices. You can see that it goes from a country where you can have a 10% increase over two years to one where, in fact, you ended up having a decrease up to minus 6%. And then another one, which is just in the middle, about 2%. Now, clearly, we need and must do more. And yes, we'll increase prices a lot more, and Usha Heidegger will elaborate on that. But the fact is that so far, Whatever we have done into the price increases have been unable to offset the material and cost increases that you've seen in the previous pages. So this is something on which we must act now and something which has impacted and will continue to impact our margins going forward. But we have to find a way also with a different type of marketing in order to address that. We come now to the third challenge. supply chain issues. I mentioned that before in terms of external challenges, in terms of how the external factors are affecting us. But we have to be absolutely open and say we also are faced with some internal issues, internal challenges. And the biggest one of them all is the issue of the manufacturing stretch between our new modular platform ramp-up and the delayed phasing out of legacy product lines. So, yes, as you have heard, as we announced, our modular product line is selling very well. Customers love it. And after the launch in 2020, today you can see it's about a third of our new sales are based on this new product line. But you can see, as you know, a business model, there is the issue of the order backlog, which then is the one that has to be produced by manufacturing. And then by simple time lag, you can see that today, while it starts to be very visible in 2021, we're talking about a fifth thereabout of our order backlog. What does that mean? This means that our production is very much stretched between... the old the legacy pipelines and the new ones but it also means i'll come to the production in a second it also means that our complexity we first manage as a portfolio in terms of spare parts in terms of sales in terms of configurators is a lot more complex and why did it happen like this because of course with two years of pandemic this Order on hand, this backlog has been a lot slower to flow through a production. So that is one key management issue that we need to deal with right away. Now, speaking of complexity, there is here another element I like to stress. You probably heard that, you remember, that we always said that so far the modularity was being ramped up segment by segment, region by region. And here you can see that we still have some key segments where still the modular platform is not yet fully introduced. And this has to be looked with the chart on the left hand side here showing displayed by regions and by segments of the industry. And you can see that while there are areas like EMEA, where the modular portal line is very much on the way to become the full coverage of the market, with the exception of high-rise, which is, in fact, as planned, not yet touched, there are others, amongst other Americas, and to some extent Asia-Pacific, where we are not there yet, where the ramp-up is coming up now. And so that, again, creates complexity. And let me give you a specific example now since we speak so much about this complexity. This means that our factories, while having to deal with legacy and new product lines, have to deal with more components than they were supposed to. And they have to have more production lines to accommodate for that. And so you can see on the right hand side, we wanted to give a specific example, which is the number of cabin types produced by a factory. and you can see that up until 2017 we were producing four cabin types covering all the segments and now while this transition takes longer because there's still this tension between legacy and new product line the same factory has to produce seven for any of you who understands manufacturing that is of course a big issue to be dealt with coming to the fifth challenge china now i lived 11 years in china three years in india and i've been through some of those super cycles myself so i've learned not to panic and we have always managed to deal with them now this one that is now happening is special and different from the previous one and why is that first of all if you look at the left hand side you can see that The speed at which it came after a very rapid growth in the first half of 2021 is incredible. Unprecedented. And the second is, if you look on the right-hand side, you can see that this is not an issue of any bubble or whatsoever. You can see, actually, the inventories are actually still going down, which is very different from the ones I lived firsthand in the past, where you could see the inventories growing across all tiers, all cities. But you can see here that with inventories still going down, we have this crisis, and why is that? It is one which is, for once, client-driven. It is these large developers, of course, Evergrande being the most famous one, who basically now struggle with their financials, and this creates uncertainty also on the buyer side, whom are we going to give a deposit to, et cetera, et cetera. You know this. We can go through that more in detail. But then, of course, since key accounts, as we call them, large developers account for more than 30% of the growth in China, this is very sensitive. Again, we remain convinced that the fundamentals in China remain very solid. China is still 70% of the world market, and you can see that this type of granularity among Tier 1, Tier 2, Tier 3 cities shows there are many opportunities. But this, of course, demands that one looks at a much sharpened focus go-to-market strategy with different pricing, different products, in order to capture opportunities where they are healthy and where we are sustainable in the long term. of course china being china all ni margin discussion has to start with china hence the importance and frankly the unexpected addition of this extra challenge towards the end of last year so again these are our five big challenges and again once more what makes them unique is that they come all together at a moment where we need to now step up our game and improve our margins and so Now comes, again, the answer to the question that was asked in January, why did we introduce the structure? We introduced the structure because it's totally consistent with the Top Speed 23 objective, whereby we said we need more speed, more agility, and more impact in order to become more competitive. And no, we're not there yet. And so to deal with this type of complex issues, we need, I cannot find a better term to speak about, kind of a war cabinet, a different approach to deal with the situation, whereby we compress the decision process at a much more agile level among less people so that we can move and be more impactful. So that's why we had this combination of role between chairman and CEO and with the objective to have a clear focus on strategic decisions and fast decision making. And then to do that, to support it, we introduced a new role of the chief operating officer, which has been taken by Paolo Compagna, who has been the head of one of our most successful regions in Europe, who will then have under him all the value chain. And it's important we stress that. So the whole value chain is going to be coordinated, led by a single person. with the objective to break down silos, to be even faster in the execution. And people speak about this often, but now more than ever we came to conclude this was absolutely essential in order to give ourselves the means for our ambitions and to achieve our strategic targets. This structure, of course, is one that we will keep in place as long as we've not achieved our objectives. We believe within two or three years we should be there. And by that time, we will go back to the structure that we had, which we always say we are very proud of with the checks and balances between chairman and CEO. But in moments of special needs, we need to prepare to adapt extraordinary measures, and that's what we have done. I look forward to answering, addressing any questions you might have. But for now, I'll leave the word and the floor to Urs Heidegger, who will take us through our closing results for the year and then our outlook. Thank you. Urs, please.

Thank you very much, Silvio, and good morning, everyone. I would like to start my part by stating some qualitative statements before I take you through the detailed financials of quarter four and the full year 2021. The order intake and revenue returned to pre-pandemic levels 2019 since global markets have recovered at various speeds. Foreign currencies, for once, only had an insignificant impact on financials. Operating results affected by a number of adverse factors, including global supply chain issues, electronic component shortages, material and freight cost inflation, as well as delayed deliveries and construction sites. We report a solid cash flow from operating activities and the Top Speed 23 program is now in execution phase. Please turn to slide number 15 that provides an overview of the global market development in 2021. Global markets have continued to recover, but showing mixed patterns across geographies, product lines, and segments. However, overall, the global market was up low to mid-single digit in unit and value terms, driven by China and Asia's residential growth, particularly in the first half year of 2021. I'm moving to slide 16, showing the order intake development. In the fourth quarter of 2021, order intake reached 3.1 billion Swiss francs, corresponding to an increase of 6.0%, respectively 5.9% in local currencies. With this, the fourth quarter order intake slightly exceeds 2019 by 0.4%. equivalent to a growth of 7.3% in local currencies. Ordered intake rose by 10.4% to 12.2 billion CHF for the full year 2021, corresponding to an increase of 10.6% in local currencies and also back to pre-pandemic levels. M&A activities contributed about 150 basis points to growth. The following slide 17 provides an overview of order intake growth by region and product lines for the full year 21 compared to 2020. And our order intake includes new installation, modernization, service and maintenance. All regions and product lines generated growth as activity levels were maintained as well in the second half of the year. The America region generated the highest growth rate up mid-teens, driven by strong growth across all product lines. Asia-Pacific was also up double-digit to mid-teens, recording growth just a touch below the Americas region. And the EMEA region generated a very solid mid-single-digit growth. New installations remained robust, generating double-digit growth in value and unit terms. After a slow start to the year, growth in modernization accelerated from the second quarter and exceeded the prior year by almost 20%. Repairs followed a similar pattern, resulting in double-digit growth, while maintenance was steadily mid-single-digit up, and hence our portfolio of maintained units increased by more than 5% year-on-year. Order backlog was 8.4% higher, but margins declined by about 50 basis points due to very much accelerating material cost inflation and price pressure, particularly in the second half of the year. I continue with slide 18 on revenue development. In the fourth quarter of 21, revenue increased by 0.9% to almost 3 billion CHF, corresponding to an increase of 0.6% in local currencies. Third quarter slowdown continued into Q4. On one hand side, due to continued lower new installation and modernization growth driven by disruptions in global supply chains and delays in project execution. And secondly, due to a tougher prior year comparison. For the full year, revenue amounted to 11.2 billion, achieving pre-pandemic levels too. Growth reached 5.6% and 5.7% in local currencies. M&A contributed also here about 150 basis points to growth. With that, I go to slide 19, reporting the EBIT adjusted development. Margins are below pre-pandemic level. The drop in the fourth quarter was driven by substantially increased raw material, component and freight cost inflation, combined with issues in supply chain, which hindered efficiency and delayed project execution. The EBIT adjusted in the fourth quarter reached 306 million CHF, which is equivalent to a drop of 10.3%, respectively 10.6% in local currencies. With that, the EBIT adjusted margin reached 10.4%. Full-year EBIT adjusted increased by 5.7% to 1,252 million CHF, corresponding to 5.4% in local currency growth. In the second half of 2021, We were facing challenges arising from the phase-in of modular platforms replacing legacy product lines, temporarily adding complexity to our supply chain, particularly in EMEA. Resulting bottlenecks, delays and inefficiency had an adverse impact in 2021 of about 100 million CHF of delayed revenues, respectively about 35 million CHF on EBIT adjusted. For the full year, EBIT adjusted margin could be maintained and reached 11.1%. I now combine slide 20 and 21 showing net profit and cash flow from operating activity. The ramp-up cost for the Top Speed 23 program in the fourth quarter of 42 million CHF led to a drop in net profit for the fourth quarter of 15%. Net profit for the full year totaled 881 million CHF, an increase of 13.8% compared to the prior year. Cash flow from operating activities remained solid, though declined 17% to 1.3 billion Swiss francs. The networking capital level has further improved and exceeded the first time a negative 1 billion Swiss franc, though the improvement was much less pronounced than the previous year. An ordinary dividend payment of 4 CHF per share and participation certificate is proposed to the general meeting of shareholders scheduled on March 22, representing a payout ratio of 52%. On slide 22, I would like to provide you a status update on the Top Speed 23 program. Eight months after launch, we can report the following progress on the six core initiatives. We have achieved growth above market in all key markets and increased the number of connected units by 30% in 2021, lifting the share of connected units in the maintained portfolio to more than 20%. New product innovations in modernization and new installation in selected markets are launched and under development. and the new procurement operating model is defined and implementation underway. At the same time, we acknowledge that a lot more needs to be done and there is further acceleration of our activities required to bring the program to a successful completion in time. Let's now turn to the outlook for 2022, starting with the market. Slide 24. Global market growth is burdened by a slowdown in new installations in China, which is expected to decline mid to high single-digit in 2022. Other regions are expected to grow. EMEA and Americas, mid single-digit, and Asia-Pacific, other than China, mid to high single-digit. This is the starting point for the business outlook on slide 25. As mentioned, the China market is expected to contract. Growth in the rest of the world will show mixed patterns. Construction site delays will continue to hinder project execution due to supply chain disruptions. Material cost inflation will continue to cause persisting margin pressure. We have implemented price increases across all product lines and regions. However, these are unlikely to offset costs near-term due to long lead times. We expect top speed 23 expenses to reach up to 150 million CHF in 2022, and revenue growth is expected between 1 to 6% in local currencies, bearing unforeseeable events. Margin pressure is expected to continue and Q1 and Q2 are expected with slow revenue growth and a significant drop in profitability. With that, I hand back to Marco.

I would like maybe I need to restart thank you we are now happy to take your questions and I would like to remind you to limit yourself to two questions only all these please our first question comes from the line of Daniel Acosta with Goldman Sachs please go ahead

Hi, good morning, everyone. Thanks very much for taking my questions. I'll stick to two. First, I wanted to check sort of on the comments of this structure will remain for the next two to three years while you reach your objectives. And I was wondering if you could give us a little bit more color in what exactly those objectives will be in terms of how you're going to drive shareholder value creation. So you talked about closing, for example, the margin gap with peers. Why you're not introducing a specific target or will you in the future? I guess the timeframe is two to three years, but what other metrics should we monitor to see that you're moving towards those objectives? That's my question number one. My second question is regarding capital allocation and given your solid balance sheet, but also the trajectory you're going to go to in the next few years, I assume maybe in organic activity, not a major focus going forward. Is that correct? And could we see a return to buyback remuneration like we had over the past, I think maybe even over the period where Sylvia was around before? Thank you so much.

Thank you Daniela for the question. Let me take them. both number one metrics yes absolutely legitimate at the same time i as i explained at the beginning we now have a new team that has been together for it is the fourth week and so we explain the challenges what we're doing now to just do justice to the importance and the difficulty of the situation we are reviewing the situation coming up analyzing each one of our plan and seeing which priorities we need to go, which is, I think, already quite advanced, and then transform these in a new strategic plan with new targets. And these are the targets that will be measured upon, and these are the targets which then will lead at the end of this, what I call, transition phase, to then re-establish our structure that we have had until last year. Now, please bear with us. I'm sure you would be skeptical if I told you that in four weeks we already have a new plan with new targets. We are working on that, and my commitment to you is that as soon as this will be ready, which will be, I would say, somewhere by the latest, we'll share them with you. Second question on the capital allocation. Yes, you understood well. Connectivity consistently with our TOSP23 will be important. will continue to be a big part of our investment. Not only connectivity, but connectivity is step one. The question is, how do we then turn the connectivity into an overall data-driven business model, which will then result in different ways to the business, hopefully, actually, with the objective of delivering better quality for the customer. How do we measure that? And then, of course, how do we then link and bring the customer maybe in a new business proposition? That is the biggest allocation. Now, whether buyback will be part of this at this stage, I cannot say.

Understood. Thank you very much.

Thank you.

The next question comes from the line of Lucy Carrier with Morgan Stanley. Please go ahead.

Hi, good morning, gentlemen, and thanks for taking my question. I also seek to question, despite having a lot more, but just maybe a follow-up on Daniela's question and trying to drill down a little bit on what you tangibly want to be doing, because it's helpful that you gave us this clarity on the burdens you are facing, but I guess some of those are not necessarily dependent on your own execution. You know, if I think about ethics, for example, or the state of the construction market in China. They are more dependent on outside or external conditions. So what are you tangibly planning to do to kind of offset some of those, considering that, as I said, they are not necessarily all down to your own execution? That's my first question.

Thank you. Again, I fully understand. Trust me, we're asking the same questions. And again, we don't have the full plan, but let me give you an idea first, maybe challenge by challenge to give you an indication. I think that's legitimate. Into the foreign exchange, well, one thing for sure, we cannot sit idle. We probably would never be able to offset the full extent of the consolidation impact or the translation. However, if you look at the chart we presented before, you can see there is this gap between revenue and OPEX in Swiss francs into the percentage of total. This is the kind of... lever on which we can play. So we probably cannot hedge or cannot do much about the top line impact. But on the bottom line, yes. On the bottom line, I think it is not easy. I think you very well identified it. But to see how we can reduce our exposure to Swiss franc in terms of operational measures is a challenge that we owe to our shareholders to undertake. Now, China, you mentioned. Now, China, there are ways to deal with this by looking at the granularity of the market. The chart referred to Tier 1, Tier 2, Tier 3. And actually, you can go deeper. You can look within every city, what are the segments which have a growth, which are the segments which have a better margin, and most of all, which are the segments where our products have a bigger impact, a bigger differentiation. But then sharpening our marketing and focusing on these products all the way, improving them through the value chain and, of course, applying prices accordingly is something we can and must do. So as much as I think you're correct in saying these are such a magnitude, an external force, I believe we can and must do something to offset them.

Thank you very much. And just maybe looking a little bit more shorter term, if I understood well, Urs, I think you were indicating a margin in the backlog, which was down 60 basis points. And correct me if I'm wrong, I might have misunderstood. And you're obviously also indicating a difficult first half 2022 in terms of growth and profitability. I guess that doesn't really come as a big surprise, but can you maybe help us think about qualitatively around the magnitude of that impact on profitability in light of what you have delivered perhaps in the second half 2021 where obviously profitability was already under pressure.

Thank you. Yes, Urs, would you like to take this question?

Yes. Good morning, Lucy. Thank you for the question. As you certainly have noted, the challenges and headwinds have clearly increased in the second half of 2021 due to this very significant material cost inflation. Overall, we are talking about 150 million in 2021, and thereof only 60 million occurred just for Q4. And this will continue into 2022. We are expecting incremental and additional up to 150 million Swiss francs material cost inflation. as commodity prices are still very close to peak levels. And a lot of that will occur in the first half year of 2022. We also see increasing wage inflation into 22 as an outlook. Last year, it was a bit more than 2%, but now it will go up to about 3% of our total personal cost line. But we also still will have to deal with some of these operational supply chain issues we have mentioned. One is in the market. We will see slow revenue generation, particularly in the first half year, due to material shortages across construction sites. And I mentioned it, some operational issues to deal with the complexity right now to ramp up the modularity systems and to ramp down the legacy systems. So you see headwinds coming into the second half, particularly now in the first half here. And we have also noted that in our media release, there is a significant drop of the profitability to be mentioned that can be around 20% down on profit for the first half year. Then we will have to work on supporting measures. We will have to work on compensating measures, certainly immediately. And then it should also recover a bit into second half year. The volume growth will certainly support us to compensate the headwinds. That will enable scale in the factories, in the field. We will work on field efficiency. That's clear. and also to complete our cost optimization program, which we already launched in 2020, and that will also support us. Having said that, I don't expect that the headwinds can be compensated by those supporting factors for the full year.

Thank you, Wilson. Just to make sure I perfectly understood your comment around the drop of profitability, You're talking about 20% adjusted EBIT. That's for the first half 2022, and this is gross, i.e. not including some of the savings or measure that you are putting in place, even if this measure won't fully offset.

Yeah, I'm talking about the first half year of 2022. Yeah. Okay.

Okay, and this is gross impact from the headwinds. pre-sum savings, I guess.

This is the net result. The net result had been netted with supporting factors, yes.

Okay, understood. Thank you very much for the precision. I go back in the queue.

The next question comes from the line of James Moore with Redburn. Please go ahead.

Oh, yeah. Hi, everybody. Silvio, lovely to have you back in the seat. Always hope you're well. I have two questions, but firstly, could I qualify the answer you gave to Lucy's? I think you were saying that the 20% is a net income comment. If we were to turn that back into an adjusted EBIT margin in the first half, I think you did 638 million and an 11.6% margin in the first half of last year. Could you give us a flavor for what that might mean for the first half margin? And then my questions, the first one surrounds your ambition longer term. I'm looking forward to hearing your targets in the summer. But as a starting point, can you give us a flavor for how you see medium to longer term margin developing against your history? And my second question is on the China NI margin. If NI margin is one of the great challenges in the group at the moment, could you talk a little bit about the rough quantum of the China NI margin in 2021 and how that differs from the peak market back in 2014 and how much you think that might fall this year?

James, thank you. Great to hear you again. Urs, there are three questions here. The first one is about qualifying the margin for the first half. Then there is one about the long-term ambition. And then the third one is about the China margin 2021. Can I suggest I start with the second question about long-term ambition and you take the next two? Yes. James, long-term ambition. If you see my chart number four, the long and short answer is that, as I said, we need to close this gap. We need to be – and you can see, unfortunately, our margins have even dropped recently – We need to bring them back. So whether and how fast we'll be able to reach the most profitable company in our industry, which I just announced, very, I would say, clear improvement in terms of EBIT, that's an ambition. But let's first start with the one that is in the middle. that we need to catch up with. And actually not so long ago, and you can see from the chart, we were there. So that has to be our ambition. And now how do we build on that? Just step by step, like Shindo does things, we need to get forward. I said there is no reason why, except maybe the size of portfolio, which is something which of course provides the leverage. for margin, but for others, there should be no fundamental reason not to give ourselves the ambition to be as profitable as our competitors. So that's the short answer. Of course, we have to do that, but at the same time, achieving the other ambition is to achieve healthy growth, which, of course, is a different consideration in view of the challenges we just explained. because when costs were somehow predictable and flat uh the model that consisted in selling and then you know planning on driving cost reductions on things that you had sold at very competitive prices that model i'm afraid needs to be resolved So what are the outcome, the levers, and, of course, the targets coming out of that? That's something I look forward to discussing together with you and others, some of your peers, when we are ready for that discussion. With that, I'll give the word to Urs for the other two questions.

Thank you, Silvio. Yes, James. Last year, first half year, was actually really a very solid result because it was driven by high revenue generation, growth of 10.4%, and resulted in an EBIT margin at that time of 11.7%. But the world has changed. These macroeconomic factors have changed. Material inflation is very significant. and will now be significant, particularly in the first half year. You have seen 10.4% margin in Q4. So from that first half year 21, I think it is well explained, a drop of 20% on EBIT adjusted margin. But of course, it depends as well on our revenue generation capability. and how all the construction sites can be managed, how the material shortages can be managed overall on construction sites. Thank you.

Any comment on the China NI margin and where that is versus the peak and how much it might fall this year?

I don't fully understand the question.

Let me just say, I think I understood it. The question is, if you look at the profitability in China in 2021, how is this likely to evolve in 2022?

All right. Okay. So our China profitability in 21 was and is at group average. Now we face this very high material cost inflation and prices are very competitive in China. They were also very competitive in the second half year. You have also seen price developments presented by Silvio. So if the overall profitability of the group is dropping now in the first half year, you can expect that this is also the case for our China profitability. Thank you very much.

The next question comes from the line of Andre Kuchnin with Credit Suisse. Please go ahead.

Good morning. Thank you very much for taking my questions. I wanted to... Just double check on the midterm and the full margin potential because in the past we discussed kind of what would be fair for an elevator company and then there was always that qualification that you have got additional 100 basis points of expenses related to kind of an internal audit system that you have implemented. So could you comment or could you confirm to us that the ambition is to close the gap to peers kind of full stop with Schindler as it is?

Andrew, hello there. Thank you for the question. So now you're going to specifically, of course, we did discuss that. So yes, we do have processes that are to some extent different, actually to a large extent different from our competitors, which are probably more focused on safety and quality, which involves some cost. Now, I just don't want to give any wrong sense here. We are not prepared to sacrifice quality and safety in order to close the margins. That's not the case, right? So our challenge is how can we retain the quality and safety and possibly achieving the same approach, differentiating ourselves from our competitors always, while maybe doing it in a more cost-comparative way. Yes, that's our ambition. But what he cannot say is that we will now remove all these steps. This is absolutely not the case. Does that address your question, Andrea?

Great. Yes, it does. Thank you, Sylvia. And the second question I have is another broader one. On mass connectivity, I just wanted to get your fundamental view on how you view, how you see ultimate monetization of this effort and the investment, and how do you assess the risk of it becoming Some would compete it away for lower maintenance prices because of just the magnitude of the operational efficiency benefit that it brings about.

I'm afraid to say also for the technical team, the sound is not really good. Can we do something, maybe increasing it? Because I didn't hear the second part of the question. If you could do something on that, please. Sorry, Andre. But I did hear the first part. If you don't mind repeating the second part. But let me just first answer the first one. Monetization of digital connectivity. see now we are finally advancing and admittedly we can we want to go even faster now uh that'd be part of our capital location in terms of connecting more and more of our portfolio so monetization comes in two part one it comes by a lower churn rate in our portfolio we find and this is now validated over the years that the number of units that are connected suffer from a much lower loss rate that is in itself monetization so that in itself is very good and not only because people feel hooked it's because they get obviously we believe our customers get a better service understand better what we do and ultimately we can address breakdowns timely and also anticipate most of them that is part one then there is a second one which is also internal which is getting data in terms of product improvement it's amazing what kind of modeling we can build by gathering information from same, for example, lift systems in different parts of the world to see, for example, how different type of climates, humidity affect performance. And so then we can go back to R&D and improve the design. Things that, however long a test you may want to do in test hours, which we did traditionally, you will never be able to capture. So this is another monetization. It's like product design, quality, and faster engineering innovation loops. the third one is you think you mentioned this is digital services this is the beginning you've seen that in some markets now we we are introducing them actually very successfully of course some markets are more open and prone to those this is something that we are very keen to bring forward You also see that we have the startup called Building Minds that work on it from another point of view. So all of that is creating the know-how, knowledge, and market intelligence that will allow us to take this to the next step. This is part of the capital allocation we'll have over the next couple of years. Now, there was a last part of your question, which I'm not sure I captured. Please, Andre.

Yes, thanks, Olivia. The second part of it was just on how you assess the risk of the investment in digital being competed away through potentially lower maintenance ASPs just because of the amount of operational efficiency benefits that it brings.

So far, I would say, if anything, the investment in digitization has been additive, absolutely not deducting anything. So far, that's not the case. There is also strategic defense, like, you know, the strategic moat. that will also help us to fend off, which has been very much the case so far, other industry disruptors that are based only on a digital, non-ENE approach, and that is also another value. But so far, we have not seen any evidence of that in terms of any destruction of investment being made. Thank you, Andre.

Thank you. I'll stop here, but look forward to further conversations, of course. Thank you.

Pleasure.

The next question comes from the line of Martin Flöckiger with Kepler Chauvre. Please go ahead.

Yeah, morning, gentlemen. Thanks for taking my question. Just like to go back to the EBIT, adjusted EBIT discussion we had previously, because it was a little bit confusing. Sometimes, you know, we heard net profit being down 20%, then adjusted EBIT. I just wanted to clarify that. And then we were also talking about margins being down 20%. So we're a little bit confused now. So what's really down 20% according to your estimates in H1? And in that respect, I realize all the headwinds that you've been talking about, but we also have tailwinds according to my understanding, right? We have top speed 23, which should start to bring some first fruit also in 2022, according to my understanding. And we also have the usual targeted cost savings from efficiency gains. So I was just really wondering, how do you think top speed 23 and these efficiency gains will help your call space in 2022? That's my first question. And the second question is very simple on the acquisition impact that I would think was taking place also on order intake and revenue growth in Q4, similar to Q3. I was just wondering whether you could confirm that and whether you could provide some quantitative indication on the acquisition impact. Thank you very much.

I propose I take the first question, you take the second. All right. So, headwinds and tailwinds. Very good question. The tailwinds that you mentioned are things that we already had in place, and thank you for underlining it, such as TOSP23 and efficiency gains. These were developed with no assumptions, with data on hand that is today to be updated. This is one of the true questions. For example, you talk about efficiency gains. Yes, and we are, as you can imagine, going all in for it and definitely accelerating. That'll be part of our action plan that we'll be sharing with you. However, take another example, which I didn't mention before. I didn't want to bore you with too much. There is another element, for example, there, wage inflation, right? That's a fact that is true throughout the world now more than ever, U.S. being probably the most talked about case today. So all the plans we have now needs to be recalibrated in order to take into account this new reality. which I'm afraid has a lot more headwinds than tailwinds. Then you mentioned TASP23. Absolutely. Now, based on all that, you can see so far, if you look at the results of 2021, we decided we need to accelerate. So clearly TASP23, we are definitely pushing. We are also assessing which of the TOSP23 modules will give us the biggest boost in the shorter time and then re-prioritize accordingly also reassessing capital allocation among the different modules to make sure that we get the boost that we need now in order to face even stronger headwind. So, yes, all of that is part of the equation, and that will be part of the plan that we present and we're working on together with the new team. Urs, would you like to take the second question, starting with the margin qualification, the 20%?

Okay, so let me be very clear. I am talking about EBIT adjusted line when I stated that this will be a drop of around 20%. On the M&A, as I said, we have 150 basis points contribution to growth in order intake and operating revenue full year. In quarter four, it's a little bit less than 100 basis points as the contribution from the Volkslift joint venture acquisition are now fading out. Of course, we will continue running M&A, particularly on maintenance portfolios, and this will be also an activity we are running in 2022. Great, thanks.

Thank you.

The next question comes from the line of Andrew Wilson with JP Morgan. Please go ahead.

Hi, good morning, everyone. Thanks for the time and for taking my questions. If I can start with a question just on China and the outlook, and you've obviously been fairly clear in terms of the challenging market that you're seeing there. I guess I'm interested if you have any view on when we may see that market start to improve. We've heard, I guess, from some of the industry commentators talking about the potential for the second half to look stronger than the first half. I'm interested if you have any view or I guess, any thoughts on when we might see some of those conditions start to ease?

Thank you, Andrew. Let me say, we read the same sources and those predictions are very much, I would say, the ones that we look at as well. At the same time, I don't think there is anyone that could tell you today by when this will definitely improve. It all depends on how quickly those large players will be able to restructure and build up liquidity. And we don't see at least an intervention from the government other than making sure that investors or mortgage holders lose their deposit. That's what the government wants to do, which is great. So I don't see, we have no indication so far of a major breakdown. However, you ask about recovery, then at the moment for the first half, we don't see any indication. There is... Possible optimism in the second half. But I guess, in fact, as you probably know, situations like, for example, Shoyan, which was actually within the three red lines compliant and yet now is facing issues. show that there is probably a lot more to understanding what the real issues are in terms of financing and liquidity among those large developers. So it's very difficult. You cannot really take a chart and saying, well, this is really assessment today. So I wish I had an answer, but I'm afraid I... I can only say, yes, we hope it's going to get better in the second half. Maybe in between the option would be public transportation. There is lots of infrastructure projects coming on the market, being tendered, which definitely will compensate some of the drop in terms of private, commercial and residential projects. However, to be very clear, those standards are very long and complex. And frankly, also has to be said, because they involve a lot of customization, they are not great for margins, to put it bluntly. So part of our marketing, which I discussed before about how to make sure we improve our margins thinking of China, will also include that consideration.

That's very helpful. Don't worry, I wasn't anticipating you were going to give me a month where you expected things to get better in China. The second area is different. It's just around the top speed. The cost guidance having increased for 2022, I guess I wanted to understand whether that was an increase in absolute cost of the total programme, whether it was cost which had been brought forward to accelerate the programme, and then whether the additional cost, if it is additional cost, was because you're going to expand the scope of the programme or whether the programme itself was going to cost more than you'd initially expected. So I guess there's a few aspects to that, but just trying to understand exactly where the 50 million extra has come from.

Thank you. Indeed, observation absolutely correct. I'll give the word to Urs, just one point. Going back to the topic of capital allocation, yes, we want to further accelerate our speed to generate the benefits that indeed are expected to give us some tailwinds finally. So yes, there is an increase. Urs, please, if you'd like to elaborate.

Right. It's a clear ambition to accelerate the program, particularly the work streams on product innovations in new installation and modernization in selected markets. We will also do an effort to further accelerate the connectivity and our journey on digital twin, where we now just were able to launch the Digital Twin Escalator for product planning, which is an early first milestone. So clear acceleration up to 150 million for 2022. With that, we would be in the range of 200, 210 million after two years. We keep the overall program envelope of up to 270 million Swiss francs.

That's very helpful. Thank you for your time.

Thank you.

The next question comes from the line of Patrick Herfise with UBS. Please go ahead.

Yes, thank you, and good morning, everyone. I have two questions, please. The first one is on the ramp-up and roll-out of modular platforms. Currently it looks to be about 30% of your intake. A bit behind planned probably as you commented earlier. How should we think about the conversion of your ordering take here? How much longer will it take for full conversion? And the second question is actually related to this. You talked about 100 million impact on revenues, 45 million on EBIT from efficiency losses related to running increased number of platforms in your facilities. Is that a similar number we should anticipate in your bridge for 2022? Or will that be higher or significantly lower than that? Thank you.

Thank you. I appreciate that you ask about this issue of complexity, which is really one that has to be dealt with as an absolute priority. So the first question is, how long would it take for a legacy backlog to be produced and installed? To be clear, as I mentioned before, if you look at the slide I presented before, it was slide 10. In fact, we definitely would have hoped by now we would have been more advanced. Unfortunately, the situation with pandemic was what it was, construction side delays. So normally, you know, you need to stay in a backlog on average about 18 months, 18 months. Sometimes large projects are longer, but I think 18 months is a good term. So if you look at what you see here, if you look at the mixture, if you can see that a third there is modularity, I would say probably two to three years. By then we should be able to have a very marginal part of legacy, which would be the projects which have been the most delayed. And then you would have probably some high rise. So I would say it is probably two to three years. Three years is probably a safer assumption, also in view of the fact that in some countries, construction sites, I'm thinking, for example, of Southeast Asia, places like Malaysia, places like Indonesia, where we have quite a large backlog, are still very much only now coming out of a serious lockdown, in some cases not even. So I think that's a fair assumption. For the impact debit, Urs, please, would you like to take that?

Yeah. So the 100 million revenue impact is something which was delayed, right, due to... The ramp-up difficulties in the supply chain, we were a bit slower in delivering. So this will occur. It should be generated later in 2022. But of course, it will be combined with this overall supply chain disruption, material shortages, slowing down construction sites. But this is not lost. The 35 million EBIT impact is clear bottom line impact due to operational ramp-up topics and issues in the supply chain, including some corrective actions. We will also have such a headwind in the next quarter, one, two, soon to take and finish and fix it. So I expect for the full year that will also be a bit of burden to the P&L in the range of 30 million Swiss francs to fix it completely.

But is that incremental or is it just a similar impact as in 2021? This is...

the similar impact as in 21.

Okay, thank you.

The next question comes from the line of Lars Bronson with Barclays. Please go ahead.

Oh, hi, good morning. Silvio, thanks for the presentation. I thought that was quite helpful. Can I have two questions, one on digital services and one on your pricing strategy? maybe taking them one by one. On digital services, you flagged a competitor that launched some ambitious margin targets this week. I think that's right. I think that largely comes down to service growth and productivity in the service operations, which I guess in turn partly comes down to their digital strategy. You talked a fair bit about what you're looking to do on the NI side of your business, less so I think around your services business. The bigger picture question for me is, do you think you've lost a bit of ground in digital? I think I hear similar penetration numbers from you and your competitors around penetration levels for digital. But I'm also mindful that, again, historically you were built on Predix and now, of course, transitioned to Microsoft Azure. You rolled out initially with Huawei as your global connectivity partner. Can you give us some sense for what you see historically and whether you felt you have lost some ground, perhaps caught up with your key peers around digital in the last couple of years? Thank you.

Thank you. I definitely, the fact that you mentioned that I haven't spoken enough services goes straight to my heart because the one thing I try to do in the companies to make sure that we don't forget this is not only 50% of our revenues, but a key part of our business. We are ultimately a service company. So thank you for helping me correcting that and that made understanding. Let me just give you a straight answer. No, I don't feel we're losing ground. And you can see from what I said before, I don't think one can say we're not humble. We don't have a problem seeing when we have one. But in terms of digital and service, we don't feel, even from a quantitative aspect, that we're actually staying behind. One thing for sure, and I just say this respectfully, we talk less about it, because we believe there is a lot of opportunity, a lot of competitiveness to be gained. Now, perhaps to give some color on the service, we have been rolling out in a quite impactful way what we call technical operations center. whereby now all our connected units are monitored at regional level but also group level by data centers with elevator specialists and data scientists that check the data, relay it, and then actually help not only, as I mentioned before, the R&D, development, product management to improve their products, but also in order to help understanding patterns for entrapments, for breakdowns, and therefore that has given a tremendous improvement. Now, when we speak next, today I didn't feel it was the place to be boastful, but when we present next in the summer, I'll make sure we cover it. And I believe... We're actually doing a lot more, even in terms of product design. You saw as part of our TOSP23, we have a substantial part of our investment and capital allocation, which goes to what we call digital twin. That's something clearly which doesn't have a payback for the next few years. It's actually very much a mid-long-term investment. But the idea is what? It's to link a digital avatar from the moment the product is sold, designed, all the way from when it is installed, maintained, with all processes that go with it. Some of our competitors years ago announced Google Glass. I challenge anyone to find a technician that uses it anywhere in the world. So, no, we don't do this. We don't announce it before. But because we believe it has to start first with the core, which has to have this digital twin concept and digital connectivity behind. So there is a lot more I'd like to say. If you don't mind, Lars, I'd like to raise it next time we speak and we present a strategy. And then I think we have a lot more that we can show in this regard.

That's clear, Silvio. Thank you. Maybe just on disclosure in the summertime, maybe should we expect to hear more around building mines? You've invested $60 million, I think, so far over the last three years. I think we've got another $100 million to go. We haven't seen a huge amount of disclosure. What might we expect around that, and particularly what other kind of key KPIs we might expect to see from that business going forward?

Absolutely. We'll keep it in mind. It'll be my pleasure to do this approach that I've been following personally. Yes, absolutely. In the meantime, I only would encourage you to look at the website. There is a lot of information of the partnership, the clients and the solution, which is now not only about software as a service for real estate, but always more the ESG aspect. So since most of our customers Now I'm also confronted with how to comply with the Paris COP-type commitments. How does the real estate industry confront that? And building mines has become very much a key tool to support them. And so this is absolutely exciting. I look forward to discussing more about it next time.

Understood. Can I ask, secondly, just to your pricing and pricing strategy? One of your competitors obviously gives some helpful disclosure around like-for-like pricing in China, new installation. For them, that was flat last year, including late in the year. Can you help us with your own like-for-like price realization in China in the year and in Q4? And bigger picture, I didn't hear a lot around pricing strategy and changes there. Should we think of you, particularly in Chinese markets, as being perhaps more selective You talked about infrastructure not great for margins, historically not been. How to think about sort of bigger picture, your pricing strategy going forward in the Chinese new equipment market, please?

Good. So Urs, I'll let you take the one on the development of pricing last year. In terms of going forward, please allow me, Lars, this is what we're working on now. Again, the idea is clustering, is understanding which segment is going where, which involves geography, which involves segments, going from residential, commercial. There's a topic of escalators, of course, which plays a big role because that market is also changing rapidly. And so the idea is in China it was never going to be about a one-size-fits-all. But then more and more we need to look granularly at which area, which region to grow in, what investments are necessary. In our business, I'm going to say selling is the easy part. The question is then how do you secure maintenance afterwards? How can you provide a service? How can you differentiate yourself from the local competitors with whom, very candidly, You're never going to be able to compete on price. And that in a market that is slowing down will present different challenges. At the same time, going back to the question as before about opportunity, definitely in China, service and modernization are a huge opportunity. Now, so far, because of this crunch time, that is still not enough, neither in volume nor in margins. to offset the NI pressure, but it is all part of the oil consideration. Urs, would you like me to take the point about price development in China?

Yeah, so the China pricing, you always have to differentiate a bit segment by segment. On the larger residential segment, pricing in second half year or also in Q4 was flat, despite high material cost inflation. yet and commercial public transport pricing was under pressure, competitive pressure for such larger projects. Thank you.

Thank you both.

Thank you.

The next question comes from the line of Miguel Borrega with Exxon BNP Paribas. Please go ahead.

Hi, good morning everyone. Two questions for me on your top line guidance. I just want to understand your thought process for one to 6% since your backlog is up 8%. So can you give us some flavor for how much you'd expect book to ship to be in 2022? And how much that typically represents as a percentage of revenue?

Yes, thank you. Urs, would you like to take that? Yes, thank you. Well, you have seen how revenue generation has slowed down in the second half year, very remarkably, in quarter four with this 0.6% growth in local currencies due to a global crisis. supply chain disruptions and that's not only affecting us most construction sites are running much slower due to material shortages and logistic bottlenecks and this is hindering us to roll out the backlog more effectively more positively for the next quarters Our backlog is healthy, very active, but the turnover or the rotation is now much slower. This you have to take into account. That's why we indicate this wide revenue range. In the first half year, it will be clearly remaining slow. And then we will see in the second half here whether these bottlenecks are releasing and we can run much faster again.

Thank you. That's clear. And then you aim to achieve a competitive margin. You're now doing 11%. It's not yet clear to me when you launched the Top Speed 23 program. I suppose you also had a target in mind. So will that be raised or just brought forward? And are you thinking on an absolute level? Because, Urs, you just said earlier that 11.7% in the first half of 2021 was solid. Your closest competitor guided for margins around 11% for 2022. Your peak margins were 12%. So any flavor here for competitive margins, what does that mean ahead of the summer would be great.

Thank you. I totally understand your question. That's obviously very important for your models. We are not in a position today with all that described to give an exact target. One thing for sure, we need to improve. So please bear with us until we can give you a specific answer. But clearly closing a gap. But nonetheless in the meantime you see what our competition has guided to. That gives a sense of where we want to get. Of course the other question you're probably going to ask me is by when. And the answer we'll give you is as soon as possible. at the same time applying the realism of the backlog you just saw with the margins we just discussed. But this will not be for any complacency whatsoever. I hope at least that was perceivable. We are extremely resolved to do whatever it takes to get there. But please bear with us that we cannot give you a specific number now.

Okay, I will. And just maybe if I can squeeze in one last question. Apart from the margin impact, how does modularity impact your working capital? That's my final question. Thank you.

Urs, would you like to add?

Well, the midterm is clear. Modularity will reduce variance options for our platforms as we roll it out component for component and now as well the full system. And you have seen the presentation when we can roll it out completely across components. geographies and product lines, this will reduce inventories. On the other side, due to the material shortages we have now, we have to build up certain inventories to be sure that we are ready to fulfill to our customers. And you also see that our inventory levels in 2021 versus 2020 have increased quite strongly to build up some strategic inventory buffers for deliveries. So it could be... shorter term for the next one, two years, or as Silvio says, until legacy products have been converted to modularity, three years, that our inventory levels will be now at the 21 level or even a bit higher until they will reduce. Midterm, it will clearly help us to improve our networking capital.

If I may, just let me build on Urs's answer, because I think it's a really good question, a very important one. Thank you for that, Miguel. It really comes down to scale and at the risk of saying things that are evident. One of our challenges, if you look back at our results, has been that we've been able to grow top line quite successfully, but not been able to turn that into improvements in margins. And this is a challenge to the whole scale theory. in theory when you grow size you should be able to turn it into into better margins and that is something which we believe has not been achieved also and predominantly because of the complexity in a product portfolio because scale wasn't generated now modularity our objective is this that we're going to have less components less suppliers which therefore will give us more scale to negotiate with each of them but also in a mutually successful way that we can then look forward by setting margins with growing volume and negotiate and work together in a different way that's an example the other way if you look now at efficiency in a factory you may please allow me to recall the slide i showed about the number of cabins in a factory right so the goal is now we are in this transition phase where we have seven but the goal is to go below to where we were in 2017, which was four, to go to three, to two. And then maybe with modularity, we will always have an element with codes and standards that we cannot go below. But then if you apply this to every single component, we're going to have many less components to be delivered in a much more effective way. So these are concrete examples. That's why I wanted to put that chart with the cabins that will explain where we want to get and why, unfortunately, now we are a bit... with a leg spread between two rivers here because at the moment it's unideal and it's taking longer than expected because of the pandemic. But no excuse. We've got to fix it. I hope this helps. I understand.

That's very clear. Thank you.

That was today's last question.

last question for today thank you very much for your attending this webcast and this conference call we'd like to close please feel free to reach out to me if you have any further question the next event is the q1 results presentation on april 22nd thank you very much take care and bye