Schindler Hldg Ag Akt

Good morning, ladies and gentlemen, and welcome to our first quarter 2024 results conference call. My name is Lars Horsen. I'm head of investor relations at Schindler. I'm here together with Silvio Napoli, our chairman and CEO, Paolo Campagna, our COO, and Carla De Geisele, our CFO. Silvio will provide a brief overview of the key messages of the quarter. Paolo will discuss our market outlook and auto intake in the quarter, and Carla will lead us through the financials. After the presentation, we're happy to take your questions. We plan to close the call at 11 o'clock in one hour. With that, I hand over to Silvio. Silvio, please go ahead.

Thank you, Lars. Good morning, everyone. Thank you for joining this Q1 results conference for Schindler. Last February, I reported to you that we were back and we were in a steep climb. Today, I'm pleased to say that we not only continue with a steep climb, but in fact we are accelerating. And accelerating is important because the weather conditions are testing. I say that because we are confronted with a quite unique combination of strong tailwinds, but also strong headwinds. So let's have a look at the most significant headlines before diving into the details. Starting with tailwinds precisely. And there it is definitely encouraging to see how both the modernization and service markets continue to grow across all regions. This is absolutely critical because this is the long-term business base and already today this is critical because these two markets account for the biggest portion of our revenues. Moving on to There, and I'm sure you'll realize, the new installation market continued decline, driven by China. I just come back from China where I was last week, where definitely the property situation is far from being resolved. But also, and this is more recent with pressure in Europe, and that is even more recent in America, both under pressure. In a totally, I would argue, diametrically opposite situation, we see incredibly strong markets in India and the Middle East back to growth, mainly driven by Turkey. Now, I also wanted to spend the second year on an highlight that is not yet affecting our current performance, but it is absolutely critical for our results, let's say from 2025 onwards, and that is the successful modular platform launch, which you heard me repeatedly mentioning as strategically relevant for the future. And then I'm very pleased to say that indeed it has been successful because this new platform already accounts for more than 40% of units sold in the EMEA region where it has been launched in the first phase. You may remember that we've now a stage launch across the globe and the first part was EMEA. So they're a very successful reception. And I'm pleased to say continuing to do so as it is launched in more countries and customers take it for more and more of their projects. What is definitely affecting today's performance are two critical factors. And that is number one, the sustained pricing discipline and two, the efficiency measures that we continue to drive across the whole value chain. Pricing is crucial, especially in testing markets. And we have no hesitation to say that we have learned a lesson. And so we're just simply not taking any job at any cost. But to the contrary, we are focusing on the ones that make sense in terms of margin, but also in terms of conversion into our portfolio. And to do that, then we have to drive efficiency without ever stopping. because this is what allows us to increase our competitiveness and allow us to have sufficient margins to secure the jobs I just mentioned before that we want to get. Now, these were what I call the inputs. Now let's look at the output. So in terms of financial results. And there, I'm pleased to say that our order intake measured in local currency has increased by 2.5%. mainly driven by modernization and service, and partially offset by the new installation order intake. I'd like to stress there, and I'm sure you hear it from our Chief Operating Officer, Paolo Compagna, that we have been gaining share in new installations. So again, that's part of our strategy of securing jobs where it makes sense. Moving on to another key results, of course, is a top line growth in terms of revenue and local currency. I'm pleased to say we had a 1.1% growth driven mainly by the EMEA and Americas region and partly offset by South Asia Pacific, where traditionally Q1 is slow. But there, of course, there are particular market conditions. The, of course, extremely reassuring point is that on the basis of all that we have been increasing our operational profitability with a 15.8 percent increase in EBIT adjusted in local measure in local currency again this is as a result of operational efficiency pricing measures but also of course as a result of the product exchange as the not only product mix in terms of what type product we sell within a new equipment but also part of the problem mix in terms of a shift towards more and more service modernization revenues. Final point of output is our operating cash flow, increasing by 80.4% as a result of higher profitability and lower net working capital requirements. Perhaps on that, I'd like to make a comment that this is also a testimony of how effectively we have been managing credit risk in a overall tough construction environment. Overall, in Q1, we delivered both growth and margin improvement. So overall, we can say that Schindler had a solid start of the year 2024. With that, I'd like to pass on the word to Paolo Compagna, our Chief Operating Officer, that will take us through the market outlook and order intake for the first quarter. Paolo, please.

Thank you Silvio and good morning everyone. Before we move to our expectations for the market development in 24, I just wanted to remind everyone and emphasize the fact that we are a predominantly service company with maintenance, repair and modernization accounting for more than 60% of our revenue. And also to be reminded in terms of our exposure to China, It was below 14% in 2023 and is even lower in Q1 2024. In this frame, I like to point out that overall, we maintain our 2024 market outlook for the E&E markets worldwide by business and by region, with one exception. This is the energy market in China, where we now see the market sliding down by slightly more than 10%. as the real estate sector was off for a disappointing start this year, with most lead indicators further weakening. But sure, if we hear more positive news in the coming months, we will be adjusting our expectations accordingly, but this is what we see at the moment. A few words about the other regions. In America, the key lead indicators in the largest market of the region, the US, remain under pressure. the Dutch momentum index recently declined, indicating weakness in the non-residential segment, whereas the architecture building index slightly improved, but remains below 50, indicating still low construction activity. As a result, the E&E market declined high single digit, with residential segment outperforming the commercial. In Brazil, Total apartment lounges have dropped recently, but there are pockets of growth, such as social housing, while the SELIC, this is Brazil's benchmark for interest rate, has been reduced, which can be seen as a positive signal for the market. Moving to EMEA, Middle Eastern countries, such as Turkey and Saudi Arabia and UAE, are seeing good growth, while Spain and France in Southern Europe proved quite resilient. In Northern Europe, Germany and the UK remained weak. For example, in Germany, the multifamily housing permits declined by 30% in the last 12 months until January 24. Asia Pacific, excluding China, India continues to show strong growth in spite of some uncertainty due to elections, and the market in Southeast Asia will grow despite the China slowdown, which is setting an impact on their economies, while the market in South Korea remains subdued. The global installed base keeps growing at an healthy pace, and modernization is enjoying robust demand, sure due to the aging installed base in Western markets and in China. Turning now to slide six and looking at our own order intake in the first quarter. On the left-hand side, you see our order growth in units. We are pleased with the performance in new installations in light of the challenging markets we faced. For the group overall, we delivered low single-digit unit growth this first quarter in new installations, including a solid performance in China, especially given the overall market situation. Modernization had a good start into the year, primarily driven by very strong growth in Asia-Pacific, both in China and more broadly across the region. Also, the service business remained very robust and continued to grow across all regions. In value terms, this is on the right-hand side, new installation order declined low single digit in the quarter, but less than local markets overall. In particular, we saw a softer NI order intake in Northern Europe and Asia Pacific, both in China and more broadly across the region. However, it is worth pointing out that we faced some significant mixed headwinds in the quarter in Asia Pacific, excluding China, which had some very large projects wins in the last year first quarter. Meanwhile, the service business continued to grow solidly across all regions, driven by and our conversions, but also balanced pricing actions as we remain disciplined on pricing across all business lines. With that, I would like to hand over to Carla to lead us through the financial results.

Thank you, Paolo. Good morning, everybody. As Silvio pointed out already, we had a very good start of the year, and I'm particularly pleased with the continued margin improvement as well as with a strong cash flow generation in the first quarter. Moving to slide eight. So slide eight gives you an overview of the KPIs over the past five quarters. And remember, first quarter is a seasonally smaller quarter for Schindler. So touching on the highlights before going actually into the details on the following slides. So firstly, Despite a declining new installation market, we saw a year-on-year growth in both order intake and revenue in local currencies. Secondly, our operating margins expanded further on a year-on-year basis, driven by operational efficiency and positive pricing. We were also helped by Tailwind from MixShift. Thirdly, Our net profit margin reached 8.7%, and that's up despite the gain we recorded from the land sale in China in last year's first quarter. Fourth, FX impact remained persistent during the first quarter. And last but not least, I'm particularly pleased with another strong quarter for cash flow from operating activities, particularly the improvement of our networking capital. So moving on to slide nine, on the left-hand side, you see our order intake that grew by 2.5% in local currencies against a tough construction market environment. The positive development is mainly driven by a strong performance in our service business. FX amounted to 169 million, leading to a negative growth of 3.4% in Swiss francs. On the right hand side, revenue growth. Revenue growth in the quarter was up by 1.1%, driven by high single digit growth in the Americas. We saw low single revenue growth in EMEA, whilst revenue in Asia Pacific declined, which was impacted by the slowdown of the Chinese new installation market.

Moving to slide 10.

Very pleased actually to point out here that we report another quarter of improving backlog margin. And this is now the sixth consecutive quarter of improving margins in the backlog. So we continue to see a very good progress on execution of the legacy backlog with now only around 20% remaining. Margins on an eye order are slightly under pressure, but that is mainly due to the geographical mix related to China, where we faced pricing pressure and took also some large projects as explained by Paolo. Moving on to slide 11 to give you an overview of the evolution of the profitability. Now, in line with our expectation, Pricing and efficiency effects continued to outgrow inflation. We also had some tailwind this quarter from the mix, as was already pointed out before. And going forward, we also expect the relative weight of efficiency measures continue to increase. And talking about our first quarter EBIT reported and EBIT adjusted, Very good to see that a positive year-on-year performance trajectory continued now in that first quarter of 24. It's actually the fifth quarter in a row that we are expanding the year-on-year EBIT adjusted margin. And these operational improvements, they resulted mainly from the higher margins of the rolled-out backlog, the procurement savings that are really coming up to speed, and a favorable business mix impact. Now EBIT reported reached 292 million Swiss franc representing a margin of 10.9%, which is up 80 basis points from the first quarter of 23, which was supported by 26 million Swiss franc from the land sale of our former factory in Shuzhou, China. EBIT adjusted margin reached 11.1% equivalent to an increase of 140 basis points. Moving to the next slide to the net profit, net profits grew again in quarter one with margins continuing to exceed now the 8% mark in what is a seasonally smaller quarter for Schindler and continuing to improve year on year despite the game booked in the first quarter last year. Moving to the operating cash flow. Operating cash flow continued to develop very positively. In the quarter now, cash flow reached 507 million Swiss francs, driven by continued improvement in operational profitability and networking capital, mainly stemming from lower inventory, higher accounts payables, and higher down payments. Credit risk remained stable and the addition to bad debt in the quarter was not material and actually relates to the fact that we have an improvement of the aging of our receivables. And then finally, moving to the last slide and before moving to the Q&A, we are reiterating our full year guidance for 24. we expect low single-digit revenue growth in local currency and an EBIT reported margin of 11%. In terms of tailwinds to this year's performance, we expect pricing and operational efficiency to be the main driver. The impact from the new modular platform will only gradually start to kick in later in the year. And in terms of cost headwinds, we continue to see wage inflation as the most prominent one. Whilst materials, inflation overall remains subdued. Allow me now to conclude by saying that together with all the colleagues in the executive committee, that we are very pleased to see the progress made during the first quarter and very grateful for the persistent commitment of thousands of our colleagues in more than 100 markets. And with that, I hand back to Lars.

Thank you, Carla. We're now happy to take your questions. I'd ask you to please limit yourself to two questions only, given the limited time we have available. Thank you very much. And with that, operator, please.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the 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 or a comment may press star and one at this time. The first question is from Klaus Bergelin from Citi. Please go ahead.

Thank you. Hi, Silvio, Carla, Laurs and Paolo from Citi. So my first question is around the price mix over in Asia. Sharply lower, it seems to be driven by mix outside of China. But I'm keen, Silvio, to understand the price mix in China better. You're clearly growing faster than the market, and price mix is down 10%. You have more Tier 1 and Tier 2 exposures than some of your peers. So I wouldn't think the mix is that bad. So here's my question, really. Is pure pricing getting worse? only orders quarter-on-quarter in China. And to what extent can this weigh in the margin out of the backlog as the year progresses, given that the lead times in China typically are shorter? You had a solid start of the year, but you didn't change the margin guide. So I'll start here. Thank you.

Yes. Thank you, Claes. Your question is, again, once more illustrative of your keen understanding of our business. I was in China last week. I was in China in January. I was asked to try to stay on top of that. And I'm afraid there is no other way to put it but to say that pricing in China is not only not improving, actually it's getting worse. I'll be very clear. You may have read another one. It's a particular developer. But you truly follow the news. And one of the... the one that seemed to be the virtuous, the very strong one with the government backing is also now in serious financial distress. And that shows how only a few ones that actually happen to be our customers are still somehow driving. And I like to say one point, there is still construction happening in China because you saw from our sale, there are opportunities. So now to the second part of your question, How do we do that? There, clearly, it is a race to drive efficiency in order to offset this pricing pressure. There is no way about it. Our message in China was forget the target we have for the year. Since pricing is getting even worse than we planned, we need to accelerate. efficiency savings across the whole value chain, which applies to material, which applies to logistics, which applies to field operations, which applies to our overhead. So it is a race. Luckily, because we start from, if we already have some momentum in that, we can. But the key is, of course, to try to secure the jobs that make sense. And so the criteria to select those are twofold. One is margin that is sustainable, and there are for jobs. And second, is portfolio convertibility. We're not taking jobs that have a very little chance of being converted in a portfolio. Therefore, our higher exposure than Tier 1, Tier 2 helps, because that's where you have the higher portfolio conversion likelihood, whereas this is more appreciated. So this is exactly one of the main challenges we have. uh and uh we continue believing in in the ultimate game in china which is this combination of portfolio growth now supported also by modernization so on terms of margin guidance why is it not been improved perhaps there i'd like to pass on the word to carla uh i think it's a mixture and generally maybe let me say q1 For us, we announced our results last February, made a target, just changing now our guidance in April is not something really that we would normally consider, but perhaps Carla, to the specific question, would you like to answer that?

Yeah, I think you said already, most of it indeed, when we look at our order intake margins, these are solid, but with the exception of China. Yeah, and that of course is related to these

Very clear. My second and final one is on the new residential range in EMEA. It's very encouraging to see the fast rollout with over 40% of orders now being in the new range in the region. Can we talk a little bit about lead times? Because, Carla, I thought you said that this could start to impact the P&L already towards the end of 2024. I would have assumed that this won't impact the margin well into 2025, but Yeah, if you could clarify that, that was an interesting comment.

Yeah, there will be hardly any impact in 24 coming from that because we, of course, now build up the order intake, but there will be hardly any, I would say, full installation this year. So, yes, it will have a positive impact or expected to have a positive impact from 25 onwards.

Thank you very much. Thank you, Klaas.

The next question is from Andre Kuchnin from UBS. Please go ahead.

Good morning. Thank you very much for taking my questions. May I just start with, I guess, invariably a follow-up on China and on the mix part of that development? Because from what I understand, that delta between unit growth and value growth is somewhat balanced between price and mix, and you've clearly commented on price very well. comprehensively, but just on the mix side, could you explain to us what is driving that? Is this the city's tiering or infrastructure versus residential or maybe your XJ brand versus the main one?

Very good. Thank you. Paolo, feel free to add. So I would say our dual brands have been extremely successful, even though they're probably higher exposure in two and three cities. But I must say, based on their strong customer base and well-aimed marketing, they've been able to be successful in Q1. China has been equally successful, mainly on the base of the recent product extension we launched. As you probably all know, we were always not as competitive in the residential high-rise market, which we had very good products to tackle the low-rise residential, but the mid-rise, high-rise residential, we could only cover as of last year. In November, we introduced a new extension of our 5,200 per mile, which is one that we have. It's modular, but essentially it's made for China. And that is now starting to be recognized in the market as a very strong solution, providing the kinder quality and features while covering a market with cost competitiveness. That has been a key driver of our growth in spite. And because what, as we said, there are pockets in China where we had an underrepresented market share. And this then explains the situation that even though the market overall is going down, we can finally tackle areas where we were not so present before. So that's been one key driver. Second, yes, we did take, Carla referred to that, a couple of infrastructure projects. Again, we selected the ones that we believed were the right ones with very high chances of convertibility. And those as well were part of our Q1 results in China.

That's very helpful. Thank you, Sylvia. And I had to follow up on the kind of how you take a share in China, but I think you've just explained that as well. So if I may use my second question on the margin side instead. And Carla, I think we're getting to understand some of the pieces of the margin improvement story better, but the overheads reduction part is probably still less understood. Could you maybe talk to us about the size of the total opportunity there? And in terms of the near-term cadence, we saw, I think, a step up in restructuring Q4 last year. Q1 is down to, again, a pretty small number. Is that what we should be looking at in terms of kind of measuring the intensity of that program, of that effort of overhead reduction?

Yes. Thank you, Andri, for the question. And you will remember that there are a couple of pillars. I presented them also in February that are quite important for the margin uptake. And one of it is, of course, the efficiency. When we talk about efficiency, the overhead efficiency is only one part of it. And even not, I would say, yes, it is an important one. But the main ones are definitely the new installation modernization and the efficiency in the existing portfolio. So, yes, we were already partly successful in in the first quarter, but there is where a lot is more to come in the remaining part of the year and actually also in the period following 24. You remember the presented uptake to the 13% in the midterm, André.

Okay, if I may just follow up, so, I mean, yeah, in terms of the overheads itself, I mean, if we were to try to think about that delta between the 11% that you've got targeted for this year and 13 for 26, 27. Is this the ballpark of 20 to 50 basis points, or is it much smaller or bigger than that?

Purely on the overhead, the total efficiency is a major part, but only the overhead is rather a smaller part of the totality, yeah. because the major part is related to what I just said on the efficiencies that we are driving in the new installation and the modernization.

Great. Thank you both very much.

Thank you.

Thank you, Andrew.

The next question is from John Kim from Deutsche Bank. Please go ahead.

Hi, good morning. First question, can we talk about mix effects in Asia-Pac ex-China? If we compare contrast value versus units, it's a pretty steep decline in effectively the ASPs. How much of that is mixed versus like-for-like pricing? Is there a country mix in there we should be considering? And if we think about Asia-Pac, and I'm really kind of focused on India, call it the next three to five years, are the pricing and margin dynamics going to be potentially like China in the short term? I know a number of OEMs are targeting that market as a strategic growth area.

Thank you. Thank you, John. Let me start with the last question, with the second question, India. The answer is the China market and India market are distinctively different. So today, as a matter of fact, the price per unit in India is lower. There is no question. And then the underrepresented portion of revenues coming from India for the whole group. At the same time, it is fair to say that price in development in India is extremely favorable, also on the back of inflation in the country, that's clear. But that is point number one, which makes India a bit different. Number two, which is super important, the stickiness of the portfolio in India is much higher. And this is a question of tradition. Having worked there myself, in fact, customers, they would even not accept to consider buying an elevator or an escalator unless there is a commitment for service and those systems, spare parts thereafter. That is, therefore, a strong business model with, of course, all things that you know well about strong workforce, growing workforce, things that probably in China today are becoming much less favorable. So the fast growth today is extremely positive. Maybe one element that should also be said Today, contrary to China, where there is a plethora of local players all declaring very high manufacturing capacity, which ultimately drives to a market overcapacity, that's not the case in India. Of course, there are imports from other parts of the world, especially from China, but that too for a number of reasons, including probability. political tensions is less of a pressure than you would have in China. So to answer your question, less price points, but overall less of a disruptible so far market dynamic. Your second question, your first question related to the difference between, if I understand, units and value in Asia Pacific. Paolo, would you like to address it?

Yes, sure. well observed and it's a bit counter-intuitive looking at the relation between units growth and value. He has mentioned before the biggest and it has to be cleared. The biggest impact is a very large project we had last year in Australia in Q1. It was the Sydney Sydney Metro, which gives a bit of, not a bit, it gives very much this picture. So the answer is very clear. Yes, it is a mix coming from booking of large projects in Australia mostly, outside of China.

Okay, if we were to neutralize for that project, is it fair to say that pricing is flat to up if you look at the rest of the portfolio on the order intake, or is that not fair?

Yes, then it would be very much also slightly positive. Absolutely, yes. So if we would neutralize by these large bookings of infrastructure projects last year, the observation is absolutely right. We could say it would be also slightly positive in the value growth.

Okay, great. Thank you. The next question.

I'm sorry, sir. The next question is from Ben Helen from Bank of America. Please go ahead.

Yes. Good morning, guys. Thank you for taking my questions. I just wanted to touch on EMEA and America's new installation markets. And if there had been any signs of green shoots in any of those markets around orders, around incoming from customers. Just what are you seeing there and can you talk a little bit about the pricing dynamics in those two markets? Is it super competitive? Are you still seeing good pricing? Just any color around that would be super helpful. Thank you.

Thank you, Ben. Paolo, please. Happy to take this. Thank you very much and good question. Maybe now to talk about EMEA and America in one sentence is a bit difficult. Let's see. It's a bit of a different picture. Even there are some similarities. And very clear in some markets, and I mentioned Germany before, there is a very sensitive pricing ongoing in the market. However, it must be said that we manage until now to stay very, very, to stick to our own strategy of keeping a disciplined pricing. But your question was what we observe in the market. And then I can surely say, yes, it's true. You've seen some major markets pricing getting under pressure. The second part of the question was, is there some green lighting and how does it look like? Now, observing the difference between some EMEA markets and North America and Brazil, let me start with Brazil and North America. Here, we can say Q1 would indicate in the residential segment some green lighting. And I would say, yes, this we can observe. At the same time, I would underline the still lacking commercial segment. If we move to EMEA, in the same observation, also different pictures between some countries in the southern part of EMEA, Middle East and some southern European countries in which, yes, you can say business is still on a positive term, while I repeat myself, major markets like Germany, like the UK, I would say Q1 is a continuation of what we have already reported quarter for last year. very much under pressure both in terms of volume growth as well as pricing.

Okay, great. That's very clear. Thank you. Thank you very much. Thank you.

The next question is from Vlad Serdievski from Barclays. Please go ahead.

Yes, good morning. Thank you for taking my two questions. I'll go one by one. First, obviously very strong cash flow looks like it was to a large extent driven by currency. And of course, you mentioned better prepayments and better trade payables as well. So can I ask here, why those are getting better when your orders and your sales are both down in Swiss francs? Is it something specific to Schindler? Is it something specific of how you manage those lines?

Yeah, because thank you, first of all, Vlad, for noticing it. Because we put a lot of attention to it and we are actually just managing in a better way. And I hope that we can further improve that going forward. So both, you know, at the payable site as the collection site, yeah.

That's very clear. And also, can I ask about the margin on new orders in Q1, maybe compared to what you saw in Q4 to see the trajectory over there? Would you be able to comment on what happened to those margins in China and outside of China and combine the fact in Q1 versus Q4, please?

Yeah, well, as I mentioned already, the intake margins are very healthy with the exception of China for the reasons that we mentioned. So the pricing pressure in China and also the decision to take on some large infrastructure projects. That's great.

Should I read it as intake was healthy compared to Q4?

Sorry, can you repeat? I apologize.

Apologize. I was trying to compare this order intake margin in Q1 versus Q4. Is it healthy at the same level that you saw in Q4? Is it getting better? Is it stable?

Well, I mean, with the exception of China, you can say it is definitely stable. And I will come back with it in quarter two and give some transparency, because obviously, with all the focus that we have on the efficiency and the productivity initiatives, and also, of course, you know, we had solid plans for procurement, but given, you know, where where some of the markets are moving, we actually accelerate these initiatives. So, you know, I will give full transparency where we stand in quarter two.

That's great. Thank you very much.

And focus on cost out and these initiatives. There are a number of moving parts at the moment, as you can imagine.

Thank you very much.

My pleasure. Thank you, Vlad.

The next question is from Remo Rosa now from Helvetica Bank. Please go ahead.

Yes, good morning. You mentioned several times that strong pricing discipline is of the essence. At the same time, you claim to gain market shares, namely also in the new equipment business. That seems like quite an achievement to gain market shares while simultaneously being very disciplined on pricing, especially in China. where pricing is particularly tough. I mean, how do you actually achieve this? And are these market share gains taking place in all the regions or just in some?

Remo, thank you for the question. Good morning. Let me revert to my earlier explanation. Thanks to the new products we are introducing in China, but also in other parts of the world progressively, we can tackle parts of the market that we were not previously competitive in. That is one key element and customers are keen to machine the product for those markets as well. That combined with, as Carla said, the efficiency. So overall, we clearly are making sure that we have to gain competitiveness, not only of course in the bottom line today, but also the way to stay competitive, to secure the jobs we want to have, which therefore allows us human saving, efficiency savings, which candidly allowed all of us still to come. And therefore we have to continue getting these competitiveness, will then allow us to have margins and then allow us to combine the two. But in some cases, as you heard Carla saying, when we have to take large infrastructure jobs in China, which we decide are worthwhile, then of course it's a tender and then you have to take the price that comes. But then the question is, select which project you want to go for and don't go just all out on things that will hit you. So yes, in China in particular, it is a very fine line, but one that I think we are resolved to continue driving.

okay thank you for the elaboration thank you as a reminder for further questions please press star and one the next question is from nick houston from rbc please go ahead yes hi everyone thanks for uh the opportunity to ask questions i've got two

Firstly, on the new installation backlog in China, so the overall backlog for the group was up sequentially, which was good to see, but I'm just wondering whether within China new installations, this is also the case.

Thanks.

Thank you, Nick, for the question. It's actually a good question. And yeah, if we would look at the backlog margin of China individually, I would honestly need to come back on it at this point in time, you know, because we obviously manage it from a global perspective. So yeah, let me come back to you on that one.

Okay, great. Thanks. And then just secondly, on margins within the modernization business, I know you don't disclose them specifically, but I was hoping you could maybe just remind us what the sort of rough dynamics are here. You know, we've had some of your peers talking about modernization margins being higher than new equipment margins. I think your American rival has said that, well, they've sounded quite optimistic about the outlook here. So I'm just wondering what you're seeing here and how important that is for you hitting the midterm margin targets.

Yeah, actually, yes, it is in line with the expectation, and I can confirm that the margins in the modernization are definitely ahead of the new installation margin. But I said that it's in line with the expectations, and I can also confirm that there was a very good development in the first quarter in the margin development in the modernization. Paolo, do you want to add something there?

You summarized it very well. And Nick, thank you for the question. Obviously, modernization is maybe on one end side also not so easy to be compared with new installation. But the question about the margins, they are higher. They're developing also quite OK, positive. And I think this is a business line which has to be seen as a standalone. I always say to compare with NI, with new installation might indicate some courageous assumptions. So therefore, yes, as Carla mentioned, it's on our expectation, and our expectation was higher than the installation.

Great. Thank you very much. Thank you. There are no more questions at this time.

Thank you very much. Thank you for attending the call today. Please feel free to reach out for any follow-ups you might have. The next scheduled event is the presentation of our half-year results on July 19th. With that, thank you and goodbye.