Schindler Holding AG

Good morning, ladies and gentlemen and welcome to our full-year 2021 results conference call. My name is Marco Knuchel.

I'm head in Investor Relations at Schindler. It's the second time that we do this in a virtual set up, and I think I can say, we miss you.

We miss the face-to-face discussions with you, the face-to-face interactions. Eventually -- we're quite a small group in here.

I'm here together with Silvio Napoli, our Chairman and CEO, and Urs Scheidegger, our CFO. Silvio will do the introduction at the beginning and those with will outstand lead through the financials.

After the presentation, we are happy to take your questions. I would like to ask you to limit yourselves to two questions only.

Thank you very much in advance. With that, I would like to hand over to Silvio.

Silvio, please.

Thank you, Michael 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, 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 I had the pleasure to meet up until 2016, and I look forward to working together with those of you, who we hadn't had the pleasure to meet so far.

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 their plans going forward. But this year there is another question, and that is the question about our 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. Today's agenda will be somehow different than usual annual presentations.

Today I would like to really focus, at least from my section, on explaining the reasons the 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 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 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 are still, very much valid. You can see there were six modules.

We can grow 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 a 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 occasion looks at the result. " And now if you look at the results for this year, around competitive 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 a keen follower industry, you observed yourselves 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? That is of course a state of mind and this is something that together with the new team, we've already embarked upon over the last four weeks since the new structure has been put in place.

What is really the situation? And to do that, I'd 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 1, dealing with foreign exchange burden. Number 2, regain competitive new installation margins.

Number 3, resolving the supply chain disruptions that have been affecting our industry and many others. Number 4, streamlining our product portfolio complexity.

And finally, this is something that occurred over the last few months, adjusting for China market contraction. 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 of these in some cases, even twice.

But what makes it unique is the mix of all five coming simultaneously. What makes it unique, the speed of change and in some cases, the magnitude of the impact that each round of the challenges carried by its own, 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 in your models. Now, that's a staggering number.

This is -- it's a 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 aligned to the progression, or rather the regression of the exchange rate with the Swiss franc of some of the key currencies affecting our business.

And of course they range from the minus 8% of the RMB, to minus 74% for the Brazilian real, a country which is a key market for our industry. Now, very good, but you can say many 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 revenue -- sorry less than 10% of our revenues come from Switzerland. And of course we do have, because of headquarters, 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 transactions.

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 NI margins.

I should be for 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 itself is a complex aspect.

As you know we have a complex value chain ranging from design factory, and that now comes installation. So let me just break it into three fronts to explain the challenge.

Front number one, is we're to review on this slide is the raw material and cost of component increase, in this case, we can speak about inflation. 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 19 -- 2020.

That already gives an indication and look at the speed at which it went. And economy, as predicted, it should have started to slow down in Q1.

It's not happening, so one better be humble and take it 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 CHF1.4 to CHF36.

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 bringing into the solution for NI margins. Second front of our NI margins is logistics.

Now, logistics, as you probably also know, has had an explosion of costs as well. As a matter of fact, here taking the example of X Shanghai Containerized index, they went -- they increased five times since 2020.

Major challenge which happens at the same time as everything else. Now, we often said that because of our regional manufacturing strategy, we're less exposed to these 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, our make-buy 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 costs, and by the way, we don't speak about delays here, is a major issue which affects our to be tackled with.

Front number 3: 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, 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 a tenders on the way we have served the market.

And you can see that not all of the same development in spite of our effort to increase prices. You can see that it goes from accounts where you can have a 10% increase over two years to one where in fact, you ended up having a decrease up to -6%.

And then another one which just in the middle about 2%. Now clearly we need a , and yes will increase prices a lot more, I know Scheidegger 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.

Yes, as you've heard, as we announced, our modular product line is selling very well. Customers love it.

And after the launch of 2020, today you can see it's about 1/3 of our new sales are based on this new product line. But you can see, as you know, our 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 Proto lines and the new ones.

But it also means -- I'll come to the production in the second. It also means that our complexity weakness managed as a portfolio in terms of spare parts, in terms of sales, in terms of configurators is allowed more complex.

And why did it happen like this? Because of course we were two years of pandemic this order on hand, this backlog has been a lot lower to flow through our 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 would like to stress.

You probably heard that our -- and you remember, the said that the -- 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 product line is very much on the way to become the full coverage of the market with 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're 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, our new products lines, have to deal with more components that 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're going 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 lines, 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 have been through some of those super-cycles myself, so I've learned not to panic and we have always managed to deal with that. 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 second -- 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 did first hand in the past where you can see the inventories growing across all tiers, all cities. But you can see here that with inventories still going down, we are .

And why is that? It is one which is for once client-driven It is these large developers, of course, ever grand being the most famous one, who basically, now struggle with the financials, and its great uncertainty also on the buyer side.

Whom are we going to give you 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 minority among Tier 1, Tier 2, Tier 3 cities shows there are many opportunities, but these 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 there are and where we are sustainable in the long term. And of course, China being China, all NI margin discussion has to start with China.

Hence the importance and frankly, the unexpected additional -- this extra challenge towards the end of last year. 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 they introduced the structure.

We introduced the structure because it's totally consistent with our 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 competition, we need -- I cannot find a better term, but to speak about a war cabinet, a different approach to do with the situation, whereby we compress the decision process at a much more 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 made.

And then to do that to support it, we introduced the new role of the Chief Operating Officer, which has been taken by Paolo Campagna, who has been the head of our 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, 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 not achieved our objectives.

We believe within 2, 3, 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 balance within 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 the questions you might have.

But for now, I'll leave the word on the floor to Urs Scheidegger, 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 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. While the markets have continued to recover but showing mix 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 CHF 3.1 billion, 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.

Or the intake rose by 10.4% to CHF 12.2 billion 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.

The 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 the revenue development.

In the fourth quarter of '21, revenue increased by 0.9% to almost CHF3 billion corresponding to an increase of 0.6% in local currencies. Third quarter slow down continued into Q4.

On one hand side, due to continued lower new installation and modernization growth driven by disruptions in global supply chain s 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 to gross reached 5.6% and 5.7% in local currencies.

M&A contributed also here, about 150 basis points to gross. 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 EBITDA adjusted in the fourth quarter reached CHF 306 million, which is equivalent to a drop of 10.3%, respectively, 10.6% in local currencies. We start the EBITDA adjusted margin reached 10.4%.

Full-year EBITDA adjusted increased by 5.7% to CHF 1,252 million, corresponding to 5.4% in local currency growth. In the second half of 2021, we were facing challenges arising from the phasing of modular platforms, replacing legacy product lines.

Temporarily, adding complexity to our supply chain, particularly in EMEA, resulting bottle necks, delays and inefficiency had an adverse impact in 2021about CHF100 million of delayed revenues, respectively, about CHF35 million on EBITDA adjusted. For the full-year, EBITDA adjusted marching 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 CHF42 million, led to a drop in net profit for the fourth quarter of 15%.

Net profit for the full year totaled CHF881 million, an increase of 13.8% compared to the prior year. Cash flow from operating activities remains solid though declined 17% to CHF 1.36 billion.

The networking capital level has further improved and exceeded the first time a negative CHF 1 billion, though the improvement was much less pronounced than the previous year. An ordinary dividend payment of CHF 4 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. 8 months after launch, we can report the following progress on the 6 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 maintain 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 on the way. 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 '22, 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 the 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 in cost near-term, due to long lead times. We expect Top Speed 23 expenses to reach up to CHF150 million in '22, and revenue growth is expected between 1% to 6% in local currencies, varying on foreseeable events.

Margin pressure is expected to continue and quarter 1 and quarter 2 already expected, we slow revenue gross and the significant drop in profitability. We start, I hand back to Marco.

I would like -- maybe I need to restart. Thank you Urs.

We are now happy to take your questions and I would like to remind you to limit yourself to two questions only. Alice, please.

Hi, good morning, everyone. Thanks very much for taking my questions.

I'll stick to 2. First, I wanted to check on the comments of this structure, will remain for the next 2-3 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. 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?

What's the, I guess, the time frame is 2-3 years, but what other metrics should we monitor to see it? You're moving towards those objectives.

That's my question, number 1. 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, inorganic 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 Silvio 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 as I explained at the beginning, we now have a new team that has been together for -- it is the fourth week. We explained the challenges, what we're doing now is to do justice to the importance and the difficult to 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 we're already quite advanced, and then transform these in a new strategic plan with new targets. These are targets that we'd be measured upon, and these are the targets which then will lead at the end of the, this, what I call, transition phase to then re-establish our structure that we have had until last year.

Now, please bear with us. It wouldn't just -- 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 going to -- we -- this would be ready, which will be, I would say, summer by the latest, will share them with you.

Second question on the capital allocation. Yes, you understood well, connectivity.

Consistently, with our Top Speed 23 will be -- 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 way the business will hopefully -- actually with the objective of delivering better quality for the customer. How do we measure that?

Then of course, how do we then link and bring the customer and 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.

Hi. Good morning, gentlemen, and thanks for taking my question.

I'll also stick to two questions despite having a lot more. But just maybe follow up on Daniella's question and trying to drill down a little bit on what you tend to be want to be doing because it's helpful that you gave us this clarity on the burdens you're facing, but I guess some of those are not necessarily dependent on your own execution.

If I think about FX, for example, or the state of the construction market in China, they are more dependent on outside or external conditions. How -- what are you tangibly planning to do to 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 have -- we're asking the same questions, but now -- and again, we don't have the full plan.

Let me give an idea first, maybe a challenge will give you an indication. I think that's legitimate.

The foreign exchange, well, one thing for sure we cannot sit idle. We probably will never be able to offset the full extent of the consolidation impact or the translation.

However, if you should 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 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, again, growing larger the market, the chart referred to Tier 1, Tier 2, Tier 3, and as 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 in 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.

I am -- as much as I think you're correct in saying these other such magnitudes or an external force, I believe we can and must do something to offset them.

Thank you very much. Just maybe looking a little bit more shorter-term.

If I understood well, also, I think you were indicating a margin in the backlog which was down 60 basis points. Correct me if I'm wrong, I might have misunderstood.

You obviously also indicating a difficult first half 2022 in terms of growth and profitability. I guess it 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 of 2021 where obviously profitability was already under pressure.?

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

Yes. Yes.

Good morning, Lucie. Thank you for the question.

As you certainly have noted, the challenges and headwinds have clearly increased in the second half of '21, due to this very significant material cost inflation. Overall, we are talking about CHF150 million in '21, and thereof only CHF60 million occurred just for Q4, and this will continue into '22.

We are expecting incremental additional up to CHF150 million material cost inflation as commodity prices are still very close to peak levels. A lot of that will occur in the four first half year of '22.

We also see increasing wage inflation into '22 as an outlook. Last year involves a bit more than 2%, but now it will go up to about 3% of our total personnel cost line.

But we also. -- still we'll 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.

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. You see headwinds coming into the second half, particularly now in the first half year -end, we have also noted that in our media release, there is a significant drop off 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. 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, Urs. And 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. Are you not including some of the savings or measure that you're putting in place?

Even if this measure won't fully offset.

Yeah, I'm talking about the first half year of '22.

Yeah.

Yeah.

Thank you. Okay.

And this is the growth impact from the headwind? Pre some savings, I guess?

This is the net result. The net results headwinds, net to be supporting factors.

Yes.

Okay. Understood.

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

Oh, yeah. Hi, everybody.

Silvio loving to have you back in the seat. have been well.

I have two questions, but firstly, could I qualify the answer you gave to Lucie. 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 we did CHF638 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, or 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 do you think that might still this year?

James, thank you. Great to hear you again.

Urs, there are there questions here. The first one is about quantifying 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 remember -- if you see my chart number 4, the long and short answer is, that 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.

Whether, and how fast, we'll be able to reach the most profitable company in our industry, which just announced very, I would say, clear improvement in terms of EBITDA is -- 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 Schindler 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 a 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.

That's the short answer. Of course we have to do that, at the same time achieving -- the other ambition is to achieve LC growth, which of course is a different consideration in due to challenges we just explained.

Because when costs were somehow predictable and flat, the model that consistent in selling, and then planning on driving cost reductions on things that you had sold at very competitive prices, that model and needs to be resolved. So what are the outcome delivers?

And of course, the target is coming out of that. That's something I look forward to discussing together with you.

I know there's -- so are your peers, when we are ready for that discussion. With that, I will give to Urs for your two questions.

Thank you, Silvio. Yes, James, last year first half-year was actually really a very solid result because it was driven by higher revenue generation, gross 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 old the construction sites can be managed, how the material shortages can be managed overall on construction sites.

Thank you.

Any comments on the China NI margins where there is, versus the peak and how much it might fall this year?

I don't fully understand the question.

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

All right. Okay.

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. 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.

Thank you, James.

Good morning. Thank you very much for taking my questions.

I wanted to just double check on the mid-term and the full margin potential, because in the past, we discuss 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 internal audit system that you got implemented. So Silvio, could you comment to, or could you confirm to us that the ambition is to close the gap to peers at a full stop where Schindler as it is?

Andre, hello there. Thank you for your question.

So now you're going to specifics, of course, we did discuss that. Yes, we do have processes that are to some extent different -- actually to a large extent different from our competitors which are pulling more focus on safety and quality, which involve some costs.

Now, I just want to give any wrong sense here. We're not prepared to sacrifice quality and safety in order to close the margins.

That's not the case. All right.

Our challenge is, how can we retain the quality and safety? Possibly achieving the same approach, differentiating ourselves from our competitors.

always. While maybe doing it, maybe different doing the more cost competitive way.

Yes, that's our ambition. But what you cannot say, is that we will now remove all the steps.

This is absolutely not the case. Does that address your question, Andre?

Great. Yes, it does.

Thank you, Silvio. 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 monitor -- ultimate monetization of this asset and the investment. And how do you assess the risk of becoming somewhat competed away for lower maintenance prices, because of the magnitude of their operational efficiency benefit that they bring about?

I'm afraid -- for our 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 of it. If you don't mind repeating the second part, but let me first answer the first one.

Monetization of digital on connectivity. See now, we are finally advancing, and later we can -- we want to go even faster now.

That will be part of our capital allocation in terms of connecting more and more of our portfolio. So monetization’s comes in two part.

One, it comes by a lower turn 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. 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 the 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.

So then, we can go back to R&D and improve the design. Things that whatever long test you may want to do and towers which we did traditionally, you will never be able to capture.

This is another monetization. It's a product design quality, and faster engineering innovation loops.

The third one is, I think you mentioned this, is digital services. This is the beginning.

You've seen that in some markets now, 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.

All of that is creating the know-how knowledge and market intelligence that will allow us to take these 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 again.

The second part of it was just on how you assess the risk of the investment in digital being competed away through lower -- essentially lower maintenance ASPs just because of the amount of operational efficiency benefits that it brings?

So far, I would say if anything, the investment realization has been additive, absolutely not adopting anything. So far that's not the case.

There is also strategic defense, like the strategic moat, that will also help us to fend off. Which has been very much the case so far.

Other industry disruptors that based on your digital approach. And that is also another value.

But so far, we have not seen any evidence of that. Or in terms of anyone -- of any destruction on the investment being made.

Thank you, Andre.

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

Thank you.

Pleasure.

Good morning, gentlemen. Thanks for taking my question.

I just like to go back to the adjusted EBIT discussion we had previously because it was a little bit confusing. Sometimes we heard net profit being down 20% debt adjusted EBIT.

I just wanted to clarify that. Are we talking about -- then we will also talk about margins being down 20%?

I was little bit confused now. What's really down 20% according to your estimates in H1?

In that respect, I realize all the headwinds that you've been talking about. But we also have tailwinds, according to my understanding.

We have Top Speed 23, which has been -- which should start to bring some first fruit also in 2022, according to my understanding, 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 cost base in 2022?

That's my first question. And the second question is very, very simple on the acquisition impact that I would think was taking place also in order in taking 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.

Headwinds and tailwinds. Very good question.

The tailwinds you do mentioned, are things that we already had in place, and thank you for underlining it, such as Top Speed 23 and efficiency gains. These were developed with no assumptions, with data on hand that is today, to be updated.

This is one of the two questions. For example, when you talk about efficiency gains.

Yes, and we are, as you can imagine, going all in for it, and that will be accelerating powered of our can rate dissipate part of our action plan we'll be sharing with you. However, take another example, which I didn't mentioned before, I didn't want to bore you with too much.

There is another element, for example there, wage inflation. That's a fact that it's throughout the world now more than ever, U.S.

being probably the most talked about case today. All the plans we have now need 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 us Top Speed 23. Absolutely.

Now, based on all that, you can see, so far if you look at the results for '21, we decided we need to accelerate. So clearly Top Speed 23, we are definitely pushing.

We are also assessing which of the Top Speed 23 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 than we need now in order to face even stronger headwind.

Yes, all is there is part of the equation and that part of the plan that we present. We're working on together, together with a new team.

Urs, would you like to take the second question? Starting with the margin qualification, the 20% gain?

Yeah. So let me very clear; I am talking about EBIT adjusted line, then I state that this will be a drop off around 20%.

On the M&A as I said, we have 150 basis points contribution to gross in order intake and operating revenue full-year. In quarter 4, it's closer, a little bit less than 100 basis points as the contribution from the Volkslist joint-venture acquisition are now fading out.

Of course, we will continue running M&A, particularly on maintenance of portfolios and this will be also an activity we are running in '22.

Hi. Good morning, everyone.

Thanks for the time to take my questions. If I can start with a question on China, and the outlook.

And you've, obviously, been fairly clear in terms of the challenging market that you're seeing there. I'm interested if you have any view on when we may see that market start to improve.

We've heard from some of the industry commentary talking about potential for the second half to look stronger than the first half. And I'm interested if you have any view, or any thoughts, on when we might see some of those conditions start to ease?

Thank you, Andrew. Let me see.

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.

I don't see -- we have no indication so far of a major breakdown. However, if 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, , 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 say, well, this is really assessment today. So I wish I had an answer, but I am afraid I can only say, yes, we hope this going to get better in the second half, maybe in between the option will be public transportation, there is also infrastructure projects coming on the market being tendered, which definitely will compensate.

So the drop in terms of private, commercial, and residential. However, to be very clear, those tenders are very long and complex, and involve a lot of customization.

They are not great for margins to put it bluntly. So part of our marketing which are discussed before about how to make sure we improve our margin thing 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.

Second area, and different. It's around the Top Speed.

The cost guidance having increased for 2022. I wanted to understand whether that was an increase in absolute cost of the total program, whether it was cost which have been brought forward to accelerate the program?

And then, whether the additional cost, if it is additional cost, was because you're going to expand the scope of the program or whether the program itself was going to cost more than you'd initially expected? So it's a few aspects.

Just trying to understand exactly where the $50 million extras come from.

Thank you. Indeed.

Observation, absolutely correct. I'll give the word tours just one point.

Going back to the topic of capital allocation, yes, we want to accelerate -- further accelerate our speed to generate the benefits that indeed are expected to give us some tailwind finally. Yes, there is an increase.

Urs, 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 a first -- an early first milestone. Clear acceleration, up to CHF150 million for '22.

we would be in the range of CHF 200 million, CHF210 million after two years. We keep the overall program envelope of up to CHF217 million.

That's very helpful. Thanks for your time.

Thank you.

Yes. Thank you, and good morning, everyone.

I have two questions, please. The first one is on the ramp up control 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 order intake here?

How much longer will it take for the whole conversion? And the second question's, actually, related to this.

You talked about CHF100 million impact on revenues, CHF45 million on EBIT, from efficiency losses related to running increased number of platforms on new facilities. Is that a similar number we should participates in new breaks for 2022?

Or will that be higher or significantly lower than that? Thank you.

Thank you. I appreciate that you ask about these issue of complexity, which is really one that has to be dealt through even as an absolute priority.

So the first question is, how long would it take for a legacy backlog to be producer-installed? To be clear, as I mentioned before, if you look at the slide represented before, it was Slide 10.

In fact, we definitely would have hope by now, we would've been more advanced. Unfortunately, the situation with pandemic was what it was, construction site delays.

Normally, backlog, on average, was 18 months. 18 months’ access, sometime large projects are longer, but I think 18-month is a good term.

If you look at what you see here, if you look at the mixture, 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 will be the projects which have been the most delayed.

Then you would have probably some high-rise. I would say it's probably two to three years.

Three years is probably a say for 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 in quite in a large backlog, are still very much only now coming out of a serious lock down in some cases, not even. So, I think that's a fair assumption.

For the impact EBIT, Urs please would like to take that?

Yeah. So the CHF 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, which should be generated later in '22.

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 CHF 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 head win in the next quarter 1 too and as soon to take -- to finish and fix it.

I expect for the full year that we will also be a better part to the P & L. In the range of CHF 13 million to fix it, completely.

Is that incremental, or is it just a similar impact as in '21?

This is the similar impact as in '21.

Okay, thank you.

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 take them one by one.

On digital services, you flag 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 of course, transition to Microsoft Azure.

You rolled out initially with Huawei as your global connectivity partner. Can you give us some sense of what you see historically at whether you felt you have lost some ground, perhaps catch cold up with your key peers around digital in the last couple of years?

Thank you.

Thank you. The fact that you've mentioned that focusing on services, I'll go straight to model because one thing that I tried to do in the company, is to make sure that we don't forget this is only 50% of our revenues.

But a key part of our business, we are ultimately a service company. Thank you for having me correcting that and let me understanding.

Let me just give you a straight answer. No, I don't feel we're losing ground.

You can see from what I said before, I don't think one can see we're not humble. We don't have a problem of seeing when we have one, but in terms of digital service, we don't feel, even from a quantitative aspect, that we're actually staying behind.

One thing for sure and this -- I just say this respectfully, we talk less about it because we believe there is other opportunity, other 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 the 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 will make sure we cover it. I believe we're doing a lot more in terms of product design, you saw us part of our Top Speed 23, we're about substantial part of our investment and capital allocation, which goes towards 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 -- is to link a digital Avatar, from the moment a product is sold, designed, all the way from when it is installed, maintained, we'd all process at a global rate. Some of our competitor’s years ago announced Google Glass.

I challenge anyone to find a technician that uses it anywhere in the world. No, we don't do this.

We don't announce it before. But because we believe if -- us to start first with the core, which has to have this Digital Twin concept and digital connectivity behind.

So to lead a little more, I like to see 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 we can show in this regard.

That's clear, Silvio. Thank you.

Maybe just on disclosure, in the summer time, maybe should we expect to hear more around Building Minds? You've invested CHF60 million, I think, so far over the last three years, I think we've got other CHF100 million to go.

We haven't seen a huge amount of disclosure. What might we expect around that, and particularly what are the key KPIs we might expect to see from that business going forward?

Absolutely, we're keeping in mind. That will be my pleasure to do this approach that I've been following personally, yes, absolutely.

In the meantime, I only will 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 soft weather service for real estate, but always more the ESG aspects.

Since most of our customers now are also confronted with the -- how to comply with the Paris cop type commitments, how does the real estate industry confront that? And reminds us become very much a key tool to support them.

This is absolutely exciting and 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 gave 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 the Chinese market, as being perhaps more selective?

You talked about infrastructure not great for margins historically, not been. How to think about bigger picture your pricing strategy going forward in the Chinese new equipment market, please?

Good. 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 will be part of -- this is what we are working on now. Again, the idea is clustering, is understanding which segment is going where, which involve geography, which involve 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 investment are necessary in our business. I'm going to say selling is the easy part.

The question now is how do you secure maintenance afterwards? How can you provide a service?

How can you differentiate yourself from the local competitors which already, candidly, you're never going to be able to compete on price? Done 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 pressure.

But it is all part of the consideration. Urs, would you like me to take the point about price development in China?

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 , and commercial public transport pricing was under pressure -- competitive pressure for us on the larger projects.

Thank you.

Thank you both.

Thank you.

Hi. Good morning, everyone.

Two questions from me. On your top line guidance, I want to understand your thought process for 1% to 6% since your backlog is up 8%.

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 4, this is 0.6% gross in local currencies due to the global supply chain disruptions 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 year whether these bottlenecks are releasing and we can run much faster again.

Thank you, that's clear. And then you want to achieve a competitive margin.

You are now doing the 11%, not yet clear to me when you launch the Top Speed 23 Program. I suppose, you also had the target in mind.

So will that be raised, or just bought forward? And are you thinking on an absolute level because you just said earlier that 11.7% in the first half of 2021 was solid.

Your closest competitor for margins around 11% for 2022 year. Your peak margins were 12%.

here for competitive margins, what does that mean ahead of the summer would be great.

Thank you. I couldn't understand your question.

That's obviously very important for your models. We're not in a position today.

We know 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 the gap on new.

But nonetheless, in the meantime, you see what our current competition has guided to. That gives a sense of where we want to get.

Of course, your question, if all you're going to ask me is by when, and the answer I will give you is as soon as possible. We are at the same time applying the realism of the backlog you just saw, with the we just discussed.

But this will not be for any complacency what so ever. I hope you at least -- that was perceivable.

We had extreme result 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 if I can squeeze in one last question. Apart from the margin impact, how the modularity impacted working capital?

That's my final question. Thank you.

Urs, would you take it?

Affirmative Noise Well, the midterm is clear, modularity will reduce variants 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 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 will also see that our inventory levels in 21 ' versus 2020 have increased quite strong to build up some strategic inventory buffers for deliveries.

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 up to '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 really good question. Very important one.

Thank you for that. It really comes down to scale.

The risk of seeing singles are evident. One of our challenges if we look back over our results has been that we've been able to grow top line quite successfully, but not being able to turn that into improvements in margins, and this is a challenge with the whole scale theory.

In theory, when you grow size, you should be able to turn it into better margins. And that is something which we believe has not been achieved also, and predominantly because of the complexity in our 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 we grow in volume, and negotiate, and work together in a different way. That's an example.

Right away, if you look now at efficiency in a factory, you may -- please allow me to recall the slide issued about the number of cabins in a factory, right? The goal is, now we are in this transition phase where we have 7, but the goal is to go below, to where we were in 2017, which was forward.

To go to three, to two, and then, maybe the modularity, we will always have an element be codes and standards, that we can now go below. But then if you apply this to every single component, we are going to have many less components to be delivered in a much more effective way.

These are a concrete example, 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're a bit with our leg spread between two rivers here.

Because at the moment, it's an ideal and it's taking longer than expected because of the pandemic, but no excuse, we got to fix it. Hope this helps understand.

That's very clear. Thank you.

It was the last question for today. Thank you very much for 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 questions.

The next event is the Q1 results presentation on April 22nd. Thank you very much, take care and good bye.

Thanks everyone.

Thank you very much.