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Earnings call: Schindler maintains growth in Q1 2024 amid market challenges

Published 04/19/2024, 07:54 AM
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Schindler Holding AG (SCHP.SW) has reported a robust first quarter for 2024, demonstrating growth and operational efficiency in the face of challenging market conditions. The company saw an increase in order intake and revenue, particularly in the service business, and successfully launched a new modular platform in the EMEA region. Despite a slowdown in China's new installations market, Schindler is optimistic about its full-year guidance, expecting revenue growth and a stable EBIT margin.

Key Takeaways

  • Schindler's order intake grew by 2.5% and revenue by 1.1% in the first quarter, with the service sector driving growth.
  • The company launched a modular platform in EMEA, contributing to over 40% of units sold in the region.
  • Despite a decline in China's new installations market, growth in India and the Middle East helped offset the impact.
  • Schindler reiterated its full-year guidance for 2024, forecasting low single-digit revenue growth and an 11% EBIT margin.
  • Operational efficiency and pricing measures have led to improved operating margins and cash flow.

Company Outlook

  • Schindler maintains a positive outlook for 2024, except for China's new installations market, expected to decline by over 10%.
  • The company anticipates a positive impact from its new residential range in EMEA from 2025 onwards.

Bearish Highlights

  • The Chinese market presents ongoing challenges with a significant decline in new installations and pricing pressure.
  • Pricing dynamics in Germany and the UK are under pressure.

Bullish Highlights

  • Strong markets in India and the Middle East, particularly Turkey, are driving growth.
  • The residential segment in Brazil and North America shows signs of expansion.
  • New modular solutions and infrastructure projects in China have contributed positively to Q1 results.

Misses

  • Revenue growth in Asia Pacific was negatively affected by the slowdown in China's new installation market.

Q&A Highlights

  • Carla De Geyseleer mentioned healthy intake margins for Q1, stable compared to Q4, with more details to be provided in Q2.
  • Silvio Napoli highlighted the company's success in gaining market share and maintaining pricing discipline due to new products and efficiency initiatives.
  • Modernization business margins are higher than new installations, aligning with expectations.

Schindler's performance in the first quarter of 2024 illustrates the company's resilience and strategic focus on growth and efficiency. Despite the downturn in China's new installations market, Schindler's expansion in service offerings and successful product launches have contributed to its positive trajectory. The company remains committed to its full-year guidance, with a clear emphasis on operational efficiency and market competitiveness to navigate the diverse global market landscape. Investors and stakeholders can anticipate further updates at the upcoming half-year results presentation in July.

Full transcript - None (SHLAF) Q1 2024:

Operator: Ladies and gentlemen, welcome to the Schindler Conference Call and Live Webcast on Q1 Results 2024. I am Myra, the Chorus Call Operator. I would like to remind that the all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Brorson, Head of Investor Relations. Please go ahead.

Lars Brorson: Thank you, operator. Good morning, ladies and gentlemen and welcome to our first quarter 2024 results conference call. My name is Lars Brorson. I'm Head of Investor Relations at Schindler. I'm here together with Silvio Napoli, our Chairman and CEO; Paolo Compagna, our COO; and Carla De Geyseleer, our CFO. Silvio will provide a brief overview of the key messages of the quarter. Paolo will discuss our market outlook and order 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.

Silvio Napoli: 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 headwinds. There as I'm sure you realize, the new installations market continue its decline driven by China. I just came 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 over argued diametrically opposite situation, we see incredibly strong markets in India and the Middle East back to growth mainly driven by Turkey. Now 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 launched across the globe and the first part was EMEA. So there 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've 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 job that 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 the 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 softer Asia Pacific, where traditionally Q1 is low 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% increase in EBIT adjusted in local measure in local currency. Again, this is the result of operational efficiency, pricing measures but also of course, as a result of the product mix change as the -- not only the product mix in terms of what type of product we sell within a new equipment but also part of the product 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.

Paolo Compagna: Thank you, Silvio, and good morning, everyone. Before we move to our expectations for the market development in 2024, 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'd 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 NI 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. Few words about the other regions. In Americas, 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 Architectural 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 the Residential segment outperforming the commercial. In Brazil, total apartment launches have dropped recently but there are pockets of growth, such as social housing, while the Selic, this is Brazil's benchmark for interest rate, it's been reduced which can be seen as a positive signal for the market. Moving to EMEA. Middle East, Middle Eastern countries, such as Turkey and Saudi Arabia and the UAE are seeing good growth while Spain and France in Southern Europe prove quite resilient. In Northern Europe, Germany and the UK remain weak. For example in Germany, the multi-family housing permits declined by 30% in the last 12 months until January 2024. Asia Pacific, excluding China, India continues to show strong growth in spite of some uncertainty due to elections. And the markets in Southeast Asia will grow, despite the China slowdown, which is having an impact on their economies, while the market in South Korea remains subdued. The global installed base keeps growing at a 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 6 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 mix headwinds in the quarter in Asia Pacific excluding China, which had some very large project wins in the last year first quarter. Meanwhile, the service business continued to grow solidly across all regions, driven by NI conversions but also balanced pricing actions, as we remained disciplined on pricing across all business lines. With that I would like to hand over to Carla to lead us through the financial results.

Carla De Geyseleer: 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 the strong cash flow generation in the first quarter. Moving to Slide 8. So Slide 8 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 slide. 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 mix -- 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 net working capital. So moving on to Slide 9, 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 CHF 169 million leading to a negative growth of 3.4% in Swiss franc. 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 NI 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 tailwinds 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 2024. 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 CHF 292 million, representing a margin of 10.9%, which is up 80 basis points from the first quarter of 2023, which was supported by CHF 26 million from the land sale of our former factory in Suzhou, 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 profit 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 gain 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 CHF 507 million driven by continued improvement in operational profitability and net working 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 2024. 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 grant a gradual 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.

Lars Brorson: 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.

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question is from Klas Bergelind from Citi. Please go ahead.

Klas Bergelind: Thank you. Hi, Silvio, and Carla, and Paolo. So, my first question is around the price/mix over in Asia. It's sharply lower. It seems to be driven by a 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 on new 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.

Silvio Napoli: Yes. Thank you, Klas. 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 precisely to stay -- 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. Let me be very clear. And you may have read another one. I'm interested in this particular developer. But you surely followed the news. And now 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'd 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 had 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 a few 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 some 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 in Tier 1, Tier 2 helps because that's where you have the higher portfolio conversion likely whereas this is more appreciated. So, this is exactly one of the main challenges we have. And we continue believing 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 has it not been improved? Perhaps there I'd like to pass on the word to Carla. 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 considered. But perhaps Carla to the specific question would you like to answer that?

Carla De Geyseleer: 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 pricing pressures that you talk about Silvio.

Klas Bergelind: 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 range -- in the new range in the region. But can we talk a little bit about lead times? Because Carla, I thought you said that this could start to impact sort of 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.

Carla De Geyseleer: Yeah. There will be hardly any impact in 2024 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 is in -- it is -- it will have a positive impact or expected to have a positive impact from 2025 onwards yeah.

Klas Bergelind: Thank you very much.

Silvio Napoli: Thanks, Klas.

Operator: The next question is from Andre Kukhnin from UBS. Please go ahead.

Andre Kukhnin: Good morning. Thank you very much for taking my question. May I'll just start with a, 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 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?

Silvio Napoli: Very good. Thank you. Paolo, please feel free to add. So I would say our dual brands have been extremely successful, even though they had probably a higher exposure into Tier 2 and Tier 3, 2 and 3 cities. But I must say based on their strong customer base and well-aimed marketing, they've been able to be successful in Q1. Schindler China has been equally successful, mainly on the base of the recent product extension we launched. We as you probably all know, we were always not as competitive in the residential high-rise market, which we could call like 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 Schindler 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 is -- then explain the situation that even though the market overall is going down, we can finally tackle areas where we were not so present before. So there'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.

Andre Kukhnin: That's very helpful. And I had to follow-up on the kind of how you're taking 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 for Schindler and in terms of the near-term cadence? We saw I think a step up in restructuring Q4 last year. Q1 is down just 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 overheads reduction?

Carla De Geyseleer: Yes. Thank you, Andre 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. But -- 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 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 2024, you remember the presented uptake to the 13% in the mid-term, Andre.

Andre Kukhnin: Okay, if I may just follow-up, so, I mean, yes, 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 2026-2027, is this the ballpark of 20 basis points to 50 basis points? Or is it much smaller or bigger than that?

Carla De Geyseleer: Purely on the overhead, it -- the total efficiency, of course, is a major part, but only the overhead is rather a smaller part of the totality, yes. Because the major part is related to the what I just said on the efficiencies that we are driving in the New Installation and the Modernization.

Andre Kukhnin: Great. Thank you very much.

Carla De Geyseleer: Thank you.

Silvio Napoli: Thank you, Andre.

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

John Kim: 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 mix 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, called 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 just as a strategic growth area. Thank you.

Silvio Napoli: Thank you, John. Let me start with the last question, with the last or 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 hence, underrepresented portion of revenues coming from India for the whole group. At the same time, it is fair to say that pricing 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 there is a system of 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 over capacity, 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 probably political tensions is less of a pressure that 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, perhaps would you like to address it?

Paolo Compagna: Yes, sure. And well observed and it's a bit counterintuitive 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 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 --as outside of China.

John Kim: 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?

Paolo Compagna: Yes, 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 your observation is absolutely right. We could say it would be also slightly positive in the value growth.

John Kim: Okay. Got it. Thank you.

Paolo Compagna: Please go ahead.

Operator: I am sorry, sir. The next question is from Ben Heelan from Bank of America. Please go ahead.

Ben Heelan: Yes. Good morning, guys. Thank you for taking my questions. I just wanted to touch on EMEA and Americas 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.

Silvio Napoli: If you can Paolo please.

Paolo Compagna: 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 you 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 your question was is there some green lighting and how does it look like? Now observing notes different between some EMEA markets and the North America and Brazil let me start maybe with Brazil and North America. Here we can say Q1 would indicate in the Residential segment some green as your word was 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 picture 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 terms. While I repeat myself major markets like Germany like the UK. I would say Q1 is a continuation of what we have already reported in the quarter four last year very much under pressure both in terms of volume growth as well as pricing.

Ben Heelan: Okay. Great. That’s very clear. Thank you.

Silvio Napoli: Thank you, Ben.

Paolo Compagna: Thank you.

Operator: The next question is from Vlad Sergievskiy from Barclays. Please go ahead.

Vlad Sergievskiy: 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 current -- 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?

Carla De Geyseleer: Yes 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 at the payable side as the collection side, yes.

Vlad Sergievskiy: Great. 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.

Carla De Geyseleer: Yes. Well, as I mentioned already, the intake margin 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.

Vlad Sergievskiy: That's great. Should I read it as the intake was healthy compared to Q4?

Carla De Geyseleer: Sorry, can you repeat? I apologize.

Vlad Sergievskiy: 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?

Carla De Geyseleer: 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, we had solid plans for procurement. But given where some of the markets are moving, we actually accelerate these initiatives. So, I will give full transparency where we stand in quarter two.

Vlad Sergievskiy: Okay. Thank you, very much and all the best.

Carla De Geyseleer: And focus on cost out. And these initiatives, there are a number of moving parts at the moment as you can imagine.

Vlad Sergievskiy: Thank you, very much.

Carla De Geyseleer: My pleasure. Thank you, Vlad.

Operator: The next question is from Remo Rosenau from Helvetische Bank. Please go ahead.

Remo Rosenau: Yes. Good morning. You mentioned several times, that strong pricing disciplines 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?

Silvio Napoli: Remo, thank you for the question. Good morning. I -- 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 invest in 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 procurement saving, efficiency savings which candidly allowed us -- a lot is still to come. And therefore, we have to continue to gain this 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.

Remo Rosenau: Okay. Thank you for the explanation.

Carla De Geyseleer: Thank you, Remo.

Silvio Napoli: Thank you, Remo.

Operator: [Operator Instructions] The next question is from Nick Housden from RBC. Please go ahead.

Nick Housden: Yeah. Hi everyone. Thanks for the opportunity to ask the 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 if within China New Installations this is also the case. Thanks.

Carla De Geyseleer: 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, because we obviously manage it from a global perspective. So yeah, let me come back to you on that one.

Nick Housden: 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. 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 look 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 mid-term margin targets.

Carla De Geyseleer: 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 is 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?

Paolo Compagna: 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 okay positive. And I think I think this is a business line which has to be seen as a standalone. I always say 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 new installation.

Nick Housden: Great. Thank you very much.

Carla De Geyseleer: Thank you.

Operator: There are no more questions at this time.

Lars Brorson: 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 19. With that, thank you, and goodbye.

Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call. And thank you for participating in the conference. You may now disconnect your lines. Goodbye.

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