Schindler Holding AG (SCHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Schindler Conference Call on Q3 Results 2020. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Schindler. Please go ahead.

Good morning, ladies and gentlemen, and welcome to our third quarter 2020 results conference call. My name is Marco Knuchel. I'm the Head of Investor Relations at Schindler. I'm here together with Thomas Oetterli, CEO of the Schindler Group; and Urs Scheidegger, our CFO. Thomas will give you a short introduction and guide you through our results. Urs will then take you through our financials. After the presentation, we are happy to take your questions. [Operator Instructions] With that, I hand over to Thomas. Please, Thomas, go ahead.

Thank you, Marco. Good morning, ladies and gentlemen, also from my side. Before we dive into the quarter 3 results, I would like to reflect on a few milestones beyond the financials. First of all, I wish all of you really health and safety in these very challenging times. We are all facing COVID-19. In many places, we talk about the second wave. We do have, due to this also, economical uncertainties and very challenging elements on the foreign exchange front. But let me start maybe with the summertime. Over the late summer months, we commemorate the Schindler's 40 years in China. Schindler was the first-ever Western corporation to form a joint venture in China in 1980. Our campus in Jiading is our second planet and a testament to an outstanding team that keeps delivering, a team that has bounced back quickly in these very challenging times, and strongly once lockdown measures were lifted and also supported other parts of the Schindler world that were still much more affected by local lockdowns. In the third quarter, we kept driving the global rollout of our new modular product range with launches in various key markets across Asia Pacific and Europe in ever-changing and challenging conditions that challenged us to be much more agile and adaptive. The teams did outstanding work. And the initial customer feedback has been extremely positive. These are just two examples that show, once more, the strong team Schindler fabric that makes me very, very proud to be part of it. With that, I would like to draw your attention to our results presentation. Please turn to Slide #2, which gives a market overview. The environment remains challenging and we saw construction industries worldwide affected by the circumstances. A few words per region. Asia Pacific and the Americas were the worst-affected areas. EMEA has been showing more resilience. Only China stood out with a V-shaped recovery. Competition has intensified in contracting markets, especially in new installations and modernization, resulting in increasing pricing pressure. Last but not least, on top of this, the appreciation of the Swiss franc continues and translation effects keep negatively impacting our results. We will provide more details about the markets by region on Slide 3 to 5 (sic) [ Slide 4 to 6]. So how did we do? Please turn to Slide #3. For the third quarter 2020, order intake has been driven by the new installations and service business in China and Europe. Strong negative foreign exchange impact continued to affect negatively our results. Order backlog execution and our maintenance portfolio supported our revenue development. So let's move to Asia Pacific. China showed V-shaped recovery in Q3 with a robust new installations market. We were able to capture this momentum and grew compared to the previous year. In India, market activity has been improving, but is still severely impacted by the lockdown and rising numbers of COVID-19 cases. Other Southeast Asian markets show uneven activities across all product lines. On a positive note, our modular product range, launched in a number of markets in Q2 and with additional rollout in Q3, has been receiving positive customer feedback. Let's move to the Americas. In general, uncertainty remains high in the Americas. The markets in the region are facing increasing pricing pressure in both new installations and service segments. In North America, the new installations market in office and residential segments was almost stable, while the infrastructure segment was muted and the commercial sector is contracting and very, very challenging. This had severe impact on modernizations and repairs, especially in the nonresidential segment. Latin American markets were affected by the lockdowns, too, delayed infrastructure projects and overall economic and political uncertainties. The residential segment also slows down. Let's move to EMEA. Northern Europe displayed a solid development with stable new installations and service businesses. Southern European markets showed contraction in commercial sector with many investment decisions being postponed to 2021. The region also faces intensified price pressure in all segments. In EMEA, Schindler grew across all product lines, except for modernization. In Q3, we continued to roll out our modular product range in various key markets in EMEA. We now turn to Slide 8 (sic) [ Slide 7 ] to have a closer look on these new products. I would like to highlight some essential features of our new product range that is now available in key markets in Asia Pacific and Europe, and have received very positive customer feedback. The products are fully connected and offer an enhanced user experience via cloud-enabled features as well as numerous design options to tailor to customer and user needs, all this whilst delivering on the highest energy efficiency ratings and data security standards. With this short overview, I would like to hand over to Urs for an update on the financial results and the outlook for 2020. Urs, please.

Thank you, Thomas. Good morning, ladies and gentlemen, and welcome, on my behalf, to today's conference call. I start with the revenue development for 9 months year-to-date and comments on revenue in the third quarter 2020 on Slide #8. Revenue contracted by 6.6% to CHF 7.7 billion in the first 9 months of 2020, corresponding to a decrease of 0.7% in local currencies. M&A activities contributed about 1 percentage point to the growth. Foreign exchange translation effects due to the strong Swiss franc, mainly against the U.S. dollar, the Brazilian real, the euro and Chinese renminbi, had a negative impact of CHF 484 million. Revenue dropped in the Americas. EMEA managed to attain 2019 levels, while Asia Pacific generated growth driven by strong performance of our Chinese operations. In the third quarter of 2020, revenue decreased by 2.5% to CHF 2.8 billion, which is equivalent to an increase of 4.0% in local currencies, supported by a resilient maintenance business and the partial recovery in new installation and modernization activities in some countries. From a regional perspective, Asia Pacific generated the highest growth rate, supported by strong performance in China and the first-time consolidation of Volkslift. EMEA also recorded growth. The Americas and Asia Pacific, excluding China, were below the previous year. I'm turning now to Slide #9. EBIT adjusted improved in the third quarter of 2020 by 0.9% to CHF 337 million, equivalent to an increase of 9.0% in local currencies. Foreign currency exchange effects had a significant negative impact of CHF 27 million. Margins reached 12.2%. Restructuring costs were CHF 19 million and expenses for BuildingMinds amounted to CHF 5 million, translating into an operating profit of CHF 313 million, a decrease of 4.3%. In local currencies, operating profit improved by 3.4%. The net profit reduced by 3.7% to CHF 235 million, in line with the operating profit development. EBIT adjusted for the first 9 months reached CHF 844 million, a drop of 11.2%, equivalent to a decrease of 3.7% in local currencies and a margin of 10.9%. Restructuring costs amounted to CHF 96 million for the factory closure in Spain and the global cost optimization program. Expenses for BuildingMinds were CHF 14 million. Operating profit dropped by 20.5% to CHF 734 million, corresponding to a decrease of 13.4% in local currencies. Foreign current exchange effect had a significant negative impact of CHF 71 million. EBIT margin reached 9.5%. Net profit decreased by 19.4% to CHF 548 million as a result of the lower operating profit, the high restructuring costs and FX impacts. I'm now turning to Slide #10. EBIT adjusted has been sequentially improving quarter-by-quarter in the first 9 months of the year in absolute and margin terms. For the 9 months of 2020, positive impact from the modularity program, efficiency measures and business mix were able to compensate the sum of headwinds, except those of negative FX impact and negative operating leverage resulting from less revenue and missing margins. In the third quarter, absolute EBIT adjusted margin were above previous year. This development, even if the challenging environment, can be explained by a favorable geographical mix and the business mix, fewer large projects than in 2019 improving the overall margin profile, rigid cost reduction measures and an unusual lower level of operating expenses, for instance, example for traveling, marketing and administration and the operating leverage. Cash flow from operating activities was CHF 955 million versus CHF 656 million in the previous year or CHF 813 million is adjusted for one-off impact for the settlement of pension obligations in 2019. This good development versus last year was achieved by a very solid improvement in net working capital. As of September 30, order backlog was CHF 8.9 billion. This corresponds to a decrease of 3.6%, respectively, an increase of 2.6% in local currencies. Due to market contraction and fierce price competition, we observed a deteriorating trend in the new installation and modernization backlog margins of more than 50 basis points versus previous year. In combination with continued FX and COVID-19 impact and further increased strategic costs, we do not expect that a strong relative EBIT adjusted margin of Q3 can be continued in the fourth quarter. I'm now moving to Slide 11. COVID-19 pandemic continues to affect the global economy, including elevator and escalator markets. For the full year 2020 and barring further unexpected events, the company's revenue is expected to reach levels between 0% to minus 3% in local currencies versus the previous year. Based on potentially increased activities in some key markets and restructuring cost of up to CHF 130 million, full year 2020 net profit is expected to reach between CHF 720 million and CHF 760 million.

We are now happy to take your questions. [Operator Instructions]

[Operator Instructions] The first question comes from Andre Kukhnin from Credit Suisse.

I've got -- I'll stick to 2, and I'll go one at a time. Could you talk about your performance in China, please, in terms of volume and value?

Andre, well, China, as we have mentioned, was surprisingly strong coming back as an economy. It's probably the country where we saw really a V-shaped development. So we definitely saw that towards the end of quarter 2, we have reached from a market environment, the pre-COVID levels of 2019. This means that quarter 3, also from a market, was definitely very, very strong, and there was some catch-up of, let's say, market losses we saw in the first couple of months. I think Schindler was performing very well. Our team, I mentioned that, has really done a fantastic job. And we believe that we were outgrowing the market in terms of new installation units but also new installation value. We were very, very pleased with the performance to grow above the market.

And if I then just specify on this, was your pricing up, down or neutral in the quarter if possible?

Well, in China, we have to say, China [Audio Gap] and we saw definitely that we continue to see very high price pressure in large projects. Also because there was a contraction in the commercial segment. We definitely saw that for office buildings, but also in the retail, there was a negative price impact. We clearly have to state that overall, the prices were definitely under pressure. When you go more to the residential area, I think it was maybe slightly negative. It was not as severe like in the commercial area. So overall, I would say that in China, probably we had a lower single-digit negative price deterioration. Of course, we also have to state that we have a clear growth plan in China, and we are also willing to accept a little bit lower margins because we want to qualify our position or even in enlarge our position in China. So from a market point of view, negative price development overall, mainly focused on the commercial and the highly utilized business and maybe less in the residential area. And for us, definitely, the price development was also negative.

That's really helpful, Thomas. And if I could ask a second question on connected products and Schindler Ahead. Could you give us an update on where you are, to whatever degree of detail you can, in terms of number of connected and paid-for units? And maybe any indication on how much revenue that has added in the last 12 months so that we can run some benchmarking versus some of your peers and think about forecasting that going forwards for that business?

So maybe I give more a general statement and then we can talk about, let's say, impact on our results. Overall, we are very pleased with the development. We are strongly convinced that connectivity is a key driver of future success. It is still a net investment for Schindler. So our investment is still higher than what we achieve as a return in top line or also bottom line. We are on track with our plan. As we always said, we are connecting all our new equipment. So every new equipment is equipped with Schindler Ahead. Of course, the willingness of customers to pay for it is not, in every market, the same. Especially in some high-growing markets, it is more the topic that we want to create a better user experience and customer experience. And we have seen that this will positively impact also our loss rates. So if you are connected and you are delivering a better service to the customer, you see that this is appreciated. And we have done the first analysis, and we see that overall, connected units are performing better in portfolio retention than not-connected units. But it is a long -- it's a long-term gain. So over the years, we are expecting a lot of benefits for us. One is what I mentioned, the loss rate of our portfolio; but we also generate, of course, top line growth, mainly in comm-invested countries. So if you look on Europe, when we look on North America and then we do on countries like Australia, whenever you have also change of the regulation going away from analog lines to digital lines, then we have more possibilities to sell also the connectivity. And then last but not least, it also has proven that we can increase, over the time, our efficiency because we are able to generate a higher uptime for the equipment. This means that we have less breakdowns of the equipment, and we can -- and we don't have to send our technicians to put elevators back into operation. Interesting enough, one key feature we have with our Ahead platform is that we can work over-the-air on the equipment. So we have found out that, and we have proven facts for that, that quite a severe number of callbacks can be corrected over-the-air. So even if we had a callback, we don't have to send our technician. We can put the installation back into operation remotely. Of course, this will -- the financial impact will depend how much we are going ahead with connectivity. And this will take a couple of years. But at the end, I'm sure this will be a very, very good business case for us. And last but not least, for those units where we can sell an Ahead package, we also see that our service price, including the Ahead module, is increased, depends a little bit on the market, between 10% to 15%. And the -- maybe the top line is -- thank you.

The next question comes from Lucie Carrier from Morgan Stanley.

I just actually had a follow-up on the -- on Andre's question on connectivity. Are you maybe able to tell us how much of your installed base is actually functioning in terms of connected services? So I understand the connectivity might be enabled on the elevator, but actually, how much of your installed base has kind of a connected service contract? And also, I'm curious to understand how your kind of engineer service employees are incentivized around data collection and how they are trained for that, especially because this is a relatively new feature. So that's my first question.

So we do not disclose the absolute number of connectivity because we don't want to enter into this race. We want to do it in a meaningful way. As I mentioned, all our new equipment are connected and do have an Ahead module included. But of course, when you look, we have a very, very large existing portfolio base. So there, there are different elements which are important. One is a technical requirement. So the older an installation is, the less information you get out of the controller. And you have to make a business case where it really makes sense to add a sensor kit, so you have enough data to get a meaningful data for your Ahead platform. And then the second topic is what kind of a customer do you have. So of course, we are connecting more and more for our global key accounts because this is a very, very important customer segment for us. And there, we are also connecting retrospective, so back our existing portfolio. Now when it's connect, we could say that roughly every second, connected equipment generates also revenues from our customers. Now in terms of the engineers, maybe you can explain once more a little bit exactly the question what you believe -- what was exactly the question about the engineer incentive.

Yes. Sorry, if it wasn't clear. I guess my question is we can have a lot of elevators being connected, but which type of metrics are they are kind of focusing on? How much are they incentivized on collecting also the data? I mean I'm just curious to understand how it works really in practice for them because historically, engineers were not necessarily serving a fixed base of elevator. They were kind of serving an area rather than a portfolio of elevator. So in terms of their knowledge and them being proactive in managing this installed base of elevator, I'm just trying to understand how their training is changing or how their incentivization is changing for them to kind of adjust to the connectivity of elevator in terms of their job.

So of course, the engineer in the field has -- the main purpose is to deliver a premium service to our customers and users. So we are measuring the uptime of all our elevators, and we can definitely state that the uptime of elevators which are connected is improved or has a higher uptime than elevators which are not connected. We do not specifically incentivize our engineers in the field with connectivity, but we do have different key performance indicators, and one is the uptime of the equipment he is serving. At the end, what we have mainly changed is we do a lot of efforts to train our technicians in the field. And Schindler Ahead is just an additional support for our engineer in the field. So we do not intend to reduce, for example, training efforts of our service engineers, but we ask them additional data. So when a service engineer goes to the installation, he will have on his iPhone, so on his smartphone, all the data of this and all the history of this elevator. If it is a breakdown of the elevator, he gets a guide on how to resolve that breakdown. For that purpose, we have installed, in all the countries, a so-called TOC, T-O-C. This is a Technical Operation Centre. All the data which comes from the connected units goes into a central Technical Operation Centre of that country, where we analyze all the symptoms, all the data received by the elevator. And if there is a breakdown or a normal visit, this Technical Operation Centre gives guidance to the technician. What we achieve is that we are able to be more efficient. And especially in countries where you have maybe not so well-educated technicians and you have to add a lot of technicians every year because we are fast-growing. Like in China, we are able to improve the service quality of this, let's say, youngsters in the service field. So they do get additional information and also a guidance through the system, but we do not incentivize them in a different way than in the past.

My second question was around a little bit the difference in performance between residential and nonresidential. You seem to indicate residential was overall more resilient. I was just hoping maybe if you could quantify what you are seeing here or maybe as a range in terms of a growth rate or decline rates in between these 2 segments?

Well, it's a good question. Of course, residential is mainly driven by urbanization. And I think it's very important to say that the makeup trends in our business remain intact in terms of urbanization. So for that reason, we see much more resilience in this volume business. Now the commercial segment is different. We -- many, many of the buildings at the moment, people are doing home office. So the occupancy of all of the rented-out buildings is much, much lower. So investors do have some concerns about the financials and they are much more, I would say, hesitant to do 2 things. One is to execute new large projects where they have to go into a pre-investment much -- on a much larger scale. So we have seen that decisions have been postponed for commercial jobs. Large projects for that reason came substantially down, double digits, I have to say. And what we also see is that modernization business of large -- of larger buildings, commercial buildings, clearly dropped a lot. So the modernization business was, in terms of product lines, the one which was the most negatively impacted business line. And this is mainly driven by commercial and retail. So really, this was definitely going down double digits, whereas the residential piece was quite stable, also in China and other markets.

And just my last question, for clarification, to Urs. I think you've mentioned that the margin in order received was currently about 50 bps lower year-on-year. Is that correct or have I misunderstood?

Lucie, yes, I was referring to our new installation and modernization backlog margins, which have been reduced by a bit more than 50 basis points versus last year driven by what we see in the market price pressure and also our clear commitment to grow above the market.

The next question comes from Martin Hüsler from ZKB.

Just another clarification on this topic. So this a bit more than 50 basis points, is this only for Q3 order intake or for 9 months?

Yes. This is the comparison backlog balance, September 30 versus September 30, 2019, so over the last 12 months margin deterioration of our backlog.

Okay. I understand. Okay. And then my question was basically, we have a lot of moving parts now for, let's say, next year. For the margin, we have, of course, the price pressure coming from the backlog, but we have modularization. We have restructuring efforts, et cetera. I was just wondering because in summer also, you stated that -- or even in spring, that 2020 will be a year below levels of 2019, we will just fully recover in -- probably in '22. And I was just wondering whether it is still the case. So how do these -- all these moving parts add together? Is it possible that in next year, you could have an adjusted EBIT margin in the range of '19 level?

Martin, Thomas speaking. Of course, we all would like to know exactly how 2021 will develop. I would like to come back to our strategic ambition and our overall targets. Priority #1, we always have stated, is we want to grow faster than the market. Now, of course, this year, this is a super-mixed picture because it depends a lot about your geographical footprint and shares you have. China being very strong as the market, of course, is supporting the Chinese performance. Then you have the Americas, which is a very important market for us, being heavily under pressure. And we have seen that also in the order intake, but also in the backlog margins. So I think we have seen a very good quarter 3. We have forecasted that we should not expect that quarter 4 will be on the same level because we will have a different mix also between new installation and existing installation business. Now for 2021, we are willing to invest into the growth. This is clear for us as a strategy. We do want to improve our absolute profits. Yes, this, we want to do. But we are not so much focusing only on the margin. If we can achieve operating leverage, also our cost optimization program we have launched this year, this all should help that we can afford a good growth in the next year. So you should not expect that we will have now a tremendous margin improvement in 2021. This is also not our ambition. I know we had this discussion many, many times, but I have to come back to what we always said. For us, the absolute growth of profit is more important than the margin improvement because we want to grow our portfolio, and this will need further investments into our geographical expansion. It will also need investments into key accounts. And part of this investment will be financed by the operational improvements we are achieving year-on-year. So focus is growth and absolute profit and not so much the margin. And looking ahead, just now, everybody is sitting at home, honestly, I do not dare to make a real forecast for 2021.

Okay. This then leaves it to us to do that. And just an add-on to understand you correctly, in the order backlog, according to my understanding, it's only new installation or are there also some larger service contracts included?

Yes, I'm referring to our backlog to new installation, elevator, escalator and modernization.

And these are -- is the number CHF 8.948 billion at the end of September, right?

Martin, I suggest you take it up later.

The next question comes from Daniel Gleim from MainFirst.

I would like to come back to the 50 basis points as well. Apologies for belaboring the point. Urs, when we look at the coming quarter and we think about all 3 business lines, new equipment modernization and maintenance, you haven't commented on the maintenance margin evolution in the orders we're taking. If we look at the full impact, is this going to be better than the 50 basis points that you just alluded to or is it the same 50 basis points if you look at the full picture? That will be the first question.

Yes. We have to segment our business, as you also do it. And again, I'm referring to our construction-related backlog of 9 months, which have longer billing cycles into next year. I'm not referring to repair and maintenance. Our maintenance margins are resilient and stable. They have been a bit better this year year-to-date due to COVID-19 as our equipment of existing portfolio is used less by users, passengers, and so less traffic also means less issues and interruptions. We call that meantime between callbacks and they are a bit higher. When situation will normalize, this will come to normal levels. So that's my answer on the maintenance margins.

Very clear. And if we look at the current order intake in the third quarter, I understand you're talking about the portfolio when you refer to the 50 basis points. Now the new orders that came to the portfolio in the third quarter, do they further deteriorate the backlog margin? Or is this now stabilizing? In other words, do you expect that the 50 basis points down the road become higher and circa towards 100 basis points? Or has this effect already fully impacted your backlog?

Okay. Let me again clarify. My message on the new installation and modernization margins, which are lower by a bit more than 50 basis points, is related to our new contracts of new installation and modernization, so these are a board of contracts, which then go into installation of new installation and modernization over the next 12 months billing cycle. That's not related right now to our portfolio maintenance margins, which I said before are stable, actually have been a bit better during COVID-19 times, but they are stable in a normalized way. And we continue to work on stable margins. There is certain pricing pressure, but we are also working on efficiency measures to offset them.

Yes. Maybe I'll phrase my question...

On that, we can say that our delivery -- please go ahead.

I just wanted to clarify. My question was relating to your existing backlog of new installations and modernization versus the order intake in the third quarter, which goes to this existing backlog. Now when you speak about the 50 basis points, I understand you refer to the former. And I was wondering whether the later (sic) [ latter ] is further diluting this 50 basis points or whether actually, we are -- hit the bottom already. So do you expect the 50 basis points down the road when we go to fourth quarter, first quarter 2021 to potentially become even worse? I mean how big is the price discounts you give currently on new equipment and modernization? And how is this going to impact your backlog down the road?

Okay. I think that this is now very clear. So the price development, which was negative during 2020, yes, it was more negative towards third quarter than it has been at the beginning of the year. Clear because COVID came, has stopped everything somehow in Q1 and in some parts in Q2. And then everybody is jumping on the orders you have in the market when the market is opening again. So you are right, there was an increased pricing pressure in quarter 3 in the order intake. This we can definitely say, and I said before, overall, for example, in China, we saw low to mid-single-digit price deterioration. Now what you also have to understand is that future efficiency improvement and cost reductions, we do not include in our order intake. So of course, with the modularity program, we will try to compensate part of this, let's say, less goods orders on hand or backlog margin. And part of it, we will try to eliminate them when we execute the jobs because we don't include in the orders on hand or in the order intake huge cost reduction program. So it's always also a little bit a timing issue. But in concrete, pricing in quarter 3 was worse than pricing at the beginning of the year.

Very clear. Thank you very much for anticipating my follow-up on that. Maybe last point, strategic investments, where do we stand on that in the third quarter compared to the first half? And what do you expect down the road? So we see some acceleration, was this more a net neutral impact going forward?

Yes, as we always indicate, that we are working intensively on our strategic initiatives, which are related to the Ahead IoEE platform, Digital Twins and also corporate R&D innovations. And for the first 9 months, the impact was about additional 20 basis points of incrementally higher strategic costs versus last year.

And are you going to step that up in Q4 and into 2021? Or will it be at the same dilutive impact? How should we think about it?

It will more or less be stable. So we should not expect much higher investments in '21 compared to 2020, so we now have reached a ceiling. And then, of course, over time, we also have to say, once we have to get rid of those strategic investments, but some of them will take some years like the Digital Twins. But others, I think, should become once then -- or should disappear because it's normal business then. Now we are in a peak phase, 2020, '21, we are in the peak. But then the years beyond, we should also start to see more benefits coming out of that. And one example is Schindler Ahead, where we have done a lot of investments also this year, and we still continue next year. But then we said, in 2022, we would like to achieve the breakeven point where, let's say, we start to have a net contribution, positive contribution and not a net investment anymore.

The next question comes from Martin Flueckiger from Kepler Cheuvreux.

Two questions. First one regarding -- and I'll take one at a time. First one is on your Lat Am exposure. If you could provide a little bit more granularity, how much Lat Am currently represents or, in the Q3, represented of your business and what the order intake and revenue developments were in your key Lat Am markets. That would be my first question.

Okay. So we don't say the exact share of our Latin American business. But the 2 key markets are, in fact, Mexico and Brazil. And in both markets, we do have a strong market position. I have to say, there are 2 elements. One element is, let's say, the general situation of the market and how we did. I think we did well in both markets, but especially Mexico was quite severe under pressure. And it's a market where we also have quite a lot, especially in Mexico City, you do have quite a lot of large projects. The Reforma Avenida in Mexico City is a Schindler street and this is -- most of the buildings are high-rise buildings. And we have seen that quite a lot of potential large projects have been postponed. So this is definitely a market, which is a little bit more under pressure. But I have to say, overall, we did quite well in Latin America. It was also driven by Brazil. Although Brazil is in a terrible situation with COVID, we have a very strong position in the residential market and this has helped us, and we were performing surprisingly strong in Brazil in the new equipment business because we are strong in the residential. Now when you go into Swiss francs, so not local currencies, then the picture looks totally different. I mean we have an all-time low of the Brazilian reals and this has definitely hit us tremendously. And you see that also in one of the -- in the backup slides where we show the development of the different currencies. On the last slide on the backup on slide number, what is it, 18, I think, yes. You see that the Brazilian reals has suffered 25% compared to the Swiss franc. So in a more stable market, you can do as good as you want. You will never be able to compensate 25% of the FX impact. So in Swiss terms, we were suffering a lot by this currency development. Although in the local markets, we have performed quite well and we were growing, in fact, in Latin America, we were growing in local currencies, we were growing. But unfortunately in Swiss francs, the picture looks totally different. Thank you.

And my second question would be on your modularity rollout progress in Q3, which you have basically summarized in your presentation. But I was just wondering whether you could provide a little bit more granularity on the countries and also maybe provide an update on your expected cost savings for this year and next from the modularity program.

So we have start -- 2020 is a crazy year, I have to say. So all our plans how to roll out our new modular products, the Schindler 1000, the Schindler 3000, the Schindler 5000, we have to become super agile and very adaptive because all our plans to make big events, to invite all the customers in all of this, all was nonsense during the COVID crisis. So we had to change the way how we start the marketing and how we bring these products to the market and also how we train our own people. So we have been awarded even externally by different third-party companies who are observing training activities and training programs globally of companies. We have been awarded with a gold medal that we had a best-in-class training program because we switched everything digital. So all our events, in fact, have become digital events. Now in terms of countries, we are in whole Southeast Asia, Australia, China. We have launched our modular product. It is, of course, a ramp-up. You do not switch. You don't switch from one moment to the others. Also in Central Europe and also in Southern Europe, we have already now introduced the new modular products. And we will complete that until quarter 1, maybe we'll take quarter 2, depends a little bit on COVID, also to have that in Eastern, Northern Europe, in the Middle East and in India. These are the -- and in South America, these are the last markets we will introduce that, and we are preparing all these launches at the moment. North America is a little bit different because you have a different code and also different product ranges. So there, it is -- it's still another planet. And we have introduced there in the last couple of years, the Schindler 3300 and the Schindler 5500 with really good success. So we are on track. We are on track. Feedback from customers, but also feedback from our salespeople and from our installation teams is really very promising. It's easy to install. We have highest quality standards we meet. We also see that we are doing very well in so-called seamless offering towards the customer. And we have now seen that we can touch market segments we were not able to serve in the past because we had to switch from one platform to the other, and we were far too expensive. So now with the seamless offering, we see that we can tap into market segments we were not able to serve competitive in the past. So, so far, so good. Of course, now we are in the sales process. First deliveries have happened. As I said, installation teams are very, very happy about the quality and the, let's say, easiness, how to install. But this now with the time lag between sales and installation, having -- depending on the market, up to 12 months, we see now during 2021 some more positive impact coming from this modularity program and then full fledge building 2022. So maybe, Urs, you can highlight a little bit more what can be expected there.

Right. So due to the slowdown of installation activities and hence, related a bit less new installation revenues year-to-date, it's clear that our cost savings for the modularity program are a little bit less than originally planned. We have planned to achieve about CHF 150 million of savings in 2020. And these -- the COVID-19 impacts, they are a bit less in the range of CHF 130 million to CHF 140 million this year, which we will catch up into next year. With this -- what Thomas has explained on schedule for the launch now of the full products. But overall, quite on track. We achieved the relative savings per representative as we have planned it now just to catch up on the volume.

Yes. Sorry, just to clarify, that CHF 130 million to CHF 140 million, I guess that's a total number. What does that mean in terms of incremental cost savings for this year and next year?

This would mean about CHF 50 million to CHF 60 million incremental this year. And then to go to the CHF 200 million, we need another CHF 60 million next year.

Okay. And Thomas, sorry, just to clarify, I didn't quite understand your remarks on North America regarding the modularity rollout. Could you just clarify that very quickly?

So North America has another elevator code. So you cannot use all the components of the modularity program in the same way in the U.S. as in the rest of the world. A lot is also driven by codes and standards and the U.S. has an own -- has own codes and own standards and not even -- it's not even only a U.S. code, you have different codes in the different states. So at the moment, we are -- we will introduce some of the components, but we will not introduce the whole elevator systems because it is not possible because you do have other type of codes and standards there. But this was always the case. This we knew all the time. In terms of units, I have to say, the U.S. market, of course, is a small market, including Canada. In terms of value, of course, it looks a little bit different. But there, we are very, very well represented with our Schindler 3300, where we definitely have a very strong position in the residential market.

The next question is from Joel Spungin from Berenberg.

Yes. Maybe I can just start -- I was wondering if I could ask you about the order intake in the third quarter. And I think, specifically, the 0.7% decline that you're reporting in constant currency. I was wondering, first of all, you highlighted obviously that there was some acquisition effect. I was wondering if that had any bearing on the order intake number in Q3, I'm guessing it's mainly related to the Volkslift acquisition. And then it would also be helpful, if possible, if you could just maybe unpick a little bit what the underlying trends in orders on modernization and maintenance versus new installation would be.

So maybe I give a high overview and then maybe we can go a little bit more to the M&A impact. I think all in all, we had -- when you look on the businesses, we had a strong new equipment order intake in the quarter 3. This was really -- it was really strong, and we did pretty well almost in all the different areas. So we were definitely strong in Asia Pacific, not only China, but in general, in Asia Pacific, we were quite strong in the new installation order intake because we have seen that besides China, also India was somehow coming back. It's maybe too early to say they are off the hook, but clearly, we saw that quarter 3, we came back strongly also in India and in parts of Southeast Asia. Also, in Europe, I have to say, we had a good order intake in new installation. However, we still have to say that in Americas, we are suffering more. It was maybe more flattish in local currencies, but due to the devaluation of the U.S. dollars and the reals, we definitely had a negative order intake quarter-by-quarter, so quarter 3 to quarter 3 last year in North America. Then when we look into the other businesses, I think maintenance, we have mentioned that many times, is very resilient. We were growing in all the markets in maintenance order intake, we can say that, in local currencies. And then there are 2 businesses where we have seen more hurdles. One is repairs, important also for the margin. There, we saw clearly that besides Europe, which was, in general, strong, we were not yet on the previous year levels. And then probably really the sour grape is modernization business. Modernization, in fact, everywhere was dropping compared to last year order intake. It was a little bit slightly negative maybe in Europe, but severely negative in Americas and Asia Pacific. Asia Pacific, maybe outside of China. But really, there, those 2 markets, Asia Pacific and Americas was heaviest impacted negatively by COVID and decisions, which have been either postponed in the modernization or even canceled in the modernization. Now M&A, Urs. Yes, we had some M&A impact, but it does not really change, in general, the picture we had.

So we were able and we are pleased about it to consolidate the joint venture Volkslift in China. And that started in July, so now we have almost a full quarter in our results. And we also consolidated 2 acquisitions in North America. For the third quarter, the M&A impact on order intake is about 3.5 percentage points. So instead of a reported order intake of minus 0.7%, it was minus 3.6%. So I'd say it's about 3% impact. On year-to-date, it's about 1% impact on order intake. And the same on operating revenue, it's about 1% on September year-to-date results.

Okay. And then maybe just one other quick question, just quickly, just to clarify what you were saying earlier about the expected cost savings from the modularity program. Are you -- just to be clear, you're still of the view that you can achieve the full CHF 200 million in 2021 despite the fact that you're probably running a little bit behind where you expected to be this year?

Well, in minimum, this is the ambition we have. As we mentioned, the saving is depending on technically, yes, we will do it. But the saving also depends on the rollout of the backlog. And this, at the moment, it will depend also on the economical situation and the COVID-19 case. If things go like we had it until maybe 1 or 2 weeks ago, then I would say, yes, we will achieve. Now, of course, I'm a little bit more hesitant, looking also into the world facing the potential second wave everywhere, then we would have less execution volume and with less execution volume, we will not achieve the absolute amount. Relatively, yes, we will achieve it. So we do have the products. They are ready. They do bring the cost savings we wanted to have. But the question will be how many of them can we really execute and install in order to bring the savings into our books. That's the, let's say, unknown variable at the moment.

The next question is the last question from Mr. Remo Rosenau from Helvetische Bank.

Yes. In Q1 and H1, the discounts on service contracts you gave selectively to some hard-hit commercial customers were a major topic. Then we learned that they did not kick in that severely. But given that the situation is not getting much better for hotels and your other commercial clients, like big retailers, et cetera, is it still a topic? Or could it become a topic again looking forward?

Well, definitely, this is a little bit also, let's say, personal opinion. I believe economic-wise, especially in travel, entertainment, hoteliery, retail, our customers will face very, very difficult times also in the next couple of months. And due to this, we do have to expect that we will face further rebate requests from major customers. I -- we have seen a certain relief in the third quarter, we can say, because everywhere, somehow people came back, they came back to the shopping mall, they came back to the offices, maybe there was also traveling. But now everything has come to a halt. So if I take Switzerland, you don't get out of Switzerland and you don't get into Switzerland. So if I take this country here, facing now the winter season, skiing and so on, a lot of tourists will not come. So I believe that our customers will face very, very difficult times once more. And I do not believe that this will disappear within 1 or 2 months. This will definitely go into the mid of next year. So we will face another wave of rebate requests, and we are willing to do so. We are really willing to do so. We have seen that this creates a lot of loyalty. And all of us, we know, we are a family company, long-term driven. We want to create long-term partnerships with our customers. And like in private life, it's exactly the same in business life. In bad times, you see who is really a friend and who is not a friend. And we want to be perceived as a very loyal and supportive partner, also in these difficult times. Yes, it comes at a cost, but we believe it will pay off definitely in the long term. So yes, this pressure will come up again. It was a little bit of a relief, but I see it clearly, it comes up again.

I totally agree with you on the strategy on this behalf. Now could you just remind us how much did you lose on these rebates in the first wave, so to speak? And -- just to get a number, which we could probably expect for the next 6 to 9 months.

So it was a low double-digit number of really price concessions, which then dropped through, through the whole P&L into the EBIT and also the net profit. And this was mainly driven in quarter 2. Let's say, this was mainly driven quarter. So if you take this low double-digit number per quarter, if we would have 12 months of a terrible environment, this might even become then higher. So we had low double digit, and we can assume that this will be similar maybe next year again, maybe even slightly higher, depends how long it takes.

Ladies and gentlemen, thank you very much for attending this event. We'd like to close now, and we are looking forward to our next event, our annual results 2020 conference call on February 17, 2021. Thank you, and goodbye.

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