Schindler Holding AG (SCHN) Earnings Call Transcript & Summary

We miss you. That's how I started a year ago. Today, we have a small audience here, and I can tell you it's completely different to talk to real people instead of just talking to a camera. So thanks for coming. My name is Marco Knuchel. I'm heading Investor Relations at Schindler, and welcome to the 2022 full year results presentation. I'm here together with Silvio Napoli, our Chairman; and Ms. Carla De Geyseleer, our CFO. Silvio will start with key messages and the highlights. Then he will talk about key developments in the markets, the industry and finish with the strategic framework. After that, Carla will lead us through the results. After the presentation, there will be a Q&A as usual. And then we will finish -- we aim to finish at about 11:00. Silvio, please?

Thank you, Marco. Good morning, everyone. First of all, for those that kindly joined us here in person in our auditorium, which we finally can use. And also good morning to the ones that join us online from remote locations. Yes, it is a pleasure to be here to present as traditionally our annual results for the year 2022. Before we get on with the results and the, I would say, traditional business, I do think -- I wanted to say a few words about the tragedy in Turkey, not only because we have there a large company with very courageous and remarkable employees but also because I -- the entity of the tragedy is difficult to fathom. I'm happy to say that Schindler is bringing its small contribution with our employees becoming volunteers, going there to help people through the rubles, releasing people in the buildings that were still standing in lifts, whether Schindler or not, but also helping the rescue teams. I -- again, it's a small world, but I thought that, that was important, due and legitimate. So to all the people in Turkey, in Syria affected by this tragedy, we wanted to express, on behalf of Schindler, our strongest sentiment and condolences for the lives that were tragically lost. Difficult to move on from that. But nonetheless, that's what we have to do. So let me first start with a few key messages. One year ago, it was an eventful beginning of the year because we announced a change in governance. And my message was we do have some issues. We are conscious of them. We will fix them, but it will take time. Today, my message to you is that we are progressing on fixing these issues. The issues were the right one. We have progressed a lot, but we still need more time. Now building on that, perhaps a few key messages that we will not perhaps touch on so much as we go through the different points. Markets are developing fast, with new installation declining driven by China. Our order intake is such that our new installation order intake has declined on par with the market. I'd like to stress that point. And the decline has been offset by a robust growth in service and modernization. Our measures have started to yield benefits and results already in the second half of the year under many fronts, sales margins but also in terms of profitability, which you saw has corrected its trajectory in the second half of the year. We are progressing on resolving legacy issues, I'll come to that, in particular, in terms of supply chain. And in order to continue with this momentum, we introduced a new strategy deployment framework, which I will present later on today. So again, we are progressing, but we still need more time before we can come out of the issues that were generated in previous years. Moving on to now perhaps the other part of the presentation continuing with the highlights. Now here, too, I just -- we prepared here for you, a set of highlights that perhaps are less addressed in the traditional financial results, nonetheless, one that we believe are pretty relevant to our business today and tomorrow. First of all, cloud connectivity. We were the first company to start connecting units to the cloud. We introduced Schindler Ahead. Today, I'm pleased to say that in spite of all the challenges with microchip suppliers, lockdowns, we already have 1/4 of our portfolio at least connected to the cloud. That is important, I'll come to that, because you see the next box there in green. This allows us to deploy innovative solutions and services, including the green service that I presented already when we did the Q3 results, which is really certified by TÜV, which is again an example of the massive opportunities that will present themselves, thanks to this connectivity. Another point I wanted to stress perhaps on this page is on the right-hand side, top corner. It is to do with our employees. We are very pleased that -- we're not obsessed by those rankings, but we were, in many parts of the world, ranked as top employers as based on employees' surveys. In Switzerland, we were very pleased. It's very recent. It was last week, #2 favorite employer. And I would say -- allow me -- normally, we don't brag, but if you see companies much larger -- with even a much larger presence behind us, that is humbling result. Equally in Asia Pacific, thanks to a joint venture, Jardine Schindler, in many parts, we were actually -- we're in the top 20. And in some of these countries, we are #1. And somehow the engagement survey response rate of 87% that we obtained in '22 is somehow a testimony to the efforts we bring around the world to engage our employees at this very crucial time in our history. And of course, I'm very proud of their engagement. Talking of employees, perhaps on the bottom left corner, there is our simplified leadership structure. That was a key move we introduced 1 year ago. And I'm pleased to say that 1 year after, that was the right move at the right time. We now today can move faster, take faster decisions with a much less complex set of processes while, at the same time, staying focused on the key actions. And most importantly, we can adapt to changes which we'll come to that, continue to come very fast. Finally, a word on BuildingMinds. And I would say as we go forward in the year, perhaps we'll dedicate more time to that. But the start-up that we -- that only has a few years of existence, has already 15,000 buildings connected to the platform, 15,000. So the business concept has already been proven. Now of course, it is still a start-up. So we are now into the ramp-up and scaling phase, and I look forward to sharing more of their results and performance with you all. Now these were the highlights of '22. I also thought it was important to continue with what we started last year. Last year, we introduced the set of key challenges that we were confronted with that led to our decline in performance. And every quarter, we provided you with an update on how we were tackling these challenges. So today, to continue with the process, and perhaps, let me say, for the last time, I'll -- we thought it was important to share with you the progress on these challenges. Now as you can tell, and I'm not going through each one of them, but we can take it into Q&A. I'm pleased to report that the progress has been substantial. Actually, in some of the challenges, we are coming to the full resolution. At the same time, there is probably one where we are the most behind, and you can see it in the chart. This is the one about regaining competitive new installation margins. And you can say, hang on a second, how come we are not more advanced? This is possibly the most crucial in terms of regaining profitability. And so allow me here for a moment to explain why this is the case once more. And to do that, there are 2 ways, probably key drivers to improve installation margins. One is the top line by increasing prices. The other one is by taking care of efficiency and/or supply chain issues. But let's start with the first lever, which is pricing. When we met 1 year ago, I remember I said -- you may remember, I said that, in fact, we were late in acknowledging the impact of inflation. And I'm pleased to say that in the year '22, our efforts throughout the world led to progress that I think we can say very openly probably was even beyond expectation and plans in terms of regaining the upper hand in terms of pricing. And this happened throughout the world with one exception. Unfortunately, it is the biggest market in the world. It is China. Now clearly, some of it has to do with their own performance. I understand that some other companies expressed similar situations. But China, a market that I know well is indeed the most competitive, where there is still like a chronical overcapacity. And of course, a very fierce competition, with all players of the world competing for a piece of the market, including some very strong local players. So there, I must say, we have to acknowledge in China, we managed to keep flat prices. Now in turn, you can see on the right-hand side of the chart, this had an immediate impact on our sales margins. And of course, it's pricing plus our resolve to focus on value as opposed to volume. Remember we said we would stop to just focus on growth per growth per se. And so you can see, quarter-after-quarter, starting in Q2, you can see our sales margins improving. This is, of course, a very positive development. Now of course, you may tell me, well, why doesn't this improvement come right away into your P&L? Unfortunately, this is the nature of our business. And for that, there is now the second element, which we have to acknowledge, which is what I call the boa constrictor effect. What does that mean? I mean we are a business where you sell something. And by the time you go and install it and you then generate the revenue and the profits, there is a lack of time. So this is similar to, I said, a boa constrictor. In other words, what does that mean? A boa constrictor has to digest the food it had at the beginning before new possibly healthier food can be eaten and digested. And this is our situation today. And there is no way out of this. So now as part of us getting to grip with the situation but also as part of us being able to present it to you in a clear way, we now prepared the chart, which was a lot of work. We looked through order by order, delivery date by delivery date, platform by platform and observe what is coming for delivery when, what kind of capacity in the factory deliver. Remember, I spoke about our capacity also suffering from an element of increasing backlog and this contrast between legacy products and new orders. And you see here, and what does that chart tell us? That before we can really get rid of the bad food before we can get rid of the orders with a low margin, we will unfortunately take until end of 2024 to consume about 90% of this backlog. It's a lot. And so this year already, we accelerated as much as we could. And you will see this year in '22 -- sorry, last year, we managed to consume more than 40%. But now the rest is not entirely in our hands. It has to do with delivery dates. It has to do with site readiness by our customers. Some of it has been delayed. And of course, as we show this, it doesn't mean it is -- it's not frozen. First of all, we are actively working against that. We're going to our customers, presenting variation orders, trying to reprice, inflation clauses, a lot. So that moves on ahead. And our goal is what to be able to get rid of that much faster. On the other hand, there are also things which are outside of our control, typically site delays by the customers or change in suppliers, supply chain constraints. So this is something which is in movement, but to give an idea as to why there is time needed to flow through, this is important to visualize this concept of the -- again, once more abusive probably term, this boa constrictor effect. Now this is to do with the challenges, but let's now go back to the bigger picture, the picture of the market. And how does the market look? Some of you already asked me over coffee. And I must say, perhaps compared to 1 year ago, the market has, of course, evolved. And now while a year ago, it was possibly pure headwinds. Today, the headwinds persist. But you also start having some signals of tailwinds. Let me start with the tailwinds first. First of all, we have the energy crisis that is stabilizing, I would say. But if you want, we can come to specific numbers, which in turn is also bringing a stabilization in raw material costs, including depending on which supplier, which material decline but, in some of the cases, we'll come to that, even increases. We see sustained pricing momentum, depending on the market, typically, not in China. And talking of China, we see positive signs. I'll come to that in a second. But that being the biggest market in the world, that has a huge influence on the overall picture. Now in terms of headwinds, besides the [ pressure ] on China, we see inflation continuing. That is very much there, and that, of course, affects all our value chain. We see rising capital cost as a result of the rising inflation because of interest rates, which, of course, has a huge impact on our customers on real estate. Labor constraints, first of all by scarcity of labor but also by given the labor cost. And of course, the persisting supply chain risk. So this is of a mixed picture, but clearly, this is not a rosy picture. That is one that shows the market in movement. And what is -- let me come back to that, the key question in terms of movement. The key question is China. And on this one here, I'd like to present again a chart that we often present about the evolution of the real estate market in different cities. But before going into the separate chart, perhaps the -- what is the key message here? China, after 3 years of decline, still accounts for 60%, 60% of the global new installation market. So what happens in China impacts the whole world. And what we think is that we can do without China, at least in our business, I think, is not accepting reality. At the same time, China continues in a downturn, but the downturn is easing out. And that, I think, is a key message. However, even if this easing downturn continues, we don't see any recovery before the second half of 2023. And now perhaps to add some data to this assessment, you see here on the bottom left chart, we see here the floor space sold according to city tiers. The red are the Tier 1 cities, so Beijing, Shanghai, Guangzhou, typically. And what do you see there? You see there that the floor space sold has had a recovery more pronounced in Tier 1 in the last quarter, which is positive. It is also somehow coming back in Tier 2 and 3. What is equally important is the chart on the right-hand side where you can see the inventory because you can see that, unfortunately, this crisis are led to inventory, unused housing space, unsold, still at record levels in Tier 2 and 3, so the gray dark and gray light. But in Tier 1, this inventory is declining. So this is a very positive sign, especially for us because we tend to be, of course, with our premium brand, more present in Tier 1 cities. What is -- why is that like this? And you can see on the right-hand side, we see that the key development here is that the government has started now deploying measures to support real estate again. '22 -- '21, '22 was the period where many of the large developers actually went bankrupt. They were confronted with financial difficulties, which are still there. And now initially, the government had decided to let them somehow deal with the issue. But today, there is a 16-point rescue plan. The famous red lines -- three-red-lines policy is being eased a bit depending on the situation. And most importantly, the infrastructure buildup is picking up. But now whether this is the case or not, and this will help, I think we are in the phase now that the China elevator and escalator market is transitioning towards a more modernization and service-driven market. And this -- to show that, I wanted to bring these other 2 charts. On the left-hand side, you see the installed base of units maintained. And you can see the growth rate there, if one projects to 2030, is about 8%, which is more than double the global average. We showed that really the China service business is literally in it's -- almost going to say exponential growth phase. Is it new? No, this is exactly the same thing that happened in Europe and the U.S. Except China being China today, it is much bigger an impact and much faster. And the same applies to modernization because in China, you start having now a huge population of aging units, i.e., units that are more than 15, 20 years old, which need renovation. And therefore, the modernization market pickup that you see there. So strategically, this then leads to the question, how do we adapt to this transition, which in itself presents huge opportunities, especially for a company like us. Now with those headwinds and tailwinds, it is key that now we develop a strategy on how to deal with that. And if 2022 was the year of fixing issues, the year '23 is the year to deliver. And of course, there is huge time pressure, and therefore, it is not only delivering, it is delivering and accelerating. And to be successful, we need disciplined execution. And there is an old say that goes, "Whenever you feel you have no time to make a plan, then you really need a plan." And so this is exactly what we developed by -- in -- by assessing, first of all, the market but also then by -- with a strategic framework. And of course, the strategy is always a result of the environment. And here, for reference, we put together what I think is important to acknowledge, which are the 8 key themes that shape our industry. And now you can see, frankly, you can say, well, there is nothing new. However, it's important to understand how this goes. Yes, of course, there is fiercer competition. Yes, of course, there is the NI market declining as we discussed. But you can see that as new things, you can see that in the existing installation and MOD, there is the new China market but also, worldwide, this digital and sustainability technology that become massive differentiators while, at the same time, this differentiators are key because one cannot compete on price only. And this is not something new. On number 4 there, you see that around the world, the biggest pressure on maintenance for OEMs is the local service providers that compete only on price. And so the pressure is there. So this opportunity of what I put here is number 5, Industry 5.0, which is the combination of digitalization and sustainability, provides huge opportunities. Now the supply chain is point 6, which, I must admit, was probably forgotten. People took it for granted. And now the last few years provided a rude awakening of their importance. And then, of course, we need people. People, not only in terms of talent and managerial, functional, engineering level but also, in our case, in our industry, front line. We have a saying, we'll come to that, which the front line is the bottom line. We need people at the front line. And today, with the cultural societal evolution, probably less people are interested to join an industry like ours. And we have to invest, double-up on things which are part of our tradition: apprenticeship, technical career path, et cetera. Now based on this situation, we came up with a response. And our response is what you see here on this chart. It is our strategic framework for disciplined execution. It is, again, nothing transcendental. It is quite basic. It starts with our purpose. And what is our purpose? What is our market? Our market is quality of life in urban environment. Taking the stairs, whether you are going shopping or not, is never a pleasant experience, unless you decide to do it because you want to be fit. But whether you're in a station, an airport [ and any travel ], it is quality of life. Once we acknowledge that, then we define our ambition. From our ambition, we define our strategic choices. From there, we have a target. And then those are deployed in our 4P model, people, product, performance and planet, by having consistent priorities and execution drivers. Now I don't think we have time today, but we can go in Q&A to discuss all the points. But perhaps I'd like to focus here on the central one, which is our choices. And our choices start with a key business, which is service. Our absolute priority is to create density in a maintenance portfolio. And once you define this, you also start deciding which are the new installation businesses that you want to go for. So there is the topic of margin but also the topic of what value accrual does that build to our portfolio. It's quite simple, really, but I must admit probably over the last few years, there was a bit of a different focus on volume and growth per se. Equally, that applies to modernization. We will focus on modernization, on renewing our portfolio, on securing opportunity, which are also accretive to our service density portfolio. So our choices here is what we do. Of course, the most important is what we don't do. So we will stop taking jobs or low margins unless they are additive in terms of service density and portfolio. We will stop doing modernization businesses simply because it's an exciting engineering challenge, which, of course, as engineers, we love. Again, nothing dramatic, if you would say. But in fact, we have now to drive this disciplined execution across every core organization, geography and function. And that's what we've been doing. Starting last year, beginning of this year, there was no day lost. As we speak, this is being deployed throughout every corner of the organization. Now again, I said we don't have time to go through every single point. Let me perhaps focus on 2 elements of the 4P. The first is the planet. I presented already in Q3 our net-zero commitment, certified by Science Based Target initiative. And now what does that mean? In fact, it's a big picture, but you can see here on the right-hand side of the chart, that this is, of course, split into element. One, probably on the left side here of these bubbles, these are what we need to do to deliver on our Scope 1 and 2, which is on infrastructure, our car fleet, how we drive our factories. On the right-hand side, there you can see the opportunities. What does that mean in terms of products, services? So you have the green service here again. You have a Class A product sale, which, in fact, are huge opportunities. And I can tell you, more and more our customers demand that. This is becoming -- it's no longer an option. It is key in the real estate. And by the way, we see also the same from our BuildingMinds effort where real estate customers with large portfolios are very keen to have a sustainable portfolio meeting the Paris COP agreement targets by 2030, 2040. Otherwise, there is a risk of -- stranding risk of this portfolio becoming obsolete with a huge risk of value loss. So another example now going on our internal aspect is one that I know very well because I was involved in this from the very beginning. When we built our campus in Jiading, there are 2 factories. Now in the meantime, they've become 3. And from the beginning, we decided to invest before any formal commitment. Before any regulation, we started investing in sustainability. So you can see here on this picture, this is the escalator and elevator factory. This is the escalator one here. 80% of the whole energy requirement is generated by solar panels. And because it's a huge factory, we have space, but it is that how you use the space intelligently. What you don't see here is the geothermal installation that we did from the very beginning when we laid the ground for this factory, which then helps generating a huge part of the whole electricity in the rest -- in the whole campus. Moving on to the other part of the 4P. So there is people, product, performance, planet. We did planet. Let me just focus for a moment here on the product. And it is much more than a product. This is a key lever for our not only recovery but for our performance optimization. It has to do with our NI margins as well. This is the reintroduction or, I could say, relaunch of the real simplified modular elevator platform, which we said already very openly, was not deployed the way we're supposed to. It was even designed the way they were supposed to. And so good news, we don't have to invest many years because the key elements are there. We just have the fixing to place in '22. And now in different waves, which are highlighted on the chart by colors, we are now deploying, quarter-by-quarter, the factory -- the new product in each factory. It starts with standardization, the [ real ] radical reduction in components and variation with consistent configurator deployment. And of course, there is a topic of cybersecurity, which we now can deploy into each one of our products, much more than we do today, even though today, we think we're in the leading position. The second wave will be about introducing net-zero functionality but also having much unique and advanced user interface. The third phase will be the one you see here in the contemporary design and this combination of physical and digital functionalities. And finally, we're going to come with a product at the end of this evolution that will look very differently. It's going to be, I believe, the leader in this category, which Schindler was always a leader of. We were the leader in the commodity business. And now this is finally going to come back towards the end of the year. Now there is much more to be said about that, and maybe I'd like to introduce one element here. As promised, now we plan to have more interaction with our investors, and we plan here in the second half of the year to have a Technology Day, which we'll hold here in Ebikon, where you'll be invited. Then we will present to you this product with this functionality and plus a few other things on our technology, which we look forward to sharing with you, and more details will follow in due course. With that, I think now it is time to move to our financial results. And I'd like to hand over to Carla De Geyseleer, our CFO. Carla, please?

Yes. Thank you, Silvio. It's -- I would say I would echo my 2 colleagues. It's a real pleasure to see some of you here in person. So thank you for coming. Before I start my presentation, just a couple of reflections on the current performance. So having now worked here 6 months together with Silvio and the colleagues, I'm really convinced that we are focusing on the right priorities. And I think that is clearly evidenced now by the progressive uptake of our profits but also the recovery of the top line, especially in the second half of the year. Now clearly, as Silvio mentioned, the nature of the challenges, they are of that, I would say, nature that it require a reasonable time to solve them. So yes, we are making progress, but obviously, we are not -- we have not reached the end point yet. But together with the colleagues, we are focusing on the measures that we have already implemented. And at the same time, we are framing additional measures to really look beyond '23 and, in this context, are particularly focused on steering the performance, first through the pricing discipline; secondly, through efficiency improvement; thirdly, recovery of the supply chain and obviously, the monetization of the procurement savings, which will also play quite an important role going forward; and last but not least, the net working capital management. So at the same time, we are developing that strategic framework, and that is really dedicated to secure the mid- and the long-term success of our company. So let me turn now here to the page results in a nutshell. And obviously, I will not comment on all the elements here as I'll touch on some of these topics further on in the presentation. However, just some high-level comments here. Overall, you've seen that the results came in at the upper end of our outlook, and that is driven by that progressive trajectory of the revenue and the profit in the second half of the year. Order intake was broadly flat in local currencies for the 12-month period, and that is reflecting the deteriorating markets worldwide but, as importantly, our shifted focus to value and margin. Revenue, as I said, it recovered in the second half of the year, with a growth of 6.3% in local currencies and an increase of 2.5% for the full year, supported by a couple of bolt-on acquisitions mainly in the Americas and in Asia Pacific. Our service business continued to grow solidly, and that was supported by an increase in units by approximately 4% and disciplined pricing measures. But I also like to draw your attention to the fact that the number of connected units now increased by almost 13% in '22. And the number of digital service contracts increased even more, resulting in a monetization rate of more than 50%. So EBIT adjusted, positive trajectory, resulting in a progressively improved margins in the second half of the year. And if you look now at the cash flow at the right-hand side, then cash flow from operating activities recovered in the fourth quarter. However, for the full year, cash flow from operating activities remained significantly behind previous year for the full year. So now the following 2 slides, they show the key figures for the fourth quarter and for the full year, respectively. And you notice here that for the fourth quarter '22, the results confirm really that positive trend with the continued progressive improvement in revenue and EBIT adjusted, printing a margin in the fourth quarter that was higher than any other quarterly result in the year. Now the weak second quarter, which was particularly impacted by the lockdowns in our China operations over several weeks but also impacted by the internal and external challenges as presented by Silvio, they took clearly their toll on the full year '22 results. And that resulted in a significant performance drop affecting profits and cash flow. Nevertheless, revenue growth in local currency amounted to 2.5%, and that is a result of this disciplined backlog execution. So moving on now to the next slide. We take a closer look here at the order intake. For the fourth quarter of '22, order intake reached CHF 3 billion, corresponding to a decrease of 4.3%, minus 2.7% in local currency. And this is a result of the slowing down growth mainly in China and towards the end of the year, also in some European markets but also because of our focus to value and margin. Now on the right-hand side, you see the full year '22. There, for the full year '22, order intake reached CHF 12 billion, corresponding to a decrease of 1.7% and 0.2%, so let's say, flattish in local currency. So the organic growth slightly decreased by 0.6%. Acquisitions contributed 0.4 percentage points, while the FX had a negative impact of 1.5 percentage points. So thanks to our continued efforts to increase the prices and focus on these higher-margin products, our order intake margins improved significantly. And in combination with the globally slowing down markets, the focus on higher-margin projects resulted in mid-teens drop of new installation units. The order intake margin for elevators, escalators in contrast, improved by more than 25%. You have seen it also on the earlier slide that Silvio commented on. So let's take a closer look now at the overview of the order intake by region and by product line, comparing '22 with '21. So on the left-hand side, you see the comparison for the fourth quarter. On the right-hand side, you see the comparison for the full year. The order intake here, it represents all product lines. So the new installations, the modernization and the service. And I will only comment on the full year development here. So you see here the Americas and the EMEA region, they grew in local currency, while the significant contraction of the Chinese new installation market weighted rather heavily on the Asia Pacific performance. So overall, new installation markets -- new installations declined in units and in value. But on a positive note, the new installation margins improved in almost all the regions. And the modernization and the service business continued to grow, and this actually is nearly compensating the decline in the new installations. Order backlog, CHF 9.6 billion broadly unchanged compared to last year, and the backlog margin sequentially improved in the fourth quarter for the first time in years. And the year-on-year backlog margin drop stands now at less than 50 basis points, still reflecting cost inflation, product legacy and the portfolio rotation. So I continue here with the revenue development. So starting with the left side. So the fourth quarter of '22 generated a solid revenue growth due to that continued strong backlog execution throughout the quarter. The revenue increased up to -- increased by 2.8%, up to CHF 3 billion, and that is corresponding to an increase of 4.7% in local currencies. So EMEA and the Americas regions, they continued toward their growth path, while the growth in Asia Pacific post towards the end of the year, obviously impacted by the newly introduced lockdowns in China. Nevertheless, taking everything into consideration, growth in Asia Pacific was slightly up, too. Moving to the right-hand side here, there you see the development for the full year. Revenue reached CHF 11.3 billion, equivalent to an increase of 1%, 2.5% in local currencies, respectively, and that was mainly driven, of course, by the strong development in the second part of the year. Organic growth reached 1.8%. Acquisitions contributed 0.7 percentage points, while FX had a negative impact of 1.5 percentage points to the growth. Solid increase in EMEA and the Americans -- the Americas region, which was diluted by the decline in the Asia Pacific region, which was a consequence of the China situation during the second quarter but also during the last 2 months of the year. So overall, growth in new installation was negative, particularly due to the weak growth across all regions in the first 6 months of the year and due to the situation in China. But modernization was muted in Asia Pacific, while service remained solid across all region and throughout the whole year. So moving now to the development of the EBIT adjusted and the EBIT. And of course, inflationary pressures, the product legacy, semiconductor shortage, supply chain issues, restructuring costs, they still persisted, impacting the fourth quarter. However, you see here clearly, on the left side, the positive performance trajectory, how that continued nicely, especially in the second quarter -- in the second half of the year and really printing an improved margin in Q3 and in Q4. Now EBIT adjusted in the fourth quarter of '22 reached CHF 309 million. That is the highest quarterly result since the second quarter of 2021. And it represents an increase of 1% year-on-year and 3.6% in local currencies. Now for the full year, so moving to the right-hand side of the slide, EBIT adjusted reached CHF 1.047 billion. That's a decrease of 16.4% and 14.5% in local currency. Now the adjustments between EBIT and EBIT adjusted, they relate to the Top Speed program, Top Speed 23. They relate to the restructuring costs, and they relate to expenses for building mines. And the EBIT drop in the fourth quarter, that can be explained by a net increase in these adjustments, particularly the higher restructuring costs related to the resizing of our operations, mainly in China and mainly in the U.S. Now coming back to the Top Speed program. So over the last 2 years, we have spent CHF 130 million for the program. Now a realignment with the operational priorities and lower investments for mass connectivity, they are expected to lead to a significantly reduced overall program cost of CHF 170 million, opposed to the initially planned CHF 270 million. So as a consequence for the remaining '23, the spend is expected to amount to CHF 40 million. We are making continuous progress on these various initiatives, and one that stands out that is clearly the fact that already 1/4 of our portfolio today is cloud-connected. Moving now to the operating cash flow. So cash flow from operating activities weakened, and that has, to a large extent, is -- or to a large extent is driven by the substantially increased network capital requirements. That's mainly an increase in inventory and work in progress. And of course, that is related to the challenges that we have been facing and are facing in the supply chain. Cash flow from operating activities declined by 12.4% to CHF 312 million for the fourth quarter in '22 and to CHF 688 million for the full year, equivalent to a decline of 47.6%. Now moving to the dividend. And the dividend obviously is subject to approval of the Annual General Meeting, is maintained at CHF 4, which is equivalent to a payout ratio of 70.5%, which is above our stated dividend policy range of 35% to 65%. So taking into consideration the closing price of the registered shares listed on the Swiss Exchange on the date of the Board decision, which was yesterday, the dividend yield stood at 2.5%. And it should probably not be a surprise that we stick to our CHF 4 dividend because we have a very strong balance sheet, number one, but we also really believe in our recovery plans going forward. And obviously, we had no intention to break the -- our dividend track record here. Now you might have noticed that we are accelerating our initiatives in the area of sustainability over the last few years. It is clearly also part of our strategy going forward and a pretty important part. And on this slide, you see here now the overview of our achievements compared to our road map 2018-2022. So that sustainability road map ended this year. And Schindler met 5 of the 6 targets that were set in 2017. So we missed 1, and we missed it with 0.3 percentage points, and that our -- this is our objective, to reduce the CO2 emission by 24 -- about 25% in the global fleet. It is clear that our miss is partly also due to the plant or the slowdown of the plant conversion to e-mobility, which is related to the challenges that the automotive industry has been facing. Now with regards to the other targets, I believe that we have made good progress since 2018. So we comfortably met our ambition. And now clearly, our focus shifts to our 2030 sustainability road map, which is being developed on the basis of our updated materiality assessment and our net-zero target. So now moving on to the outlook. So starting with the market. So the global new installation market was mid-teens negative in units in '22. That was mainly driven by the situation in the Chinese market. Modernization, service held up well. So for '23, now we expect a similar pattern for the global new installation market, driven by a continued weak Chinese market as well as a slowdown in some European markets. And the overall development is very much dependent on the timing of the supportive measures in China and the effectiveness of the measures. Modernization and service markets, they are expected to grow between 5% and 10%. And this is then the basis for our outlook '23. As already mentioned, we very much focus on pricing and efficiency, and barring any unexpected events, we expect low single-digit revenue growth in local currency for the full year '23. Positive EBIT adjusted margin trajectory is expected to continue since, of course, pricing and efficiency are expected to more than offset the inflationary impact that we are facing. And finally, I would like to assure all our colleagues around the world wherever you are that we very much appreciate your hard work in '22, and -- but you can clearly see that it resulted in an improved performance in the second half of the year. We all know that tough times are not over. And it will take a while before we can close all the identified gaps. However, we are very, very convinced that we will reach our ambition in a unified effort. And with this, I hand over to Marco. Marco, floor is yours.

Thank you, Carla. We move on to Q&A, and we propose that we start with questions here from the audience, if there are any. Remo, please?

Remo Rosenau, Helvetische Bank. In the outlook, you're positive on the modernization and the service business looking forward in '23. However, on Slide 24, it looked like the momentum in modernization was negative in the fourth quarter of 2022 compared to the full year. This would rather suggest that modernization has a negative momentum entering the new year. However, you're positive on it for the full year '23. So could you elaborate a bit on this, which is a bit of a contradiction?

Excellent question, Mr. Rosenau. Indeed, it is noteworthy modernization has 2 different type of jobs. One are the, I'm going to say, bread and butter, components, replacement for energy or simply for obsolescence reasons. The other one are big, large projects. And in fact, last year, Q4, we had a number of those like very huge projects, typically a high rise or, I think, it was been a metro. I forgot. Now Marco, if you can remember. So the year-on-year development has to be also -- to be taken in that regard, contrary to NI and service, which is still very much of a mature market where some of the big and the small can broadly offset one another. Modernization, if you're a job that can be CHF 20 million, CHF 30 million plus, you will see it as a blip and, conversely, the following year. So this was the reason why you see this notable but circumstantial observation of the difference in order intake for that period. The trend is very much the one that we signaled. If anything, it's more an issue of having enough capacity, not only to produce but also to design and making sure we have the efficient way to deliver.

Okay. Then my second question is going back to one of these legacy issues. Could you give us a bit more detailed update on the configure rate situation? I mean a year ago, you explained quite in detail what the big message was. I mean you had to produce more cabins, not less. You took in orders which you were not supposed to take in because the configurator was wrong. So you had to produce cabins, which the sites were not supposed to produce. So has this been resolved? Are these bad cabins out of the system now or not yet? Yes, tell us a bit about that.

Thank you. So let me start with the first -- first, with the last part of your question. I'm afraid those bad orders are not totally out of the system. You saw this slide reverse exponential. You will see, it will take until end of '24 to get rid of 90% of them and a few years more to get rid of them completely. However, we managed to reduce actively going back to the customers to do that. Now this is the fixing. In fixing all supply, they need the configurator. So there are different phases. Already as of half year, we had already blocked the configurator, call it a Band-Aid solution. So some options, even they were not all more -- they couldn't be ordered. For other options, we increased the price remarkably in a way that even if people wanted to order it, at least, we were sure it wasn't causing negative margin in the factory. That has been done effective since second half year, including what we call factory transfer price increase that was somehow covering for inflation. Now what is coming as part of this relaunch of the modulator platform is a whole new configurator where it won't even be blocked. Those options will no longer exist. Let me make an example. We had -- because we thought we wanted to make great lifts, we even had on residential commodity products. We were providing 10-centimeter-thick marble slabs as an option. Now you have to wonder, it's very open [ to everybody here ] why anyone would like to have in a normal residential home, these type of options. But we had it. Well, so we first blocked it. But now in the meantime, it's no longer available, none. By the way, if you want it, we can give it to you, but then you have to buy another elevator, design elevator, which is designed for this type of luxury applications. So this is a perfect example. And so we now are as part of this reintroduction element is much more than a new product. It's really fixing the business or relaunching the way it was supposed to be. This is coming progressively starting in wave 1. As we introduce this new product, the configurator will be reintroduced accordingly. It is a huge challenge but one on which we have worked nonstop, maybe one of the biggest that we invested on a lot in 2022.

Okay. So the bad order, so to speak, from the wrong configurator are more or less fixed now. And the -- however, you also had legacy cabins from the past. Are these worked -- also not worked out yet?

No, as -- we go back to that slide, can you maybe refer to that one that we showed there?

The 40%. Okay. So it applies for...

This is -- and again, we are actively still working with our customers to say, are you sure you want this because -- and so we are actually -- we never -- we're not taking it for unfrozen, but there is a contract. So we -- but the customer, I trust, will see more and more reasons why they might better change, but it's coming.

And have you lost any customers due to this -- all these issues?

Customers lost, if you look at our Net Promoter Score, we don't see any evidence of that. There is a blip, but we did lose some orders, oh, yes. In some cases, where do -- we could apply the inflation clause, and the customer reviews. In some cases, we said, okay, then we cancel the order. That is a tough choice. We had to take it, which involved, in some markets, losing locally some large orders. And overall, I think that's the right thing to do. But we always explain why.

Alexander Koller, Stifel. Is it fair to assume that the positive impact on margin from the simplified platform is negligible for the current year since you are generating most of your -- from your profitability in service business?

In -- sorry, can you -- for the new platform. Of course, because the new platform, as you know, it will be introduced now by the time we have usually a lead time, which is average 18 months. So that will be very, I would say, this year, very, very limited. What will start coming through but at a limited time as well is the order to the higher margin that we sold in Q2 last year. Q3 probably is not going to come yet. And so this is the one that will flow through. But what will come on top of that is the efficiency measures we are introducing across the value chain, which starts with supply chain. It starts within installation and all of the aspects that are under influence, hoping to get what we call a better pre/post gap, meaning pre-margin -- pre-installation margin post installation, and that's something that we drive very actively. But hence, a limited impact, to answer your question of the new product coming this year.

[ Andre Schmidt at SAT Capital ]. First question would be on the market outlook in China. 3Q call, you said it could again be minus 15% to minus 20%, now bigger at minus 10%, but you still mean the same. Or did it become a little bit more positive because the indicators got better?

Honestly, 2 elements here. Speculating on China is something which is very difficult. So today, already, if we had this meeting in December, I would have told you minus 15%, minus 20%. Minus 10% already shows that there is an easing of the downturn. And that is today the latest best estimate we can have. Is it -- what is the degree of margin of error? I think it's large. I would say it's plus/minus 50% is [ where you probably go ]. You can go again minus 15%, but you can also go back to minus 5%. Having lived in China, one thing I said, never underestimate the speed of China reaction. So if we did decide to put their mind to it, the bump in the second half could surprise, but it's big if -- so I cannot give you a better answer, I am afraid.

No, that's fine. And then on market share losses, we discussed it before, too, and you said last time that you hope it does continue for 18 months. It obviously continued in 4Q. Can you give us an outlook on that for 2023?

As you know, we don't usually elaborate on specific market shares. However, what I can tell you is that if you look at our order decline, which Ms. De Geyseleer explained, it's, in fact, in line with the market. In line with the market, There are pockets where we lost some market share. It is clear, in particular, I mentioned, unfortunately, in the commodity because we -- the product wasn't suitable. There are -- and then there are some geographies where we were behind in price, and we have to -- we had to accelerate price increase more than in others, where also we had some local market share gaps. But overall, I'd like to stress based on how the final market assessment 22, if we had any market share loss, we're talking about very minimal marginal due to those specific markets.

And then last question. I think I asked that every time we spoke, KPIs, midterm targets, you promised or to give us something at some point, can you give us an update on that? When do we hear something?

No, I promised to give, if anything, an idea of our direction, which as you can see, I am. We already started today with our strategic framework. As we continue developing and moving, we can elaborate as we go forward. But today, if you ask me to give you a specific midterm profitability target, there is too much in motion. And I don't want to -- I'd rather be here and tell you I deliver on what we committed to, which we did last year and like to continue in this way. But I look forward to continuing this outlook. I understand you're asking for it. But I think at this stage, there are so many things moving. That is extremely, I'm going to say, not only risky, but it wouldn't be consistent now to give you a target where we are. There is too much in motion.

But we can still expect it at some point, even if it takes another year.

You can expect that we continue improving. That's our commitment to you, but it will take time.

Johannes Borner at Santro Invest. I would like to come back to the standardization of your products. You have a long history in trying to standardize your products, and you had some benefits in the past. And they were then, over time, always a little bit diluted, if I may say. So what makes you confident that this time it will work and will be sustainable in terms of products that you will sell on the market going forward?

Thank you for this question, which goes at the heart of our issues today. First of all, what makes me confident is that we did it, as you say, we did it. I was actually -- in my very first job in Chile in '94, I was Head of Corporate Planning, and I was involved in the introduction of the Schindler 001, which then became the 3300. And so I've seen how this was a major -- really a change in the company mindset, which required massive efforts, and we did it, and it brought us to lots of success where we are today. Unfortunately, probably -- so the issue is more to maybe a question to your question, how could it be that in the last few years, some people possibly driven by good intentions thought they could do better and change that. And having a seamless elevator offering -- allow me here the analogy, a Fiat 500 with a Porsche engine, and that cannot happen anymore. So it is fixing that, which also requires making sure we get the priorities right. And the strategic framework execution we are reintroducing is exactly meant to do that. So everyone understands what is our purpose, what our -- what is our ambition, our choices. And it's hammering it through every corner of the organization. And I think to some extent, that was lost. At the end, it is a leadership task to communicate and explain, and so we are dedicating more and more of our time to do that. So thank you for your question. It goes really at the heart of the situation we're in today. Should we take a question online?

It seems there are no further questions here in the audience. So therefore, I suggest we move on to the people waiting in the line. Operator, please.

The first question from the telephone comes from the line of Andrew Wilson with JPMorgan.

Thanks for the time and for the very extensive commentary around the market particularly. It's very helpful. I wanted to ask, I guess, it's probably a bit more specific around 2023. I'm just trying to understand some of the margin drivers. You clearly talked about looking to improve the profitability, and clearly, there were a lot of challenges in '22, which makes that, I guess, quite likely. But I'm just trying to understand, particularly around things like raw materials, around labor inflation, and around the modularity, I guess, challenges that you had last year, I assume some of those headwinds will reverse in 2023. And also, if you could try and help us a little bit on the price contribution we would expect to go through the sales line in '23, that would be very helpful as well. So I appreciate -- I'm asking you to fill in my model, but if you could at least give us, I guess, some thoughts on those line items, that would be really helpful.

Andrew, thank you for the question. I'd like to -- if I understand it is about what are the key profitability driver in '23. Carla, would you like to take that question?

Yes, yes. Yes, thank you, Andrew. Maybe starting as you point out, wage inflation because that obviously is one that will stand out in '23. So if we make a bit of our estimate on which inflation, we could say, yes, this will be definitely around 4%, 4.5% in '23. But we are actually very, very confident, I would say, that is inflationary effective. It's now which inflation or some of the others that we will offset them with the pricing and with the efficiencies that we will generate in '23. If you go to the other element, which material cost, which has actually had a big impact in '22, that will ease, obviously, in '23. And with the measures that we have put in place, and I particularly refer here to the procurement savings, we are actually more or less confident that whatever comes through there that, that will be completely offset. We should also not forget that in terms of the commodity prices, these are actually coming down. So we have also a positive effect next to the procurement savings coming from that. But if you really look or compare '23 with '22, then I think the big difference is that, yes, we will also, of course, have a positive effect from the pricing, but we are working hard on monetizing efficiencies in '23. And that is where, overall, we are aiming to continue that progressive trajectory of the profitability. Does that answer your question?

Can I just follow up? Yes. No, it's very helpful indeed. Yes, I just wanted to maybe follow up actually on the last comment around the productivity. And just I guess I'm thinking of things that will be tailwinds in '23 versus '22. I guess it sounded like materials will likely be a tailwind given that commodity prices have come down, which makes sense. But also further productivity and, as I said, assume it will be a lower headwind, at least for modularity year-on-year because that was a big challenge, I think, in '22. I don't know if it's possible to kind of wrap up some of those sort of tailwinds into a number in terms of, I guess, the benefits that you would say that Schindler driving themselves, whether it be productivity or kind of a nonrepeat, just some of the challenges on modularity. I appreciate that might be a hard number to give but even just some sort of broad quantum would be really helpful just to try to think about that benefit.

Well, I think I pointed out there, the big pillars that are -- that will impact our results positively. And as you say, yes, there are a couple of these tailwinds, and you refer to one internally there. But of course, the other one is what Silvio pointed out. We will -- as we are working through the backlog, yes, there is still a major amount to work through, but also in '23, the impact will be already less than in '22. So it is a combination of elements there that will impact our results.

Building on the question perhaps here just to build on Carla's point. I understand your question and also for the idea of the model. We probably cannot go here in every detail. It wouldn't be even appropriate, but maybe the 4 blocks, right? There is the pricing, the efficiency. Then another block is what I call one-off hits that we have in '22 that will longer be in '23. And the fourth block is what I -- you can say it's basically China. Sorry, it's a big block in itself, but that caused a huge [ impact ]. So if you then go backwards on things that, hopefully, will now go there, these are the 4 ideas. Now on the efficiency, this is why maybe it's a bit complex to discuss here. There are in itself -- also, there are a number of elements. There is the efficiency in installation. There is the efficiency in servicing. There is the efficiency in procurement. There is the efficiency in supply chain. So it's -- and we are, as you saw before, from a -- from the strategic framework, there is a bullet for each one of these, [indiscernible] bullet. Everyone is a module. Everyone is a work stream on which we are driving targets, not only centrally but deployed for every single element of the organization. Perhaps if we can take it offline, I think -- but I wanted to explain to you the model how we're going for it. But at the same time, I said there are headwinds. Biggest one of all is the backlog that we have to consume. We saw that. There is inflation, which is still there. And the whole topic of pricing, for example, now there is pricing of new things coming that we need to make sure we manage. This is somehow the big building blocks of the plan. I hope this helps. And maybe we can discuss offline if you'd like to go into more detail.

The next question comes from the line of Andre Kukhnin with Crédit Suisse.

I'll go one at a time, please. Firstly, could we talk about pricing? I'd love to hear what your current intentions and the kind of current actions on pricing front, ex China. Should we think about it as something that was quite a clear push as you demonstrate in the numbers of the double-digit increases and now we are kind of stable at that level? Or are you continuing to push for price further? And then secondly, could you comment on how pricing has been developing in China, please?

Yes. Andre, let me comment on the topic of pricing. First of all, let me split it again in 2 big blocks. So this pricing service and pricing installations, starting with service. As previously discussed, and I'm sure most of you are well aware of, service contracts in many parts of the world are, in fact, already including an inflation index. So then, of course, the inflation of last year, since the contracts were indexed, would have, by itself, a flow-through impact on the top line pricing for this year. All the price increases, inflation-driven or material-driven, are very carefully looked at because, of course, what we want to make sure is to minimize portfolio losses. And we want to make sure we preserve this density as a priority. So this is the first block. So there, it's -- the drive is there, but going back now to a very clearly spelled ambition and targets, the goal remains to keep service density. The second part is new installation. There, I think '22 really recreated that reflex about driving price increases. When I -- when we spoke, I think, in Q1, I did say how surprised you were to say that after a decade or more of negative interest rates, the whole topic of price increases was, for some of our staff, unheard of, China being a particular example. That is for most of the world now being recovered. And now I think this is going very well. What are we doing? There is a pricing module as part of our strategic execution framework, which has been driven systematically with functions across the whole world. There are different elements to that. One is this market-based pricing model that we discussed already in the past that we introduced back when I was CEO the first time. But there is now another element, which is artificial intelligence. We now use data science to assess what is, based on history, based on specifications, the most likely award price for a certain project. And I must say I'm so pleased, at the same time, also how effectively this method has been -- whenever we introduced it. Now we've introduced in a few key markets, and now it is being deployed worldwide. China, the situation is tougher. I explained the reason why. There, I think also the culture relevant is particularly important. There, we have -- I'm afraid, we are restarting a bit from the base, but there too is to find the right element between market share and price and making sure we drive new installation and we secure the job we want to, where we then have to be prepared even to make some price concessions. But in the other ones, we need to make sure that we get sufficient margins. Pricing, used analogy in the company now of breaking on ice for those who drive in the winter or used to dry when there was snow on the roads. It's a bit of an art, and you can use technology that can help you fixing it. So we are very much in the process. I cannot give more details now, in fact, because it's extremely complex, but we are definitely all in to continue with the momentum.

That's very clear. And if I may ask on the order backlog -- sorry, on the backlog margin evolution, we used to talk about that, and now you're giving very helpful disclosure on how the order intake margin has been evolving. If we just try to translate that back to the backlog margin and think back of the historic, I think, it was kind of minus 50 basis points that then flattened out, in Q4, did that backlog margin now go into a net positive? And maybe if you could comment, to what extent?

Thank you, Andre. Carla, we expected the question. So please go ahead.

Yes, absolutely. So yes, as I just pointed out, for the first time also between quarter 3 and quarter 4, so sequentially, the backlog margin improved, hence, the fact that it narrowed to less than 50 basis points. But obviously, also in terms of margin, it definitely became positive, yes.

Great. And if I may, just last one, very quick one. On digital, the 25% cover of your maintenance base with connectivity, is that all Schindler Ahead units? And could you possibly comment on kind of the revenue level against that? Or at least is that now in the breakeven territory versus the kind of recurring costs that you're incurring on that program?

Sure, Andre. Yes, thank you. Let me answer the first question, and then I'll pass it on to Carla for the revenue part. Yes, it is all Schindler Ahead. So I'd like to specify this is cloud connectivity. It doesn't include Telealarm, the old analog lines. And this is really Schindler Ahead-based. Carla, the second part of the question?

The second part regarding the revenue. So I mean we don't disclose the exact revenue, but it's already a substantial of high tens of millions that are flowing through to the bottom line. So yes, and a very solid number, yes.

And you can -- I think we can say that probably year-on-year, we're talking about doubling. And you saw in our drive, again, as part of our products, this is the first bullet: drive innovative services based on connectivity. This is something which, after the investment we did with Top Speed 23 to get connected as many units as possible, now we can start harvesting the benefits, and this involves now generating the services. And we have the tools for it, and more is coming.

Yes. And Silvio, if I just may add because it -- next, of course, to the financial benefits that it brings, it's also important because it really relates very well to our sustainability ambition here. And that's also one of the reasons where we are so forceful in accelerating the rollout.

The next question comes from the line of Soumava Banerjee with Citi.

Just a quick question on Slide 7, where you disclosed the new orders margin and also the margin [ that is built ]. Do we have some sense of how it is trending by geography? And the reason I'm asking this question is also, I mean, very strong 4Q and obviously driven by pricing impacts that flow through. But just wanted to know which regions are doing well and if we have some magnitude on that subject.

Sorry, I didn't get the question, yes.

The line was not excellent. Apologies. Can you repeat -- is it about flow-through or the margin? Am I correct? Maybe...

Yes.

In terms of [indiscernible]?

No, I'm trying to get some sense on the -- sorry, I'm trying to get some sense in terms of the order margin. Do we have a split by geography? Which regions are kind of driving this?

Yes, yes. No, no. On the -- when you look across all geographies, I mean it is worldwide, I would say, positive development in the margins across the whole portfolio.

Do we know which regions are kind of doing well versus others? I mean, let's say, China, is it around the group level versus [ the ] somewhat lesser? Do we have some sense around that?

Honestly, I mean they are pretty similar in terms of region. So they are on a similar level, the improvements here, yes.

Perhaps to clarify the reason to how the answer is built. We look now more and more at what we call wall-to-wall margins. And this is important because here [ any one makes a ] difference. Wall to wall, meaning from field operation when it is sold and installed all the way to the factory who delivers them. And so to your question, indeed, as you correctly hint to, in some part or geography, maybe the front -- the field operation margin might be a bit lower. But then the supply chain margin is higher. So Carla's answer is exactly spot on because, on average, you end up having the similar positive evolution. Of course, against the effect on -- before it flows through the P&L, it will take time because we have to first consume the backlog. Hopefully, this -- and this is again why it is important to drive efficiency because if you drive efficiency today, then this pricing effect then into the wall-to-wall margin is even compounded with these other benefits, which then are in our hands. That's why Carla said this '23, the key focus for us is on efficiency because in all these many multiple and fast-changing things, efficiency is in our hands. And candidly, I say very openly here, we have a way to go. And we use ruthless benchmarks. Actually, we invest a lot in that to see what is the market benchmark, what is the best-in-class benchmark. And we operate towards that.

The next question comes from the line of Angelika Gruber with TAMEDIA.

I would have one on China. China has been a growth market for a very long time for you. So I'm wondering whether you see it coming back or whether you need a different growth market in the long term. And there is also a political component to this question. I was wondering whether you are a bit more cautious on China, given the conflict between China and Taiwan, after what happened in Ukraine.

Thank you. Let me take the question. So as explained, China, in spite of the contraction over the last 2 years, remains 60% of the world market. You may remember some of you, the Pareto chart we presented in Q3 where we showed that the second largest market is India, which is 7x smaller still today than China. So China remains the key market for any global player where one has to be successful on and wants to retain a global presence, including growth. So at the moment, I think we need to grow all over the world, but we need to continue growing in China as well. So yes, we grow in India, very successfully. We grow in the rest of Asia Pacific, which are the other fast-growing market as a result of urbanization. But today, China remains the key driver. So that's the first part of the question. On the second one, are we cautious? First of all, I'm sure you saw the figures. I don't know. Yes, you just published a study last week, whereby you can see that trade between China and the United States grew by 2.5% in 2022. And this growth has never stopped even at the highest mode of tensions. So clearly, one has to be carefully watching without taking any political side on the tensions. Trade so far continues. And I think, thanks God for trade because hopefully, that also keeps people clever in avoiding to cross boundaries, which are then very costly once they're crossed. At the same time, I think what we have to learn from the year, period of lockdowns in terms of -- what does it mean in terms of risk management. And this is a key element. And risk management because we see that we have many suppliers that are, in fact, producing only in China. We have been producing over the world from the beginning. But we have components that we don't produce, and some of these components are produced in China only. And that is the one thing we need to look at. And so this is what we actively -- you will see -- you may have noticed into the product, we have to now -- to reduce drastically the number of single-sourcing components or suppliers that we have. And we had a lot. And by the way, this used to be the fashion in the '90s, 2000, like single source, outsourced, go for that. And now you can see, depending on where the single source is, it can be very risky. So this is now -- and this, of course, in engineering business like ours, is not easy because you have to make sure that the other supplier is certified that has the right quality, the right engineering. So this is already in itself a huge effort, which has substantial cost, which we're driving for now and, hopefully, move through that end. This is our situation with China but also with other countries. But of course, China being so big, this is the one that is the most affected. Hopefully, that helps addressing your question.

The next question comes from the line of Yifan Zhang with Goldman Sachs.

I have 2, if I may. The first one is actually I want to switch to other countries like U.S. I know you have a new CEO in the U.S. I just wonder if there are any changes in strategy there. Or what's the new direction there? And the second one is on your orders, can you if possible to quantify how much percent of decline is like voluntarily take less because of lower margin?

Thank you. So if I understand, well, the first question is about the U.S., the -- any new direction with the new management. I'll take. The second one, if I understand is the -- can you repeat this, is the percentage of market share orders that we -- can you repeat the second question, sorry, again?

Yes, sure, sure. No worries. Yes, how much percentage of orders like you voluntarily like decided to take -- not to take because of lower margins in your order decline in 4Q?

Okay. Good. I will -- Carla will address the second question. So yes, you were informed. Indeed, we disclosed it. As part of our effort, by the way, in '22, we did change a number of key personnel, including leaders in some key markets. That is the U.S. but also our China field operation. They are most of our supply chain heads. So all that has been, again, a huge investment, in which as you can imagine, I, myself, invested a lot. In the U.S., the direction is not changed, just disciplined execution. In the U.S., we need also to make sure we have the right products for the market, on which we have been investing as part of Top Speed 23. Now it's about bringing them to the market. We probably have to do also some investment in the U.S. in terms of infrastructure. And of course, the old topic about front-line capacity and which is true for most industrial companies, is a key burning platform in the U.S. So we are working very actively towards it. And to do that, we have streamlined there, too, like we have a central level, the whole organization in a way to make it much less complex, much more decentralized and close to the field with much closer proximity. And this has involved some restructuring, for which you may have seen some of the costs coming in Q4. This is -- it's about disciplined execution of our -- and the product introduction will play a key role. Carla, would you take the second question on the orders?

Yes. On the orders, obviously, yes, we lost orders, but that is rather, I would say, a minor part. And we actually don't quantify them as such. We don't disclose them here, yes. But it's not -- as you can see, it's not, I would say, a major problem. And in the cases we were dealing with, it's then conscious decisions, yes. So...

Perhaps building on Carla's answer, the key maybe market where this has to be discussed carefully is large orders, typically infrastructure because those are very large volumes. So they're very appetizing. One can get very quickly excited by huge figures. And then the question is, yes, we can do it, do we have the right margin and, most of all, what will it do in terms of portfolio density. Depending on the country, some of these orders have a -- I won't say automatic, but have a very high chance of conversion into service contract. And this is, for us, the key area. And to be candid, now honestly, I'm not trying to evade the question. Top of my head, I wouldn't be able to tell you what a percentage, but there are large orders, which we backed out from because the maintenance was at risk. And then unless you have the right margin in your equipment, you don't take it. And in the past, we did. And that is a very, I think, very specific example of the type of orders we will now be scrutinizing much deeper in the future.

I think we have time for one more last question from the call, and then we are also looking back in the audience if there is one remaining one and then we close.

The last question from telephone line, it's coming from the line of Miguel Borrega with BNP Paribas Exane.

Just following up on the recent price increases. Obviously, 2022 was an exceptional year. But looking forward, do you think it's possible to keep raising prices in a situation where construction end markets are becoming weaker? I understand some of the price increases are still yet to be delivered in the P&L. But once they do, what will be the key for improving your margins? Will you keep raising prices? Or is it the focus more on the product cost and internal measures? And then on China, you talked about the transition to modernization. Can you give us a sense on how a typical modernization project compares to new equipment in terms of size and margins? So if by 2030, the modernization market in China is the same size as the new equipment today, how will your profitability compare modernization versus new equipment to that?

Thank you. So let me start with the first question. You're absolutely right. As I highlighted in my headwinds, tailwinds slide, the real estate industry is under pressure because of rising interest rates, increasing capital cost, in some parts of the world, also risk of recession. Now we all heard the story about now is Europe or U.S. hard landing, soft landing now or no landing. So you view in your institutions. You know this much better than I do. And so this is a big question. And you're right. We are very conscious of the fact that pricing will be more challenging in '23. So that's why we spoke about pricing momentum. And the key for us is to apply the formula that has carried out in '22, which I presented, that shows my -- 1 year ago, which is pricing plus efficiency has to be bigger than inflation. This is the magic formula: pricing plus efficiency has to bigger than inflation. Now if inflation, if we cannot get the pricing, we need to get the efficiency. And this is now -- we even have -- together with Carla and her team, we have now data and cockpit charts to observe how this evolves across the world. And in '22, we were very good on the pricing. We were not so successful in efficiency. So now it's the perfect time to switch because indeed, I agree with you, pricing will be a risk. Now where would it be more at risk? I think the big question is, first of all, Europe. We can see even in Northern Europe, some construction. The demand is still there, but some -- we see some of our customers start postponing decisions in terms of final investment. So this is one to be closely watched. The other one is the U.S., where I think demand is there. But there, there is a scarcity of labor and delayed construction with some uncertainty. This is one that has to be watched really carefully, including the vacancy rates in some cities, which then only is a question for future projects but also in terms of service. So again, big tailwinds and big risk. Now the second question is about the modernization margins in China. There are 2 types of modernization in China. One is the -- we call it the -- actually 3. There is the replacement because as you -- in -- you have an old unit, you take down your unit, and you're replacing the same shaft. And those margins are actually very healthy, very healthy. The tougher margin, which is smaller in units but bigger in volume is the transformation ones. Transformation in China, there is an issue of scarcity labor. It's very much of a skilled work. And this is where we need to improve the margins. And to do that, we need to develop a self-standing delivery mode, which is there in Europe, which is there in the U.S. In China, it wasn't there. So it's really -- and we are working towards developing that in order to do that, provided it adds to the density of the business. There's a third element of modernization in China, which is in between new installation, modernization, which is the outside lift, the add-on shafts. Some old buildings in China back even when I was still there, there was a law until, I think, 2008. The lift -- buildings less than 7 floors could not have a lift. With the aging population, this has changed. So now you can actually -- instead of tearing down the building, which used to be -- what used to be done in the past, now less and less, you can actually add a shaft outside and connect it to the building. This is a fast increasing business on which we are investing and which is showing improving margins as we go forward. So now honestly, how will this look into 2030? I cannot tell you today. But I am positive that this -- as it did in other parts of the world, this will provide the business, possibly even more profitable than what we have in new installation.

Is there any last question from the audience? That doesn't seem to be the case. So therefore, thank you very much for attending this call. Please feel free to reach out if you have any follow-ups to me. I see there are a few questions still in the line. I will contact you in the course of the next few hours. And with that, we would like to say goodbye to you. The next call or the next occasion we are in contact with each other will be on April 20. We are looking forward to that. And thank you very much, and take care.

Thank you very much.

Thank you.

Thank you for your question. Thank you for being here. Thank you.