Ladies and gentlemen, welcome to the Schindler conference call on Q1 Results 2022 conference call. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Marco Knuchel, Head Investor Relations. Please go ahead, sir. Good morning, ladies and gentlemen, and welcome to the first quarter 2022 results conference call. My name is Marco Knuchel. I'm Head Investor Relations at Schindler. I'm here together with Silvio Napoli, our Chairman and CEO, and Urs Scheidegger, our CFO. Silvio will, as usual, start with an introduction, and Urs will then lead us through the financials. After the presentation, we are happy to take your questions. As in previous sessions, I would like to ask you to limit yourselves to two questions only. Thank you already in advance. With that, I would like to hand over to Silvio, please. Thank you, Marco, and good morning, everyone. Thank you for joining us today, and it's my pleasure to present our Q1 results together with our CFO, Urs Scheidegger. Let me just start with a brief introduction. It's in fact not so long ago, about two months ago that we met, as I had just taken over the double role of Chairman and CEO. Back then, I presented what I called our challenges in view of the macro, micro, but also internal situation we were facing. We did it in total transparency. Actually, one of you actually called it brutal honesty, which frankly I took as a compliment. Today, two months later, exactly in the same spirit, I would like to start this Q1 presentation with an update on each of the same challenges and provide you with a more specific update on the actions deployed so far to tackle them. In February, actually, when I presented, I spoke of an unprecedented mix of challenges. Frankly, little did I know that two months later, the situation would have gotten even more challenging. On page two of the handout you should have received, you see I listed exactly the same five challenges that we faced then, providing for each of them a very short summary written in red about the latest situation. Later on in this presentation, you will see I'll provide more color on each one of them. Perhaps starting with this overall summary, and with the macro aspect, and of course, the topic of the foreign exchange, which for us, a company that consolidates results in Swiss francs, remains very much a current and real headwind. The situation update is that the Swiss franc has further strengthened, and in particular against the euro, a very important currency for our business, which has lost almost 5% today versus the Swiss franc. Moving on to the next four challenges which are more specific to the elevator and escalator industry. The first one I mentioned was this urgency to regain competitive New Installation margins. Unfortunately, you see the situation has further worsened, in particular because of the material cost inflation. Back then in February, we reported to you a forecast impact on our P&L CHF 150 million. Today, based on latest estimates and the latest prices for commodities and other raw material, including components, the same estimate now has increased to CHF 200 million for the year. Moving on to the third challenge, I mentioned our supply chain disruption issues. Now there too I don't need to tell you how the Ukraine war and the China lockdowns have created additional challenges in this regard. Moving on to the fourth challenge, which is this time more internal. I did openly speak about the challenges in streamlining our product portfolio complexity. In particular, I mentioned then about the situation in our factories having to deal with the old products, the legacy ones, in combination with the ramping up of the new modular platform ones, which are still selling very successfully. Well, today, unfortunately, I have to report and will provide more details in a second, that after an analysis of the backlog, we see that even the new platform in itself does present some challenges in that unfortunately it offered too many optionalities for customers who of course loved it. Because of this excess sales and choices of options, the whole portfolio complexity, in fact, has this additional front to be dealt with. More on that in a second. Moving to the fifth and final challenge, at least of the big picture one. The topic of the Chinese market was addressed last time, where we explained, as our competitors did as well, that the issue that the largest developers were facing, the most famous one of them all being Evergrande, were leading to a contraction in the market, which at the time we estimated around -5%-10%. Well, today we're talking about -15%, latest forecast on China. The main reason behind that is that the construction industry situation has further worsened, in particular, the consumption of the housing inventory. Where last time figures showed that it was still within healthy levels, and today, unfortunately, the latest figures released from China show that in tier 2, 3, and 4 cities, the housing inventory unfortunately is shifting to alert levels, while at the same time, housing starts continues to fall. The China market, which of course is large in the world, is providing itself another challenge. This was the overall picture. Now, let's move on specific updates for challenges two or five, since on the foreign exchange, I'm afraid this is not really our business, and you probably know much more than we do about that. Let's start with challenge number two, which is we called it regaining competitive NI margins. Now of course, there are many aspects. Last time I actually had specific points on four aspects, but today I'd like to focus on two aspects of this NI margins recovery, which is inflation, and of course, how we combat it, and pricing. Now, the biggest evolution here,, as far as we're concerned, is the evolution of raw materials, and in particular, I'd like to focus here, and you can see on slide three, on the most relevant metals for our business, which are steel and aluminum. Steel, of course, is the one we use in most elevators and escalators. Aluminum is particularly important because we produce escalator steps with a proprietary technology, which provides many advantages. Unfortunately, of course, when aluminum goes up, we have to accept that additional cost in particular in our escalator business. You can see on the pie chart on the left, we show the relevance of these metals, where in between you also put the electronic components, which of course, last time I mentioned the case of a semiconductor whose price had increased 40 times in the period over a year. Now let's focus on metals. You can see in the middle chart how literally since our session last time, cost of both steel and aluminum has exploded literally, bringing it back to record levels. Clearly here, one of the key contributors to the situation is the war in Ukraine, and there is no other point but just having to fight it. What are we doing? You see here the key actions on the right-hand side. We clearly have to look at it from a strategic procurement point of view, whereby we are increasing outsourcing, whereby we're negotiating with all our key suppliers on how to find win-win solutions, whereby we navigate through this period while retaining our relationship. Of course, there are transactional aspects whereby we work with the same suppliers on locking in higher volumes. Also, there are new measures that frankly, so far we've not been doing, which consist of, for example, hedging bulk metals. In particular, you would imagine it is aluminum, which is one of the rare metals that we buy in bulk as opposed to separate components. Of course, this is what we have to endure and manage. The question, of course, is how do you offset that situation? Of course, the first thing that comes to mind is pricing. I'd like to move on to slide four in your package. Now, last time I did mention that very openly we were behind in terms of pricing in some markets in particular, and that's why we presented the chart that you can see here on the left-hand side below. Now, the shaded out part of the slide is the situation we presented last time. The other one you can see from year-end until March is the evolution since last time. As you can see, yes, we have been able to increase prices. Unfortunately, the nature of our business is that you issue prices on new tenders, and by the time those tenders are negotiated, awarded, and of course, by the time we get a down payment, which for us is the condition to recognize an order intake, this all order to bill takes time. Even the price increases we have enacted will take time to materialize. Nonetheless, if you look now at the key actions that you can see on the right-hand side of the slide, we have launched a very aggressive first series of price increases across all product lines and regions. I'd like to stress here first, meaning that more are likely to come as a result of what we just discussed before in terms of raw materials and inflation in general. We have looked at our contracts and realized that we have room to enforce inflation clauses, which are predominantly applied, except in some markets where they're in fact not possible. We've gone back to our operating units and most importantly to our customers, both on open tenders or even on tenders that were awarded in the backlog, to renegotiate based on the inflation clauses to make sure that we can cover at least some part of this inflation pressure that we're facing. At the same time, we also spoke last time about the necessity to change mindset in terms of our sales force. There we've introduced a new incentive scheme for our sales force based on pricing quality, i.e. not only on volume and market share. Pricing clearly is something on which we will continue moving as aggressively as one can in every market, as part of dealing with this inflation. Now, let's move on to page five on challenges three and four, which are rather provide an update together, because in fact, they are very closely tied to one another. In February, I openly shared the issue linked to our modular platform ramp up. Again, the complexity of this led to a supply chain in terms of managing both legacy and new platforms. You can see, again, I present to the chart that you have on the bottom left part of the slide number five, where you could see the status of sales in different regions of the modular platform versus the legacy product line, because the product was not launched at the same time across the world. There is a lag and difference also linked to the fact that there are some codes and standards that need to be built into the modularity platform. As we have been dealing with this very actively over the last two months, we also did the backlog analysis, not only of the legacy, but also of the new modular platform. There, I have to say, in the spirit of openness displayed last time, we unfortunately found a bad surprise. Because this backlog analysis, which we do, you know, strictly as we would do in Schindler, looking at every detail, and we discovered that there was an excessive number of options that were not only offered, but most importantly, sold on a new modular platform. Which of course creates a ripple down effect across the whole value chain, and adds complexity in preparing the delivery, in managing suppliers, which in turn creates delivery delays to site, which in turn creates revenue shortfalls or rather revenue delays. Clearly not a good finding. One that, of course, we have immediately acted upon. How did we do that? We immediately created a task force, which we called executive, because we need decisions to be taken fast. This task force reports directly to the Chief Operating Officer. We have also given instructions to our field operation to reassess in detail the outstanding backlog and tenders to make sure that we will go back to customers to discuss with them whether we could optimize the design because sometimes these options could be dealt with with a much tighter set of choices and so that they can also get a faster delivery time which in turn of course allows the supply chain to work with the efficiency that we aim at. We also of course had to look at a product management approach whereby we immediately move towards a drastic reduction of options offered. How do we do that? We looked at the market. We looked at what really 80% of the market really needs, the famous Gauss curve, and anything which is +10%, -10% of this 80%, this essence, we just cut it out. We did that not only by giving instruction to sales, but actually went as far as changing the sales configurator so that these options can no longer be ordered. If ordered, they would be then ordered as a customer requirement, with, of course, a whole different pricing scheme. Moving on to the next challenge, which refers to the market. From internal, now let's go back to market topics from product to the markets. We move to slide six with China. China, as you all know, remains by and large, clearly the biggest part of the market, more than 50%. Nonetheless, as I mentioned last time, as a result of the large developer liquidity crisis, Evergrande first of all, the market was already subject to a slowdown, which we estimated at -5%-10%. Again, the last time we did say, I did say that based on figures we had, the housing inventory was still at healthy levels. Today, as you can see on the charts in this slide number 6, this is no longer the situation. In fact, larger developers still are in trouble. In fact, even more so are being challenged by a liquidity crunch in the market. In fact, the slowdown of the industry is remarkable by speed and by its extent. On the one hand, see the left-hand chart, floor space further declines across all city tiers. On the right-hand side chart, you see that for tier three, tier two, three, and four cities, the housing inventory is back to alert levels. How do we assess alert levels? Is there an element of judgment, but based on our experience in previous crisis, and you can see here the history of the recent ones on the same chart, we estimate that inventory level between nine and 12 months is really what we call the healthy level. You can see that while tier one cities, which is the red line, still are very much within healthy levels, tier two and three have now expanded into alert territory very clearly and very rapidly. As a result, we have this 15% drop year-on-year that we estimate by year end. This is not all. This is clearly a concerning situation, but it is of course another big unknown in the Chinese market today, and these are lockdowns. Lockdowns due to COVID. I'd like to move to the next slide on page seven, where very openly, we present the situation of the lockdowns in our different units, namely XJ-Schindler in the Henan Province, Schindler China in Shanghai, and Volkslift Schindler in neighboring province of Zhejiang. Now, in Henan, of the lockdown was extremely severe beginning of the year. But by now this is reopened. There are still lockdowns in cities, but at least in terms of production, we can produce and we can install in the province. The situation is unfortunately very, very tense, and I know that you'll be following this in the news, and I'm sure other companies suffer from the same situation, that is in Shanghai. In Shanghai, as you can see here, we started with the first lockdown mid-March. Then you do the short reopening, then it was followed unfortunately with the next even tighter lockdown, which still goes on today. The situation is very frankly, very difficult. We have employees that came to the office on a Friday and then were not allowed to leave. Understand this is the situation there. They had to stay on premises. We are actually just sharing a few things here. We had to buy sleeping bags. We had to buy camping beds. Some people had to sleep on pallets in the factory. Overall, I must say this here, I'm extremely impressed by the resilience and resolve of our employees who continued to work throughout the period, and continue to do so. In the meantime, some of them have been released from our facilities. They went back into these quarantine centers. So the challenge continues. Again, there too, I'm extremely impressed how our management leadership manages business while at the same time dealing with the situation. Maybe too, in Zhejiang, the neighboring province, the lockdown started a bit later. It is, I understand, not as harsh as in Shanghai, but of course this is also a major impediment. Situation like this happen of course across the country, which in turn creates a big unknown for the market and definitely has an impact on our business. What are we doing to deal with this? Clearly, the first priority for us, I say very openly, is supporting our staff during the lockdown. This includes amenities, but also by now includes distributing food. Not only for people who are in the factories, but actually for people in their homes, because the situation becomes difficult. Of course, as this happens, we're also preparing for the reopening. We don't know when this will be. This of course is in the factory, but also in the field where we have to make sure we have fulfillment capacity sufficient for the ramp up. Based on the situation in 2020, I know that our team, everyone in China, will go out of the way to catch up, and we've done it in 2020. Being in touch with them on a daily basis, I know that they are just preparing so that we can get off the starting blocks as soon as this will be over. Once more, I'm extremely grateful to our staff. Moving on to the maybe overall summary that is page eight. There is no other way to put it. The combination of order backlog, operational legacy, and declining market creates a highly challenging situation. With the new leadership team, we are resolved to deal with this, and this demands brutal focus on priorities. The priorities here are listed here on this chart eight, and it starts with a revised incentive scheme, not only for the salespeople, for the whole group, which is the same for everyone based on these priorities. The top on this priority is this NI margin profitability. The second, of course I mentioned before, is price increases, where we have to catch up in order to offset this, inflation. At the same time, we need to accelerate all measures to streamline the product offering. This finding on the modular platform was extremely sobering, and clearly if anything adds to our urgency to further streamline, further move to modularity, real modularity, making sure that, this is now implemented once and for all. We have to clean up our backlog. I mentioned before that is actually, it's a very, I'm gonna say, tough, task that demands extreme resilience, and also proximity to our customers, but also change of mindset within our team. We have to complete the supply chain turnaround. It's absolutely essential. We're moving on that one. We see some progress already, but it will take time. Of course now maybe coming to the last one there, efficiency drive. Efficiency drive is key because pricing alone will not be enough to offset inflation. I say there's always a magic formula. Pricing plus efficiency has to be bigger than inflation. We're working on that. This means, of course, efficiency in terms of material, efficiency in terms of labor and structure and overhead. Now talking of structure and overhead, let me come to the first point on this slide, which I have not mentioned, because there is one more slide here, that's slide nine, which is an illustration of what we've done with our results. Change starts at the top. When we speak about streamlining, about efficiency, we send a clear message to our team, but to everyone here that, you know, we are resolved to work in a different way. That's why as of May 1, as we announced today, we will have a leaner group executive committee. In February, we announced that we are combining the Chairman and CEO, that we have created a new CEO role to help dealing with the situation. We removed already one function from the executive committee. Today we are announcing that actually we have two more positions removed from the Executive Committee, the one we called operations and the one which covered the region Americas. All in all, this means that in less than three months, we have reduced our Executive Committee position from 14 to 11. This is just one illustration of our results, because in conclusion now, we have a challenging situation. We will fix it. We've been here before. To resolve it at the core, to go to the root causes, though, will take time. We will keep you informed of our progress on a continuous basis. With that, I think we should start with this information on providing more details on our Q1 with our CFO, Urs Scheidegger. Urs, please. Thank you, Silvio, and good morning, everyone. Let me start with a few qualitative statements to the results in the first three months of the year. Page 10. It was a challenging start to the year. Nonetheless, Schindler generated growth in order intake and revenues. The operating results have been heavily affected by aggravated supply chain issues, cost inflation, lockdowns, and the Chinese market in a severe slowdown. The team is sharpening focus to offset the inflation by increasing prices, streamlining the product offering, and driving efficiency. Now on slide 11, I am providing more details on the order intake. In the first quarter, order intake reached CHF 3.2 billion, corresponding to an increase of 7.7%, equivalent to 8.9% in local currencies. Organic growth was 8.5%. Acquisition impact contributed 0.4%, while FX had a negative impact of 1.2 percentage points to growth. The following slide 12 provides an overview of order intake growth by region and product line compared to the first quarter. Order intake includes all product lines, new installation, modernization, repair and maintenance. All regions and product lines generated growth as activity levels remained robust across almost the whole world, resulting in a further sequential increase compared to the fourth quarter of 2021. The Americas region generated the highest growth rate, up double digits, driven by a strong new installation business. The EMEA region also generated double-digit growth, just a touch below the Americas region, supported by a very solid new installation business and a large volume of modernization projects. Asia Pacific was still slightly up despite the significant drop in the China new installation business, which could be more than compensated by strong performance in all product lines of other countries in the region. New installations remained robust, generating mid-single-digit growth in value terms, growing in EMEA, in the Americas region, while the Asia Pacific region dropped due to the issues in China. Modernization had a good start to the year, growing more than 20%, particularly in EMEA and Asia Pacific, admittedly benefiting from relatively low comparables. Same for repairs, resulting in double-digit growth, while maintenance was steadily mid-single-digit up. Our portfolio of maintained units increased by more than 5% year-over-year. The order backlog was 7.2% higher. Margins though declined by 100 basis points year-over-year, reflecting price pressure and very significant cost inflation. I move to slide 13, showing the revenue development. In the first quarter, the revenue was up by 1.2% to CHF 2.6 billion, corresponding to an increase of 1.9% in local currencies. Organic growth reached 1.5%. Acquisitions contributed 0.4%, while FX had a negative impact of 0.7% to growth. Revenue rose in the EMEA and Americas region, while the Asia Pacific region declined as a consequence of the situation in China. New installations suffered in all regions, driven by issues in supply chain and delays in project execution. Modernization, repair, and maintenance remained solid, growing overall mid to high single digits. Moving to slide 14, showing the EBIT adjusted development. EBIT adjusted in the first quarter reached CHF 236 million, which is equivalent to a drop of 21.6%, respectively 20.6% in local currencies. Substantially higher raw material costs, disruptions in supply chains, complemented with the additional internal challenges arising from the phasing of modular platforms replacing legacy product lines, and an excessive number of options which have been offered on our new modular platform, resulted in bottlenecks, delays, and inefficiencies. As a consequence, the EBIT adjusted margin drops to 9.0%. Slide 15 shows you the net profit and cash flow. As a result, net profit totaled CHF 144 million, 32.4% less than in prior year. Cash flow from operating activities declined by 37.4% to CHF 286 million. Since the change in equity capital didn't meet the extraordinary level of the previous year, the lower margin and onset of Top Speed 23 costs. Let's now turn to the outlook for 2022 on slide 17. The order backlog, product complexity, and operational legacy continue to affect margins. Further price increases across all products and regions are still unlikely to offset the cost pressure. For the second quarter 2022, revenue growth and profitability are expected at similar levels as in Q1 2022. For the full year, revenue growth will be within 1%-6% in local currencies. With that, I hand back to Marco. Thank you, Urs. We are happy to take your questions now. I would like to remind you to limit yourself to two questions only. We begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets when asking a question. Anyone who has a question or a comment may press star and one at this time. Our first question comes from the line of Lars Brorson with Barclays. Please go ahead. Oh, hi. Good morning, Silvio, Urs, Marco. I had three if I can squeeze a third one in. First on China new equipment pricing, Silvio. I wonder whether you could give us a little more color. My understanding is price mix was down mid-single digit in Q1. That would be consistent with your slide 12, I guess. Just trying to understand like for like pricing, and trying to understand whether country three on your slide four is indeed China, and if it is, how that squares with the slide 12. Just to your comment earlier around inflation clause enforcement, can you help us how much of the backlog that might cover, and whether that also includes China, and how much of an offset that might be coming through as far as those re-engagement or reinforcements are concerned? Lars, thank you for these two very specific questions on China. Urs, perhaps, is best placed to answer. Please go ahead, Urs. Thank you. Hello, Lars. Indeed, it's a tough first quarter for the China region, and our order intake is down by about 15% overall, very much driven by the new installation business and of course also driven by the overall very difficult market situation. We said it, market is down around 15% for the full year. Pricing remains very competitive in China, also now for the first quarter. You need to see that the time between offering to an order intake is long. Therefore, whatever we push for higher prices cannot be seen very well, which means pricing overall was slightly down for the China regions. Of course, we are working very, very strongly in enforcing price adjustment clauses to our backlog contracts around the world, right? We talk here about the commercial term, which allows us above a certain threshold to go back and adjust prices, and the teams around the world are working very hard on that, to increase their prices on products. For China, it is a bit more difficult, I must admit. Thank you, Urs. Secondly, can I ask about the margin outlook for the second half? I appreciate you only give full year earnings guidance in July, but it looks to me like analysts are forecasting a very strong margin recovery to about 11% in the second half from around 9% in the first half, and I'm trying to understand why that would be. My understanding is backlog margins was down around 50 basis points sequentially, if I understood your investor relations earlier correctly. At raw mat, your guidance 200 feels like that could be getting worse from here, even from that level. I appreciate you get some savings coming through, but there are also additional quote-unquote complexity costs that are arising from these simplification measures. Just trying to get a sense for how to think about second half margin recovery versus that relatively steep expectation that seems to be embedded in expectations at this point. Right. Well, thank you for this question, Lars. It's clear, right? We will only provide a net profit guidance with the obvious closing results. To give you a bit color, obviously the team is intensively working on price increase. I said before, enforcing price adjustment clauses is one measure we take. We work on tough cost discipline measures. For the second half year, I also expect higher revenue growth that provides scale effects. Lars to answer, candidly, we're not able to provide this. As you appreciate, things move very fast at the moment. There is not only pricing, there is efficiency. I would say this magic formula, pricing plus efficiency has to beat inflation. Now, at the same time, you say things keep moving. Honestly, we are not working here on a measure, on a rolling forecast. We provide you all the color, including our actions and impact when we speak again in half year. I hope you can bear with us. I can. Thank you. Silvio, can I squeeze a third quick one in? I have to ask around organizational changes. They're coming much more sudden and much more rapid than what we've seen historically. We saw Thomas leaving relatively rapidly earlier this year or suddenly. Now, the COO, head of Americas are leaving. I guess a couple of questions springs to mind. First of all, region Americas, is that permanently now removed from the executive committee? And if so, what's the rationale for that? What's the final organizational structure? It still is a fairly big executive committee. Should we expect further sort of simplification around that? And then finally, Silvio, forgive me. You say change starts at the top. Some might say that's rather incompatible with the decision to combine the chairman and CEO roles under you. You've been with the company for 30 years. Can you give us some sense for how you think about your own timeframe in the CEO role? Thank you. Well, it's a very specific, and I'm gonna say almost personal question. Even though it's a fourth one, Lars, I'm more, let me address it. It's like this. First of all, one by one. America, the reason for having it reporting to the COO is because America is a very important market, one that we need to be able to act in an impactful and direct way, and that's exactly what we're doing. For those of you who have been around for some time may remember that when I became CEO the first time, we did exactly the same thing. Progressively, once the situation was quote unquote going in the way we wanted, the trajectory had been corrected, then we introduced a new head of America. To your question, it is possible that in the near future or I guess, that may change. Second question, the organization, where you say it's quite large, well, one thing at a time. If you look now at the size of the leadership structure of our competitors, I think with these changes we are not only in line, but possibly the winner, but I'll let you come with that about that judgment. Now, change at the top versus someone that belongs, I think this is a question now of semantics. I don't think change necessarily means bringing new people from outside. Change means working in a different way, meaning means working with less silos, means working in a spirit of transparency that I hope you can see. It's your judgment. We're also displaying in the way we present the results. Change means taking decisions faster. Change means having clarity about who's accountable for what. In that regard, for one, I believe the board believes that having someone that knows the company, knows the market, and has been there before, if anything, it's an additional advantage. This is a position on that. Now, the question was asked last time, how long the Chairman and CEO will stay? I can only restate the position. It will stay as long as it takes to navigate through the situation. Obviously, I said this last time, our desire is within a medium term. I mentioned last time 2024, but you know, this will depend on many factors that definitely having two jobs is probably not something. I do this as a mission for the time it takes. Understood, Silvio. Thank you for your openness. Appreciate that. I'll pass it on. Thank you, Lars. The next question comes from the line of Andre Kukhnin with Credit Suisse. Please go ahead. Yes, good morning. Thank you very much for taking my questions. I'll stick to two. Can we start with the cost of complexity and the clash of modularity versus legacy products? I think you've been able to provide a bit more quantification of that. Could I just get an update on that? What is that cost together with the kind of newly discovered complexity in the backlog for modular products that you mentioned? How do you expect that to phase through this year? Thank you, Andre. Urs, please. Right. Hello, good morning, Andre. For the issue, our modular platform, estimated a cost impact of about CHF 20 million to the quarter 1 EBIT results. As we guide into Q2 with similar profitability, you can assume a similar amount for quarter 2. I will provide you an update of the key actions for the second quarter. Of course, it's clear the team is working very hard to get it resolved, ASAP. Got it. Let me just follow up. If we annualize that CHF 20 million, it's obviously a hundred and... Sorry, CHF 80 million. Is that right, then if you were fully modularized as of now, then you would have roughly 80 basis points higher margin? Good. That's okay, yes. I mean, these are incremental cost to our bottom line right now. Yes. Thank you. The second question is on Top Speed 23. You seem to not mention it much in the presentation. I appreciate you've got obviously substantial near-term priorities to fight through. Is there an update on the connectivity and digital adoption? Andre, good point. Again, for the sake of time, we didn't provide an update on everything at half year. We definitely will. Connectivity continues. Let me just give you this approach. Where we are now, unfortunately, very much limited in execution is the biggest market is China, where there is definitely not only demand for the connectivity, but of course the biggest room to grow. Now you cannot go to site, you cannot install. But besides China, we are proceeding all out according to plan. Now on the specific of Top Speed 23, this continues on all the modules that we establish as priority. In all openness, I think we also are looking at, you know, in the scope of streamlining and focusing on priorities, we are actively considering in terms of making tough choices which of the Top Speed 23 modules may maybe take a step aside and being given less speed and resources in the short term, while definitely continue to be done in the longer term. That'll be part also of our NI margin model profitability and also making sure that we go back to profitability performance in the short term. That'll be part of our update when we meet next time. Great. Thank you very much. I promise I'll stop at two. I'll do that. Thank you. Thank you, Andre. The next question comes from the line of James Moore with Redburn. Please go ahead. Good morning, everyone. Hope you're well. I'll do two questions as well. Could you help with the price adjustment clauses that you're going to enforce? I wondered if you could say of the China outstanding backlog for new equipment, what percentage you think you could do this for? You said that would be tougher. Are we talking, I don't know, a third? How much of the U.S. and European backlog do you think you can do this to? Is it the majority or half? Some form of scaling as to how much you think you can get this through would be helpful. That's my first question. Thank you, James. Good to hear you. Thank you for this question. Urs. Good morning, James. You can see that the team is working on this particular topic, right, to go after the backlog now in Q1, and therefore it's still a bit too early to really give you specific indications on this. I said it before, it's easier to adjust here in the European and Americas markets, and in Asia it is much harder because all the commercial terms are different and more difficult to enforce. To your point, James, I understand, you know, this is for the modeling, it's very important, right? I wish I had this exact answer myself to be clear, and hopefully when we meet next time I'll know more. To be clear, the distribution is like this. We know exactly which markets have the inflation clauses. At the same time, very transparently, with the low inflation we've had over the last 10 years, I mean, part of the curse of low inflation was that people lost habit of enforcing the clauses, not only from the elevator and escalator industry OEM, but also most importantly on the customer side. Now, this is a new way, a new mindset change. You know, there are four years to go, and in some places you can enforce commercial terms. In others it's more difficult. The legal environment in different countries also plays a role. Hence the very kind of difficulty for us to give an exact number because this is very much work in progress. It's not a steady state process yet, at least not for us, and I don't believe anyone in industry has been used to enforce these clauses over the last, I'm gonna say 10 years. I think I hope that is clear. Thank you. Yeah. Thank you. Then my second question, if I can, is on input price inflation. Thank you for the CHF 200 million new raw material guidance up from CHF 150 million. I wondered if you could quantify any logistics and energy inflation for this year. Is that included in the CHF 200 million or could that be incremental? More importantly for me, if we were to stay at current stock prices, which is a huge assumption, broadly, what could FY 2023 raw materials headwind look like? I had originally thought six months ago it might be a tailwind, but increasingly I could see another headwind, and I wanted to see if you could help us scale that. James, thank you for the question. Urs, please. Right. These costs you are mentioning, logistics and energy, is included in the new items of approximately CHF 200 million cost inflation on material, logistics, energy. There are about CHF 10 million related to logistics and CHF - 10 million on energy. Fuel would be on top of the CHF 200 million Swiss francs. We have about CHF 60 million fuel costs per annum. Then you can calculate yourself cost increase on this volume. Let me talk, James, to be clear, and you know our financial modeling group. Fuel costs in our case are mainly recognized as part of service margins, to be very clear. Because fuel is what we have in many countries, service technicians driving cars. That's a direct cost for us. That's helpful. Thank you. I was just thinking about next year, FY 2023. If we were to stay at sort of current spot rates, should we expect a further raw material headwind of, I don't know, CHF 50 100 million, I was thinking next year at current rates? James, I don't know. Urs has a better answer. We're actually working and hopefully trying to scramble and getting ideas as we plan indeed for next year. So far, I'm not able to give an answer to this. Urs, would you be able to? No. Look, James, right, this is looking into a crystal ball. 2023, you have seen the curves. They went down when we met each other last time in middle of February. We were a bit on a decline on alu steel cost, for example. Now we have a very steep increase again in the last three to four, weeks. It's really not possible to give you a guide. It's clear the team is working on actions, right, to find new sources, multiple sources to hedge on, bulk metals, and to do negotiations with suppliers. To be fair, maybe to your point, I concur with your view, and this is whatever it takes, that the exposure is likely much more to be a headwind than a tailwind today. That's helpful. Thank you very much, gentlemen. Thank you, James. The next question comes from the line of Daniela Costa with Goldman Sachs. Please go ahead. Hi. Good morning. Thanks for taking my questions. Wanted to check on first on free cash flow and obviously you talked a lot about the headwinds on the P&L. Do you see sort of like the free cash flow situation sort of to drop year-on-year just more as a temporary thing given supply chains? How should we think about cash conversion this year and going forward? That would be sort of my first question. The second question is in terms of like, If you could remind us, like, what we should be looking for in terms of, like, what you're gonna communicate about time frames and objectives to close this gap with competitors. I think you've mentioned you would communicate something maybe around the summer, sort of is that still the idea? Can you give any more color regarding format and what we should be looking for? Then just a quick final one on the price increases. It's very clear you said price is not enough to offset inflation. If we think about, like, the time lag between backlog and P&L, you're doing these first price increases now. How long would it take for us to see at least these new price increases coming through on the P&L? Is that in 2022 still, or that would only flow through later? Thank you. Daniela, hello. Thank you for now three questions. The one that you said on the free cash flow, whether it's temporary or I meant to say number two, whether about the goal setting and you're talking about price increases, time, order to bill. Let me just maybe take one of the three and Urs can take the other two. The topic about by when will you have objective targets, I would say at this stage just said around the summer. At the moment, as what I can say, probably is gonna be late part of the summer. That's something which we will state. As you appreciate, all this is new changes happening, have not really facilitated our timeliness and the quality of our forecast. Hopefully will improve with a bit longer time. That is the first answer. Urs, please 02. Yes. Good morning, Daniela. Talking about cash flow, for 2022, the cash flow, obviously, certainly will follow our EBIT, lower EBIT development versus last year. That correlates. You also have seen change of net working capital, this year, in quarter one, less improvement versus an extraordinary last year. For full year, I would expect a flattish change of net working capital versus last year. So these are the two parameters influencing the cash flow, for this year. As Silvio clearly presented, measures tackle and address the key issues in the company. Having said that, it takes time to get it resolved, and it takes time to see them significant EBIT improvements going forward, and then also cash flow generation. Price increases. In the past, a price increase would have been seen in the P&L for new installation, modernization in about 12 months. However, in the current reality with supply chain bottlenecks, material shortages, this is beyond the 12 months. It's rather at about 18 months' time that you really see a significant impact to the P&L of the price increase in the new installation business. Of course, it's a bit shorter for smaller modernization jobs, and it's clearly shorter, much shorter for our important repair business. This will be seen earlier. Got it. Thank you. Thank you, Daniela. The next question comes from the line of Andrew Wilson with J.P. Morgan. Please go ahead. Hi. Good morning. Thanks for taking my questions. I think the first one is probably a clarification, but just a couple of comments on the margin backlog. Was I right in understanding that there's been a sequential deterioration in terms of the Q1 margins on the orders versus the existing backlog? Or when you comment about further pressure on the backlog, is that the deterioration of the existing backlog because costs have increased? Hopefully that was clear enough to understand. Thank you, Andrew, for the question. Urs? Right. As I said, the total backlog margins are now 100 basis points lower year-on-year. Sequentially, we have seen flattish developments on backlog. That's very helpful. Thank you. The second question. Probably, again, a clarification. Just on slide 4, where you showed the price increases. I just wanted to understand, is that price increases or is it price realization? I guess there's a difference between trying to put prices up and actually achieving prices going up. I just wanted to try and better understand whether that is actual price increases that customers and I guess the market as a whole is taking. If that's clear. Yes. These are our actual price increases to the order intake. We see a slight uptick in most of the countries now in quarter one. Perfect. Just I guess, sorry, quick follow-up on that. My understanding was that you started to put prices up in the middle of 2021 in a kind of meaningful manner. Is that the right timeline or am I a little bit early on that? Yeah. That's correct. Your memory that we started to increase prices last summertime. Having said that, Silvio presented in the Annual Results Conference exactly that chart illustrating that we were actually not satisfied with the price increases to the order intake. Somehow it was not sticking. Therefore we have now this renewed and strong plan. It's not a plan, action to increase prices to our offers. This is now managed in a much tighter way, whereby, you know, this is reported to the executive committee on a monthly basis, with the, as I mentioned, new incentive plans. I think, as mentioned earlier, this is the first series now in February. It is most likely that more will follow soon in the year because, you know, even though we drive efficiency, like never before, the pressure from inflation continues. More will come. That's very helpful. I appreciate the very clear commentary. Thank you. Thank you. Thank you, Andrew. The next question comes from the line of Martin Hüsler with Zürcher Kantonalbank, please go ahead. Yes, good morning, and thank you for taking my two questions. The first one is a very general one. It's my understanding that you're still guiding actually kind of the same development for the first half year, namely minus 20% roughly on adjusted EBIT, even though environment deteriorated further, as you explained, since April. I was just wondering whether there are also some positive factors actually compensating this further weakness in the environment. That's the first question. Your understanding is certainly correct. Of course, we have taken many mitigation actions to compensate for the even more severe environment. It's efficiency particularly in the fields and also in our back office and personnel costs and control and discipline, which can a little bit compensate here, these very strong headwinds, and leading now to the guidance we have given for Q2. Okay. Then the second question is about your order intake in the first quarter, which is one of the highest, I think we saw in the last quarters, if not at all. I was just wondering whether this might not maybe lead to a further kind of margin pressure in new installation, when you are kind of chasing volumes, maybe, which I don't hope, or how should we read this high order intake in an environment that is more challenging, and still, I think you clearly outgrow the market, with such a good increase in order intake. Thank you, Martin, for the question. Let me give a brief answer, then I'll pass it over to Urs. Whether we outgrow the market, I don't know. I've not seen the results of our competitors. That's clearly, I cannot say. On the other hand, I must say, to your point, we are absolutely not chasing volumes. We are now directing towards quality sales as opposed to just sales per se. I'd just like to give the direction, which, by the way, might already give some sense of the way we are looking at future strategy. At the same time, some of the orders that come now in Q1, as you appreciate, you know our business very well, the order to bill, and I mentioned it before, takes some time. The order intake in Q1 is, to a large extent, the result of tenders that were made in Q3 or Q4, or possibly in some cases for large projects, typically even much longer. This is just to explain that, no, it's not that people got up in January and went out to sell like crazy. If anything, actually, in the last few weeks, a month, we actually even abandoned some tenders. Of course, we will not give details, but we did. Some of those quite large ones, some of those quite advanced, exactly because we don't want to fall into that trap. Urs, would you like to comment further? Yeah. Well, you see the granularity on page 12 of our order intake growth. The growth is mainly coming from our existing installation business and mainly really good growth in modernization, and that's coming from our European markets, selected Asian markets and then of course also repair and maintenance were growing very significantly. On the other hand, as Silvio clearly stated, China, we have a drop of order intake because we are not going anymore after the very low profitable jobs. The growth there in new installations is clearly not coming from China, but from the rest of the world and also here, particularly from Europe and Americas, where we have positive markets and we work on our good position to grow our business. Thanks a lot. That's very helpful. Just if we have this slide open, page 12. Maintenance growing 5%-10% and globally. Is this? If you have to make an assumption, how much price, how much volume, what can you say there? Because we also face obviously salary inflation and as you were mentioning also a fuel inflation. Yes. Here, clearly we have a price effect to our P&L. I would say it's about 2% price increases globally. Of course, then really different by region. The rest is coming from the organic growth, growing a number of units to our portfolio. Okay. Thanks a lot. Thank you, Martin. The next question comes from the line of Rizk Maidi with Jefferies. Please go ahead. Yes. Good morning, gentlemen. Thank you for taking my questions. First of all, thanks for helping us with assessing the headwinds this year, which clearly has gotten worse. I was wondering if you could spend some time on the potential efficiencies and savings. I think, Urs, you talked about better efficiencies in the field than what you initially targeted earlier this year. In my P&L, I have the cost optimization program savings of CHF 40 million this year. Efficiencies in the field of CHF 50 -60 million. Am I missing anything, or is there any update here on those two items that I mentioned? Your understanding is pretty correct. We clearly work on this cost optimization program, and this is according to plan. The CHF 40 million full year or CHF 10 million fourth quarter is a good assumption. Then as I said, your assumption is correct, that the team is working to create efficiencies in the fields. It's good. I agree with you. Okay, thanks. The second one is on price increases. I might have missed your last comment, but I was just wondering if you could comment on the price increases in your backlog currently. How much of those you are expecting to achieve this year? You talked about the delayed conversion of new installations, you know, which has gotten longer. Basically, what I'm interested in is how much price increases do you think you can capture this year, excluding those escalation clauses? Yeah, this is the same question as before. I said before, it is too early to further specify it. It's a different by market to market. Silvio said it also clearly, customers are not yet so accustomed to this topic. It's clear that we go after it, and this is one of our key actions. We will give you an update in half-year closing. Perhaps just to give you some alternative view on this. There are two elements on those outstanding tenders. One is the ones that we managed to renegotiate, but there's also the ones we step away from, which net also has an impact. That's why it's the complexity, right? Those can be very big. Hence the, you know, this compound calculation is something which evolves continuously, and we just don't wanna give a figure that then we have to come and correct. Hence the difficulty. Again, thank you for your understanding. The question is fully understood. Okay. Thank you. The last one is, Silvio, on your chart on inventory on sold homes, which you've said have reached alert levels. Is this not just a function of less sales rather than overbuilt? I think there's 400 million citizens in strict and severe lockdown. People are struggling to get food, let alone buying apartments. If you go back in time in the period after the first COVID lockdown, you've seen in Tier One cities that we've reached above, you know, or alert levels without the market being, you know, in significant decline afterwards. I think your comment is correct. It's a mixture of demand that also involves less sales. I, for one, believe, as you say, that urbanization in China will continue. As you can see from the same chart, there have been ups and downs before, and the whole point is to navigate those moments. I am convinced that China will continue. There's no question. Of course, these, though temporary, those shocks can be extremely violent. If there is less sales, but the risk is that if you end up, for example, you know, having your selling in a moment like that in something which is never completed, then you have those, like, you know, skeleton lifts left somewhere. We don't wanna be in that position. Hence the importance to monitor that very closely. Long term, I for one believe it's gonna come back because demand, inherent organic demand in China is there. It is also to be certain that the correction in the real estate and construction market in China today looks like it's deeper than the one we had before. Okay. Thank you very much. Because it involves those large developers that accounted, for those of you who've been looking at the industry, for more than 30% of the growth. This, as long as this is not taken care of, I think this might create an issue. Question very well understood. Thank you very much. The next question comes from the line of Martin Flückiger with Kepler Cheuvreux. Please go ahead. Thank you, Martin, for your question. On the Top Speed, I think I already gave some direction, but perhaps, Urs, can you take the both? Yeah. Cost savings and the savings. Sure. Thank you, Martin. Top Speed 23, I expect clearly lower costs than originally announced of CHF 150 million. One example was, Silvio was already explaining it, that the cost for connectivity of our existing portfolio in China will slow down this year. This is the current position of the lockdowns and the difficult situation in the Chinese market. Of course, we are reviewing and reprioritizing some of the initiatives of Top Speed 23 and leading to a lower amount than CHF 150 million. You still need to assume a little bit higher costs compared to quarter one. On the efficiency piece, clearly this was a topic in quarter one, right? We were partially compensating the very strong headwinds with efficiency and operating leverage. For the full year, this will be more than CHF 100 million, as we also usually have. Now we are working on some actions to achieve this. Great. Thanks so much. Again, this is only partially, right, compensating these very strong headwinds, and you have now seen, as early as quarter one. Thank you. Thank you. The last question for today comes from the line of Patrick Rafaisz with UBS. Please go ahead. Thanks for taking my two last questions. Good morning, everyone. The first one is a clarification. You've talked a lot about price and order backlog, but very specifically to dissect the Q1 order intake in local currencies, how much in that number was actually price contribution or price mix from those projects, both in new installations, modernization and services? The second question is on the actions you're taking going forward with renegotiating prices, enforcing inflation clauses, etc. Is there a risk of cancellations in your backlog that you foresee as you're doing this or as you're renegotiating so some of the designs and for the modular products? Is that something we should take into consideration for the coming quarters? Thanks. Thank you, Patrick, for your question. Urs, would you? Mm-hmm. Right. For the first question on the order intake, I would estimate that pricing has a slight optic positive impact to the growth. Slight, let's say. Very low single digits, 1%-2% in that region. Driven by service price increase, repair price increase, and then much less on the new installation business. And Question was on backlog cancellations. On the backlog cancellations, I don't see that yet, that it has a significant impact. It's a marginal impact. That's my assumption. Okay, great. Thanks. Thanks a lot. Thank you very much for attending this conference call today. We'd like to close now. Please feel free to reach out to me for any follow-ups you might have. The next event is the first half-year results 2022 presentation scheduled for July 22. Thank you again for attending. Take care and goodbye. Thank you, everyone. Thank you for your questions, for your attention. Thank you. Thank you. Ladies and gentlemen, the conference is now over. 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