Ladies and gentlemen, welcome to the full year results 2021 conference call and live webcast. 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 a Q&A session. You can register for questions at any time by pressing star one on your telephone. For operator assistance, please press star 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 of Investor Relations at Schindler. Please go ahead, sir.
Good morning, ladies and gentlemen, and welcome to our full year 2021 results conference call. My name is Marco Knuchel. I'm heading Investor Relations at Schindler. It's the second time that we do this in a virtual setup. I think I can say we miss you. We miss the face-to-face discussions with you, the face-to-face interactions. Eventually, we are quite a small group in here. I'm here together with Silvio Napoli, our Chairman and CEO, and with Urs Scheidegger, our CFO. Silvio will do the introduction at the beginning, and Urs will then lead us through the financials. After the presentation, we are happy to take your questions. I would like to ask you to limit yourself to two questions only. Thank you very much in advance. With that, I would like to hand over to Silvio. Silvio, please.
Thank you, Marco, and good morning, everyone. Thank you for being with us today. Thank you for being with Schindler. Building on Marco's comment, I, like him, would like to say that we miss meeting you in person. Since it is for me kind of a return to this opportunity, I'd like to say I look forward to meeting again those of you that I had a pleasure to meet up until 2016, and I look forward to working together with those of you we haven't had the pleasure to meet so far. Today the objective, of course, is to speak about our annual results 2021. Of course, this is also the time of the year where traditionally companies also speak about their plans going forward.
This year, of course, there is another question, and that is the question about a new structure. One that we announced last January 22, and one that understandably gave room to many questions. Some of these still unanswered because in fact we were during the blackout period. Today's agenda will be somehow different than usual annual presentations. Today, I'd like to really focus, at least from my section, on explaining the reasons that led us to the decision of bringing in the new structure. I'll address that. To do this, I'll first talk about our challenges, the unprecedented mix of challenges we're faced with, and then explain how that led to the new leadership structural decision that was communicated. Thereafter, Urs Scheidegger, our CFO, will take us through our financial results.
Then, of course, we'll provide you with an outlook and then move on to the Q&A session. Let's first start with the first question. The first question is why? Before we do that, let's just step back for a moment to last year in April, where we announced the launch of our Top Speed 2023 project. To be very clear, the objectives that we announced then are still very much valid. You can see there were six modules. We can go through that afterwards if you like, but they range from new installation growth, sustainability, digitization, portfolio, into the service management, product innovation, all things which remain absolutely vital to us. These are the core initiatives. Among the goals, you see there was the customer experience, there was the sustainability, and there was the competitive margin.
Now there is a famous quote attributed to Churchill, even though after checking it's actually not clear that he said that. The quote goes, "Well, it's nice to talk about strategy, provided one occasionally looks at the result." Now if you look at the results that is here are a circle around competitive margin. There we have to say we have not yet been able to progress. As a matter of fact, you can see from the chart, but I'm sure as keen followers of our industry, you observe yourselves that over the last three years, the competitive margin to our competitors has actually worsened. Now, I'm a big believer, and some of you probably heard me saying that strong competitors make better companies. Absolutely. To do that, to become better, one has to first acknowledge the issue.
Second, understand why are they stronger. Third, of course, take the measures necessary to close this gap. Well, we've already taken one measure, that the structure. I'll come to that in a second. Today's focus will be on understanding exactly this. What are the issues that basically cause us to be unfortunately falling behind? That is, of course, a state of mind, and this is something that together with the new team we've already embarked upon over the last four weeks since the new structure has been put in place. What is really the situation? To do that, I like to describe a very unique environment where there are five key challenges that require an immediate, thorough, and impactful response. The challenges are the following. Number one, dealing with foreign exchange burden. Number two, regain competitive new installation margins.
Number three, resolving the supply chain disruptions that have been affecting our industry and many others. Number four, streamlining our product portfolio complexity. Finally, this is something that occurred over the last few months, adjusting for China NI market contraction. Again, if you look at those, some of you may say, "Hang on a second, but this is well known. It's not that special." Admittedly, yes. As a matter of fact, in my career, I've dealt with each one of these, in some cases even twice. What makes it unique is the mix of all five coming simultaneously. What makes it unique is the speed of change, and in some cases, the magnitude of the impact that each one of these challenges carry by its own, so not to mention the overall impact. Let's start with the first challenge, foreign exchange burden.
There again, you can say, "Well, it's a Swiss company. What's the big deal?" Well, there is one. Let me just first start on the left-hand side of the chart to highlight the magnitude. Since 2008, Schindler lost CHF 3.8 billion top line and CHF 507 million EBIT due to foreign exchange impact. Probably some of you have it in your models. Now, that's a staggering number. This is a size of a company. By the way, if you look at the top line and EBIT, quite a profitable one. Why did it happen? As you can see on the chart, we aligned the progression or rather the regression of the exchange rate with the Swiss franc of some of the key currencies affecting our business.
Of course, they range from the -8% of the renminbi to -74% for the Brazilian real, a country which is a key market for our industry. Now, very good, but you can say many Swiss companies are faced with that. Please bear with me for a second. Look at the right-hand side. The fact is that less than 10% of our revenues come from Switzerland. Of course, we do have, because of our headquarters, an operating expenditure based in Swiss franc as well. It is the gap between these two that creates exposure. Then once more, our exposure is what? Our exposure is one of translation, not transaction. Transaction, we've been quite successful in mitigating that by systematic hedging of all our transaction.
This translation is there, and that's one that we are not complaining about. We're just saying it is a strategic issue to be tackled head-on. Moving on to the second challenge, and perhaps the most complex one of them all, and that is regaining competitive NI margins. I showed before the difference in margins between us and our competitors, and I said in order to become stronger and come back, we need to understand why. One thing we believe is a key reason for our competitive gap is NI margins. Now, NI margin itself is a complex aspect. As you know, we have a complex value chain ranging from, design, factory, and then now comes installation. Let me just break it into three fronts to explain this challenge.
Point number one is what you have here on the slide, the raw material and component cost increase. In this case, we can speak about inflation. On the left-hand side here, you see what we call the Raw Material Index. This is a blended index taking into account the different impact of all the different raw materials in our value chain for a new installation. You can see here, this has gone up 47% since the beginning of 2020. That already gives an indication. Look at the speed at which it went. Economists predicted this should have started to slow down in Q1. It's not happening. One better be humble and take it head-on. Then just to give an example, because Raw Material Index can be a bit abstract.
We have shown here, the price of one little microchip, one that we use for our controllers, which within the year 2021 has gone up from CHF 1.4 to CHF 36. This is a 26x increase. Again, it's an issue that we have to confront. Others are confronted with that, and we have to find a way to bring it into the solution for NI margins. Second front of our NI margins is logistics. Now, logistics, as you probably also know, has had an explosion of cost as well. As a matter of fact here, taking the example of Shanghai Containerized Freight Index, you see they increased 5x since 2020. Major challenge which happened at the same time as everything else.
Now, we often said that because of our regional manufacturing strategy, we are less exposed to these type of issues. Yes, we are, because indeed, we produce in China, in India, in North America, South America, and of course, Europe and India. In fact, you can see that on the right-hand side, our make-buy strategy, one that was developed, one could argue, under the former paradigm of manufacturing and logistics, is based on an 80%-20% shift. In other words, 80% of our supplies are from external suppliers, and they don't have all the same manufacturing footprint we have. That's why this aspect of logistics cost, and by the way, we don't speak about delays here, is a major issue which affects R&I margins to be tackled with. Point number three, pricing.
Now here, this chart may surprise some of you that follow our industry. Often people talk about the global prices, let's increase prices. As I'm sure you understand, but we wanted to make sure it was visually explained here, there is no such thing as a global elevator and escalator price. It is very much a regional consideration. Of course, the granularity makes all the difference because at the end, the overall effect is the blended effect. Here we showed three strategic markets with their individual price level over the last 19. This is based on tenders on the way we observe the market. You can see that not all have the same development in spite of our effort to increase prices.
You can see that it goes from a country where you can have a 10% increase over two years to one where in fact you ended up having a decrease up to -6%. Then another one, which is just in the middle, about 2%. Now, clearly, we need and must do more. Yes, we'll increase prices of more, and Urs will elaborate on that. The fact is that so far, whatever we have done into the price increases have been unable to offset the material and cost increases that you've seen in the previous pages. This is something on which we must act now and something which has impacted and will continue to impact our margins going forward. We have to find a way, also with a different type of marketing, in order to address that.
We come now to the third challenge, supply chain issues. I mentioned that before in terms of external challenges, in terms of how the external factors are affecting us. We have to be absolutely open and say we also are faced with some internal issues, internal challenges. The biggest one of them all is the issue of the manufacturing stretch between our new modular platform ramp up and the delayed phasing out of legacy product lines. Yes, as you have heard, as we announced, our modular product line is selling very well. Customers love it. After the launch in 2020, today you can see it's about a third of our new sales are based on this new product line.
You can see, as you know our business model, there is the issue of the order backlog, which then is the one that has to be produced by manufacturing. By simple math, you can see that today, while it starts to be very visible in 2021, we're talking about a fifth thereabout of our order backlog. What does that mean? This means that our production is very much stretched between the old, the legacy product lines and the new ones. It also means, I'll come to production in a second, it also means that our complexity, which is managed as a portfolio in terms of spare parts, in terms of sales, in terms of configurators, is a lot more complex. Why did it happen like this?
Because of course, with two years of pandemic, this order on hand, this backlog has been a lot slower to flow through our production. That is one key management issue that we need to deal with right away. Now, speaking of complexity, there is here another element I'd like to stress. You probably heard that, you remember that we always said that, so far the modularity was being ramped up segment by segment, region by region. Here you can see that we still have some key segments where still the modular platform is not yet fully introduced. This has to be looked with the chart on the left-hand side here, showing the split by regions and by segments of the industry.
You can see that while there are areas like EMEA, where the modular product line is very much on the way to become the full coverage of the market, with the exception of rise, which is in fact as planned, not yet touched, there are others, amongst other Americas and to some extent Asia-Pacific, where we're not there yet, where the ramp up is coming up now. That again creates complexity. Let me give you a specific example now since we speak so much about this complexity. This means that our factories, while having to deal with legacy and new product lines, have to deal with more components than they were supposed to, and they have to have more product production lines to accommodate for that.
You can see on the right-hand side, we wanted to give a specific example, which is the number of cabin types produced by a factory. You can see that up until 2017, we were producing four cabin types covering all the segments. Now, while this transition takes longer because there's still this tension between legacy and new product line, the same factory has to produce seven. For any of you who understands manufacturing, that is, of course, a big issue to be dealt with. Coming to the fifth challenge, China. Now, I lived 11 years in China. Three years in India. I've been through some of those super cycles myself. I've learned not to panic, and we always manage to deal with them. Now, this one that is now happening is special and different from the previous one, and why is that?
First of all, if you look at the left-hand side, you can see that the speed at which it came after a very rapid growth in the first half of 2021 is incredible, unprecedented. The second is, if you look on the right-hand side, you can see that this is not an issue of any bubble or whatsoever. You can see actually the inventories are actually still going down, which is very different from the ones I lived firsthand in the past, where you could see the inventories growing across all tiers, all cities. You can see here that with inventories still going down, we have described it, and why is that? It is one which is, for once, client driven.
It is these large developers, of course, Evergrande being the most famous one, who basically now struggle with the financials and this great uncertainty also on the buyer side, whom are we gonna give a deposit to, et cetera, et cetera. You know this, we can go through that more in detail. Of course, since key accounts, as we call them, large developers account for more than 30% of the growth in China, this is very sensitive. Again, we remain convinced that the fundamentals in China remain very solid. China is still 70% of the world market, and you can see that this type of granularity among Tier 1, Tier 2, Tier 3 cities shows there are many opportunities.
This, of course, demands that one looks at a much sharpened focus go-to-market strategy with different pricing, different products, in order to capture opportunities where they are healthy and where we are sustainable in the long term. Of course, China being China, all NI margin discussion has to start with China, hence the importance and frankly the unexpected addition of this extra challenge towards the end of last year. Again, these are our five big challenges. Again, once more, what makes them unique is that they come all together at a moment where we need to now step up our game and improve our margins. Now comes again the answer to the question that was asked in January, why did we introduce this structure?
We introduced this structure because it's totally consistent with the Top Speed 2023 objective, whereby we said we need more speed, more agility, and more impact in order to become more competitive. No, we're not there yet. To deal with this kind of complex issues, we need I cannot find a better term, but to speak about kind of a war cabinet, a different approach to deal with the situation, whereby we compress the decision process at a much more agile level among less people so that we can move and be more impactful. That's why we had this combination of role between Chairman and CEO, with the objective to have a clear focus on strategic decisions and fast decision-making.
Then to do that, to support it, we introduced a new role of the Chief Operating Officer, which has been taken by Paolo Compagna, who has been the head of one of our most successful regions in Europe, who will then have under him all the value chain. It's important we stress that. The whole value chain is gonna be coordinated, led by a single person with the objective to break down silos, to be even faster in the execution. People speak about this often, but now more than ever we came to conclude this was absolutely essential in order to give ourselves the means for our ambitions and to achieve our strategic targets. This structure, of course, is one that we will keep in place as long as we've not achieved our objectives.
We believe within two to three years we should be there. By that time, we will go back to the structure that we had, which we always say we are very proud of with the checks and balances between Chairman and CEO. In moments of special needs, we need to prepare to adapt extraordinary measures, and that's what we have done. I'll look forward to answering, addressing any questions you may have, but for now, I'll leave the word and the floor to Urs Scheidegger who will take us through our closing results for the year, and then our outlook. Thank you. Urs, please.
Thank you very much, Silvio, and good morning, everyone. I would like to start my part by stating some quality statements before I take you through the detailed financials of quarter four and the full year 2021. The order intake and revenue returned to pre-pandemic levels, 2019, since global markets have recovered at various speeds. Foreign currencies, for once, only had an insignificant impact on financials. Operating results affected by a number of adverse factors, including global supply chain issues, electronic component shortages, material and freight cost inflation, as well as delayed deliveries and construction sites. We report a solid cash flow from operating activities, and the Top Speed 2023 program is now in execution phase. Please turn to slide number 15 that provides an overview of the global market development in 2021.
Global markets have continued to recover, but showing mixed patterns across geographies, product lines, and segments. However, overall, the global market was up low- to mid-single-digit in unit and value terms, driven by China and area residential growth, particularly in the first half of 2021. I'm moving to Slide 16, showing the order intake development. In the fourth quarter of 2021, order intake reached CHF 3.1 billion, corresponding to an increase of 6.0%, respectively 5.9% in local currencies. With this, the fourth quarter order intake slightly exceeds 2019 by 0.4%, equivalent to a growth of 7.3% in local currencies.
Order intake rose by 10.4% to CHF 12.2 billion for the full year 2021, corresponding to an increase of 10.6% in local currencies and also back to pre-pandemic levels. M&A activities contributed about 150 basis points to growth. The following Slide 17 provides an overview of order intake growth by region and product lines for the full year 2021 compared to 2020. Our order intake includes new installation, modernization, service, and maintenance. All regions and product lines generated growth as activity levels were maintained as well in the second half of the year. The Americas region generated the highest growth rate, up mid-teens, driven by strong growth across all product lines. Asia Pacific was also up double-digit to mid-teens, recording growth just a touch below the Americas region.
The EMEA region generated a very solid mid-single-digit growth. New installations remained robust, generating double-digit growth in value and unit terms. After a slow start to the year, growth in modernization accelerated from the second quarter and exceeded the prior year by almost 20%. Repairs followed a similar pattern, resulting in double-digit growth, while maintenance was steadily mid-single-digit up, and hence our portfolio of maintained units increased by more than 5% year-on-year. Order backlog was 8.4% higher, but margins declined by about 50 basis points due to very much accelerating material cost inflation and price pressure, particularly in the second half of the year. I continue with Slide 18 on revenue development.
In the fourth quarter of 2021, revenue increased by 0.9% to almost CHF 3 billion, corresponding to an increase of 0.6% in local currencies. Third quarter slowdown continued into Q4. On one hand side, due to continued lower new installation and modernization growth, driven by disruptions in global supply chains and delays in project execution. Secondly, due to a tougher prior year comparison. For the full year, revenue amounted to CHF 11.2 billion, achieving pre-pandemic levels too. Growth reached 5.6% and 5.7% in local currencies. M&A contributed also here about 150 basis points to growth. With that, I go to Slide 19, reporting the adjusted EBIT development. Margins are below pre-pandemic level.
The drop in the fourth quarter was driven by substantially increased raw material, component, and freight cost inflation, combined with issues in supply chain, which hindered efficiency and delayed project execution. Adjusted EBIT in the fourth quarter reached CHF 306 million, which is equivalent to a drop of 10.3%, respectively 10.6% in local currencies. With that, the adjusted EBIT margin reached 10.4%. Full year adjusted EBIT increased by 5.7% to CHF 1,252 million, corresponding to 5.4% in local currency growth. In the second half of 2021, we were facing challenges arising from the phasing of modular platforms, replacing legacy product lines, temporarily adding complexity to our supply chain, particularly in EMEA.
Resulting bottlenecks, delays, and inefficiency had an adverse impact in 2021 of about CHF 100 million of delayed revenues, respectively about CHF 35 million on adjusted EBIT. For the full year, adjusted EBIT margin could be maintained and reached 11.1%. I now combine Slides 20 and 21, showing net profit and cash flow from operating activities. The ramp-up cost for the Top Speed 2023 program in the fourth quarter of CHF 42 million led to a drop in net profit for the fourth quarter of 15%. Net profit for the full year totaled CHF 881 million, an increase of 13.8% compared to the prior year. Cash flow from operating activities remained solid, though declined 17% to CHF 1.3 billion.
The net working capital level has further improved and exceeded for the first time CHF -1 billion, though the improvement was much less pronounced than the previous year. An ordinary dividend payment of CHF 4 per share and participation certificate is proposed to the general meeting of shareholders scheduled on March 22, representing a payout ratio of 52%. On Slide 22, I would like to provide you a status update on the Top Speed 2023 program. Eight months after launch, we can report the following progress on the six core initiatives. We have achieved growth above market in all key markets and increased the number of connected units by 30% in 2021, lifting the share of connected units in the maintained portfolio to more than 20%.
New product innovations in modernization and new installation in selected markets are launched and under development, and the new procurement operating model is defined and implementation underway. At the same time, we acknowledge that a lot more needs to be done and there is further acceleration of our activities required to bring the program to a successful completion in time. Let's now turn to the outlook for 2022, starting with market, Slide 24. Global market growth is burdened in China, which is expected to decline mid- to high-single-digit % in 2022. Other regions are expected to grow. EMEA and Americas, mid-single-digit , and Asia Pacific, other than China, mid- to high-single-digit . This is the starting point for the business outlook on Slide 25. As mentioned, the China market is expected to contract. Growth in the rest of the world will show mixed patterns.
Construction site delays will continue to hinder project execution due to supply chain disruptions. Material cost inflation will continue to cause persistent margin pressure. We have implemented price increases across all product lines and regions. However, these are unlikely to offset costs near term due to long lead times. We expect Top Speed 2023 expenses to reach up to CHF 150 million in 2022, and revenue growth is expected between 1%-6% in local currencies, barring unforeseeable events. Margin pressure is expected to continue, and quarter one and quarter two are expected with slow revenue growth and a significant drop in profitability. With that, I hand back to Marco.
Thank you. We are now happy to take your questions, and I would like to remind you to limit yourself to two questions only. Okay. Alice, please.
Our first question comes from the line of Daniela Costa with Goldman Sachs. Please go ahead.
Hi. Good morning, everyone. Thanks very much for taking my questions. I'll stick to two. First, I wanted to check sort of on comments of this structure will remain for the next, two to three years while you reach your objectives. I was wondering if you could give us a little bit more color in what, exactly those objectives will be in terms of how you're gonna drive shareholder value creation. You talked about closing, for example, the margin gap with peers, but why you're not introducing a specific target, or will you, in the future? What's the, I guess, the time frame is two, three years, but what other metrics should we monitor to see that you're moving towards those objectives? That's my question number one.
My second question is regarding capital allocation and, given your solid balance sheet, but also, the trajectory you're gonna go to in the next few years. I assume maybe inorganic activity, not a major focus going forward. Is that correct? Could we see a return to buyback remuneration like we had over the past, I think, maybe even over the period where Silvio Napoli was around before? Thank you so much.
Thank you, Daniela, for the question. Let me take them both. Number one, metrics. Yes, absolutely legitimate. At the same time, as I explained at the beginning, we now have a new team that has been together for it is the fourth week. We explained the challenges. What we're doing now to do justice to the importance and the difficult situation. We are reviewing the situation, coming up, analyzing each one of our plan and the seeing which priorities we need to go, which is I think we're already quite advanced, and then transform these in a new strategic plan with new targets. These are the targets that will be measured upon, and these are the targets which then will lead at the end of the this what I call transition phase.
We establish our structure that we have had until last year. Now, please, bear with us. I'm sure you would be skeptical if I told you that in four weeks we already have a new plan with new targets. We are working on that, and my commitment to you is that as soon as this will be ready, which would be by summer at the latest, we'll share them with you. Second question on the capital allocation. Yes, you understood well. Connectivity, consistent with our Top Speed 2023, will continue to be a big part of our investment. Not only connectivity, but connectivity is step one.
The question is how do we then turn the connectivity into hopefully, actually, with the objective of delivering better quality for the customer. How do we measure that? Then, of course, how do we then link, bring the customer maybe in a new business proposition. That is the biggest allocation. Now, the back will be part of this. At this stage, I cannot say.
Understood. Thank you very much.
Thank you.
The next question comes from the line of Lucie Carrier with Morgan Stanley. Please go ahead.
Hi, good morning, gentlemen, and thanks for taking my question. I also have two questions, despite having a lot more, but just maybe a follow-up on Daniela's question, trying to drill down a little bit on what you tangibly want to be doing, because it's helpful that you gave us this clarity on the burdens you are facing, but I guess some of these are not necessarily dependent on your own execution. You know, if I think about CapEx, for example, or the state of the construction market in China, they are more dependent on outside or external conditions. So, what are you tangibly planning to do to kind of offset some of those, considering that they, as I said, they are not necessarily all down to your own execution? That's my first question.
Thank you. Again, I fully understand. Trust me, we have, we're asking the same question. Again, we don't have the full plan. Let me give you an idea first, maybe I challenge to give you an indication. I think that's legitimate. To the foreign exchange, well, one thing for sure, we cannot sit idle. We probably will never be able to offset the full extent of the consolidation impact or the translation. However, if you look at the chart we presented before, you can see there is this gap between revenue and OpEx in Swiss francs in the percentage of total. This is the kind of lever on which we can play. We probably cannot hedge or cannot do much about the top line impact, but on the bottom line, yes.
On the bottom line, I think it is easy. You identified it. To see how we can reduce our exposure to the Swiss franc in terms of operational measures is a challenge that we owe to our shareholders to undertake. Now, China, you mentioned. Now, China, there are ways to deal with this. By looking at the market in general, the chart refer to Tier 1, Tier 2, Tier 3, and actually you can go deeper. You can look within every city or the segments which have a growth, which are segments which have a better margin, and most of the segments where our products have a bigger impact, a bigger differentiation.
By then sharpening our marketing and focusing on these products all the way, improving them through the value chain and of course, applying prices accordingly, is something we can and must do. I, as much as I think you're correct in saying, these are such a magnitude, an external force, I believe we can and must do something to offset that.
Thank you very much. Just maybe looking a little bit more short term, if I understood well, Urs, I think you were indicating a margin in the backlog which was down 60 basis points. Correct me if I'm wrong, I might have misunderstood. You're obviously also indicating a difficult first half, 2022 in terms of growth and profitability. I guess that doesn't really come as a big surprise. Can you maybe help us think about quantitatively around the magnitude of that impact on profitability in light of what you have delivered, perhaps in the second half of 2021, where obviously profitability was already under pressure?
Yes. Urs, would you like to take this question?
Yes. Good morning, Lucie. Thank you for the question. As you certainly have noted, the challenges and headwinds have clearly increased in the second half of 2021 due to this very significant material cost inflation. Overall, we are talking about CHF 150 million in 2021, and thereof, only CHF 60 million occurred just for Q4. This will continue into 2022. We are expecting incremental and additional up to CHF 150 million Swiss franc material cost inflation as commodity prices are still very close to peak levels. A lot of that will occur in the first half year of 2022. We also see increasing wage inflation into 2022 as an outlook.
Last year it was a bit more than 2%, but now it will go up to about 10% of our total personal cost line. We also still will have to deal with some of these operational supply chain issues we have mentioned. One is in the market. We will see slow revenue generation, particularly in the first half year, due to material shortages across construction sites. I mentioned it, some operational issues to deal with the complexity right now to ramp up the modularity systems and to ramp down the legacy systems.
You see headwinds coming into the second half, particularly now in the first half year, and we have also noted that in our media release. There is a significant drop of the profitability to be mentioned that can be around 20% down on profit for the first half year. We will have to work on supporting measures. We will have to work on compensating measures, certainly immediately, and then it should also recover a bit into second half year. The volume growth will certainly support us to compensate the headwinds that will enable scale in the factories, in the field. We will work on field efficiency, that's clear. Also to complete our cost optimization program, which we already launched in 2020, and that will also support us.
Having said that, I don't expect that the headwinds can be compensated by those supporting factors for the full year.
Thank you. Just to make sure I perfectly understood your comment around the drop of profitability, you're talking about 20% adjusted EBIT. That's for the first half, 2022, and this is growth, i.e., not including some of the savings or measure that you're putting in place, even if this measure won't fully offset.
I'm talking about the first half year of 2022. Yeah.
Okay. This is a growth impact from the headwind, pre some savings, I guess.
This is the net result.
Okay.
The net result, headwinds, net of the supporting factors. Yes.
Okay. Understood. Thank you very much for the precision. I go back in the queue.
The next question comes from the line of James Moore with Redburn. Please go ahead.
Oh, yeah. Hi, everybody. Silvio, lovely to have you back in the seat. Always hope you're well. I have two questions, but firstly, could I qualify the answer you gave to Lucie? I think you were saying that the 20% is a net income comment. If we were to turn it back into an adjusted EBIT margin in the first half, I think you did CHF 638 million and an 11.6% margin in the first half of last year. Could you give us a flavor for what that might mean for the first half margin? My questions, the first one surrounds your ambition longer term. I'm looking forward to hearing your targets in the summer.
As a starting point, can you give us a flavor for how you see medium to longer term margin developing against your history? My second question is on the China NI margin. If NI margin is one of the great challenges in the group at the moment, could you talk a little bit about the rough quantum of the China NI margin in 2021 and how that differs from the peak market back in 2014, and how much do you think that might fall this year?
James, thank you. Great to hear you again. Urs, let me. There are three questions here. The first one is about qualifying the margin for the first half. Then there is one about the long-term ambition, and then the third one is about the China margin, 2021. Can I suggest I start with the second question about the long-term ambition, and you take the next two?
Yes.
James, long-term ambition. If you see my chart number four, the short and long answer is that I said we need to close this gap. We need to be. You can see, unfortunately, our margins have dropped recently. We need to bring them back. Whether and how fast we'll be able to reach the most profitable company in our industry, which I just announced very, I would say, clear improvement in terms of EBIT, is that's our ambition. Let's first start with the one that is in the middle that we need to catch up with. Actually, not so long ago, and you can see from the chart, we were there.
That has to be our ambition. Now how do we build on that? Just step by step, like Schindler does things, we need to get forward. I said there is no reason why, except maybe the size of portfolio.
Which is something which of course provides the leverage for margin, but for others, there should be no fundamental reason not to give ourselves the ambition to be as profitable as our competitors. That's the short of that. Of course, we have to do that, while at the same time, achieving the other ambition is to achieve LC growth, which of course is a different consideration into the challenges we just explained. Because when costs were somehow predictable and flat, the model that consisted in selling and then, you know, planning on driving cost reductions on things that you had sold at very competitive prices, that model, I'm afraid, needs to be rethought.
What are the outcomes, deliverables, and of course, the targets coming out of that? That's something I look forward to discussing together with you and others, some of your peers when we're ready for that discussion. With that, I give the word to Urs with your two questions.
Thank you, Silvio. Yes, James. Last year, first half year, was actually really a very solid result, because it was driven by high revenue generation, growth of 10.4%, and resulted in an EBIT margin at that time of 11.7%. The world has changed. These macroeconomic factors have changed. Material inflation is very significant and will now be significant, particularly in the first half year. You have seen 10.4% margin in Q4. From that first half year 2021, I think it is, well explained, a drop of 20% on EBIT-adjusted margin.
Of course, it depends as well on our revenue generation capability, and how all the construction sites can be managed, how the material shortages can be managed, overall on construction sites. Thank you.
Any comment on the China NI margin and where that is versus the peak and how much it might fall this year?
I don't fully understand the question.
The question is, if you look at the profitability in China in 2021, how is this likely to evolve in 2022?
Our China profitability in 2021 was and is at group average. Now we face this very high material cost inflation, and prices are very competitive in China. They were also very competitive in the second half year. You have also seen price developments presented by Silvio. If the overall profitability of the group is dropping now in the first half year, you can expect that this is also the case for our China profitability.
Thank you very much.
The next question comes from the line of Andre Kukhnin with Credit Suisse. Please go ahead.
Good morning. Thank you very much for taking my questions. I wanted to just double-check on the EBIT and the full margin potential, because in the past, we discussed kind of what would be fair for an elevator company, and then there was always that qualification that you have got additional 100 basis points of expenses related to kind of an internal audit system that you have implemented. Silvio, could you comment or could you confirm to us that the ambition is to close the gap to peers and full stop with Schindler as it is?
Andre, hello there. Thank you for the question. Now you're going into specifics, of course, we need to discuss that. Yes, we do have processes that are, to some extent, different, actually to a large extent, different from our competitors, which are probably more focused on safety and quality, which involves some cost. Now, I just don't wanna give any wrong sense here. We are not prepared to sacrifice quality and safety in order to close the margins. That's not the case. Right? Our challenge is how can we retain the quality and safety and possibly achieving the same approach, differentiating ourselves from our competitors always, while maybe doing it, maybe, but definitely doing it in a more cost competitive way. Yes, that's our ambition.
What we cannot say is that we will now remove all these steps. This is absolutely not the case. Does that address your question, Andre?
Great. Yes, it does. Thank you, Silvio. The second question I have is another broad one. On MaaS connectivity, I just wanted to get your fundamental view on how you view, how you see ultimately the monetization of this effort and the investment. How do you assess the risk of it becoming somewhat competed away through lower maintenance prices because of just the magnitude of the operational efficiency benefit that it brings about?
I'm afraid I can't. Can you just say it? Also, actually, technically the sound is not really good. Can you do something, maybe increasing it? Because I didn't hear the second part of the question. If you could do something like that, please. Sorry, Andre Kukhnin. I did hear the first part. Maybe then you, if you don't mind repeating the second part. Let me just first answer the first one. Monetization of digital growth on connectivity. See, now we are finally advancing, and we want to go even faster now. That'll be part of our capital allocation in terms of connecting more and more of our portfolio. Monetization comes in two parts. One comes by lower churn rate in our portfolio.
We find this is over the years that the number of units that are connected suffer from a much lower loss rate. That is in itself, monetization. That in itself is very good. Not only because people feel hooked, it's because they get obviously we believe our customers get a better service, understand better, what we do, and ultimately we can address breakdowns, timely and also anticipate most of them. That is part one. The second one, which is also internal, which is getting data in terms of product improvement. It's amazing what kind of modeling we can build by gathering, information from same, for example, lift systems in different parts of the world to see, for example, how different type of climates, humidity affect performance. We can go back R&D and improve the design.
Things that, however long a test you wanna do in test hours, which we did traditionally, you will never be able to capture. This is another monetization. It's like product design, quality, and faster engineering innovation loops. The third one is, I think you mentioned this, is digital services. This is the beginning. You're seeing it in some markets now we are introducing them, and actually very successfully. Of course, some markets are more open and prone to those. This is something that we are very keen to bring forward. You also see that we have the startup called BuildingMinds that work on it from another point of view. All of that is creating the know-how knowledge and market intelligence that will allow us to take this to the next step.
This is part of the capital allocation work we'll have over the next couple of years. Now, there was a last part of your question, which I'm not sure I captured. Please repeat it.
Yes. Thanks, Silvio. The second part was just on how you assess the risk of the investment in digital being competed away through lower, potentially lower maintenance ASPs just because of the amount of operational efficiency benefit that it brings.
So far, I would say if anything, the investment digitization has been additive, absolutely not deducting anything. So far, that's not the case. There is also strategic defense, the strategic moat that will also help us to fend off, which has been very much the case so far. Industry disruptors that base only on digital, non-OEM approach, and that is also another value. So far, we have not seen any evidence of that or in terms of any disruption of investment being made. Thank you.
Got it. Thank you. I'll stop here, but I look forward to further conversations, of course. Thank you.
Pleasure.
The next question comes from Martin Flueckiger with Kepler Cheuvreux. Please go ahead.
Yeah, morning, gentlemen. Thanks for taking my question. Just like to go back to the EBIT, adjusted EBIT discussion we had previously because it was a little bit confusing. Sometimes, you know, we heard net profit being down 20%, then adjusted EBIT. I just wanted to clarify that. Are we talking about the and then we were also talking about margins being down 20%. I'm a little bit confused now. What's really down 20% according to your estimates in H1? You know, in that respect, I realize all the headwinds that you've been talking about, but we also have tailwinds according to my understanding, right?
We have Top Speed 2023, which should start to bring some first fruit, also in 2022, according to my understanding. We also have the usual targeted cost savings from efficiency gains. I was just really wondering, how do you think Top Speed 2023 and these efficiency gains will help your cost base in 2022? That's my first question. The second question is very simple on the acquisition impact that I'm, you know, I would think was taking place also on order intake and revenue growth in Q4, similar to Q3. I was just wondering whether you could confirm that and whether you could provide some quantitative indication on the acquisition impact. Thank you very much.
Of course. I will probably take the first question. You take the second.
All right.
Actually, headwinds and tailwinds. Very good question. The tailwinds you mentioned are things that were already in place, and thank you for underlining it, such as Top Speed 2023 and efficiency gains. These were developed with not only assumptions, with data on hand that is today to be updated. This is one of the two questions. For example, you talk about efficiency gains. Yes, and we are, as you can imagine, going all in for it, and that will be accelerating. That'll be part of how can we anticipate part of our action plan that we'll be sharing with you. However, take another example, which I didn't mention before. I didn't wanna bore you with too much. There is another element, for example, the wage inflation, right? That's a fact.
That is, it's true throughout the world now more than ever. U.S. being probably the most talked about case today. See, all the plans we have now needs to be recalibrated in order to take into account this new reality, which I'm afraid adds a lot more headwinds than tailwinds. Then, you mentioned Top Speed 2023. Absolutely. Now, based on all that, you can see, so far, if you look at the results of 2021, we decided we need to accelerate. If you look at Top Speed 2023, we are. That's what we're pushing.
We are also assessing which of the Top Speed 2023 modules will give us the biggest boost in the shorter time, and then reprioritize accordingly, also reassessing capital allocation among the different modules to make sure that we get the boost that we need now in order to face even stronger headwinds. Yes, all of that is part of the equation, and that'll be part of the plan that we present, and we're working all together with a new team. Urs, would you like to take the second question? Starting with the margin qualification, the 20%.
Let me be very clear. I am talking about maybe the adjusted P&L when I stated that this will be a drop of around 20%. On the M&A, as I said, we have 150 basis points contribution to growth in order intake and operating revenue full year. In quarter four, it's closer, a little bit less than 100 basis points as the contribution from the forklift joint venture acquisition are now fading out. Of course, we will continue running M&A, particularly on maintenance portfolios, and this will be also an activity we are running in 2022.
Great. Thanks.
Thank you.
The next question comes from the line of Andrew Wilson with JP Morgan. Please go ahead.
Hi, good morning, everyone. Thanks for the time to take my questions. If I can start with question just on China and the outlook, and you've obviously been fairly clear in terms of the challenging market that you're seeing there. I guess I'm interested if you have any view on when we may see that market start to improve. We've heard, I guess, from some of the industry commentators talking about the potential for the second half to look stronger than the first half. I'm interested if you have any thoughts on when we might see some of the conditions start to ease.
Andrew, let me see. We read the same sources, and those predictions are very much, I would say, the ones that we look at as well. At the same time, I don't think there is anyone that could tell you today by when this will definitely improve. It all depends on how quickly those large players will be able to restructure and build up liquidity. We don't see at least an intervention from the government other than making sure that investors or mortgage holders don't lose their deposit. That's what the government wants to do, which is great. I don't see. We have no indication so far of a major breakdown.
However, if you ask about recovery, then at the moment, for the first half, we don't see any indication. There is possible optimism in the second half. I guess, in fact, as you well know, situations like, for example, Shimao, which was actually within the three red lines compliant, and yet now is facing issues, show that there is probably a lot more to understanding what the real issues are in terms of financing and liquidity among those large developers. It's very difficult. You cannot really take a chart and saying, well, this is really assessment today. I wish I had an answer, but I'm afraid I can only say, yes, we hope it's gonna get better in the second half. Maybe in between, the option would be public transportation.
There is lots of infrastructure projects coming on the market being tendered, which definitely will compensate some of the drop in terms of private, commercial, and residential. However, to be very clear, complex, and frankly, also has to be said, because they involve a lot of customization, they are not great for margins, to put it bluntly. Part of our marketing, which I discussed before, about how to make sure we improve our margins thinking of China, will also include that consideration.
That's very helpful, Silvio. Don't worry, I wasn't anticipating you were gonna give me a month when you expected things to get better in China. Second area and different, it's just around the Top Speed 2023, the cost guidance having increased for 2022. I guess I wanted to understand whether that was an increase in absolute cost of the total program, whether it was costs which had been brought forward to accelerate the program, and then whether the additional cost was because you're going to expand the scope of the program or whether the program itself was going to cost more than you'd initially expected. I guess there's a few aspects to that, but just trying to understand exactly where the CHF 50 million extras come from.
Thank you. Indeed. Observation absolutely correct. I'll give the tools. Just one point, you know. Going back to the topic of capital allocation, yes, we want to accelerate, further accelerate our speed, you know, to generate the benefits that indeed are expected to give us some tailwinds finally. Yes, there is an increase. Urs, please, if you like to elaborate.
Right. It's a clear ambition to accelerate the program, particularly the work streams on product innovations in new installation and modernization in selected markets. We will also do an effort to further accelerate the connectivity and our journey on digital twin, where we now just were able to launch the digital twin escalator for product planning, which is an early first milestone. Clear acceleration up to CHF 150 million for 2022. With that we would be in the range of CHF 210 million after two years. We keep the overall program envelope of up to CHF 270 million.
That's very healthy. Helpful. Thank you for your time.
Thank you.
The next question comes from the line of Patrick Rafaisz with UBS. Please go ahead.
Yes, thank you. Good morning, everyone. I have two questions, please. The first one is on the ramp up and rollout of modular platforms. Currently it looks to be about 30% of your intake and a bit behind plan probably as you commented earlier. How should we think about the conversion of your order intake here? How much longer will it take for full conversion? The second question is actually related to this. You talked about a CHF 100 million impact on revenues, CHF 35 million on EBIT from efficiency losses related to running increased number of platforms in your facilities. Is that a similar number we should anticipate in your bridge for 2022? Or will that be higher or significantly lower than that? Thank you.
Thank you. I appreciate that you know you ask about this issue of complexity, which is really one that has to be dealt with as an absolute priority. The first question is how long will it take for a legacy backlog to be produced and installed? To be clear, as I mentioned before, if you look at the slide I presented before, it was Slide 10. In fact, we definitely would have hoped by now we would have been more advanced. Unfortunately, the situation with pandemic was what it was. Construction site delays. Normally, you know, you only stay in a backlog on average about 18 months. 18 months. Like, sometimes large projects are longer, but I think 18 months is a good term.
If you look at the mixture, you can see that a third there is modularity. I would say probably two to three years. By then we should be able to have a very marginal part of legacy, which would be the projects which have been the most delayed. And then you would have probably some high rise. I would say it is probably two to three years. Three years is probably a safer assumption. Also in view of the fact that in some countries, construction sites, I'm thinking, for example, of Southeast Asia, places like Malaysia, places like Indonesia, where we have, you know, quite a large backlog, are still very much only now coming out of a serious lockdown, in some cases, not even.
I think that's a fair assumption. For the impact, EBIT, Urs Scheidegger, please, would you like to take that?
Yeah. So the CHF 100 million revenue impact is something which was delayed, right? Due to the ramp up difficulties in the supply chain, we were a bit slower in delivering, so this will occur. This should be generated later in 2022. Of course it will be combined with this overall supply chain disruption, material shortages, slowing down construction sites, but this is not lost. The CHF 35 million EBIT impact is clear bottom line impact due to operational ramp up topics and issues in the supply chain, including some corrective actions. We will also have such a headwind in the next quarter, one, two actions to take and to finish and fix it.
I expect for the full year that will also be a bit of a burden to the P&L in the range of CHF 30 million to fix it completely.
Is that incremental or is it just a similar impact as in 2021?
This is a similar impact as in 2021.
Okay, thank you.
The next question comes from the line of Lars Brorson with Barclays. Please go ahead.
Oh, hi. Good morning. Silvio, thanks for the presentation. I thought that was quite helpful. Can I have two questions, one on digital services and one on your pricing strategy? Maybe taking them one by one. On digital services, you flagged a competitor that launched some ambitious margin targets this week. I think that's right. I think that largely comes down to service growth and productivity in the service operations, which I guess in turn partly comes down to their digital strategy. You talked a fair bit about what you're looking to do on the NI side of your business, less so I think around your services business. The bigger picture question for me is, do you think you've lost a bit of ground in digital?
I think I hear similar penetration numbers from you and your competitors around penetration levels for digital. But I'm also mindful that, again, historically, you were built on Predix and now, of course, transitioned to Microsoft Azure. You rolled out initially with Huawei as your global connectivity partner. Can you give us some sense for what you see historically and whether you felt you have lost some ground and perhaps caught up with your key peers around digital in the last couple of years? Thank you.
Thank you. I definitely. The fact that you mentioned that I haven't spoken enough about services goes straight to my heart, because one thing I try to do in the company is to make sure that we don't forget this is not only 50% of our revenues, but a key part of our business. We are ultimately a service company. So thank you for helping me correcting that and that misunderstanding. Let me just give you a straight answer. No, I don't feel we're losing ground. You can see from what I said before, I don't think one can say we're not humble. We don't have a problem saying when we have one. In terms of digital and service, we don't feel, even from a quantitative aspect, that we're actually staying behind.
One thing for sure, and this I just say respectfully, we talk less about it, because we believe, you know, there is a lot of opportunity, a lot of competitiveness to be gained. Now, perhaps to give some color on the service. We have been rolling out, in a quite impactful way, what we call Technical Operations Center, whereby now all our connected units are monitored at regional level, but also group level by data centers with elevator specialists and data scientists that check the data related, and it actually help, not only, as I mentioned before, the R&D development product management to improve their products, but also in order to help understanding patterns for entrapments, for breakdowns, and therefore, that has given a tremendous improvement.
Now, when we speak next, today, I didn't feel there was the place to be boastful, but when we present next in the summer, I'll make sure we cover it. I believe we're actually doing a lot more even on in terms of product design. You saw as part of our Top Speed 2023, we have a substantial part of our investment and capital allocation, which goes to what we call digital twin. That's something clearly which doesn't have a payback for the next few years. It's actually pretty much a mid long term investment. The idea is to link a digital avatar from the moment the product is sold, designed, all the way from when it is installed, maintained, with all processes that go with it. Some of our competitors years ago announced Google Glass.
I challenge anyone to find a technician that uses it anywhere in the world. No, we don't do this. We don't announce it before. Because we believe it has to start first with the core, which has to have this digital twin concept and digital connectivity behind. There is a lot more I'd like to say, if you don't mind, Lars. I'd like to raise it next time we speak and we present a strategy, and then I think we'll have a lot more that we can show in this regard.
That, that's clear, Silvio. Thank you. Maybe just on disclosure in the summertime, maybe should we expect to hear more around BuildingMinds? You've invested CHF 60 million, I think so far over the last three years. I think we've got another CHF 100 million to go. We haven't seen a huge amount of disclosure. What might be expected around that and particularly what other kind of key KPIs we might expect to see from that business going forward?
Absolutely. We'll keep it in mind. It'll be my pleasure to do. That's a project I've been following personally. Yes, absolutely. In the meantime, I only would encourage you to look at the website. There is a lot of information of the partnership, the clients and the solution, which is now not only about software as a service for real estate, but a lot always more the ESG context aspect. Since most of our customers now are also confronted with the how to comply with the Paris COP-type commitments, how does the real estate industry confront that? BuildingMinds has become very much a key tool to support them. This is absolutely exciting. I look forward to discussing more about it next time.
Understood. Can I ask secondly, just to your pricing and pricing strategy, one of your competitors obviously gave some helpful disclosure around like for like pricing in China, new installation, for them that was flat last year, including late in the year. Can you help us with your own like for like, price realization in China in the year and in Q4? Bigger picture, you know, I didn't hear a lot around sort of pricing strategy and changes there. Should we think of you, particularly in Chinese market, as being perhaps more selective? You talked about infrastructure not great for margins. They have historically not been. How to think about sort of bigger picture, your pricing strategy, going forward in the Chinese new equipment market, please.
Good. Urs, I'll let you take the development of pricing last year. In terms of going forward, please allow me, Lars, this to be part of what this is what we're working on now. Again, the idea is clustering is understanding which segment is going where, which involve geography, which involve segments, going from residential, commercial. There is a topic of escalators, of course, which plays a big role because that market is also changing rapidly. The idea is in China, we're gonna be about a one size fits all. But then more and more we need to look granularly on which area, which region to grow in, what investment are necessary. In our business, I wanna say selling is the easy part. The question is then how do you secure maintenance afterwards?
How can you provide a service? How can you differentiate yourself from the local competitors with whom very candidly, you're never gonna be able to compete on price. That in a market that is slowing down will present different challenges. At the same time, going back to the question as before about opportunity, definitely in China, service and modernization are a huge opportunity. Now, so far, because of this crunch time, that is still not enough, neither in volume, nor in margins to offset the NI pressure. But this is all part of the overall consideration. Urs, would you like me to take the point about price development in China?
Yeah. The China pricing, you always have to differentiate a bit segment by segment. On the larger residential segment, pricing in second half year or also in Q4 was flat despite a high material cost inflation. Yet, and commercial public transport pricing was under pressure, competitive pressure such as on a larger project. Thank you.
Thank you both.
Thank you.
The next question comes from the line of Miguel Borrega with Exane BNP Paribas. Please go ahead.
Hi, good morning, everyone. Two questions from me. On your top line guidance, I just want to understand your thought process for 1%-6% since your backlog is up 8%. Can you give us some flavor for how much you'd expect book-to-ship to be in 2022, and how much that typically represents as the percentage of revenue?
Yes. Thank you. Urs, would you like to take that?
Yes. Thank you. Well, you have seen how revenue generation has slowed down in the second half year, very remarkably, in quarter four with this 0.6% growth in local currencies due to global supply chain disruptions. That's not only affecting us. Most construction sites are running much slower due to material shortages and logistic bottlenecks. This is hindering us to roll out the backlog more effectively, more positively for the next quarters. Our backlog is healthy, very active, but the turnover or the rotation is now much slower. This you have to take into account. That's why we indicate this wide revenue range. In the first half year it will be clearly remaining slow.
We will see in the second half year whether these bottlenecks are releasing and we can run much faster again.
Thank you. That's clear. You aim to achieve a competitive margin. You're now doing 11%. It's not yet clear to me when you launched the Top Speed 2023 program, I suppose you also had a target in mind. Will that be raised or just brought forward? Are you thinking on an absolute level? Because, Urs, you just said earlier that 11.7% in the first half of 2021 was solid. Your closest competitor guided for margins around 11% for 2022. Your peak margins were 12%. Any flavor here for competitive margins, what does that mean ahead of the summer would be great.
Thank you. I totally understand your question. That's obviously very important for your models. We are not in a position today with all that described to give an exact target. One thing for sure, we need to improve. Please bear with us until we can give you a specific answer. Clearly closing a gap and you, nonetheless, in the meantime, you see what our competition has guided to. That gives a sense of where we want to get. Of course, the other question you're probably gonna ask me is by when, and the answer we give you is as soon as possible. At the same time applying the realism of the backlog you just saw with the margins we just discussed. This will not be for any complacency whatsoever.
I hope at least that was perceivable. We have extreme resolve to do whatever it takes to get there. Please bear with us that we cannot give you a specific number now.
Okay, I will. Just maybe if I can squeeze in one last question. Apart from the margin impact, how does modularity impact your working capital? That's my final question. Thank you.
Urs, would you take that?
Well, the midterm is clear. Modularity will reduce variance options for our platforms as we roll it out component for component and now as well the full system. You have seen the presentation, when we can roll it out completely across geographies and product lines, this will reduce inventories. On the other side, due to the material shortages we have now, we have to build up certain inventories to be sure that we are ready to fulfill to our customers. You also see that our inventory levels in 2021 versus 2020 have increased quite strongly to build up some strategic inventory buffers for deliveries.
It could be shorter term for the NI next, one to two years or, as Silvio says, until legacy products have been converted to modularity, three years, that our inventory levels will now be at the 21 level or even a bit higher until they will reduce. Midterm, it will clearly help us to improve our Net Working Capital.
If I may just build on Urs' answer because I think it's a really good question, a very important one. Thank you for that, Miguel. It really comes down to scale, and at the risk of saying things that are evident. One of our challenges, if you look back at our results, has been that we've been able to grow top line quite successfully but not been able to turn that into improvements in margins. This is a challenge with the whole scale theory. In theory, when you grow size, you should be able to turn it into better margins. That is something which we believe has not been achieved also and predominantly because of the complexity in our product portfolio. Because scale wasn't generated.
Now modularity, our objective is this, that we're gonna have less components, less suppliers, which therefore will give us more scale to negotiate with each of them, but also in a mutually successful way that we can then look forward by setting margins with growing volume and negotiate, and work together in a different way. That's an example. The other way, if you look now at efficiency in a factory, please allow me to recall the slide I showed about the number of cabins in a factory, right? The goal is now we are in this transition phase where we have seven, but the goal is to go below to where we were in 2017, which was four, to go to three, to two.
Maybe with modularity, we'll always have an element with codes and standards that we cannot go below. If you apply this to every single component, we're gonna have many less components to be delivered in a much more effective way. These are a concrete example. That's why I wanted to put that chart with the cabins that will explain where we want to get and why unfortunately now we are a bit with a leg spread between two rivers here, because at the moment, it's unideal and it's taking longer than expected because of the pandemic. No excuse, we've got to fix it. I hope this helps understand.
That's very clear. Thank you.
That was today's last question.
The last question for today. Thank you very much for your attending this webcast and this conference call. We'd like to close. Please feel free to reach out to me if you have any further question. The next event is the Q1 results presentation on April 22. Thank you very much. Take care, and bye-bye.
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