Ladies and gentlemen, welcome to the Schindler Conference Call on Half Year Results 2023. 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. Please go ahead, sir. Excuse me, this is the operator. Your line might be muted. Ladies and gentlemen, please hold the line, the conference will begin shortly. Ladies and gentlemen, welcome to the Schindler Conference Call on Half Year Results 2023.
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 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 of Investor Relations. Please go ahead.
Good morning, ladies and gentlemen, welcome to our Half Year Results 2023. My name is Marco Knuchel, I'm Head of Investor Relations at Schindler. I'm here together with Silvio Napoli, our Chairman and CEO, and with Carla De Geyseleer, our CFO. Silvio will start his presentation with the highlights of the first six months of the year, followed by the market update and performance update. Carla will lead you through the financials. After the presentation, we are happy to take your questions. Today, we plan to close our session at around 11:00. With that, I would like to hand over to Silvio. Silvio, please go ahead.
Thank you, Marco. Good morning, everyone. Thank you for joining our Q2 Half Year Results Conference. I'll start with the highlights. That is slide 3 on your package. Before diving into the numbers, I thought it was helpful to take a moment to look back at where we are and how we got here. It's about 8 months ago that, you know, we had the unpleasant, yet beautiful task of confronting you with our situation, explaining how we were losing altitude, but also explaining how we identified the issues that had led us to the situation we were in. Also, we detailed the measures that we launched in order to fix the issues. We said it would take time, but we expressed a commitment to drive this improvement.
Since then, we have indeed been working hard, making a few mistakes, but overall improving step by step, quarter after quarter. Now, with our actual results, I'm pleased to say that these results show that we are gaining momentum, and that means that now we are ready for the next phase. Interesting enough, these improvements come as the market, in fact, has worsened dramatically in comparison to where it was 18 months ago. This worsening environment can maybe be summarized in 2 main things. 1 is the market itself, we'll come to that, and the foreign exchange.
Starting with the market in terms of highlights, the new installation market continues to be under pressure, mainly driven by China, but now, as we'll see in a second, also followed by Europe, as seen the last time, but now lately, also North America. On the other hand, the service and modernization markets continue to be strong and growing. The other element of this worsening environment is the foreign exchange situation, where indeed we have those foreign exchange headwinds increasing. Notwithstanding that, I'm pleased to report that we have a order intake recovery with a strong uptake in Q2, which then leads, as we'll see later in more detail, to an increase in Q2 of 6.7% in terms of total order intake, for an overall stable half year report.
Moving on to the next set of improvements, staying on the top line, and we also had a pleasing revenue growth, which was underpinned by a strong backlog execution across all regions and product lines. Moving from top line to bottom line, which was really one of the key mandate we're giving ourselves as a commitment towards our investors. We had, in half year, a strong profitability uptake with a needed improvement year-on-year of CHF 199 million. Most importantly, this is not just a blip, this is a continued sustained trend over the last 4 quarters. This was driven by our operational management measures, first and foremost, our supply chain stabilization, combined with our pricing efforts, which altogether yielded these results.
Finally, on cash flow, which of course, are more important than ever nowadays, we are also reassured to see an improvement of CHF 227 million year-on-year, driven by improving profits and net working capital reduced consumption. Let's maybe dive next into the market, which is one of the key evolutions, and I now move to slide 5. Without going into all detail, maybe I'll, I would like to refer to our market assessment presented in Q1, and just focus on what changes there are versus then. The key difference here is the Americas, which we highlighted in red here for your convenience on this slide.
Where we can see we now downgraded our outlook for the market development driven by North America, for now, our latest assessment of -5% to -10%. Unfortunately, still in declining phase. I spoke on North America, where we already observed a decline in commercial and multifamily construction. It has to be said, though clearly the declining trend is there, that this decline also has to be seen against the base effect, because first half 2022 was definitely a record period of what one could call the post-COVID revenge building. Clearly the question is: How will a second half look like? Indicators so far are not very positive, the question, nonetheless, is worthwhile to be asked.
Overall, the market displays a high overall uncertainty with perhaps two pockets of continued growth, which are Asia and Middle East, North Africa. It has to be said, though, that neither of them are sufficiently growing to offset the decline in China, Americas, but also Europe. Maybe last point on Europe here, is that the underlying demand is still very much there. I was myself in Germany two weeks ago, and you can see there, the demand for new apartments, new dwellings, is very strong. Unfortunately, today, because a set of circumstances, developers are not prepared yet to put out the money, because of what they see as uncertain returns. Nonetheless, for now, that's where we are, and that is the overall NI market. Once more, we must stress that for modernization, the market remains strong with robust demand.
How is our service, where we fueled by previous conversions, and also higher demand, and I would say good pricing development, growth continues across all regions. Moving on to the next slide, I think it is due and fair that we spend some time on China. As we all know, China is the largest market for new installations, when we spoke last time, we said that though there were signs of possible recovery, the timing and magnitude were uncertain for the second half. Today, I must say we are still at the same place, and arguably, I would say I recognize that we might have been more cautious than some of our competitors.
In Q1, I must say, I'm not all pleased, but to say, but in fact, our predictions are becoming more and more reality, looking now from the situation already now that we are in the second half. What do we observe? We observe that the construction starts, first of all, continue to decline for the fourth consecutive year. For the first half of 2023, we talk about -24.3%, which is, you can argue less prominent than the full drop of the year of -39.4% in 2022, but nonetheless, it is again negative.
Equally, now, in terms of inventory, we see that inventory is finally decreasing a bit in all city tiers, nonetheless, we still stay at levels which are way above what I call the health line of 1 year. Tier one is barely around 12, 13 months, but tier two plus, we talk about 15 months and plus of housing inventory, which doesn't order for a recovery anytime soon. Perhaps, a little more data that is not on this slide. Real estate investment for the year is down 7.9%. For floor space under construction is down 6.6%. One positive area is that the floor space completed, so completions, which by the way, drove our revenue, we'll come to that, they are up 19%. That is good.
However, if one compares that with the May year to date, which was a 19.6%, one observes that there is a decline even in that positive trend. What does that leave us? For D&I market in China, the 2023 outlook remains for us, similar to last time, where we said -10%, -15%. Responding to one question from one of you, last time I said it was probably closer to -10% than -15. I'm afraid my answer will be different. I think we're now getting closer to -15% rather than 10%. The next question, of course, would be: what do we see for 2024?
Considering the speed at which things change nowadays, it's probably difficult to say, but nonetheless, I think it is fair and reasonable to say that we expect more decline in 2024 in view of today's situation. Staying on China, on slide 7. Again, NI, first of all, is declining, but it is, once again, the largest market in the world, accounting for 60%-70% of worldwide volume. That's a fact. China cannot and will not be ignored. Let's not forget, even if you compare it to India, the second largest market is still 7-8 times bigger than India, for about a similar population. The world population needs to be kept in mind. That's why I wanted to stress this idea about the potential of China going forward, notwithstanding today's decline.
If you look on the left-hand side, we have this elevator intensity study that we use to present on a regular basis, showing that China, on the base of the immense historic growth of the last 20 years, now is barely if one measures at the installed base of elevator and escalator per 1,000 inhabitants, at half the density level of, let's say, South Korea. So if one imagines a type of, you know, social development or urban development, similar, you could say there's still the opportunity to at least double up in the future. We know in China, cities continue to grow, and therefore, this drives, again, more potential going forward, both for new installation and existing installations.
Speaking of existing installations, that also leads to modernization, and that's the chart on the right-hand side, where you see that the forecast for the CAGR of the modernization market for China still is about in the order of 20%. To give you an idea, today we have a population of elevators of an age between 12 and 15 years, which is classed typically the age at which a unit with a type of consumption of usage here in China needs to be modernized. We talk about a full population of units, so about 1.5 million. Of course, not all of them are modernized, and then if you look at the chart here, you see an estimate for the modernization market in China of about under 30,000 units for 2023.
If you take this under 30,000, and you compare it to the new installation market for Europe and North America, it's about the same. Only the modernization market in China by itself is as big as the new installation market in Europe and North America. I just wanted to give those data points because that puts the idea of the market in China, its importance into perspective, while at the same time taking stock of the recent decline. I'm sure we're gonna have more questions on the market, for now, I'd like to move on to our performance, with some highlights before the CFO goes into more detail, which then takes us to slide number 9. Amidst those challenging markets, I'm pleased to say that we are indeed improving.
Ironically, I like to say, perhaps the efforts that we had to undertake while the market was still coming up, maybe that gives a bit of upper hand now as market declined, because we started working on the hard measures already. We're definitely not where we want to be, but we are improving. Again, the CFO will give more details, but here the importance is that this improvement has been steady over the last 12 months, so we don't talk about a blip. We started first by delivering a trajectory correction, then we sustained it, and now we are into the accelerating phase on the back of the momentum we have created.
If you look at the left-hand side, showing a revenue and EBIT evolution, what I also wanted to stress here, besides the figures themselves, is that improvement in 2023 has been driven in spite of the increasing foreign exchange pressure. In Q1, to give an idea, 23, the top line pressure, the top line negative impact of foreign exchange or the Swiss franc appreciation was CHF 100 million chopped off about our top line. Now in the second quarter, we talk about CHF 200 million for an aggregate of about CHF 300 million. A doubling headwind between Q1 and Q2, which, you know, say something about the urgency to do what we are doing now in terms of improvements. Moving on, perhaps, to the question.
The question can be saying, you know, how did we get here? What is it that brought us here? We'll continue to create the momentum. I'd like to move to slide number 10. I'd like to highlight two elements: the pricing and supply chain stabilization. You remember how much we were open about the fact that we had lost ground in terms of pricing, and how serious issues in our supply chain were causing our difficulties in 2022. I'm pleased to say that those two are inputs to the overall performance, and on both inputs we've been improving.
You can see on the left-hand side here, how the pricing, here focused on the modular platform, on what we also call sometimes a commodity product, have started to yield results with positive improvements starting already in Q2, but also getting into positive territory as of Q3 2022 and continuing into Q2 2023. Another input was the supply chain, and you can see there, we were definitely embarrassed to display our on-time delivery performance due to our supply chain issues. You can see that this KPI, which I consider a good proxy for the overall supply chain performance, is now back in check with on-time delivery as per our commitment, getting close to 100%, and yeah, across the world. Now, these were inputs. Looking at outputs and moving on to page 11.
If you do the things right in pricing, in supply chain, you have a positive impact in terms of order intake margins. You can see here on the left-hand side, how our margins into the new installation order intake, have been roughly doubling between half year 2021 and half year 2023, where we are today. This order intake margin in turns drives backlog margins, which you see on the right-hand side of the chart. Where you see the sequential improvement of our order backlog, you can see that again, that took probably one quarter more than we saw there in the pricing. Now, as of Q4 2022, our order backlog margin has been improving, overall driving our overall bottom line performance.
That by itself wouldn't be enough if we did not have, moving on to page 12, another key input, i.e., fixing our product, and in particular, our modular elevator platform, for which I'm pleased to say the relaunch is on track, driving complexity reduction, cost competitiveness, and higher margins. You see here just a summary chart. You've seen it already. Apologies for that, but I thought it was important because it is really one of the key drivers here, how we now have 3 platforms that were previously independent, now combined into a single one, which in turn drives many benefits. Besides the ones that are on the chart, we talk about a seamless customer experience in terms of buying, in terms of designing.
Other maybe data point, we used to have 25 different car modules, now consolidated into 3 car modules, from 25 to 3. Which in turn, we do the same on other components, drives a radical reduction in variance, which in turn drive efficiency, cost reductions, and also quality, and ultimately, better margins, better supply chain performance. Moving on to slide 13, I'd like to make one point clear. If there is any sense that we feel satisfied about where we are now, I'd like to dispel that sense. We are absolutely not in any position to feel satisfied. There is no sense of accomplishment per se. Today's results, if anything, are just a springboard for the continuing improvement that we are resolved to continue driving.
This improvement will be continuing doing what we've been doing, but then doubling up on a number of things. First and foremost, that's gonna be efficiency. Efficiency, which will be our biggest priority going forward. Why is that? Two elements. First of all, because if you look at benchmarking with some of our competitors, very honestly, we see we got room to go, and we view this as an opportunity. Also because inflation, even though now there are economists saying whether it's gonna be reduced or not, but we believe it's gonna be here to stay. It is key to stay focused on this mantra we have had since 18 months, which is that pricing plus efficiency has to be bigger than inflation.
Now on this chart here, we just summarized maybe the main fronts where we believe efficiency needs to be driven faster than ever. Starting, of course, with our new installation modernization business. And besides the product there, it's about process simplification. Of course, service and repairs, where with our portfolio growing, we need to continue driving density, scale effects, and digital services, which are now coming very strongly into the business. The number three, of course, is procurement, where we knew we were a bit behind some of our competitors, and there with this new platform, but also by streamlining supply and matrix, we'll continue driving improvements. Let's not forget, back office processes. There, really, the benchmarking exercise made us realize that the potential once more is substantial.
We're working now on redesigning some of our processes, which will yield improvement in terms of efficiency, and quality, and customer service, and also bottom line. Of course, I'm sure you see that to drive this efficiency will require some investments. These investments will come in the second half of the year, where the CFO will probably mention that we will need some structural rotation costs all over the world in order to make sure that we stay on track with the momentum we've generated so far. With that, I'll give the word to our CFO. Carla, please, to take us into more detail into the details.
Thank you very much, Silvio. Good morning to everybody. It's a real pleasure and a privilege to present you the strong half year results. You heard it already from Silvio, we gained momentum, and for me, it is clear that the quarter two performance now proves that the measures that we have put in place are really becoming effective. Overall, we have been operating globally in a tough market environment. Maybe, sorry, I'm on page 15. We have been operating in a tough market environment. Nevertheless, order intake was up in local currencies, sequentially recovering the second quarter from a muted order intake development in the first quarter. New installation order intake margin continued its upward trajectory and almost doubled since the second half of 2021, clearly reflecting our continued focus on margin accretive projects.
Now, the good news is that all regions and product lines contributed to the solid year-on-year top line growth. Also our service business continued to grow, supported by an increase of units of 5% and also continued execution of the pricing measures. Number of connected units reached almost 30% now of the total maintained portfolio. Now to the profitability. At the lower part of the chart, EBIT adjusted and EBIT both actually printed now significant year-on-year improvements in absolute and in margin terms. You heard it already, the second quarter, EBIT was supplemented by one-off real estate gain of CHF 6 million, which is now at a level or comparable with the level of quarter four 2019.
Last but not least, cash flow from operating activities improved by more than 70%, and this was particularly driven by the higher operating profit and the lower net working capital requirements. Finally, the Swiss franc strengthened against almost all of our currencies, and that significantly impacted our results. It had an impact of approximately CHF 300 million on the top line, and it impacted our operating profit with CHF 35 million. Let's move now to the following slide 16, which shows the key figures for the second quarter. Second quarter 23 results, they really confirmed the positive trajectory, and you see here that we realized a 15.2% year-on-year improvement in revenue and in local currencies, and even higher growth in profits.
Order intake rebounded after a slow first quarter and increased by 6.7% in local currency, admittedly, of course, supported by a favorable, low prior year comparison. Revenue and operating profits were negatively impacted by Forex, amounting to quite an impactful 7.3 percentage points and an 11.4 percentage points, respectively. Moving to the next slide 17, you know, we see the first half key figures. I can actually be very brief on that one, because the key figures for the first half, they show basically a similar picture with substantial growth in all the line items.
This allow me to move to the next slide, which gives you a bit of insight into our strong balance sheet, and particularly our strong cash position, despite a bond repayment of CHF 400 million in June. Just to be clear, no renewal of the bond. Obviously, the improving interest rates led to also a stronger financial income. Financial income increased to approximately CHF 30 million for the first half year. Now, referring to our investments, I'd like to inform you that Schindler Holding AG has been reducing its investment in Hyundai Elevator Limited, Korea, while it is the intention to remain a large shareholder with a significant stake there above 10% in the company. Okay? Moving to Slide 19, that gives you a bit more insight in the order intake.
We said it already, we have been operating in a tough market environment, but you see here the evolution of the order intake in the second quarter of 2023, which is shown on the left-hand side of the slide. The order intake for the second quarter reached CHF 3 billion, corresponding to a decrease of 0.5%. However, in local currencies, order intake increased by 6.7%. That was supported by a strong after-sales business and obviously also a favorable prior year comparison, since the second quarter of 2022 was heavily impacted by the lockdowns in China. Organic growth reached CHF 183 million in the second quarter. Acquisitions added CHF 22 million, and that more than compensated a CHF 290 million negative foreign currency impact.
Moving to the right-hand side of the slide, order intake for the first six months of 2023 reached CHF 5.9 billion, corresponding to a decrease of 4.6% and an increase of 0.8% in local currencies. Organic growth was 0.3%. Acquisitions contributed 0.5 percentage points, while the FX had a negative effect of 5.4 percentage points to the growth. Moving to slide 20, slide 20 provides you with an overview of the order intake by region and by product line, comparing 2023 with 2022. On the left-hand side, the comparison for the second quarter, and on the right-hand side, the comparison for the first half. Order intake here represents all product lines, so the new installation that you see, the modernization and the service.
I comment now on the six month development indicated on the right-hand side. New installation, modernization, they had a slow start in the year, but showed a significantly improving trend in the second quarter. New installations and modernization margins also continued to improve in all the regions. The service business remained very robust throughout the first half year and continued to grow, driven by the unit, but also supported by pricing effects. To be complete, the order backlog decreased by 7.5% to CHF 9.5 billion, and in local currencies, the order backlog declined by 0.9%. If you consider our lead times of 12 months, combined with improved new order intake margins, I believe that the backlog is a robust base for a continued solid improvement going forward.
Moving to slide 21, that gives you some insight into the revenue development. The backlog execution remains very strong in the second quarter, and as a result, revenue shown increased by 7.9% to CHF 2.9 billion for the second quarter, corresponding to an increase of 15.2% in local currencies. Obviously, you know, year also, prior year comparison was supportive. All the regions continued on their growth path, with Asia Pacific growing the most, and then new installation, modernization and service, they were up all double digits. Moving to the right-hand side of the slide, you see the revenue development for the first six months of 2023.
Revenue reached CHF 5.7 billion, equivalent to an increase of 7.1% and 12.6% in local currency. Here, solid growth across all regions and product lines. Organic growth reached 12%. Acquisitions contributed 0.6%. Of course, you see the significant impact of the FX, a staggering negative impact of 5.5% points to the growth. Moving to the next slide and taking, you know, a bit of a deep dive into the development of the profitability. Starting with slide 22. We mentioned it already, a positive trajectory continued during the first half year. You see here the nice evolution at the left-hand side of the slide and the effect it has on the EBIT adjusted and on the EBIT.
It's clear that our implemented measures yield results, and they are more than offsetting the declining effect of inflationary pressures, and of course, that is supported by the improved supply chain. Absolute EBIT was supplemented by a one-off real estate gain of CHF 6 million, but it was the highest since the fourth quarter of 2019. Moving to the following slide, where we have a comparison of the year-on-year EBIT adjusted and EBIT. There, you know, you can see that actually the uptake of the profitability is really supported or driven by the operational measures. Operational measures resulted year-on-year in a CHF 175 million improvement. Foreign currency again, had a negative effect of CHF 35 million on the EBIT.
EBIT adjusted reached CHF 606 million, which is a year-on-year increase of 30% and 37.8% in local currencies. Overall, the margin increased by 190 basis points to 10.6%. EBIT, a similar uptake, increased by 49.4% to CHF 602 million, which was supplemented by the land sale of our former factory in Suzhou, China, and which resulted in a one-off gain of CHF 32 million in the first quarter. In addition to that, we also incurred less expenses for Top Speed 23, and less restructuring costs compared to last year. The EBIT margin reached 10.5%, and that represents an increase of 300 basis points.
Maybe a short note on Top Speed program that has been aligned now and really included in our newly established operating model. We also plan and expect the initiatives launched under this program to be completed by year-end. Just for completeness reason, we achieved a net profit for the sixth month of the year of CHF 463 million, which is an equivalent of 56.4%. Which is one of the highest operational net profits that were achieved in the history of the company. Referring now to the operating cash flow, page 24. You see here that the operating cash flow from operating activities increased to CHF 240 million in the second quarter and to CHF 521 million for the first six months of the year.
An equivalent of 74.2%. That is really driven by the solid increase of the operating profit and to a lower degree, the lower net working capital requirements. That brings us now to the outlook of 2023. Considering the first year development of the top line and the profitability, and Silvio also alluded to it or referred to it's clear that we will continue to focus strongly on the disciplined execution of our strategic priorities going forward. Hence, we expect a positive EBIT adjusted margin trajectory to continue. Based on that, and taking into consideration the market developments, we lift our revenue outlook for 2023 from low single digit revenue growth in local currencies to a growth between 5% and 8% in local currencies.
Please keep in mind, prior year comparison become much tougher in the second half. When we reflect on net profit, we expect to reach between CHF 860 million and CHF 900 million, an increase between 31% and 37% compared to the 2022 results. Before I finish and hand over to Silvio, I really would like to thank all colleagues around the world there, because it is clear, you know, that they made an outstanding contribution to the solid revenue growth and the progressive uptake of profit. A big thank you to all our colleagues over the world, and it has been really a pleasure, I must say, to join this organization almost a year ago. Silvio Marco, I hand over to you.
Thank you, Carla. We are happy to take your questions now. Well, the queue is quite long, therefore, and given the limited time, I ask you to limit yourself to two questions only. Operator, please, Alice.
We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment, may press star and 1 on the touch-tone 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 2. Participants are requested to use only hands that are asking a question. Anyone who has a question or a comment may press star and 1 at this time. Our first question comes from the line of Klas Bergelind with Citi. Please go ahead.
Thank you. Hi, Silvio and Carla, Klas at Citi. The first one I had was the growth in orders. You're facing an easier comp than some of your peers in several regions, but orders are also improving quarter-on-quarter as well. I'm curious to hear about the development, perhaps month-on-month through the quarter, Silvio, you're doing better in China on orders versus the market year-over-year, but easy comp there as well as you were underperforming last year, or are you also taking share quarter-on-quarter? On modernization and in EMEA, there's a lot of repurposing of buildings, green efficiency upgrades, and you say that the market is strong, so I'm wondering why you're not growing faster there in EMEA. Thanks.
Thank you, Claes. Thank you for your questions. I think you show how well you know our industry. Clearly, it is true that, as we also highlighted, our comp basis for last year is easier, but let me just turn it the other way. Last year was really tough. We had 7 weeks lockdown in Shanghai with a factory. Yes, now, coming back this year is not easy in any case, I'd like to stress. It's not easy, but yes, if you look at numbers, that is something we have to recognize. Q1, as you saw, was for us very slow because also it was the organization needed to be realigned and also when the supply chain was still not aligned. What we observe is a month-on-month improvement. This is important.
Clearly June, the last month, showed a continued improvement, and now we are resolved to continue moving in that regard in China and across the world. I must also say very transparently, that one of the, what do you say, leadership challenges we had here, was to make the organization understand that I always say profits equal growth. There was a moment when we refocused organization on what mattered, that, you know, some people in sales in particular, wondered, "Well, do you want profits or do you want sales?" That's. It may sound basic, but that's the reality. There has been a lot of change management in explaining to our sales force that getting products at the right margin, considering our, you know, our premium provider position, was what they had to drive.
Yes, we have to change a few people. We have to make sure targets were aligned, and that is coming through now. Are we there where we want to be? Not yet. I foresee this continuing to be one of our main challenges going forward. The second question on modernization, let me be very open. I'm not happy about where we are in modernization. You're right, we should grow faster, not only in EMEA, but also I must say, in China, where the opportunity is there. There are different situations there. In EMEA, it was in Europe or, essentially, it was more of a question of having the supply chain ready. Now that it is, I think we can definitely push more on modernization.
Where we have seen that, you know, in some of the markets, we probably not have been as performing as we used to. China, it's a different discussion. There, we really need to do better on the product. That's today a handicap, but an opportunity going forward. We are all driven to bring the product to the market. Part of our Top Speed 23 investment, we're focused on that, and that's the direction we're taking. Hopefully, that answers your question, Klas.
Thank you, Silvio.
The next question comes from the line of Andrew Wilson with J.P. Morgan. Please go ahead.
Hi, good morning. Thank you for taking my question, questions even. Just firstly, I was hoping you'd help us a little bit with some of the drivers on obviously what's been very encouraging margin development. I think previously you sort of helped us around things like raw materials and the Top Speed 23 program, wage inflation, a little bit on productivity, and also I think you mentioned sort of additional investment for the second half, so it'd be super helpful to some of those numbers more specifically. I guess secondly, much broader question is just around what you're seeing in China and the various policy measures you've seen so far, specifically on the property sector.
You know, is the view now that you just need a stronger China macro and therefore bigger, broader, sort of macro type stimulus that we've maybe seen historically, rather than just more measures specifically on the property sector specifically? I appreciate that's a broad one, but be very interested in your, in your view on that.
Thank you, Andrew. Maybe for the first question, if I understand, it's about profit drivers and headwinds and tailwinds going forward. Carla, would you like to address that?
Yes, absolutely, Andrew, and thank you for the question. Of course, you know, there are a couple of drivers that lead, you know, to the uptake, you know, that I presented. For sure, you know, the first one is the material cost. Material costs are coming down, we take also there our fair share. It's also, you know, fair to say that, of course, we have been disciplined in the past, and we remain disciplined when it comes, you know, to the pricing. That is also, you know, having its positive effect.
Then Silvio referred already to it, we are strongly focusing on the efficiency, this is also coming in different fronts, through, and that is also, you know, really contributing to the uptake of the profitability. Now, in terms of, labor inflation, labor inflation is, of course, a headwind, and it is a headwind that mainly came through in quarter 2. There, of course, we will come to a full run rate in the second half of the year. That, but that has been, you know, of course, that should not be a surprise. That, that is one of the major, I would say, headwinds that will come our way. Yeah.
We for sure, you know, will continue to work on the efficiencies to offset, you know, part of that effect.
Thank you, Carla. Coming to your second question, Andrew. I was in China twice already this year. I was there in April. I was there about a month ago in different parts of the country. Your question is really the one that everyone would like to have an answer for. A lot has been done on the micro. If one has to take stock of the fact, it's not working. A lot of the private developers have not yet recovered. The SOEs or the state-owned, only partially owned developers, stepped in initially to take a lot of the ongoing projects or taking on the new ones. What you serve, even the liquidity crunch or even the overindebtedness is also touching them. If anything, that situation is not really improving.
We don't see any improvement for term. The good news is that the underlying demand is there. However, people are very cautious, and as you remember, you know, in a city like Shanghai, a family to invest in a, in a flat, may have to invest as much as 20 plus years of income, and that is a huge risk. The government also is careful to protect those, but in terms of creating new demand for new buildings, I was surprised, and frankly disappointed, that there is not much more happening. What should happen? I don't see, and again, I don't claim to be an expert here, the much more, much higher powers USA. I don't see, there is no signal at least, of any major intervention at government level to restart the construction industry.
That, of course, would be very helpful, even if it wasn't the bazooka type that we observed in 2015, 2016 or in 2008. At the moment, the way I see this, is that the digestion of the situation and possibly, hopefully not so painful landing all those companies that will have to fold. Going forward, where a micro intervention would be helpful, would be at the service level, where in fact there has been those pilots ongoing to allow for this data-driven service in China. These pilots have been going on for, I think, before COVID, so it's now 3 years, but there is no result yet. If that was to be released, then I think, you would have a huge value-generating opportunity, efficiency and quality and safety happening in China.
That is, two part to answering. In an eye, I don't see anything coming short term. I see maybe some opportunities on the service side. Sorry, I cannot say more.
It's extremely helpful. Thank you very much.
Thank you, Andrew.
The next question comes from the line of Martin Flückiger with Kepler Cheuvreux. Please go ahead.
Yeah. Morning, Carla. Morning, gentlemen. Thanks for taking my questions. I've got two, actually, firstly, and they're more, I guess they're more, directed at Carla. Firstly, I was wondering whether you could quantify the kind of incremental cost savings you expect from restructuring the Top Speed 23 program this year. You know, just something that we've got some input for our EBIT bridge here. Then along the same lines also, I was wondering what the expected pricing impact, as well as the raw material and components price impact on EBIT are likely to be according to your assessment in 2023. That's it for me. Thanks.
Thank you, Martin. Carla?
Thank you, Martin, for the question. I start with your second question, you know, on the material savings. We definitely will have, you know, substantial full year impact. Let's say, I mean, it's somewhere, you know, between, I would say between CHF 50 million-CHF 70 million we could easily have when it comes to the net saving for the full year. Referring to the incremental cost saving coming from the restructuring, you will appreciate, you know, that we are in the middle of the year and, you know, we are working on a number of initiatives, so we are clearly not in a position, you know, to give you some insight into that one.
Okay, got it. Anything on Top Speed 23? Because my understanding is that you'll achieve further efficiencies there.
Yes. Yeah, can you repeat your question there, please, Martin?
you know, it's basically about, you know, what kind of impact we should put into our EBIT bridges for Top Speed 23 this year in terms of, you know, the positive cost savings, the efficiency gains.
Maybe Marco, because you are more in the, from the past in the Top Speed.
Martin, I mean, the Top Speed 23 program, as the program says, I mean, it's terminated by the end of this year. You might, one of the slides we had earlier, I don't remember when, but there it's a while ago, but there you see that the impacts only start to flow through the P&L from the next year onwards and then gradually coming into the P&L. At the same time, Carla also mentioned that the Top Speed 23 program has been implemented now into our operating model, so it's within the whole framework we apply now it's considered in the four elements that were shown by Silvio earlier during the presentation.
I can't give you a clear number in that respect now, but the impact in 2023 anyhow, it would be very slim.
Okay, thanks.
The next question comes from the line of Aurelio Calderon with Morgan Stanley. Please go ahead.
Hi, good morning, Silvio, Carla, thanks for taking my questions. I have 2, if I may, please. The first one is kind of coming back to those investments in the second half, because if we look at your sort of guidance for the full year, it implies that margins remain flat, half, and even declining from the levels. I wonder if that's just a reflection of those additional investments that you're putting in the business. The second question is more a bit broader question as well. It's just trying to think about that growth that you've seen in services, how much do you think I think you've mentioned 5% is coming from units.
If you can give us, and also you gave us an update on the number of connected units. How do you see that, digital or connected development, going forward, and also in different pricing, if you're pricing above inflation there, please?
Very good. Thank you. Let me start maybe, Carla, I'll take the second question first.
Yes, and I'll come back to it.
You come back to the second part.
Yeah.
Yes, thank you for picking out this topic on connected units. This is really, you know, one of the few real novelties, game changers in our industry coming forward. By year end, we're gonna be having about one third of our portfolio connected. Now, as you may remember, Aurelio, today, there is, unfortunately, a portion of our portfolio, which is broadly half, of very old units, analog type, that are difficult to connect on today's technology. We're working on that too, but that has to be seen almost as a symptom, as a maximum now target to be had, which we are confident to reach within the next couple of years. We'll come with more detail when we present the plan for next year. This is the idea.
Those, I confirm that the connected units then drive digital services. Digital services are one of our strategic targets. We're not in a position to disclose figures, but what I can say that the growth is exponential. I confirm that those units are connected as a premium, price and margin, but at the same time, they also drive huge value for the customer in terms of reliability, in terms of less callbacks, in terms of anticipating breakdowns, and also in terms of CO2 footprint. This is one area we are driving.
It does, going back to the point before, involve also a big change management, because the way you sell a traditional service contract is different from the way you sell a connected unit, a quote, unquote, "green contract." There, too, the speed is probably not as fast as we wish, but the fact is that we need to drive that into the different operating units. In some countries, typically Northern Europe, that's coming through a lot better, also because the customer demand is more mature. In others, we need to do a bit more groundwork, but I'm confident there will be no return, and I'm confident that is the model for the future, and that's where our investment in connected units will pay off. Going back to the earlier question, let's not forget, cost Top Speed 23 was also in...
The largest part of this cost was investing in connected units. Part of the answer to the previous one, is that one of the paybacks will be being able to generate digital services. With that, hopefully I addressed your question, Aurelio. Carla, will you take the second question?
Yes, absolutely. Yes, referring to your question with respect to the margin, definitely this has to do, you know, with the additional investment that we will take, but also I referred already to it, you know, the effect of the labor cost inflation. Obviously, need to be offset at the other side by the increased efficiencies, and of course, you know, partly also through pricing effects.
That's very helpful. Thank you.
Thank you.
Today's last question comes from the line of Andre Kukhnin with Credit Suisse. Please go ahead.
Good morning, Silvio, Carla, Marco. Thank you very much for squeezing me in. I'll be quick. My first question is on China modernization, if you could just come back to that, and I wonder if you could comment on the revenue opportunity there per unit, how that compares to new equipment? We think it's comparable, but we've seen some contract awards that point to substantially higher numbers, so I just wanted to check with you on that. Secondly to that, how do you expect the profitability in China modernization to pan out? The second question is more broadly on profitability. Thank you for the charts on slide 11. Just looking at the cadence of your backlog to sales, it looks like in Q2, you're still delivering some of that kind of heavily dropped margins.
I wondered if you could comment on where is the backlog profitability now, versus what you're printing? Clearly, it's above, but are we talking about tens of basis points or in hundreds? Thank you.
Thank you, Andre. Can you, if you don't mind, repeat your first question about modernization China? I did get the topic on the profitability, but the first part about the units, can you just, if you don't mind, repeat that part?
Sure. Of course, sorry. It was just to check how you expect the revenue per unit in modernization to compare to, for example, revenue per unit in new equipment in China. We certainly agree on the growth in units, but we just wanted to see how that translates into revenue growth opportunity.
Let me start with that one. The revenue per unit in mod is higher than NI if you take the commodity. The answer overall is of course, as a total number, it will be lower than new installation, because new installation still has those large projects. But if you were to take a single unit, let's say residential, the mod per unit revenue is higher than new installation. The profitability in itself today in China is unfortunately lower than new installation. Why is that? It's a question of labor. There is, first of all, scarcity. Modernization is a more sophisticated job than new installation.
It happens in an occupied building, so there are different processes, different safety measures, and the skills or the competent labor to drive these type of jobs is scarcer and by result, also more expensive. Not to mention that perhaps also the process maturity is not at the level what it is in Europe. In China, I'd like to stress, in China, the profitability of modernization is lower than new installation. I would say not majorly. We're talking about probably low single digit, single digit, but nonetheless, it is lower. Carla, would you like to take the second question?
Yes, absolutely. Referring to page 11 and the impact there of the new installation order intake margin, it's clear, you know, that it has an effect on the orders on hand. We talk about here now improvements sequentially, quarter-on-quarter, you know, in 10s, not in 100s of basis points, but it's also, you know, the third quarter in a row, and it's also year-on-year, you know, that we are in a positive territory. Obviously, you know, we see that further increasing, not only because of the order intake margin, but because we are also working through the dilutive business, you know, that has been taken in 2021.
You remember there, you know, the chart that we showed last quarter, the so-called BOA chart. We are really working through, according, you know, to the chart, as we actually presented there. If we continue to go at the speed that we are currently doing, we believe, you know, that approximately 70% of the dilutive backlog would have been worked through by the end of the year.
Thank you very much.
Thank you.
Thank you very much for attending this call today. Unfortunately, well, we have to close now. Please feel free to reach out to me for any follow-ups. The next event is the presentation of the first quarter results on October 19th, followed by our Technology Day on October 20th. If you would like to register, please contact me. With that, we wish you a nice summer break and hope to welcome you at the end of October in Ebikon. Thank you very much again. Take care and goodbye.
Bye-bye.
Bye-bye. Thank you.
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