Ladies and gentlemen, welcome to the Full Year Results 2020 Conference Call and Live Webcast. I am Alice, the Chorus 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 and A session. The conference must now be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Marc Bruhnke, Head of Investor Relations at Schindler. Please go ahead.
Good morning, ladies and gentlemen, and welcome to our full year results 2020 webcast. My name is Marco Knuchel. I'm Head of Investor Relations at Changer. I'm here together with Thomas Oetterli, our CEO and Urs Scheidecker, our CFO. Thomas will give you a short introduction And guide you through our results.
Urs will then take you through our financials. After the presentation, we are happy to take your questions. I would like to ask you to limit your questions to 2 questions only. Thank you very much. With that,
I hand over to Thomas. Thomas, please go ahead. Thanks, Marco. Good morning, ladies and gentlemen. I wish you all a healthy and successful year 2021 And a special warm welcome also to our colleagues in Asia Pacific.
I wish you a successful year of the OX. Before we start with our topic according to the agenda, I would like to make some general remarks first. The extraordinary global crisis caused by COVID-nineteen has made 2020 a year like no other before. I want to extend my sympathies to all those who have suffered personal loss and anxiety during this difficult time. Like the rest of the world, the events of 2020 deeply impacted us at Schindler.
In addition, the continuous Swiss franc appreciation heavily weighted on our results. But through decisive actions and by working together, we have managed to continue building long term value. I would like to thank the over 66,000 Schindler colleagues around the world who have responded to uncertainty with resilience And solidarity. We met the ever changing circumstances of 2020 with agility and innovation. Our business model proved resilient and the group financial results we are presenting to you today are reflecting this.
I start with the megatrends and the market analysis. So please go to page number 4. I repeat what I what you have heard me say many times before. We are in for the long term. Therefore, regardless what happens in 2020, we are staying focused, Growing faster than the market remains our top ambition.
The megatrends That underlie our industry continue to drive growth. Demographic changes and advancing urbanization Among other global megatrends continue to benefit our business. They drive demand for more Vertical space to live and to work in. And last but not least, sustainability has become a key theme in our world For the society, for our customers, for our suppliers, but especially for us. Please go to slide number 5.
And indeed, if you look at the bigger picture Of the global elevator and escalator markets, over the long term, you see a story of growth. Over the last 20 years, the global new installations market saw a compound annual growth rate of 6.5%. At the same time, the global installed base grew by 5.4%. Looking ahead, you will see Long term growth in the new installation business driven by those megatrends of changing demographics and urbanization. You can also see a resilient service business and you can see modernization opportunities, Which going forward will be driven by an aging installed base as well as increased demand We go to slide number 6, The global markets.
In 2020, the global markets were muted for obvious reasons. Exactly 1 year ago, I was among the first to warn of the significant implications The coronavirus was likely to have on markets globally. And so it turned out to be. The pandemic led to the temporary shutdown of production plants and the closure of construction sites globally. Impacts of the pandemic peaked in the second quarter and gradually diminished during the second half of the year.
The Chinese market was the first to recover from the crisis. Following a sharp decline In the Q1, Chinese GDP recorded a V shaped recovery and a rapid resumption of construction activity. As a consequence, the world's most important market for elevators and escalators recorded growth in 2020. However, there were varying degrees of decline in other regions of the world. Let's have a look on our market assumptions for 2021 and beyond on Slide 7 and later Slide 8.
Of course, uncertainties remain, but we expect growth for 2021 across the board In all regions and also for all product lines. Major recoveries are forecasted for Asia Pacific without China And we do see momentum in residential and public transport for new installations. Also, we clearly see the strong resilience Of our maintenance business. But like I said many times, Schindler is committed to its long term ambition. On slide number 8, the key question is, is COVID-nineteen a game changer for our industry?
Looking at scenarios with all we know today, I don't think so. We expect currently heavily affected geographies And segments such as the retail and hospitality sectors to slowly recover. Ongoing price pressure will push for more efficiency in the industry. But in fact, our long term outlook is positive. Smart mobility solutions such as touchless elevator operations and operation via remote control We'll become a major industry driver.
Working from home is here to stay, But that doesn't mean that offices won't be needed anymore. There will be a stronger focus on more space Per person and in consequence increasing demand for office space. In addition, the need for transportation infrastructure I would like to move now to our focus and priorities in the coming years. As you will know by now, it's our ambition to grow faster than the market. One of the main ways to get there It's by fostering a winning team and improving profitability.
This hasn't changed even after a year like 2020. And we will continue vigorously with our Schindler way, creating a unique user experience And doing our business sustainably. I'm leading a team of over 66,000 colleagues across the world who have worked hard Towards achieving our strategic priorities every single day. They are creating an outstanding customer experience, Driving data driven innovation, fostering a high performance culture and remaining cost competitive. Please move now to slide number 11.
Naturally, there have been difficult challenges, But we also saw plenty of operational highlights in 2020. As I mentioned, the ever changing circumstances Of 2020 led to agility, innovation and solidarity. Safety and well-being People is our number one priority. It's one of our core values and one that we live and breathe. Schindler employees across the globe have been keeping critical infrastructure running To ensure safe transportation in their communities, we have been providing them and our workforce in the factories With personal protection equipment and introduced additional hygienic and protective measures to keep them safe.
Wherever possible, we enforced working from home as physical distancing has proven effective In the past Schindler colleagues have shown great adaptability, solidarity and leading engagement As reported in our latest employee survey and even during this remarkable time, Schindler continued To build on its deeply rooted culture of innovation. For instance, the growing focus on health and well-being Led to the launch of the 8 new Schindler Clean Mobility solutions in record time. We have a clear view on the long term and are determined to generate sustained value for all the company's stakeholders. Schindler has swiftly adapted to the new market realities. We are a reliable And trusted partner for our customers have been enduring business continuity and adjusting organizational and cost structures To preserve our competitiveness, while continuing to invest into the future.
We believe in data driven innovation and accelerated our investments in strategic initiatives Such as our digital twin project and Schindler Ahead to name just a few. And we continuously increased our investments Over the last 5 years, our aim is to enhance quality and customer centricity Of our products and services as well as promote innovation and connectivity, we keep building On a strong heritage of innovation, Schindler holds 1200 patent families comprising about 20,000 patents And patent applications worldwide. 150 patent applications were filed in 2020 alone. At the same time, we try to fundamentally rethink and redesign business processes For constant improvements in operational costs, quality, services and development time. We invest in the future through innovation and technology.
So let's have a deeper look into our digital innovation roadmap on slide number 14. We have developed integrated solutions that power the digital transformation in buildings. These integrated solutions include A holistic building transit experience through access control and transit management using Schindler Port technology. All Schindler elevators are fully enabled for this technology, which makes buildings more attractive, More efficient and more valuable. Secondly, integrated means Intelligent building technology and autonomous installation.
Schindler's robotic installation system for elevators, Schindler RISE was deployed commercially for the first time in customer projects, including the Warsaw Tower in Warsaw And the tallest skyscrapers in the European Union. Schindler Rise is the world's first self climbing Autonomous robotic system able to conduct installation work in an elevator shaft. Building on enhanced connectivity, new digital services has been launched to provide our customers With tailored support and faster response times through Schindler Ahead Digital Services, we have created A building integration toolbox and an API platform. We are constantly working on unique user experiences, for instance, through the Schindler Elevate Me app and Schindler Digital Media Services. And with that, Please take a look at our new modular elevator range that features these integrated solutions
With the new Schindler modular elevator range, we're creating elevators that can make today's buildings better And tomorrow's city is greener. Part of sustainability is making the most of what you have. And that's why our regenerative drive technology And permanent magnet motors are now standard in our new elevator range, offering up to a 30% reduction in energy use compared to conventional technology. We also reduced the weight of our elevator cars by 15%, so they need less energy to operate. And with their standard LED lighting and low energy standby mode, they achieved the highest energy efficiency rating possible.
To avoid unnecessary intercontinental shipping, our optimized logistics and supply chain further streamlined the process To keep waste to a minimum, but it's not just about the elevator units themselves. Our packaging material is completely recycled and sustainably sourced. And the installation guidance documentation and commissioning is provided digitally whenever possible to reduce paper waste. At Schindler, we know that many small changes can make one big difference in the end. This new elevator range represents our dedication to a greener and more sustainable future,
On slide number 16, you find the features of our new generation of elevators, which allow Our customers to leverage the full potential of digitalization to make buildings safer, more efficient, More sustainably sustainable and attractive. In other words, more valuable. The modular elevator range was rolled out in key markets across Europe and Asia Pacific in 2020, Receiving very good feedback from our customers. As mentioned, we aim to create unique user experiences. With our digital media services, we turn elevators and escalators into communication platforms.
Please Let's now move to our next topic. I've already mentioned at the beginning that we see sustainability as a connecting and superior theme of our industry. Sustainability is a business imperative and we are proud to be recognized With a gold rating by Ecovadis, which informs the procurement decisions of more than 60 of our global customers. Sustainability is part of our customer excellence program, so we are delighted to see our sustainability efforts Bringing us closer to our customers like this. With this rating, we are being recognized among the top 4% Of most sustainable companies in our sector, we focus on eco efficiency.
In addition, we continue to drive our own sustainability agenda. It is impacting the way we design our products As for instance evidenced by the new modular elevator range or with our clean mobility solutions. And we have been increasing our engagement in NGOs and initiatives. In December, We joined the Valuable 500, the Global Disability Inclusion Movement, and we are a member of the United Nations Global Compact. Plus, as an official supporter of the CDP, we are proud of our improved rating to A-.
By focusing on what matters, we continued to make progress On our own sustainability road map that sets out where we want to create the most impact by 2022. We are not where we want to be on all our ambitions, but we are working very hard to drive further change. With this, let me close of 2020 with some key statements On slide 22 before I then hand over to our CFO for the key figures. For me, the year 2020 will go down as one marked by resilience and innovation despite adversity. Let me summarize.
The challenging environment negatively affected construction markets With an improving situation in the second half of the year, our business model proved resilient, Although the Swiss franc appreciation heavily weighted on our results, Schindler employees Around the globe met challenges with resilience and solidarity. And 2020 So the global rollout of our modular product range and Schindler Clean Mobility Solutions. Last but not least, we made significant progress in digital transformation and the sustainability agenda. Let me leave you with this. Our strong values have carried us 146 years of existence.
And I am here to make sure that we will continue in the same spirit with the same dedication and the same focus. Now I will pause here and hand over to our CFO, Uls Scheidecker. Over to you, Urs.
Thank you, Thomas. Good morning, ladies and gentlemen, and welcome on my behalf to today's conference call. Let's start with slide number 23 on the key figure overview. Overall, order intake and revenue Reflect mixed regional trends and strong adverse foreign currency impacts. The positive trend started in the 3rd quarter, Also continued in the Q4 of the year.
In the Q4 of 2020, Order intake reached CHF3 1,000,000,000 up 1.1 percent in local currencies And revenue was CHF2.9 billion equivalent to an increase of 3.3% in local currencies. Foreign currencies had a negative impact of some 6 percentage points resulting in negative reported growth For order intake of negative 5.2 percent and for revenue of minus 3.0 percent. On the right side of the chart, you see the full year 2020. Order intake growth was still negative with minus 3.2% in local currencies, Reaching CHF11 billion while revenue was up 0.4% to CHF10.6 billion. The foreign currency impact for the 12 months was similar to the 4th quarter in the order of magnitude of 6 percentage points, Resulting in negative reported growth for order intake of 9.1% and for revenue Of 5.6%, respectively.
The following slide provides an overview of order intake growth This order intake includes all product lines, new installation, Modernization, repair and maintenance. Overall, we saw mixed regional developments. After a slow start to the year, China bounced back and recorded high single digit growth overall, Growing in new installations and maintenance. The EMEA region generated low single digit growth, Driven by Northern Europe and the strong performance in Southern Europe in the second half of the year. Americas and Asia Pacific without China Recorded double digit declines.
Across all regions, maintenance remained very resilient. Due to their more discretionary spending nature, modernization and repairs were below previous year's level. In the Q4 2020, EMEA was remarkably strong in all product lines, growing mid single digits And China remained the driver for the Asia Pacific region. Asia Pacific without China was below previous year as well as the Americas, Which were down due to weak North American new installation markets in the commercial segments. I now move on to Slide 25.
The order backlog includes new installation, modernization and repairs, but no maintenance contracts. As of December 31, 2020, our order backlog amounted to healthy CHF 8,700,000,000. This corresponds to a decrease of 3.9% and an increase of 2.4% in local currencies Respectively. Due to market contraction and fierce price competition, the deteriorating trend in order backlog Plus maintenance of more than 50 basis points versus previous year persisted, translating into operating margin headwinds In the coming quarters. Let's turn to Slide 26 and the revenue development.
In the Q4 of 2020, revenue decreased by 3.0 percent to CHF2.9 billion, Which is equivalent to an increase of 3.3% in local currencies. This growth has to be seen In respect to a demanding comparison in quarter For repairs, Asia Pacific generated the highest growth rate supported by strong performance in China And the first time consolidation of forklift. Foreign exchange translation effects had a negative impact of CHF190 1,000,000. On the right hand side, you see the full year 2020. Revenue contracted by 5.6% To CHF10.6 billion corresponding to an increase of 0.4% in local currencies.
Revenue dropped in the Americas. EMEA managed to attain 2019 levels, While Asia Pacific generated growth driven by double digit growth of the Chinese operations, modernization and repairs Both still recorded negative growth rates. M and A activities contributed about 1 percentage point to growth. Foreign exchange translation effects due to the strong Swiss franc mainly against the U. S.
Dollar, the Brazilian real, The euro and the Chinese renminbi had a staggering negative impact of CHF674,000,000,000. I move to slide number 27 on profit development. The EBIT adjusted in the Q4 of 2020 reached CHF 341,000,000, Equivalent to a decrease of 6.3%, respectively an increase of 0.5% in local currencies. Subsequent to a strong performance in the Q3, this represents a further slight sequential increase in absolute terms. The margin reached 11.7%, 40 basis points below the previous year which actually was particularly strong.
Foreign currency exchange effects had a negative impact of CHF25 1,000,000. Restructuring costs were CHF39 1,000,000 And expenses for BuildingMind amounted to CHF4 1,000,000 translating into an operating profit of CHF298,000,000, A drop of 11.0%. In local currencies, operating profit decreased by 4.2%, EBIT margin was 10.2%. On the right hand side, you find the full year EBIT adjusted Reaching CHF1.2 billion, a drop of 9.8 percent, equivalent to a decrease of 2.5% in local currencies. The margin was 11.1%.
Restructuring costs amounted to 135,000,000 For the factory closure in Spain and the global cost optimization program, expenses for building mines were 18,000,000 Foreign currency exchange effect had a significant negative impact of $96,000,000 Overall, Positive impact from the modularity program, efficiency measures and business mix were able to compensate the sum of all headwinds, Except for FX and negative operating leverage. Operating profit dropped by 18% to CHF1 1,000,000,000 Corresponding to a decrease of 11% in local currencies, EBIT margin reached 9.7%. Slide 28 shows the development of net profit and cash flow from operating activities. Net profit totaled CHF774 1,000,000 for the full year 2020, A decrease of 16.7 percent driven by higher restructuring costs and FX headwinds. Cash flow from operating activities Was the highlight of the year, strongly increasing in the Q4 and boosting cash flow from operating activities Up to CHF1.6 billion for the full year 2020.
This is equivalent to an increase of 33.4% As a result of rigid networking capital management and cash saving measures implemented across the group, Net working capital improved strongly to minus 9% of revenue, which is about the level we aim for going forward. Adjusted for one off impacts in the previous year, the growth achieved was 17.8%. An ordinary dividend payment of CHF4.00 per share and participation certificate is proposed To the general meeting of shareholders on March 23. This represents a payout ratio of 59.5%. It is very well in our targeted range of 35% to 65%, reflecting the financial strength of the Schindler Group.
We start then coming to the outlook 2021. Looking ahead, Demographic changes and sustainable organization among other global megatrends will continue to drive demand for more vertical space to live and work in. The long term growth drivers remain intact. At the same time, Global recession induced by the COVID-nineteen pandemic, political tensions, increasing national debt and obstacles to global trade On the PIM by historically low interest rates will continue to affect markets, creating a volatile economic environment And leading to increased cost and pricing pressure. For 2021, bearing unexpected events, The company's revenue growth is expected to reach levels between 0% to 5% in local currencies.
The focus remains unchanged on revenue and absolute profit growth. As in previous years, The net profit guidance will be provided with the publication of the half year results on July 23. With that, I hand over back to Marco Knugel.
Thank you, Urs. We are now happy to take your questions. I would like to remind you to limit your questions to 2 questions only. Thank you.
The first question comes from the line of Mr. Andre Kukhnin with Credit Suisse. Please go ahead.
Yes. Good morning. Thank you very much for taking my questions. I'll go one at a time for my 2. If I could start with a question on new products and particularly the modular range that you launched.
Could you give us an idea on how you're monetizing that? Is Commanding an ASP premium compared to the previous generation, is it a matter of being able to offer more to the customer for the same price and hence take share? And how rolled out is it now in terms of your current sales?
Good morning, Andre. Thank you for this first question. In fact, we have rolled out the new modular products In more than 30 countries now, in Europe and in Asia Pacific, including China, Still some way to go in the Americas, but we could say that by the end of this year or by the mid of this year, in fact, we will have achieved the global rollout. Now the benefits are different. One is with the modular platform, we will have the possibility in the future To benefit internally from economies of scale.
So it's an internal benefit where we believe we can become more cost But much more important is how can we now offer to the market. And there are 2 elements. We are replacing existing products in existing product applications, But we can offer to the customer much more tailor made solutions. So we are all fully connected. We have all the digital products available for the customers and this is highly appreciated by them.
We also see that we do get Not everywhere, but in some markets we do get a price premium for this. But the second topic is that due to the modular platform, We are able now to enter into sweet spots. We have not been so competitive in the past. So we are now able to Tap into new market segments and we see that we are gaining market share in some areas we were not so strong and present in the past.
Thank you very much. And the second question I wanted to ask is On the comment you made in terms of focus of margin improvement and thinking about 2021, we've obviously got a whole host of factors playing In different directions, how do you envisage 2021 developing on profitability side directionally Given the balance of these puts and takes, and if you could comment in particular on your order book margin in that context, that would be really helpful.
Urs? Good morning, Andre. Thank you for the question. Well, it's early in the year To answer your question, there are a lot of moving parts to our business model. But there are certain headwinds we clearly see.
1 is Accelerated raw material inflation in the recent 6 months. We are locking in prices for raw material with our suppliers for about the next 6 months in average. So an accelerated inflation may impact our bottom line in the second half year With an impact of about CHF 40,000,000. In addition, we also see Exploding prices for ocean freight, outbound China due to a shortage of container. And here also, we may have an impact of about CHF 10,000,000.
Further, We will have a certain wage inflation also in 2021 Driven by countries where you have inflation or which are unionized, That could be in the magnitude of 1.5% of our personal costs. You were also Asking for backlog margins. Yes, indeed, on our total backlog, including maintenance, We have this margin deterioration of about 50 basis points. Not all of that will immediately affect 'twenty one as it is really depending on the actual rollout of new installation and modernization projects. And we will also have impact of FX.
The Swiss franc has further appreciated To date compared to 2020 average actual spot rates, that Could be again an incremental 20 basis point impact. Finally, we will continue to invest into strategic projects. Schindler aims to become a data driven organization, enhanced digital twin, the ahead platform, Corporate R and D invasion and more cloud based software applications are very important. But on the other hand, for 2021, we have a big and strong set of measures in place to overcompensate those headwinds. 1st and foremost, modularity.
Thomas has mentioned it. Modularity program will now be completed by end of the year, And we will successfully achieve the R200 $1,000,000 run rate savings by end of the year. We also will have a materialization of the cost optimization program going forward in 2021. That will clearly help the bottom line. And we have a set of measures of field efficiency in installation And in service in place.
And all that can be complemented as well by repair volume catch TOP, which was a bit slow slowly performing last year in the COVID-nineteen crisis.
Thank you very much for the detailed answer. If I may just follow-up, In terms of your best assessment right now, which way that balance tilts at this stage? Would you comment or is it really too early?
Yes. We are not providing net profit guidance as you have seen, and I have just explained the bridge. We clearly aim to stay above the 11% EBITDA margin in 'twenty one. And it will depend on the geographic mix, business line mix and the successful rollout of all these efficiency programs now in 'twenty one.
Great. Thank you, Urs. Thank you, Thomas.
You're welcome.
Your next question comes from the line of Lucie Carrier with Morgan Stanley. Please go ahead.
Good morning, gentlemen, and thanks for I will go one at a time. The first one was around the comments you've made around the industry Not going back to 2019 level, at least until 2022. And I was wondering if there was a comment made on the basis Of market volume or market value, but more kind of related to that, you've shown growth rates in the industry For the past 20 years, between, let's say, 5% to 7% depending on installation or installed base, I would be curious to know how you think about this new cycle, how the new cycle we are starting now compares with the past one because It seems to me the past one was obviously heavily boosted by large installation in China. And so I'm just curious to understand how you see The next decade panning out from that standpoint.
Good morning, Lucy. Thank you for the question. It is true, when we look ahead, we are long term, we are optimistic. But there are, of course, short term some uncertainties. Even if you look into the year 2021, we all are suffering still in the Q1 and probably it will go on Until the mid of the year or maybe even Q3 with some restrictions in the different countries.
So we have lockdowns, people are not as mobile, people are working only at home. So it will depend a little bit when all those government actions Really starting to impact our social life and people come back to work and then we see that markets will start to pick up. So 2021 is maybe a little bit uncertain when does the full recovery start to progress. But in the long term, I think we still have all these mega drivers in place. And I would like to comment on them once more.
First of all, China. China has demonstrated a very, very strong answer to the lockdown early in the year 20 And we have clearly seen that in the second half of the year, the market was growing. We believe that the Chinese market, which represents about 60% of The worldwide market in new installations will stay healthy, solid and that has some growth opportunities, Especially in residential and especially in public transport. The Chinese government is still making a lot of efforts For high speed trains, metro expansions, so we see a lot of opportunities there. In the commercial area, also in China, it's a little bit different in the short term and maybe also in the midterm, it takes a little bit longer.
We do have Quite severe vacancy rates in many of the biggest cities in China, double digit or high double digit, I have To say so, until these office spaces are occupied with new tenants, we might see some challenging times Of new constructions. Now the rest of the world, we also see that urbanization is going on. And we see that demographic changes are supporting our industry. So I believe that over the next decade, as you mentioned, We will see that the markets will grow again also beyond the 2019 levels. Whether it is now 4%, 5% or 6% per year, this is difficult really to forecast.
But we also have to say that There is such a huge installed base and which becomes older and older and older. So maybe if the new installation market will not record growth show, We will see that especially the modernization business will definitely accelerate over the next couple of years, not only in the western part of the world, But also in the eastern part of the world, especially also in China over the next 10 years, definitely modernization will become a growth driver. So All in all, I think we are optimistic. We are supporting this growth with technology and innovation. I think business models are slightly changing, customer demands are changing, technology, innovation, Connectivity, media services become more and more important and we see opportunities with our product range there.
Thank you, Thomas. And just to follow-up on my question, The recovery you're expecting in 2022 versus 2019 level for the market, Is that in volume or is that in value?
This is first of all, it is in volume. Prices at the moment, of course, Are under pressure. This is what we see, especially in the project business, so new installation and modernization. We do see that due To the uncertainty our customers have, there is a certain hesitance to invest mainly in the modernization part. Usually when markets start to grow and the confidence of our customers is increasing, then also there is a certain relief Of price pressure, maybe not so much in the new installation business, but definitely in the modernization business and repair business.
At the moment, we see Prices are more under pressure than usually also outside of China or Asia Pacific. In many markets, Prices are under pressure, but I think it will come back.
Thank you. Then my second question was around capital allocation. I see you are not necessarily increasing the dividend this year. I know you prefer having a very conservative approach to the balance sheet, but when you look at the net debt or Rather, the net cash has now climbed to nearly €2,700,000,000 How I would say, What do you see the level at which you would think this balance sheet is has become inefficient in terms of how it is being used and Whether that could give room for either M and A or increasing the dividend or giving an exceptional return to shareholder, What is kind of the threshold you and the Board have in mind for that considering the step up in net cash that we see every year?
So first of all, we are all happy that we have a strong balance sheet. Cash is a Fundamental driver of independence. And you are right, we do have a conservative approach. However, I have to say, We were going now to the upper limit of our range for dividends, which is at 35% to 65%. So we confirmed the same level of dividend, although our net profit was substantially reduced Due to FX, but also due to a high amount of structural adaptation cost.
I think going forward, this cash, of course, when I say it gives us independence, it also gives us entrepreneurial Opportunities. And one key element there is definitely we are able, definitely with our balance sheet to go for more acquisitions. I think there is a certain consolidation going on in the market in many, many areas and we will invest Wherever it makes sense. Secondly, of course, we are also a company who is investing in the long term. So we have mentioned we want to further Accelerate the investments into our strategic initiatives and this definitely will happen in the next coming years Because we believe that with this innovation drive we are at the moment running, we will clearly differentiate in the market From our competitors and we want to create this unique user experience.
And if we really do those investments, then we believe we will be able To fulfill our ambition to grow faster than the market. So there is an investment going on into growth Because we want to grow faster than the market and definitely we will stay with a certain conservative Balance Sheet Management.
Thank you. I'll go back in the queue.
The next question comes from the line of James Moore with Redburn. Please go ahead.
Yes. Good morning, everyone. I have one for Thomas and one for Urs, if I can. I'll go one at a time. Thomas, hi.
I was interested in your comment that commercial demand will decline in the medium term. I wondered if you could define medium term. Is that 2022 or a longer period before you move into your longer term? And on office, what gives you confidence The health spacing will more than offset working from home.
So good morning, James. Thank you very much. You already have segregated the answers that we don't have to think who will answer the question. So commercial demand, when you look on the commercial segment, there are some sub segments. So there is office, That's one side.
But then you also have retail business and you have the whole topic of Hotels, hospitality, entertainment. And I think those sub segments have been impacted in a different way by the pandemic And also have a different timeline until, if ever they come back. So let me start maybe with the one which has been impacted The most that's the retail business, the hotels and the hospitality business. So when you look, retail definitely has seen the biggest impact or one of the biggest impacts. And I think there we do see some real Structural changes.
It has the pandemic has accelerated the whole e commerce. So in some countries, especially in the Western part of the world, this has put a lot of pressure On all the retail chains and I believe that in the Western part of the world this will not come back fully Even beyond 2022. In some emerging markets, however, people still want to go to shopping centers. They still want to have this Experience of being around with hundreds of different jobs. So there I believe the market is coming back.
Now when you look on hotels and hospitality or entertainment, a lot has to do how fast will people start to travel again. And when you look on the airline industries, they forecast That the number of people traveling for vacation, but also business travel, it will take until 2024, 2025 Until we have the same level again like 2019. But I believe people will start to travel again. So long term, All those sub segments, hospitality, with hotels, with entertainment, they will come back. But it will take maybe 3 to 4 years.
And the last one and of course a very important one is office. Let's be honest, We are all spending most of our time now at home. Some of us really enjoy, but I would say some of us also Would love to go back to the office. Maybe the office will change. It is not only the place where you work, it's also the place where you meet.
And I believe there will be a continuation of consolidation of office space In cities, I think this will happen as a long term driver. People will need more space. So I think one of the learnings will be that you have more space per employee. So overall, we believe that In maybe 2022 and then afterwards, we will be already on the 2019 levels. So the first one which is coming back is definitely office.
I think the second one which is coming back is more the hotels, hospitality, entertainment. And the third one, a little bit different from country to country is the retail business.
Very helpful. And Urs, I have a question on margins and cash flow. I'm looking at your provision note 21 of the annual report and see that Additions were $60,000,000 above usage if you strip out and exclude restructuring from customer contracts and warranties. I guess this relates to customer challenges in COVID, but I wondered if that's behind the relatively poor Organic drop through in the 4th quarter margin and the relatively good cash flow. I know working capital was good in the 4th quarter, but also I wondered if this helped And I wondered if this provisioning gives you some comfort on the answer to Andre's question that you think You can progress margins this year despite the headwinds.
Good morning, James. Thank you for the question. Yes, indeed, you see in the annual report that our bad debt allowances in the balance sheet Went up by a significant amount of CHF 46,000,000. Part of that $21,000,000 is related to the first time consolidation of VolksLift in China. And the rest It's based on our credit assessment for individual accounts, mainly related to Individual accounts in North America and in Southeast Asia, China, in the hospitality and entertainment segments.
And we follow here very strict rules on aging and on an individual credit assessment, Which was clearly necessary to be done. You are right. Our cash collection In receivable was going reasonably well in 2020 Based on our global program of networking capital management And we were able to collect big amounts around the world. But as I said, The bad debt allowances are depending mostly on individual accounts.
And does that I mean is there a sense of being cautious For the future in that change in provisioning or is that just reflective of hard facts in 2020?
Well, it's a credit assessment, right? Those receivables are not written off, But we had to provide an allowance on our credit assessment and We are working with those customers to collect the money and let's see what is possible now in 2021. Yes, we have I agree with you. We apply a prudent Accounting for bad debt allowances.
The next question comes from the line of Madhu Singh with Bank of America. Please go ahead.
Yes, hi. Thanks for taking my question. Just first question is on if you could elaborate further on your comments around Pricing pressure in the maintenance market, especially if you could talk about the regional Variations that there which part of the world you are seeing more pricing pressure coming through, which parts you think are going to be resilient? And within that, if you could talk about repairs versus contractual maintenance And what is the extent of pricing pressure what level of pricing pressure are you seeing? Is it whether it is low single digit, mid single digit or higher?
Thank you, Maddy, for those two questions. Maybe to clarify, in maintenance, Usually what you have, you have different type of price developments. One development is you try to do annually a Price increase. Very often this is based on an index. It's a cost index Either on labor cost or labor cost and material.
And of course, we have seen that there was a very low inflation happening in 2020 As this is usually the baseline for price increases the next year, this is putting a little bit more pressure how much you can increase the price. It's not a decrease, but how much can you increase the price? Secondly, you do sometimes lose units in your portfolio or you gain units From the market and you can see whether those prices are more going down, for example. I don't see that so much. What we wanted to mention about pricing pressure is more we had to do some individual concessions During the pandemic, for certain customers, especially in the commercial area where Take an example like Las Vegas, there was nobody there for a couple of months.
So there was no usage of the elevator. And of course, we had to bring down the level of Service needed for those elevators and we made a price concession to our customers. So the price the pricing topic was much more Individual rebates for certain customers, large customers in the hospitality Our entertainment environment. And on the other side, we see that due to the low inflation, there is Not so much potential price increase we can do, but we don't have price decreases In terms of annual adjustments of our prices. Now in the repairs, the situation is a little bit different.
Repairs are very often depending on the usage of elevators, on one side, but So on the financial status of the customer. So the usage of course is more a volume driver. The more you are using elevators and escalators, things are happening and you might have some repair opportunities. Due to the very low again, again in the commercial area, the very low usage of elevators and escalators, There have been less repair opportunities. And if there are repair opportunities, customers at the moment are hesitant to do bigger repairs.
They want to have a quick fix. And this is bringing the price level at the moment a little bit under pressure. But I do not believe that this is a long term issue. As soon as people come back to the offices, as soon as they come back The shopping malls as soon as they are traveling much, much more, I believe repair will have a very good midterm future.
Can I ask a quick one on your outlook on China? It appears that the growth you were expecting there It's very similar to what you're expecting in Americas and EMEA and rather you expect APAC to grow faster. So I just want to understand, typically China is the strongest growing market right now. So why is that your outlook a bit muted, I would say, in that sense on China? Is it more because of exposure to Non residential market there, is that what is driving it?
No. The reason is, when in the Q1 we were facing this pandemic, We all have been shocked, of course, what is happening or going on in China. And we said, wow, how much will the market for the total year drop? That was our first assumption. Now we have seen that China had a different development than other markets.
It was a real V shape. So as they recovered immediately after 2 months or 3 months, they have achieved Even a higher level than pre COVID, so they do not have to catch up what they lost in 2020. Other markets, the United States, for example, India, Southeast Asia and partially some markets also in Europe, They really also had a huge drop, but they did not come back so quick. So in 2021, we see that there is a certain catch Chop of what has been lost in 2020, whereas in China, this additional catch up is not necessary Because they already catch up in 2020. That's the key reason why we see this different development of markets in 2021.
China already on a healthy level, so they continue to be healthy and other markets coming back to a good level catching up what they have lost In 2020.
Thank you very much.
Thank you.
The next question comes from the line of Martin Flueckiger with Kepler Cheuvreux. Please go ahead.
Yes, morning gentlemen. Thanks for taking my questions. I've got 2 and I'll go one at a time. I was just wondering whether we could have a little bit more insight into the composition of your order intake in Q4 Paul, in terms of new installation unit growth, mix, price, acquisition and if you could also talk about The modernization component in that order intake number for Q4 in value terms? That's my first question.
So overall, I think maybe Urs can elaborate a little bit more on the details. Q4 was We were quite happy that we were quite strong in the order intake. And definitely, we can say that We were pleased that the new installation markets came back. We saw very strong resilience in the service. And probably the two elements where we see the biggest gap compared to where we would like to be It's probably modernization and repairs.
Why is this the case? Before maybe Urs can give some more details, Because these are spendings which are much more discretionary. You can decide whether you want to modernize. It's the same like when you have your own car and you have You want to buy a new car, a replacement. If you feel a little bit uncertain, you say, well, I can drive the car another year.
So sometimes depending on the root cause for the modernization, you have also this discretion whether you want to modernize and how much you want to repair. And maybe Urs, you can give a little bit more insight into the facts and figures.
So maybe we can split Into geographical and business line composition. Geographically, it was Clearly, China with very high single digit growth in volume and in value, That's clear. But also EMEA was really good in the Q4, Particularly in new installation and in the maintenance segment, whereas America and Asia Pacific without China still were a bit declining negatively. On the business lines, New installations coming back and we see positive order intake growth in many territories, Particularly China and EMEA and the service was very resilient. But as Thomas said, modernization and repair was still on a negative decline Due to this a bit more discretionary spending nature, there will be catch up potential on these two business lines With the aging buildings and sustainability trends, our customers will Modernize their equipment going forward.
Thanks. Just to clarify, did you say NI was and maintenance were coming back in both APAC and EMEA?
Yeah. So new installation was really very nicely performing in EMEA, Europe North, Europe South. That's clear. And maintenance was really very robust across all territories This positive growth everywhere.
Okay. And APAC was still excluding China was still down. Did I understand you correctly?
We're still down, although also here stabilized, new installation flattish And maintenance resilient, modern repair in APAC is still declining.
Okay, perfect. Thank you so much. And my second question is regarding Schindler Ahead. I was wondering whether you have Some new numbers to share with us on contract penetration. I seem to remember that you were in the past talking about The number of millions of passengers using your connected equipment And I'm particularly interested in contract penetration, I.
E, the penetration of new equipment From customers that
are paying. So contract penetration, we roughly have 50%, Slightly above where we can say we are able also to get a contact with the customer. So this has not changed. And we also see that When we can do this penetration, then we are achieving a higher service price Because we have we add on the normal service contract an additional module or additional contract module for Connectivity for remote monitoring for digital services depends a little bit on the market and the Extend of those additional services, we add between 10% to 20% to the contract value. So I think I still can confirm what we already have seen in the last couple of quarters.
But there are many other aspects which are also important. It's not only how much more revenue you can generate or how much more contributions you You have additional benefits from a customer point of view. One element is we can just deliver a better service. We can deliver better service. We can deliver a better uptime.
We can start to inform our customers in a better way about the Status of the equipment. This creates customer loyalty and it creates a user experience. Now as a consequence out of customer loyalty and this specific user experience, we do see That in units which are connected compared to units which are not connected that we do have a better so called loss Great. So the number of units we lose in our installed base, which is connected, is significantly lower Then the part of our portfolio where we do not have connectivity and we believe that due to these additional services, The better service quality we can offer, you have an indirect benefit also coming into our P and L in the coming years. So one element is direct impact of the P and L and one is an indirect impact in the P and L, which will support our growth ambition because If you lose less units, you will have a better maintenance business growth In the next coming years.
So connectivity is for us very important and we have said we want to further accelerate. When we have set up Schindler Ahead 3 years ago, we gave ourselves this ambition where we would like to be in the year 2020. And we have met This ambition and you know that we want to connect where it makes sense of course, first of all, with all the new installation equipment, but also In our installed base where technology allows, but also where we see that customers are Reacting on such digital services in a very good way. So I would say we are on track with the program.
Thanks. Just to clarify, lastly, you were mentioning 154,000,000 people or passengers Using your connected units each day, what does that number increase to in 2020?
200,000,000. 200.
Yes. Thank you very much.
The next question comes from the line of Patrick Rafaisz with UBS. Please go ahead.
Yes. Thank you and good morning.
Two questions, please. The first one is a follow-up and Thank you for all the color you've already provided on the EBIT bridge or the margin bridge for 2021. But just to follow-up here on your investments into digital projects. How big should we think these will be in 2021? And will they be material in the EBIT bridge?
So we have mentioned that we will further invest of course into our Digital road map. As we said, we want to become a data or we want to create data driven innovations, And we have to expect that this will impact our EBIT bridge Our EBIT 2021 compared to 2020 by roughly another 30 basic points, The whole transformation program, additional 30 basis points.
Okay. Thank you. Very clear. And the second question is on around your eco friendly and green mobility solutions rollout, Which seems to be underway now going into 2021. Can you add some quantitative Color on this, so also thinking about the midterm, let's say, 5 years or so, how big as a share of your overall New installation volume or in fact modernization volume do you think these kind of products will be?
So very good question. I think at the end, our modular product platform will replace All our existing product lines we have so far. And as all those modular product platforms have Very good, eco friendly solutions. We can expect that the major share of our new equipment sales In the future, order intake will be part of this new product, eco friendly solutions.
Our modularity products achieve highest energy classifications in ISO Standard and VDI and this is a very important driver on our sustainability program. The group is driving and as Thomas says, this will completely replace the current product range.
And if you think about timeline here?
Well, Yes. We are in the middle of the rollout, some markets and some products still to come in 2021. And then once you will stop producing the old product lines and this will happen, I would say, latest until end of 2022. So I think within the next 2 years, there will be a major shift of our delivered products. So you sell now, then you start to produce and to install, but you still have an order backlog of let's say all the product lines.
So I would say within the next 24 months, this will happen.
Thank you. That's great. Thank you.
Your next question comes from the line of Majdi Riggs with Jefferies. Please go ahead.
Yes. Good morning, everyone. Thank you for taking my questions. I hope everyone is healthy and safe. Thanks for giving the EBIT bridge components.
Just to double check some of the numbers. So if my memory is correct, we still have a modularity program with €40,000,000 left in 2021. And can you also help us assess the savings from the cost optimization program, the closure of the Spanish factory And the field efficiency savings that you talked about?
Yes. I can answer this. On the modularity program, I said we will achieve the planned full run rate Savings of material costs of €200,000,000 by end of the year. This means we have now a last element Of the year 2021 of this program and that should deliver about CHF 70,000,000 For incremental 'twenty one to 2020. Then on the cost optimization program, The group has announced in July of last year, we have restructuring costs, structured adaptation costs booked Into 2020 for that of about $100,000,000 and we have a P and L cost saving impact In 2020 of about $35,000,000 $50,000,000 should now come in 2021.
We expect additional restructuring costs of about 50,000,000 In 2021, as the full program, will cost 150,000,000 And I expect run rate savings for this cost of €150,000,000 in the range of €120,000,000 to 130,000,000 Once it is completed by end of 2021 maybe a bit into 2022. And obviously, we are working very hard on efficiency savings in the field. With these programs, digital connectivity, enabling our Remote monitoring, improving uptime and we can really work to optimize Service routings and create service efficiencies. We will also start to see a learning curve in installation efficiency With the modularity program rolled out and this of course is a big amount, this field efficiency savings Maybe 100 basis points or a bit more. That's why I said these 3 Efficiency programs, CIO pay, modularity and field efficiency shall overcompensate some of the headwinds in 2021.
Okay. Thank you very much. The other question on the EBIT bridge is whether we should expect a mix impact in 2021. I mean basically The majority of the growth will be driven by residential and public transport at the expense of commercial. Is there any mix headwinds that we should expect or not?
Well, it's true that 2020 was a bit supported by a favorable business line mix Towards a bit more maintenance versus less modernization or new installation on revenues And also was a bit helped by less traffic on our equipment for 2020. This we have to compensate in 'twenty one. Yes, normal business slowly step by step will recover And the business mix will come back to kind of normal mix and we will have to compensate These additional measures I just explained.
Understood. And then finally, a quick follow-up Is on the pricing pressure. So China has seen very little pricing pressure, if I understood you well from your Improvement in value and units in China in order intake in Q4. But I was surprised to see the Americas new installations business seeing 5 to 10 percentage points pricing If I understood your slide sort of correctly there. So is the message here that China pricing pressure is getting easier?
And then perhaps As long as commercial does not recover, then we should expect sort of pricing pressure in Americas and to a lesser extent in EMEA.
So pricing pressure or prices in China never have been easy, I have to say. In so many years, I'm following that. It's even in the best times you had difficult pricing environments. But we can say that, let's say, the mass residential Market is more stable and in the commercial area we do see price pressure Not only in China, but also in the U. S.
But the markets are different. The Chinese market is heavily driven by residential. It's the biggest part, so this is more stable. Commercial projects are usually bigger projects. So in those bigger projects, whether they are high rise or mid rise, we do see also in China quite clear price pressure.
Now the U. S. Market is different. The U. S.
Market is much more a commercial market than a residential market. It's quite a unique market environment because residential are usually 1 family houses or Small multifamily houses and very often you don't need an elevator there. We would love to, but unfortunately this is not the case. So this residential part is much smaller than in other countries, also stable. But as the major share of the market is Commercial market where in all the countries we do see price pressure, we have seen substantial price deterioration In the U.
S. In 2020. And we do not believe that this is coming back so early again because it will take A little bit of time until this commercial market is back in a healthy situation in the U. S.
Thank you very much.
The next question comes from the line of Daniel Guim with Stifel. Please go
ahead.
Thomas, looking at your local currency sales growth guidance for Tivan, could you please comment what are the key swing drivers in your mind to reach both the lower and higher end of your scenarios? And for the higher end, in which quarter do you expect discretionary modernization repairs to recover? Secondly, Urs, on your margin commentary, could you please comment for the order intake, not the backlog? For the order intake Maintenance in the Q4, where is the margin trend year over year? We discussed this in the last call and if I understood you correctly, Margins were actually up in Q3 year over year.
Where do we stand now? What is the current trend? Thank you.
Thank you, Daniel, for the two questions. So regarding growth, first of all, if you look on 2020, There was a little bit of a hockey stick happening. We had an okay first Quarter already impacted in China a lot negatively. Then we had a really severe difficult quarter 2 Because Europe and especially the Americas has been impacted besides Asia Pacific also very substantially. And then we saw that in quarter 3 and quarter 4, China was full speed back And also Europe has much more stabilized and came back in some markets very nicely.
So the second half of twenty twenty to a certain degree has a certain catch up of the first half of twenty twenty. Now we had growth rates in the second half which have been between 3% to 4%, which was good Of course, in order intake, but we also had growth in local currencies in operating revenue. But in the second half, we had so two impacts. One was a little bit of a catch up, what we missed In the 1st 6 months. And the other one was we also had an additional growth due to M and A.
You remember we were adding folks Lift by the middle of the year in China to our P and L and balance sheet and we had some smaller acquisitions in the second half. So part of this growth 1.5% to 2% in the second half of the year was coming from M and A. So if you now look ahead and you say, wow, if you go from 0 to 5 and you take midpoint is 2.5, Then of course you have to say, wow, okay, the second half of twenty twenty was positively impacted by those two elements catch up and And then on day, which then makes it much more meaningful to have a little bit this wide range. Now wide range, why? Because we don't know when exactly markets, especially in modernization and repairs will come back.
So if it takes maybe the whole year of 2021, It might be towards the lower guidance. If we say vaccination is happening a lot, Economical stability is given and maybe modernization repairs comes back in the Q2 of 2021, Then we might have a chance to be a little bit above this midpoint. Now, geographically, We believe that every market will grow. So China already on a high level, it will continue to grow and we want to Continue to improve our market position and we have a lot of growth also coming from our service portfolio. Europe is quite stable, so we expect that it will be Continuous growth and hope just that modernization comes back.
And probably the biggest uncertainty at the moment is Americas Where there are still a lot of cases of COVID, where there are still a lot of People do not go to the office. If you go to New York City, occupancy rate of these office towers is 10%. So, modernization and repairs is heavily depending on that, when people are coming back and there is more traffic with So there I'm we also want to grow, but we also have to say we had the biggest negative impact in 2020. So We will not achieve pre COVID levels in the Americas so easily and also in some parts of Asia Pacific. But I think the 0 to 5 shows a little bit the uncertainty we still have when is Modernization and repairs coming back.
We are much more confident about new installation and about the service business.
And on the maintenance margins, indeed, they have been a bit higher last year than in a normal year As we have less traffic on our equipment in maintenance and this is leading to much less Callbacks and material costs, this will Remain at that level as long as COVID-nineteen has these impacts on the society. And in the meantime, when it comes back to normal levels and we have more traffic again on the equipment, We need to have these efficiency measures in place with the adaptive maintenance, with the remote monitoring, So that we can compensate margin pressure when the normal traffic is coming back. It's a bit difficult, Daniel, to say when the normal traffic is coming back after COVID time.
Just to clarify, the 50 basis points including maintenance backlog commentary only includes the large maintenance contract, So a fraction of the business, not the entirety.
Yes, I can clarify. The 50 basis points are on our total backlog, including maintenance. So it's the complete business. The price pressure was and is mainly in the new installation business affecting our backlog margins. As also Thomas explained in the commercial segment around the world, China pricing was always difficult.
So this is mostly on the new installation piece and a bit on the modernization project. Maintenance was resilient with the exception of individual accounts In the Entertainment and Hospitality segment where we have given the individual rebates and that was in 2020 Low double digit million amount.
Very clear. Thank you very much to the 2 of you.
You're welcome.
Your last question for today comes from the line of Martin Husler with Zurcher Kantonalbank. Please go ahead.
Yes. Thank you. First of all, the question about The EBIT bridge again. I mean, you say you start with or you expect margins above 11%. I was just wondering whether the starting point shouldn't rather be 11.7.
So actually the margins that we stand At the moment in Q4, so just maybe in order to do the math from that level, if this is also a right Conclusion?
Thank you very much, Martin. Good try. Yes, I can confirm, of course, As mentioned before, we do have actions in place that we can overcompensate, let's say, Some hurdles which are also in front of us. I think you should not forget that in the way how we report our results, We do have a certain seasonality. So when you look into the different quarters, usually the second half of the year is a little bit Stronger than the first half of the year and this will also happen in the year 2021.
So the $11,700,000 we had in quarter 4 will not be the result we also have in quarter 1. We do have quite a substantial in our company, we do have What you can expect is that due to the fact that we had a heavy impact in China last Year in the Q1, we should be able to have a better margin already as a starting point this year. So we have some confidence, yes, clearly and we also have this ambition that we want to improve. But you cannot take, let's say, the Q3 or the Q4 of last year as a run rate because you do have some seasonality impacts.
Okay. Thank you. I really had to try on that. And the second one is about you were just mentioning Or is that the rebates in 2020 low double digit? I'm just wondering what's the situation right now?
Do you do any kind of like compensations for locked down Countries or even or cities or customers, or is this now over?
Unfortunately, this is not over. In this hospitality and entertainment segment, lockdowns are persisting. Think about Las Vegas Resorts or Luxury Hotels in Mega Cities Around the world, which are closed. So what we do is we support such customers. These are long term partnerships for us.
And this was always the case in the past that business is coming back and both partners will win From this partnership, so you need to expect that this service rebates and individual accounts are continuing in 21. Hopefully, step by step, a bit smaller discounts, but it's too early to confirm that.
Okay. Thanks a lot.
Ladies and gentlemen, thank you very much for attending this conference call and webcast. We would like to close now and are looking forward for our next event, our Q1 results 2021 on April 23. The ones which were still remaining in the queue, I will contact later today. Thank you and goodbye.