Ladies and gentlemen, on Q1 results 2020, I am Moira, the Cogut's call operator. I would like to remind you that all participants will be listening 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 Thomas Oteri, Chief Executive Officer.
Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen, and welcome to our Q1 2020 results conference call. My name is Thomas Hectorin. I'm the CEO of the Schindler Group, And I'm here together with Urs Scheidecker, our CFO, who will update you on the financials and provide an outlook for 2020. I don't need to tell you that we have experienced some extraordinary times over the last few weeks as a company but also as individuals.
Hence, I couldn't be prouder of all the Schindler colleagues globally as they do the best they can on the given circumstances to serve our customers and continue to ensure the elevators and escalators we install and service are kept in good working order. Our services are system systemically important and is vital that we can continue to deliver on our promise to customers and passengers. During these times, solidarity is imperative. We all must work together, 1st to defeat and then to rebuild. Colleagues across the globe are fully engaged to do just that as they go abroad and beyond to help their communities fight back and stay resilient.
News reached me the other day of our colleagues in Indonesia. They have helped turn the athletes' village of the 2018 Asian Games into an emergency hospital that will be able to treat as many as 22,000 COVID-nineteen patients. Meanwhile, our call center starting today has opened its phone lines to anyone in need also for topics that go beyond elevator business. Additionally, there are initiatives throughout the world to collect cash donations and to donate personal protection equipment to the public. These are just a few examples of many more from across the Schindler family.
The world has changed dramatically in recent months, but high engagement and solidarity continue to make up the Schindler culture. This was also evident in the results of our recent employee engagement survey. We have launched a relief fund for employees to support individual hardship cases related to the COVID-nineteen pandemic. As an initial contribution, the Executive Committee and Supervisory and Strategy Committee will raise 10% of their fixed salaries for 6 months starting in May 2020. Other senior leaders around the world can also participate.
Each contribution will be matched by the company. After these introductory remarks, let me turn to Slide number 2 now and focus on the Q1 results. Like many companies across the world, also Schindler has felt the impact of COVID-nineteen as this pandemic has become a truly global challenge. As countries implemented necessary quarantines and social distancing practices to contain the pandemic, the world has gone into a great lockdown. It has severely reduced overall economic and construction activities globally, significantly impacting the elevator and escalator industry.
Subsequently, we have seen delays and postponements, particularly in new installations and modernization, as the absence of physical media has prevented the signing of contracts. Moreover, there has been a temporary shutdown of construction sites in many countries. Asia Pacific, particularly China, suffered first and the most. Since early March, other regions and countries have been following similar patterns. That said, however, our service business has shown resilience, particularly since elevator and escalator service was declared as system critical service by most governments.
It is a crisis like no other, and there is substantial uncertainty about its impact. What can we do? We will continue to focus on what we can influence. Our key priorities are summarized on Slide number 3. The safety and well-being of our employees, the family members, of our customers and the passengers who use shingle elevators and escalators throughout the world every day continues to have our highest priority.
And our crisis management efforts continue. We have established crisis management teams on corporate, regional and country level who are orchestrating actions to overcome the crisis with priorities set to our employees and customers, the supply chain and, of course, the liquidity. And I can say that these teams have done an impressive job. Meanwhile, the preparation of the company for the post COVID-nineteen pandemic era has started as some companies have planned to or have already started to loosen restrictions. I would like to move to Slide 4, which provides an overview on the regional order intake development in the Q1 2020.
It reflects the situation I described at the beginning of my speech. Order intake in the new installations business and in modernizations declined in both Asia Pacific, particularly driven by China and the Americas. EMEA still showed positive development. While Asia Pacific was early in the cycle of the pandemic's development and already started to show first signs of a recovery towards the end of the quarter, markets in the Americas and in EMEA only prepared to feel the impact from the COVID-nineteen pandemic from early mid March. All countries followed similar patterns depending on severity and degrees of government measures to contain COVID-nineteen spread, resulting in complete lockdowns, closure of factories, delays in project awards or postponements and shutdown of construction sites.
China production sites in China were temporarily closed in February, while factories in India have been closed since end of March and so far has not been reopened. At the selling time, the service business remains resilient and continues to grow across all dimensions. Let me pause here and hand over to Rochai Bechtel. He will talk to you how these developments have impacted our financial performance in the Q1 of 2020. Urs, over to you.
Thank you, Thomas. Good morning, ladies and gentlemen. I would like to draw your attention on Slide 6 with the key figures as of March 31, 2020. In the Q1 of 2020, the order intake decreased by 8.4 percent to CHF2.7 billion corresponding to a decline of 3.2 decline of 3.2% in local currencies. Our intake includes all product lines, new installation, modernization, service and repairs.
In year, we report increasing growth, thanks to strong results in the new installation, the modernization of the service business. And this is partly compensating the COVID-nineteen impact of the issuance. Oil intake in Asia Pacific, particularly in China and in the Americas region decline since service business growth could not compensate for slow performance in the wind installation business. Revenue amounted to CHF 2,500,000,000, which is equivalent to a decline of 5.2%. Negative foreign exchange translation effects amounted to CHF 130,000,000 particularly due to strong CHF6 against the Europe, the U.
S. Dollar, Brazilian VIs, Chinese R and D and the Australian dollar. Supported by the Brazilian service business, revenue in local currency was stable. In the Asia Pacific region, revenue was below prior year levels but developed positively in the Americas and India regions. Operating profit was significantly impacted by special effects and decreased by 39.4% to CHF 166,000,000, previous year is CHF274,000,000.
Disrupturing costs of CHF51,000,000, previously a €4,000,000 were recognized for the closure of a production plant in Spain and efficiency initiatives in the electric countries. Foreign currency headwinds as well as additional costs for protective measures related to COVID-nineteen pandemic have served a negative impact on EBIT. The decrease in local currency was 34.3%. The median margin reached 6.8% during the year 10.6%. Before restructuring costs and expenses for building rights, operating profit reached CHF 221,000,000 versus CHF282,000,000 and EBIT margin was 9.0% versus 10.9% in previous years.
The decline versus prior year is primarily due to less revenue and margin resulting from 10% shutdown in production plants in several counties as well as the closure of the installation and construction projects. Results from financing and investing activities improved since losses and financial hardship in the Q1 of 2020 were much lower than in the previous year. Net profit totaled to CHF125,000,000 and cash flow from operating activities reached CHF 323,000,000. With this, I move to the outlook for the year 2020. COVID-nineteen pandemic has created a high level of uncertainty regarding economic development and their operational and financial consequences on the Jindigli Group.
Company has initiated measures to counteract the negative impact as effectively as possible. Depending on the severity and duration of government measures worldwide to contain the COVID-nineteen pandemic spread, revenue growth is expected to be contained within 0% and 9% 10% in local currencies. Guidance for the 20 20 net profit will be provided in the publication of our results. Considering COVID-nineteen pandemic impacts, foreign currency headwinds and higher international costs, net growth in for the year should be expected to come in below 2019 in the order of magnitude of 20%. With this, I'm handing back to Thomas.
Thank you very much. So we could now start with the Q and A.
A. We will now begin the question and answer session. The first question is from Lars Dawson from Barclays. Please go ahead.
Good morning, Thomas and Urs. Hope you're both well and healthy. Thomas, I wanted to ask you first off on service pricing. You talked about service business facing increasing pricing pressures. Can you help me a little bit with where you see that geographically and by segment?
In terms of segment, I think it would be helpful to understand a bit what you're seeing between your core maintenance contracts, your repairs business not covered by service contracts and your modernization business?
Good morning, Lars. Thank you for the question. Yes, we are all here and still healthy and to change. So in the service business, we have mentioned that also in the in our annual press conference, we have experienced in individual cases that certain customers were asking for rebates. And this usually is happening for those customers who are in the commercial sector.
So hotels or retail business, these are, in fact, the 2 customer segments where the risk of such request is the highest. It has been, in the Q1, only a couple of individual cases starting in Asia. And there were some individual cases already in the U. S. In March.
This, of course, can further develop in the coming months depending on the lengths of the lockdowns in the different countries. Key reason is if you look on a hotel, occupancy rates in hotels are less than 10%. There is no income coming for the customers. So they also try to save costs on their side. And we have mentioned that we do have a very good experience from SARS, when we had the SARS pandemic in Southern China and Hong Kong.
And there, we saw that if we support our customers in such a difficult time, we can create a lot of liability. Particularly in individual cases, we also have issued a policy internally how to deal with such requests. So we only have that in those customer segments, and we only consider that for large accounts where we have long established very healthy relationships.
Can I ask a follow-up, Thomas, to that? How do you think about the duration of these rebates? Are we talking about a few weeks and then revert back to normal post lockdown or something longer than that? And maybe you can talk a little about specifically about China as an example. Are you already seeing a reversion back to some say more normal pricing after the discount she pushed through in February?
I think it depends really on the individual situation
of the
company but also of the customer. I remember when we had jars, in fact, it was very often coming slightly after the real lockdown because when you think about the hotel, it usually takes some time until tourism, for example, is coming back, until people are traveling also for business reasons. So it can be a couple of months. But what we usually do, we do only a rebate for a certain period of time, and then we are reassessing the situation. If there is still severe impact on the customer side, we might be willing to provide support for another quarter.
But you can expect that this can be 1 or 2 quarters depending on the country situation.
Secondly, can I ask to your 2020 revenue guidance within the context of that overall sales decline of 0% to 10%? As a follow-up to my earlier question, how do you think about services within that? And maybe you can give a little bit of color around both the maintenance part but also the modernization part as you see it this year.
I think the main impact is coming from the project business. So the project business, there you have new installations or you have modernization projects. There are delays or postponements. I know in some countries, when you look in Europe, in some countries, construction tanks are just shut down depending on the restrictions of the government. We have seen that also in China, where for depending on the province, 1 to 2 months, there was a severe impact on the activities on construction sites.
So the key impact on our top line is mainly coming from this project business, new installations and modernizations. There is also an impact in our service and repairs. Service, I think, we have just discussed that there might be some temporary rebates being offered to customers. But also, if we do less activity in buildings and less usage in buildings, it could be that there are less repairs happening because customers maybe at the moment don't want that you are entering a building. And as the elevators are anyway not used till March, you have maybe in the building 3 elevators or 4 elevators and you have this 1 elevator breakdown, they say you don't have to repair it now.
Let's do it maybe on the later stage when we have a higher occupancy again in fixed building, for example.
I think your repairs business was flattish in 2,008, 2,009. Do you think it would track down sort of mid single digit this year in the base case?
I think it's very early to make a forecast for the prognosis. Honestly, I do not dare really to say in detail what will happen all over the world. I think your assessment is quite right what happened in the financial crisis. But I think this time, we have a little bit of appetite of a crisis that the magnitude is not yet fully predictable. But yes, of course, it also will have some impact on our retail business.
Can I ask a third and final question to Urs, please? I was quite impressed with the cash flow from operations, Urs, presumably despite a meaningful headwind from lower down payments in China in the new equipment business. Can you help us a little bit with the moving parts in Q1 and also your thoughts on 2020 as a whole?
Thank you very much, Lars. So you have seen our cash flow was €323,000,000 It's been noted that like for like to 2019, you will have to add back the pension settlement, which we did in one of our European countries of EUR 157,000,000. So like for like, we had a drop of about EUR 100,000,000, but mainly driven by the operational profit decline. We are, as you know, working on our net working capital initiative already in last year. It was timely to further optimize commercial terms and have fixed controls from growth to cash.
And for the Q3,
I must
say the situation is different country by country in terms of cash collections, but it was still doing quite well around the world. This may decline now a bit further depending on the lockdowns in the countries.
The next question is from Andre Kukhnin from Credit Suisse. Please go ahead.
Good morning. Thanks so much for taking my questions and I also hope you're very well. I wanted to come back to aftermarket. And if we take the rebates issue aside and if we think about standard maintenance, do you expect to be able to continue kind of build and recognize revenue there in situations where there are lockdowns and maybe where you can't go out and visit maybe in that particular week? And kind of related to that, how has the experience been so far in countries like Europe and Spain on that regard?
Good morning, Andre. Very good question. At the end, in most of the countries, we were able not only ourselves, but the industry was able to declare that maintaining elevated and escalated needs a system critical service. So it has been excluded in most of the countries from restrictions. There are some exceptions.
At the moment, we do have the exception in India. We also have exceptions in Peru. There also have been exceptions in New Zealand temporarily also in some other countries. But most of the time, we have been able to perform service. And in those countries where we really have a lockdown, we could do a minimum entrapment.
When we have entrap people, we were able to go out and to quickly elevate back into operation. I think it's also our key strategic goal. We want to keep the elevators running because otherwise, also from a social point of view, cities are getting into real trouble. If you have buildings, you've elderly people and you cannot anymore go for your grocery or pick up at the ground floor. It's very important that those elevators are running.
And then you have elevators which are really system critical, like in hospitals, for example. So we have tried to push as much as possible resources into our service business to maintain the elevators, also to do preventive repairs in order to keep the reliability of the elevators as high as possible. We are measuring our so called fulfillment rate between client service and actually performed service at high as possible, and we are measuring that every single day worldwide.
Very helpful. And just on that, in particular, on the U. S. Side, has that been the case across the whole of U. S, all states that elevator service has been classified as systems critical?
In the U. S, what we have established was we have like globally, we have established the classification of severity of lockdown. The target is right. We have no impact until where where you have complete travel ban, no work is possible. And in the U.
S, it is the case that it depends from state to state. So we do have, at the moment, some states where there is a complete lockdown. But in most of the cases, it impacts our new installation business and not our service business. So for example, in New York at the moment, you cannot work on the construction side or very, very limited, but we can still do basic service. And most so most of the states in the U.
S, this still works. But as we need, also the newer business now is more and more impacted there. The good thing is that, I would like to remind you, we do have a supply chain entity in the U. S, in Pennsylvania, and we were able to achieve an agreement with the government that this is also system critical. So we have full operation of our factory, which delivers new equipment but also modernization packages and also repair kits for our service business.
Got it. And just to close on that. So if I again take rebates aside and look at standard regular maintenance, it sounds like largely should be up with the number of units even in 2020.
This is correct. This is correct. This should be possible because we still have convergence of new equipment into our service portfolio. And you might have, let's say, a stop for 1 or 2 months, depending on your that you can close your jobs in the new installation business, but then you can hand it over to your service portfolio. However, what you have to consider is, and I don't know what will happen now in the next couple of months.
Of course, you have to observe very, very deeply how our customers are acting and behaving. And we probably can also expect that the one or the other customer might be in financial troubles and maybe have to shut down or to close the one or the other building. And this will have an impact on our service
business in terms of units and value.
Thank you. And I just also wanted to ask about China and Asia Pac performance versus your original or kind of early expectations of EUR 200,000,000 to EUR 400,000,000 top line impact. How has that developed?
Well, I mean, when you look on China, I mean, even if you look on the figures of the Bureau of Statistics, it's quite clear that Q1 has been tremendously impacted in terms of floor space started. Floor space sold went down more than 25% quarter 1 2020 to quarter 1 2019. Also real estate investments went down not so much. It was interesting enough, guys, it went a little bit up. But what we stood to see is that the biggest negative impact was in February.
And in March, it already has started to soften a little bit. And in April, I think it's already on a quite reasonable level. And so the key impact, of course, in terms of order intake and in terms of operating revenue was mainly coming from China, but also some other countries in Asia Pacific has been impacted so far like Indonesia, Malaysia, Vietnam, also partially Hong Kong. So but I think we come closer to an end of the negative impact in these areas. And then like the traveling, as the pandemic is traveling and has now traveled to Europe and is traveling to the U.
S. And to America, and we will have some similar impact also now in the other areas.
And my last question is the reason I asked this is that when I look at your EBIT development in Q1 compared to prior year and take FX out and some strategic investment that you guided to already, then I think we're down by €40,000,000 And I think the initial kind of expectations for how much of the impact China will have in Q1 was starting with $50,000,000 So apart from service growing in the meanwhile globally, I just wondered if it's kind of China had not as much revenue impact as it appeared at the time? Or did you handle it better with less operational bearing?
It's probably both. I hope we have handled it very well. But we also have seen that the market was coming back more or less according to our expectation, maybe even slightly better towards the end of March, I can say.
The next question is from James Moore from Redburn.
I'm looking at any Thomas Urz, glad you're healthy. It's James from Redburn. Thanks for taking the questions. Given the changing dynamics in all the different regions, could you help us?
I'm going to ask us directly with how you see organic sales growth and your adjusted EBIT margin developing in the second quarter compared to the flat demand in the minus 190 bps you saw in the first quarter?
Well, I can repeat. Good morning, James. I can repeat. Of course, the Q1 had the major impact in air capacity. And predominantly, it was happening in China.
And we have just stated that somehow it is coming back there. But now, I mean, everybody of us is experiencing that, that we do have now in April. On April, we will have impact here in Europe. I think in the U. S, it has not yet reached the peak.
It's still a little bit unpredictable how the insurer develops. So we would expect that also our second quarter, now maybe not so much by China, but by the Western world, let's call it, will be impacted. But at the end, to do quarterly guidance is very difficult to have with me at the moment. I mean, that was the reason why we did a yearly guidance, which we keep. It is our beginning, but the impact is now shifting more in Q2 from Asia Pacific to Europe and North America, especially.
Thanks. I thought that might be the answer. Maybe I could just try a different way. Are you able to help us with the exit rate, maybe the last week or the last 2 weeks for organic sales growth in Europe and the U. S.
I was particularly surprised with Europe orders and sales developing positively, but I wondered within the quarter whether Europe changed a lot and whether you could give us some color as to whether they're down low single digits in the last couple of weeks of March or down 30%. Just trying to get a flavor for the exit rate.
Well, it depends extremely on the country, I have to say. And I fully understand that, of course, you have a high appetite to have all types of granularity. I fully understand this. Maybe to say that Central Europe still was quite strong. So in Germany, Switzerland, in that area, it was quite good, I have to say.
We did not see so much of the impact, whereas other countries had a huge impact. So you can imagine that Italy was struggling a lot. We also have our marine business, for example, managed out of Italy where we have all the cruise ships. And you can imagine how difficult it is now to get an order intake in cruise ships at the moment. Also in Spain and France, it was more difficult.
But then in other countries, there was not so much of an impact in March because the real coronavirus impact in Europe came only in March. And so a lot of jobs are very close to finish or to sign, and we were able to do that. It will have some impact in 42, yes. I think it might be possible. But what we also were focusing was a lot on big projects because big projects have a long term horizon.
And we have been quite successful in securing the 1 or the other larger project all over the world. And this is one of our key focus areas also in the next quarters to come.
Very helpful.
And in the U. S, we still see there are some large projects in the market. There will be some impact on the volume maintenance, yes, which we can expect. But as I said before, it's very difficult to predict at the moment how the U. S.
Economy will really develop.
Okay. Thank you, Thomas. And just finally, if I could. If I strip out the currency impacts, I think your organic adjusted EBIT fell $49,000,000 and your sales fell $29,000,000 So that's a drop through of 170%. And I understand that we've had supply chain issues, and I understand that variable costs in the very short term are fixed.
I'm just trying to think about how the relationship between demand and profit might behave in the coming quarter and how quickly you think some of the supply chain and cost base issues can flex more in line with the demand picture?
So maybe on it's true. We had some supply chain issues in China because the new installation business and everything has been shut down for a couple of weeks. So they bought a demand side and supply side, which was delayed before almost 30. And today, we have a similar picture in India because also in India, everything has been shut down. So you have a similar pattern.
The whole demand side is down, but also the supply side is down. In Europe and in U. S, it's a little bit different. It's mainly driven by demand. It's not driven by supply.
We have achieved in Brazil, in the U. S. But also in Europe, we have achieved that we were able all the time to keep our factories in operation. But you do have a demand issue if construction sites are closed down. And even if you can produce, you cannot deliver because also logistics was impacted.
I think that the demand side within Q2 will come back, but it's very difficult to say when exactly this will be the case. But we are hoping that if there is not a second wave coming, we are hoping that within the second half of Q2, demand will pick up again for deliveries in the second quarter in the second half of the second quarter.
And just to follow-up on that, I mean, if we look at the organic profit behind €50,000,000 is the bigger impact supply chain or is the bigger impact demand?
It's the more. It's the more. It's the more clear.
And given that maintenance is high margin and up and equipment is lower margin and down, I'm just trying to understand. At the overall revenue was relatively flat on an organic basis. I'm just trying to understand that a bit better.
Well, you don't see it now I understand. You do have, of course, less you have more decrease of your new installation business, operating revenue, mix the margin, but you are still also sitting on your fixed costs. So it's not your EBIT margin, it's in fact your gross margin. And the gross margin, we mentioned that on our annual press conference. The gross margin is something like maybe 20% to 25%.
But on top of that, we also had onetime investments in the Q2 to buy all these personal protection equipment. This was also impacting our results. And of course, we had this less operating revenue with the respective margin. And so it was mainly driven by our project business with the respective margin plus onetime costs we had in the Q1, and we also will have some of it in the Q2. And then to add, maybe to add change, the resource, I think we are losing operating revenue and related contributions, particularly in China and towards Asia in quarter 1, Those volume is coming with good installation margins.
And therefore, you should not assume that we have a better profitability because we lose NII volume.
Yes, I understand. Okay, thank you very much, Erez and Thomas.
Thank you.
The next question is from Lucy Carrier from Morgan Stanley. Please go ahead. Hi, good morning, gentlemen. Thanks for taking my question. I have actually a couple of follow ups.
The first one is on the maintenance business. We've spoken a lot between the contracted maintenance and the repairs call out. Can you maybe help us to understand how much within your maintenance revenue, how much is actually really contracted? And how much is actually repairs and callouts?
Good morning, Bruce. We usually do not make that, let's say, deep dive separation between normal contractual maintenance and related repairs. We all consider everything together in one big
part. But considering you are you are saying you could see some disruption around the repair and pull out, I guess, just to have a bit of a sense how much of the revenue base could be potentially under pressure?
So we believe still that our we have said that before. We believe that our service business, so service and repairs, will also grow in 2020. In local 'seventeen, of course, we do not see that we will have negative growth in that area.
Okay. And my second question maybe was to some extent on sort of pull off on margins. I was asking earlier On the profitability, I guess, the biggest impact you had in the Q1 has been on APAC and China specifically where overall the share of the maintenance business is lower than the average of the group business. And historically, and maybe this is incorrect, but historically, there was a view that maintenance and service margin were higher than OE. So can you maybe explain to us how we should think about the margin dynamic into the second and the third quarter if we are seeing maybe a bit more pressure in EMEA and North America where your share of service tends to be a bit higher than your OE business?
I think
your assessment of China is spot on. It is clear that we have mainly the impact on our new installation business. This is correct. So there is a higher share of new installation business in Asia and, of course, especially in China than in the other regions. If you look on the total operating revenue.
And you have a higher share of service and repairs in the Western world, so Europe and in the Americas. This is correct. So but what you should not forget is that there is a third element in our business mix, and this is modernization. So we do have a bigger share of modernization in Europe and in Americas. And of course, this piece is a little bit more on the pressure because it is more connected to, shall I really do it now?
Do I have to do it at the moment? Or maybe I can postpone it by a couple of weeks or a couple of months? So we don't have a similar impact, largely in any channel, on the new equipment business. We have a little bit more impact on the modernization business and there is probably a little bit less impact I mean, it's a little bit less impact on the installation business because the share is less and maybe a little bit more impact on the modernization business. So that's what we can expect in Q2.
We believe, you know, still what we have said as our guidance, we stay to that overall for the total of the year, 0% to 9%, 10%. If it's something we believe is the right guidance at the moment.
Thank you. And when we think about just as a follow-up, when we think about the relative profitability by region, would you say that the service margin in China or the modernization margin in China are at the same level that EMEA or Americas? Or they are at a lower profitability level?
Well, the modernization business is still a small business in China, but it's fast growing. And I think it has great opportunities for the future. But at the moment, it is not such a have not yet such a big impact on the overall EBIT in China. In terms of service, we do have a decent margin in service in China, very good margins overall, I would say, in general, in Asia Pacific and not so much away from our average service margin we have.
Just maybe my last question around trying to have maybe a bit more quantification around the numbers. You said APAC and China were down significantly in the Q3 in the Americas. Where are you able to provide at least some ranges around kind of the decline or this growth level? So we have a sense of what is the kind of the comp effect sequentially, but also how much of the disruption can impact the top line? Because I guess probably if I look at consensus and based on the comments you had made beginning of March, there were maybe an expectation that the impact in China and Asia Pacific would be a bit bigger, which impacts more your top line.
So just to try to have a sense when you think about 1 month loss in a quarter, how it impacts you basically?
I'm not fully sure. I never understood. But you can say in terms of top line, the major impact in Q1 is coming from Asia Pacific. And so we do not expect that this will continue over the next quarters. There will be still an impact in Q2, yes, but the major impact in Q1 was coming from
a capacity. So these you can almost
tick off and say, okay, that was the APAC impact. And now in Q2, we will have more an impact in New Lots and in the American Express, and we have given a guidance up to how much this would be overall. So and then I think in Q3, Q4, we believe that we have to come back to a more normal level again. So you can expect that in Q2, the growth impact in operating revenue will mainly be in Europe. The negative growth impact will mainly be in Europe and in the Americas.
But there should not be so much anymore in air capacity.
Sorry, maybe to ask you slightly different way. Are you able to give us any range to quantify how much APAC in China were down in the Q1 in Americas and how much in India and America as well as a range?
Well, I think yes, these details will be what we're about to provide.
Excuse me?
This detail, this detail that we would like to provide. Otherwise, maybe you also contact us for this market approval from the Investor Relations. Thank you.
Thank you. The next question is from Pardan Herky from UBS. Please go ahead.
Yes, good morning, everyone, and thank you for taking my questions. I hope you can hear me well. First, on the Chinese market. Some local Chinese competitors report a sales decline of 30% in Q1. Do you see it suffering almost proportionally?
And do you see the Chinese market now with the COVID crisis being further consolidated? I think there was a there is a different of course, there are different impacts depending on the players in the market. We do have a very conservative business model at Chinta. So we usually only record order intake when we have received down payment. Maybe some other companies are behaving differently, especially Chinese local competitors.
Sometimes order book and they have an award. And then if the award does not materialize and they have to make a negative booking, Some office maybe do not always book immediately or drink. If the books are full for the last year, then they take something to the new year. So it's difficult really to assess what was in the books of other companies. For us, I can say we are focusing a lot on the app.
Historically, we are very, very strong in public transport. We have a very good reputation in large projects. And so I think we had of course, we also had an impact because we did not get any of the signatures. It was very difficult to get signatures from government officials when you have public transport jobs. It was just not possible to do even if it has been awarded.
I think overall, we were able to be to grow faster than the market. I think this is a significant phase. But I have to admit Q1 was totally it's very difficult to really assess. I think I'm not sure that a 3 months look really makes sense at the moment. Maybe with the half year results, we all will have, let's say, a better assessment about performance towards the market.
But could that be a consolidation, second part? Yes. If you think that a lot of the local companies anyway had already last year a decline of their share in the market. And the overall profitability of the local competitors were plus 9 0. I can imagine that there has been some financial pressure on them, I'm pretty sure, which then leads me maybe to ourselves.
Maybe that's one of the questions nobody wants to ask this time. But we do have a very strong balance sheet. We do have very strong liquidity. And what has been raised in the past, probably now, I think some taps on the shoulders. We are very strong, and we are also able to fight in a more challenging market.
And this could bring us some opportunities in our position for the future because we don't have a liquidity issue as we always are very, very careful and very comfortable with maintaining a certain liquidity level. Then my second question would also be on China. Some construction companies are reporting or are seeing quite a swift recovery in China, pretty optimistic tone. You also said the worst is over. You'll see recovery, but your tone is a bit more cautious.
Can you share a bit with us, have you been positively surprised by its recovery? Or how do you describe this recovery? Well, the question is, 1st of all, what is the recovery? And there is a lot of discussions. Are we coming back to the normal level where we have been before the COVID-nineteen crisis?
That's a big question. But we do have some confidence that we come back to a similar level where we have been before. We said that our assessment was that the overall market without COVID would not grow. It would be more or less flattish. So and we believe there is a good chance that the market will come back to the levels we have been before the corona crisis.
Now the big question will be, do we recover what we have lost in 1 or 2 months, not only from ourselves but also from a market perspective. And we do believe that there is like a shift of everything that was in the pipeline. Everything is shifted by 1 or 2 months. So we will not gain back what we lost, but we will go back to a level we have been. Would you say this is just a vital for China or also for Europe and Americas going back to old level?
I have to admit, it's too early to make such an assessment. It's really a little bit into the crystal ball. I a lot will depend how the overall economic situation will be. And if you look on all the economic experts, half of them say we are in the deepest crisis ever and others say we are in U shape. So very careful this year, but it all comes back next year.
I think we have further to observe how these restrictions will be lifted in the next coming weeks in the different countries. And I hope that we can make a better forecast with our half year results. I fully understand. Then just the last one on your financial results, which was better in Q1. For your 20% lower net profit guidance, what should we model as a financial result, kind of stable or better than last year?
Can you give me maybe an indication? Yes. Thank you for that question, Fabienne.
So I
mean you have seen Q1 was benefiting from the very strong fixed bank and with the bookings FX exchange. Looking forward, we have the finance results and the vesting results of €57,000,000 negative full year 'nineteen. I expect it will be better now this year with the continued strong fixed ramp. But you should not expect that the very high FX gains will continue like this. So you would rather then should take into account some quarterly negative results maybe rather similar to last year going forward?
Thank you very much.
The next question is from Martin Flutiger from Kepler Cheuvreux. Please go ahead.
Hey, good morning, gentlemen. Thanks very much for taking my questions. I've got 3 and I'll go one at a time. Going back to your explanations about the differences in developments between services, installation and modernization, I was just wondering, particularly with the focus on new installation and modernization, what are the similarities? And what are the differences in how the government measures impact the 2 businesses in the field?
That would be my first question.
Okay. So
new installation, what an intention do you have, let's say, an impact on the government if the government says lockdown of consumption tax. This can be for both businesses. But it's mainly in the new installation business, even more severe than in the modernization because in the modernization, you are in the building. So sometimes, there are exceptions that is in the building. You can see work, but you cannot work in construction site.
But the modernization business is more driven by whether it grows or not, it's more driven by demand, whereas new installation is more driven by the government restrictions because if our customers are in an uncertain time because they maybe have to lay off people, maybe they do not have people or no new funds, you can postpone a modernization. Once you have started, we need the new installation constructions are usually you want to finish it because you also want to sell or rent out and you want to get income. The modernization usually does not generate additional income. It only generates on first side additional costs. So the modernization business will be more driven by customer sentiments, whereas the new installation business, the constructions are more driven by government restrictions.
That's a key difference. And in the service business, I think, as we mentioned before, we have performing service almost everywhere over time because we also believe this is an essential contribution from us to the functioning of the cities. And only a few countries have really generated or implied a lockdown. However, if you are in the shopping mall at the moment or if you have a hotel, we do not have, at the moment, so much need offer of an elevator, I have to say. Does that answer your question?
Yes. Perfect. Thank you so much. My second question would be on national economic stimulus programs that may already starting to surface in a number of countries. I was just wondering what kind of new infrastructure projects are you seeing based on these new economic stimulus programs?
Well, I think there is not a change of what type of infrastructure projects you have. At the end, it's all about public transport. And of course, public transport includes new railway stations or expansion of railway stations, metro lines and also airports. At the moment, of course, you can ask yourself, well, do you really want to expand an airport, which all the airports we have at the moment are somehow not operational. But I think the government is the the government are thinking long term.
It's a quick cash. They can invest because they also have possibilities to speed up all the approvals. And you have seen that we have been pretty successful also with 1 big job. We were able to secure the Melbourne Metro, a very big job. This is, in fact, a public transport job ever in Australia.
And we believe this will continue, and we see that we need the pipeline of such governmental finance public transport jobs all over the world by the way, in Europe, in Asia but also in the U. S.
Okay. Great. But I was just wondering, do you see a step up in programs as a result of the COVID-nineteen pandemic?
Not yet. Not yet.
Okay. Great. And then my final question would be on the composition of your organic growth rate, which was pretty much flat. So I was just wondering for the group overall, without going into specific details by your business, but for the group overall, was your pricing still positive, flat or negative in Q1? And what do you expect for the full year?
You mean in order intake or in operating revenue?
Sorry, in operating revenue, I'm sorry.
Okay. So in operating revenue, of course, we have a positive pricing impact in our service and repair business. We did cash back. We also announced on organic growth. So in fact, our service and repair business was developing positive, clearly, and our new equipment business was developing negative.
So we had a negative growth in new equipment business mainly. Now in terms of pricing of new equipment, newer equipment, if you talk about operating revenue, these are, of course, jobs which have been sold 1 or 2 or sometimes even 3 years ago. So actual pricing has not really an impact on our operating revenue. This is more an impact on order intake. And there, we see some pricing pressure, especially in China.
We have seen after everybody came back to the market, somehow everybody wants to catch up with the gas they have generated in 1 to 2 months. So at the moment, pricing pressure is quite high in the new equipment business in China. Okay.
That's great. But just to follow-up to clarify, I'm sorry. Overall, as a ballpark number, then revenue operating revenue growth, organic growth and new order intake growth across the group, is it positive or negative or flat?
You mean now to what the Q2?
Q1, what you're Just Q1, what you saw in terms of overall pricing, I'm trying to do with an EBIT bridge here.
Tacking was slightly positive in so impact was definitely positive in service and repairs, and it was probably more flattish in the newer equipment business.
Okay. That's operating revenue, right?
Yes. And similar when you look for more retail, I would say it is a similar picture. Although in China, it was slightly negative, we can say that in some other areas, we were able to compensate.
The next question is from Daniela Costa from Goldman Sachs. Ms. Costa, your line is open. We cannot hear you. Can you hear me now?
Yes.
Hi, good morning. Thank you
so much for taking the questions. Sorry about the mute. I have two questions as well. Sorry if I'm laboring on some
of the earlier points, but
at some point, the line was not very clear. But I just wanted to go back to your sales growth guidance of the view to my understand. If I heard correctly, so you're flat in 1Q. In 2Q, you see some impacts. But from the second half of 2Q, I think I've heard you saying that you would expect demand start coming back and more normal levels in 3Q, 4Q.
So is it fair to say this is 0 to my understanding, you're so overly cautious and you're more towards the lower parts of that? Or how shall we make how shall we tie up all these comments with the 0 to minus 10? It's question number 1. Our last question number 2 is somewhat related, but I think most of those comments were about deliveries. But what about tendering?
I imagine tendering at least sort of orders for OE modernization are coming down significantly. So can we still be back at more normal levels in 3Q, 4Q despite that? Or what shall we look into that for 2021? And then the third one is unrelated to revenue. So I'll pause here, and I'll ask the third one after you comment on those.
Okay. So I think our guidance from 0 to minus 10 for the total year is based on different type of scenarios. So of course, everybody at the moment is working on different scenarios where we say, okay, what happens if government restrictions last for this time of period, for this type of business, country by country. So we have and then we have applied certain probabilities. But this is our assessment.
I mean, you can expect that we also do our assessment the best guess, I would say. And so we came to looking on the different scenarios, which gives you quite a wide range. And I do not believe that at the moment, we don't want to change this, I admit, a little bit wide range, but it's also extremely unpredictable. We have to expect that also in Q2, as we have said, pandemic has not traveled to Europe and to the Americas. We will now have an impact on our order intake and operating revenue in Europe and especially also North America and now also happening in Brazil.
But then you have less in major capacity. So this can have some substantial impact also in Q2 in our operating revenue and the same, of course, as well in our order intake. Now coming back to the second part, can we expect that in the second half also an organization business comes back to normal? This will depend a lot on the economical situation in the countries and the economical situation of our customers. If we come back quite quick, then I think we also can expect that modernization order intake comes back to normal levels.
If this is not the case, then we would have to expect pressure on our modernization sales. And they would then probably not grow, but maybe even have a slight decline.
Okay. And my final question is regarding I think when we met you in March, when you were over at least in London, you've commented on obviously some of the margin headwinds we have in 1Q, 2Q that drives margins down year on year. But towards the back end of the year, maybe getting back to some stabilization and getting closer to what the levels were last year where we were starting to see some stabilization on the drop year on year on the back end of last year. Has that how your view changed versus then? Are we still sort of expecting that towards the end of Q4?
We will have on the midpoint of your guidance, maybe to just use that as an anchor point, would we be back at sort of a similar level to what we of margins to what we have last year? Or that is now out of the picture?
I think this is what we have said early this year that we have all the operational measures we have in place, and we are also executing them. So there is no reason why we should not be able to compensate some headwinds we have with wage inflation, with the material price development. We generally have to see how they develop. I mean, we have unique times when we look at all oil prices. So it's quite unpredictable at the moment.
But there is nothing we speak again that we will deliver according to our operational promise. This is correct. There are two factors which are uncertain. 1 is the demand side, whether we come back to the levels we just have discussed now in the previous discussions that the demand side and operating revenue really is coming back to a reasonable level. And the second topic is FX.
The FX, of course, has a huge impact on our Swiss franc figures and also had, in Q1, an impact on margin. So we lost about 20 basis points due to the FX. But if you take that FX element out and let's assume we are somehow back to a normal revenue level, then you can expect that we are delivering an operational performance similar to where we have been before the crisis, Correct.
The next question is from Angelica Gruber from Commedia. Please go ahead. Thanks very much. I know Schindler is a global company, but in terms of sourcing of components in your supply chain, do you see a trend of deglobalization because of the corona crisis? I think if I'm correct, you mentioned at your annual press conference that the whole elevator industry was dependent on a special component coming from China, which you could not get for a while.
So I was wondering whether you changed that and whether it's even possible to do so.
Thank you for that question. Good morning. Yes, sourcing, of course, is a big, big topic. And I have to think if I would have known what happened, then we probably would have managed even in a better way the source. But we have, in fact, done a lot of topics in the supply chain.
We already started before we had the crisis, but of course, we have to speed up some of those activities now also during the crisis. Now if you look on sourcing, there are or on the supply chain, there are 2 different elements. 1 is where are your suppliers based and the suppliers of your subcomponents and where are your factories. Now we have the advantage that in all the big markets, we have our factories who are supplying dominantly the local markets. So we have a manufacturing or the supply chain in China.
We do have 1 in India. We have 1 in Europe, 1 in North America, 1 in Brazil. This gives us already a certain leverage. So even a country like India, the demand is down. It is not such a big impact if also the supply chain is down.
So that's good news. And then you have the supplier side where we also work a lot on different optics. We have worked on dual sources. So we try for all the components to have a second source. This is not everywhere exactly the case.
We have a limited number of suppliers which are single source. And there, of course, then you if they fall out, then you really have an issue. So what have we done? We have immediately, first of or we have increased our own stock, but we also asked them to increase their stock. So they're just producing in advance.
And in Europe, we have the advantage from the learning side of China, and we have acted very fast. So we were building up safety stock. And although the one party of the suppliers in Northern Italy or in France or in other areas have, for a short period of time, maybe a couple of days or a week or even 2 weeks, good months of time, thanks to the safety soft, we always were able to operate. So this was really a big, big effort by the team, and I think they have done an impressive job. The third element is the sub suppliers.
And there, of course, we were impacted by the effects that the subcomponent, 70% is coming out of China and 100 kilometers around. And we have to feel if there would have been a longer lockdown in China that it also would impact our supply chain in Europe or in America. This has not been the case. We were able to mitigate that. And at all times, we were able to supply.
Now looking forward, of course, we are rethinking our supplier structure. We don't rethink our supply chain structure with the factories. But we are now working on plans where we do have single source to have now also a second source. And last but not least, the beauty of our ongoing modularity program is, of course, that we do have similar or the same component for use in different supply chain entities. This will help us in the future.
If in one side, we would have a lockdown, we could produce on another job site. And on top of that, with our project of the digital twin, if we introduce a new component as we are digitally stored all this data, we could ramp up a new manufacturing of such a component somewhere else in the world very, very quickly in the future. So these are all long term initiatives. We have mentioned that many times. Also in difficult times, we don't deviate from our strategic direction.
Do those investments into strategic initiatives because we believe and now even more that it keeps us in front of industry standards and industry performance. So thank you very much. I believe there are a lot of questions still to come. Ladies and gentlemen, I would like to close now, and thank you very much for following us today. I'm looking forward to our next event.
I'm sure it will be a lot of interest also then when we have a little bit more insight how the first half year was going on and maybe also a better outlook or a multi tank outlook for the total year. So we do have our half year results conference call on July 24. And now there are still some follow-up questions. And please contact Marco Trujos, our Head of Investor Relations in his active service anytime. Thank you very much, ladies and gentlemen.
Goodbye. Stay safe, and keep safe. Thanks a lot.
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