Schindler Hldg Ag Akt

Ladies and gentlemen, welcome to the Full Year Results 2021 conference call and live webcast. I am Alice, the Chorus Call Operator. I would like to remind you that all participants will be listening on remote and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Marco Knuchel, Head of Investor Relations at Schindler. Please go ahead, sir.

good morning ladies and gentlemen and welcome to our full year 2021 results conference call my name is marco knuchel i'm heading investor relations agenda it's the second time that we do this in a virtual setup and i think i can say we miss you we miss the face-to-face discussions with you the face-to-face interactions So, eventually, we are quite a small group in here. I'm here together with Silvio Napoli, our chairman and CEO, and with Urs Scheidecker, our CFO. Silvio will do the introduction at the beginning, and Urs will then lead us through the financials. After the presentation, we are happy to take your questions. I would like to ask you to limit yourself to two questions only. Thank you very much in advance. With that, I would like to hand over to Silvio.

Thank you, Marco, and good morning, everyone. Thank you for being with us today. Thank you for being with Schindler. Building on Marco's comment, I, like him, would like to say that we miss you meeting in person. And since it is for me... kind of a return to this opportunity, I'd like to say I look forward to meeting again those of you that had a pleasure to meet up until 2016, and I look forward to working together with those of you who haven't had the pleasure to meet so far. So today, the objective, of course, is to speak about our annual results 21. And of course, this is also the time of the year where traditionally companies also speak about the plans going forward. But this year, of course, there is another question, and that is the question about a new structure. One that we announced last January 22nd and one that understandably gave room to many questions. Some of these still unanswered because in fact we were during the blackout period. So today's agenda will be somehow different than usual annual presentations. Today I'd like to really focus, at least from my section, on explaining the reasons that led us to the decision of bringing in the new structure. And so I'll address that. And to do this, I'll first talk about our challenges, the unprecedented mix of challenges we're faced with, and then explain how that led to the new leadership structure decision that was communicated. Thereafter, Urs Scheidegger, our CFO, will take us through our financial results, and then, of course, we'll provide you with an outlook, and then move on to the Q&A session. But so let's first start with the first question. The first question is why? But before we do that, let's just step back for a moment to last year in April, where we announced the launch of our Top Speed 23 project. And to be very clear, the objectives that we announced then are still very much valid. And you can see there were six modules. We can go through that afterwards if you like. But they range from new installation growth, sustainability, digitization, portfolio, into the service management, product innovation, all things which remain absolutely vital to us. And these are the core initiatives. And then among the goals, you see there was the customer experience, there was the sustainability, and there was the competitive margin. And now there is a famous quote attributed to Churchill, even though after checking, it's actually not clear that he said that. But the quote goes, well, it's nice to talk about strategy, provided one occasionally looks at the result. And now if you look at the results, There is here a red circle around competitive even margin. And there we have to say we have not yet been able to progress. As a matter of fact, you can see from the chart, but I'm sure as keen followers of our industry, you observe yourself that over the last three years, the competitive margin to our competitors has actually worsened. Now, I'm a big believer, and some of you probably heard me saying that, that strong competitors make better companies. Absolutely. But to do that, to become better, one has to first acknowledge the issue, and second, understand why are they stronger. And third, of course, take the measures necessary to close this gap. Well, we've already taken one measure, that's the structure. I'll come to that in a second. But today's focus will be on understanding exactly this. What are the issues that basically cause us to be, unfortunately, falling behind? So that is, of course, a state of mind. And this is something that, together with a new team, we've already embarked upon over the last four weeks since the new structure has been put in place. So what is really the situation? And to do that, I like to describe a very unique environment where there are five key challenges that require an immediate, thorough and impactful response. And the challenges are the following. Number one. dealing with foreign exchange burden. Number two, regain competitive new installation margins. Number three, resolving the supply chain disruptions that have been affecting our industry and many others. Number four, streamlining a product portfolio complexity. And finally, this is something that occurred over the last few months, adjusting for China and high market contraction. So, again, if you look at those, some of you may say, hang on a second, but this is well known. It's not that special. Admittedly, yes. As a matter of fact, in my career, I've dealt with each one of these, in some cases, even twice. But what makes it unique? is the mix of all five coming simultaneously. What makes it unique is the speed of change and in some cases the magnitude of the impact that each one of the challenges carry by its own, so not to mention the overall impact. So let's start with the first challenge. Foreign exchange burden. There again, you can say, well, it's a Swiss company. What's the big deal? Well, there is one. Let me just first start on the left-hand side of the chart to highlight the magnitude. Since 2008, Schindler lost 3.8 billion top line. and 507 million EBIT due to foreign exchange impact. Probably some of you have it in your models. Now, that's a staggering number. This is the size of a company. By the way, if you look at the top line and EBIT, quite a profitable one. And why did it happen? And you can see on the chart, we highlighted the progression or rather the digression of the exchange rate with the Swiss franc of some of the key currencies affecting a business. And of course, they range from the minus 8% of the RMB to minus 74% for the Brazilian reais, a country which is a key market for our industry. Now, very good, but you can say many Swiss companies are faced with that. But please bear with me for a second. Look at the right-hand side. The fact is that less than 90% of our revenues, sorry, less than 10% of our revenues come from Switzerland. And of course, we do have, because of our quarters, an operating expenditure based in Swiss franc as well. And it is the... gap between these two that creates exposure. And then once more, our exposure is what? Our exposure is one of translation, not transaction. Transaction, we've been quite successful in mitigating that by systematic hedging of all our transaction. But so this translation is there, and that's one that we are not complaining about. We're just saying it is a strategic issue to be tackled head on. Moving on to the second challenge, and perhaps the most complex one of them all. and that is regaining competitive and high margins. I showed before the difference in margins between us and our competitors, and I said in order to become stronger, and come back we need to understand why and one thing we believe is a key reason for our competitive gap is NI margins now NI margin in itself is a complex aspect as you know we have a complex value chain ranging from design factory and then now comes installation So let me just break it into three fronts to explain the challenge. Front number one is what you have here on the slide is the raw material and cost of component increase. In this case, we can speak about inflation. So on the left-hand side here, you see what we call the raw material index. This is a blended index taking into account the different impact of all the different raw materials in our value chain for a new installation. And you can see here, this has gone up 47%. since beginning of 2020. So that already gives an indication. And look at the speed at which it went. And economists predicted it should have started to slow down in Q1. It's not happening. So one better be humble and take a look head on. And then just to give an example, because raw material index can be a bit abstract. So we have shown here The price of one little microchip, one that we use for our controllers, which within the year 2021 has gone up from 1.4 Swiss francs to 36. This is a 26 times increase. Again, it's an issue that we have to confront. Others are confronted with that, and we have to find a way to bring it into practice. the solution for NI margins. Second front over NI margins is logistics. Now, logistics, as you probably also know, has had an explosion of cost as well. As a matter of fact, here, taking the example of X Shanghai Continentalized Index, you see they went, they increased five times since 2020. So major challenge, which happens at the same time as everything else. Now, we often say that because of a regional manufacturing strategy, we are less exposed to this type of issues. Yes, we are, because indeed we produce in China, in India, in North America, South America, and of course Europe and India. But in fact, you can see that on the right-hand side are made-by-strategy, one that was developed, one could argue, under the former paradigm of manufacturing and logistics is based on an 80%, 20% shift. In other words, 80% of our supplies are from external suppliers, and they don't have all the same manufacturing footprint we have. That's why this aspect of logistics cost, and by the way, we don't speak about delays here, is a major issue which affects RNA margins to be tackled with. Front number three, pricing. Now here, this chart may surprise some of you that follow our industry. Often people talk about the global prices, let's increase prices, but as I'm sure you understand, but we wanted to make sure it was visually explained here, there is no such thing as a global elevator and escalator price. It is very much a regional consideration. And of course the granularity makes all the difference because at the end the overall effect is the blended effect. And here we showed three strategic markets with their individual price level over the last 19. This is based on attenders on the way we observed the market. And you can see that not all have the same development in spite of our effort to increase prices. You can see that it goes from a country where you can have a 10% increase over two years to one where, in fact, you ended up having a decrease up to minus 6%. And then another one, which is just in the middle, about 2%. Now, clearly, we need and must do more. And yes, we'll increase prices a lot more, and Usha Heidegger will elaborate on that. But the fact is that so far, Whatever we have done into the price increases have been unable to offset the material and cost increases that you've seen in the previous pages. So this is something on which we must act now and something which has impacted and will continue to impact our margins going forward. But we have to find a way also with a different type of marketing in order to address that. We come now to the third challenge. supply chain issues. I mentioned that before in terms of external challenges, in terms of how the external factors are affecting us. But we have to be absolutely open and say we also are faced with some internal issues, internal challenges. And the biggest one of them all is the issue of the manufacturing stretch between our new modular platform ramp-up and the delayed phasing out of legacy product lines. So, yes, as you have heard, as we announced, our modular product line is selling very well. Customers love it. And after the launch in 2020, today you can see it's about a third of our new sales are based on this new product line. But you can see, as you know, a business model, there is the issue of the order backlog, which then is the one that has to be produced by manufacturing. And then by simple time lag, you can see that today, while it starts to be very visible in 2021, we're talking about a fifth thereabout of our order backlog. What does that mean? This means that our production is very much stretched between... the old the legacy pipelines and the new ones but it also means i'll come to the production in a second it also means that our complexity we first manage as a portfolio in terms of spare parts in terms of sales in terms of configurators is a lot more complex and why did it happen like this because of course with two years of pandemic this Order on hand, this backlog has been a lot slower to flow through a production. So that is one key management issue that we need to deal with right away. Now, speaking of complexity, there is here another element I like to stress. You probably heard that, you remember, that we always said that so far the modularity was being ramped up segment by segment, region by region. And here you can see that we still have some key segments where still the modular platform is not yet fully introduced. And this has to be looked with the chart on the left hand side here showing displayed by regions and by segments of the industry. And you can see that while there are areas like EMEA, where the modular portal line is very much on the way to become the full coverage of the market, with the exception of high-rise, which is, in fact, as planned, not yet touched, there are others, amongst other Americas, and to some extent Asia-Pacific, where we are not there yet, where the ramp-up is coming up now. And so that, again, creates complexity. And let me give you a specific example now since we speak so much about this complexity. This means that our factories, while having to deal with legacy and new product lines, have to deal with more components than they were supposed to. And they have to have more production lines to accommodate for that. And so you can see on the right hand side, we wanted to give a specific example, which is the number of cabin types produced by a factory. and you can see that up until 2017 we were producing four cabin types covering all the segments and now while this transition takes longer because there's still this tension between legacy and new product line the same factory has to produce seven for any of you who understands manufacturing that is of course a big issue to be dealt with coming to the fifth challenge china now i lived 11 years in china three years in india and i've been through some of those super cycles myself so i've learned not to panic and we have always managed to deal with them now this one that is now happening is special and different from the previous one and why is that first of all if you look at the left hand side you can see that The speed at which it came after a very rapid growth in the first half of 2021 is incredible. Unprecedented. And the second is, if you look on the right-hand side, you can see that this is not an issue of any bubble or whatsoever. You can see, actually, the inventories are actually still going down, which is very different from the ones I lived firsthand in the past, where you could see the inventories growing across all tiers, all cities. But you can see here that with inventories still going down, we have this crisis, and why is that? It is one which is, for once, client-driven. It is these large developers, of course, Evergrande being the most famous one, who basically now struggle with their financials, and this creates uncertainty also on the buyer side, whom are we going to give a deposit to, et cetera, et cetera. You know this. We can go through that more in detail. But then, of course, since key accounts, as we call them, large developers account for more than 30% of the growth in China, this is very sensitive. Again, we remain convinced that the fundamentals in China remain very solid. China is still 70% of the world market, and you can see that this type of granularity among Tier 1, Tier 2, Tier 3 cities shows there are many opportunities. But this, of course, demands that one looks at a much sharpened focus go-to-market strategy with different pricing, different products, in order to capture opportunities where they are healthy and where we are sustainable in the long term. of course china being china all ni margin discussion has to start with china hence the importance and frankly the unexpected addition of this extra challenge towards the end of last year so again these are our five big challenges and again once more what makes them unique is that they come all together at a moment where we need to now step up our game and improve our margins and so Now comes, again, the answer to the question that was asked in January, why did we introduce the structure? We introduced the structure because it's totally consistent with the Top Speed 23 objective, whereby we said we need more speed, more agility, and more impact in order to become more competitive. And no, we're not there yet. And so to deal with this type of complex issues, we need, I cannot find a better term to speak about, kind of a war cabinet, a different approach to deal with the situation, whereby we compress the decision process at a much more agile level among less people so that we can move and be more impactful. So that's why we had this combination of role between chairman and CEO and with the objective to have a clear focus on strategic decisions and fast decision making. And then to do that, to support it, we introduced a new role of the chief operating officer, which has been taken by Paolo Compagna, who has been the head of one of our most successful regions in Europe, who will then have under him all the value chain. And it's important we stress that. So the whole value chain is going to be coordinated, led by a single person. with the objective to break down silos, to be even faster in the execution. And people speak about this often, but now more than ever we came to conclude this was absolutely essential in order to give ourselves the means for our ambitions and to achieve our strategic targets. This structure, of course, is one that we will keep in place as long as we've not achieved our objectives. We believe within two or three years we should be there. And by that time, we will go back to the structure that we had, which we always say we are very proud of with the checks and balances between chairman and CEO. But in moments of special needs, we need to prepare to adapt extraordinary measures, and that's what we have done. I look forward to answering, addressing any questions you might have. But for now, I'll leave the word and the floor to Urs Heidegger, who will take us through our closing results for the year and then our outlook. Thank you. Urs, please.