Schindler Hldg Ag Akt

Ladies and gentlemen, welcome to the Schindler Conference Call on Half Year Results 2023. I am Alice, the Coruscant operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Marco Knuchel, Head of Investor Relations. Please go ahead.

Good morning, ladies and gentlemen, and welcome to our Half Year Results 2023. My name is Marco Knuchel. I'm Head of Investor Relations at Schindler. I'm here together with Silvio Napoli, our Chairman and CEO, And with Carla De Geisler, our CFO. Silvio will start his presentation with the highlights of the first six months of the year, followed by the market update and performance update. Carla will then lead you through the financials. After the presentation, we are happy to take your questions. Today, we plan to close our session at around 11 o'clock. With that, I would like to hand over to Silvio. Silvio, please go ahead.

Thank you, Marco. Good morning, everyone. Thank you for joining our Q2 half-year results conference. I'll start with the highlights, and that is slide three on your package. Before diving into numbers, I thought it was helpful to take a moment to look back at where we are and how we got here. It's about eight months ago. that we had the unpleasant yet dutiful task of confronting you with our situation, explaining how we were losing altitude, but also explaining how we identified the issues that led us to the situation we were in, and also we detailed the measures that we launched in order to fix the issues. We said it would take time, but we expressed a commitment to drive this improvement. Since then, We've indeed been working hard, making a few mistakes, but overall improving step by step, quarter after quarter. And now, with our half-year results, I'm pleased to say that these results show that we're gaining momentum. And that means that now we're ready for the next phase. Interesting enough, these improvements come as the market, in fact, worse and dramatically in comparison to what it was 18 months ago. And this worsening environment can maybe be summarized in two main things. One is the market itself, we'll come to that, and the foreign exchange. But starting with the market in terms of highlights, the new installation market continues to be under pressure, mainly driven by China, but now, as we'll see in a second, also followed by Europe, as signaled last time, but now lately also North America. On the other hand, the service and modernization markets continue to be strong and growing. The other element of this worsening environment is the foreign exchange situation, where indeed we have those foreign exchange headwinds increasing, but notwithstanding that, I'm pleased to report that we have an order intake recovery with a strong uptake in Q2, which then leads, as we'll see later in more detail, to an increase in Q2 of 6.7% in terms of total order intake for an overall stable half-year report. Now, moving on to the next set of improvements, staying on the top line, We also had a pleasing revenue growth which was underpinned by a strong backlog execution across all regions and product lines. Moving from top line to bottom line, which was really one of the key mandates we've given ourselves as a commitment towards our investors, we had in a half year a strong profitability uptake. with a NEBIT improvement year-on-year of 199 million. And most importantly, this is not just a blip, this is a continued sustained trend over the last four quarters. This was driven by our operational measures, first and foremost, our supply chain stabilization, combined with our pricing efforts, which altogether yielded these results. Finally, on cash flow, which of course are more important than ever nowadays. We are also reassured to see an improvement of 227 million year on year, driven by improving profits and networking capital, reduced consumption. But let's maybe dive next into the market, which is one of the key evolutions. I'll now move to slide number five. Without going into all detail, maybe I would like to refer to our market assessment presented in Q1 and just focus on what changes there are versus then. And the key difference here is the Americas, which were highlighted in red here for your convenience on this slide, where we can see we now downgraded our outlook for the market development driven by North America for now a latest assessment of minus five to minus 10%, unfortunately still in declining phase. And I spoke on North America where we already observe a decline in commercial and multifamily construction. It has to be said though, though clearly the declining trend is there, that this decline also has to be seen against the base effect because first half 22 was definitely a record period of what one could call the post-COVID revenge building. So clearly the question is, how will a second half look like? Indicators so far are not very positive, but the question nonetheless is worthwhile to be asked. But overall, the market displays a high overall uncertainty with perhaps two pockets of continued growth, which are Asia and Middle East, North Africa. It has to be said though that neither of them are sufficiently growing to offset the decline in China, Americas, but also Europe. Maybe last point on Europe here is that the underlying demand is still very much there. I was myself in Germany two weeks ago and you can see there the demand for new apartments, new dwellings is very strong. Today, because of a set of circumstances, developers are not prepared yet to put out the money because of what they see as uncertain returns. So nonetheless, for now, that's where we are, and that is the overall NI market. Once more, we must stress that for modernization, the market remains strong with robust demand, has a service where, fueled by previous conversions, and also higher demand, and I would say good pricing development, growth continues across all regions. Moving on to the next slide, and I think it is due and fair that we spend some time on China. As we all know, China is the largest market for new installations. And when we spoke last time, we said that though there were signs of possible recovery, the timing and magnitude were uncertain for the second half. Well, today I must say we are still at the same place and arguably I would say I recognize that we might have been more cautious than some of our competitors in Q1, I must say I'm not at all pleased to say but in fact our predictions are becoming more and more reality looking now from the situation already now that we are in the second half. So what do we observe? We observe that the construction starts, first of all, continue to decline for the fourth consecutive year. For the first half of 23, we talk about minus 24.3%, which is, you can argue, less prominent than the full drop of the year of minus 39.4% in 22, but nonetheless, it is, again, negative. Equally now in terms of inventory, we see that inventory is finally decreasing a bit in old city tiers, but nonetheless we still stay at levels which are way above what I call the health line of one year. Tier one is barely around 12-13 months, but tier two plus, we talk about 15 months plus of housing inventory, which doesn't augur for a recovery anytime soon. A little more data that is not on this slide. Real estate investment for the year is down 7.9%. Floor space and the construction is down 6.6%. Now, one positive area is that the floor space completed, so completions, which by the way drove our revenue, we'll come to that, they are up 19%. That is good. However, if one compares that with the May year to date, which was a 19.6%, one observes that there is a decline even in that positive trend. So what does that leave us? For the E&I market in China, the 2023 outlook remained for us similar to last time where we said minus 10%, minus 15%, responding to one question from one of you, last time I said it was probably closer to minus 10% than minus 15. Today, I'm afraid my answer will be different. I think we're now getting closer to minus 15% rather than 10%. The next question of course would be what do we see for 24? Considering the speed at which things change nowadays, it's probably difficult to say, but nonetheless, I think it is fair and reasonable to say that we expect more decline in 24 in view of today's situation. I was staying on China on slide seven. Again, and I, first of all, declining but it is once again the largest market in the world accounting for 60 to 70 percent of worldwide volume so that's a fact so China cannot and will not be ignored and let's not forget even if you compare it to India the second largest market is still seven to eight times bigger than India for about a similar population and that's the world population needs to be kept in mind and that's why I wanted to stress this idea about the potential of China going forward, notwithstanding today's decline. If you look on the left hand side, we have this elevator intensity study that we used to present on a regular basis, showing that China, on the base of the immense historic growth of the last 20 years, now is barely, if one measures at installed base of elevator escalator per thousand inhabitants, at half the density level of, let's say, South Korea. So if one imagines a type of social development or urban development similar, you could say there's still the opportunity to at least double up in the future. And we know in China cities continue to grow, and therefore this drives, again, more potential going forward, both for new installation and existing installations. And speaking of existing installations, that also leads to modernization. And that's the chart on the right-hand side where you see that the forecast for the cager of the modernization market for China still is about in the order of 20%. To give you an idea, today we have a population of elevators of an age between 12 and 15 years, which is typically the age at which a unit with a type of consumption of usage in China needs to be modernized. We talk about a full population of units of about 1.5 million. Now, of course, not all of them are modernized. And then if you look at the chart here, you see an estimate for the modernization market in China of about 130,000 units for 2023. And if you take this 130,000 and you compare it to the new installation market for Europe and North America, It's about the same. So only the modernization market in China by itself is as big as the new installation market in Europe and North America. I just wanted to give those data points because that puts the idea of the market in China, its importance into perspective while at the same time taking stock of the recent decline. I'm sure we're going to have more questions on the market, but for now I'd like to move on to our performance because we saw highlights before the CFO goes into more detail, which then takes us to slide number nine. So amidst those challenging markets, I'm pleased to say that we are indeed improving. And ironically, I like to say, perhaps the efforts that we had to undertake while the market was still coming up, maybe that gives a bit of an upper hand now as market declined because we started working on the hard measures already we're definitely not where we want to be but we are improving now again the CFO will give more details but here the importance is that this improvement has been steady over the last one month so we don't talk about a blip we started first by delivering a trajectory correction then we sustained it and now we are into the accelerating phase on the back of the momentum we have created. If you look at the left hand side showing a revenue and EBIT evolution, what I also wanted to stress here besides the figures themselves is that improvement in 2023 has been driven in spite of the increasing foreign exchange pressure. In Q1, to give an idea, 23, the top line pressure, the top line negative impact of foreign exchange or the Swiss franc appreciation was 100 million, chopped off about our top line. And now in the second quarter, we talk about 200 million for an aggregate of about 300 million. So a doubling headwind between Q1 and Q2, which says something about the urgency to do what we are doing now in terms of improvements. moving on perhaps to the question so the question can be saying you know how did how did we get here what is it that brought us here and we'll continue to create this momentum i'd like to move to slide number 10. and i like i like to highlight two elements the the pricing and supply chain stabilization and you will remember how much we were open about the fact that we had lost ground in terms of pricing and how a series of issues in our supply chain were causing our difficulties in 2022. So I'm pleased to say that those two are inputs to the overall performance and on both inputs we've been improving. You can see on the left hand side here how the pricing here focus on the modular platform, on what we also call sometimes a commodity product, have started to yield results with positive improvements starting on in Q2 but also getting into positive territory as of Q3 22 and continuing into Q2 23. Another input was the supply chain and you can see there we were definitely embarrassed to display our own time delivery performance due to our supply chain issues and you can see that this KPI which I consider a good proxy for the overall supply chain performance is now back in check with on-time delivery as per our commitment, getting close to 100% across the world. Now, these were inputs. Looking at outputs and moving on to page 11, if you do the things right in pricing, in supply chain, you then have a positive impact in terms of order intake margins. And you can see here on the left-hand side, how our margins into the new installation order intake have been roughly doubling between half year 21 and half year 23, where we are today. Now, this order intake margin in turn drives backlog margins, which you see on the right hand side of the chart, where you see the sequential improvement of our order backlog. And you can see that again, that took probably one quarter more than we saw there in the pricing but now as of quarter 422 our order backlog margin has been improving and overall driving our overall bottom line performance now that by itself wouldn't be enough if we did not have moving on to page 12 another key input i.e. fixing our product and in particular our module elevator platform for which I'm pleased to say the relaunch is on track, driving complexity reduction, cost competitiveness, and higher margins. And you see here just a summary chart. We have seen it already. Apologies for that, but I thought it was important because it is really one of the key drivers here, how we now have three platforms that were previously independent now combined into a single one, which in turn drives many benefits. And besides the ones that are on the chart, We talked about a seamless customer experience in terms of buying, in terms of designing. Other maybe data point, we used to have 25 different car modules, now consolidated into three car modules from 25 to three, which in turns, we do the same on other components, drives a radical reduction in variance, which in turn drive efficiency, cost reductions, and also quality. and ultimately better margins, better supply chain performance. Now, moving on to slide 13, I'd like to make one point clear. If there is any sense that we feel satisfied about where we are now, I'd like to dispel that sense. We are absolutely not in any position to feel satisfied. There is no sense of accomplishment per se. Today's results, if anything, are just a springboard for the improvement that we are resolved to continue driving. And this improvement will be continuing doing what you've been doing, but then doubling up on a number of things. And first and foremost, that's going to be efficiency. Efficiency, which will be our biggest priority going forward. And why is that? Two elements. First of all, because if you look at benchmarking with some of our competitors, very honestly, we see we got room to go and we view this as an opportunity. But also because inflation, even though now there are economists saying whether it's going to be reduced or not, we believe it's going to be here to stay. So it is key to stay focused on this mantra we have had since 18 months, which is that pricing plus efficiency has to be bigger than inflation. And so now on this chart here, We just summarized maybe the main fronts where we believe efficiency needs to be driven faster than ever, starting of course with a new installation modernization business. And besides the product there, it's about process simplification. Of course, service and repairs where with our portfolio growing, we need to continue driving density, scale effects, and digital services, which are now coming very strongly into the business. The number three, of course, is procurement where we knew we were a bit behind some of our competitors and there with this new platform, but also by streamlining supplier matrix, we'll continue driving improvements. And let's not forget back office processes. And they're really the benchmarking exercise made us realize that the potential once more is substantial. And so we're working now on redesigning some of our processes. which will yield improvement in terms of efficiency and quality and customer service and also bottom line. So of course, I'm sure you see that to drive this efficiency we require some investments and these investments will come in the second half of the year where the CFO will probably mention that we will need some structural adaptation costs all over the world in order to make sure that we stay on track with the momentum we've generated so far. So with that, I'll give the word to our CFO. Carla, please, to take us into more details.