Schindler Hldg Ag Akt

Ladies and gentlemen, welcome to the Schindler Conference call on the Q3 results 2023. I am Sandra, the course call 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, sir.

Good morning, ladies and gentlemen, and welcome to our third quarter results presentation. My name is Marco Knuchel. I'm Heading 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 a progress update, followed by an overview of the development of the various markets. Carla then will lead you through the financials. After the presentation, we are happy to take your questions. Today, we plan to close the session at around 11 o'clock. With that, I'm happy to hand over to Silvio. Silvio, please go ahead.

Thank you, Marco. Good morning, everyone. Thank you for your time, for joining us today for our Q3 results. Starting with our introduction, in January 22, we said we would fix the issues we were confronted with. And today, we are delivering on this commitment, and I'm pleased to confirm that we will deliver on the targets for 2023. Now, our headline we chose for today is On Track to Deliver. You can say on track to deliver on our commitments. But what does that mean exactly? So we have here a summary slide, I'm on slide three here, which provides a few other headlines. First of all, it means improved profitability, where for now the fifth quarter in a row, we provide an improvement in our bottom line results. Delivering our commitments also means improving the order intake and revenue growth against tough market environment. Delivery on commitments also means a growing service business, which then leads to network density, which in turn leads to efficiency gains. We'll come to that as part of the CFO presentation. Now, we are also confident to continue on this trajectory in spite of intensifying exchange headwinds. Actually, the figures are becoming more quite sporty. It also means that we are confident to continue on this trajectory because of our balanced global footprint, which will see to, especially in relation to the situation in China. And also, we are confident to continue because of a strong balance sheet, which will provide strength and flexibility ahead of the turbulent times in geopolitical and microeconomic situations. So overall, I think we're really confident to continue on this trajectory thanks to the focus on our strategic priorities and on the discipline execution that some of you have seen in your report referred to as self-help. And that all will bring continued trajectory also in terms of net profit, earning per share and cash flow uptake that we've delivered so far. Now, moving on to the market update. And now allow me here today, I'd like to take a bit of a different format because before we address the market itself, I wanted to address the question that seems to be on everyone's mind. Interestingly, this is a question that does not directly relate to Schindler. In fact, not even to the elevator and escalator market. And the question is China. So having read your reports and addressed some of your questions in meetings we had the pleasure to have together, it is clear that the situation in China is like a cloud overhanging anything we do. So let's talk about China. And let's talk to something which we normally don't do, we speak a bit about microeconomics, but as it happens, the IMF World Economy Outlook, which was published in October. And this is some data that you can find on this report. And the first finding there is that, in fact, yes, in spite of this lowdown, China will be the largest contributor to the global economy growth in 2024-2028. So you can see here on the top line chart that the GDP in China will continue to decline. However, even for the four years to come, we talk about 3.9%, but the slowdown will continue. Interesting, if you look at this, you can see that even with the slowdown, China will still be the third highest of the GDP growth during the period. But then if you look at the bottom chart, you see that in terms of value addition to the world economy china with about 1.2 trillion will be the largest contributor to the world economy in terms of value so what does it mean it means that yes The risk profile in China has increased. Yes, growth has to be managed in a different way. But nonetheless, China as a market, China as a value generator will continue to be predominant, if anything, even more important than ever in the mid-term. Now, I was in China last week with some of my colleagues here, and I can confirm that the domestic economy, the industrial activity is picking up in line also with the announcement yesterday of the GDP growth for the third quarter, which peaks about 4.9%. But now, let's move on to the next slide, because clearly, having said that, there is no question that the property situation in China is a huge problem. When one talks about 1.7 trillion US dollars of debt related to property, we don't talk only about a China problem, it is a global issue. But what does that mean for the global NI prospects? Is the NI global demand going to evaporate because of China? And I wanted to stress, the answer is no. And here, I thought I was going to put together some data here to show how the global housing deficit by itself, there are other factors, will continue to fuel future NI residential demand in this case. And yes, China has a current oversupply, which you see on the left-hand chart, which is at a staggering figure of 72 million units of dwellings. But on the other hand, you see on the same chart that you have countries like India, which has a 34 million deficit. Indonesia, 13 million. Brazil, 7 million. Philippines, 6.6. US, 6 million. UK, 4 million deficit. Egypt, 3. Mexico, 2.2. Germany, 0.7. So it is important to keep this balanced view. And then what does that mean? Of course, since we are company in the probably so in the elevator and escalator business you can see on the right hand side we took a shot at approximating based on conversion factors here what does it mean in terms of elevator and escalator demand and you can see that The figures are huge. So India only would be 1.8 million units against today's market, which is less than 100,000. You will see Indonesia 320,000, Brazil 170,000, et cetera, et cetera. So in conclusion, the NI business, regardless of what's going to happen in China, and we'll come to that, will continue to grow worldwide. Now, NI market, of course, but moving on to page seven, though NI, of course, what we talk about most of the time, we shouldn't forget that our strategic choice, which I presented to you all, is to drive portfolio density. And what is the outlook for the elevator and escalator service market? And then you see that on this Pareto chart we put there, based on the 2022 install base, but also combined with the CAGR, the global service market is to outgrow the new installation one, with a CAGR estimated until 2030 of about 5.8%. And what are the key contributors until the end of the decade? And you can see basically all markets will grow, but especially the ones in Asia. as these countries transition from NI to EI market, as we discussed last time, just the way it happened in Europe, in the US, and in other mature markets over periods of time. Arguably here, Asia being Asia, this is going to happen faster than ever. And you can see that there, China itself will have a CAGR until the end of the decade of 5.8%. And it will not even be the fastest. The fastest, the biggest, will be India with 9.4%, followed by Southeast Asia at 4.8%. So you can see that we talk here about a very, I'm going to say, solid, if not exciting prospect for the service market. Now that we have provided your context, let's indeed have a look at a market update in the more traditional format that we have had. And of course, there we have to acknowledge the NI market is contracting, while the service and modernization remain strong, very strong. And looking at the NI market, let's maybe focus first on the two changes versus a latest report in Q2. And these are APAC, which is through China here, where you see that unfortunately there we have a change with a low single digit drop against the strong growth in India, but driven mainly by South Korea. and the weakening in Southeast Asia, which, of course, is tightly related to the situation also in China. The other, I must say, notable downgrade based on our market data is the Americas, where it's a different situation north and south. In South America, the growing demand is there. We'll discuss about Brazil in a second. But there is more a question of a supply slowdown because of the interest rate situation. But in North America, there is an overall decline. We'll discuss about the US, which overall brings to a double-digit decline foreseen until the year-end. Now, on the other hand, I'd like to stress again, the modernization and service markets remain very strong with high single-digit growth. as we just saw consistently with the data we presented now this whole picture in fact i wanted to stress look at the right hand side of the chart is good news for schindler somehow of course we wish we were growing also indiana but the our revenue generation is uh relying even more so on the service and modernization and the current situation sets us on a solid path going forward now as we traditionally do let's spend a moment on a few key markets first of all China where I'm afraid again the situation is such that we don't see any return to growth in the short term construction industry KPIs are still trending down, the housing inventories are increasing, and now new, you see there on the bottom right-hand side chart, we've now even found this data from the National Bureau of Statistics about funds available to developers, and those are further decreasing. And really, to this situation, electricity in China is mainly one that is driven by the liquidity situation. Otherwise, Other indicators too, floor space started, is declining for a fourth consecutive year, floor space under construction, key leading indicators for us is also down year to date 7%. And what is possibly more concerning is the housing inventory in lower cities picking up again, even though even in tier one cities, the trend, even though we're still not at the same level of alert, is also worsening. But moving on to the next chart, I'd like to stress again, on the other hand, the EI transition to tourism modernization continues to proceed. And so you can see that the China service and modernization markets continue to be strong. And China, also in terms of global presence, service will be by 2030 about half of the world modernization market. Now, what does that mean for us? And this is going to be my final point here on China. If you can move to page 11, you will see that we wanted to illustrate here what is Schindler's real exposure to the downturn in new installation in China. And while we obviously remain committed to China, and we believe there is a lot of value, understanding it is a concern from an investor point of view, I wanted here to illustrate how a balanced global footprint limits our exposure to the China downturn today. And we always had this idea that we want to produce where we have a market and of course, where there is enough scale to manufacturing. And this approach is paying off today because as you can see here, we have factories in North America, we have factories in Europe, we have factories in South Asia, in India. And of course, we have very strong, effective factories in China. But you can see that with that layout, Revenue from China is less than one-sixth of the total global revenue. Our factories in China are mainly dedicated to the domestic market in the order of 90%. And even if you look at the exposure of our global resources in China versus world requirement, and you take R&D as a proxy, you can see that R&D cost in China is approximately 50% global. In other words, we have R&D resources all around the world that are not and only dependent on the situation in China. But let's move on now that we now set up this picture on China. Of course, we are happy to address any questions as we go forward. The situation in other markets. I mentioned the downgrade of the US and high market. And you can see here we have actually this week new figures being published. As a matter of fact, the ABI, Architectural Building Index, which refers to all type of construction, was published yesterday. And you see now we have for September 44.8, which is in fact the lowest ABI since December 2020, which was in the middle of the pandemic. And all regions are down. And in terms of sectors, the only one which is above 50, i.e. still growing with a score of 50.1, is institutional. Otherwise, everything else is less than 50, including multifamily residential. That was the driving factor in the U.S. for some time. Multifamily residential ABI is a 43.5. building permits are also down and dodge momentum which refers to non-residential showed a bit of a pickup uh good news but still overall trend since the beginning of the year is uh is down um and that's important uh and i would say notable uh to to report now Staying on the American continent, two weeks ago, I happened to be in Brazil and meeting customers, I always try to do, I was impressed by their very positive market outlook. And this is not only driven by the economy, which is back on track, but also by the more specific things like inflation. I would say now people... are very proud to say that they never thought they would live in a moment where the inflation in Brazil would be lower than in Germany, or in the US for that matter. But that, of course, translates then in a construction output, and most of all, outlook that is very strong, as you can see on the projections on the right-hand side. And this, of course, will drive a high demand going forward. Moving on to India. And this is really the most exciting prospect of all. Is it new? No. But if anything, it's accelerating on the back of the strong economic growth in China. And I must admit, this is a country I particularly relate to because I was blessed to start a business there 25 years ago. By the way, on anniversary, we are about to celebrate when I'll travel there next month. And you can see, so India is by far the biggest and high growth opportunity for the years to come. driven by urbanization, by population growth. And today, India is already the second largest market worldwide. But you can see, if you look at the trend of the housing units you see on the left-hand side, where you have plus 18% year-on-year new housing projects launched, sales of homes plus 5.8%, one can be definitely surprised keen to assess the prospects, which then can be somehow guessed by the right-hand side chart, this elevated density about installed units per thousand inhabitants. We show that if this continues, if China continues progressing towards the same density per thousand inhabitants that we have in China, i.e. from 0.5 today to about 7 in China, that only would mean 9 million units of elevator and escalators added only if this was to happen. And the question is not if this is going to happen. The question is how quickly this will happen. And those 9 million units are on top of the 1.8 million due to the current deficit that we analyzed before. So I'm pleased to say that today we are leaders in India, which is remarkable. You think that we were zero 25 years ago. We have a strong portfolio. We have a top team and it is growing. And of course, we are factories. So before I conclude here, my section, maybe key messages we are delivering. Yes, the markets and I are down, but there are strong opportunities emerging in spite of the situation in China. The service and motivation markets are very strong and continue to grow. And the setup of the revenue structure and the balance manufacturing plus the strong balance sheet provide Schindler with a solid position for the times ahead. With that, I'd like to pass the word to our CFO, Carol De Geisler, please.