Schindler Hldg Ag Akt

Good morning, ladies and gentlemen, and welcome to our full year 2023 results conference, online and to you here in EPICON. My name is Nicole Wesch. I lead the Global Communications and Branding Department at Schindler, and I'm standing in for Marco Knuchel today. I'm sharing the stage with our chairman and CEO, Silvio Napoli, our CFO, Carla Degueseler, and Paolo Compagna, our COO. So what's on the agenda today? Silvio will provide a snapshot on the highlights of the year. Then Paolo will summarize the main developments in the markets and in the industry at Schindler, followed by Carla, who will lead us through the financials. Silvio will then take over again and talk about our operational priorities for 2024 and our ambitions beyond. We're happy to take your questions after the presentation and close the session at around 11 a.m. With that, please go ahead, Silvio.

Thank you, Nicole. Good morning, everyone, here in the auditorium in ABICON and online. In 2022, when we met here for this latest cycle of our company, we had to perform an emergency landing. Today, two years later, we are back. And in fact, we are on a steep climb. When I say that, I refer in the same way as we did two years ago, very factually, on actual performance elements. In the same way, let's start off with some highlights for the year 2023. Starting with the financial highlights. Our EBIT is up 31% year-on-year. Our net profit and earning per share are up 42% year-on-year. Our revenue growth measured in local currency will come later to the Swiss franc effects. And notwithstanding challenging market conditions is up 7.4%. Our cash flows from operation are up 85%. Based on these results, together with the board of directors and also to celebrate our 105th anniversary we decided to propose to the shareholders meeting scheduled for next month to add an extra one franc dividend which will bring a total dividend to five francs Now, that would bring, and you'll see later with our CFO, the total payout for the year to 62%, which is just at the threshold of the current payout ratio, maximum 65%. So, looking ahead, but also taking on board some of your comments in the past, we have decided to allow for more optionality going forward and therefore decided to increase our payout ratio range to 50% to 80%. These are some of the financials, and again, our CFO will take us in much more detail in many more numbers later. But besides financials, in my mind, one has to look at what led to these financials. I'm saying platitudes, forgive me, but financials are the output. What is more important is the input. And this is what we decided to focus on two years ago. And so let's look at some of the highlights. Let's start with the first one there, which is our mantra, which we declared openly as of 2022, which is that pricing plus efficiency have to always be bigger than inflation. This is how you drive, especially in an inflationary environment, which came back precisely in 2022. And I'm very pleased to say that this is working. In fact, as you will see later, Our efficiency measures in 23 offset by themselves all of the inflationary pressure, so that pricing allowed us to generate the margin improvement that I just described before. Second operational highlight is our service portfolio growth. It can be sometimes taken for granted, but it is the result of all the work, all the discipline, and I'm pleased to say that our portfolio grew 5% again this year. Now, the portfolio doesn't grow by itself. There is a lot of competition, especially as some of the markets are struggling. And so it is key to be able to differentiate. And then I'm very pleased that our technology, some of which you've seen when some of you visited our technology day, last October, allowed us to increase what we call digital service revenues, which is digital revenues driven by connectivity, by cloud connectivity, and what we call our technical operation center, whereby we can monitor, we can improve, we can even intervene in some units with technical operation center in every country, sometimes in every region, managed by experts that differentiates itself from competition. uh in particular from the isps and that then results in these additional revenues now looking at the the last column on the right hand side as we do all that we of course have to prepare for the next phase of the client and that means launching new products and i'm very pleased to say that our new standardized modular platform is ready for global launch Equally, as we look at the forward in the future, we need to think about sustainability. I'm very pleased to say, this is news from last week, that CDP, again reconfirmed, are belonging to the A-list of companies operating under the highest environmental standards. Finally, in the bottom right corner, We were very surprised. We didn't apply. That Newsweek included us in the list of most trusted companies worldwide. And this is for us most important because we are in the business of trust. It's trust from our employees because, you know, buildings are supposed to stay for a long time. It's trust from our customers. It is trust from our investors and shareholders. So based on those highlights, let's see perhaps in more detail what does that mean? Because when we started, we said, again, that we will deliver on the commitment we formulated in 22, which was improving how we execute. In fact, there is no magic bullet. It is improving day by day, project by project, unit by unit. And with this input, then you have as an output the quarter after quarter performance improvement. And here on the chart, you see how as ultimate result, we manage indeed to deliver our commitment to improve profitability. To be clear, we don't take this as a final point. I'll come to that. We're very aware that we still have some way to go before being the best in class, and we are resolved to move in that direction, to continue moving towards improvement. And you can see here on this chart that in fact, we are building a track record of credibility towards our investors, towards our customers, but also towards our employees. Now, what is important on the chart, again, RCA4 will take us into more detail, is the Q4 profitability. This 11.4 EBIT adjusted is important not only per se because of the improvement, but this provides the run rate validation for a target that we have declared for 2024. Now, discipline execution. applies throughout the whole value chain. And another key input before you get the output is how we sell, how we produce, how we install, and of course, how we hand over to our customers and how we collect the money. Now, this therefore takes us to the chart. You may remember, we call it the boa constrictor chart. Because in fact, the story of our business is that whatever you sell takes a long time to work its way through the digestion system of our business processes. And unfortunately, when we met in 22, we acknowledged that having a low margin, bad quality, overly complex backlog was one of the main problems we had. So what did we do since then? First of all, we started improving the food we ingested. So you can see here on the left hand side that our sales margins have in fact improved. And you can see here we're going to go through in more detail. But now that by itself is not sufficient. You have to worry about the backlog. And so we had to execute the backlog. And you see here 100% is this legacy backlog. And I'm pleased to say that by end of 23, we already produced, expelled, digested 70% of it. The remaining 30% will be executed over the next two years. So, combining the new units with the backlog results in the backlog margin. And I'm pleased to say that, as you can tell here, from Q2 2022, which was a low point, we now have had five consecutive improvement of backlog margin. And to give you an order of magnitude here between the low point of Q2 2022 and the results in Q4 2023, we're talking about 100 basis points improvement. And this is important because this is what then gets produced. This is what gives the margin. And I'd like to make one point too. You may have noticed, and I know you did, because of course you follow very closely, that a backlog overall value has decreased. We don't see this as an issue at all. From the beginning, from 2022, we said we are not looking at quantity. We're looking at quality. So we'd rather have... bit of a lower backlog, but a higher quality. And that's what we're working on. That's what we have delivered. Moving on to another aspect of discipline execution, which is closing projects. To be very candid, there was a period that we were very good at starting new initiatives, but then somehow they all stayed open there and somehow people worked very hard, but then it was very difficult to understand what was happening. And most importantly, you had a very inefficient use of resources so one of the things we started doing is saying first of all let's be very careful before we start new things but when we do let's make sure we follow up and we close and i'm very pleased to say that we closed the top speed 23 project that i'm sure you remember was started in 2021 to make us we said then future proof And I'm very pleased to say that this project, which had an investment total to the cost, sorry to be specific, of 167 million, has an estimated payback of four years. Not easy to measure because it's across different dimensions, but one could say that some of the performance that we managed to deliver in 22, 23 is also the result of some of the output of this project, starting with our service, our portfolio, the ultimate objective, our strategy, where today It is thanks to the 30%, a third of our portfolio connected that we could generate this 50% increase in digital revenues. Moving on to innovative products and for strategic markets, clearly the key is to have cost competitive solutions. We will speak later about the global modular platform, but here this was more about having products for the Chinese market and for the US market. The third dimension was digital innovation. There are many aspects here. I only mentioned one, which is the digital twin prototype. Some of you will remember what we showed in October at the Technology Day. And finally, the essence in French, which is called competitiveness, to be able to compete in today's world, we managed to deploy, to build a state of the art procurement operating model. And that today helps to deliver the margin and drive our competitiveness. So, the key output one can say is resilience to tough market conditions. entering your top market conditions in the NI market, while the service and modernizations are growing very, very strongly. I'd like to pass the world to our Chief Operating Officer, Paolo Compagna.

Thank you, Silvio. Good morning, everyone. Zooming in on the market in 2023, it's evident the story is quite different between new installation, modernization and service. Let's begin with new installation. 23 was quite a special year as we had all together witnessed that we call it double whammy. We have seen China and the rest of the world contracting. This is quite different from the previous great financial crisis in which we have seen the US market going down 57% between 27 and 2010. But at the same time, the Chinese market was growing by 67%, adding almost 120,000 units to the overall market in a new installation. Well, in 23 in China, the market continued to decline as a result of the government's effort to leverage, but also for the excess housing inventory. In the rest of the world, despite strong underlining demand and in some countries continued government investment in infrastructure, the E&E markets were substantially under pressure. This is mostly driven by interest rates hikes and the construction cost increase we have seen in the last two years. Several markets sequentially deteriorated over the year, And in the last quarter of the year, we saw its impact, which we show here on the chart in these red ovals. Different and much more encouraging was the development in modernization and in service, which both we saw growing very nicely across the world. Moving to 24. We are in for another drop of the global energy market in 24. Regionally, more driven by China, but also with a continued weakness in Americas and in EMEA. In China, the decline of the real estate investment in home sales is set to continue, and we expect the energy market to drop another 10%. Outside of China, Asia Pacific region, is expected to grow by more than 5%, mostly driven by India, where apartment launches have increased last year to a new record of 350,000 apartments, and we can say it's around 57%, close to 60% more compared to 2019 levels. The markets in Southeast Asia will continue to grow while we see South Korea staying weak. Americas. still under pressure, with the key lead indicators in the largest market of the region, the US, obviously, still in negative territory. The so-called Architecture Building Index finished the year 23 at 45.4 points, far below 50, which indicates quite a low construction activity. while the multifamily building permits were down close to 30, namely 27%. But some positive signs could be expected. While we see the inflation rate coming closer to 2%, one could hope for the interest cuts by the Fed, which obviously might be a positive stimulus to the real estate market. In the key North European market, Germany, the business climate in apartment construction was end of the year on an extraordinary low level. The so-called Geschäftsklima index was by minus 56.8 points, the lowest since introduction of this index in 1991. Also, South Europe we see with a decline in France, while markets like Spain promise staying stable. Overall, the growing Middle East is not able to offset the shrinking and reducing EMEA region. Heightened geopolitical uncertainty, prevalent wait-and-see attitude act as headwinds while sizable demand is still there. The global installed base is growing at a healthy pace, and of course, one can expect that declining markets will also decelerate the growth in the service going forward. However, we still see modernization continuing to develop very robust. Our footprint. We are pleased to report that last year we managed to outperform the market and to gain share in several key geographies. As you can see on the chart, we finished the year in a leading position in ANAI as a new installation in Latin America and EMEA region. In EMEA region, we also are in a leading position in service. Elsewhere, you see on the chart, we are still in what we call challenger position, and we remain laser focused on the opportunities to grow and to gain share in those markets. I like to emphasize that this challenger mindset It's always been part of our DNA. And even in countries in which we are already in a leading position, we never stand still and will exhibit that specific challenger mindset. Pausing for a moment on China. Here, the main real estate statistics point to another year of a contracting new installation market. We estimate around 10%. With the floor space started having declined for the third year in consequence. And another good indicator, the floor space on the construction is also declining. Well, the government is also actively trying to restore home buyers' confidence. You see on the chart, the introduction of the pre-sales accounts, whereby Chinese developers are allowed to sell residential projects before completion, but are now required to put those funds into escrow accounts. In order to limit the number of unfinished buildings, the local city governments permit the developers to withdraw a portion of these funds only depending from the progress of the projects. and in addition, only to spend those funds for that specific project, which the down payment has been made for. One could see there is an effort by the government to improve the situation. In addition to 750 policy easing measures issued in 330 cities across China, expectation is there that those measures will help to stabilize what we call a new balance in the Chinese market. And with this, I would like to hand over to Carla to guide us throughout the results of 23.