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.

Thank you very much, Paolo. Good morning, everybody. Privilege to take you through our financial results, obviously covering quarter four and the full year 23. Let me start here with a couple of KPIs. As you can see on slide 13, KPIs who are really providing evidence of our consistently positive 23 year-on-year performance trajectory. Silvio reminded us a couple of times of these good performance uptakes. So in a declining new installation market, order intake and revenue both were up in local currencies in the fourth quarter. Now our operating results, they further improved, driven by first operational efficiencies, but also by procurement savings, supply chain recovery and positive pricing. So in every single quarter, we improved the EBIT margin year on year. Net profit printed a significant year-on-year improvement reaching now a margin of 8.2% in the fourth quarter. And finally, our cash flow for operating activities for the full year almost doubled. Now, one of the major headwinds that we were facing in 23, and unfortunately we will also face that in 24, is of course the sustained foreign exchange impact. So the major currencies in what we are operating, so the dollar, the euro, the Chinese renminbi, they continue to weaken against the Swiss franc, or maybe better said, the Swiss franc strengthened against this currency. And you can see here the significant impact it had on our full year 23 results. 721 million negative forex impact on our order intake. a comparable amount on the revenue, 688 million, and a Forex negative impact of 74 million on the EBIT. So very significant and obviously also accelerating if you compare it with 22. Now, if you just would take The FX impact over the period from 2008 to 2023, you see what a staggering FX impact that we were experienced on revenue close to 5 billion, EBIT 600 million. If you just apply and you take a bit of a shortcut and you say, OK, this would probably compare with an a net profit impact of 470 million. And if you apply to that our PE ratio, then you know what an impact it has on the market cap. Obviously, fully realizing that is a bit of a simplification, but just to put things into perspective. Now, Let's have a more detailed look on what we can influence, starting with the order intake on page 15. So, in the fourth quarter of 2023, order intake grew by 1.5% in local currency to 2.8 billion Swiss francs. And this against a tough market environment and a higher comparable base. Now, this positive development is mainly driven by a strong performance of our modernization business and a solid growth of the service business, as Paolo already pointed out. New installation orders declined in the quarter. Acquisitions added 49 million Swiss franc, FX impact amounted to 196 million, and that led to a negative growth of 5% in Swiss franc. Moving to the right-hand side and looking at the order intake for the full year, that reached 11.4 billion Swiss francs, corresponding to an increase of 1.7% in local currency. Now, the new installation order intake was down mid-single-digit, however, less than the development in the market or the decline in the market. Strong uptake of the growth in modernization in the second half of the year led to a full year single digit growth and service continued to grow across all the region, obviously driven by the strong NI conversion, but also by balanced pricing actions. Now organic growth was 1.1% and the acquisitions contributed 0.6 percentage points, while FX had a negative impact of 6.1 percentage points. Now, from an all-time high in 22, our order backlog decreased by 2.1% in local currency and by 9.4% in Swiss franc to 8.7 billion. So the backlog margins progressed positively since quarter four, 22, and our order backlog as of the end of 23 is now equivalent to more than one year of new installations, modernizations, and repair business. our modernization and repair backlog grew. And as Silvio pointed out, our focus is definitely on value and less on volume. Moving to the next slide and commenting here on the four-year development of the order intake by region. Overall, the new installation declined mid single digit in value and low single digit in units. And that was mainly driven by EMEA and the Americas, which is of course reflecting the overall market decline in these regions. The decline was driven by both volume business in the key markets, but also a delay of large projects. New installation margins further improved compared to prior year in all regions. And the modernization business grew substantially in all regions except for EMEA, where we focused especially in the first half of the year on the supply chain legacy issues. In the second half, we caught up. However, the growth was definitely not fully offsetting the H1 decline. Service business continued to grow solidly, compensating the decline in new installation. Now moving actually to the revenue development. So starting with the quarter four, revenue declined by 2.5% to 2.2 billion 960 million Swiss francs, corresponding to an increase of 4.3% in local currency. We achieved continued growth in EMEA and the Americas region with higher single-digit growth rates, and revenue in Asia-Pacific declined. Obviously, this was impacted by the slowdown of the Chinese new installation market. New installation revenue remained stable compared to the fourth quarter of 2022. Modernization and service continued on their growth path. Now, looking at the full year, 23, revenue in local currency grew by 7.4% to 11.5 billion Swiss francs, equivalent to an increase of 1.3% in Swiss francs. Organic road reached 6.7%. and smaller acquisitions contributed 0.7 percentage points. Now, the negative foreign exchange translation impact reached here the record high, as you have seen on the first slide, 688 million Swiss franc, so evaporating 6.1 percentage points of revenue growth in Swiss franc. Now, the strong growth is obviously a result from a diligent working through the order backlog and a good growth in our existing installation business. Our service business continued to grow steadily and it was obviously supported by a solid uptake in units of approximately 5%, but also by balanced pricing measures. The number of connected units increased in the full year now to over 30% of the total portfolio. From a regional perspective, all regions contributed to the full year revenue increase in local currency, except China, with a low single digit revenue decline. But despite the negative revenue growth of China, the group new installation revenue grew by mid single digit. Existing installations grew with double digit rates across all regions, except the Americas, which contributed with mid single digit revenue growth. Now it is important to point out that yes, we have a nice uptake of the profit, as you can see on this slide, and what really paid off in 2023 was a disciplined execution. In line with our expectations, pricing and efficiency effects continue to grow inflation. Silvio pointed out, and that is really, I would say a first milestone. Strong focus on the disciplined execution resulted in an increased weight of efficiency gains that were clearly compensating the inflationary impacts. And going forward, we also expect the relative weight of efficiency measures continue to further increase. So talking about our full year EBIT reported and EBIT adjusted, I'm very pleased to see that the positive year-on-year performance trajectory continued also obviously in quarter four. And for the full year, 23 operational measures yielded 282 million Swiss franc, whereas the foreign currency had a negative translation impact of 74 million. Now, this operational improvement resulted from the higher margin of the rolled-out backlog, the procurement saving, and as I indicated already, higher margin in our after-sales business, but also a positive business mix impact. Additionally, the recovery of our supply chain and the increased installation efficiency supported the profitability improvement compared to 2022. So we ended the year with an EBIT adjusted of 1,255,000,000 Swiss franc representing a year on year increase of 19.9%, 27.3% in local currency and the margin increased by 1.7 percentage point to 10.9%. EBIT reported increased by 31.4% to 1.2 billion Swiss franc also supported by the land sale of our former factory in Shuzhou, China, less expenses of the top speed 23 program, which we are finalizing in 23, and restructuring cost. EBIT reported margin reached 10.3%, and that is an equivalent to an increase of 2.3% each point. Now moving to the next slide and outlining here the uptake of the net profit, you can see here that the net profit grew strongly both in Q4 and also in the full year and happy to see that our net profit is exceeding the 8% landmark. Net profit 935 million Swiss francs, also slightly above the upper limit of the guidance that we communicated last year. And it represents the second highest net profit posted in our company history and I think that is you know a good coincidence now we turned 150 years. Next to the improved EBIT flowing through, the net profit uptake was also fueled by an improved financing and investing result, but also by a decrease in the effective tax rate, which is mainly due to geographical mix. Earnings per share increased to 8 Swiss francs and 5 cents for the full year 2023. Important is to talk about our cash flow and I'm very pleased that I can share that we recovered our cash flow from operating activities and that it also accelerated in the last quarter with an increase of 75%. For the full year, 23 cash flow improved by 85% to 1.3 billion Swiss francs. and this improved cash flow from operations resulted obviously from the uptake of the profitability but also a stabilized networking capital which was mainly stemming from lower inventory but also higher accounts payable. And before I summarize here the financial results, I would like to mention also the increase in dividend, but also the increase in our payout ratio range. So the proposed dividend, obviously subject to approval of the AGM, is maintained at 4 Swiss francs, but in celebration of the 150 years anniversary of our company, the Board of Directors proposes an extra dividend of 1 CHF. A dividend of 5 CHF is equivalent to a payout ratio of 62%. Taking into consideration the closing prices of the shares listed on the Stock Exchange on the date of our Board decision yesterday, the dividend yield stood at 2.4%. And in addition, the board has also decided to step up the payout ratio range for future years, namely from a range between 35% up to 65%, now to a revised range from 50% up to 80%. And before I hand over to Silvio, let's quickly move here to slide 22. This gives you a short summary of our key figures for the full year 2023. I believe we covered them sufficiently. And also for your reference, the Q4 results are included in the backup of the presentation. And allow me also to say that together with my colleagues in the executive committee, we are very proud on the financial achievements to date, but also very grateful for the persistent commitment of thousands of our colleagues in more than 100 markets. A big thank you for their outstanding contributions to these good results. And I believe, Silvio, we can close now 23 and we can look forward to 24.

that's correct that's the way to do it and actually we've been doing so since the beginning of the year and so it is time to look now at 24. i concluded my first intervention uh by the world resilience and resilience is what this is about because you know you'll follow the elevator and escalator market it is one that is very solid one that offers big opportunities but it's also one that is getting tougher so I wanted to take a moment here to see you to share how we see the market going forward so Starting probably with the headwinds on the right hand side of the chart. And first thing on the elevator and escalator specific. In fact, as Paolo Compagna explained, the NAI markets are under pressure and let's face it upfront, before China stabilizes and China remains more than 60% of the world market and you can see the rest of the world also is in turmoil, probably there is a more shorter term issue because demand is there, the NAI market remain under pressure. equally if you look at elevator and escalator specific industry with an issue which is interesting enough not very much talked about of trade labor scarcity we rely on service technicians installation expert project managers and today and this is true across many uh building Industries there is a scarcity of this type of labor I'll come to that in a later in the in the priorities Moving on to micro-economic type of headwinds, wage inflations are here to stay, perhaps a bit more tame than they were in the last couple of years, but nonetheless. And then, of course, the other big macro element for us is the foreign exchange effects. then there are of course the political tensions and there first and foremost the regulatory pressure is increasing new stands standards are coming up more countries are regulating irrespective of regional agreement like state europe where we have the an eu standard for levitation escalators but more and more countries decide to make their own legislations which overrides some element of that china is coming with the wrong code india so that is an issue and that of course it is also related to the final point on the headwinds this is the geopolitical tensions and i have no intention to get into the topic except to say that it of course impacts supply chain And it impacts also technology and products since, as we remember, some countries now ban technologies microchip from the other. And when we try to develop a global platform, this in itself is a bit of a headache, more so than it was in the past. Now, at the same time, there are also tailwinds. And so let's again start from the top of the left-hand side of the chart here. You have, first of all, the modernization market. The expression is modernization is the new installation. That's very much true, except this time, on the base of the huge population of aging units in Asia in particular, this modernization market is increasing tremendously, as explained by Paolo Compagna. The service, as part of the conversion, there is also growing steadily, not even to mention in the digital services, as an add-on. Then there is the layer of micro macro, well the inflation on material in fact is abating and beginning of the year there were some threats but having seen the latest indexes it seems to be under control and that in turns brings to material cost tailwinds. Now, the final point then in terms of, if you want, political pricing here, it's more an issue of how do we deal with that. With this inflation situation, luckily because of the wage inflation which is tailed with our service contracts, we're still going to have some sustained pricing opportunities. And then the final one here is technology driven. you saw some of it in our technology day last October but it is fair to say that thanks to generative AI and you will see in an annual report I even write a letter on this immediately this provides opportunities and there are many examples that we don't have time to discuss today but with pleasure we'll do it for the year we're already applying generative AI across a value chain this applies to the way our finance team operates, the way we assess portfolio churns, the way we can anticipate pricing on some specific type of tenders and then of course there is building minds which I'll touch in a second where of course they write already a big portion of the software is actually written with the help of generative AI not that they write the full code but this of course accelerates developing which in turn allows us to learn in what we do in the elevator and escalator core business so overall nonetheless let's face it the picture is challenging and allow me to say if you look at our history it has always been in this moment the Schindler has done best and so this then begs the question what do we need in such an environment well first point allow me to say I know that we have a maybe divergence of opinion you need a very strong balance sheet that's point number one but the second question one could ask is do we need a new strategy and frankly no the strategy we started in 2022 is perfectly tailored for this environment In fact, I like to say that this emergency landing that we had to perform back then gave us a bit of a head start because it forced us to concentrate on what makes a difference, on the essential. And so you remember the strategy we presented as our ambition, our choices, our priorities. And then in terms of operations, it is deployed according to a model that we called 4P, People, Product, Performance, Planet, so on. According to the same model, now the only thing we need to do is to decide among those elements which are the ones that are most crucial to deliver on our commitment. And our commitment now is clear. We say this for the first time at the beginning of the year, is we need to deliver 11% EBIT this year. There is no way back. And so having discussed with the team, looked at a strategy, we looked at and said, what is it that really we must win? What are the key points for 2024 to deliver on these 11%? And let's start on the left top corner with people. Of course, let's not forget two thirds of our employees are technicians. 2,000 employees are the ones that really made the difference. They wear the shoulder uniform with the logo. They are the ones that customers pay for. And so the key element of these people, besides, of course, increasing talent across managerial role and things that I'm sure everyone I would say for us with this element called frontline is the bottom line. That's where the battles are won or lost. It is with our technicians. And we are and we have been refocusing everything we do for the sake of what happens in the frontline. And that is the key element. It has many implications, which we can discuss more in detail. Moving on to the right hand side, of course, our people need product. They need processes. And they're key element for us is the successful launch of our standardized modular platform we need to make sure also we support our service business with more and more digital services and of course one element that has become more and more of an issue with the markets getting tougher is what we call portfolio losses or rather we need to increase our retention rate You actually, based on calculation, said that we are best in class. Well, let's be very open. This is a very tough benchmark to keep because with the customers being subject to more financial pressures, the situation becomes tougher. Moving on to the third element, of course, delivering on a commitment doesn't mean giving up on our sustainability roadmap and that is something which is very high on our priorities and this involves for us for 24 continuing with a fleet transformation let's not forget we have a huge fleet of tens of thousands of cars because that's the model to have a service technician reaching the targets not in the world but in most part of the of the regions and then and doing that we need to continue expanding our green services because thanks to connectivity we can actually deliver a service with a much lower CO2 footprint, which in turn also helps scope one and scope two for our customers. And then finally, there is building mines. Now, when some of you asked the question last time, how are we going to update investors on building mines? we provided an update in October and now I think going forward you have my commitment at least once a year we'll let you know building mine does what I can tell you that the year was very successful our ARR was multiplied by three and we continue operating with more customers and now even geographical expansion with more and more projects not only in northern Europe but across the world and if you do those first three piece then we come to performance And then you will notice one word that is repeated many times is efficiency. This goes back to what Carla said. If you want to deliver, and we will deliver this 11%, we need to be stronger than ever on organizational efficiency, field efficiency, procurement and supply chain efficiency, and much more across everything we do. And then, of course, benchmarking with our competition ruthlessly really helps because there is no discussion. So there is no taboo. We are really going zero-based budgeting across everything we do. And while doing that, of course, we should not forget pricing discipline. We learn a lesson. Growth by itself is not going to cure anything. So yes, we will stay careful on our pricing while at the same time being competitive. Now, with that, I mentioned before, allow me one more word on a key deliverable here of this execution. This is once more this launch of a new standardized modular elevator platform. This is working well, and to be very clear, this has to work. This is the volume business in an eye. this means not only being competitive with a unique product which really distinguishes itself from any of its competitor and let's not forget Schindler created a business at the beginning of the century which is high quality good value elevators but this is more than a product this is catalyst to drive complexity reduction across a business because by offering less options by focusing on a specific market systematically this in turns reduces the complexity across the way we sell across the way we install across the way we train across the way we manage pair parts across the way we manage a supply chain. So that, I wanted to stress once more, is key. And how will we track performance? How did we learn a lesson? We have a number of KPIs, which of course start with the customer, Net Promoter Score, the sales margin, the way we do installation, again, going back to efficiency and execution, and of course the sales volume, how we deliver on time, and of course how this is converted into portfolio, which is at the end the reason why we sell new installation in the first place. With that, I'd like to pass on the word to Carla, CFO, for the outlook.

Thank you, Silvio. So I'd like to give you a bit more insight now in our plans, how we are going to drive profitability, but also on our commitment to deliver on the results going forward. And I believe it's always good to know to take a step back for a second, because now we are in the year of 150 years of existence. We can say that our industry up to today was already an attractive one. But also, of course, going forward, we believe that it will remain an attractive one, simply for the reasons that megatrends like urbanization, sustainable cities and transportation infrastructure, as well as connectivity, will continue to fuel the demand. Now, the share of the middle class, of course, will continue to increase and the global population is aging, of course, also with the desire to live independently for longer. So no matter in what cycle we are, we are always offering competitive products over the entire lifetime of elevators and escalators capitalizing on growth. And in this environment, obviously, we showed resilient performance across cycles for the last 150 years. And if we look now a bit at the key performance indicators and how we developed over that history, we can say that we have a strong hold in Europe. However, through the history, we have also been able to move to a more balanced footprint by increasing our revenue shares in the Americas and also in Asia Pacific. So, our accumulated revenue growth in local currency over the last 10 years amounts to 64%, not only a very resilient one, but also a balanced one. And the last time we posted a negative revenue growth was back in 2009. Now, we run a successful service model, which showed also very robust growth over the last 10 years. And our portfolio grew by around 60% in units since 2013, and the revenue Kegar was close to 6%. Generating cash, we touched already on it, that is definitely a strength of our company. And it is proven by a high and a very consistent cash conversion, generally fluctuating in a bandwidth between 10 and 150% in the period of 2013 to 2023. And we generated consistently high cash flow, but also taking into consideration what is important is the very low capital needs. We have an asset light service model and our networking capital is negative. And of course, if you combine the two, then it's clear that our business is yielding high capital returns. Similar to the cash conversion, our return on invested capital moves in a band between 40 to 60%. And invested capital increased obviously with the implementation of the new lease standard in 2019. But here on the graph, the lower graph in the middle, we actually have simulated the numbers in the period 2013 to 2018 to make them comparable. And this, of course, comes all together in a very healthy balance sheet. And I realize, or we realize, some of you call it very conservative, but in the end, a strong balance sheet helps us to come out strongly of recessionary cycles, and it gives us a lot of flexibility going forward. Our equity increased by more than 2 billion Swiss francs to 4.7 billion Swiss francs over that period and net liquidity exceeded now 3 billion. And intangibles in percentage of total assets increased, I would say slightly up to 12% over the period. So in summary, I think we can conclude that we showed very resilient results across cycle. But of course there is also a lot of potential to improve our performance. Silvio pointed it out and we are fully aware of that. So consistently with the commitment to continue driving for really a better competitive position, We also aim to reach an EBIT reported level of 13% in the mid-term. And of course, we would not like to stop there. We stick to our long-term ambition to also close the gap versus the best-in-class in the industry. But that is longer-term music. Now, there are different profitability drivers, we call them the building blocks, which will help us in bringing us to that stronger competitive position going forward and obviously impact the uptake of our margins. You can see here on the slide that they are clustered in three main pillars. products, efficiency, and processes. And out of the three, we expect the pillar efficiency to be the biggest contributor to reaching that mid-term target of 13%. Now, let us start with the products. What do we really mean there? So we touched already on it. A major element is the product launch of the modular elevator platform. But next to that, of course, the aging portfolio creates also modernization opportunities for which we have now the products offering ready today. And to harvest the full potential, it is clear that we need to scale the modernization business similar to what we did in the NI. And if we add to that the digital service offering, that these three elements will actually fuel the creation of value for our customers and will create the growth opportunities. Now moving to the second one efficiency and also there it is actually a big element because in efficiency initiatives they will address the whole value chain from procurement to installation efficiency and supply chain optimization. So this efficiency of course is also linked to the increased portfolio density going forward and is also impacted or strengthened by the increased connectivity. I pointed out already that we made some improvement already in 2023 and we are definitely committed to take that further. And the third pillar, processes, this addresses the process transformation, but also simplification. And it goes beyond the traditional SG&E, addresses again the full value chain, and it will impact every employee at Schindler in her or his daily life. Now, Also, to close and touch on the fourth one, it is clear that the shift in the business mix will also support us in driving relative performance. Now a strong focus on the action and the disciplined execution of these building blocks, that is actually key to reach the 13% in the mid-term. When we talk about mid-term, we talk about three to four years. And we expect a rather linear margin progression over the years, but it is clear that the action will trigger also investments, particularly in the pillar efficiency and processes. but you can expect the investments to happen closer to the first than second half of the mid-term cycle. And now to conclude for the full year 24, we expect a low single digit revenue growth in local currency and an EBIT reported margin of 11%. And I talked also about, I talk about EBIT reported and not EBIT adjusted. So just to be very clear to everybody. So that translates into a margin improvement of around 70 basis points versus a 10.3 margin in 23. And as outlined here also on the slide, we target to achieve the EBIT reported margin of 13% mid-term. And with that, I think we come to the end, Silvio.

Very good. Thank you, Carla. I think with this, we can then pass over the word to Nicole.

So we start the Q&A now. Thank you very much to all the presenters. We're opening the lines. First, we would like to start also with questions here in the room. Please, in the interest of time, limit yourself to two questions max per person.

Thank you. On the 70 basis points margin improvement in 24 and also on the long-term target, I would like to dig a bit deeper into the impact of the business mix because clearly there is an automatic margin improvement element coming from lower new equipment sales and higher modernization and service sales, which automatically increases the margin. So could you kind of quantify how much of these improvements are based on that element, which is basically automatic? Then the second element on the non-adjusted margin might be the lower extra costs. I mean, top speed 23 is over, so we should expect lower extra costs. How much of that is included in your forecasts? And as a result, we get the underlying improvements which you basically plan. So could you kind of split that up a little bit? Thank you.

Good. Carlo, you should take that perhaps for an element. Let me just say, nothing. I wish it was automatic. It's not automatic. Because as I mentioned before about the legacy backlog, it's not weed on the side. It is a function of the construction side. It is a function of what the customers do. And now more than ever, this is a bit uncertain. So I just wanted to make that point. And I'm sure you appreciate the transparency in speaking about it openly. Carla, please go ahead.

Thank you for the question. Yes, it doesn't feel like it came automatically, but it is definitely there. But you could say that it's like up to a third of the uptake of the profitability. We will work hard to ensure that we also realize that in the coming years. In terms of your question of the adjustments for 24, obviously, as there is no longer the top speed adjustments, so we are talking about restructuring and we are talking about building mines. And in terms of restructuring, you can say, okay, we target a number which might be a bit slightly higher, although not totally incomparable with what you have seen in 23. Yeah.

And restructuring is also a result of the NI slowdown. So this goes back to the automatic. Nothing is automatic because you win on one, you go to the other.

Thank you. Okay. So one third roughly is business mix. in 24 and in the longer term target? I mean, what were your assumptions on the development of the new equipment business versus modernization and services? You must have had a kind of a view on that in order to come to the 13%.

Yeah, we will. Let's say that it would go around one fourth. That is a bit, you know, the assumptions, but we don't count on this automatic. Let's be very clear. I mean, we want to create value with the efficiencies and with the pillars that we gave you transparency, and we are not betting on what comes automatically. We really want to drive the organization through transformation.

Okay. Thank you. If you don't mind, we have a question. Thank you. Thank you.

Good morning, it's Lothar Lubinetzky from Octavian. There's this old saying, actions speak louder than words. So, and we were very pleased to see that you delivered on what you promised and also that from a relative perspective you improved your margins faster in 23 than your peers. I remember maybe three, four months ago we were sitting here in Ebicon And Silvio, you were saying there's no reason why we shouldn't be as profitable as our best-in-class peers. Are you still going for that?

I thank you, first of all, for the feedback. I appreciate this is part of what we're here. I still remain of the opinion that notwithstanding time, there is no reason why any competitor should be that much stronger than the others. Now, the question is how long do we take there? Yes, I stand by that statement.

Okay. And I have two more technical questions. One on slide five of your presentation. That is about the improvement of the order backlog margin.

Let me get back to this for a moment. I was just wondering if you compare Q3 with Q4.

In Q3 the order backlog margin improvement was more or less flat. So in Q4, you have this significant increase again. What was the main driver there?

Yes. Well, thank you for the question, Lucas. It's a question also what happened in Q3, which we know represent the color. Would you like to address that?

Yeah. Well, it is clear that as we are working through the legacy backlog, I mean that and taking in more profitable contracts, that is the simple reason why, you know, we see this nice development. And that is also the point where, Silvio, you touched on, if you look at the difference between the low point and where we are now, we are talking already about 100 basis points now.

So to your question, it is very difficult with a global backlog, which is 11 billion to understand, to punctual, but in fact, simplification. Q3 is traditional business, a very high time for all around the world construction site progress. And so in Q3, in fact, there wasn't that much progress for reasons that frankly were unexpected. And now in Q4, that accelerated. And then you see the result. It's really going back to this boa constrictor effect. That combined with the new orders that came in the rest of the year, that made this efficient effect. But it is... not automatic let's stress and this is really every month it is something that has to that's why it takes time to flow through so exactly more than that is difficult process it's about a geographical project size product mix combined with the uh with the time execution of the site

Okay, thank you. And then again, more technical question. I am assuming that you had a meaningful tailwind from material cost in 2023. Can you quantify that and also what you expect going forward for this year? Thank you.

Thank you, Carla.

In any case, yes, the raw material prices, they clearly stabilized over 23. When we look at overall, 23, we still did not have a tailwind. So overall for the full year, if you compare it with 22, we still had actually a headwind. But we expect that to turn into a bit of a tailwind into 24. And that is also the way we lock in the prices, etc. The delay.

Thank you. Are there more questions from the room?

Sorry. Alexander Kolder from Stifel. Some benchmarking. When we look at the orders in Q4, the direct competitors grew more strongly in the last quarter, even after adjusting for FX. Where do you see the reasons for that?

Thank you for the question, Alexander. I'll give you the first half, then maybe Paolo can definitely build on that. Thank you. Let me just give... As I said, the key element is this. We probably are, and I cannot speak for my competitors, extra careful on the quarter, on the order quality. We don't want to look great on the order intake and then having to postpone our commitment on delivering on the profitability. And there are some parts of the world, in particular China that I know well, where one can accelerate very strongly order intake by... being less price disciplined. And that we don't do anymore.

Paolo, please. Thank you, Silvio. Very good question. Not going to what our competitors' story was in Q4, but looking at ourselves, Silvio just mentioned China was picking up and we have seen, especially in May, I was also showing this in the chart before, a declining trend in the market and As mentioned before, as we still stay to our margin policy, we were not falling into any trap of speeding up towards end of the year. So this might be one of the answers. All in all, also mentioned by Carla, one business which in our case was significantly picking up in Q4 was modernization business. So in the mix could also be an explanation.

Thank you.

But just to dissipate any question, we do intend to grow with quality. Absolutely. If we now launch this product with all the huge effort, it is because we want to not only remain strong, but also grow with quality in the volume segment. Where unfortunately, until this is not fully out, we are not firing on all cylinders. so that's one of the objectives for the launch of this product and going forward so I'm confident as part of this plan which doesn't include only next year the 13 plan achieving that presence and strength in the volume market is going to be a key contributor hopefully that helps thank you

I have a question regarding, I'm coming back to the cost, in fact. You were just mentioning that there was not really a tailwind from material cost reductions, if I may say, in 2023. So, looking forward, you will have. Then on the other side, on the personal cost side is a bit lacking usually, I suppose. So if I look at your guidance, is it fair to say that the one cost element will compensate for the other? Or what's the net effect of delayed personal cost increase and immediate material cost reduction, please?

Thank you. What is your question, Carla?

Yeah, I realize I need to be a bit clearer because I was probably not totally clear. When I was talking about the raw material, I was talking about the raw material inflation. It is clear that with the procurement savings that we realized, obviously, you know, we completely offset that inflation and we had actually call it a bit of a tailwind of what has been achieved through the procurement savings. Maybe I should be a bit clearer there. And we expect also a strong continuation of this procurement saving and they will also contribute obviously nicely to the uptake of the profitability. because that was also one of the elements in the top speed program as you all aware and also one of the big results that we have now a procurement organization which come really up to speed and up to standard.

Thank you for that clarification.

And on the personal cost side what do you expect there?

On the personal cost side, obviously, the headwind will be slightly lower than what we have seen in 2023. And as you saw already overall, I mean, also in terms of the uptake of the efficiency, we will definitely, it's our goal to continue that and offset the uptake of the personal costs in 2024. Yeah.

may ask something on pricing as volumes in new installation going down and modernization picking up but the argument of inflation which is an argument in in product sales if i may say it's not an automatic price increase you can have but the understanding of the client or the the The client also realizes that there must be some inflation part of the product and the product pricing. So now inflation coming down sequentially, is it hard to negotiate on pricing in 24 or what are you seeing in terms of pricing dynamics starting with maybe Q3, Q4 going to 24?

Thank you. Paolo, would you like to say this question? Yes. Very good question. Thank you very much. Is inflation helping pricing? One could say yes. On the other hand side, as mentioned by Silvio before, we are very clear in, let me start with new installation and complement modernization in a second. With the new modular platform we are launching right now, starting in Europe, we are in to make sure we receive the prices that we deserve to have for the product. So to a certain extent, expand. We can also say to disconnect pure pricing from inflation. We have to move much more when we talk about pricing to benefit for the customers, service offered to the customers and all these topics, which may be in the last two, three years of inflation was a bit forgotten. So modernization, these arguments do play in our personal opinion and also my very personal opinion. even more a role. When we go to modernization, does inflation help? For sure, it can be a little help. But I think in modernization, even more than a new installation, the way at the solution, the way you propose a solution to the customers, the time you need to modernize the installation. It means the time the elevator is off from service in a building which is occupied in modernization. All these arguments do play a major role compared to the pure material price effect, which is there, but much less impactful than a new installation.

I have a simple question. As you are guiding now on reporting EBIT and you distribute one Swiss franc to the shareholders as anniversary dividend, I'm wondering also, do you distribute also anything to your employees, for example, so that we have to consider some significant extra costs for the anniversary year, you know, because this can quickly become a significant amount for activities, extra salaries, whatever it is, you know.

Thank you for this question. Candidly, I was expecting this question more from the president than from the analyst, but never mind. I love this question. It's one that, of course, we thought about it very carefully. And as you know, we've always been very disciplined in the way we manage dividend in the past. The best thing we can do for the company, for our shareholders, but also for employees, is to have a successful year, especially after we come there. So there were plans, admittedly, to have big expenditures in relation to our anniversary. Already back in 22, when we had to do this emergency landing, we decided we don't do this. because the last thing we want to do is to have this and then come with an excuse oh yeah we would have been 11 but then listen no we cannot because we spend the money we don't do that so what we did is this 11 includes everything we do which is not much in fact because we we want to be on the list of companies that then you know they had a great anniversary a few years later they're not here anymore we don't do that so to be very clear every country as part of their own independent initiative is allowed to do things which they consider appropriate for their place. In Switzerland, by the way, since we're here, you will see our Schindler Switzerland operating unit will have a couple of very remarkable things for the employees. We're going to have all our employees Coming year in September, 5,000 people in the Almendia and Lucerne. We're going to have a whole day out. We're going to have the Switzerland export day, I don't know if you know, in July. It will be held here, hosted by Schindler here in Ibicon. So we're going to do a couple of events. This is for Switzerland. The US will do what they think is appropriate for them. China has already done something for 40 years in China. But to your question, no major expenditures to plan. Anything that might be done locally is included in the price. It's included in the 11%. Thank you. Please.

Hi. I have a question on the 13%, three to four years. Could we expect to see a gradual improvement, so 50 to 65 basis points over three to four years from these 11 to 13% or will it more be like a hockey stick because measures need time? Can you tell us about that?

Personally, I don't believe in hockey sticks, so I try to avoid the hockey sticks. So no, we are targeting a more gradual improvement. But as I said, obviously, we will have to make some investments and we obviously will do that, you know, in the earlier part. But it's not like, you know, so maybe a bit of an acceleration, but definitely not a hockey stick. So you should be able to monitor us closely.

Thank you. If there are no more questions here from the room, perhaps we can move to the questions online.

Our first question comes from the line of Klaas Bergelin with Citi. Please go ahead.

Thank you. Hi, Silvio and Carla. So my first one is on the order backlog margin improving this much quarter on quarter. It would suggest that the new order margin went up as well versus the third quarter, i.e. not only driven by the legacy backlog being executed. I guess this means that order pricing in China wasn't too bad for you, maybe stable to slightly lower. If you could confirm that, because some of your peers have obviously been very aggressive on pricing in China to take share last couple of quarters, but it doesn't look like you participated there, Silvio, if we can start there.

Thank you. So if I understand correctly, the question is when you're looking at this Q4 backlog margin improvement, what does that say about the pricing policy, in particular in China, whether we are facing headwinds? Paolo?

Go ahead. Very, very good question. I think the impact we see in the margins of Q4 are also obviously due to pricing and sales made a couple of months before. So it's not a day-to-day relationship. So if the question goes in the direction, is this something which happened in Q4? The backlog improvement, yes. The sales and the pricing impact is maybe five to six, seven months before. And this happens when you go and sell the units or the projects. And it applies also to China, for sure, if the question was more to the Chinese market.

Sure. Very good. Building on Paolo's answer, I'd like to stress, contrary to maybe some of our competitors, we do not recognize order intake until down payment is cashed. So we have a pipeline which starts with bids, awards, and then this award funnel becomes order intake only when we get cash in hand. And this, in today's environment in particular, might take a bit longer, which then protects our balance sheet and also can result in this effect. Yes, it is fair to say that it's a bit of a long tail effect, which became very visible in Q4. To the specific question, thank you, China, Clearly, we have to be sensitive to the fact that in China prices are more under pressure than ever. You would have seen articles about deflation in China. You can argue that in the construction industry it started earlier. We have to be competitive. But thanks to our efficiency measures, while adapting to pricing, we still manage to have good margins. And this is the way we go forward. And this is then reflected in the backlog margins. Thank you.

Let me... Let me just rephrase that a little bit. Obviously, the duration from orders to revenues is shortest in China compared to other regions. So going back the last couple of quarters, did you improve sort of your order margin in China quarter by quarter to sort of help this develop?

It was under pressure in Q4, to be very, very clear, obviously. I mean, if you see what is happening in the market and the decline, you know, in the units, sure, I mean, we confirm that.

The efficiency measure.

Yes. Okay. My second and final one. My second and final one is on pricing. Just to understand the carryover on pricing, Carla, a little bit better. Are we going from the sort of low single-digit level in 2023 in the P&L and then maybe halving that number to maybe one to two percent? Just to understand the price versus cost better against the comments you made on the bridge on the cost side before. Thank you.

I apologize. Maybe we can increase the volume in the room. And I must apologize. The line is a bit, it's grizzling. So do you mind maybe repeating the apologies? And then we can increase the volume here.

Go ahead. Sorry for that. The carryover of pricing, whether we're talking about halving of the number that we realized in 2023. So we're going like 1% to 2% as part of your low single-needed growth. guide for 2024.

Carla? Yes, well, I mean, I rephrase the question and then you correct me if you ask for additional questions, but the impact of Of the pricing, obviously, you saw that in the graph because these were really the relative weights to that is actually what flew through to the bottom line because we were able for the first time to offset the full inflation effect with the efficiencies. And you will remember before we were talking, I would say on efficiency, max one-third of the total value created to offset the inflation. And that is, you know, what we also target now to increase in 24. But through the efficiency, so rather, you know, the impact of the pricing targeted to keep at a comparable level with 23. Did I give you a bit of a... Thank you. Yeah, all right. Good. Thank you. Thank you. It's okay, Carla. Yeah, super. Thank you.

The next question comes from the line of Andrej Koknin, UBS. Please go ahead.

Good morning. Thank you very much for taking my questions. I'll go one at a time. The first question I want to ask is on the service growth trajectory going forward. Compared to the 5.9% that you gave us as CAGR for the last 10 years, Do you envisage that in a similar place in the kind of mid-term going forward or can we imagine maybe slightly better performance or somewhat better performance given digital should help retention, should add extra revenue and maybe pricing can be a bit more pronounced in the next three to five years than it was in the last decade?

Yes, Andre, thank you for the question. Obviously, our objective, if you look at a strategy, the ultimate goal we have is increasing portfolio density, which therefore means increasing further our conversion rate from new installation to service. It increases having higher stickiness of units in the portfolio. And also it implies, of course, increasing the yield of revenues for every single unit. We've been doing that, by the way, we should have made it clear over the last two years. So to your question, yes, one of the objectives that we have, which we're not in a position to quantify now, is exactly to increase this service revenue growth in local currency. I think it's important you stress that, right? Because this is something beyond our control. But really, this is totally consistent with the strategy. Hopefully, the rest is your question.

Great, thank you. It does. Yeah, I look forward to elaborating on that maybe in coming days. But if I may, just a second question. In terms of the benefits from procurement from the new organization, would you be able to give us the number in terms of those kind of savings or EBIT contribution that you attained in 2023? And then if you could give us an idea of where that could be in 2024?

I would try to refrain from giving these individual lines because, but it is definitely quite a nice number. And because we are coming on the run rate, we actually target, I would say, an equal impact in 24, equal to 23. But I like to refrain from giving individual numbers.

Thank you. Thank you. Appreciate it. Next question.

The next question comes from the line of Martin Flueckiger. Captain Chevre, please go ahead.

Yeah, thanks for taking my question, morning all. I've got two. Just coming back to your midterm target of 13% EBIT margin, I'm looking at your chart, what is it, 30, 3-0. Just going through those individual elements or drivers, Can you elaborate a little bit on the weighting or the importance of the individual drivers? You know, we've talked about procurement and efficiency. Just wondering, going forward, you know, looking at, you know, the elements, products, efficiency, processes, business mix, and so on, where you think is going to be the main driver, the main weight going forward in terms of your margin improvements? And I'll follow up with a second question after this.

Efficiency definitely has a bigger impact, that is clear, but it is also not like a strict split between these pillars, because if you think about it, the new modular platform that will automatically If you talk about automatically now, not automatically, but it will lead to increased efficiency in the installation and also, you know, further out in the lifetime of the product. So there is not like a strict split, but yes, efficiency is one that has a major impact.

Okay, great. Go ahead.

And the second one is on what you're picking up in terms of the current mood among property developers in China. I thought your elaborations on those 750 easing measures in 330 cities across China was rather interesting. So just wondering whether you're seeing any dynamics there, any changes from maybe Q3 towards Q4? Because, you know, you would expect that at some point something's going to give, i.e., you know, consumer sentiment and sentiment also among the developers, particularly now with the situation regarding Evergrande is going to see some changes. Just wondering what you're picking up there.

Thanks. Yes. Thank you for the question. Coming back to the point of China and the easing measures I was referring before, we believe that the situation in China, if I get your question right, is not that we expect now in the course of the next months to see an improvement. We were talking about stabilizing, finding a new balance around this expected minus 10% and then being on that new level. So if these measures now put in place in the course of the second half of last year would yield and would help to stabilize the situation is what one could expect in the course of this year and most probably in the second half of the year to take place. So finding or landing on a new balance, which will be for sure on a lower level. So I was not indicating we expect to see the market growing again in the next year.

traveled four times in china in 2023 i was already once in january to the north and i can tell you there is activity there is no question and people are super driven on the domestic side but the situation and i'm sure some of you i remember we discussed together multitude of data there is unfortunately not yet signs of stabilization but the modernization and service market are going very strongly so this is a bit the business miss effects which goes beyond us right it's it's in fact the economy moving but our factories are working very well and let me sound china because in fact it is almost sad because we're the first ones to be there right but as you all know our market share in china was not the one of some of our major competitors so this was headwind for us it was a handicap but because of the new situation in fact it has turned into an advantage because there are many growth pockets where we are underrepresented vis-a-vis our product power our brand so and because we've always been careful on pricing and we don't have um probably unmanageable payment issues we actually see China today ironically as for us an opportunity especially after introducing the new products so I I remain as far as still very cautious on the Ni market as a whole in China but for Schindler in China, I believe 2024 will be a strong year. And as alluded before, our decline of units in China will decline much less than the market, which then will confirm my earlier part. Thank you for the question. We have time maybe for one more, just respecting everyone's time. Maybe online.

EMP Paribas, please go ahead.

Hi, good morning, everyone. Just two questions. The first one, Silvio, just wanted your comments on M&A. Do you see any medium to large size opportunities in the pipeline? I'm not asking if you would do medium to large size acquisitions. I'm asking if you see them in the pipeline. You've been very consistent in small bolt-ons. You're now upping the dividend policy. So wondering about what you're seeing out there.

Very good. Thank you. We have been active, and maybe Carla can add a few, on buying small companies where it makes sense, where they add density to our portfolio, where the pricing makes sense. And we continue looking at them. So in terms of smaller, including in China, by the way. especially in the portfolio, in the service side. So, small opportunities in service, we're always very much active and looking carefully more and more about the situation. Mid and high size at the moment, I would say there are not many left. But perhaps, Carla, would you like some element on the M&A investments we've done over the last few years?

Yes, I mean, these are more the bolt-on acquisitions, obviously, that we have done. And it is because the core of the strategy is increasing the density because of all the positive impact it obviously has. And we will continue on that road. If bigger ones come up, we will see.

Absolutely.

In any case, we have a good balance sheet.

And mainly on the one point is on the service side, right? This is where it makes sense.

Thank you. And then on capital allocation, assuming the step up in dividend payouts, is it not the case, Carla, where you see continued cash buildup from here? You talk about needing a strong balance sheet, but free cash flow conversion has historically been over 100%. And acquisitions, as you pointed out, around 100, 200 million a year. So More specifically, what do you need 3.2 billion of cash for? Thank you very much.

We had that question already before and I think it's important that, yes, we definitely take your comments and as you see also in other fronts, we make progress and we will come back if we make any decisions when it comes to our balance sheet. Silvio, would you like to add something?

It's actually a perfect question to conclude because I'm not surprised it's there. And let me maybe come back here to my first slide. We are committed to deliver based also on what we were able to deliver in 2023. And these are the numbers you have here, but we're also involved in many aspects. Some of you noticed that we're now moved on dividend. We have moved on payout ratio. We have provided, which maybe looks evident, an EBIT target before the year, early on in the year. We provide a medium target. So, as you can see, we're listening. We're listening and delivering when we think it is the best time for the company. This also applies to other questions that are left outstanding. So all I can say is bear with us because we are improving. Thank you very much. Thank you. Thank you.

And with that, we're closing today's session. Thank you very much. Please feel free to get in touch if you have additional questions. And we look forward to seeing you for the Q1 2024 presentation in April. Thank you and goodbye.

Thank you.