Schindler Hldg Ag Akt

Thank you, Sandra. Good morning, ladies and gentlemen, and welcome to our first half 2024 results conference call. Again, my name is Lars Borson. I'm the head of investor relations at Schindler. I'm here together with Silvio Napoli, our chairman and CEO, Paolo Campagna, our COO, and Carla De Geisler, our CFO. Silvio will provide a brief overview of the key messages this quarter. Paolo will discuss our market outlook and our order intake in the quarter in the first half. and Carla will take us through the financials. After the presentation, we have your questions. We plan to close the call at 11 o'clock. And with that, I hand over to Silvio. Silvio, please go ahead.

Thank you, Lars. Good morning, everyone. At the start of the year, we set ourselves a clear ambition, and I'm pleased to report that in the half year, we are delivering on these commitments. We are delivering these commitments in spite of, let's say, a contrasting market situation where we see this reinforcing contrast between a robust service and actually fast-growing mod market against the mixed situation in the high markets. China continues to be weak. Asia Pacific largely as a result of the China continued downturn is soft, we see EMEA and Americas stable overall, but then again in those regions we see strong markets in key countries like India, a region like the Middle East or Brazil coming back very strongly this year. Now, In these circumstances, when I mention delivering on commitments, you will have seen that we were able to deliver profitability gains at all levels, starting with our EBIT adjusting margin, where we delivered an 80 basis point improvement, but also a net profit level where our improvement has been of 7%. so this makes for six consecutive quarters of year-on-year improvement those improvements were largely driven by delivering on efficiency gains and to be clear this is far from over there is a lot more to come especially in terms of overhead and a cfo will address that in a second some of you have referred to our plan as being based on a self-help agenda and again i'm pleased to say that we are progressing on this self-help agenda and progressing on this health agenda means not only delivering on efficiency operationally but also on making sure we bring to the market new products who which in turn help the top line but also catalyze new processes which in turn drive efficiency And so I'm very pleased to report that our modular platform rollout is gaining traction with 70 percent of units sold year to date in these markets. Based on this new product, what it was launched and that in turn enables new processes. In parallel, I'm also pleased to actually excited to report that in the US, we successfully introduced our new mid-rise product, which strengthens our competitive position in one of the highest value markets in the world. Moving on to, in fact, what is a core business, you hear me saying very often that we are a service company. And so the sustainable value creation in our business comes from portfolio growth. And there, I'm pleased to say that our portfolio is growing at 5%, in fact, even a bit more. And the key is the quality of this portfolio, which then today is connected to the cloud, which then allows data transfer over the air, which in turn generates digital services. And there I'm pleased to say that not only every new unit that we sell is connected, but so far we even managed to connect more of those of the existing portfolio, which now brings us to more than a third of our portfolio with exciting potential in terms of upcoming digital revenue, higher conversion rates, higher retention rates, and many more aspects that we discussed in the past. We're happy to discuss later today. Amidst all that, of course, we shouldn't forget growth. And I'm pleased to say that we also continue to grow in spite of the challenging market conditions. And in particular, I am excited to see our growth in modernization accelerating quarter on quarter, which, of course, combined with our sustained, robust growth in service, allows to continue growing in spite of the decline in NI, a larger result as a result of the market. And talking of market conditions, I'd like now to hand over to Paolo Compagna, a Chief Operating Officer, who provides a more general view of markets and our performance therein. Paolo?

Thank you, Silvio. Good morning, everyone, from my side. Overall, we maintain our global 24 year market outlook by business and the region, and we continue being very vigilant in monitoring the markets quite closely. We have made a few updates based on our best assessment, but surely considering the newest available markets numbers. Therefore. You see in Americas, we are slightly upgrading our outlook for the region to more stable due to the pickup of activities in Brazil. While in the US we see the market was down high single digit in the first half of the year, which has been clearly confirmed by the latest NEI report, which confirms minus 10% in the second quarter. and following a decline of 8.4% for the first half of this year. So therefore, we do not foresee any growth for the US market, specifically for the full year. We've also decided for a similar slight upgrade to our outlook for the EMEA region due to the strong growth in Turkey and the quite good momentum in several of the EMEA countries. In contrast, we are currently anticipating only a moderate growth in Asia outside of China with continued robust growth in India, but as low as expected growth in Southeast Asia. In China, the market weakness and our outlook downgrade from three months ago, you might remember, are now well confirmed. Well, in spite of the measures announced by the government in May, which aimed of stabilizing the real estate sector. We think about this multibillion package, which now has been geared towards increased absorption of the vacant housing stock rather than supporting new construction, which therefore led to a very limited impact to our elevator market. And the latest statistics show no major change in real estate investment and other lead indicators, while home prices continue to fall. The outlook for modernization market, which from now on we will be reporting monetary value rather than units, remains bright with overall robust demand due to aging installed base in the Western market as well as in China. The global installed base keeps growing at a healthy pace, fueled by the sizable volume sold in the prior years, in particular in Asia, now, well, being converted into portfolio. And here I like to re-emphasize that we are predominantly a service company with for more than 60% revenue generated in the growing maintenance, repair and modernization markets. And well, in terms of exposure to China, which was below 14 percent in 23, it has been even lower in the first half of this year. Turning now to the next page, slide six, and looking at our own order intake for the first half of the year by region and by business. And here we are making our reporting consistent with our market outlook. with new installation and service reported in units, while modernization is in order by value. Our global new installation order volume decreased slightly overall, due to the deteriorating market conditions in China. Elsewhere, we are pleased with our performance, especially in South America, while in EMEA, our order intake increased in the quarter, driven by Southern Europe, which for us includes the MENA region. Our modernization order in value accelerated globally in Q2 and grew by more than 5% for the first half of the year as a result, driven particularly by China and Americas. In the latter region, we were successful in winning several large modernization projects. In contrast, the timing of the large project awards or bookings was not so much favorable in Asia Pacific, now excluding China, resulting in a decline in value. Our service portfolio units continue to expand at a healthy pace, driven by the strong energy conversions, in particular in China and Asia-Pacific. With that overview, I would like to hand over to Carla to lead us through the numbers.

Thank you very much, Paolo. Good morning to everybody. So first of all, happy to confirm that we had a good first half of the year. And personally, I'm particularly pleased to see the continued margin improvement. Quarter two, you noticed it already, it marked the sixth consecutive quarter of expanding margin. Must admit, we remain laser focused on efficiency to ensure that we stay the course towards our 13% midterm target. So let's take a look or move to slide eight, which is by now very familiar to you, showing the KPIs over the proposed five quarters. Three highlights before I go into more details on the following slides. Firstly, we managed to deliver another quarter of year on year revenue growth in local currencies. despite a tough comparison from the second quarter last year. Secondly, our operating margins expanded further on a year-on-year basis, now above 11% on a reported basis in quarter two. So that sets us on a good path to achieve our 11% reported EBIT margin for the year, as we have guided to earlier. lastly although i was personally not satisfied with the operating cash flow in the second quarter which i will elaborate on shortly if we look at h1 overall operating cash flow was up 30 percent from last year and i'm pleased with that now moving on to the next slide that gives you a bit of an insight into the evolution of the order intake and the revenue year on year Our order intake in the second quarter declined by 0.4 percentage points in local currency due to a tough new installation market, particularly in China. Paolo referred already to it. It's worth noting, however, that modernization and service orders both grew high single digit in local currency in that quarter. Revenue growth in the quarter was plus 1.7%, driven by high single-digit growth in APEC ex-China and low to mid-single-digit revenue growth in EMEA and Americas. Revenue in China declined low double-digit in Q2 due to the continued slowdown of the Chinese new installation market. Now, you will have noticed that we have decided to discontinue the disclosure of our legacy backlog and backlog margin because we feel we have now worked down our legacy backlog further from the 20% of the overall backlog we disclosed in quarter one to a level which we don't think is very material or material enough to continue to report to you. And as for the backlog margin, we felt it was right to disclose that during the last two years, given the significant volatility we experienced, but that has now recovered and stabilized. And for the avoidance of doubt, I can confirm that the backlog margin was sequentially stable in quarter two and continued to improve year on year. Now, moving on to the next slide, to the operating profits. EBIT reported margin came in at 11.2% in Q2 and 11% for the first half. Price and mix were the primary drivers of the improvement. We also benefited from the higher margin of the rolled out backlog and procurement savings. However, we also continue to see persistent inflationary pressures, particularly wage inflation. And in quarter two, specifically, we also had a higher level of non-recurring operational cost item, which we don't expect to recur in the second half. Consequently, we expect an uptick in the second half adjusted EBIT margin beyond the normal seasonal uptick of around 50 basis points compared to the first half, which we have historically seen. And that stronger sequential development in underlying margins is expected to fully offset the higher restructuring costs, which we expect in the second half. For the full year, we expect restructuring costs of up to 80 million Swiss francs. That means we expect reported EBIT margin close to 11% in both second half and the full year, as we have guided to. Now moving to the next slide, net profit. Net profit grew again with net profit margin hitting the 9% mark in the second quarter. Net profit grew 7% in H1, and that is despite the 32 million boost in H1 coming from the real estate gain. Moving now to the next slide and to the operating cash flow margin. As I mentioned already, operating cash flow was good in the first half, a growth of 30% year on year, but it didn't continue the strong development in the second quarter. And it is worth noting that we had an exceptionally strong operational cash flow in quarter one that was driven by a substantial improvement in networking capital. During the second quarter, however, networking capital requirements increased in line with normal seasonality to a level which is comparable with year-end 2023. And in addition, the quarter was also burdened by higher tax payments, as well as some bigger one-off payments, which fell in June this year, but last year they fell in July. And these effects combined were around 50 million in the quarter. Now, finally, before we move to the Q&A, we move to slide 13. And I'm happy to confirm our 24 guidance. So we continue to expect low single digit revenue growth in local currencies and an EBIT reported margin of 11%. In terms of tailwind to this year's margin, we expect pricing, mix and operational efficiency to be the main drivers. In terms of cost headwinds, we continue to see wage inflation as the most prominent one, whilst material inflation is likely to be only a modest headwind for the year. Now, the recent decline that we have seen in our Chinese new installation business is something we are monitoring very closely. And given the shorter lead times in this market, that is a potential headwind. also for our 24 operating performance. As I mentioned earlier, we set our guidance for the restructuring cost at up to 80 million for the year, which again will be weighted to the second half, given that we have only booked 7 million restructuring in the first half. And allow me to conclude by saying together with my colleagues in the executive committee that we are very pleased with the progress made during the first half of 24 as we delivered on our commitments. And of course, we are very grateful for the persistent commitment of thousands of colleagues in more than 100 markets. And with that, I hand over to Lars again.

Many thanks, Carla. We're now happy to take your questions. Can I ask you please to limit yourself to two questions only, given the time we have available. Thank you very much.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets and eventually turn off the volume of the webcast. Anyone who has a question may press star and one at this time. Our first question comes from Klaus Berglind from Citi. Please go ahead.

Thank you. Hi, Silvio, Carla, Lars, Klaus at Citi. I was a little bit late here on the call, so you might have covered some of this. But first the question. Sylvia, on the stimulus here in China and your views, I mean, it's very gradual, the inventory clear out. It will probably help cash flows of developers. It will likely work in a mix as the units are sold back as basically affordable housing. And I'm just trying to understand, what are you seeing out there in your discussions with the developers responding to this? And how do you think it will impact Shimla versus Peers? You're obviously bigger in infrastructure. I understand that you've been to China several times this quarter. So I'm very keen to hear your thoughts. Thank you.

Thank you, Klaas. I by no means pretend to be able to predict what's going to happen in China. There are many more factors, but I'm happy to take a stab at your question. Generally, the situation in China, based on my conversation with clients, but also with agents, with a team, and also government people, is that I'm afraid the elevator new installation market shouldn't foresee a major recovery in China for, I would say, at least 12 months, if not 24. Today, as Paolo mentioned before, the focus is on clearing the huge stock of unoccupied buildings, most of whom are new, brand new built. And now if you go in China, even in Shanghai, in the outskirts, it's so prominent. One cannot just not see it. So I do think the approach is correct. You've seen, you know, when we used to present housing stock in tier one, tier two, tier three, now we are levels in tier three cities of about four years. This is a record. It was never that level, even in previous cycles. So I do think this has to be taken care of. Some of it will be demolished. But to come to the point, no one is actually positive at this stage, which in turn, and Carla referred to this, results in, I would say, historically record price pressure. China was always a tough market for price, I have to say, experiencing myself. Today, we got to levels that are just unheard of. So what you do, no complaint. You've got to make sure that you work on your efficiency, on your supply chain, on your cost. And that's what you're doing. While at the same time, bring into the market more and more of those products What can I say? Still innovative, but yet probably more frugal innovation-based solutions than meet market needs, because at this stage, I think that's the most necessary. Maybe, Klaas, you made a comment that we are more prominent in public infrastructure. Based on our figures, we are well-present. But, in fact, I don't think our exposure is more than that than any of our competitors. These are public tenders, so it's very difficult to establish a sustainable lead in any way. Also, there are some, if you want, local preferences based on government connection, etc. We don't play in that field either. So, yeah, we clearly are there in projects where it makes sense, where we do have a highly likelihood of conversion to maintenance and where, of course, there is also recognition for the premium we have. So, in a nutshell, the outlook for China, and I love to say otherwise, is, I'm afraid at the moment, not bright.

Very clear. My second and final one is on the guidance outside China. You're obviously increasing America and India a bit, but it seems to be driven by Brazil and Middle East and Turkey, not sort of core U.S. and Europe. Can we talk a little bit about U.S. and apologies if you already mentioned this, but am I right to assume that Perhaps residential in the U.S. is turning a bit weaker versus perhaps commercial getting a little bit better. And that's why you're not changing sort of your view on sort of core U.S. or core North America. Thank you.

Thank you, Klaas. Yes, Paolo did mention a few figures, actually, in that regard. I'd like him to take the question. Go ahead, Paolo.

Yeah, I'm happy to take this, Lars. Paolo speaking here. Looking at the U.S. market especially, I think we just have received the very latest NI numbers, which confirms, I have to say, unfortunately, also down in the commercial segment you were referring to. I think everyone is aware about the trend in housing, as in residential, which was down single digit. However, now we see also in the commercial segment for Q2, a down around 16% for the quarter. So which would indicate actually also in that segment, a visible slowdown. This is what we see at the moment. And also the reason why I was mentioning before, we do not see ourselves in the position of raising the auto for the full year in which we say, good, we look out at the situation today, anticipate it will not worsen it significantly, but we also don't expect a steep recovery, which I would call the V shape of a recovery. We don't see this for this year. And let me include the commercial segment into our observation.

Yeah, no, I was perhaps referring to some indicators looking a little bit better, like dodge, etc. But yeah, I appreciate that current activity is pretty tough. Okay, thank you.

To this one, maybe I think what we've seen, ABI is also down.

Yes, ABI is down.

So Dodge is more exposed to infrastructure and other things than maybe theirs. So that might be a bit of a, it's more stability. But NIE, the one that Paolo referred to, and ABI, which are probably stronger proxies or industry, unfortunately, show a downtrend. And this figure is just published.

Thank you, Klaas.

Thank you.

The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning, everyone. Thanks for taking my question. I have two questions. I'll ask them one at a time. First one, I just wanted to understand, in terms of if we go for potential U.S. tariffs for anything that comes from outside of the U.S., I believe back in the past maybe you brought some escalators into the US, but could you talk about what you bring into the US and your competitive landscape and how your peers operate? Do you expect any potential impacts and how you will deal with it?

Thank you, Daniela. Hello, thank you for your question. So, to be clear, we always applied a manufacturer for large markets at scale strategy. So we actually do not import escalator into the US. We have an escalator factory proudly established in North Carolina. We have factories in Europe based in Slovakia. We have factories for escalators in India and of course the one in China. So what we have to, I'm afraid still today, is to import specific components because to have scale on that, you need to have... enough multiple market access. Most of these components, I like to stress, are not produced by us. They're produced for some of our key tier strategic suppliers who then have, yes, most of the production in China, and that we have to accommodate. So if there was a tariff increase, we would be exposed on these, but the exposure so far would be very marginal. And that, of course, we are actively working with the suppliers to make sure that they diversify, not only on the basis of possible tariffs, but also on the basis of risk management, based on the lessons we took during the COVID period, so that they can diversify their production. That's something which is actually, by the way, very well supported. All those large, most of them are also Chinese companies. They are very active investing in producing and in the markets where we also have our own factories.

Got it. Thank you very much. And then my second question is just follow up on the situation in China. You obviously commented extensively on the original equipment or the new installations and the depressed environment there and very aggressive pricing environment. But modernization and service commentary in general seems a little bit more upbeat, but I guess it's the same set of players on this. So how do you see in terms of the margin environment? The volume is clear, but the margin environment on those segments, given I guess people are underutilized on new equipment, wouldn't that have sort of a cross-link implication, if you could elaborate on that?

Thank you, Daniela. Yes, you're very pertinent question. So let me differentiate. Let's first start with service. Service continues to grow largely as a result of the conversion of the large NI backlog pipeline. So the volume is there. Unfortunately, the pricing is not positive. As you correctly anticipated, the pricing pressure mainly downstream on our customers for their property, pressures them to reduce cost of everything they do, including for elevators and escalators service. So that is unfortunately, I think, not a positive thing because some of them then decide to go and work for independent service providers who I like to say very openly do not necessarily meet all the code and safety standards, but that's their choice. Some others try to do it themselves. All of that, I'm afraid, so to your point, the pricing situation is not as extreme as in new equipment in China, but it is definitely a downward trend. The one that is extremely positive and that I must say is modernization in China. This is no question. All this huge backlog of units that were installed at the beginning of the year 2000, now 20 years under severe usage, are being modernized. And by the way, since real estate still has a high value in China, people are prepared to invest in this. So that is, I think, a very positive and exciting trend and hence importance even in new equipment to have a modular platform whereby you can use the same components also in modernization. There, whether it is for pricing and volume, the trend is positive.

May I just clarify, but isn't the same set of players that do new installations can do modernization? Why does the price end up being positive? Isn't it out of the same pool of capacity? Do you think it's sustainable that the pricing will be positive?

First of all, there are different customers because the ones that are prepared to invest in their own real estate properties are the ones that want to preserve value. while others let it just decay, sadly enough. So that's point number one. Point number two in modernization, it's a much more sophisticated job than new equipment. So while in China there are still a number of local players that, I'm going to say, try to salvage their overcapacity by discounting at very low price equipment, basic elevator units, they do not have the skills and engineering to know how to modernize. So while they can occasionally sell components, they cannot deliver for projects. So it's not exactly the same market.

Got it. Understood. Thank you very much.

Thank you, Daniela.

The next question comes from Martin from ZKB. Please go ahead.

Yes, good morning, everyone, and thank you for taking my questions. First of all, Gala, you alluded to some special costs that happened in H1, which shouldn't come back in H2. Can you elaborate a bit on those costs? That's my first question.

They are actually a bit of a basket, I would say, of really what we call non-recurring operational. And it's just like a bit of, I would say, I would not call it coincidence, but that they came there. I don't want to elaborate on it because they are a bit of a combination of elements, but I definitely can confirm that they are non-recurring. Yeah.

And the size? If I may build on Carla's answer, it does also be said, part of dealing with this turbulent markets also means negotiating with suppliers lower cost. And it is fair to say that in some cases this involves payment terms. And so by providing upfront payments, which is one-off, we managed to obtain better costing for some of our key components. As you know, we have a large part of our production, which is bought and not made. So these negotiations traditionally happen beginning of the year, and that ended up being closed with payments in that part of the year. So that also played a contribution in that networking capital impact in the first half of the year, in particular in Q2, I must say.

That's like what, 20 million or?

Yeah, I think this was referring to the non-recurring in the cash flow. And then we have a bit of the non-recurring on the operational in quarter two. And you see, you know, how nevertheless it compares on each one. And there it's what I was referring, you know, to this combination of, yeah, non-recurring operational elements. Yeah, it is definitely, you know, and yeah. a number of millions that are sitting there.

Okay. Thank you. And then a second question, maybe a more strategic one. When you set your 13% EBIT margin target, obviously you were probably a bit more optimistic on the trend in NI that we will see the next couple of quarters and years. So what does the new environment really mean for you to deliver on this 13% margin? Obviously appreciating that you will cut down costs even further now. But does this kind of lead to a delay of the targets in time wise?

No, I'm happy to confirm that that will not be the case. And if you remember, Martin, when we were at here and giving a bit of more insight into this midterm, I also said explicitly that the levers to further improve our profitability are in our own hands, and we have not built the midterm target setting. on, I would say, very positive outlooks or help from the outside. And therefore, I confirm what we currently see in the market does not jeopardize our path to the midterm target that we have set ourselves.

That's good to hear. Thanks a lot.

Thank you.

Thank you for your question. The next question comes from Andre Kuknin from UBS. Please go ahead.

Good morning. Thank you very much for taking my questions. I wanted just to first touch on China a bit more and this unprecedented kind of high single-digit pricing pressure, as you mentioned. From memory, the market's kind of profit pool structure was already quite skewed towards kind of a handful of larger players that were still achieving decent profitability, and it was a very, very long tail that was kind of barely breaking even or even underwater. What's your take on what happens to our tail now that the pricing got pushed down further? And do you think you can achieve or do you think those players or the market can achieve kind of structural cost downs to compensate for that, for that tail to stay alive?

Andre, thank you for your question. It's one of those forward-looking questions which is frankly difficult to assess. I think ultimately my experience here is that China always manages to recover. This one is a bit of a longer one. Also my sense is that there is a country, maybe the only one that is comparable is India, where there is a speed in accommodating downturns and cost reductions China is second to none. So I can see the activity within our own supply chain, within our own R&D and at our suppliers level is extremely, extremely active. So I do think that that combined with the fact that, as you will have seen, some of those players, downstream customers are actually going out of business. that will ultimately bring rationality back into the pipeline. And that is actually what I think the government wants to achieve. So how long will it take, Andre? I don't know. But I can see at the end of this, as it happened in a different way in other parts of the world in previous cycles, a few decades ago, that ultimately will result in a I'm going to say creative destruction that will be conducive to a value-creating market, I'm certain. But how long it will take, I'm afraid.

Got it, thank you.

The next question comes from James Moore from Redburn Atlantic. Please, go ahead.

Morning, everybody. Thanks for the time. I've got two, if I could. One is on NI margins and one on the EBIT bridge. If I start with NI, could you comment a bit on whether that 20 basis point increase year on year was sort of broadly similar NI service mod? And what I'm really driving at is you've got this NI opportunity, less so in China, perhaps more in Europe and even more in the US. And I'm just trying to understand how whether that is progressing better than expected and being offset by China and maybe even service or margin declines or whether that's still yet to come through. Obviously, I would love all the numbers, but I'm not expecting that. Just qualitatively, if you could just say how that's developing, that would be great.

Thank you, James.

Yes, for sure. I mean, if you look at our EBIT bridge, and I guess you're referring to the EBIT adjusted and the uptake of the 20 basis points, James. Is that correct?

Yes, adjusted EBIT progression of 20. I wondered if, firstly, my mod service was totally similar.

Yes. If I just take first a bit of a step back. First of all, in terms of efficiency, obviously, you know, we continue there to do the good work. And you know what our efficiency levers are there in terms of, you know, mainly I would say the procurement savings that are coming through. They are now more, of course, than offsetting the inflation, because if we just boil it down to inflation, the major one is the labor inflation. I referred to that one because in terms of material cost inflation that has been been fading, been fading out. And then, of course, it's also good on a global basis to say that we remain pretty stable. pretty disciplined when it comes to pricing overall. Now, we need to take clearly China apart because for the reasons that we mentioned, but if you exclude China, overall pricing has been pretty disciplined and stable. You have a bit of pockets of up and down, but overall... We are quite okay, you know, with the outcome there. And then, of course, we should not hide away from it. We have also a bit of an upside that relates to the business mix that was also clearly mentioned in the press release. Yeah. Does that give you a bit of insight in that uptake? And that is because we see that healthy uptake and we expect that also going forward in the second quarter, in the second half, that we foresee that we will be able to offset the increment that is coming from the restructuring. And you know, because you follow us quite closely, that we said from the start we would work very effectively on the efficiency and you also remember you know that our overhead cost we talked about also at several occasions that we would bring that down and clearly you know that is what we are now executing because that that that is a must yeah so we are we are executing actually what we what we actually planned

if I can make my second question a follow-up, if we were to talk just about NI Americas, which I felt was a real opportunity, and you were to say, from the start of the journey to the finish, how far do you think we are through that?

Honestly, good question.

But let's see, James, at the beginning, I would say, In America, we today fix the basics. We fix the basics. And now we start the journey largely with introduction of this new mid-rise product. We have much more room to improve in terms of supply chain, in terms of organizational efficiency. But I am very positive also about the new team we have in place. And I must say something that we said, Paolo should comment as well here, is that with all the ups and downs typical of the US market, but generally the pricing in the US still holds much better than anywhere else in the world. So all of that suggests that while not expecting a big boom, regardless of anything that happens in the market, we are in the position to finally start a journey in the US where, candidly, we can say, as you know, those who follow us, we've never achieved the level of performance that we've had in the rest of the world. Paolo, would you agree?

Absolutely, yes. James, hi. Just one underlining point to Silvio's comments. Where we are in the US, and we were discussing this last time we saw us, I think we are now in the position we can participate, let's put it this way, and talking, looking forward. And I was mentioning before the NI market and how it looks like now. Okay, point taken. However, under any one point, we see in the modernization business, by example, in the US, pricing is still okay. And the business is okay. And we are there. So I think we are... where are we in the journey in percentage difficult, but now we're there.

That's great, Keller. Thanks, guys and girls.

The next question comes from Elliot Robinson from Bank of America. Please go ahead.

So, hi, thanks for taking my questions here. The first one is actually just to do with the way that you're reporting. Could you just clarify why you've reported modernization in value terms and then new installations and service in unit terms? Thank you.

Hi, Elliot, Paolo here. Let me briefly explain. To make it more comparable, I have to say, as modernization, very clearly also within the industry modernization is somehow between big big repair business and smaller modernization and let's say big modernization in which you can imagine an entire elevator has been replaced so this been said how you count units right so now you can move a lot of units as elevators which are partially modernized in a big big repair you can count as modernization or not And then we thought it's more comparable to keep as a measurement the value of what is really a modernization business in dollars, in monetary values. That's the reason.

Okay, sure. And just a quick follow-up before I go to my other one, if there's time, although let me know if not. Is there a sort of general mix that we should be thinking out within modernization? So how much falls into each one of those categories? those brackets that you mentioned there.

Yeah, but it's not a mix for us. We exclude when we talk about modernization value, we in Schindler, we exclude whatever is a repair business or a big repair. We don't count as internally when we talk about modernization, not as modernization. When we talk modernization in Schindler, it's really a significant change of the system or of the main components. to new upgraded components so therefore for us the mix within the modernization is quite little as we talk just about that part of the business which is substantial renewal of all major components of the elevator okay perfect and then if i can squeeze my original second question in really quickly and it will be fast um

On the market outlook for China, obviously it's falling more than 10% in the new installations. Is there any more of a narrow bracket you can give us? Because I'm aware that's the bottom end. Is it minus 10 or is it minus 15? It'd just be good to get a bit more color there. Well, I'll see if you like that.

So, Elliot, well, how it looks going forward, difficult. As Silvio was mentioning before, do we expect a pick-up soon? No. Can someone expect it might get worse before it gets better? Difficult to say today, right?

And in terms of figures, Elliot, we probably can say it's... Above 10%. Did it hit 15% yet? Not yet. So it's then between 10 and 15. And frankly, we monitor this closely every month. But that's the best I can tell you now. That's perfect. Thank you very much for that. Thank you.

The next question comes from Miguel Borrega from BNP Baribar. Please go ahead.

Hi, good morning, everyone. Thanks for taking my questions. You mentioned the backlog margin improving, and I guess that's a little bit driven also by the new modular platform. Can you talk a little bit about the implicit margin in this new modular platform? Can you maybe quantify or give some kind of indication on how much better these are relative to what was being booked under the legacy platform? And then just in terms of efficiencies, can you maybe give some color on the improvements here in terms of timing and so on. And then lastly, what are the risks to when you deliver these orders? Because obviously this is a relatively new platform. What are the risks implied to when you execute? Thank you.

Miguel, let me just start with the last question and I'll pass it on to Carla. The risk, we are trying to do everything to minimize them. And so at the moment, we actually, for the first units, very inefficiently admit we assemble them in the factory before delivering them on site to make sure everything is working fine we had the crews of people from all over the world interested in europe today so from different countries to come and be trained in the factory in in assembling those before they come into the field So to your point, you should never say never, unless there is a major crash of one of our key suppliers that wouldn't be able to supply. I cannot imagine or a major drag on logistics systems worldwide, which we contain to Europe. It's difficult to see what else is there, but I'm pleased to say that the first units we installed are meeting our expectations, and I would say probably even a bit better. So this is the last point. Now, I'll give it to Carla to speak, but in fact, the question was asked before. We'd rather, very candidly, exactly because of what you say, we'd rather not disclose any margin improvement or clearly it's part of our plan going forward until we don't have more units installed and we have the whole thing validated. But it is fair to say... to our 13% bridge. That is a key element of that. And by the way, the type of action that we need now more than ever, we started before, but now that the market in an eye is slowing down, as we explained, now this is the type of action that will drive efficiency, I like to say, not only in terms of material cost, But we talk about field, we talk about sales process, we have a whole new configurator that goes with it. We talk about billing process, supplier management. So maybe I used the expression in the past, in which case, apologies for repeating myself, this is really a snowplow effect. whereby this then drives efficiency throughout the value chain. And then we are trying to apply this now the whole approach throughout everything we do in the company. And I mentioned before, using the same components also for modernization. So I'm sorry, we cannot give you an exact number, but hopefully that gives you some color. And we look forward to doing that maybe when we have more units installed.

Michele, come on.

yeah coming back to this uh to the backlog uh margin and indeed you know i reconfirmed that it is stable year on year uh quite a solid uh improvement and of course there are different elements that play there but don't forget you know we we are working through this dilutive legacy so that is still hanging there and and of course you know You know that we said at the beginning of a year around 20%, so that further decreases. That is one of the elements. But don't underestimate also the recovery of this whole supply chain that we went through and the fact it has there. And of course, the current markets inspire us more to go even more aggressive on cost outs. which is also reflected in that. We talked already about the pricing and then slightly but surely you have, of course, the new modular platform that is kicking in. But relatively, I mean, that is building up over time and that is still a small part. We have launched it in five countries. So it is a mix of these elements. Does that give you a bit of more insight in it, Michele?

We may have lost him.

Mr. Borega, I suppose your line is on mute. Okay.

All right, we'll move on to the next question, please.

The next question comes from John Kim from Deutsche Bank. Please go ahead.

Hi, good morning. I may have missed this, so apologies in advance, but can we unpack your service revenue and how that's growing? I'm trying to get a sense of price mix versus acquisition versus just unit counts in the base. Any color here would be helpful.

Thanks. Thank you, John.

Carla, would you like to say something? Yes, our service revenue is growing, I would rather say, high single digit.

Okay, and when you say... For the full house, yeah.

When you speak to service. Yeah. Okay. And can you give us a sense of the relative performance of maintenance versus your modernization efforts in that number?

Well, actually, both are on a comparable level.

Okay, fantastic. And a very quick follow-up question. Given the negative dynamics in China, can you give us a sense of what book the bill looks like for you in the country now?

Sorry, can you repeat?

Profitability in the country, in China, is still above the average profitability of the group. Not, I would say, hugely, but yes, I can say we are definitely able to have a China business model that is adding to the overall value creation in the company. And of course, this is a combination of different businesses that we have. We have our main brand, Schindler. We also have dual brands. And all of that helps us to be able to navigate the store. It has to be said, though, that in view of the situation, this is a fight to be earned every day.

Thanks for that, but I was asking about book-to-bill. Sorry for the confusion.

Book-to-bill. Okay, so please, go ahead. Book-to-bill.

Okay. Sorry.

I heard profitability. John, apologies. Carla, please.

Well, I mean, first of all, our book to build is, of course, impacted by the decreasing order intake. So, of course, I mean, that is clear that that is decreasing. That is a natural consequence. We see on an order intake that is double-digit decreasing.

Okay, thanks so much.

Yeah, thank you.

Thank you, John.

Thank you, John. The next question is a follow-up from Andre Kuknin from UBS. Please go ahead.

Yes, good morning. Thanks for squeezing in. I think we're on delay a little bit here, so by the time I got to ask the second question, we're done. I just wanted to talk a little bit more about the acceleration of restructuring with the higher charge that you're guiding towards for the second half of the year. Could you talk about whether this is acceleration of the measures that you were already planning in the beginning of the year? Is it some new initiatives that are kicking in and maybe talk about what is triggering this as well, please?

Thank you. It is actually an accelerated executions of the plan that we had already, André. So you also know that one of the focus area was the overhead cost, and that's what we are addressing with this structuring, because it is mainly focused, solely focused, I would rather say, on office positions that we will reduce now in the coming months. It's on a global basis, but it is mainly also focusing on the main country headquarters, the zone headquarters, and obviously also the global headquarters.

Very clear.

Thank you very much.

Thank you. The next question comes from Nick from RBC. Please go ahead.

Thanks very much for taking my questions. The first one is just a quick follow-up on the comment that you made about China margins being above the group level. Can I just confirm that that's for all business lines or is that specifically for new equipment? Carla?

No, we are talking about the totality of our Chinese business.

Okay, great. Understood. And then just a quick one on building minds and how you expect the expenses for that business to develop going forward. And maybe when we start to see some of the benefits coming from that new result.

Yeah, so currently, and you have seen that also in the adjustments, because the adjustments now include only restructuring and the building mines. Well, you have seen there approximately, you can calculate it, a run rate of 2 million a month. And we definitely have the objective to bring that slowly down in the second half of the year.

Okay, but continue again to next year. Absolutely. Thank you.

Thank you. The next question comes from Peter Manuel from Helvetische Bank. Please go ahead.

Yes, hi, hello.

Historically, Schindler issued guidance for net profit with the half-year results. Now I was wondering what is stopping you from doing so this year?

No, no, sorry, we don't stop. We just reconfirm our guidance. So we reconfirm the guidance for 11% EBIT reported for the full year 2014. So net profit.

Okay, but absolute profit level on net profit, which you historically did?

Yeah, I know. I thought we made an improvement with guiding for net profit margin-wise.

Okay, got it. Thank you.

Thank you. As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Andy Schneider from Z Capital. Please go ahead.

Just a quick one. Just to be sure, the 80 million restructuring costs, is that with or without building mines?

That is without building mines. It's literally 80 million restructuring costs.

Okay. Perfect. Thank you.

We have a follow-up from John Kim from Deutsche Bank. Please go ahead.

Hi, thanks for the opportunity. I'm just wondering if we could speak a little bit about margins in maintenance. I think the last time we spoke, there was some color that you had underlying wage inflation, you had service contracts that were indexed, but these didn't always match one-to-one. that there could be perhaps margin pressure or less operational leverage than one might expect on growth. Correct me if I'm wrong, and is that situation changing, getting better or getting worse? How should we think about it?

Well, I mean, in the service business, like in any other of our activity, you have always, of course, pressure. And that is the labor intense part. But nevertheless, I mean, we are, as I said at my introduction, we are really focusing on efficiency. And we are committed, you know, to offset these upwards pressures through efficiencies.

Okay, thank you.

Thank you, John, for the question. And thank you very much, everybody, for attending the call today. I'll pass it on to the operator. If there's any other follow up calls, please feel free to reach out to me and the team. The next scheduled event is the presentation of our third quarter results on October the 17th. With that, thank you and goodbye.