Schindler Hldg Ag Akt

Good morning, ladies and gentlemen, and welcome to our first half 2025 results conference call. My name is Lars Borson. I'm head of investor relations at Schindler. I'm here together with Paolo Campagna, our CEO, and Carla De Geisler, our CFO. Paolo will discuss the highlights of our first half results and our 2025 market outlook, and Carla will then take us through the financials. After the presentation, we're happy to take your questions. We plan to close the call rather at 11 o'clock. And with that, I hand over to Paolo. Paolo, please go ahead.

Good morning, everyone. I'm pleased to be back to report on our performance in the first half of this year. And let me start by giving you some highlights on slide number three. First, we have seen organic growth starting to return to the business, which is encouraging after a period of low growth in the prior years. We delivered over 5% order growth in local currencies, and we continue to see very good momentum in our modernization business, which grew 22% in the first half of this year. Services grew mid single digit in line with historical trends and as a service company on a level we would expect to grow at. Second, revenue growth was more muted But our backlog is growing at a healthy pace, up 4% in local currencies. And that bodes well for continued revenue growth in the second half of this year, setting us up to deliver on our full year 2025 revenue guidance of a low single digit growth in local currencies. Third, we delivered a strong operating margin at 12.3% for the first half of this year. Carla will be happy providing you with more details on the drivers behind this, but I'm pleased to see that our SG&A efficiency initiatives from last year are delivering the expected savings in 2025 and that our procurement and supply chain operations continue to support margins. Third, we delivered a good operating cash flow at 703 million Swiss francs in the first half of this year. That is up from last year's strong levels, and we expect to deliver another solid operating cash flow in 25, even if we might not hit the exceptional levels of last year. Now, beyond our financial performance in H1, let me touch on some of the opportunities and challenges we see in our operations and in our external environment. Firstly, let me highlight the progress we are making with our new U.S. meat rice product. You heard us last year talk about the launch of this product, a key initiative in a strategically very important market for us. The customer response has been overwhelmingly positive and the first installations have been successfully executed, setting us up to complete the rollout over the coming quarters. In terms of external headwinds, and Carla will walk you through the financial impact of these, let me say on tariffs that we are making good progress on mitigating the impact with pricing actions and supply chain measures. Obviously, this is a very dynamic situation, but I'm confident that we can mitigate the majority of the known tariff impacts in 2025. And it is also clear that currency headwinds are now back for Schindler as the Swiss franc keeps strengthening. This is why it is important that we remain absolutely focused on what we can control. Here I'm very pleased with the progress we are making on our efficiency initiatives. The gains from these measures are increasingly visible in our operating performance. as you can see from the uptick in the operating margins finally a word on china and what we are doing to set up our organization for future success when i took over the ceo role earlier this year you heard me talking about repositioning our china business towards future growth opportunities whilst we continue to streamline the organization for greater efficiency and speed of execution. These measures are now well underway, and I'll be happy to keep you updated as we make operational progress here over the coming quarters. Moving to our market outlook 2025, now on slide four. We continue to expect the service markets globally to grow at a healthy pace. However, we cannot clearly see the impact of the prolonged and a market contract contraction with noticeably fewer units getting converted to installed based. Hence, we have no reduced our China service market grow outlook with obviously has an impact on the global figure. Given the country's relative size in unit terms, however, The revision is modest and we still see China's service market growing to mid single digit. The modernization markets are projected to experience continued growth worldwide with mid to high single digit growth across the world and double digit growth in China as the government's bond program continues to facilitate the upgrading of tens of thousands of aging elevators. In new installations, we anticipate the global market to decline by a high single digit, mainly due to a low tins contraction in China. The new starts of residential floor space in China fell about 20% year-to-date in 2025, continuing a four-year trend of 20-plus percent declines, despite government efforts to stabilize the property market. There are slightly better trends in Tier 1 cities, but overall it remains a challenging market. Across the EMEA region, although some markets are projected to contract this year, conditions appear to start to improve in Germany and France, with sustained growth reported in countries such as Spain. Asia-Pacific, excluding China, is expected to grow mid-single digit, driven by India and Southeast Asia, with an improving situation in Australia. We maintain our expectation that the America's new installation market will experience a modest decline in volume this year amid softer leading indicators and ongoing trade policy related uncertainties. So, but how did we perform in this market environment in the first half of this year? Now turning to slide five. First, service. Our portfolio units continue to expand, showing strongest growth in China and Asia-Pacific, even as China conversions slowed as a consequence of the annual market decline in the recent years. In addition, we also made steady progress recorded also in EMEA. On modernization, I'm pleased to report that Q2 accelerated double-digit growth in all regions, building on a Q1 strong momentum. As indicated in April, China modernization orders accelerated sharply last quarter after the softer growth we saw in Q1, and we anticipate continued robust growth through the remainder of the year. Finally, on new installations, our global order volumes decreased by mid-single digit, mainly due to the prolonged weakness of the Chinese market, In addition, a pleasing pick-up in orders in Northern Europe could not offset decline in the Middle East, which was entirely driven by two exceptionally large projects booked last year and the resulting high comparison point quote-unquote. Note that in value terms, growth was strong in Q2, up mid-teens in EMEA. Our performance in the first half of the year was the strongest in America's region, followed by Asia Pacific, excluding China, where our orders grew at close to double digits. With that, let me turn over to Carla to walk us through our financials in more details.

Thank you very much, Paolo. Good morning, everybody. Happy to take you through the financials of the second quarter and obviously the half year. So let us start with slide seven. And, you know, slide seven, it's our usual snapshot of the last five quarters. And let me point out a couple of highlights before we dive into the details later on. So firstly, as Paolo noted, it's very pleasing to see the pickup in order growth in H1. For the quarter, growth came in at 4.6% in local currencies, with growth in all regions outside China. And with modernization, a very strong contributor, up 24% in the quarter, followed by service. Second point, revenue growth is slower, primarily as a result of the steep decline in China new installations. But rest assured, our backlog is building and I'm confident that we will deliver on our full year guidance for 25 of low single digit growth in local currency. I will elaborate on that a bit further. Thirdly, we continue to make really good progress on the journey towards our 13% EBIT reported mid-term target. In this quarter, our reported EBIT margin came in at 12.6%, which is a strong improvement over last year, despite higher restructuring costs. Our adjusted EBIT margin came in at 13.5%, which is an improvement of 130 basis points sequentially, and 190 basis points year on year. And this is really a standout performance, partly driven by a pickup in efficiency savings this quarter. More about that shortly. A last word on our operating cash flow. This quarter was slightly lower than last year, despite the good development in operating earnings. And the lower cash conversion is primarily related to the decline in financial income. But looking at the first half as a whole, I'm pleased with the progress we are making on operating cash flow. So let us move to slide eight, where we will look at our order and revenue growth in quarter two. So the first important point to make here is that we faced very severe currency headwinds in the quarter. So FX shaved off 196 million of our order intake growth, more than offsetting the organic growth. Looking ahead, I expect a similar impact on order intake in the last two quarters of the year, assuming FX rates stay at current levels. Now, it's nice to see that we continue to generate healthy organic growth of 4.6% in local currency, which is very much driven by service and modernization order growth. So the modernization grew above 20% in all our regions this quarter, with China making a strong comeback after a softer quarter one. Now, as for the revenue growth at the right hand side of the slide, revenue slowed to just 0.4% in local currency in the quarter. And that is mainly driven by a decline in new installation, which was the big headwind. It was down high single digit in the quarter, mainly driven by China, which was down almost 30%. However, mod and services were able to offset this decline in new installations. Modernization revenue grew double digit, reflecting good execution and a normalization of the backlog rotation times, while service grew mid single digit, consistent with recent trends. Now, looking forward, I expect revenue growth to gradually accelerate from the low level in quarter two, given current order trends and the growth in our backlog. So that means that second half growth is likely to be very similar to what we have seen in the first half. As of the quarter end, Q2, our backlog was up 3.8% in local currency. very much driven by mod and service, which had backlogs up high single digit year on year. But it also has to be noted that our backlog in new installation grew year on year up 2%. Now, Let me briefly touch on our backlog margin, which also improved again in quarter two sequentially. So we have now seen three quarters of sequentially positive development of the backlog margin after the rather flattish development through most of 24, which is very encouraging. Now, let us move to the next slide, slide nine, and take a look at our EBIT performance. So first focusing on the drivers of our operational improvement, you can see the 93 million you see in the first half bridge. That was 37 million in our Q1 bridge and now 56 million in Q2. So that partly reflects an acceleration in gains from efficiency measures taken last year, and now increasingly visible in our P&L. So good progress when it comes to SG&A savings, but also procurement savings continue to deliver. Price and mix were contributors, however, less than the operational efficiency this quarter and less compared to prior quarters. Our reported EBIT was burdened by 22 million of restructuring costs in H1, and we took all of these restructuring costs in Q2. Now, moving to slide 10, taking a look at the net profit. Our net profit grew to 274 million in Q1. And 531 million in H1. So net profit margin continued to improve now at 9.9% for the last quarter. And this uptake comes despite the higher restructuring cost and despite the headswinds in financial items below the operating line. including lower interest income, partly of course related to the lower Swiss interest rate, partly to one-time financial gains in last year's period. Now moving to the operating cashflow on slide 11. So I said already, cashflow was strong in H1 and came in at 703 million up from last year high level. Quarter two, however, was broadly flat versus last year, reflecting higher cash restructuring costs, lower financial income and lower down payments, which impacted our net working capital in the quarter versus the prior year quarter. Overall, we have made good progress on net working capital, as you will also note from our balance sheet, so still it is still negative and approximately 1 billion Swiss franc. So at a level where we closed 24 and an improvement of around 200 million versus June last year. Now, as Paolo said already, we expect to deliver another good operating cash flow in 25, even if we might not hit the exceptional level of last year. now coming to the guidance so guidance for the remaining part of 25 which actually remains unchanged so for the full 25 we expect a low single digit revenue growth in local currency and an ebit reported margin of 12 percent now i will happily preempt the question Why not a more ambitious margin guidance after the strong first half? So let me address it upfront. There are actually a couple of reasons why we expect the margin expansion to be more muted. Some of the reasons are internally, some of the reasons are externally. Let me start with the external reasons. First of all, remember, we guided on reported EBIT margin. And as Paolo referred to already, we are raising the amount of restructuring charges that we expect to take this year, now up to 70 million from our prior view of up to 50 million. And the majorities of these increased restructuring costs will come in H2. So why a higher level? Well, because we have identified further efficiency opportunities Partly from our view of our China organization, and we take this opportunity to accelerate the streamlining of our organization. Second reason, we are working hard to offset the impact from tariffs in 25. But of course, there is a risk that we are not able to fully offset the gross impact in 25 with our mitigating actions. Based on the tariff levels as they stand today, we estimate the gross impact to be approximately 20 million, so broadly in line with what we shared with you after our Q1 results. But obviously, this does not include the possible tariff escalations from the 1st of August on certain countries and commodities such as copper. Perhaps more importantly, it remains uncertain how the tariffs will impact the economics of our customer construction projects and our new installation market more broadly. Moving on to a couple of internal reasons. So, yes, we are facing some operational headwinds in the second half, partly from China, which is a seasonally higher contributor to the group in H2. And the low margin orders taken in China in 24 will have, of course, an impact on our P&L as the year progresses. And finally, we also have less margin tailwind from mix in the coming quarters as our MOT business grows in the revenue mix. so in conclusion let me end by thanking together with my colleagues in the executive committee our close to 70 000 employees across the globe for their efforts so far in 25 not least our colleagues in the field who are operating in some exceptionally challenging circumstances in many places around the world But we believe we are very well placed to continue our journey to serve our customers very well and win in the markets where we are operating. And with that, I hand back to Lars.