Schindler Hldg Ag Akt

Ladies and gentlemen, welcome to the Schindler conference call and live webcast on Q3 results 2025. I am Valentina, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Brorson, Head of Investor Relations. Please go ahead.

Thank you, Valentina. And good morning, ladies and gentlemen. Welcome to our Q3 2025 results conference call. My name is Lars Brorson. I'm Head of Investor Relations at Shind. I'm here together with Paolo Campagna, our CEO. and Kalle De Geisler, our CFO. As usual, Paolo will discuss the highlights of our quarterly results and our market outlook, and Kalle will take us through the financials. After the presentation, we're happy to take your questions. We plan to close the call at 11 o'clock in an hour's time. 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 Q3, And as Lars said, let me start by giving you some highlights on slide number three. Firstly, let me say that we continue to face some growth headwinds in major new installation markets around the world, particularly in China. I will share our order trends in more detail shortly. But before, let me remind what we discussed back in February. A key pillar to our strategy of profitable growth is the pricing discipline. And we demonstrated it again this quarter on a few major projects where the economics were just not consistent with our return expectations. That said, we see good growth momentum in many parts of our organization and particularly in modernization. Orders were up over 16% in the quarter, despite the strong growth we had in Q3 last year, allowing us to show another quarter of order growth for the group. Second, revenues slowed in the quarter, down 0.5%, whilst our year-to-date revenue is up 0.8%. Also here, the headwind from China intensified in the quarter. But our backlog is growing up 1.5 percentage points year on year in local currency driven by modernization business. And we are confident that continuing to expand our capacities, we will execute successfully on this backlog. So I expect us to deliver our full year 25 revenue guidance of a low single digit growth. Although this is likely to be a very low single digit, similar to what we delivered in 24, as Carla will discuss. Third, we delivered another strong operating margin in Q3 at 13%, up 130 basis points from Q3 last year. And we are now able to revise our full year 25 margin guidance, which we see coming in at around 12.5%. That compares to 12% previously. Carla will provide the detail on that, but I'm very pleased to see that the efficiency initiatives launched over the last couple of years are yielding their results. Now, beyond our financial performance, let me touch on some of the other highlights of the quarter. First, we are making very good progress on the rollout of our new US mid-rise product. This product was launched in 24th And we have now successfully delivered and handed over the first units. And our order intake, so 525, is exceeding our plans. You will remember that this product launch was about leveraging our standardized modular platform and enhancing our mid-rise offering in the commercial and high-end residential segment, a key pillar to our strategy in the U.S. market. We are starting to see the results in terms of share gain in the US mid-price market, which is really encouraging. On to modernization, where we continue to industrialize our operations and standardize our product portfolio. We are seeing very good traction with our standardized packages, which now make up close to 17% of our modernization business. And that is not only driving growth, but also enhancing our competitiveness and supporting our journey towards higher profitability in modernization going forward. Then on the topic of sustainability, I'm very pleased to announce that you are installing the industry's first ever low carbon emission steel elevator. The steel used in this elevator reduces carbon emissions up to 75% compared to conventional production and marks an important step towards our 2040 net zero target. And finally, I'm also proud that we have been recognized by Forbes again this year as being among the world's best employer. In the engineering and manufacturing sector, Schindler was ranked third globally. We have close to 70,000 employees and attracting and retaining talents is absolutely essential to our competitiveness and overall health of the company. Well, so you can imagine this recognition is important for us. Moving to our market outlook for 2025 on slide four. We expect the service markets to continue to expand across all regions. with the lowest growth rate in the Americas and the highest in Asia-Pacific, driven by India. The modernization markets continue to offer a clear growth opportunity across the world, with mid to high single-digit growth outside of China and growth well into double digits in China. With around 100,000 aging elevators approved this year for an upgrade within the government's equipment renewal program, To put the scale of this initiative into perspective, just imagine replacing all elevators in Australia in a single year. In installation, we continue to expect the global market to decline by high single digits, mainly due to a low tins contraction in China, where home starts by floor area continue to fall by close to 20% year-on-year. In the January to September period, following a three years of 20 plus percent declines. Home sales have dropped 5% overall, with only the four tier one cities showing a slight increase, with all other cities facing steep declines. Across the region, in addition to good growth in countries such as Spain, now also the important German market appears to have found a bottom and is expected to gradually recover going forward. The so-called Bauturbo initiative to fast-track housing project, recently approved by the German government, should be seen as a positive development overall as it aims to simplify planning, shorten approval times to three months, and allowing flexibility in building rules to tackle the housing shortage in the coming quarters and years. Asia-Pacific, excluding China, is projected to grow by mid-single digits led by India and Southeast Asia, with conditions improving in Australia, and the US new installation market has shown remarkable strength, further increasing from a tough Q3-24 comparison point. In addition, we saw better data coming from Brazil in Q3-25, And we have therefore decided to revise our America's new installation market outlook to stable from slide down previously. So how did we perform in this market environment in the third quarter of the year? Turning now to slide five. Starting with service, our portfolio units continue to expand, showing the strongest growth in Asia Pacific, excluding China. In America, we saw a slight decrease as a result of our increased selectivity when it comes to recaptures that we decided to pursue, as well as from softer conversions. As a reminder, we saw a decline in our NI orders in 2023, and this still has an impact given to the normally longer lead times, especially in North America. On modernization, we have maintained the strong momentum seen in the prior quarters and saw a double-digit growth across all regions, except for Asia Pacific, excluding China, with fewer large projects booked in this particular quarter. Year-to-date, our mod growth in the region remains in double digits. Finally, on new installation, our global order volumes decreased by double digits due to China, where, as mentioned back in July, we are responding to the prolonged weakness in the NI market by resetting and repositioning our China business towards future growth opportunities. Outside of China, our NI orders grew mid-single digit, driven by an upswing in orders in our Europe South and South America zone. And it is worth flagging the comparison from quarter three last year, which was the best quarter in 24 for NI. particularly due to our strong performance in the Americas. But the US continues to develop well and, as mentioned, we are pleased with the customer reception of our new mid-rise product. With that, let me turn over to Carla to walk us through our financial results in more details.

Thank you very much, Paolo. Good morning, everybody. Pleased to take you through our financials related to Q3. So let me start with slide seven. And as a simple summary of the quarter, we continue to see headwinds to our top line, but we are executing very well on the bottom line. So starting with the headwinds at the top line, so they are particularly severe in China, and we remain committed to our strategy of pricing discipline, as Paolo just mentioned. It's also important to note that FX headwinds are definitely not declining. We had a hit of over 100 million CHF this quarter to both the order intake and the revenue. I will elaborate on the top-line trends shortly. Before doing so, let me point three highlights for this quarter. we had another very strong quarter in terms of operating margins, up 130 basis points for both, reported and adjusted EBIT margin. So we continue to make very good progress operationally, and that is obviously translating into a margin expansion which is coming in slightly better than expected, which is also why we are revising our full-year margin guidance. Secondly, our operating cash flow improved both sequentially and compared to last year. And now looking at the operating cash flow year to date, we are also up versus 24. So just shy of a billion Swiss francs for the first three quarters and setting us up for another strong year for cash conversion. Finally, Our net profit continues to increase versus last year in both absolute and margin terms, despite the decline in financial income as well as FX headwinds and higher restructuring costs. Now moving to slide 8 and taking a look at our top line development. Let me first say that we don't see any material shift in order trends overall, even though growth in Q3 came in somewhat lower than in our first half. Now, large projects are lumpy and we had fewer of them this quarter compared to the prior two quarters. And if you look at the underlying trends by region and segments, there are two things that stand out. First, the continued steep decline in China. Second, the strength in modernization. So on China, here our new installation orders declined by over 30% in value in quarter three. driving the group new installation orders down mid single digits in the quarter and more than offsetting the growth we saw in new installation orders outside of China. So even as China becomes or became a smaller part of the overall group orders, it continues to materially impact our growth profile, notably in new installations. However, organic growth was still positive in the quarter due to the growth in service and modernization. So in modernization, order intake was up 16.4% in quarter 3 and this on a tough comparison versus quarter 3 last year when we grew at 20%. And growth was broad-based, with strong double-digit growth in Europe and Americas, whilst China had the standard quarter up well over 50%. Year-to-date, China is up close to 40%. Now, this strong order growth in modernization also presents some operational challenges for us in terms of scaling up our delivery capabilities. So the execution of our mod backlog was not as efficient in quarter three as it could have been. So we recognize that, which meant that revenue growth came in at mid single digit in the quarter, albeit on a tough comparison from last year when mod revenue grew over 12%. I should say that a slightly longer backlog rotation times are also a reflection of the project mix in the backlog. That said, we expect mod revenue growth to accelerate in the coming quarters from the level that we have seen now in quarter three. But it is still the new installation which is actually burdening our revenue growth, down 10% in Q3, driven by the steep decline in China, which was down over 20%. And with mod and service both growing mid single digits, that left the total group revenue down half a percentage point in the quarter, but up 0.8% year to date. Now, as of the quarter end, our backlog was up 1.5% in local currencies, driven by mod, driven by service, which had backlogs up mid-teens and mid single digits respectively. So our backlog in new installations declined by low single digit. Now, in terms of backlog margin, this quarter was slightly down sequentially, but still clearly up year on year. And the weaker sequential development was entirely due to the tariffs being reflected in our US backlog. So as our backlog gets repriced over time, you will see the offset to backlog margins and importantly, excluding the tariff impact, backlog margins continue to improve also sequentially. Now, moving on to slide nine. And looking at our EBIT performance, as I shared already, it's a really strong development now to 13% reported margin in Q3 and 13.9% on an adjusted basis. Now, the operational improvement of 35 million this quarter primarily reflects the good progress in SG&A savings, but also next to that, the procurement savings continue to deliver. Price and mix were contributors, but less so than the efficiency savings this quarter. Our reported EBIT was burdened by 25 million of adjustments in quarter three, of which 21 million of restructuring cost, translating to minus 2 million in our Q3 EBIT bridge compared to last year, and minus 13 million in our year-to-date bridge compared to last year. Now taking a look at the net profit on slide 10, net profit grew to 265 million in quarter three, reflecting a 9.9% margin and to 796 million year-to-date with a margin of 9.8% despite lower interest income, despite higher restructuring costs and despite one-time financial gains in last years. So we are very pleased with this result. Moving to the operating cash flow on the next slide. So our operating cash flow grew in the quarter as well as on a year-to-date basis. So operating cash flow reached now 967 million for the first three quarters of the year. And that sets us on the path to deliver another strong performance. is coming from our operating earnings supported by higher non-cash impacts offsetting a minor headwind of net working capital after the strong improvement in 24 and the missing positive net cash flow from financing income. So that brings me to the guidance for the remainder of the year And as Paolo mentioned already, we are now specifying our full year EBIT reported margin guidance at 12.5%. So this compares to the previous 12%. As Paolo and I have discussed, this revision comes primarily on the back of the efficiency initiatives that we have been executing and which are yielding savings slightly ahead of our expectations. We also now have an increased visibility on the impact of the tariffs this year, while the measures also taken to restructure our Chinese operations are partly offsetting the end-market headwinds that we are facing here. Finally, the mixed headwinds associated with growth in modernization in H2 are somewhat less than we expected in July at the time of our H1 result. And on mix, it is also important to recognize that we are benefiting from the continued outgrowth in our service business. And this revision to our full year 25 guidance also implies that we expect to see continued strong margin improvement year on year in the final quarter of the year. Now, a small word on tariffs, which I think we have managed well so far in 2025. So the US tariff cost now reflected in our backlog, so I just mentioned, we will continue to work on this hard in the coming period to mitigate the impact, including making price adjustments to offset the impact. Now, it's fair to say that the US tariff environment remains very dynamic. So let me give three additional comments as we see the impact today. First of all, you will recall that with our H1 results in July, we provided you with an estimated annual gross tariff impact of approximately 30 million Swiss francs. What happened since then? Since then, we have had the changes to the reciprocal tariffs, which has taken US tariff levels on Switzerland to 39%. That takes our estimated impact to 35 million Swiss francs from the initially 30 million. So we also had the expansion of the Section 232 tariff list in mid-August, but that had no material impact on our estimate. Finally, we had the recent escalations by the US, including a possible 100% tariff on Chinese imports starting 1st of November. If this were to be implemented, that would take the annual gross tariff impact to $72 million. Now we will come back in February with our full year 25 results and update you then on the 26 impact. But I expect us to make good progress on continuing to offset the tariff impact with our mitigating actions. Now with regards to the 25 revenue outlook, I confirm that we expect to deliver on our full year 25 revenue guidance of low single digit growth, albeit this is likely to be very low single digit, so similar to 24. So in conclusion, let me take the opportunity to thank all our colleagues around the world for their efforts so far in 25, not at least our colleagues in the field who are operating in some exceptionally challenging circumstances in many places around the world. And it's a clear testimony of their contribution to our strong results in the third quarter of this year. And so with that, I hand back to Lars.

Thank you, Carla. With that, Paolo and Carla are now happy to take your questions. Can I ask you, please, to limit yourself to two questions only, given the limited time we have available. With that, operator, please.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my questions. I will have two, but I'll ask them one at a time. The first one is regarding sort of your organic order growth rate today. Quite a bit lower, I guess, than one of your peers yesterday. I understand from what you said, sort of a much bigger drop in China from you. Can you talk to what extent that is, you know, it's just the original or the product mix or it was more an intended effort to try to control your backlog margin or something else? I'll start there.

Good morning, Daniela. Paolo here. Very clear. China order intake in the quarter is driven by two factors. One is obviously our clear dedication in pricing discipline that we watch out what we take into the books as part of our China program we discussed with you back in February. And The second one is also a quarter in which we still see a decline in the market and we just follow here the trend. So this has impacted our Q3 numbers for the China order intake.

And then just in terms of the America service trend, which seems sort of weak and down, can you elaborate a little bit? From one side you're upgrading on the original equipment, but the delivery on the service side seems a little bit on the weak side. What's going on on the service?

Yeah, so let me elaborate. on the topics then our upgrade is on new installation going forward we were not conservative. We were back in July looking at the market trends and we saw some signs of cooling down in North and South America, which now, for the reasons discussed, we say, well, market might stay stable, especially as in North America, we don't see yet a significant negative trend which would require this adjustment downwards. new installation but your question was about service and let me elaborate on this one here is a mix of two factors and also a bit different between north and south america what we see in q3 in this quarter is a combination of two things number one in the recaptures we call it recoveries these are the new service contracts we take on board we move to a more diligent way of assessing their economics. This led now in a comparison quarter to the quarter to a slightly negative trend. And the second one is that you might remember in 23, we were facing a couple of quarter with a slower ANA new installation order intake. What we see now is the combination of the slower conversions, which means that the contracts, right, which come into service after the new installation is finished. And due to the lead time of the NI or the backlog from 23 and the combination of these two factors leads to this mathematical slow Q3 in service Americas.

Great. Thank you very much for the explanation.

Thank you, Daniela.

The next question comes from Andrea Kugnin from UBS. Please go ahead.

Yes, good morning. Thank you very much for taking my questions. I've got two and one of them actually dovetails nicely with what Danielle asked about just now, so I'll start with that. I wanted to also ask about the dynamics between modernization and service growth in North America, but also in Europe, where you're seeing such a substantial divergence. And I presume at some point, this strong growth and modernization and all those projects that you execute on in mod will help converting into service. Is that the case? And could you give us some idea on the kind of lead time on that? And maybe, sorry to pile them on, but while we're in service, could you give us an idea of what the unit growth was for you globally in the quarter?

Yeah. Thank you, Andre. Good morning. Let me elaborate on both. Number one was about modernization, how it works into service. So here, obviously, yes, modernization captures as long as they are outside of our portfolio, but obviously lead to portfolio gains. So here the answer is yes, there will be a certain positive contribution to the portfolio, and that's clear one of our targets. This being said, the second part of the first question was about lead times. Here, I must say, a bit different geography by geography, but actually... Overall trend is that the lead times on modernization are also going up. So it means the time to convert this modernization, I repeat, outside of portfolio. So it's not that entire modernization would add portfolio, but the portion which adds portfolio might start to contribute more. between end of 26 and going forward. So there is a positive momentum, yes. There is a time in between, yes. And we expect to contribute from Q4 next year going forward. The second question was about the growth in the portfolio, which we can share on a good low single digit number.

great thank you and uh i appreciate this more than one question already so i'll just ask a short one on the uh tariffs and the backlog repricing could you confirm that this is just purely mechanical it's kind of triggering the uh escalation clauses that are already in contracts and it's just a matter of working through that or are there new renegotiations to be had with customers yes andre we we have done uh as we shared in july back a little program on it which is showing good effect but carla we might elaborate on on the

Yeah, no, you're absolutely right. Hi, Andre. Thanks for the question. Yes, I confirm it's rather a mechanical exercise that you need to work through. Because, of course, there is a pricing towards the customer and there is also a piece in our supplier management site.

Great. Thank you very much.

Thank you.

Thank you, Andre.

The next question comes from Vivek Mida from Citi. Please go ahead.

Thank you very much, everyone, and good morning. I have two questions. My first is a follow-up around your comment around the margin drag from modernization growth not being as large as you thought. Is that because of that slower conversion of modernization growth that you highlighted, which potentially might then have more of an impact in 2026? Or is it also because of the improved modernization profitability as you've grown? Thank you.

Good morning. Well, it's a bit of a combination between margin and the rollout of the backlog. And I will leave Carla to come to the details. But actually, the margin within modernization are not deteriorating. The opposite is the case. So your observation, we are improving on modernization margins is right. And is this one of the reasons for having a slower conversion into operating revenue? it's not the case. But Carla, please, would you like to elaborate on this one?

Yeah, I want to be clear. I mean, so we have the strong growth in the order intake and a slower realization of the projects itself, but we don't have pressure on the mod margin. So just to be very clear there.

Okay. Fully understood. Thank you. My next question, just looking at the headcount, the number of employees, it looks like it's gone down by over a thousand relative to the second quarter. Is that the effect of your efforts to reposition in China or is there something else driving that reduction in the headcount? Thank you.

That's a very good observation. Yes, we announced back in July that we are repositioning our especially new installation business in China. And what you see in the overall numbers is mostly that. That's true.

Yeah, but this comes on the combination. If you look at a year on year versus December, it comes on top of July. the initiative that we took to reduce our cost levels, mainly in the back office, in the indirect part of the headcount. And that is actually what you see coming through. So we are just executing on this. So it's the combination of the two.

Okay. Thank you very much.

The next question comes from James Moore from Rochelle & Co. Redburn. Please go ahead.

Yeah, morning, everyone. Paolo, Carla. Could I ask one on service?

I mean, if we're talking about a sort of 5% constant currency growth for service, would it be possible to split that between maintenance and repair? Are they at a similar pace? And tied to that if they're at a similar pace and we're at 5% maintenance growth is that to say with your good low single digit comment 2.5% unit growth and 2.5% price and I ask because I'd like to unpack that to another level if I could and behind the price piece would it be possible to say how much of that is kind of a wage escalator pass through versus any other form of premium over and above that whether digital or other initiatives and behind the unit growth is that basically just the past orders coming through or have you got any conversion topics like is conversion getting better or worse or have you got any win-loss retention topics and how do you think about maintenance growth going forward for the next couple of years hey james good morning good good question with some uh some components into it

Let me combine them. So on the first part of your question, service repair without going to the details of both as we never do, but it's obviously that both are growing together. So as repair, you can only execute on the portfolio you have and with the customers. We are happy to serve. So there is obviously a certain correlation between the repair business expansion and the portfolio growth itself. So this is very fair to be assumed. second part of the first question are there components of digitalization monetization of the digital business surely yes as we announced also previously we continue our efforts in digitalizing for our customers our services so we don't only digitalize for ourselves for the beauty of technology we also have an increased and steadily increasing offering on digital services for our customers, which obviously, yes, starts to get some traction and contributes to this overall picture. So that's absolutely right. And your second question, how we expect this old service backslash repair, backslash digitalization business to move. Here we expect, as mentioned before, that we see at least a steady continuation of this growth in which we absolutely want to participate.

Thanks, Paolo. And could I just follow up on the NI margin? New equipment. My sense was you were doing better than others in China, and you had some topics in the West, which you're addressing with your standardization program. And we've seen some procurement savings, and I'm sure next year is more about efficiency savings. You're doing amazing things there. But are you seeing a scenario in which is the NI margin down year on year? And is it that the Chinese...

revenue decline is more than offsetting some of the organic actions on the other side or or vice versa it's um your first assumption i don't i don't like to comment this i don't have it but In terms of margins in new installation, let me share in all clarity that our efforts in improving efficiency in the field, and we have talked about, you know, now the last couple of years and intensified, you know, last year and this year, as now we start to see really traction in the field, this improvement of margins in new installation, in the execution, we see everywhere. So... Now, to distinguish between China-specific and the rest of the world, I would say the improvement in the execution, I would say, is everywhere the same. And to assume that the picture has reverted between the rest of the world and China, well, I would say China is more under pressure in terms of margins than the rest of the world.

I think I followed.

Thanks, Paolo.

The next question comes from Ritz Maidy from Jefferies.

Please go ahead. Good morning, Paolo and Paola. Thanks for your time. Just maybe start with a clarification on the full year guidance when it comes to revenues. I think now we're talking about very low single digit, which also means very low single digit for the Q4. How should we think about this? Is still these bottlenecks when it comes to modernization still going to be there? And how should we also think about the service growth in America? You talked about recapture. Week and I back in 2023, does that still mean that it's going to be a drag again in Q4 and potentially even 2026? Thank you.

Thank you, Rick. Let me start maybe with the second part on the service in the Americas. Obviously, right to observe that we are now on a level which we also compared to previous year growth rates, right? So is it expected to stay at that level? Maybe we will see not now in the next quarter, but we expect in the quarters to come to see growth again, also more growth again, also in service in Americas. When we get our backlog executed, and as I was sharing before, we see certain delays in delivering on the project, which then it's a question of time. We will come back on that. So therefore, if you ask specific on Q4, we expect to be on that level. But going forward, we would also expect to see growth rates again also in Americas. talking now the revenue for the full year, we expect Q4 to be in line with our plans. So hence, if we see the year to date numbers and the Q3, we like to be super transparent in what would be the full year expectation. So we don't worsen it, but we also don't see room to get euphoric on additional revenues. To your observation, is it a timing issue? Is it projects and kind of delays? Yes. So why we still are quite confident for the future to come is that the backlog is promising. We are building up resources to execute on modernization. So your observation is absolutely spot on. with the time and we will see also this OR then picking up. Carla, anything you'd like to add?

No, I think I confirm perfectly. I think we are complete.

Thank you very much. And then the second one is really just to understand your cost efficiency we're now getting towards year end. Maybe if you could just please correct me if I'm missing anything, but my understanding is you're running with different programs. One of them is procurement, the other one is SG&A. there's an FTE sort of reduction or repositioning of your China business. Maybe can we talk about what has been achieved year to date and how should we think about each component heading into 2026? Thank you.

Thank you very much for the question. I will take it. So first of all, the plan has not changed. So we are still working on the same four building blocks that we have always been super transparent on. So first of all, Starting with the procurement and the supply chain savings, that is the more mature one and this is now the second year that it continues to fully deliver and that is also the one with the biggest impact. Now, what clearly scaled up during the first three quarters, that is the second initiative, the reduction of the SG&A cost. And of course, you know, driving efficiency in the back office, that's what you see also coming through in the headcount reduction. So we started with that in quarter four last year, and that is now really delivering. And that will also, I would say, continue to deliver, obviously not with the same incremental savings, but we have not completely come to an end of that initiative. What is rather new, I would say, are in the quarter three. That is, we have also been focusing on driving efficiency in the NI and the MOT business. And that is the third initiative where we see now in quarter three the first benefits are coming through. So that is in a nutshell what is also flowing through to the bottom line. Now immediately making the step a bit to the period to come. So we definitely still have potential for these building blocks. and there will still be significant amounts coming through. However, the composition will change because, as I said, the procurement savings become more mature, so their relative weight will decline. And of course, also going forward, with the SG&A, but then if we execute according to plan, the incremental savings coming from the efficiency in the NI and the MOD will further increase, and also on top of that, efficiency in our service business. So that is in a nutshell what is happening and what will or what is expected to happen going forward. What is also interesting to see is that we came now to a situation where the efficiencies are actually really offsetting the inflationary effects and becoming even more important than some of the pricing elements in some of the areas and that was the whole initial target why we have set up this for building plans and that's why you see the nice uptake in the margins and in the profit does that answer your question yes thank you very much thank you

Thank you, Rysk. Next question, please, operator.

The next question comes from Vlad Sergivski from Barclays. Please go ahead.

Yes, good morning. Thank you very much for the opportunity. I'll ask two and start with modernization. You disclosed standardized mode solution, what, 17% of total modernization orders now. Do you think there is a natural limit of how big standard solutions could be in the future compared to the total mode market. And are those standardized solutions opening new market niches for you in any way? Are they addressing customers that would have perhaps otherwise not ordered mode at all or ordered it a bit late?

Yeah. Good morning. So the first part, is there a limitation in the creation of standard solutions? Well, There will be a logical limitation one day as if you recognize that installed based is a kind of 160 years of elevator technologies built many, many times in many countries by very local companies. So you got 10,000 of different elevators to be modernized. So let's talk facts. With that, you can imagine you cannot have a standard solution for 10,000 of different elevators around the globe. So you're going to fix it by a group of similar technologies you can address. So to the first part of your question, is there a limitation? Yes. Are we already there? No. To the second part... Does it open new opportunities? I personally believe yes. Then when you get to a standard solution which could offer to a customer to improve safety, quality and also maybe user experience by having affordable costs, I think there might be a group of customers who today can only go for a full replacement of the elevator, which comes with certain costs and also civil works around it, now having this opportunity. So to the second question, I personally believe there might be a segment Is it incredibly big? I think it depends from country to country. Coming back to my first part of the answer, then in some countries we have a bigger number of local products, as we call them, and we have some countries with less number of local products. So in those countries, this opportunity might be bigger.

Excellent. That's very clear. The second one is on the sales mix. Sales mix has been a tailwind to profitability for quite some years. Is there a chance that this tailwind eases or completely stops in 26 when more growth accelerates, when perhaps new equipment declines, slows and maybe grows outside of China and service keeps growing as it does?

For sure. I mean, this mix will change. Will it go as fast as you point out? I don't think so. But we definitely have calculated that in our plans. So, yes.

Excellent. Thank you very much for the answer.

Yeah, thank you.

The next question comes from Martin Flueckiger from Kepler-Chevreau. Please go ahead.

Good morning, ladies and gentlemen. Thanks for taking my question. I've got two and I'll take one at a time. First one is for Carla. Just coming back to your general comments regarding incremental cost savings from restructuring and operational efficiency going forward. I was wondering whether you've quantified those for 2025 and 2026 basically to understand whether there's been any changes. That's my first question. I'll come back to the second one.

Well, as I said, there are no changes in the components that are driving this cost savings, but the relative weight of the components, that of course changes because, as I said, if you talk about procurement and supply chain, it's a very mature component. So your incremental obviously decreases. This year, we put a lot of focus on the SG&A savings and together with that, we start up more and more the efficiency, driving the efficiency in the new installation and in the mod. But going forward, we still have a significant incremental amount of potential sitting there and we will work through that as we did over the last two years.

Okay, thanks. And my second question is regarding the press reports with respect to TK Elevator being either up for sale or going for an IPO possibly. I was just wondering, thinking back, if I remember correctly, to 2020, I seem to remember press reports regarding Schindler's Board making statements about potentially suing Kona at the time if the deal had gone through, which of course it didn't. But I was just wondering, if a major competitor were to take over TK Elevator, and I suppose Schindler is also interested, but just thinking if a major competitor were to get the bid, would Schindler's board again consider legal actions?

Martin, let me take this one. Well, first of all, we don't intend to comment on competitors' decision about what they do or don't do in M&As. And in the same, as you know, we never disclose our M&As and what we do there. I must say what the reaction will be in the market, no one can predict. What will happen may be also difficult to predict. And with that, I must say, let's see what happens. With regard to ourselves, I mean, we always look at acquisitions which happens and we look at our own opportunities in smaller and mid-size and large acquisitions. So I would say there is no answer to your question in the form of what would be a reaction. The market will show what happens.

Okay, thanks.

The next question comes from Walter Bamert from Zürcher Kantonalbank. Please go ahead.

Thank you very much. Hello, everybody. Could you please comment which part of the 130 basic point margin improvement stems from the positive mix effect?

Well, it is not the major part, so we don't give the exact breakdown, but if you just, I would say, yeah, approximately, yeah, up to one-third, yeah, approximately. Okay, yeah. Yes, yes. But we are very clear on that, and it's also part of our plans going forward if the mix effect changes.

Perfect. And then, Neves, let's come back to the M&A question. And they're just generic. What's your assessment of the Asian market, which is still somewhat more fragmented? Do you think there is still room for globalization of those players or do you expect that the markets will remain fragmented somewhat?

Well, no one of us, Walter, has a glass sphere to look at for the future. We would have to stop the call, go and make some decisions. But this being said, obviously, when you look into a fragmented but interesting market, which if you say AP is it, and it is, then one could assume things could happen in the next years to come. So this would be maybe my careful assumption. Then we talk about a still... promising market for the future. And yes, as you rightly assess, there's a high fragmentation in that specific part of the world still. So therefore, one could assume there will be some movements, whatever type, difficult to say. When it happens, difficult to say. Could it happen? I would not exclude it, but it's a very personal assumption away from any detailed study.

Thank you very much for your personal assumption. Thank you. Welcome.

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

Hi, good morning. I'm wondering if we could go back to the order backlog and the revenue delivery in Q3. If I remember correctly, there was going to be a bit of legacy overhang on Q3 and Q4 deliveries and negative mix from Chinese exposure. Did Q3 progress as planned, or were there delays to that mix or margin dilutive delivery set, I suppose?

John, good morning. To Q3 specifically, the Revenue development might have been partially impacted by some projects which see a bit of a delayed execution. And obviously, when it comes to an installation and larger modernization jobs, right, if you got a job which then is not completed for whatever reason, and often you know how it goes on construction site, then you might even see it in the books. This has for sure an impact in Q3. So, therefore, I was mentioning before, in going forward, this will be flattened out by itself as the jobs will be completed, will be then built, and then it moves on. So, your assumption is right, I think, in saying in Q3 there is a certain impact by larger projects not completed. Yeah.

Okay. And just as a quick follow-up to a comment you made about modular, in terms of Supply chain OPEX and perhaps CAPEX, do you have what you need to deliver your backlog and modernization or is further investment needed from here, you think?

So for now, we shared in February, you remember when we were sharing our dedication now to move on, on the modernization business. With some of you, we were even discussing in detail what is behind. And one part was the development, production, and rollout of those standardized, we call it packages, we call it kits, right? And here, the investment in supply chain, supplier base have been done. So is there any major investment? Not specifically, but I like also in all transparency to share that we continue to invest and develop on our supply chain as obviously with the modernization piece growing and a new installation piece being where it is, it's a kind of logical consequence that you keep developing. We call it upgrading internally. The supply chain. And we work now with the internal program in upgrading our supply chain. We don't talk much about what this takes place. Does it come with major investments? No. Is it partially in the one or the other direction? supply chain. You know, we have different in different continents. There still will be some adjustments, but no major investments. And yes, what we deliver now, we are ready to deliver. And this work has been done, was part of our program in the last 12 months backwards.

Okay. Thank you.

The next question comes from Kalvinder Raipal from Alfa Value. Please go ahead.

Yeah, good morning, everyone. Thank you for taking the question. So just wanted to come back on mod orders in China. So if I heard Karla correctly, she said 50% growth in Q3 and 40% year to date. So would it be fair to assume that this business faces tough comms as we go into 2026? So any commentary on growth in the mod market in China in 2026 will be helpful. And just tied to it is the share of standardized mod higher in China compared to other geographies?

Let me take your question. Good morning. So, China Mod 26, well, modernization business in China is growing nicely as shared before and we don't see any change in trend at all. As I mentioned before, there are even some governmental programs which are supposed to give some support. and we will also participate there. Allow me also here a very personal note. we have seen in the past also massive supportive programs in new installation in China, which then afterwards came with a limited real impact. So now the modernization ones are out. We have still to see what is the real impact. This said, I must say that beside of this stimulus, the modernization business in China is going well and is supposed to continue going well. On the second part, of your question, which is the percentage of the packages in China, here we must say we have to see the market. So if I would say percentage-wise in that specific market, you could say yes. However, it's logical that in more mature markets in which for longer decades more products were installed, one could assume that the number of kits, so standard solution kits, is higher than in a country in which, grosso modo, you can say you have more of a homogenic market market in terms of technology right in terms of installed based so therefore is it a strategically different no a number of pieces of solutions yes i hope this answers your question it's a bit technical but unfortunately that case is a technical background

Yes, absolutely. And then just to come back on wage inflation. So I wanted to understand the assumptions for your wage inflation in 2025 and 2026.

That was a bit of a disturbed connection here.

Yeah, wage inflation, the assumptions in 2025 and how should we think about it in 2026.

Well, I will take that. So thank you for the question. Wage inflation in 26, I think it will be on a level that is comparable with 25. So that is how we currently see it.

Thank you, Kulvinder. Thank you, Kulvinder. Thank you. We'll take one last question, please.

We now have a follow-up question from Rizk Maidi from Jefferies. Please go ahead.

Yes, thank you. I'll be very brief. Just clarifying some of the points just on China new installations. Am I correct in thinking that the orders here are down 30%? Well, I think in the P&L you talked about 20% decline. perhaps a little bit more drug here going forward and then more generally we're now four years into this downturn without pricing is not going to be as bad because local players competitors um including yourself are doing much lower margins in this downturn than in previous ones but it feels like it's not getting any better i'm just wondering who is actually taking on these badly priced sort of projects? And number two, how should we think about, and also pricing pressure, how do you see it by geography? And how do you think, how are you thinking about 2026 here?

Thanks. Let me take this one, which is a complex follow-up question. So let me start with this decline in order intake, which I always have to remind might be different between units and value. Then in units, the market is down as you assume close to 30% and in value even above that. So for us. So therefore, your assumption is right. It's a bit of a mismatch between units and value. But in value, it has declined a lot. So part of your second question, who is taking on all these bad jobs? I cannot talk about who is taking bad big jobs. However... As we see it also in our numbers, the pricing in China was very tough in the last years. You are fully right. And by now, well, to be very optimistic about pricing in China is not us. So if you ask me how do we look going forward, we would hope to see a stabilization of the pricing. And if we get there, it's already an improvement. Then till now, pricing has shown to be very tough. So therefore, as soon as we get to stabilization of the pricing, one could say, well, from that point, we can start all to work on it. So this is what we see for 26, right? So we don't expect any special magic. And Carla was referring to our plans for 26. And when we meet in February, you will look. You know us. We try to be very down-to-earth in our plans. So in China, there's no euphoric assumption for what will happen in 26. I hope this answers your question.

Yes, thank you very much.

Thanks for your time. Thank you very much.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Lars Brorfsson for any closing remarks.

Thank you, operator, and thank you all very much for attending the call today. Please feel free to reach out to me for any follow-ups you might have. The next scheduled event is the presentation of our full-year results on the 11th of February, 2026. You'll also find our reporting calendar for 26 at the back of our presentation today. With that, thank you all and goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscall and thank you for participating in the conference. You may now disconnect your lines. Goodbye.