Schindler Hldg Ag Akt

Good morning, ladies and gentlemen, and welcome to our full year 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 Begeisler, our CFO. As usual, Paolo will discuss the highlights of our 2025 results and our 2026 market outlook, and Carla will take us through the financials. After the presentation, we're happy to take your questions. We plan to close the call at 10.30 local time. 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 25 results. But today, before I dive into the results, let me take this opportunity to take a step back and reflect on the journey over the last few years. You are seeing we have titled our first slide, Operational Recovery Completed, as we see 2025 as marking the final year of our operational recovery. For those of you who have followed us for a while, you will recall that in 22, we faced severe supply chain challenges, steep declines in many of our major new installation markets, and a significant drop in earnings and cash flow. the company had to perform an emergency landing. Four years on, after some very difficult decisions taken by our majority shareholder and the board at the end of 21, and thanks to the hard work and dedication of nearly 70,000 employees, I'm pleased to say that we have emerged from this period as a stronger and more resilient company. Well, one could say Schindler is back. We have made clear structural improvements to our supply chain. We have enhanced our product competitiveness and innovation and strengthened our global footprint and maintenance portfolio, including exiting smaller markets where returns were not aligned with our objectives. And from a financial perspective, the company has delivered 12 consecutive quarters of year-on-year EBIT margin improvement with high cash conversion. That is something we are really proud of. Now, looking ahead to 26 and beyond, accelerating growth becomes our key priority, but without compromising on our commitment to the continuous improvement in operating margins. This I like to underline. An important part of that strategy is the commercialization of innovative, standardized new installation and modernization products and our industry-leading digital offering for our service customers. More on that shortly. Now, let me touch on the highlights of 2025. Firstly, we delivered on our promises by achieving our financial targets. Growth was a little softer than we would have liked, but it was another year of a strong operating performance with a reported EBIT margin coming in at 12.6% versus our initial expectation of around 12%. I'm pleased to see that the efficiency initiatives launched over the last few years yielded good results, something we will build on in 26. Second, I'm comfortable saying that we are back in modernization. I was very open with you two years ago that we were behind and having to catch up. Today, I believe we are increasingly leading in terms of competitiveness and momentum of our product portfolio, and I'm very optimistic about 26. In 25, modernization orders were up 19, and importantly, revenue was up 12% as backlog execution accelerated in the final quarter of the year. and confident that we can continue to expand our capacity and execute successfully also in 2026. Third, a word on product momentum. We see signs that our efforts on product portfolio in the last years are starting to yield commercial results. And this will support us executing our strategy to accelerate profitable growth. The rollout of our standardized modular platform has been completed according plan, positioning us well for any recovery in our key markets. The rollout of our U.S. mid-rise product has clearly exceeded our plans in 2025 and sets us up, I believe, for a continued market share gain in 2026. And in modernization, we continue to industrialize our operation and standardize our product portfolio. We are seeing very good traction with our standardized packages, and it is not only driving growth, but also enhancing our competitiveness and supporting our journey towards higher profitability in modernization going forward. Third, despite depression 25 from lower NI conversions and our decision to be more selective in recaptures, we continue to make good progress on our maintenance portfolio. which was up mid single digit in value turns in 25. I believe we have an industry leading retention rates on our portfolio, but I still see potential for these to improve. That will come in part as we leverage connectivity to improve the offering for our customers and to drive incremental digital revenue streams. Fifth, we delivered on operating cash flow. of 1.5 billion Swiss francs for the year. A second year of very strong cash conversion. Carla will elaborate on this. But this strong cash flow allows us to invest back into the business whilst also accommodating our shareholders with an increased payout. And I'm pleased to announce that the board has proposed a dividend of 6 Swiss francs for 25 as well as an extraordinary dividend of 80 centimes. Let me touch on our China operations. I told you at the beginning of 25 that we had to take some tough decisions in order to realign our organization and set us for the future growth opportunities, especially in modernization and service. Now, we are starting to see encouraging signs of operational improvement as we enter 26. A big thank you to our Chinese colleagues for all the effort in 2025. Finally, Award on Sustainability. We continue to make a good progress on our agenda. In 2025, Schindler Sustainability Management System was recognized with an ECOVADIS Platinum medal, ranking Schindler in the top 1% of the more than 150,000 companies worldwide. In addition, Schindler was once again included in the CTP A list of companies operating according to the highest environmental standards. So let us now look back at the global elevator and escalator market development in 2025, turning to slide 4. Focusing on our updates on what we said in October after our Q3 results versus the year ended. First, we saw a strong Q4 in the U.S. new installation market, while demand in Brazil also developed slightly better than anticipated. Therefore, our assessment for Americas in 2025 has been revised to low single-digit growth from earlier flight. we witnessed a strong finish to the year in India and Southeast Asia, lifting the Asia-Pacific market growth comfortably above 5%. And finally, the service and modernization markets saw good development in line with our expectations. So, how did we perform in this market environment last year? Turning to slide five. First, In service, our maintenance portfolio units continue to expand with the strongest growth in Asia-Pacific, excluding China. In Americas, we saw a modest decrease, as indicated already in October. This was a result of our increased selectivity when it comes to recaptures that we decided to pursue as well as from software conversions. Given the normally longer lead time, especially in North America, the decline in our NR orders from 2023 was still having some impact last year. In modernization, we have been able to maintain the strong momentum and saw double-digit order growth across all regions, except for Asia Pacific, except in China, due to a lower level of large project bookings in both Q4 and full year. China was the standout with growth of close to 50% as we benefited from the massive equipment renewal program with well over 100,000 elevators replaced throughout the country. In new installations, our global order volumes declined by over 10% due to China, where, as mentioned before, we have been repositioning our operations to be ready for capture future growth opportunities. In the rest of the world, Our inner orders grew mid-single digit, driven by solid growth across the Americas, as well as in Asia, excluding China, and notably in India. Now, moving to our market outlook for 26 on slide six. 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 will continue to see robust mid to high single digit growth across the world. In China, the so-called bond program is expected to continue on an even larger scale and we currently estimate another double digit growth for the Chinese market also in 2026. In new installations, we anticipate the global market to decline by more than 5% due to China. where the market is expected to suffer another contraction of more than 10%. Well, key real estate statistics show double-digit declines, with home starts by floor area falling around 20%, and this is now falling at three years of 20% plus declines. And also to be considered, the higher T-cities, which earlier in the year performed relatively better than smaller cities, deteriorated sharply, especially in the final quarter of 2025. Across the AMEA region, we expect good development in the Middle East to be coupled with important German markets returning more firmly to growth, as already evident from the double-digit pickup in multifamily building permits based on latest data available. Significant state support is aimed at easing the chronic housing shortage and stimulating investment, including increased funding for social housing, fiscal incentives such as the 5% aggressive depreciation for new rental residential buildings, as well as the so-called BAUTURBO initiative to fast-track housing projects. And we anticipate Asia Pacific, excluding China, to continue to expand by high single digit with broad-based growth across the region, led by India and Southeast Asia. With that, let me turn over to Karla to walk us through our financial results in more details.

Thank you very much, Paolo. Good morning, everybody. So, I propose we start with slide eight. So that is our usual summary slide of the quarter compared to the last four. So overall, Paolo mentioned it already, very pleased with the progress that we have made on the profitability over the recent years, as well as our continued high cash conversion. I also acknowledge, as Paolo mentioned, that there is room for improvement in terms of growth, something I will touch on shortly when we discuss the 26 guidance. Firstly, reflecting on 25, Q4 marked the 12th consecutive quarter of year-on-year improvement for operating margins. So our reported EBIT margin was up 180 basis points versus quarter 4 in 24, and our adjusted margins up 100 basis points. For the full year, our reported EBIT margin landed at 12.6% versus our initial expectation for the year of 12%. So a very satisfactory performance, and I'm pleased to see that the efficiency initiatives launched over the last few years yielded good results in 2025. Secondly, we had a strong end of the year for operating cash flow. Quarter four came in at 523 million and the full year at 1.5 billion, just shy of what we have seen the year before. 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 the FX headwinds. Now, Moving to our order intake development on slide nine, you heard Paolo saying that our global new installation order volumes declined by over 10% in 25. In quarter four, our NI volumes declined by over 15%. So clearly a soft quarter for our new installation business, driven primarily by China, down mid-30s in the quarter, and we remain committed to our strategy of pricing discipline, and as we continue to reposition our operations here towards future growth opportunities. So even though China made up less than 10% of our group order intake in 2025, it continues to be a burden to our growth. We also had slightly softer development in the quarter in some of our southern European and Middle Eastern markets, partly due to fewer larger projects here. So overall, a quarter with limited organic growth as a decline in new installation almost fully offset the growth in service and modernization. Now, if you look at the full year, 2025, Order growth in local currencies came in at 3.1%. Excluding China, however, order intake grew 5.4%. So our growth in 2025 was very much driven by modernization, which grew 19% for the full year and 15% in Q4. Growth here was broad-based in 2025 with strong double-digit growth across our three regions, EMEA, Americas and APAC, with China clearly a standout, up close to 50% in 2025, driven by the government's bond program. Service orders grew mid single digit organically in which combined with the strong mod growth offset the decline in new installations. Now finally a word on currency. So the FX translation headwinds amounted to more than 450 million on our order intake in 25 due to the strength of the Swiss franc versus major currencies, notably the dollar. And it's worth noting that these FX headwinds are not abating. Rather, based on current FX spot rates, they will intensify in the short term. Now, in terms of order backlog, it was up 1.2% in local currency at the end of 2025, driven by modernization, which was up double digits. Our backlog margin was stable sequentially in Q4, but still clearly up year on year. Especially the backlog margin in our U.S. business was stable sequentially in Q4, and we are starting to make progress on repricing our backlog here for the tariffs implemented in 2025. We expect these repricing measures to continue over the coming quarter. Now, moving on to our revenue development on slide 10, the organic road both in the quarter and the full year was driven by modernization. Up 22% in quarter 4, 12% for the full year 25. You will recall that we spoke of some operational challenges during 25 in terms of scaling up our delivery capabilities in modernization, So we were pleased with how the year ended. And going forward, we continue to make good progress on scaling our capabilities and driving more efficient backlog execution. Now outside of modernization, Revenue in new installation was down high single digit in 25, driven by China, which was down mid 20s, whilst other regions were down low single digit for our new installation business. Service was up mid single digit in 25. Now moving to slide 11. operating profit performance, let me say that I'm proud of what the organization achieved in 2025 in terms of efficiencies. We have spoken over the last few years of shifting the corporate culture towards a mindset of continuous improvement, and we are really starting to see that more clearly, which is driving our financial performance. We delivered 12.6% reported EBIT margin in 25 and 13% in the final quarter of the year. And you can see the operational improvement of 45 million in quarter 4 and 163 million for the full year. That reflects primarily good progress in SG&A savings, but also supply chain and procurement savings, which continue to deliver in 2025. Price and mix were contributors, but less so than efficiencies. One important operational achievement in 2025, which I want to flag, was the implementation of the ERP system in our US operations. The U.S. is now fully integrated with the rest of our global organization, and as we complete this integration, leverage our global ERP platform, this should yield further operational efficiencies. Now, restructuring costs in 2025 came in at 54 million, slightly lower than the up to 70 million we had guided to initially, partly as some of our initiatives shifted into 24. So that meant that restructuring costs were below the level of 24 and hence a small positive in the Abbott bridge. Now moving to the net profit, you can see that net profit grew to 277 million in quarter four, reflecting a 9.9% margin, close to 1.1 billion for the year with a margin of 9.8%, despite lower interest income and one-time financial gains in last year's period. So I'm very pleased with that result. Now moving to the operating cash flow, on slide 13, which reached $523 million for the quarter and $1.5 billion for the year, just shy of last year's exceptionally strong performance. Again, the uptake in our operating earnings drove the strong performance in 2025, whilst networking capital improved, but less so than in 2024, and hence a headwind in our year-on-year bridge. This moderation in networking capital came partly as a result of less down payments for our new installation business in 2025. Now moving to slide 14, so happy to share that the strong cash generation in 2025 also allows for further distribution to our shareholders. So I can report, Paolo mentioned it already, that the board has proposed an ordinary dividend of 6 Swiss francs per share for 25, as well as an extraordinary dividend of 80 cents, reflecting a payout ratio of 72%. This higher dividend should also be seen in light of our solid balance sheet, with our net liquidity position further boosted in 2025 from the reduction in our Q&A stake and the lower interest rate environment in Switzerland, as well as our continued focus on delivering a more competitive yield for our shareholders. Now, let me also mention a word on the Shareback Programme. which we launched in November 24. And this program has been running according to plan with the total number of shares, both registered and participation certificates, both back during 25, amounting to over just 700,000 shares for an amount of 200 million. Now, before I move on to discuss our 26 guidance, allow me a moment to zoom out a bit, to give you a bit of a broader perspective on our financial performance. So if you look at the bottom three charts on this slide, I think you will appreciate the quality of our business model. Cash conversion and return on capital compared to most other industrial sectors both are high and stable. I'm very pleased to see the progress that we made since 22. That means that our balance sheet continues to strengthen, ending the year with a net liquidity of 3.9 billion. Now, this cash compounding wouldn't be possible without a stable and a growing top line. And as you can see from the top three charts, our long-term growth level is really healthy. led by a strong service growth and with a balanced regional exposure. I think that is very important to remember at a time when we and the broader industry go through a bit of a softer patch in terms of growth. Now, being a Swiss company has also meant facing significant currency headwinds over the past decade, with FX shaving off over 3 billion cumulatively of our top line over the last 10 years. Now, moving towards the end and giving a bit of perspective on the 26 guidance. So for this year, we expect to achieve low to mid single digit revenue growth in local currency and an EBIT reported margin of 13%. As Paolo said, we are looking to accelerate the profitable growth and believe we have the right strategy to do so. In terms of revenue growth in 26, we expect to see continued strong growth in MOT, up double digits in local currency in 26, whilst new installation should start to stabilize, consistent with our market outlook of recovering new installation markets ex-China. but of course with some lead time before that impacts our revenue. Going forward in 26 and beyond, we also see an opportunity to complement our organic road with inorganic initiatives across key strategic markets. Looking back over the last three years, we acknowledge the contribution from M&A has been lower than usual, as our efforts have been more internally focused. But going forward, with the benefit of a sound financial position, I expect us to increase the pace of selective bolt-on acquisitions. Now, as for the margin guidance of 13% in 26, it's very much driven by continued productivity improvements. Increasingly from field efficiency, we expect an acceleration here to offset a moderation in procurement and SG&A savings such that we can achieve the same overall level of incremental savings in 26 as we did in 25. Now, let me touch on the mid-term margin guidance, which we will update later in the year. But let's be clear, we continue to expect a continued improvement of current levels over the mid-term. One important difference to 2025, however, will be the impact from NICS. As you know, we have benefited significantly over the last few years from positive mix as our service business grew strongly whilst new installations declined. But as our new installation business expectedly starts to stabilize and modernization grows strongly, the margin tailwind from mix will neutralize in 26 or perhaps even turn modestly negative. And finally, in terms of restructuring costs, We expect up to 60 million in 26, all in a par with the level in 25, and still burdening our reported EBIT margin. Now, a word on tariffs, which I believe we have managed well in 25. As I mentioned, with US tariff costs now reflected in our backlog, we will continue to work hard at mitigating the impact, including making price adjustments to offset the impact. In terms of the annual gross P&L impact from tariffs, we estimate that to be around 18 million Swiss francs, based on current tariff levels, so lower than the initial estimate of 33 million, which we provided you in April last year. Again, we expect to offset most, if not all, of that with pricing and cost mitigating actions. So, to conclude, Let me end by thanking, together with my colleagues in the Executive Committee, our close to 70,000 employees across the globe for their tremendous efforts in 2025. And as we start out in 26, I believe we are in a great position to execute on our strategy, which we look forward to sharing with you at our upcoming Capital Markets Day. And with that, I hand back to Lars.