Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Schindler Holding AG (SHLRF, Financial) reported a 7% improvement in net profit, marking six consecutive quarters of year-on-year improvement.
- The company achieved an 80-basis-point improvement in EBIT adjusting margin, driven by efficiency gains.
- The modular platform rollout is gaining traction, with 70% of units sold year-to-date based on this new product.
- The service portfolio is growing at over 5%, with more than a third of the portfolio now connected to the cloud, enabling digital services.
- Modernization order intake accelerated globally in Q2, growing by more than 5% for the first half of the year, particularly driven by China and Americas.
Negative Points
- The new installation market in China remains weak, with continued price pressure and no major recovery expected for at least 12 to 24 months.
- Asia Pacific, largely due to China's downturn, is experiencing softness in the market.
- The US market saw a high-single-digit decline in the first half of the year, with no growth expected for the full year.
- Persistent inflationary pressures, particularly wage inflation, continue to impact the company's financials.
- Operating cash flow in the second quarter was not satisfactory, burdened by higher tax payments and one-off payments.
Q & A Highlights
Q: Silvio, can you provide your views on the stimulus in China and its impact on Schindler?
A: The situation in China is challenging, with a focus on clearing the large stock of unoccupied buildings. We do not foresee a major recovery in the elevator new installation market for at least 12 to 24 months. The price pressure is at historically high levels, and we are focusing on efficiency and cost management. Our exposure to public infrastructure projects is not significantly higher than our competitors.
Q: Can you elaborate on the guidance for the US market, particularly the residential and commercial segments?
A: The US market is experiencing a slowdown in both residential and commercial segments. The latest NI numbers show a decline in the commercial segment by around 16% for Q2. We do not expect a significant recovery this year and are maintaining a cautious outlook.
Q: How do you see the margin environment for modernization and service in China given the current market conditions?
A: Service continues to grow, but pricing is under pressure due to cost-cutting measures by property owners. Modernization, however, is a bright spot with robust demand due to aging installations. The pricing for modernization remains positive as it requires more sophisticated skills and engineering, which local players often lack.
Q: Can you provide more details on the non-recurring operational costs mentioned for H1?
A: The non-recurring operational costs are a combination of various elements, including upfront payments to suppliers for better costing. These costs are non-recurring and were necessary to negotiate lower costs for key components.
Q: Given the new market environment, does this impact your 13% EBIT margin target?
A: No, our midterm target of 13% EBIT margin remains intact. The levers to improve profitability are within our control, and we are focusing on efficiency and cost management to achieve this target despite market challenges.
Q: Can you explain the rationale behind reporting modernization in value terms and new installations and service in unit terms?
A: Modernization involves a mix of big repairs and substantial renewals, making it more comparable to report in monetary value. This approach provides a clearer picture of the modernization business's financial impact.
Q: What is the current outlook for the Chinese market in terms of new installations?
A: The outlook for new installations in China is between a 10% to 15% decline. We do not expect a significant recovery in the near term and are closely monitoring the situation.
Q: Can you provide more details on the restructuring costs and their impact on the business?
A: The CHF80 million restructuring costs are focused on reducing office positions globally, including country headquarters, zone headquarters, and the global headquarters. This is an acceleration of our existing plan to improve efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
