Schindler Holding AG (SCHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the full year results 2024 conference call and live webcast. I'm Vicki, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Brorson, Head, Investor Relations. Please go ahead, sir.

Thank you, Vicki, and good morning, ladies and gentlemen. Welcome to our full year 2024 results conference call. My name is Lars Brorson, I'm Head of Investor Relations at Schindler. I'm here together with Silvio Napoli, our Chairman; Paolo Compagna, our CEO; and Carla De Geyseleer, our CFO. Silvio will provide some introductory remarks before handing over to Paolo, who will discuss our full year '24 results, our market outlook and our priorities for 2025, and Carla will then take you through the financials. After the presentation, Paolo and Carla are happy to take your questions. I should note that we will start the Q&A session 3 minutes before the end of the call in order to share a short video with you about what's next in terms of product innovation at Schindler. We hope you enjoy that, and we plan to close the call promptly at 10:30. With that, I hand over to Silvio. Silvio, please go ahead.

Thank you, Lars, and good morning, everyone. As Lars explained, before Paolo and Carla walked you through our '24 results, I wanted to take this opportunity as outgoing CEO and now in my role as Chairman to share some thoughts about the past 3 years and where the company is today. 2 years ago, almost to the date, you heard me talk about having to perform an emergency landing. We were faced then with some severe external headwinds as well as significant internal challenges, and we were on course for one of the worst years in the company's history. I was very open and honest with you about the challenges we faced and what was needed to restore confidence in our company and in its resilience. Our immediate priority was to make significant changes to our organization and to our management team to build an organization fit for purpose led by a team prepared to tackle our challenges head-on. And so to gain speed, we combined the CEO and Chairman roles. We have the size of the Executive Committee. We brought in management talent from outside Schindler and invested into strong leaders who were waiting in the ranks for new opportunities. And today, we have an exceptionally well-qualified team in place led by Paolo and Carla. Our team who not only delivered results in the most difficult circumstances, but also one which I believe can further build on our progress and continue to deliver strong results going forward. As for the team's achievement over the last 3 years, I think you know them by now, and Paolo and Carla will take you through the numbers. What perhaps is more important to you at this stage is whether the changes are enduring, whether they are structural, whether they can continue to drive operational improvement for Schindler. And I believe the answer is yes because we didn't just turn around our supply chain and fixed legacy issues, we recovered a trajectory. And over the last 3 years, made fundamental changes, changes for supply chain and manufacturing processes, changes to our innovation capabilities and product platforms and changes to our go-to-market approach and pricing strategy. And in some areas, we have seen great results from these measures, which have helped us to deliver 8 consecutive quarters of margin improvement. In other areas, we are still in the early stages of reaping the benefits from the changes we made. That's the case of the rollout of our standardized modular platform, which should bring results over the coming quarters and years. And looking a little further out, you will see a lot of exciting innovation from Schindler. You'll get a little glimpse of that today at the very end of this conference call. So more than performing an emergency landing, we had laid the foundations for Schindler's continued progress commercially and financially. And of course, today's results are only the output over the last 3 years. In terms of input, a key part was the new strategic framework we developed in 2022, one that was built around 4 key pillars that we call the 4 Ps, people, product, performance and planet, a framework Schindler will continue to build on under Paolo's leadership, and you will hear him talk more about it shortly. Let me just touch on one of these Ps, one that is very close to me, that's people. Leadership through service, that's the vision Mr. Schindler defined decades ago, and this vision still holds true today. Fundamentally, we are a service company for people, by people. And for people to be delivering top service with top performance, they must feel proud of the team they belong to. And I believe that reestablishing this pride has been one of the greatest contributing factors to our progress over the last 3 years that has been true for 150 years and will continue to be true, perhaps even more so in an era of digital solutions and artificial intelligence. As you heard me say many times, culture eats strategy for breakfast every day of the week. To win in today's environment requires human values, honesty, integrity, a personable touch, human energy, resilience and frontline engagement. And as such, I can think of no one better suited to the Schindler than Paolo Compagna. As Chief Operating Officer and Deputy CEO, over the last 3 years, he has been an integral part of formulating and executing the company's strategy. There is no doubt in my mind that Paolo is the most qualified leader for the job. Now, before I close out, let me end with a thank you, first to our investors, then shareholders. Many of you have been with us over the last 3 years, some of you longer, and I appreciate the trust you placed in me and in the team during the period. Let me also say thank you to all the analysts who have covered us for the past years. Your engagement and your challenging, but always constructive questions on the last 12 quarterly conference calls have been an important guidepost for us and for me as well. And I still clearly remember our first roadshow in London on a stormy and rainy February day in 2022, meeting investor and analysts who were admittedly and understandably not very happy and concerned. The tough questions you asked and the robust discussion we had left a lasting impression to say the least and became then an important part of our reflections as a company. Finally, let me say a word about not standing for reelection as Chairman of the Board of Directors at the upcoming General Meeting of Shareholders in March. After 30 extraordinary years with Schindler, I've decided it was the right time for me to move on to the next chapter in my professional life. I take this important step confident that Schindler has the right team in place today. It has been an honor and a privilege to serve the company and its employees. I am grateful to the Board of Directors for the trust and would like to thank the Schindler teams I have had the pleasure to work with side-by-side all over the world. With that, I thank you again and wish you all the best of luck. Paolo, over to you.

Thank you, Silvio. Much appreciated. Thank you very much. Good morning, every one, also from my side. And over to the next few slides. Let me walk you through the highlights of our full year '24 results and then give you also some color on our markets globally. And at the end, I will be also happy to share with you my view where Schindler is today and what are our near-term priorities before I will hand over to Carla. Turning to Slide #4. Let me provide a brief overview of our performance in '24. And here, I think there's a lot to be proud of. First, I'm pleased to report that we achieved our 2024 outlook, which we set at the beginning of the year -- yes, it's there. We had hoped for a little more growth, but we faced severe market headwinds in China. And even more important, we continue to adhere to our strict pricing discipline. So overall, I think our top line performance is well explainable given the circumstances. And when it comes to our EBIT margin reported, I'm very pleased that with improvement in '24, up 100 basis points compared to '23. And we believe we can make even further progress in '25. Carla will elaborate on the details. Secondly, we are a service company, and the numbers show it. Overall, we grew orders by low single digit in local currencies, but it's clear where this growth came from, Modernization and Service. Here, we grew high single digit overall. And this growth was broad-based across all our regions and supports our outlook for '24. Our maintenance portfolio grew 6% in local currencies, similar to the growth we saw in '23. Thirdly, I'm pleased to report that the rollout of our standardized modular platform is running absolutely according to plan. It has not been released in all key European markets. And right now, currently, we are progressing in India and Brazil and continue to focus on other key markets as it follows this year, including North America. Third (sic) [ fourth ], we reported net profit of just over CHF 1 billion in '24. That's a record for Schindler. And the conversion of this profit into cash is very high. We delivered an operating cash flow of CHF 1.6 billion for the year. Carla will be happy to elaborate on this, too. This allows us to continue to increase our distribution to shareholders whilst maintaining a strong balance sheet. I'm pleased to announce that the Board has proposed a dividend of CHF 6 for 2024. Finally, and I'll talk about this a bit later, about people and planet, but I'd like to highlight some of the awards in '24. At the bottom right of the slide, which I think our teams can be proud of because they are recognizing our efforts to be an employer of choice and may be more important partner of trust for our customers. And in terms of sustainability, we were awarded a platinum rating by EcoVadis, which we see as a testament of our strong sustainability credentials. Now let me move to a brief update on how the elevator and escalator markets developed globally. And let's move to Slide #5. In New Installations, we saw a strong finish to the year in Brazil as well as positive -- as a positive second half of the year in the U.S. So overall growth in Americas came in at low single digit for the year, slightly higher than what we had expected in October. Similarly, in modernization, Americas performed better as the U.S. market gained momentum throughout the year, especially in the Hydraulic segment. There are well over 300,000 hydro units installed, and as you can imagine, many are more than 20 years old, and they need all an upgrade. In China, the modernization market saw a boost from the equipment renewal program in the final month of the year. And China accounts now for a substantial installed base with roughly the half of the worldwide more than 22 million installed units. And increasingly, this equipment becomes right for modernization. Europe also did better, so overall a strong modernization market in '24 than we expected. Finally, for service, it is worth noting when we look at the marketing units, China remains a key growth driver, accounting for more than 70% of the global installed base growth in the year. Moving to Slide #6. I'd like to highlight the Schindler orders intake in '24. Let me start first. I'd like to emphasize that our transition in becoming increasingly a service company did well continue in '24, with over 60% of our revenue accounted for -- by service and modernization. At the same time, the share of China and our global revenue further decreased below 12%. Coming to our performance compared to the market, which I showed on the previous slide. In MOD, we grew in line with the market, whilst we grew slightly below the market in service in units terms and slightly above in NI, in New Installations. The main explanation for this is the weight of China, which for us is of a smaller exposure. For services, specifically, our portfolio growth in value was at healthy 6% in local currencies, as I mentioned earlier. In terms of what drove our growth across the business in '24, let me start with service, we saw good contribution from NI conversions, particularly in Asia Pacific. And in MOD, we saw strong growth in China as well as North and South America. In New Installations, our global order intake decreased slightly, less than 5% in units, which was at a lower rate of decline than the overall market. So we had a strong performance in South America and so also good growth in Europe South. Let me move to Slide #7, our market outlook for '25. Service markets globally keep growing at a healthy pace as the NI volumes, sold previously and now installed, will need maintenance. Asia still accounts for well over 3/4 of the global NI market, and naturally, the incremental growth of the service base is the strongest there. In modernization, we broadly expect a continuation of the solid market growth observed across the regions in '24, with China poised to see the most robust demand supported by the government's large-scale equipment upgrade program. In New Installation, the China's market is in for another decline of more than 10%. With all key lead indicators such as floor space started, floor space under construction and real estate investment, seeing double-digit declines in '24. In Asia Pacific, excluding China, elevator demand will continue to grow with a continued solid growth in India, and well, another decline in South Korea. In Americas, we expect slightly growth with a continuation of the market pickup that we saw in North America in the second half of '24 already. But at the same time, we don't expect Brazil to experience growth rates as we have seen in '24. In EMEA, we expect the market to be stable overall. Key European NI markets remain under pressure. In Germany, multifamily building permits declined for the third consecutive year, with both '23 and '24, seeing declines of more than 20% year-on-year. Of course, interest rates in Europe are welcome -- are a welcome development, but this is really yet to translate into the new supply of housing, hence, into New Installation business. Now, I would like to step back for a moment over the next 2 slides and talk about where we stand as a company and what I see as our key priorities going forward. Well, firstly, you might ask, does Schindler need now a new strategy? And let me be clear about that. No. In fact, the strategic framework we developed in '22 and deployed in '23 is even more relevant today as we go now from what, as mentioned by Silvio before, we called an emergency landing in '22 to a period of driving continuous improvement at Schindler and of further developing our services model for our customers. So what are my overall reflections on our journey ahead? We have done a lot of hard work over the last 3 years, fixing fundamentals of our operations. And I believe with that, we laid a strong foundation for a profitable growth going forward. What do we do? What do we need to do? Well, our first focus should and will be our customers. We have over 700,000, and I'm personally convinced we need to get closer to them, listen better and continue to drive better services. Our digital capabilities and artificial intelligence applications will help us in that. And will also support our efforts in getting more efficient, not just in our service operations but across our entire organization, frontline as well as back office. Now, looking at our global operations, where do I see the key opportunities and challenges for companies going forward, starting with one of our biggest markets, the U.S.? Here, we have made some really good progress over the last couple of years, and you were following us. And now our momentum is building. Our team is doing a great job, and our product portfolio is improving. With the NI market continuing to develop positively, I believe we have a great opportunity to drive outside growth there -- here, not just in NI, but also modernization and in service. And you will hear me talking more about that over the coming months and quarters. In Europe, we are clearly regaining competitiveness in NI with the rollout of our standardized modular platform as well as modernization, and we have a high connectivity rate in many of our core European markets, which, again, will enable us to deliver better service to our customers and help in portfolio retention. Now China, let me say that our team there has done an outstanding job in '24 in managing what has been a really difficult market environment. What did we do? First, we adjusted our organization in New Installation and back offices and delivered savings in our installation methods. Second, we made a good progress on our cost base in escalators, more than offsetting the price volume headwinds we faced in the market. And third, we were able to capture opportunities in export markets, which we could supply from our operations in China, in part offsetting the decline in domestic market. Well, you might ask, is the job done in China? Clearly, no. We will continue to align our organization to the market reality. And I believe we made a good progress in the last couple of years as the NI market declined, but don't let forget, there are also growth opportunities, especially in modernization and service, where we are making good progress in terms of targeting our product portfolio and organization. Now before I hand over to Carla, let me briefly discuss our key operational priorities for '25. Moving to Slide #9. Let me start in saying I'm a firm believer that a successful transformation doesn't happen in one big prominent program, in one single defining action or in a magic moment. It happens by each of our 69,000 employees waking up every morning aiming to do a little bit better than we did the day before. And how we do that? By continuously analyzing our performance, identifying opportunities for improvement and implementing changes to our operations and processes based on continuous improvement. So I'm convinced that our 4 pillars, our framework remains the best way for us to structure and communicate our operational priorities. You have seen this slide before, the 4 Ps, the 4 pillars, people, performance, products and planet, are the same. But of course, the underlying drivers have changed as we look ahead to '25. So how I see these priorities? Let me start with what is our goal. Among all our financial and nonfinancial targets is about delivering on 12% EBIT reported, our margin guidance and kind of North Star, if you will. But how do we like to do that? People first. Over 2/3 of our workforce are technicians, customer-facing colleagues, that's where we make a difference in this industry by enabling our field force to be the best they can be. We can be proud of our 150 years of history, and our external recognition in '24, as I highlighted in my first slide, show that we continue to be an aspirational and attractive employer, but we can get better. We can keep pushing the bar higher to attract and retain the right talent and to enable these talents to perform better. This leads me to second performance. If there's one word, you have heard us use a lot in the last 2 years is efficiency. But too often in company's history, this was associated with a big disruptive restructuring program. As I look forward, for me, it's about maintaining a culture of continuous improvement, driving efficiency across our organization in procurement, supply chain, field operations and back office. And it's about processes, standardizing and globalizing processes, leveraging artificial intelligence and much more. We will talk about this in the course of the year. One critical driver within performance where we cannot take our eyes off the ball is pricing. Without pricing discipline, we don't achieve the level of profitable growth we are aiming for. So an important operational priority for me this year is to build on the work done in the last years and to leverage technology and data analytics to continue to drive our pricing capabilities going forward. That leads me to products because without the right product, it's difficult to be competitive and to command premium pricing. Let me say that I'm very pleased with our progress on our standardized modular platform. This is really the bread and butter of our business. Our volume product in New Installation is a must-win. The lead times, of course, mean the impact on our P&L this year will be limited and only start to become more material and visible '26 and '27. As for modernization, we are taking the right steps to do better and build on standardized solutions. I expect our progress will become already more visible during '25. Finally, on planet, we launched our 2030 sustainability roadmap last year, which we are now busy in executing. And we have a great pipeline of innovative products focused on sustainability. And today, we will show you an example of what can be expected this year. With that, I'm happy to hand over to Carla to take us through the financials.

Thank you, Paolo. Good morning to everybody. So listening to Paolo, reflecting on the performance today, it is very clear we still have a lot of work ahead of us in order to achieve the midterm target, but I really believe that we made good progress in '24. A couple of observations, and starting with Slide 11, before we go a bit more into detail on the following slides. So firstly, I'm pleased to report that we achieved our '24 outlook despite the New Installation market headwinds, particularly in China. Now, the stability we have as a service company was evident again in '24, with a growth in our service and modernization business more than offsetting the declines in the New Installation. Secondly, we made some real good progress in '24 on the journey upwards to over 13% EBIT, our midterm target. Reported EBIT margin came in above 11% for both the year and the quarter 4. Now thirdly, net profit showed a significant year-on-year improvement, achieving a margin of 9.2% in the fourth quarter and 9% for the full year. And net profit for the year was CHF 1 billion, and that was a new high for the company. Lastly, as a CFO, I'm particularly pleased with our operating cash flow, and that came in at an exceptionally strong level in quarter 4, and we ended the year with an operational cash flow of CHF 1.6 billion. And what was more encouraging even was that it was strong for the right reasons, as it was driven by a good development in operating earnings as well as a continued progress in our networking capital. Now before moving to the next slide, let me also remind you of the ForEx, which continues to have significant negative impact on our financial performance. Currency headwinds cut off 3.2% of our order intake, 3% of revenue and 3.4% of operating profits in '24. Now moving to Slide 11. And there, you can see, we continue to deliver positive order growth in local currencies, both in quarter 4 as well as for the full year. And it was, yes, rather modest in quarter 4, so we admit that. So in quarter 4, we grew order intake by 1.6% in local currency. And again, China declined to now below 12% of the group overall, but China continues to be a heavy headwind. It was down 25% in quarter 4 and more than 35% in the New Installations. Now it is very much the service and the modernization that is driving the order growth, and both of these grew high single digits in local currency in '24, but at the same time, we faced heavy market headwinds in the New Installation markets, primarily in China. So we also clearly remain committed to driving pricing discipline across our organization, and Paolo referred to the pricing discipline earlier. Now let me briefly touch on our backlog. Our overall order backlog as of end of the year was flat compared to prior year and down 2.2% in local currencies. The legacy backlog, as many of you have followed closely over the last couple of years, continue to be worked further down. And the legacy backlog stood at 12% of the total backlog at year-end, down from the 15% in quarter 3 and down from the 30% at year-end '23. Now our backlog margin overall improved sequentially in quarter 4 and that follows 2 quarters of more flattish sequential development. So some encouraging signs that our efforts to focus on pricing and efficiency are having a positive impact on our backlog. Now let's turn to the revenue development on Page 13. And you can see that the final quarter of the year in terms of revenue was rather disappointing with a 3.5% decline in Swiss francs and 2.2% decline in local currencies. Now part of the weaker revenue development in quarter 4 was due to China, which saw revenues declined by over 20% in the quarter. Excluding China, however, quarter 4 revenue was up low single digits in local currency. But we also had a slightly lower-than-expected revenue development in the modernization in quarter 4, primarily due to the phasing of deliveries. But our modernization backlog is growing, and we are also very confident that deliveries will catch up in '25. Now for the full year '24, we delivered growth in local currency, but not much, 0.8% and clearly not at a satisfactory level. So in Swiss francs, revenue was down 2.2% for the year. And again, we grew in local currency in all regions except China, where revenue was down mid-teens for the year. Now if you look at our business segments, in '24, New Installation was down high single digits in low currency. Modernization and Service were up mid-single digits overall with the highest growth in Service. So again, in '24, the resilience of our business model is evident with the MOD and the service revenue growing solidly across all the regions. Now moving on to the operating profit on the next slide. And as I said at the intro, we made some good progress in '24 towards our midterm targets. EBIT reported margin in quarter 4 came in at 11.2% and for the year at 11.3%, so that is up 100 basis points versus '23, whilst the EBIT adjusted margin came in at 12% for the year, up more than 100 basis points. Now what is driving the improvement of the profitability in '24 is actually a combination of efficiency gains, pricing discipline and mix. And let me first say that pricing and efficiency continue to outgrow inflation and is fully in line with expectations. When you look at our operational improvement in the bridge, let me also stress that the relative rate of efficiency is growing. And that's really a combination of the work that we are doing in the supply chain area, but also in procurement as well as the efficiencies that we are driving in the SG&A and which are starting to come through. And the progress we have made on the legacy backlog, as I discussed earlier, give us a good line of sight on improvements to come from the rollout of our higher-margin backlog going forward. Now overall, for the year, restructuring costs came in a bit lower than we had expected, so at CHF 61 million compared to the up to CHF 80 million that we had guided to before. So adjustments ended up as a small positive in our quarter 4 bridge and only a minor headwind in the full year bridge. Now moving on to the net profit. Net profit grew to CHF 262 million in quarter 4 and to just over CHF 1 billion of the year. And that is really a new high for Schindler. And we saw the net profit margin improving sequentially throughout the year, ending at 9.2% in quarter 4 and 9% for the full year. So below the operating profit line, we saw a very good development of our financial income in '24, partly due to our active cash management, but also due to a stable effective tax rate. And in terms of earnings per share for '24, we landed at CHF 8.83. Now moving to the operating cash flow, and I believe that is really one of the absolute highlights for me in '24, a cash flow that came in at CHF 1.6 billion for the year. And a strong contributor was the net working capital in quarter 4 and also for the whole year because, as you can see, it was driving to over CHF 100 million in the quarter and close to CHF 300 million improvement in '24. And that resulted from lower inventory, more favorable coverage of down payments versus the work in progress and also higher payables. And this strong cash flow, combined with our balance sheet, allows us to continue to drive a progressive shareholder distribution policy. Now moving to the next slide. As a result of the strong cash flow, I'm also pleased to report that the Board has proposed an ordinary dividend of CHF 6 per share, which is up from the CHF 4 per share in prior years, reflecting now a payout ratio of 68% for '24. That's made possible by our solid balance sheet and strong cash flow generation. But a higher dividend payout ratio should also be seen in light of the lower interest environment in Switzerland, but also our focus on delivering a more competitive yield for our shareholders. And let me now briefly also touch on the broader capital allocation strategy and how we aim to distribute capital to shareholders, while at the same time, maintaining a strong balance sheet. I recall, that at this time last year, we announced a change to our dividend policy, raising our payout ratio to a range between 50% and 80%. So we also paid out a special dividend in connection with our 150 years anniversary. And then in October, with our quarter 3 results, we added a CHF 500 million share buyback program. So I hope that we are demonstrating that we are pursuing now a more active and progressive capital allocation policy. Now, as for the share buyback program, I can clearly mention that this was launched on the 6th of November, as you know, has been running on plan since then. With total number of shares, both registered and the participation certificates, bought back amounting to circa 164,000 shares for a total amount of CHF 42 million as of year-end, so about 8% of the total program is completed by year-end. Now before I move on to the guidance, allow me also a moment to zoom out a bit and to give you a bit of a broader perspective on our financial performance. So I am now on Page 18, yes. So if you look at the bottom 3 charts on the slide, I think you will appreciate there the quality of our business model. Cash conversion, return on capital compared to most other industrial sectors both are high and stable. And I'm also very pleased to see both trending higher since '22. That means that our balance sheet continues to strengthen ending the year with a net liquidity of CHF 3.7 billion. And if you exclude lease liabilities, our net liquidity was beyond CHF 4 billion. So the factor net liquidity represents more than 80% of our equity. Now this cash compounding wouldn't be possible without a stable and a growing top line. And as you can see from the top 3 charts, our long-term growth is really healthy, led by a strong service growth and with a balanced regional exposure. I believe it's important also to remember that at a time when we and the broader industry go through a soft patch when it comes to growth. Now on to the '25 guidance. So for this year, we expect a low single-digit revenue growth in local currencies and an EBIT reported margin of 12%. It's very much our ongoing efficiency initiatives that we expect will drive the margin uplift this year compared to the 11.3% in '24. Now the 2 big drivers that I expect are the procurement savings and the SG&A savings. And the latter follows from our headcount initiatives that we started and actually also fully executed in '24. Now we also expect mix to contribute again this year as our service business grows strongly whilst New Installation continues to be adversely impacted by the challenging market conditions, especially in China. In terms of restructuring costs, we expect up to CHF 50 million in '25, so a slightly lower level than in '24, but still a burden as our reported -- on our reported EBIT margin this year. Now finally, before we go to the Q&A, on Slide 20, I wanted to provide you with a little bit more detail on our midterm targets, which we launched last year. Firstly, we have set our '27 as the year in which we expect to achieve our midterm target of 13% EBIT reported margin, and we believe that, that is a realistic timeframe. We made very good progress in '24 and expect to do that again this year with our '25 EBIT reported margin guidance set at 12%. Now looking a bit further out to '26 and '27, we expect business mix to provide less tailwind to margin, hence our slightly lower annual uplift in this year of around 50 basis points per year. Secondly, on the drivers of margin expansion over the next 3 years, we see 3 key components other than mix; field efficiency, procurement and SG&A. Now let us start with the field efficiency, which really means improving our productivity in the field across our New Installation, Modernization and Service business. And this one is driven by the efforts that we have been putting into the organization over the last couple of years and continue to put in, both in our New Installation business with the rollout of our standardized modular platform and our MOD business as well as the efforts to connect and digitize our portfolio and drive efficiency in our Service operation. Next, supply chain efficiency, including procurement, which has already been a big contributor in recent years, but we expect and continue to offer incremental savings structurally as we work actively to drive further efficiency into our supply chain. And then SG&A, we made good progress in '24 on headcount reduction, which will benefit now our P&L in '25, and we'll see -- continue to address -- and we will continue to address our cost structure going forward, as we drive further organizational efficiency and process optimization. Now partly offsetting these tailwinds will be adjustments which include our ongoing transformation investments. These include various investment programs into our IT infrastructure, digital capabilities and process improvement. And this will be the greatest headwind over the next few years. Now finally, a word on pricing, which we expect to continue to contribute positively over the next 3 years, fully offsetting cost inflation. And you heard Paolo talking about pricing as one of our '25 priorities. So continuing the work of prior years, and as we expect to see positive pricing across our business segments, including in New Installation overall despite the pricing declines that we are currently facing in China. Now in the context of our 13% bridge, you should think of pricing versus cost inflation as a neutral. Now in conclusion, let me end by thanking together with my colleagues in the Executive Committee our little over 69,000 employees across the globe for their efforts in '24. It's clear that without their dedicated efforts, we would not have been able to make the growth -- the good progress that we did in '24, a year in which we celebrated proudly our 150 anniversary as a company. And with that, I hand back to Lars.

Thank you, Carla. Paolo and Carla are now happy to take your questions. [Operator Instructions] So with that, operator, please.

[Operator Instructions] The first question is from Andre Kukhnin, UBS.

And if I may just start with a big thank you to Silvio for your time over the last 3 years, and obviously, the years before that, yes, always appreciated your honest and direct style. And I'll certainly take away your commitment and passion for performance. If I may, with a question, if I could cheekily ask maybe all 3 of you to share your thoughts on that? I just wanted to look at it broadly and ask when you consider all the changes that have taken place at Schindler in the past year or maybe over the last 3 years, what would you view as most kind of profound and exciting in terms of positioning the company for the next 3 to 5 years?

Thank you, Andre, for your question. If I have to summarize what has been the most impactful setting, what I call, foundation for profitable growth in the past -- in the future is for me that we have recreated our product platform in New Installation. We have launched a lot and are still doing now a very good product base for modernization and that we have heavily invested into our teams. We called this program in the last 3 years, which we will continue investing in our front line. I think these 3 pillars -- sorry, these 3 major changes started '22, executed in 2024 have set us -- do set us ready for the future. It's about people, it's about products, and for sure, together with both is about processes. And you heard me say this many times, Andre, I'm surely convinced that if we stay disciplined on our processes, I think our plan for the future is there to be achieved.

Next question from Klas Bergelind, Citi.

So one question, that would be on growth. So it's obviously great to see the good execution, but can we talk about the sales growth into '25, the low single digit? Sales growth was weaker at year-end and the backlog is not moving much. Ex currency, it's down slightly by 2%. So can we talk a little bit about your expectations here across Service MOD and NI? I think you said, Carla, that your MOD backlog is quite solid and should see a growth acceleration here in the coming quarters, that this is a timing issue. But also, to what extent can these better orders at least versus my forecast, we now see NI Europe convert already into sales in '25? Because I mean it's hardly going to be China providing any delta. So it must be something else, quite a big step-up in growth year-over-year.

Klas, Paolo here, thank you very much, very good question. So the growth plan, and when we talk about growth, I repeat it, we talk about profitable growth. So it's obviously on all 3 legs. It's New Installation, it's Modernization and Service, whereof Modernization and Service do play the bigger role. So when I talk about markets, you mentioned it, we don't expect, especially in New Installation, China contributing to a growth going forward. So hence, the plan is to really focus on Americas, on Europe, as you rightly assume. And this -- for New Installation and for Modernization and Service, this I'd like to include also our China base. As I said before, China remains in terms of Modernization and Service a big market. So growth without China in that segment would not make sense. But you made the right assumption, it's Americas, it's Europe. And it's New Installation and it's Modernization and Service a bit everywhere.

Next question from Daniela Costa, Goldman Sachs.

I just wanted to follow up in terms of the margin improvements that we have seen both in the backlog but also in the P&L. Can you comment whether it's been sort of primarily into one of the product segments? Or is it mostly NI or also MOD and Service margins? And also, is it relatively similar across regions or you would say it's mostly concentrated on one region?

Daniela, I will leave it to Carla to give some more details, a very good question. I think the fastest answer is that the biggest contribution comes by improvement on -- it's more about markets, where the margin improvement comes from. So it's about the Americas, it's about Europe. And hence, it's logical that we did also improvements here on Modernization and Existing Installations. Carla, please.

Yes. Yes. So to complement that, Daniela, it is definitely also the results when you look at the initiatives that we are driving. It is also the result of the efficiencies that we have been driving throughout the operations and also quite an incremental savings that are coming from the procurement savings, which clearly have added to profitability in the different segments. So that played definitely a strong role. Yes.

Next question from John Kim, Deutsche Bank.

I was wondering if we could get some color on tariff exposures from potential tariffs out of the U.S. to the NAFTA region, China and potentially Europe. Can you give us a sense on how much of the cost base in the U.S. versus the revenues?

John, thank you for your question. So first, I'd like to say that we are happily looking on a U.S.-based operation for us. So what does it mean? We have factories in the U.S., so we produce in the U.S. for the U.S. And for the mass majority, more than 90% of everything we do there is procured, produced and/or executed in the U.S. So with that, I must say the very first impact has been very, very limited. So now looking forward, and I had this question already this morning, I mean we have to see what the long-term impact might be, and then, we will react. But by now, I can say we benefit from our U.S.-based operation. One could say now it pays off that we kept over all the time all our factories there for new installation, for modernization, for escalators. So they are by now quite limited.

The next question is from James Moore, Redburn Atlantic.

Can I echo the same point? Silvio, thank you. Congratulations. Hope to see you [indiscernible] what a turnaround. Good luck, Paolo. Maybe I could ask a question on the NI margin. And I think when we had the problem that you turned around from, you talked about the whole NI business being in margin loss in '22 and maybe improved to breakeven or a small profit in '23. I wondered if you could give us a flavor as to how -- and I know you wanted to get to a much bigger number for NI margins that developed in '24. And I think regionally, the issue wasn't so much China, which was doing quite well. It was more the U.S. and Europe. And with your standardization of modularization you wanted to deal with those. How far through that coming through the P&L are we? And what's yet to come? Just really trying to understand how much has been done on NI, how much is yet to come.

James, this is Carla here. Thank you for the question. When it comes to really the development of the NI margin, it is very encouraging, and we make good progress outside of China. So it is clear that we have to separate the 2. But overall, yes, the steps that we were expecting are coming through, and that will also continue to be a focus area in '25, as we continue to roll out the modular platform and work on the efficiency initiatives that you are aware of going, yes, that the plans have not changed, and it really delivered up to now. China is a total different ball game, as Paolo already mentioned. Paolo, if you want to add?

James, sorry, not so much to add, but you said it. Actually, the progress is very well made outside of China as expected and continue to progress. James, so no surprises, for sure not any negative surprise on this one. We still and fully stick to our plans.

The next question is from Miguel Borrega, BNP Paribas.

Can you give us any indication on whether conversion rates, retention or even recaptures have improved in 2024? I ask because you mentioned in the report that connected units are now about 40% of your installed base. So I would imagine this could be impacting positively your KPIs. So can you give us any example or any anecdotal evidence where this helps your KPIs or the impact would still be quite limited?

Miguel, Paolo here. Thank you very much. It's a great question, as this is one of our most important efforts. So where it is evident? Number one, we can say the first and most important point is portfolio retention. So as we know, connected units do stick much better to portfolio, but why it is like that. We can offer to our customers a much better service. So now if you ask, do you see already an impact in your numbers? Yes, we do. In the countries in which we are more advanced with the number of connected units and with the number of services, digital services that we can offer, we see a clear impact in portfolio protection, but as well in customer retention and also more and more in revenues of additional digital services. But just to give a bit more of color, this depends very much from country to country. As we previously shared, we were -- we are having different levels of connectivity. So if you go across the regions, this might vary a bit, but the tendency is very clear, it's upwards.

We will take one final question, and then, we will move on to a short video. So one final question please, operator.

Last question from Martin Hüsler, ZKB.

On China, can you shed some light on the sequential order book margin in China and maybe also say a word about the overall margin in China '24 compared to the group average?

Thank you, Martin. So now specific on China, and Carla can elaborate a bit more on it, I mean, we see a different trend between New Installation and Modernization and Service for sure. As we were also reporting previously, the New Installation market was not only declining in units and value, but was also heavily under pressure in terms of pricing, which also had a consequence on the pricing for Modernization and Service in much lower scale. So, therefore, it's clear that the pricing development in China overall had an impact on the numbers. But Carla, maybe you can give some more color.

Yes. Maybe just to complement that, but you said it, Paolo, it is clear that a significant decrease of the margin in the NI order intake flows through to the orders on hand. So obviously, we see there a downward pressure, no doubt. Yes.

And despite -- if I can complete, despite a margin, really -- and I can only complement our team there, all the efforts in adjusting costs in the product, in the structures, but the NI development of the last 3, now 4 years, one could say, have left...

A big challenge.

A big challenge. So, therefore, it would be -- everything else would not be honest and right. So much less on Modernization and in Service, but NI is a topic. We see it in the numbers, yes.

Thank you, Paolo and Carla. I appreciate there are a couple of you still in the Q&A line. We'll follow up with you separately after the call. The next scheduled event is the presentation of our Q1 2025 results on April 30. And with that, operator, we will show a short video. Thank you all for attending today's call.

Thank you very much.

Thank you very much.

Bye-bye, everyone. [Presentation]

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