Schindler Holding AG (SCHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Schindler Half Year Results 2026 Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Lars Brorson, Head of Investor Relations. Please go ahead.

Thank you, Valentina. Good morning, ladies and gentlemen, and welcome to our first half 2026 results conference call. My name is Lars Brorson. I'm Head of Investor Relations agenda. I'm here together with Paolo Compagna, our CEO, and Carla De Geyseleer, our CFO. As usual, Paolo will discuss the highlights of our first half results and our 2026 market outlook, and Carla will take us through the financials. After the presentation, we are happy to take your questions. We plan to close the call at 11:00. With that, I hand over to Paolo. Paolo, please go ahead.

Yes. Good morning, everyone. Glad to be back to report on our first half year results. Overall, I'm very pleased with our operational execution in the first half of the year as we reached another record operating profit. But let us start with our top line development. In the first half of the year, our order intake grew 2.9% in local currencies. Similar to the recent quarters, with a strong contribution of the modernization business with a growth close to 13% in local currencies and a strong contribution from all regions. And that is on a tough comparison from last year when we grew already 22% in the first half of the year. Order intake in new installation business in the first half of this year, has an encouraging trend outside of China, particularly in EMEA and Asia Pacific. Outside of China, we grew high single digit in value and low double digit in units. In EMEA, we drew NI order intake by over 12% in units in a market which we estimate grew low single digit. And it's a broad-based strength in Europe, including Germany, our biggest market. While China continues to be a headwind, leading to the overall low single digit down in order intake. Also, our modernization business is performing well in EMEA. Here, we grew orders by 60%, and that was on a tough comparison to from first half of the year '25 when we grew over 20%. And we see plenty of room for growth both on and off portfolio. We also believe we can continue to deliver above-market growth here. Let me say a word on revenue growth, which came in at 1.4% in the first half of the year. This is not a growth level we are happy with. But as Carla will explain shortly, we maintain our full year guidance, which implies an acceleration in the second half of the year. We have the backlog which is up 5.8% versus year end '25. And we are seeing favorable order trends outside of the Chinese new installation business. And we also believe our modernization business can and will accelerate further in the second half of the year. Now let me turn to our operating performance in the first half of the year. We saw our operating margin expand by another 90 basis points to 13.2%, a record level for the group. And this improvement is broad-based across our regional businesses. Globally, we are executing well across our manufacturing and supply chains as well as our field operations. At the center of that is our product strategy. We are seeing a good traction of our modular platform in the new installation markets that were early in our global rollout, notably Europe. Not only is growth picking up here, but we are also seeing very feasible improvements in terms of field installations efficiencies. Our new midrise product in the U.S. is also leveraging the modular platform. And here, we are seeing continued good momentum, too. Not at least, we expect that the rollout of our standardized modernization packages will also facilitate further gains in competitiveness of our modernization offering. Looking at the additional cost inflation we are facing this year from logistics, fuel and commodities, Carla will later provide more details on the expected cost impact but I can already say that we are actively working on mitigating mitigation measures, including pricing actions in order to offset these cost pressures, both lease prices as well as through charges across our new installation, modernization and service businesses. And we are working with our supply chain to manage efficiencies on the supplier side as well. Now a word on our strategy in light of the recent news in our industry. Let me say, there is no change to our strategy. This is working. We have strong operational momentum and are committed to pursue with discipline and determination on profitable growth. As competitors merge, we remain focused on delivering on our promises to our partners and to all our customers to ensure they can count on us for stability and consistent long-term support. Does that bring commercial opportunities? I believe so, yes. And I look forward to discussing our midterm strategy with those of you who are able to join us at our Capital Market Day in November. And that leads me to conclude by highlighting 3 recognitions we received in recent months. Schindler was recognized by Fortune as 1 of the Europe's most innovative companies, and we received the prestigious reddot and IF Design Awards for the outstanding product design of the Schindler retail. Why is that important? You will remember, we launched exited last year in selected markets in Europe, and we are now starting to see the impact this innovation in saving on the industry, on our customers and partners. And we believe this is another good example of how Schindler continues to lead the industry in terms of innovation. Moving to our market outlook for '26 on Slide 4. While we do see potential for outlook upgrade in certain segments and regions, given the continued geopolitical uncertainty, we have opted for keeping our outlook unchanged for the time being. We continue to closely monitor the implication of the situation in the Middle East on inflation, the construction and real estate markets and the overall speed of decision-making, while higher energy prices increased construction cost and reduced housing affordability which ultimately can have an impact on the market. In spite of these headwinds, we continue also to witness vibrant activity modernization markets across almost all regions with particularly robust growth in the areas where modernization is supported by government programs such as the example of China and Spain. With the number of elevators right for an upgrade approaching worldwide soon 10 million units, there is no shortage of modernization opportunities in all our zones. In new installation, the markets continue to develop positively across the regions beyond the exception being China, where the key lead indicators for elevator demand such as floor space started and real estate investment not only did not improve, but in fact, deteriorated sequentially again in June, reconfirming our outlook for another double-digit NI market contraction this year. In Europe, while the latest building permit statistics continue to show a -- pickup across the major markets such as Germany, the more high-frequency indicators, such as construction PMI and other sentiment indices to signal some hesitation to launch new projects and therefore, some softness in new order by builders. Activity in Brazil remains good, driven by the social housing segment. In the U.S., multifamily permits and starts continue to rise, but the architectural building index in multifamily remaining slipped below 50 again during the second quarter. Asia Pacific continues to see healthy growth driven by India and most Southeast Asian countries with activities picking up in Australia too. Turning to Slide 5 and our order intake in the first half of the year. In service, our maintenance portfolio continued to expand with accelerated growth reported in China followed Asia Pacific, excluding China. In Americas, we saw growth in value terms while we continue to be selective in terms of the units we decided to recapture from the market. The modernization second quarter marked the sixth consecutive quarter of double-digit growth. So we are very pleased with our consistently strong performance in this high-growth, high potential part of the business. Our average growth rate over those 6 quarters reached 17% and was well above the overall market growth. EMEA truly shined driven by some of the largest Northern European markets as well as Spain, where the ITC regulation supports delivery of safety upgrades to our customers. We also continue to enjoy high double-digit growth in China driven by the bond program for equipment replacement. While new installation, China was the only region to have seen declining order volumes. In the rest of the world, our orders grew double digits in units and similar to modernization. Europe was the standout region with above market growth in all key markets. We are pleased to have seen share gains also in Asia Pacific outside of China, according to our internal market estimates. And with that, happy to turn over to Carla for financial details.

Thank you, Paolo. Good morning, ladies and gentlemen. Happy to have you on the call. So let's start as usual with Slide 7 that provides you with the current -- the performance of the current quarter compared to the last 4. As Paolo said already, we are very pleased with the operational momentum in the second quarter with EBIT margins up 90 basis points compared to quarter 2 last year and up 40 basis points on an adjusted basis. Now our net profit, we post the 10% margin level in quarter 1 and continued to move higher in quarter 2. Now in terms of our top line development, order growth improved slightly to 2.9% in local currency in quarter 2. Clearly, still not where we want it to be. Our revenue growth was at the lower end of what we expected in quarter 2. So let me give you some detail on the drivers behind this. So moving to the next slide where you have our orders and revenue bridge for quarter 2. So we grew order intake in local currency in all regions outside of China. And it is really the new installation segment in China, which continued to be a significant headwind to growth. So excluding China, new installation order grew high single digits in value and low double digits in units in quarter 2, driven by EMEA and APAC, ex-China, as Paolo mentioned before. So in Europe, we saw a strong contribution from some of our key markets, including Germany and Spain. Now modernization, that continued its nice growth journey and contributed strongly to the order intake in quarter 2 growing at 11% on a reasonably tough comparison from quarter 2 last year when modernization grew 24%. Again, here, EMEA contributed positively to growth in the quarter. China also grew strongly, but on a tough comparison from last year when the Chinese modernization market saw a big step-up in the government's bond program, as you will recall. Now finally, growth in our service business was accretive to group overall. Moving on to our revenue, which grew 1.1% in local currency in quarter 2, that was slightly lower than what we had expected, driven by a softer development in our NI segment as well as timing on some of our larger projects in the modernization. But to be clear, we expect to catch up on these projects in the second half, which is partly why we are maintaining our full year guidance of low to mid-single-digit growth, as I will discuss shortly. Regionally, to complement Paolo's earlier comments on Europe, it's very pleasing to see our revenue growth gradually picking up here now at mid-single digits in the first half, and we expect that to continue to gradually accelerate in the second half. Now a quick note on currency impact. We have been facing significant FX headwinds in H1 with a revenue impact of CHF 233 million. In quarter 2, the impact was CHF 48 million. So based on current spot rates, however, we do see that the FX headwind could ease in the coming quarters. Now finally, a note on our order backlog which was up 3% year-on-year in local currencies compared to quarter 2 last year, but up 6% year to date and that is driven by the backlog in modernization, which was up 13% year-on-year. And from a regional perspective, the total backlogs in EMEA and APAC grew mid-single digit and by high single digits in the Americas. So that was partly offset by China where backlog was down mid-teens. Our backlog margin continue to improve sequentially, which is also a very positive message. Now moving on to the next slide, operating profit. So clearly, the highlight of our first half. Our EBIT margin was 13.2% in H1 and 13.5% on an adjusted basis. We continue to make good progress on operational improvements, which was CHF 45 million in our H1 EBIT bridge, which we are happy with after the strong improvement last year. Overall, price mix were contributors, but less so than efficiency. So it's the efficiency improvement that continues to be driven by SG&A, by procurement, by supply chain as well as efficiency in NIM activities. But we are also seeing a bit more cost inflation coming through in quarter 2 and expectedly also in H2, which I will touch on shortly when I turn to our full year guidance. Now moving on to the net profit on the next slide. As I mentioned, a good development in net profits driven by our operational improvements, which are more than offsetting a decline in financial income as well as FX headwinds. Margins into double digit in H1, which we are also very pleased about. Now moving to the cash flow. Operating cash flow in H1 came in below last year's strong level despite the uptake in our operating earnings. And here, it is the net working capital which we were not able to improve to the same level compared to the strong performance in H1 last year and hence, a headwind in our year-on-year bridge. This was related to 2 factors: first, a decline in our Chinese new installation business, which is driving lower down payments. And secondly, we had an adverse impact on the net working capital from the implementation of the ERP system in our U.S. operations. We spoke about that earlier this year. So we expect this to be ironed out in the coming months and therefore, the adverse working capital development should reverse partly or completely in the second half. Now moving on to Slide 12 and our full year guidance. So we confirm the full year guidance. So first note, on our revenue growth guidance of low to mid-single digits in local currencies in '26. So clearly, that implies an acceleration from the 1.4% growth level in H1. So we expect a strong double-digit growth in modernization and mid-single-digit growth in service and a gradual easing of the headwind in the new installations from the high single-digit decline in the first half. Now on to the margin guidance of 13% in '26 so we were at 13.2% in H1. So very much on track to deliver on the guidance of 13% for the full year. Obviously, the question will be, why not be a bit more ambitious for the full year, given the good performance for the first half year. Now let me comment on that. First of all, we had slightly more margin tailwind from mix in the first half than expected. This was partly due to the lower new installation revenue contribution as well as timing of revenue recognition on some of the larger projects in our modernization business shifting from H1 to H2. Secondly, we are facing slightly more cost inflation in H2. So based on our current assessment for the full year '26, we expect the additional inflation from energy and commodity pricing to be circa CHF 35 million, split approximately 2/3 in the second half, 1/3 in the first half. Now on commodity inflation, this is primarily associated with higher copper and aluminum prices, is broadly in line with what we have communicated in April. Now we are working hard on mitigating actions to offset these in terms of pricing and in terms of efficiency. Now let me also say a brief word on tariffs. Tariffs remain a moving picture, but our estimate of the annual gross P&L impact remains largely unchanged from what we communicated in April, so approximately CHF 15 million. And finally, before I close, I want to touch on an accounting topic, which will be important going forward, and that's the implementation of IFRS 18. As you may know, this is an accounting change, which will be effective from 1st of January '27, and affect the presentation and disclosure of our financial statements in '27. We have a detailed note in our interim financial report, which I will refer you to as well as the backup slide in this presentation deck. Now to give you an idea about the financial impact on us. If IFRS 18 would have been applied on January 1, '26, the operating profit would have been approximately CHF 20 million lower. So that is circa 40 basis points of EBIT margin so a level of margin impact you should expect going forward from this accounting change once it is effective, so in '27. Obviously, this will all be taken into consideration when we communicate at a later point about our midterm targets. Now I'm reaching at the end of my presentation. So it's important, I think, that you allow me to thank together with my colleagues in the Executive Committee, our close to 70,000 employees across the globe for their efforts and many of them and unfortunately, more of them continue to operate in exceptionally challenging circumstances. And with that, I hand back to Lars.

Thank you, Carla. Let me remind you of our Capital Markets Day, which has been rescheduled for the 19th of November this year at our headquarter in Ebikon Switzerland. We look forward to seeing as many of you there as possible here on our campus. Please note that the registration for this event closed on the 30th of October and the number of participants is limited. Now with that, Paolo and Carla are happy to take your questions. I would ask you, please, to limit yourself to 2 questions given the limited time we have available. With that, operator, please.

[Operator Instructions] The first question comes from Daniela Costa from Goldman Sachs.

I'll stick to 2. The first one, I think you mentioned sort of on the original equipment outside of China, you had high single-digit growth in value and low double digit in volume. Can you talk about sort of is the difference most that we're getting negative price in some of the regions, maybe where? Or is it just down to mix -- regional mix? And then the second question relates to -- I guess you've kind of mentioned the savings or the efficiencies had a bigger impact in 2Q, if I heard correctly. How should we think about sequentially the efficiencies impact into the second half? Will it accelerate? Or have we now reached sort of a run rate at which you will be more stable? And then that's why you don't get to offset the inflation and upgrade guidance?

Paolo here. First of all, to the order intake outside of China, if I got your question right, about pricing, there, we don't see a specific zone outside of China with significant price decline, price pressure above the, let's say, normal competitive environment we are used to have. So the development is, you can say, across all the regions. Yes, I was also mentioning Europe with standing out at least in this first half of the year, especially also in Q2 where we saw a pick up of our order intake. Also, and I said it before, based on our modular platform, you remember, which was introduced first in Europe when we started the rollout. So therefore, not a special comment on pricing, it's more normal development, I would say, competitive environment if we exclude China. On the effective efficiency before and over to Carla for more details, I mean, the development so far, it goes also hand-in-hand when we talk about field efficiencies with the modular platform, right? When we introduced it, we were talking about there is 1 big component, which is the field efficiency, which we were striving to gain and improve 3, 4 years back, right? And now obviously, with the increased portion of those new products coming into what we say fulfillment, it means as installation and hand over to customers, then this portion of the benefit comes in and obviously, this is not a one-off. This continues to stay as we then continue to sell and install these type of products. But please, Carla, you like to complete the picture on efficiencies?

Yes, I think you actually said that when we look, Daniela, the overall efficiency story, it continues to be pretty strong. So we are actually foreseeing also a good increment in the second half. And you know our building blocks very well. So yes, there is a certain maturity in the procurement savings, but they are still at a solid level, but the operational efficiency, as Paolo pointed out, they actually are expected to further increase because that is really the result now of the implementation of the modular platform. And I think that is very encouraging. So yes, then your question will be, I guess, with respect to the margin in H2, but it is really for the factors that I mentioned that we actually confirm the guidance because there might be costs coming our way so in H2, yes.

The next question comes from Andre Kukhnin from UBS.

Can I just do 2 clarifications first, quickly. Firstly, on IFRS 18, that change in operating profit by CHF 20 million, is that on a full year basis or for H1?

This is for H1. So you could double it for the full year, to be clear.

Great. And back to the comment on orders growth. So you saw high single-digit growth ex-China in value and low double digit in units. Did I get that right?

You got that right. Yes.

And sorry, I probably have to ask the same question again, but was there -- is it just mix and that resulted in that lower growth in value versus units, if you're saying there's no price pressure anywhere.

The figures you mentioned, sorry to reconfirm, this relate to NI, so new installations only. Yes. The order growth is the total order growth that you see on the slides, yes.

Great. So if in new equipment, the orders grew faster in units than in value and you said there was no pricing pressure anywhere given that we're talking about ex-China. Was it just purely mixed then?

Andre, absolutely right. It's the mix, right? It's a mix between large projects. And in that case, modular platform, which kicks in -- sorry, contributes more into the low-rise and mid-rise, absolutely, yes.

Got it. I think I've used up my time on the questions with this. I'll go back in the queue.

The next question comes from Phil Buller from JPMorgan.

Thanks for the questions. I have 2. They're quite different, so I'll ask them 1 at a time. The first 1 is on market share. You talked about gains in Europe, and I also understand the focus on selectivity elsewhere. But it seems like that competitive intensity isn't going away anytime soon, including in North America on the service side. So what's driving the gains in Europe ? And how do you intend to address the competitive situation in North America on service, please? That's question one.

Phil, I'll take the question. Well, if we look at Europe, as mentioned before, the modular platform, which was introduced for everything, which is low rise, mid-rise, it's absolutely supporting us also in gaining market shares. So without going to the individual markets, this is, I think broad-based a supportive argument in Europe. And you remember the modular platform was introduced in sales. 1.5 years ago, we were starting selling in Europe, starting by the way, also in some slated cages -- sorry, markets. So therefore, that's 1 part of the answer. You assume it right, it's about the model platform supporting our low and midrange in Europe. On the non-America specialty service, I mentioned before, in value terms, we do a good progress in units term. We stayed in the second half -- sorry, first half of this year, second quarter, very much to our strategy of not pulling in big tenders, which come with high number of units and very low values, which actually looks good in numbers of units but don't add, let's say, mid to the bone going forward. And we also mentioned introduction of the mid-rise product equal modular platform in the U.S., which actually going forward, will also help us having a better position. It was your question, how do we think to gain back on market shares in the U.S., the modular platform, especially in the midrange, will help us also in new installation and sub-sequentially also in modernization and service.

That's helpful. And the second question is in relation to the Capital Markets Day, which was delayed, obviously, to November. I assume that, that was because that -- was just before hand. So the November time frame, is that set in stone and purely focused on organic topics? Or was it in any way predicated on some internal views on time lines of potential remedies or M&A from your side, in which case perhaps the date could move again. Just any kind of color on the assumptions behind the date in November would be great.

Yes. In November, we will be happy to share with you our midterm plans focus on what we aim to do and what is in our hands.

The next question comes from Lewis Merrick from BNP Paribas.

Going back to the Americas order intake service, I mean from Q3, you'll start to annualize that negative order intake. So based on the actions you've taken to be more selective, do you think that, that can inflect positively in the second half?

Lewis, yes, that's absolutely our intention. First of all, we see already in the new order intake, also a modernization first signs of picking up there. And if you ask about service, our intention is also to have a gradually improving recovery also in terms of units not only value, which we already did in Q2. So Q3, Q4, we intend to further progress also on units in North America, absolutely, yes.

Okay. Clear. And just on China, the pace of new installation decline in orders continues to be in excess of 10%. I mean some of your peers have started to see those declines moderate somewhat to high single-digit levels. Do you see that based on the current order run rate and the comps you are facing, you can see the pace of those declines start to moderate in the second half as well?

Well, that's a philosophical now, Al. I mean, I was in the past always looking a bit more on the dark side of the Chinese development, market development, while competitors were more positive. And unfortunately, I must say we were proven right in the past. If you ask now about the second half of the year, difficult to say. However, every leading indicator right now would indicate we would be rather at a double digit, low double-digit decline rather than on a single-digit decline, which would indicate, as you mentioned, a recovery or let's say, softening situation. However, no one has a glass -- sphere glass ball. However, it will be between high single digit and low double digits. So Chinese -- new installations, we say -- excuse me, new installation remains, yes, challenging.

The next question comes from Delphine Brault from ODDO BHF.

I have 2, and we'll ask them 1 at a time. First, can you provide some color on modernization by region? Maybe in terms of growth? And if I may, how big is your modernization business now in percentage of sales?

Let me answer for the first question and answer, then normally, we don't disclose individual business lines in their individual contribution -- but where modernization is growing, I'm happy to share it's growing in every part of the world. We call it zones. So in every of our zones, the modernization business is growing well double digit. And you can say there's no part of the world. Let me include here explicitly also China in that regard, which is not contributing on high levels to the growth. By the way, let me repeat compared to a tough comparison to the first half year of last year, where we were already growing all over the place, double digit. So here, we have a continued acceleration of growth, you can say. And this is in all zones, North America, South America, Europe, China, Asia Pacific. And the second question, I have to leave open as we don't disclose single business lines.

I tried. The next 1 is -- and sorry if I may have missed it, but did margin in backlog grow sequentially?

Yes. The backlog margin grew sequentially. It's actually quite a nice -- and this is related to the healthy intake from a profitability perspective.

The next question comes from Martin Hyousler from Zurcher Kantonalbank.

So my 2 questions. First of all, on the Chinese market, again, what is the situation regarding payment terms and bad debt allowances among Chinese customers. Do you make any concessions with a down payment here?

I will -- I confirm we don't make any concessions with down payments because it would expose us too much because we also see a bit overall deterioration in the credit risk. So we stick to our policy in a very disciplined way, I can tell you.

Is this the same for MAT orders and NI orders? Or is there something which we should take into consideration?

No, we actually stayed we are very -- we apply the same rules for modernization as for the new installation.

Okay. Then the second question is on U.S. tariffs. And obviously, we saw first companies that reported some tax or tariff refunds. What is your view here? And are there any tax refunds being into H1 results or not at all yet?