Earnings Transcript for SHLAF - Q4 Fiscal Year 2024

Operator: Ladies and gentlemen, welcome to the Full Year Results 2024 Conference Call and Live Webcast. I’m Vicky, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] At this time, it’s my pleasure to hand over to Lars Brorson, Head Investor Relations. Please go ahead, sir.

Lars Brorson: Thank you, Vicky, and good morning, ladies and gentlemen. Welcome to our full year 2024 results conference call. My name is Lars Brorson. I am Head of Investor Relations at Schindler. I am 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 2024 results, our market outlook and our priorities for 2025. And Carla will then take you through the financials. After this 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.

Silvio Napoli: Thank you, Lars, and good morning, everyone. As Lars explained before Paolo and Carla walk you through our 2024 results, I wanted to take this opportunity as outgoing CEO and now in my role as Chairman to share some thoughts about the past three years and where the company is today. Three 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. A 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 achievements over the last three 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 fix legacy issues. We recovered a trajectory and over the last three years made fundamental changes. Changes for supply chain and manufacturing processes, changes to innovation capabilities and product platforms, and changes to our go-to-market approach and pricing strategy. And in some areas, we’ve seen great results from these measures, which have helped us to deliver eight 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 will 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 have laid the foundations for Schindler’s continued progress commercially and financially. And of course, today’s results are only the output of the last three years. In terms of input, a key part was the new strategic framework we developed in 2022. One that was built around four key pillars that we call the 4Ps, 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 P’s, 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 three 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 three 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 and shareholders. Many of you have been with us over the last three years, some of you longer and I appreciate the trust you placed in me and the team during this 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 investors 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 re-election as Chairman of the Board of Directors at the upcoming General Meeting of Shareholders in March. After 30 extraordinary years with Schindler, I have decided this 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 their trust and would like to thank the Schindler teams I’ve 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.

Paolo Compagna: Thank you, Silvio. Much appreciated. Thank you very much. Good morning, everyone, also from my side. And over to the next few slides, let me walk you through the highlights of our full year 2024 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 new terms priorities, before I will hand over to Carla. Turning to Slide #4, let me provide a brief overview of our performance in 2024, 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 topline performance is well explainable, given the circumstances. And when it comes to our EBIT margin reported, I’m very pleased that with improvement in 2024, up 100 basis points compared to 2023 and we believe we can make even further progress in 2025. Carla will elaborate on the details. Secondly, we are a service company, and the numbers show it. Overall, we grew orders by a 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 base across all our regions and supports our outlook for 2024. Our maintenance portfolio grew 6% in local currencies, similar to the growth we saw in 2023. 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, we report a net profit of just over CHF1 billion in 2024. That’s a record for Schindler. And the conversion of this profit into cash is very high. We delivered an operating cash flow of CHF1.6 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 CHF6 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 2024 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 maybe more important, partner trust for our customers. And in terms of sustainability, we were awarded the 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 Dalek segment [ph]. 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, which roughly the half of the worldwide more than 22 million installed units, and increasingly, this equipment becomes ripe for modernization. Europe also did better, so overall a strong modernization market in 2024 than we expected. Finally, for service, it is worth noting, when we look at the marketing unit, 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 like to highlight the Schindler orders intake in 2024. Let me start first. I like to emphasize that our transition in becoming increasingly a service company did well continue in 2024, 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 a 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 installation. 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 2024, 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 2025. 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 three quarters 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 2024, with China forced to see the most robust demand supported by the government’s large-scale equipment upgrade program. In new installations, 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 2024. 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 America, we expect slightly growth with a continuation of the market pick-up that we saw in North America in the second half of 2024 already, but at the same time, we don’t expect Brazil to experience growth rates as we’ve seen in 2024. In EMEA, we expect the market to be stable overall. Key European NI markets remain under pressure. In Germany, multi-family building permits declined for the first consecutive year, with both 2023 and 2024 seeing declines of more than 20% year-on-year. Of course, interest rates in Europe are welcome -- at 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 two 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 2022 and deployed in 2023 is even more relevant today as we go now from what, as mentioned by Silvio before, we called an emergency landing in 2022, 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 two 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 the 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 in 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 2024 in managing what has been a really difficult market environment. What did we do? First, we adjusted our organization 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 declining domestic market. Well, you might ask, is the job done in China? Clearly, no. We continue to align our organization to the market reality and I believe we made good progress in the last couple of years as the NI market declined. But don’t 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 priority for 2025, moving to Slide #9. Let me start by 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 operational -- to our operations and processes based on continuous improvement. So I’m convinced that our four pillars, our framework, remains the best way for us to structure and communicate our operational priorities. You have seen this slide before, the 4Ps, the four pillars, people, performance, products and planners, are the same. But of course, the underlying drivers have changed as we look ahead to 2025. So how I see these priorities? Let me start with what is our goal. Among all our financial and non-financial 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 two-thirds 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 2024, 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 this talent to perform better. This leads me to second, performance. If there’s one word you have heard us use a lot in the last two years is efficiency. But too often in companies’ 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, 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, a new installation, 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 in 2026 and 2027. 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 2025. Finally, on planet, we launched our 2030 sustainability roadmap last year, which we are now busy executing. And we have a great pipeline of innovative product focused on sustainability, and today, you will -- 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 to the financials.

Carla De Geyseleer: 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 2024. 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 2024 outlook despite the new installation market headwinds, particularly in China. Now, the stability we have as a service company was evident again in 2024 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 2024 on the journey upwards to our 13% EBIT, our midterm target. Reported EBIT margin came in above 11% for both the year and the quarter four. 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 CHF1 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 four and we ended the year with an operational cash flow of CHF1.6 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 profit in 2024. Now moving to Slide 11 and there you can see we continue to deliver positive order growth in local currencies, both in quarter four, as well as for the full year, and it was, yeah, rather modest in quarter four, so we admit that. So in quarter four, 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. So it’s down 25% in quarter four and more than 35% in the new installation. 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 2024. But at the same time, we faced heavy market headwinds in the new installation market 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 backlogs to that 12% of the total backlog adherence down from the 15% in quarter three and down from the 30% at year-end 2023. Now our backlog margin overall improved sequentially in quarter four and that follows two 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 revenue development in quarter four was due to China, which -- so revenues declined by over 20% in the quarter. Excluding China, however, quarter four 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 four, 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 2025. Now for the full year 2024, 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 2024, new installation was down high-single digits in local currency, modernization and service were up mid-single digits overall with the highest growth in service. So again, in 2024, 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 2024 towards our midterm target. EBIT reported margin in quarter four came in at 11.2% and for the year at 11.3%. So that is up 100 basis points versus 2023. 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 2024 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 it’s fully in line with expectations. When you look at our operational improvement in the bridge, let me also stress that the relative weight 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 true. 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 cost came in a bit lower than we had expected. So at CHF61 million, compared to the -- up to CHF80 million that we had guided to before. So adjustments ended up as a small positive in our quarter four bridge and only a minor headwind in the full year bridge. Now moving on to the net profit. Net profit grew to CHF262 million in quarter four and to just over CHF1 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 four and 9% for the full year. So below the operating profit line, we saw a very good development of our financial income in 2024, partly due to our active cash management, but also due to a stable effective tax rate. And in terms of earnings per share for 2024, we landed at CHF8.83. Now moving to the operating cash flow and I believe that is really one of the absolute highlights for me in 2024, a cash flow that came in at CHF1.6 billion for the year. And a strong contributor was the net working capital in quarter four and also for the whole year because as you can see it was driving to over CHF100 million in the quarter and close to CHF300 million improvement in 2024. 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 CHF6 per share, which is up from the CHF4 per share in prior years and reflecting now a payout ratio of 68% for 2024. 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. And 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 three results, we added a 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. The total number of shares both registered and the participation certificates bought back amounting to 164,000 shares for a total amount of CHF42 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, yeah. So if you look at the bottom three charts on the slide, I think you will appreciate 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 2022. That means that our balance sheet continues to strengthen, ending the year with a net liquidity of CHF3.7 billion. And if you exclude lease liabilities, our net liquidity was beyond CHF4 billion. So de facto, net liquidity represents more than 80% of our equity. Now, this cash compounding wouldn’t be possible without a stable and a growing topline. And as you can see from the top three 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 2025 guidance. So for this year, we expect 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 2024, sorry. Now the two 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 2024. Now, we also expect mix to contribute again this year as our service business grows strongly, whilst new installation continued to be adversely impacted by the challenging market conditions, especially in China. In terms of restructuring costs, we expect up to CHF15 million in 2025. So a slightly lower level than in 2024, 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 2024 and expect to do that again this year with our 2025 EBIT reported margin guidance set at 12%. Now looking a bit further out to 2026 and 2027, we expect business mix to provide less tailwinds to margin, hence, our slightly lower annual uplift in these years of around 50 basis points per year. Secondly, on the drivers of margin expansion over the next three years, we see three key components, other dynamics; 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 2024 on headcount reduction, which will benefit now our P&L in 2025 and we will 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 as into our IT infrastructure, digital capabilities and process improvement. And this will be the greatest headwind over the next few years. And finally, a word on pricing, which we expect to continue to contribute positively over the next three years, fully offsetting cost inflation. And you heard Paolo talking about pricing as one of our 2025 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 2024. 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 2024, the year in which we celebrated proudly our 115th anniversary as a company. And with that, I hand back to Lars.

Lars Brorson: Thank you, Carla. Paolo and Carla are now happy to take your questions. I appreciate that we have limited time left. So can I ask you please to limit yourself to one question only please and we are available, of course, after the call also to follow-up with you if you don’t get a chance to ask a question on today’s call. Again, after the Q&A session, we will show you a short video. So with that, Operator, please.

Operator: Thank you. [Operator Instructions] The first question is from Andre Kukhnin, UBS. Please go ahead.

Andre Kukhnin: Yes. Good morning. Thank you very much for taking my question. And if I may just start a big thank you to Silvio for your time over the last three years and obviously the years before that. Yeah, always appreciate it your honest and direct style and also to take away your commitment and passion for performance. If I may -- with a question, if I could particularly ask maybe all three 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 past year or maybe over the last three years, what would you view as most kind of profound and exciting in terms of positioning company for next three years to five years?

Paolo Compagna: 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 three years, which will continue investing our front line. I think these three pillars, these -- sorry, these three major changes started 2022, executing 2022 and 2024 have set us -- do set us ready for the future. It’s about people. It’s about product. And for sure, together with both is about processes. And you hear me saying this many times, Andre, I’m truly convinced that if we stay disciplined in our processes, I think our plan for the future is there to be achieved.

Lars Brorson: Thank you, Andre.

Andre Kukhnin: Thank you.

Operator: Next question from Klas Bergelind, Citi. Please go ahead.

Klas Bergelind: Thank you. Hi, Silvio, Paolo, Carla. Klas at 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 2025, 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’re now seeing in Europe convert already into sales in 2025 because I mean it’s hardly going to be China providing any delta, so it must be something else. It’s quite a big step up in growth year-over-year. Thank you.

Paolo Compagna: Klas, Paolo, 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 three legs. It’s new installation, it’s modernization and service, whereof modernization and service to play the bigger role. So when I talk about markets, you mentioned it, we don’t expect especially 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 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 a new installation and it’s modernization service a bit everywhere.

Klas Bergelind: All right. Thank you.

Lars Brorson: Thanks, Klas.

Operator: Next question from Daniela Costa, Goldman Sachs. Please go ahead.

Daniela Costa: Hi. Good morning. Thank you for taking my question. 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 more than in service margins? And also is it relatively similar across regions or you would say it’s mostly concentrated on one region? Thank you.

Paolo Compagna: Daniela, I will leave it to Carla to give some more details. A very good question. I think that 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.

Carla De Geyseleer: Yes. Yes. So to complement that, Daniela, it is definitely also the result 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.

Daniela Costa: Thank you.

Lars Brorson: Thank you.

Operator: Next question from John Kim, Deutsche Bank. Please go ahead.

John Kim: Hi, everyone. 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? Thanks.

Paolo Compagna: 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 U.S. for the U.S. and the majority is more than 90% of everything we do there is secured, 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.

John Kim: Great. Thanks very much and best of luck, Silvio.

Lars Brorson: Thanks, John.

Operator: The next question from James Moore, Redburn Atlantic. Please go ahead.

James Moore: Yes. Good morning, everyone. And can I echo the same point? Silvio, thank you. Congratulations. Hope to see you at Twickenham. 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 2022 and maybe improved to break or a small profit in 2023. 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 2024. 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?

Carla De Geyseleer: 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 two. But overall, yes, the steps that we were expecting are coming through and that will also continue to be a focus area in 2025 as we continue to roll out the modular platform and work on the efficiency initiatives that you are aware of going. Yeah, that the plans have not changed and it really delivers up to now. China is a total different ballgame, as Paolo already mentioned. Paolo, I don’t know if you want to add?

Paolo Compagna: James, it’s Paolo. 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.

James Moore: Thank you very much.

Paolo Compagna: Thank you, James.

Operator: The next question from Miguel Borrega, BNP Paribas. Please go ahead.

Miguel Borrega: Hi. Good morning, everyone. 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? Thank you very much.

Paolo Compagna: Miguel, Paolo here, thank you very much. It’s a great question as this is one of our most important efforts. So where is this 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 is it 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 we can offer, we see a clear impact in portfolio protection, but also in customer retention and also more and more in revenues of additional digital services. But just to give a bit more of a color, this depends very much from country-to-country. As we previously shared, 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.

Lars Brorson: Thank you, Miguel. We’ll take one final question and then we will move on to a short video. So one final question, please, Operator.

Operator: Last question from Martin Husler, ZKB. Please go ahead, sir.

Martin Husler: Yes. Good morning and thank you for taking my question. 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 2024 compared to the group average? Thank you.

Paolo Compagna: 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.

Carla De Geyseleer: Yeah. Maybe just to complement that, what you said, Paolo, it is clear that a significant decrease of the margin in the NI order intake flows through to the orders on hand.

Paolo Compagna: Yeah.

Carla De Geyseleer: So, obviously, we see there a downward pressure, no doubt. Yeah.

Paolo Compagna: And despite, if I can complete -- despite, Martin, 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 three years, now four years, one could say, have left a…

Carla De Geyseleer: Big challenge.

Paolo Compagna: … big challenge.

Carla De Geyseleer: Yeah.

Paolo Compagna: So therefore, would be everything else would not be honest and right. So much less on modernization and service, but NI is a topic. We see it in the numbers. Yes.

Martin Husler: Okay. Thank you.

Paolo Compagna: Thank you.

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

Paolo Compagna: Thank you very much. Bye.

Carla De Geyseleer: Thank you very much.

Paolo Compagna: Bye-bye, everyone.