Schindler Holding AG Bearer Participation Certificates (OTCPK:SHLAF) Q2 2024 Earnings Conference Call July 19, 2024 4:00 AM ET
Company Participants
Lars Brorson – Head of Investor Relations
Silvio Napoli – Chairman and Chief Executive Officer
Paolo Compagna – Chief Operating Officer
Carla De Geyseleer – Chief Financial Officer
Conference Call Participants
Klas Bergelind – Citi
Daniela Costa – Goldman Sachs
Martin Husler – ZKB
Andre Kukhnin – UBS
James Moore – Redburn Atlantic
Elliot Robinson – Bank of America
Miguel Borrega – BNP Paribas
John Kim – Deutsche Bank
Andre Kukhnin – UBS
Nick Housden – RBC
Peter Manuel – Helvetische Bank
Operator
Ladies and gentlemen, welcome to the Schindler Conference Call on Half-Year Results 2024 and Live Webcast. I am Sandra, the chorus call operator.
I would like to remind you that all participants have been in listen-only mode 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 of Investor Relations. Please go ahead, sir.
Lars Brorson
Thank you, Sandra. Good morning, ladies and gentlemen, and welcome to our first-half 2024 results conference call. Again, my name is Lars Brorson, I’m the Head of Investor Relations at Schindler. I’m here together with Silvio Napoli, our chairman and CEO; Paolo Compagna, our COO, and Carla De Geyseleer, our CFO.
Silvio will provide a brief overview of the key messages this quarter. Paolo will discuss our market outlook and our order intake in the quarter and in the first-half. And Carla will take us through the financials. After the presentation we’re happy to take your questions. We plan to close the call at 11 o’clock.
And with that I hand over to Silvio. Silvio, please go ahead.
Silvio Napoli
Thank you, Lars. Good morning everyone. At the start of the year, we set ourselves a clear ambition and I’m pleased to report that half year we are delivering on these commitments. We are delivering these commitments in spite of a contrasting market situation, where we see this reinforcing contrast between a robust service and actually fast growing MOD market against the mixed situation in NI markets. China is weak, Asia Pacific is largely as a result of the China continued downturn is soft. We see EMEA and America’s stable overall. But then again, in those regions, we see strong markets in key countries like India, a region like the Middle East or Brazil coming back very strongly this year.
Now in these circumstances, when I mentioned delivering our commitments, you will have seen that we were able to deliver profitability gains at all levels, starting with our EBIT adjusting margin where we delivered an 80 basis point improvement, but also a net profit level where our improvement has been of 7%. So this makes for six conservative quarters of year-on-year improvement. Those improvements were largely driven by delivering on efficiency gains. And to be clear, this is far from over. There is a lot more to come, especially in terms of overhead, and our CFO will address that in a second.
Some of you have referred to our plan as being based on a self-help agenda. And again, I’m pleased to say that we are progressing on this self-help agenda. And progressing on this self-help agenda means not only delivering on efficiency operationally, but also on making sure we bring to the market new products, which in turn help the top line, but also catalyze new processes which in turn drive efficiency.
And so I’m very pleased to report that our modular platform rollout is gaining traction with 70% of units sold year-to-date in these markets based on this new product where it was launched and that in turn enables new processes. In parallel, I’m also pleased to actually excited to report that in the U.S., we successfully introduced our new Midrise product, which strengthens our competitive position in one of the highest value market in the world.
Moving on to in fact what is a core business, you heard me saying very often that we are a service company. And so the sustainable value creation in our business comes from portfolio growth. And there, and please to say that a portfolio is growing at 5%. In fact, even a bit more. And the key is the quality of this portfolio, which then today is connected to the cloud, which then allows data transfer over the air, which in turn generates digital services. And there I’m pleased to say that not only every new unit that we sell is connected, but so far we even managed to connect more of those of the existing portfolio which now brings us to more than a third of our portfolio with exciting potential in terms of upcoming digital revenue, higher conversion rates, higher retention rates, and many more aspects that we discussed in the past. We’re happy to discuss later today.
Amidst all that, of course, we shouldn’t forget growth and I’m pleased to say that we also continue to grow in spite of these challenging market conditions. And in particular, I am excited to see our growth in modernization accelerating quarter-on-quarter, which of course combined with our sustained robust growth in service allows to continue growing in spite of the decline in NI, a larger result as a result of the auto market.
And talking of market conditions, I’d like now to hand over to Paolo Compagna, our Chief Operating Officer, who will provide a more general view of markets and our performance therein. Paolo?
Paolo Compagna
Thank you, Silvio. Good morning, everyone, from my side. Overall, we maintain our global ‘24 year-on-year market outlook by business and by region, and we continue being very vigilant in monitoring the markets quite closely. We have made a few updates based on our best assessment, but surely considering the newest available market numbers. Therefore, you see in Americas, we are slightly upgrading our outlook for the region to more stable, due to the pickup of activities in Brazil.
While in the U.S., we see the market was down high-single-digit in the first-half of the year, which has been clearly confirmed by the latest NI report, which confirms minus 10% in the second quarter and following a decline of 8.4% for the first-half of this year. So therefore, we do not foresee any growth for the U.S. market specifically for the full-year.
We have also decided for a similar slight upgrade to our outlook for the EMEA region due to the strong growth in Turkey and the quite good momentum in several of the MENA countries. In contrast, we are currently anticipating only a moderate growth in Asia outside of China with continued robust growth in India, but as low as expected growth in Southeast Asia.
In China, the market weakness and our outlook downgrade from three months ago, you might remember, are now well confirmed. Well, in spite of the measures announced by the government in May, which aimed of stabilizing the real estate sector, we think about this multi-billion package, which now has been geared towards increased absorption of the vacant housing stock rather than supporting new construction, which therefore led to a very limited impact to our elevator market.
And the latest statistics show no major change in real estate investment and other lead indicators, while home prices continue to fall. The outlook for the modernization market, which from now on we will be reporting monetary value rather than in units, remains bright with overall robust demand due to aging installed base in the Western market, as well as in China. The global installed base keeps growing at a healthy pace, fueled by the sizable NI volumes sold in the prior years, in particular in Asia, now being converted into a portfolio.
And here, I like to re-emphasize that we are predominantly a service company with for more than 60% revenue generated in the growing maintenance, repair and modernization markets. And well, in terms of exposure to China, which was below 14% in ‘23, it has been even lower in the first-half of this year.
Turning now to the next page, slide six, and looking at our own order intake for the first-half of the year by region and by business. And here we are making our reporting consistent with our market outlook with new installation and service reported in units, while modernization is in order by value. Our global new installation order volume decreased slightly overall due to the deteriorating market conditions in China. Elsewhere, we are pleased with our performance, especially in South America, while in EMEA our order intake increased in the quarter, driven by Southern Europe, which for us includes the MENA region.
Our modernization order and value accelerated globally in Q2 and grew by more than 5% for the first-half of the year as a result, driven particularly by China and Americas. In the [Indiscernible] region, we were successful in winning several large modernization projects. In contrast, the timing of the large project awards or bookings was not so much favorable in Asia-Pacific, now excluding China, resulting in a decline in value. Our service portfolio units continue to expand at a healthy pace, driven by the strong NI conversions, in particular in China and Asia Pacific.
With that overview, I would like to hand over to Carla to lead us through the numbers.
Carla De Geyseleer
Thank you very much, Paolo. Good morning to everybody. So first of all happy to confirm that we had a good first-half of the year and personally I’m particularly pleased to see the continued margin improvement quarter two you noticed it already it marked the sixth consecutive quarter of expanding margin. Must admit we remain laser-focused on efficiency to ensure that we stay the course towards our 13% mid-term target.
So let’s take a look or move to slide eight, which is by now very familiar to you, showing the KPIs over the proposed five quarters. Three highlights before I go into more details on the following slide. Firstly, we managed to deliver another quarter of year-on-year revenue growth in local currencies, despite a tough comparison from the second quarter last year. Secondly, our operating margins expanded further on a year-on-year basis, now above 11% on a reported basis in quarter two. So that sets us on a good path to achieve our 11% reported EBIT margin for the year as we have guided to earlier.
Lastly, although I was personally not satisfied with the operating cash flow in the second quarter, which I will elaborate on shortly if we look at H1 overall, operating cash flow was up 30% from last year and I’m pleased with that.
Now moving on to the next slide that gives you a bit of an insight into the evolution of the order intake and the revenue year-on-year. Our order intake in the second quarter declined by 0.4 percentage points in local currency, due to a tough new installation market, particularly in China. Paolo referred already to it. It’s worth noting, however, that modernization and service orders both grew high-single-digit in local currency in that quarter.
Revenue growth in the quarter was plus 1.7%, driven by high-single-digit growth in APAC, ex-China, and low to mid-single-digit revenue growth in EMEA and Americas. Revenue in China declined low double-digit in quarter two, due to the continued slowdown of the Chinese new installation market.
Now you will have noticed that we have decided to discontinue the disclosure of our legacy backlog and backlog margin, because we feel we have now worked down our legacy backlog further from the 20% of the overall backlog we disclosed in quarter one, to a level which we don’t think is very material or material enough to continue to report to you. And as for the backlog margin, we felt it was right to disclose that during the last two years, given the significant volatility we experienced, but that has now recovered and stabilized. And for the avoidance of doubt, I can confirm that the backlog margin was sequentially stable in quarter two and continued to improve year-on-year.
Now moving on to the next slide to the operating profits. EBIT reported margin came in at 11.2% in quarter two and 11% for the first-half. Price and mix were the primary drivers of the improvement. We also benefited from the higher margin of the rolled out backlog and procurement savings. However, we also continue to see persistent inflationary pressures, particularly wage inflation. And in quarter two, specifically, we also had a higher level of non-recurring operational cost item, which we don’t expect to recur in the second-half.
Consequently, we expect an uptick in the second-half adjusted EBIT margin beyond the normal seasonal uptick of around 50 basis points, compared to the first-half, which we have historically seen. And that stronger sequential development in underlying margins is expected to fully offset the higher restructuring costs, which we expect in the second-half. For the full-year we expect restructuring costs of up to CHF80 million. That means we expect reported EBIT margin close to 11% in both second-half and the full-year, as we have guided to.
Now moving to the next slide, net profit grew again, with net profit margin hitting the 9% mark in the second quarter. Net profit grew 7% in H1, and that is despite the CHF32 million boost in H1 coming from the real estate gain.
Moving now to the next slide and to the operating cash flow margin. As I mentioned already, operating cash flow was good in the first-half, a growth of 30% year-on-year, but it didn’t continue the strong development in the second quarter. And it is worth noting that we had an exceptionally strong operational cash flow in quarter one that was driven by a substantial improvement in networking capital.
During the second quarter, however, networking capital requirements increased in line with normal seasonality to a level, which is comparable with year-end ‘23. And in addition, the quarter was also burdened by higher tax payments, as well as some bigger one-off payments, which fell in June this year, but last year they fell in July. And these effects combined were around CHF50 million in the quarter.
Now finally, before we move to the Q&A, we move to slide 13. And I’m happy to confirm our ‘24 guidance. So we continue to expect low-single-digit revenue growth in local currencies and an EBIT reported margin of 11%. In terms of tailwind to this year’s margin, we expect pricing, mix, and operational efficiency to be the main drivers. In terms of cost headwinds, we continue to see wage inflation as the most prominent one, whilst material inflation is likely to be only a modest headwind for the year.
Now the recent decline that we have seen in our Chinese new installation business is something we are monitoring very closely. And given the shorter lead times in this market, that is a potential headwind also for our ‘24 operating performance. As I mentioned earlier, we set our guidance for the restructuring cost at up to CHF80 million for the year, which again will be weighted to the second-half, given that we have only booked CHF7 million restructuring in the first-half.
And allow me to conclude by saying together with my colleagues in the Executive Committee that we are very pleased with the progress made during the first-half of ‘24 as we delivered on our commitments. And of course, we are very grateful for the persistent commitment of 1,000s of colleagues in more than 100 markets.
And with that I hand over to Lars.
Lars Brorson
Many thanks, Carla. We’re now happy to take your questions. Can I ask you please to limit yourself to two questions only given the time we have available? Thank you very much.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind
Thank you. Hi, Silvio, Carla, Lars, Klas at Citi. I was a little bit late here on the call, so you might have covered some of this. But first, the question, Silvio, on the stimulus here in China and your views. I mean, it’s very gradual. The inventory clear out, it will probably help cash flows of developers. It will likely work in a mix as the units are sold back as basically affordable housing. And I’m just trying to understand what are you seeing out there in your discussions with the developers responding to this? And how do you think it will impact Schindler versus peers? You’re obviously bigger in infrastructure. I understand that you’ve been to China several times this quarter. I’m very keen to hear your thoughts. Thank you.
Silvio Napoli
Thank you, Klas. I by no means pretend to be able to predict what’s going to happen in China. There are many more factors, but I’m happy to take a stab at your question. Generally the situation in China, based on my conversation with clients, but also with the agents, with a team, and also government people. Is that I’m afraid the elevator new installation market shouldn’t foresee a major recovery in China for — I would say at least 12 months, if not ‘24.
Today as Paolo mentioned before, the focus is on clearing the huge stock of unoccupied buildings, most of whom are new, brand new built. And now if you go in China, even in Shanghai, in the outskirts, it’s so prominent, one cannot just not see it. So I do think the approach is correct. You’ve seen, you know, when we used to present housing stock in Tier 1, Tier 2, Tier 3, now we are levels in Tier 3 cities of about four years. This is a record. It was never that level even in previous cycles. So I do think this has to be taken care of. Some of it will be demolished.
But to come to the point, no one is actually positive at this stage, which in turn, and Carla referred to this, results in, I would say, historically record price pressure. China was always a tough market for price, I have to say. I experienced it myself. Today, we got to levels that are just unheard of. So what do you do? No complaint. You got to make sure that you work on your efficiency, on your supply chain, on your cost, and that’s what you’re doing. While at the same time bringing into the market more and more of those, what can I say, still innovative, but yet probably more frugal innovation based solutions than mid-market needs, because at this stage, I think that’s the most necessary.
Maybe Klas you made a comment that we are more prominent in public infrastructure, i.e., based on our figures, we are well present, but in fact I don’t think our exposure is more than that of any of our competitors. These are public tenders, so it’s very difficult to establish a sustainable lead in any way. Also, there are some, if you want, local preferences based on government connections, et cetera. We don’t play in that field either.
So, yes, we clearly are there in projects where it makes sense, where we do have a high likelihood of conversion to maintenance and where of course there is also recognition for the premium we have. So in a nutshell, the outlook for China, and I love to say otherwise, is I’m afraid at the moment not bright.
Klas Bergelind
Very clear. My second and final one is on the guidance outside China. You’re obviously increasing America’s and EMEA a bit, but it seems to be driven by Brazil and Middle East and Turkey, not sort of core U.S. and Europe. Can we talk a little bit about U.S.? And apologies if you already mentioned this, but am I right to assume that perhaps residential in the U.S. is turning a bit weaker versus perhaps commercial getting a little bit better? And that’s why you’re not changing sort of your view on sort of core U.S. or core North America. Thank you.
Silvio Napoli
Thank you, Klas. Yes, Paolo did mention a few figures actually in this regard. I’d like him to take the question. Go ahead Paolo.
Paolo Compagna
Yes, I’m happy to take this last. Paulo speaking here. Looking at the U.S. market especially, I think we just have received the very latest NI numbers, which confirms, I have to say, unfortunately, also down in the commercial segment you were referring to. I think everyone is aware about the trend in housing, as well as in, for instance, residential, which was down single-digit. However, now we see also in the commercial segment for Q2, down around 16% for the quarter. So which would indicate actually also in that segment a visible slowdown. This is what we see at the moment.
And also the reason why I was mentioning before, we do not see ourselves in the position of raising the auto for the full-year, in which we say, good, we look at the situation today, anticipate it will not worsen it significantly, but we also don’t expect a steep recovery, which I would call the V-shape of a recovery, we don’t see this for this year. And let me include the commercial segment into our observation.
Klas Bergelind
Yes, I was perhaps referring to some indicators looking a little bit better, like Dodge, et cetera. But, yes and I appreciate that current activity is pretty tough. Okay, thank you.
Silvio Napoli
To this one, maybe what we’ve seen, ABI is also down.
Paolo Compagna
Yes, ABI is down.
Silvio Napoli
So Dodge is more exposed to infrastructure or other things than maybe there. So that might be a bit of a, it’s more stability. But NI, NIEE the one that Paolo referred to, and ABI, which are probably stronger proxies or industry, unfortunately are showing a downtrend. And this figure just published yesterday.
Thank you, Klas.
Operator
Thank you. The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Daniela Costa
Hi, good morning, everyone. Thanks for taking my question. I have two questions. I will ask them one at a time. First one , I just wanted to understand in terms of if we go for potential U.S. tariffs for anything that comes from outside of the U.S. I believe back in the past maybe you brought some escalators into the U.S., but could you talk about what you bring into the U.S. and your competitive landscape and how your peers operate? Do you expect any potential impacts and how you will deal with it?
Silvio Napoli
Thank you, Daniela. To be clear, we always applied a manufacturer for large market scale strategy. So we actually do not import escalator into the U.S. We have an escalator factory proudly established in North Carolina. We have factories in Europe in — based in Slovakia. We have factories for escalators in India and, of course, the one in China.
So what we have to, I’m afraid still today is to import specific components because to have scale on that, you need to have enough multiple market access. Most of these components I like to stress, are not produced by us. They’re produced for some of our key tier strategic suppliers who then have yes, most of the production in China and that we have to accommodate. So if there was a tariff increase, we will be exposed on these, but the exposure so far would be very marginal.
And that, of course, we are actively working with the suppliers to make sure that they diversify not only on the basis of possible tariff, but also on the basis of risk management. Based on the lessons we took during the COVID period so that they can diversify their production. That’s something which is actually, by the way, very well supported. All those large, most of them are also Chinese companies. They are all very active investing in producing in the markets where we also have our own factories.
Daniela Costa
Got it. Thank you very much. And then my second question is just a follow-up on the situation in China. You obviously commented extensively on the original equipment or the new installations and the depressed environment there and very aggressive pricing environment, but modernization and service commentary in general seems a little bit more upbeat, but I guess it’s the same set of players on this.
So how do you see in terms of the margin environment, the volume is clear, but the margin environment on those segments, given, I guess, people are underutilized on new equipment. Wouldn’t that have sort of a cross-link implication? If you could elaborate on that?
Silvio Napoli
Thank you, Daniela. Yes, very pertinent question. So let me be differentiated. Let’s first start with service. Service continues to grow largely as a result of the conversion of the large NI backlog pipeline. So the volume is there. Unfortunately, the pricing is not positive. As you correctly anticipated, the pricing pressure, mainly downstream on our customers for the property pressures them to reduce cost everything and do including for Elevators and Escalators service.
So that is, unfortunately, I think, not a positive thing because some of them then decide to go and work for independent service providers who I like to say very openly do not necessarily meet all the COVID and safety standards, but that’s their choice. Someone has tried to do it themselves. All of that, I’m afraid. So to your point, the pricing situation is not as extreme as in new equipment in China, but it is definitely a downward trend.
The one that is extremely positive and that I would say is modernization in China. This is no question. All this huge backlog units that were installed at the beginning of the year 2000s, now 20 years and the severe usage are being modernized. And by the way, since the state still has a high value in China, people are prepared to invest in this. So that is, I think, a very positive and exciting trend and hence, importance even new equipment to have modular platform whereby you can use the same components also in modernization there, whether it’s for pricing and volume, the trend is positive.
Daniela Costa
May I just clarify, but isn’t the same set of players that do new installations can do modernization. So how — why does the price ended up being positive? Isn’t it out of the same pool of capacity? Or do you think it’s sustainable that the pricing will be positive?
Silvio Napoli
First of all, there are different customers because the one that they’re prepared to invest in their own real estate properties are the ones that want to preserve value while others led it just the case enough. So that’s point number one.
Point number two, in modernization, it’s a much more sophisticated job than new equipment. So while in China, there are still a number of local players that I’m going to say, try to salvage over capacity by discounting at very low price basic elevator units, they do not have the skills and engineering to know how to modernize. So while they can occasionally sell components, they cannot deliver for projects. So it’s not exactly the same market.
Daniela Costa
Got it. Understood. Thank you very much.
Silvio Napoli
Thank you, Daniela.
Operator
The next question comes from Martin Husler from ZKB. Please go ahead.
Martin Huesler
Yes, good morning everyone and thank you for taking my questions. First of all, Carla, you alluded to some special costs that happened in H1, which shouldn’t come back in H2. Can you elaborate a bit on those costs? That’s my first question.
Carla De Geyseleer
They are actually a bit of a basket, I would say, of really, yes, what we call nonrecurring operational. And it’s just like a bit of, I would say, I would not call it coincidence, but that came there. I don’t want to elaborate on it because they are a bit of a combination of elements, but I definitely can confirm that they are nonrecurring, yes.
Martin Huesler
And the size?
Silvio Napoli
So once again, if I may build on Carla’s answer, it has also be said, part of dealing with this turbulent markets also means negotiating with suppliers lower cost. And it is fair to say that in some cases, this involves payment terms. And so by providing upfront payments, which is one-off, we managed to obtain better costing for some of our key components.
As you know, we have a large part of our production, which is bought and not made. So those — this negotiation traditionally up in the beginning of the year, and that ended up being closed with payments related in the part of the year. So that also played a contribution in that net working capital impact in the first half of the year, in particular, in Q2, I must say.
Martin Huesler
And that’s like what, CHF20 million or?
Carla De Geyseleer
Yes. I think this was referring to the nonrecurring and the cash flow, and then we have a bit of the nonrecurring on the operational in quarter two. And you see how nevertheless, it compares on H1. And there is what I was referring to this combination of nonrecurring operational elements. It is definitely — yes, a number of millions that are sitting there, yes.
Martin Huesler
Okay. And then my second question, maybe a more strategic one. When you said your 13% EBIT margin target, obviously, you were probably a bit more optimistic on the trend in NI that we will see the next couple of quarters and years. So what does the new environment really mean for you to deliver on this 13% margin. Obviously, appreciating that you will cut down costs even further now. But does this kind of lead to a delay of the targets in time wise?
Carla De Geyseleer
No, I’m happy to confirm that, that will not be the case. And if you remember, Martin, when we were at year end giving a bit of more insight into this mid-term targets, I also said explicitly that the levers to further improve our profitability are in our own hands. And we have not built the mid-term target setting on, I would say, very positive outlooks or help from the outside. And therefore, I confirm what we currently see in the market does not jeopardize our parts to the midterm target that we have set ourselves.
Martin Huesler
That’s good to hear, thanks a lot.
Carla De Geyseleer
Thank you. Thank you for your question.
Operator
Next question comes from Andre Kukhnin from UBS. Please go ahead.
Andre Kukhnin
Good morning. Thank you very much for taking my questions. I wanted just to first touch on China a bit more, and this unprecedented kind of high single-digit pricing pressure, as you mentioned. From memory, the market kind of pool — profit pool structure was already quite skewed towards kind of a handful of larger players that were still achieving decent profitability.
I know it was a very, very long tail that was kind of daily breaking even or even underwater. What’s your take on what happens to a tail now that the pricing got pushed down further? And do you think you can achieve or do you think those players or the market can achieve kind of structural cost downs to compensate for that for that for that tail to stay alive?
Silvio Napoli
Andre, thank you for your question. It’s one of those forward-looking question, which is, frankly, difficult to assess. I think ultimately, my experience here is that China always manages to recover. This one is a bit of a longer one. My — also my sense is that there is a country. Maybe the only one that is comparable is India, where there is a speed in accommodating downturns and cost reductions, China is second to none. So I can see the activity within our own supply chain within our own R&D and other suppliers level is extremely, extremely active.
So I do think that, that combined with the fact that, as you will have seen, some of those players downstream customers are actually going out of business. That will ultimately bring rationality back into the pipeline. And that is actually what I think the government wants to achieve. Now — and so how long will it take, Andre, I don’t know. But I can see at the end of this, as it happened in a different way in other parts of the world in previous cycles, a few decades ago that ultimately will result in a, say, creative destruction that will be conducive to a value-creating market I am certain, but how long it will take…
Andre Kukhnin
Thank you.
Silvio Napoli
Thank you.
Operator
Next question comes from James Moore from Redburn Atlantic. Please go ahead.
James Moore
Yes, morning everybody. Thanks for the time. I’ve got two, if I could. One is on NI margins and one on the EBIT bridge. If I start with NI. Could you comment a bit on whether that 20-basis-point increase year-on-year was sort of a broadly similar NI service mode? And what I’m really driving at is you’ve got this NI opportunity less so in China, perhaps more in Europe and even more in the U.S.
And I’m just trying to understand whether that is progressing better than expected and being offset by China and maybe even service or MOD margin declines or whether that’s still yet to come through. Obviously, I would love the numbers, but I’m not expecting that just as qualitatively If you could just say how that’s developing, that would be great.
Silvio Napoli
Thank you, James…
Carla De Geyseleer
Yes, for sure. I mean, there is — I mean, if you look at our EBIT bridge, and I guess you’re referring to the EBIT adjusted from — and the uptake of the 20 basis points, James, is that correct. Yes?
James Moore
Yes, adjusted EBIT progression of 20, wondered if, firstly by MOD service was fully similar.
Carla De Geyseleer
Yes. If I just speak first a bit of a step back, first of all, in terms of efficiency, obviously, we continue there to do the good work. And you know what our efficiency levers are there in terms of mainly, I would say, the procurement savings that are coming through. There are now more, of course, than offsetting the inflation because if we just boil it down to inflation, the major one is the labor inflation. I referred to that one because in terms of material cost inflation, that has been fading out. And then, of course, it’s also good on a global basis to say that we remain pretty disciplined when it comes to pricing overall.
Now we need to take clearly China apart because for the reasons that we mentioned, but if you exclude China, overall pricing has been pretty disciplined and stable. We have a bit of pockets of up and down, but overall, we are quite okay with the outcome there. And then, of course, we should not hide away from it. We have also a bit of an upside to that relates to the business mix that was also clearly mentioned in the press release. Yes. Does that give you a bit of insight in that uptake?
And that is because we see that healthy uptake, and we expect that also going forward in the second quarter — in the second half that we foresee that we will be able to offset the increment that is coming from the restructuring. And you know because you follow us quite closely, that we said from the start, we would work very effectively on the efficiency. And you also remember that our overhead cost, we talked about also at several occasions that we would bring that down. And clearly, that is what we are now executing because that is a must. So we are executing actually what we actually planned.
James Moore
If I can make my second question, a follow-up. If we could talk just about NI Americas, which I felt was a real opportunity, and you were to say from the start of the journey to the finish. How far do you think we are through that?
Silvio Napoli
Good question. But let’s say, James, a beginning, I would say, in America, we today, fixed the basics — we fixed the basics. And now we start the journey largely with introduction of this new mid-rise product. We have a — we have much more room to improve in terms of supply chain, in terms of organizational efficiency. But I’m very positive also about the new team we have in place. And I must say something as we said Paolo should comment as well here is that with all the ups and downs, typical of the U.S. market. But generally, the pricing in the U.S. still holds much better than anywhere else in the world.
So that — all of that suggests that while not expecting a big — regardless of anything that happens in the market we now — we are in a position to finally start a journey in the U.S. where, candidly, we can say, as you know, those who follow us, we’ll probably never — we have never achieved probably the level of performance that we’ve had in the rest of the world. Paolo, would you agree?
Paolo Compagna
Absolutely, yes. James, just one underlying previous comments, where we are in the U.S. and we were discussing this last time we saw us. I think we are now in the position we can participate, let’s put it this way. And talking — looking forward, and I was mentioning before, the NI market and how it looks like now, okay, point taken. However, under any one point, we see in the modernization business, by example, in the U.S., pricing is still okay and the business is okay, and we are there. So I think we are — where are we in the journey in percentage difficult, but now we’re there.
James Moore
That’s great, color. Thanks guys. Congrats.
Carla De Geyseleer
Thanks, James.
Paolo Compagna
Thank you.
Operator
The next question comes from Elliot Robinson from Bank of America. Please go ahead.
Elliot Robinson
Hi, thanks for taking my questions. The first one is actually just to do with the way that you reported. Could you just clarify why you’ve reported modernization in value terms and then new installations and service in unit terms? Thank you.
Paolo Compagna
Paolo here. Let me briefly explain to make it more comparable, I have to say, as very clearly also within the industry, modernization is somehow between big, big repair business. And smaller modernization and, let’s say, big modernization in which you can imagine an entire elevator has been replaced. So this being said, how you count units, right?
So now you can move a lot of units as elevators, which are partially modernized in a big, big repair, you can count as modernization or not. And then we thought it’s more comparable to keep as a measurement, the value of what is really a modernization business in dollars — in value in dollars — in monetary values. That’s the reason.
Elliot Robinson
Okay. Sure. And just a quick follow-up before I go to my other one. If there’s time, although — let me know if not, is there a sort of general mix that we should be thinking about within modernization? So how much falls into each one of those brackets that you mentioned there?
Silvio Napoli
Yes. It’s not a mix for us. We exclude when we talk about modernization value, we — in Schindler, we exclude whatever is a repair business or a big repair, we don’t count us internally when we talk about modernization, not as modernization. When we talk modernization in chip really a significant change of the system of the main components to new upgraded components. So therefore, for us, the mix within the modernization is quite little as we talk just about that part of the business, which is substantial renewal of all major components of the elevator.
Elliot Robinson
Okay. Perfect. And then if I can squeeze my original second question in really quickly, and it will be fast. On the market outlook for China, obviously, it’s falling more than 10% in the new installations. Is there any more of a narrow bracket you can give us because of where that’s the bottom end? Is it minus 10%, is it minus 15%, if we could get a bit more color there?
Paolo Compagna
Well, Elliot, how it looks going forward, difficult. As Silvio was mentioning before, do we expect a pickup soon? No. Can someone expect it might get worse before it gets better? Difficult to say today, right?
Silvio Napoli
And in terms of figures, Elliot, we probably can say it’s above 10% — above 10%. Did it hit 15% yet? Not yet. So it’s then between 10% and 15%. And frankly, this — we monitor this closely every month, but that’s the best I can tell you now.
Elliot Robinson
That’s perfect. Thank you very much for that.
Silvio Napoli
Thank you.
Operator
The next question comes from Miguel Borrega from BNP Paribas. Please go ahead.
Miguel Borrega
Hi, good morning everyone. Thanks for taking my questions. You mentioned the backlog margin improving. And I guess that’s a little bit driven also by the new modular platform. Can you talk a little bit about the implicit margin in this new modular platform? Can you maybe quantify or give some kind of indication on how much better these are relative to what was being booked under the legacy platform?
And then just in terms of efficiencies, can you maybe give some color on the improvements here in terms of timing and so on? And then lastly, what are the risks to when you deliver these orders because obviously, this is a relatively new platform. What are the risks implied to when you execute?
Silvio Napoli
Let me just start with the last question. I’ll pass it on to Carla. The risk we are trying to do everything to minimize them. And so at the moment, we actually — for the first unit, we very inefficiently admit. We assemble them in the factory before delivering them on site to make sure everything is working fine. We had crews of people from all over the world in Schindler Europe today. So from different countries to come and be trained in the factory in assembling those before they come into the field.
So to your point, you should never say never, unless there is a major crash of one of our key suppliers that wouldn’t be able to supply. I cannot imagine not a major drag on logistics systems worldwide, which would be contained to Europe. It’s difficult to see what else today, but I’m pleased to say that the first units were installed are meeting our expectations, and I would say, probably even a bit better. So this is the last point.
Now I’ll give it to Carla to speak. But in fact, the question was asked before. We’d rather — but it candidly be exactly because of what you say, we rather not disclose any margin improvement or clearly, it’s part of our plan going forward. And people have more units installed and we have the whole thing validated.
But it is fair to say to our 13% bridge that is a key element of that. And by the way, the type of action that we need now more than ever. We started before. But now that the market in NI is slowing down as we explained. Now this is the type of action that will drive efficiency, hard to say, not only in terms of material cost, but we talk about field, we talk about sales process.
We have a whole new configurator that goes with it. We talked about billing process, supplier management. So maybe I used the big pressure in the past in which apologies for repeating myself. This is really a snowplow effect whereby this tender drives efficiency throughout the value chain. And then we are trying to apply in this now the whole approach throughout everything we do in the company. And I mentioned before, using the same components also for modernization. So I’m sorry, we cannot give you an exact number, but hopefully, that gives you some color. And we look forward to doing that maybe when we have more units installed.
Carla De Geyseleer
Yes. Coming back to this — to the backlog margin. And indeed, I reconfirm that it is stable year-on-year quite a solid improvement. And of course, there are different elements that play there. But don’t forget, we are working through this dilutive legacy. So that is still hanging there.
And of course, you know that we said at the beginning of the year, around 20%. So that further decreases. That is one of the elements. But don’t underestimate also the recovery of this whole supply chain that we went through and the fact it has there. And of course, the current market inspire us more to go even more aggressive on cost out, which is also reflected in that — we talked already about the pricing. And then slightly, but surely, you have, of course, the new modular platform that is kicking in.
But relatively, I mean, that is building up over time and that is still a small part. We have launched it in five countries. So it is a mix of these elements. Does that give you a bit of more insight in it, Miguel?
Silvio Napoli
We may have lost him.
Silvio Napoli
Okay.
Operator
Mr. Borrega, I suppose your line is on mute.
Paolo Compagna
Alright, We’ll move on to next question, please.
Operator
The next question comes from John Kim from Deutsche Bank. Please go ahead.
John Kim
Good morning. I may have missed this, so apologies in advance, but can we unpack your service revenue and how that’s growing? I’m trying to get a sense of price mix versus acquisition versus just the unit counts in the base? Any color here would be helpful. Thanks.
Silvio Napoli
Thank you, John. Carla, would you like to…
Carla De Geyseleer
Yes. Our service revenue is growing, I would rather say, high-single-digits, yes.
John Kim
Okay. And when you say…
Carla De Geyseleer
For the full housing service.
John Kim
When you speak to service. Okay. And can you give us a sense of the relative performance of maintenance versus our modernization efforts in that number?
Carla De Geyseleer
Well, actually, both are on a comparable level. So…
John Kim
Okay. Fantastic. And a very quick follow-up question. Given the negative dynamics in China, can you give us a sense of what book to bill looks like for you in the country now?
Carla De Geyseleer
Sorry, can you repeat — okay.
Silvio Napoli
Profitability in the country in China is still above the average profitability of the group, not, I would say, hugely. But yes, I can say we are definitely able to have a China business model that is adding to the overall value creation in the company. And of course, this is a combination of different businesses that we have. We have our main brand, Schindler. We also do our brands. And all of that helps us to be able to navigate the store. As we said, though, that in view of the situation, this is a fight to be earned every day.
John Kim
Thanks for that. But I was asking about book-to-bill — sorry for the confusion.
Carla De Geyseleer
Book-to-bill. Okay. So please, go ahead, book-to-bill. Okay, sorry. I think I heard profitability.
Silvio Napoli
Sorry John, I heard profitability, John, apologies. Carla, please.
Carla De Geyseleer
Well, I mean our — first of all, our book-to-bill is, of course, impacted by the decreasing order intake. So of course, I mean, that is clear that, that is decreasing. That is a natural answer what we see on an order intake that is double-digit decreasing.
John Kim
Okay, thanks so much.
Carla De Geyseleer
Yes, thank you.
Silvio Napoli
Thank you, John.
Carla De Geyseleer
Thank you John.
Operator
The next question is a follow-up from Andre Kukhnin from UBS. Please go ahead.
Andre Kukhnin
Yes, good morning. Thanks for squeezing me in. I think we’re delayed a little bit here. So I’ve got to ask the second question we’ve done. I just wanted to talk a little bit more about the acceleration of structuring with the higher charge that you’re guiding towards for the second half of the year. Could you talk about whether this is an acceleration of the measures that you were already planning at the beginning of the year? Is it some new initiatives that are kicking in and maybe talk about what is triggering this as well, please?
Carla De Geyseleer
It is actually an accelerated execution of the plan that we had already, Andre. So you also know that one of the focus area was the overhead cost, and that’s what we are addressing with this structuring because it is mainly focused — solely focused, I would rather say on office positions that we will reduce now in the coming months. It’s on a global basis, but it is mainly also focusing on the main country headquarters, the zone headquarters. And yes, obviously, also the global headquarters.
Andre Kukhnin
Very clear. Thank you very much.
Carla De Geyseleer
Thank you.
Operator
The next question comes from Nick Housden from RBC. Please go ahead
Nick Housden
Thanks very much for taking my questions. The first one is just a quick follow-up on the comment that you made about China margins being above the group level. Can I just confirm that that’s for all business lines? Or is that specifically the new equipment?
Silvio Napoli
Carla?
Carla De Geyseleer
No. We are talking about the totality of our Chinese business.
Nick Housden
Okay. Great. Understood. And then just a quick one on building mines and how you expect the expenses for that business to develop going forward? And maybe when we start to see some of the benefits coming from that in your results?
Carla De Geyseleer
Yes. So currently, and you have seen that also in the adjustments because the adjustments now include only restructuring and the building mines. Well, you have seen there approximately, you can calculate it a run rate of CHF 2 million a month and we definitely have the objective to bring that slowly down in the second half of the year.
Nick Housden
Okay. But continuing into next year still?
Carla De Geyseleer
Absolutely. Yes.
Nick Housden
Yes, thank you.
Carla De Geyseleer
Thank you.
Operator
The next question comes from Peter Manuel from Helvetische Bank. Please go ahead.
Peter Manuel
Yes, Hi, hello. Historically, Schindler issued guidance for net profit with half year results. And now I was wondering what is stopping you from doing so this year?
Carla De Geyseleer
No, no. Sorry, we don’t stop. We just reconfirm our guidance. So we reconfirm the guidance for 11% EBIT reported for the full year ’24. So net profit.
Peter Manuel
Okay. But absolute profit level on net profit which you historically did?
Carla De Geyseleer
Yes. No. I thought we made an improvement with guiding for net profit in margin-wise, yes.
Peter Manuel
Okay, got it. Thank you.
Carla De Geyseleer
Thank you.
Operator
[Operator Instructions] The next question comes from [Andy Schneider] (ph) with Jet Capital. Please go ahead.
Unidentified Analyst
Hi, everybody. Just a quick one just before the CHF80 million restructuring cost, is that with or without building mines?
Carla De Geyseleer
That is without building mines is literally CHF80 million restructuring costs, yes.
Unidentified Analyst
Okay, perfect. Thank you.
Carla De Geyseleer
Thank you.
Operator
We have a follow-up from John Kim from Deutsche Bank. Please go ahead.
John Kim
Hi, thank for the opportunity. I’m just wondering if we could speak a little bit about margins in maintenance. I think the last time we spoke, there was some color that you had underlying wage inflation. You had service contracts that were indexed, but these didn’t always match one to one that there could be perhaps margin pressure or less operational levers than one might expect on growth. Correct me if I’m wrong. And is that situation changing, getting better or getting worse? How should we think about it?
Carla De Geyseleer
Well, I mean, in the service business, like in any other of our activity, you have always, of course, a pressure and that is the labor intense part, but nevertheless, I mean we are — as I said at my introduction, we are really focusing on efficiency, and we are committed to offset these upward pressures through efficiencies.
John Kim
Okay, thank you.
Lars Brorson
Thank you, John, for the question. And thank you very much, everybody, for attending the call today. I’ll pass it on to the operator. If there’s any other follow-up calls, please feel free to reach out to me and the team. The next scheduled event is the presentation of our third quarter results on October 17. With that, thank you, and goodbye.
Operator
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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