Schindler Holding AG

Thank you, Valentina. Good morning, ladies and gentlemen, and welcome to our Q1 2026 results conference call.

My name is Lars Brorson. I'm Head of Investor Relations at Schindler.

I'm here together with Paolo Compagna, our CEO, and Carla De Geyseleer, our CFO. As usual, Paolo will discuss the highlights of our Q1 results and our 2026 market outlook, and Carla will take us through the financials.

After the presentation, we are happy to take your questions. We plan to close the call at 11:00.

With that, I hand over to Paolo. Paolo, please go ahead.

Thank you, Lars. Good morning, everyone.

Glad to be back to report on our Q1 results. And overall, I'm pleased with the start we made in '26, continuing our strong operational momentum from the last year.

At the same time, we faced a very volatile macro environment, which we are responding to more during this call. Let me start with growth.

In terms of order intake, we grew close to 3% in Q1. Well, this is still not the growth level we would be happy with, but let us look together at 3 important points.

First, we are pleased with our product momentum. We are seeing very good traction with our new modular platform and the new installation markets.

You remember this was started to be rolled out '24 in Europe, and continued in other zones in '25. Not only is growth picking up here, but we are also seeing very visible improvements in terms of field installation efficiencies, which helps.

Secondly, the ramp-up in our new mid-rise product in the U.S. continues to exceed our expectations.

And thirdly, the rollout of our standardized modernization packages is gathering pace. Also increasingly facilitating growth in modernizations outside of our existing maintenance portfolio.

And finally, in terms of large projects, we are seeing some improvements here, too. Large projects grew in Q1 versus the first quarter of last year, and our project pipeline looks promising for the rest of '26.

An additional word on modernization. Growth here continues to stand out.

Order intake was up 15% in the quarter. And I'm really pleased to see that our revenue growth was even higher.

Our backlog execution continues to move in the right direction globally, and all our regions grew modernization revenue by double digits in the first quarter. We continue to expand our supply chain and field installation capacities which make us confident that we will continue to execute our modernization backlog successfully throughout '26.

Looking at total group revenue growth, we were off to a slightly softer start in '26 growing 1.7% in Q1. Revenue in our new installations business was down high single digits in the quarter, with China still the main headwind.

But we confirm our full year guidance of a low to mid-single-digit growth as Carla will share with you the details later. Now operationally as I said, I'm very pleased with the quarter.

Our operating margin expanded by another 100 basis points to 13% in Q1. Seasonally, our lowest margin quarter of the year.

And operating cash flow was strong again this quarter at over CHF 500 million. But let me briefly also talk about the broader operational environment as we see it today.

It is clear that the crisis in the Middle East brings some challenges we need to respond to. As the revenue contribution from the Middle East makes up less than 2% of the Schindler Group, the top line actually -- the top line impact actually remains modest.

But serving our customers in this region has been met with some challenges in the past 2 months, particularly for the new installation deliveries. We have currently around 200 units produced, which I don't hold or in transit and which we are actively looking to deliver to customer sites via alternative routing to still active parts.

But outside of that, even the broader impact on our supply chain remains limited, we are facing some additional cost inflation in terms of logistics, fuel and energy costs and commodities. Carla will provide you all the details on the expected cost impact.

In terms of mitigation measures, we are actively working on pricing actions in order to offset this cost pressure. Both list prices as well as surcharges across new installation, modernization and our service businesses.

as well as working closely with our supply chain to manage efficiencies on the supplier side as well. Currency translation is significantly impacting our financial performance with the continued appreciation of the Swiss franc.

This quarter, we faced an FX headwind of over CHF 200 million to our order intake at 7%. And Q1 match with that 1 of the highest hit quarters on record in terms of FX headwinds.

Last but not least, a word on sustainability and our consistent effort in product development. We are pleased to be awarded the ESG Award '26 for our low carbon emission steel elevator pilot at the MIPIM '26.

Many of you know the MIPIM is one of the leading real estate events globally in the annual calendar. The award comes at a time when we all are reminded of the importance of energy efficiency, and we are proud to be leading the industry with the first ever low carbon emission steel elevator installation.

Turning now to Slide 4 and our order intake in the first 3 months of the year. In service, our maintenance portfolio continued to expand with the strongest growth in Asia Pacific, excluding China.

In Americas, while we saw growth in value terms, our selectivity was leading in units recaptured to a modest decrease, confirming our overall strategy. But next, we expect to see a gradual improvement over the coming quarters.

In modernization, we have been able to continue with the strong momentum recorded in '25, with the only exception being Asia Pacific, excluding China, where orders marginally decreased primarily due to lack of large projects in the quarter. China again was the standout with growth well into double digits as we continue to benefit from the bond program further scaled up from '26 -- up for '26 from the 120,000 elevators units replaced last year.

In new installations, our global order volumes declined by more than 5% to China. In the rest of the world, our NI, New Installation orders grew double digit, driven by EMEA and Asia, again, excluding China.

Moving to the market outlook on Slide 5. We have decided to keep our outlook unchanged for the time being, while continuing to closely monitor the effects from heightening geopolitical tensions on construction markets, both in Middle East and globally.

Foreign investment has played a significant role in driving growth within Middle Eastern real estate markets in recent years. Therefore, we remain attentive to any potential impact on investment flows to the region.

Construction input costs were still at elevated levels already prior to the onset of the conflict in Iran 8 weeks ago. These, together with rising oil and gas prices are likely to contribute to further cost increases placing burden on builders and subsequentially on homebuyers.

The surge in inflation has also altered the global interest rate outlook from a trajectory of steady reductions to one that now carries an increased risk of further rate hikes with implication for both demand and supply within the real estate sector. In spite of these challenges, we did observe robust activity modernization markets across nearly all regions.

However, at this time, we are not revising our outlook upwards, preferring to await confirmation of the continued strength in the coming quarters. In installation, just to call out a few selected markets, construction activities continued to gradually pick up in Germany with multifamily building permits up close to double digits on the 12-month rolling basis and strong growth in new orders recorded by builders in the residential sector.

Activity in Brazil remains solid, driven by affordable housing. And in the U.S., there have been mixed signals as multifamily permits and starts have risen in spite of Architectural Billings Index remaining below 50 for 33 consecutive months.

In China, construction remains under pressure with all key lead indicators such as floor space started and real estate investment down by more than 10% again in Q1. With that, let me turn over to Carla to walk us through our financial results in more details.

Thank you, Paolo. Good morning, everybody.

A pleasure to have you on the phone. So let's take a look at the financial results.

So Slide 7, so the usual summary slide of the current quarter compared to the last 4 quarters. As Paolo said, we are pleased with the operational momentum in the first quarter.

Margins up 100 basis points year-on-year, both reported and adjusted EBIT. And another quarter with a very good operating cash flow, even if we didn't quite hit last year's exceptional high level for the first quarter.

Finally, we moved our net profit margin into double digits, which is also a very pleasing development. Now a quick word on currency.

As mentioned, we have been facing accelerating FX headwind in recent quarters. And in terms of the revenue impact, it amounted to more than CHF 180 million in the first quarter, so close to 7%.

And this obviously comes from the appreciation of the Swiss franc versus our main currency exposures, particularly the dollar. But the headwinds from some of our smaller exposure such as the Indian rupee are also having a notable impact.

Now looking back over the last 10 years, the cumulative FX impact shaved off over CHF 3 billion of our top line and over CHF 350 million of EBIT. Now moving to our top line development on Slide 8.

So giving you some insights what we see in our different regions and in our different segments. So first of all, regionally, we grew the order intake and the revenue in local currencies in all regions outside of China.

At the order level, China cut 1.5 percentage points of group growth in the quarter with order growth as a result, 4.3%, excluding China compared to the reported 2.8%. The standout region was Europe, particularly Northern Europe, which showed high single-digit order growth in the first quarter on a reasonably tough comparison from last year.

So overall, very pleasing to see growth here, including a very good development in Germany. Now looking at our business segments, as Paolo mentioned already, modernization contributed strongly to the order intake and the revenue in the first quarter, both growing at 15%.

New installations saw order intake stabilized this quarter, but revenues declined high single digit with China down over 20%. And finally, growth in service business continues to be accretive to the group growth overall.

From this slow start of the year, now we expect to see a modest but gradual improvement over the next 3 quarters, consistent with our full year guidance of low to mid-single-digit growth. Growth in our order backlog was up 2.5% year-on-year, 3% sequentially in local currency, driven by modernization, which was up 15% year-on-year and the backlog margin improved somewhat sequentially.

Now moving to EBIT and EBIT adjusted. So you can see here on the slide, the FX impact is also hitting our EBIT bridge.

This quarter, minus CHF 23 million. Now the good news is that we are more than offsetting this by operational improvements, which was plus CHF 33 million in the first quarter, which is in line with the quarterly levels we saw throughout '25.

So we are maintaining our productivity momentum with savings coming from SG&A, procurement, supply chain and field efficiencies. Particularly, the latter has picked up in recent quarters, which is pleasing.

Now price and mix were contributors to the CHF 33 million operational improvement, but less so than efficiencies. So our equation, pricing plus efficiency outweighing inflation remains firmly positive with both inflation and pricing likely to gradually increase over the coming quarters.

Now moving on to the net profit and the operating cash flow on Slide 10. So good development in net profit driven by our operational improvement, which is more than offsetting a decline in financial income as well as FX headwinds.

And now margins into double digits. And operating cash flow was good, reaching CHF 532 million for the quarter, just shy of last year's exceptionally strong performance.

Again, uptick in our operating earnings drove the strong performance whilst net working capital improved, but less so than in the first quarter last year and hence, a bit of a headwind in our year-on-year bridge. We will continue making progress on our net working capital initiatives, and I expect us to have another good year for operating cash flow in line with the last 2 years.

And I expect as a result that we continue to show industry-leading cash conversion levels that means converting well above 100% again in '26. Now moving to the next slide.

In terms of full year guidance, obviously, we confirm the full year guidance. So in terms of our revenue growth guidance of low to mid-single digits in local currency in '26, we expect a modest gradual acceleration in -- from the 1.7% in quarter 1.

And that assumes continued strong double digit in modernization, stable mid-single-digit growth in service and a gradual easing of the headwind in new installation from the high single-digit decline in quarter 1. Now on to the margin guidance of 13% in '26.

So the improvement versus '25 is clearly driven by continued productivity improvement, increasingly from field efficiencies. So we expect an acceleration here to offset a moderation in procurement and SG&A savings such that we can achieve the same overall level of incremental savings in '26 as we did in '25.

Now a little reminder on the mix, which we have as a headwind in '26. Mix was a tailwind in quarter 1, but we expect that to neutralize over the coming quarters.

Let me also say a few words on cost inflation. So based on our current assessment, we face some additional inflation from energy, commodity and commodity.

So firstly, on logistics and fuel cost, we estimate that each of these add approximately CHF 15 million, 1-5, to our annual cost. So CHF 30 million in total on a 12-month basis.

Outside of that, energy is a small cost category for Schindler and the inflation would amount to less than CHF 1 million. That is electricity usage in building and so on.

And finally, on raw materials, there is no change to the CHF 15 million, CHF 20 million annual cost inflation estimate that we shared with you in February. And so that is primarily associated with the higher copper and aluminum prices.

So putting all of this together, we face up to CHF 50 million of additional cost inflation on an annual basis from the elements I just outlined. And obviously, we are working hard on mitigating to offset these elements.

Now touching on tariffs. It remains a bit of a moving picture, but our estimate of the annual gross P&L impact remains largely unchanged from what we shared in February.

That is approximately CHF 15 million, 1-5, based on current tariff levels. And again, we continue to work hard at mitigating the impact, including making appropriate price adjustments.

So in conclusion, let me end by thanking together with my colleagues in the Executive Committee, all our employees around the world. And as you know, unfortunately, many of them are operating in exceptionally challenging circumstances, not least in the Middle East currently.

So a big thank you to our colleagues there. And with that, I hand over to Lars.

Thank you, Carla. Let me remind you of our Capital Markets Day, which is scheduled for the 3rd of June this year at our headquarter in Ebikon.

Switzerland. We look forward to seeing many of you here as our campus.

Please note that the registration to the event closes on the 15th of May, and the number of participants are limited. So with that, we are happy now to take your questions.

I would like you please to limit yourself to 2 questions only, given the limited time we have available. With that, operator, please.

Really, the main question I have is that now we are heading into this, again, heightened inflation environment. And given the track record across the whole industry of, say, 2022.

Can you really confirm to us that the industry attitude towards pricing has changed structurally and now that you have the contract price escalation clauses in place and that you can price proactively as inflation ramps up and therefore, avoid that kind of gap in potential gap in profitability. If we could talk about that, that would be great.

And then yes, I have a quick follow-up on U.S. service orders as well, if that's okay.

Andre, thank you for the good question. Yes, obviously, we can confirm your expectation that the lessons learned in '22, how to face inflationary jumps up and down has shaped the industry as well as ourselves.

So number one. Number two, in the actual situation, what is happening is a very proactive pricing, number one, you mentioned yourself, following the -- in the meantime, established discipline in contracts and all that as well as, as I mentioned before, that we are applying where possible, surcharges to address the super high-speed increasing gasoline, oil costs, energy costs.

which maybe was not very much the case in '22, right? It was more on commodities and material.

So well, to summarize, your assumption is right. We are executing pricing according to the contracts, yes.

And obviously, all of you know, there might be also a timing effect how these pricing actions will come to the books as when you price NI, it comes then when you build NI with a longer term, right? Modernization somewhere in between.

And on services, the timing to see the pricing and the subsequent benefit of it might be shorter.

That's really helpful. My second question is just on the U.S.

service orders in your slides that showed us down in Q1. I think that's in units.

Could you just talk about how it's done and how it's performed in value? And how do you see the outlook for this segment for the rest of the year, please?

Yes, very good question. Thank you for that.

That helped me clarifying something which I was mentioning before. In value, important to know, we grew in Americas and U.S., too.

So service value is growing. On units, as we report on units, we have a slightly decrease, which is mainly due to some -- yes, I call it, selectivity, some larger accounts we on purpose didn't rebook as we didn't pursue to continue to fully stick with our overall strategy we have.

So now to the second part of your question, Andre, very clear. We and also myself expect in the course of the year also to -- not to recall to recap or to catch up on unit growth.

So value is already and units should follow during the year.

Just wanted to ask you sort of on the path of light savings and efficiency from here and also on mix, you gave great detail on the whole inflation items and commented already a lot on price. I wonder on those 2 elements and the cadence from here.

That's the first question. And the second question, just for an update on where -- how do your view stand regarding when service regulation could change in China?

Maybe, Carla, you can elaborate on the efficiency gains, and then we can come back on China.

Daniela, so happy to take your question. So yes, as I said earlier, it is clear that we have these inflationary impacts, but we expect them to be offset by the pricing.

Paolo just outlined our view in terms of pricing. There might be here or there a bit of a timing effect, but that clearly will not realize.

So from that perspective, the increased inflation will be offset by the pricing. Coming to the real efficiency, there is not as such a big change to what we shared before.

So we are still looking for the approximately CHF 200 million of efficiency coming in, mainly the 4 pillars that you're well aware of. So it's clear that the composition slightly changed, but the overall numbers, they stay in line with the projections that we shared.

Does that answer your question, Daniela?

Yes. Maybe just of the CHF 200 million sort of how much is left?

Well, I mean, it's clearly that the main contributions are coming from supply chain and procurement saving and what is currently picking up is the field efficiency savings. So whatever now in the future will be a bit going on the moderate side in terms of incremental from supply chain procurement or the SG&A will be picked up or will be offset by the pickup in the field efficiency, both in the -- well, actually in the 3 activities and NI, Mod and in the service.

Coming -- let me catch up on China. That's a very good question.

And so regulation in China, let me start. Whenever it will come, I said it also before, you remember, this will have a positive and welcome impact to the industry and also to us.

However, it has been just postponed for another 6 months. Now it's expected that it would be published earliest, end of this year and being enforced end of next year.

So well, if we put these 3 informations together, it's become obvious that any impact can only be expected in the course of '28. Well, now we can be philosophical and it's quarter 2, quarter 3, I don't know.

So hence, we have to be a bit more patient, then I think we can have a full insight into the expected benefits first when we have studied documents, again, maybe Q1 next year, we have a better insight. However, it's important to know that by now, in all our plans, expectation outlooks, we didn't include yet any significant contribution of it already now.

So therefore, yes, we have all to be patient and catch up on this in my personal opinion, in 1 year from now. Unfortunately, we can see.

I have 2 questions. My first is on the order intake, particularly in Europe, EMEA up double digits for the quarter.

The market outlook is still for 0% to 5% growth on a full year basis. I was wondering if you might be able to give us some color maybe breaking that down between how much you think was underlying market developments in the quarter itself?

How much was a pickup in the larger project orders and whether you think there was any contribution from any market share gains?

Vivek, thank you for the question. I'll address all the points one after the other.

Number one, EMEA up, yes. It's not a big secret, maybe with some differences between Central, Northern European countries and yes, most famous EMEA at the moment.

But we are pleased to see that Europe, as EMEA for us, or Europe is contributing positively to our order intake, which was a bit expected, so number one. Number two, how it is between pickup on large projects and rest of the business.

This is also, I must say, different country by country, as you can imagine, we see now also to be anticipated a bit of a slowdown in large projects signed in the whole Middle East region is not a secret, the large project pipeline list was or is including also a portion of those projects. And we are always a bit more on the conscious side.

Now we don't have to say we keep it on the list, but we don't count on them short term, while the rest of the projects still look promising. Talking countries and markets, well, I was mentioning before, we are happy to see Germany picking up as we were saying last year, let's keep the fingers crossed that now the darkest period is behind us in Germany, and we can confirm at the moment, everything is confirming is right.

But also other markets are coming nicely in Spain, Italy, there's many more. So summarizing on the commodity sector going well in the commercial segment, different country by country, large projects, as you can imagine yourself, is now a bit in the light of geopolitical movements, different between infrastructure projects, which continues and private finance projects, which one could say, they might be a bit delayed until the financial situation now globally speaking, has been clarified.

Very clear. My second question is a follow-up on the cost inflation topic.

One cost item you didn't mention, particularly on the raw material side with steel. Would you be able to give us a quick summary of your exposure there and what sort of assumptions you've made around that?

When it -- Actually, when it comes to the steel, we locked in actually for the longer term. So it creates less volatility for us for the remainder of the year, to be honest.

That's why I didn't mention it.

Very clear. So is there a -- how much of a price increase do you need to put through just relating to the steel on the new orders?

That's a good question. But actually, the price increases placed in the new orders now are less related to one single component, right?

It's a more general price increase you place, right, to the customers. At the moment, obviously, there are more items contributing to the price increases.

And I was mentioning before to Andre, we have learned in '22, I guess, the whole industry, but we Schindler -- we also learned in '22 how to address pricing much better than ever done in the past. So that here, I must say it's a bit difficult to assign to each inch of the price increase, one component.

And we also have copper moving, we have oil moving, we have energy moving. We have wage inflations moving, very different country by country.

So actually the pricing you set in the new orders now is a combination of all these and also not a secret, is also a bit different country by country as reflecting on especially wage inflation, this varies a lot among the countries.

Firstly, I was just hoping you could comment on the growth components in service, so kind of the mix of unit growth, price net of mix and churn and then also dynamics in the repair business, which from competitors, it sounds like that's been quite strong recently.

Well, looking at value growth in service, I must say the unit growth and the value growth, one could say is quite aligned. So it's not that we are generating an additional value growth by overpricing anything.

So at the moment, we can confirm that our growth in value is, if you look to the different markets, very much in line with our growth in business -- sorry, in units. Carla, something?

Yes. Well, I mean maybe just adding when it comes to the portfolio and in units, we definitely are positioned very favorable when it comes to the churn rates when we see what is going on in the market.

And I think that is a very, very good point. And we still are on a neutral basis when we compare the churn with the recoveries overall.

So that is -- yes, that is where we are in terms of portfolio evolution. And as Paolo mentioned already, in terms of pricing, I think we remained also very disciplined there, and we will continue.

So whatever comes from inflation, we will definitely make sure that it is recovered.

Okay. Great.

And then my second question revolves around the sequencing of growth for sales in Americas new installations. I think we've had a couple of decent years of order intake in units.

And I would imagine that pricing has also been quite solid there. So I'm just curious as to when we start to see that feeding through a bit more meaningfully into new equipment sales growth.

Well, difficult to say in which months we see it, but we can confirm that at the moment, the positive trend we were also referring in the past continues. So now let us keep the finger crossed, nothing changes, right?

So now very soon, we will also see it contributing subsequentially to our order intake as well as I was also mentioning last quarter, and it is unchanged. We are also participating more and more in large projects, which then going forward will also contribute on both order intake.

And then yes, with the time line you have for -- to generate -- sorry, to create the revenue also contributing there. So we don't change our constructive positive outlook on the U.S.

in terms of new installations. So yes, your observation is right.

Revenue will be subsequently generated large projects a bit slower, commodities coming linear, not to forget modernization, which is also coming very strongly and with a shorter delivery time, obviously, right, between the order intake and contribution to revenue.

First one is on your remarks regarding building permits ramping up in Europe over the last few quarters. Now I appreciate those comments, but I've recently also checked that according to ECB, European Central Bank data, the mortgage volumes in Europe have started to turn more or less flattish.

They were down in January, but slightly up in February. If you compare that to the growth we have seen, which was clearly double digit, up to 40%, 50% or more percent in 2025, depending on the month, that seems to be noteworthy.

I was just wondering whether you had any thoughts on that development with regards to financing decisions in Europe being postponed, which ultimately could hit your residential exposure to the region? That's my first question.

And my second question is on CapEx. I noticed CapEx was up sharply year-on-year in Q1.

Just curious how we should think about that number going into the remaining quarters and what kind of comments you could make on CapEx guidance for the full year?

Martin, let me take the first one and the second one, I will happily pass to Carla for the CapEx. That's a good one.

How would we expect the financing structures, availability, especially in Europe, I think, is your question, might impact the green shoots we have seen coming, especially let's talk about the largest markets we have like Germany, Spain, Italy and so on. So first of all, by now, in the residential segment, and allow me to split briefly in 20 seconds in segments, then we and we personally expect in the worst case, a bit of a different scenario in residential, one could expect based on the strong demand we have in all large markets and already made decisions on financing, on building permissions and so on, we would expect a more resilient new installation order intakes going forward.

So other words, the expected growth rates in commodity -- sorry, in residential, we might still expect. When it goes to large projects, I was moving -- mentioning before, I would move to a more differentiated picture.

We see at the moment everything which is more related to infrastructure, public investments is continuing as planned. So here, I would also -- I see your point of volatile mortgages and so on, but it doesn't play a big role here for the moment.

And yes, you have a good observation. Fully private finance developments might see a bit of a delay.

However, if I look over Europe at the moment, day-to-day, still decisions made to progress on projects, excluding Middle East. So all in all, if we have to expect some changes going forward, I think it's appropriate to be more conscious on large projects, private finance, followed by large projects, infrastructure which we see more safe kind of sort of saying.

And residential, we would expect for '26, more or less flat. I hope this addresses your first question, and Carla takes up on CapEx.

Yes, Martin. So thank you for the question.

Good observation. So yes, our CapEx investments in Q1, they amount to CHF 46 million versus indeed CHF 18 million last year.

And that is actually a replacement -- a real estate replacement investment. So it comes from the purchase of a land plot in Switzerland, yes, for replacement of a factory.

So that is actually what's there. So it's not like a trend to further increase now the CapEx going forward.

So it's actually, I would say, a one-off that you see there.

I have 2 questions. The first one, when it comes to claiming a refund of overcharged U.S.

tariffs, what is your approach here?

Yes. Obviously, we are looking into that.

We are doing our homework, and then we will conclude at the right time to file for it.

But your guidance of impact of U.S. tariffs doesn't actually include any, let's say, payback of what you paid?

No, no, absolutely not given the uncertainty about the timing, et cetera. So when it comes, it comes, yes.

So it's an upside, but we don't count on it in the numbers that I shared.

And then the next question, maybe a bit of a broader one. When it comes to consolidation in the sector and the opportunities to expand your service footprint, mainly, I guess, what is the reason for a rather cautious approach for external growth that we see for Schindler?

Martin Well, conscious approach, I leave it to you to judge. What we said and we are working on is, yes, we like to expand our portfolio footprint also by inorganic investments, I think, is what you referred to, right?

What we said is, at the same time, we would not jeopardize our overall strategy, which we call profitable growth. by doing things which afterwards look good but aren't.

So this being said, when we look at external opportunities, is what Carla always calls the bolt-on acquisitions and even maybe large acquisitions, we always prove them against our midterm strategy, and we will talk a lot also on the upcoming Investors Day with you guys. So therefore, I would not confirm that we are not interested in expanding our footprint inorganically, you were saying externally.

But yes, I would confirm that we still make sure it fits to us and it fits to what we promise to every one of our investors we intend to do in the next many years with the portfolio.

Yes. If I just -- Martin, we have our own criteria for actually assessing opportunities and if they fit our plans, yes or no.

So we stick to this criteria. What is clear for us, what we are not going after that is overpriced assets and also loss-making business.

So there, we are -- stay away from because we -- I think we would -- if we acquire things, we want to actually generate a return on it.

On modernization, I'm wondering if you could characterize what you see as the trajectory on contribution margins over the next 2 to 3 years? And also maybe a bit of color here, given the strength of China on unit counts and the bond program, how you see kind of mix geographically evolving from current level, I suppose?

John, let's take the second part first. Now do we see a geographical mix.

First of all, well, I must say, if we look at the distribution of the installed units on this planet, obviously, there will be over the years, an increasing contribution also modernization coming from China. So the longer term, we look at the modernization business, and I'm talking 5 to 10 years, the more the contribution will be out of China, obviously, right, as the half of the units installed on this planet are, for whatever reason, installed in China.

So this is anticipated at the moment, obviously, the biggest potential for the very next years in terms of value, in terms of margins is obviously there where the installed base is much more aged and the market is much more mature. So obviously, you can -- it's the Americas, Europe and Asia Pacific outside of China.

This is the second part of the question. So the first one, and then I will leave to Carla to give more color, if you like.

Well, we expect the modernization business also in terms of contribution to the bottom line to continuously improving and continuously evolving. As mentioned before, we are doing a lot in terms of products, in terms of processes, in terms of expanding capacities, production as well as installation.

We talked about in the past also here, we will have some more points for you when we see us in June. So there, we can only expect over the course of the next years, an increasing contribution.

But Carla, please, anything to add on that? No?

Okay.

And one follow-up, if I may. Historically, you provided some very useful color on segmentation in Chinese real estate markets, tiers of cities and so forth.

I'm wondering if there's anything you could help us on here in the current outlook.

I think with more details, we can also touch on China. But for now, we have segmentation in tiers, I must say one has to ask if we -- if you focus on profitability, and we have reassessed a lot of our organization in China and also going forward, there's still a big difference between Tier 1, Tier 2, Tier 3 cities.

Segmentation remains very similar in terms of business opportunities. And hence, when we will share with you where we like to go in the next couple of years, you will also understand what we plan to do in which segment within China to secure that China contributes to our overall plan going forward.

You mentioned wanting to grow in the U.S. service market and reverse the trend you've seen in 1Q.

One of your peers is also seeing challenges growing there. I'm just wondering, are you seeing the competitive environment potentially heat up in the U.S.

market? Or are there any early green shoots you can point to supporting a turnaround?

Yes. Lewis, that's a very good question.

Now I think you're referring more to the service segment, right? U.S.

to U.S., and allow me that I talk about us and not about competition. In the U.S., what we see is a clear trend of increasing presence, let me do it very politely this way, of the ISPs, very active in the market, which are shaping kind of, if I may say, the service business in the U.S.

It's not Americas, it's the U.S. There's a lot of contribution into that from private equity going into that segment in the ISPs.

And hence, yes, the service market environment is changing in the U.S. Is it changing for stay there forever?

I don't know. But what I can confirm is that we are adjusting and working on it heavily and in high speed.

And it's the reason why before I was confirming that we expect our numbers to catch up and continue to improve throughout the year.

I have 2 questions, please. Firstly you're obviously working very hard to mitigate input cost inflation.

Is your policy regarding hedging on some of those costs changing in any way given the volatility? And the same on FX.

The underlying results are obviously good, but FX has been overshadowing that now for quite a long time. So is there anything you plan to do differently in relation to hedging, be that on the cost or FX side?

And the second question, I know you don't want to front run the CMD, but can you remind us of what the right level of leverage is for Schindler. I appreciate the comments on M&A needing to have the right returns profile.

So how does that pipeline look today and the valuation of those assets? Is that screening well for you relative to potential cash returns to shareholders?

Yes. Thank you very much for the multiple questions.

So I try to take them one by one. So obviously, we have -- when it comes to the hedging of the raw materials, there is no change in policies because I believe that we hedge what we can hedge.

Now in terms of the FX impact there, of course, we did quite some work over the prior periods and especially then contracts that are in our -- yes, strong Swiss franc. I mean we convert most of them already in non-Swiss currency.

So quite a lot of energy went into that. So in order to de facto come to a hedge.

And when it comes to the capital allocation question, I'm actually yes, looking forward to give you more insight into the Capital Markets Day, also what the next follow-up is because, yes, our share buyback program advances very well. So if you can give a bit of patience there, I will definitely give full insight into that topic.

Just maybe a little bit of clarification on the pricing element when it comes to service. It doesn't feel like this according to my calculations that pricing was not a big component within the service growth.

Maybe if you could just shed a bit of light there and give us a flavor on how do you see it sort of by region? And then secondly, I would like to shift away, hope you don't mind me doing this from -- away from the results, but just take your view on potential large consolidation in the industry.

We know this is quite a very consolidated industry. So what kind of impact do you see in the market in terms of density pricing if 2 of the largest -- your largest peers merge?

Maybe, Carla, I'll take this one. So the first one.

The first one on the contribution of the pricing to the service and bear with me that we don't go now into region by region. But overall, we can say the contribution from pricing is in the mid-single-digit range.

So therefore, I was saying the overall growth is not overinflated by pricing. This was my message before, and thank you for helping me clarifying it.

So -- but nonetheless, the pricing contribution is in the mid-single-digit area, and that's actually what normally you do every year as you cope normally also with inflation. We did in the past, we do now and maybe now actually right now with an additional component to offset the Middle East crisis FX, as mentioned before.

Coming to your second question about larger consolidations and without looking at any specific one, our view is, first of all, if there's a consolidation on highest level, and we can name it, if the 1, 2 of the big 4 would go together, I personally already expressed our opinion and my personal opinion very clearly in the past, one has to ask mid-first and long first, where is the benefit for whom. And this explains for me also the subsequential impact on what you were just mentioning, pricing and movement in the markets.

Consolidation on high level always, we have to ask, is there a benefit for the customer? Yes, no, the answer you can give yourself.

Is a benefit for employees? You can give your benefit -- the answer yourself.

Is there a benefit on underlying efficiencies by consolidation, which could bring some benefits to the bottom line? Well, here, one can speculate and say, yes.

Good. Let's take this one.

To get to these benefits, you have to do a lot before. And here, I like to share our and my very personal opinion.

You have to put it in the timing. It is quite often intense time, which is not 1, 2 years.

It will be longer until you can at all generate these underlying efficiency benefits in your books. In all that period, this consolidation would just work against benefits for customers and employees.

If you put it on this high level, then the answer is, for me, quite subsequentially logical that it might have a short-term impact on pricing. However, the opportunity also for others to grow and expand customer and business baseline would also increase.

So here, I must say for the industry, there might be a reshaping, there might be changes. However, this also bears opportunities for the others.

Different when you look at consolidation on lower levels is what we have talked a lot about in the past is what then has a totally different consequence to the market. But you were explicitly mentioning, I think, the larger scale consolidations.

My first one is on tariffs. I understand the situation remain extremely fluid at the moment.

You highlighted the CHF 15 million that you announced at the beginning of the year. Could you perhaps elaborate a little bit on the new 232 regime, perhaps expanding on your exposure to Mexico and Canada?

And if this CHF 15 million, you think could be revised upward because of these new changes? That would be my first question.

Thank you. Talking exposure to tariffs for us, it remains unchanged since the last adjustments, which you know they were adjusted for Switzerland.

So there is no change. And Carla has mentioned before, in our numbers, we are sharing with you today and in the outlook we don't foresee any downside at all and also, for the moment, no upside.

So first part of the answer. Second part of the answer, special exposure to Canada and Mexico.

This is for us quite limited as we have our supply chain base distributed in other markets. So it's not Canada and Mexico.

It's 5 other places in the world. And this actually reduced our exposure to tariffs a lot.

So for the moment, no impact to our bottom line and to the numbers presented by Carla.

Yes. Just maybe to add and to be concrete on numbers.

So initially, we talked about around CHF 20 million. This CHF 20 million, they came down now to CHF 30 million.

So yes, so we go clearly as it just decreases the impact for the reason mentioned here.

That's clear. The second question is on pricing and your backlog.

I understand there will be a lag on the effect of pricing on new orders. I wanted to understand to what extent if there's any kind of ability to go and reprice some of your existing orders in new equipment and perhaps maybe modernization eases because of the churn.

But trying to understand, considering the current situation, if there's any chance you are able to go to your customers with an existing orders and say, look, things have changed, we might have to revise price upward.

Thank you. First of all, do we do it where it is possible?

Yes. Is it everywhere possible and in every contract?

No. So therefore, do we expect some impact on the backlog positively from pricing?

Yes, but it might remain minor that it is not critical to be now disclosed here, right? So therefore, the effort we are doing, and I said before, we are quite diligent in our pricing discipline, I must say.

However, looking explicitly at new installation orders, it also plays a role how old this order is. So therefore, it's quite of -- not volatile, it's quite of a diverse picture.

So -- but I can confirm where possible and together with the customers, we address it. In some cases, it's obvious, it doesn't work.

Thank you, Aron. Thank you.

We'll take the final question, please, and then we'll close out for today.

It's a follow-up on one of the questions on CapEx, just more broadly on cash conversion. You mentioned earlier, this should be again a year of over 100% cash conversion.

Your cash conversion has been very strong over the last few years. For how long can you continue with this sort of level of cash conversion?

And what should we bear in mind regarding the moving items within that?

Well, I'm actually, yes, very convinced that we can continue with this nice cash generation. Yes, first of all, I mean, we believe or we are clear, I think, where we go in terms of profit.

And when I look at the net working capital, I can tell you, I still see my pockets where I can further optimize and I will not let go. So based on the combination of the 2, I feel comfortable making that statement.

So I don't know if that answers your question, but I'm very passionate, I must say, about it.

Thank you very much, operator, and thank you all for attending this call today. Please feel free to reach out to me and the Investor Relations team for any follow-ups you might have.

The next scheduled event is our Capital Markets Day on the 3rd of June, and we look forward to seeing many of you there here in Ebikon, of course. With that, thank you, and goodbye.