Schindler's Record Margin Hides a New Accounting Wrinkle and Inflation Test
Despite flat revenue, Schindler delivered record operating margin, but IFRS 18 and rising input costs set up a challenging H2.
SCHP.SW · Earnings Call · 2026-07-21
Schindler Holding AG reported another record first-half operating profit, with EBIT margin expanding 90 basis points to 13.2%. Yet the headline improvement masks a nuanced picture: revenue growth was just 1.4% in local currencies, dragged by continued weakness in Chinese new installations, while the modernization business surged almost 13%. The company maintained its full-year guidance of low-to-mid single-digit revenue growth, implying a meaningful acceleration in H2. But investors were also introduced to a new complication—the upcoming IFRS 18 accounting change—and a fresh wave of cost inflation.
The Margin Story: Efficiency and Modernization
The margin expansion is broad-based, driven by operational improvements across manufacturing, supply chain, and field operations. The modular platform continues to be a key driver, both for market share gains in Europe and for field installation efficiency. As Paolo Compagna explained, "we see plenty of room for growth both on and off portfolio," and the modernization business has now grown double-digit for six consecutive quarters. Backlog for modernization is up 13% year-over-year, and backlog margin improved sequentially—a strong signal for future profitability. This is a high-margin business that is becoming a larger part of the mix, even as new equipment sales outside China show encouraging unit growth.IFRS 18: A New Accounting Headwind
A significant new theme is the upcoming IFRS 18 standard, effective from January 1, 2027, which will reclassify certain finance costs into operating profit. Carla De Geyseleer noted, "if IFRS 18 would have been applied on January 1, 2026, the operating profit would have been approximately CHF 20 million lower," about 40 basis points of EBIT margin. This is a structural change that could complicate future margin comparisons and targets. Investors will need to adjust their models as the company frames its midterm guidance at the November Capital Markets Day.Inflation, Pricing, and Tariffs
Cost inflation is a recurring theme, but this year it is more pronounced from energy and commodities. Cost inflation is expected to reach roughly CHF 35 million in H2, split about two-thirds in the second half. Management is actively mitigating through pricing actions and surcharges across all business lines. "We are working hard on mitigating actions to offset these in terms of pricing and in terms of efficiency," said De Geyseleer. Tariffs remain a moving target, but the annual gross P&L impact is still estimated at around CHF 15 million, with refund filings already under way. The pricing environment outside China remains solid, but competitive pressures persist, particularly in the U.S. service market where Schindler is being selective on low-value unit wins. The company is confident it can recover service unit growth in H2, supported by a stronger pipeline.China: Still the Drag, but Easing Could Come
China remains the biggest headwind, particularly for new installations, where order intake declined double-digit in H1. However, management sees signs of deceleration in the decline rate, helped by easier comps and internal restructuring. Chinese New Installation is deemed "challenging," but modernization and service are growing strongly, and the installed base continues to provide a robust pipeline. The company has not made concessions on down payments, maintaining rigorous credit discipline.What Changed and Why It Matters
The most notable change this quarter is the explicit introduction of IFRS 18 and its quantified impact on operating profit. This is genuinely new for Schindler and will affect how investors evaluate margin trends going forward. Combined with rising commodity costs and a still-soft top line, the company is walking a tightrope between executing its efficiency program and navigating external headwinds. The stock is likely to be supported by the record margin delivery and maintained guidance, but the accounting shift adds uncertainty. As one analyst noted in the Q&A, "the backlog margin grew sequentially," which is a positive signal for forward profitability. Schindler's continued investment in modular platform and its disciplined approach to pricing and capital allocation underscore a company that is managing through a challenging demand environment while preparing for a future where modernization and service dominate the mix.In prior calls, management had emphasized lessons from 2022 inflation, and they reiterated that pricing discipline has structurally improved. This quarter, they are walking the talk, but the real test will be H2 when inflation bites harder. The market will be watching closely ahead of the Capital Markets Day on November 19, where Schindler is expected to lay out its midterm strategy, likely including the impact of IFRS 18 and its long-term margin ambitions.“The main part of this CHF 20 million that are actually operating finance cost... that were below the line before.” — Carla De Geyseleer on IFRS 18