Schindler Drops Profitability Target to Win Market Share

Feb. 19 (Bloomberg) -- Schindler Holding AG abandoned a profitability target for its elevators and escalators business to focus on winning market share in China and India in billionaire Chairman Alfred Schindler’s final strategic push.

It is no longer strategically acceptable to focus exclusively on the optimization of the operating margin, the Ebikon, Switzerland-based company said in a statement today, adding that it has temporarily abandoned its 14 percent margin target based on earnings before interest and taxes for the elevators and escalators unit.

The growth rate in Asian markets “was faster than anyone thought,”, Schindler said at a press conference in Luzern, adding that it now makes sense to step up manufacturing in the region. Top management and the largest shareholders were “aligned” with the new direction, he said.

The company, which has already begun building new factories in China, India and Slovakia, said it will continue with large investments in new factories, research, and launching the new Schindler 5500 and Schindler 3600 elevator lines. Schindler, 63 years old and the company’s Chief Executive Officer from 1985 to 2011, said today’s announcement was his last big say on company affairs and he will not represent the company at earnings press conferences in future.

Emerging Markets

Even as it pushes back the profitability target, Schindler’s better-than expected order backlog “secures business beyond 2013, giving Schindler high visibility and justifies a premium over industrial stocks,” Christoph Ladner, an analyst at Kepler Capital Markets in Zurich, said in a note to clients. Ladner has a hold rating on the stock.

Full-year net income attributed to shareholders reached 702 million Swiss francs ($760 million), in line with the estimate of analysts in a Bloomberg survey. Sales rose 5.1 percent to 8.26 billion francs, missing the analyst estimate of 8.35 billion francs. Schindler said it will pay a dividend of 2.20 francs, missing the 2.25 franc analyst estimate.

Schindler shares dropped as much as 2.9 percent and traded 2.2 percent lower at 137.60 francs at 2:45 p.m. in Zurich. The Schindler and Bonnard families, along with related parties, hold 70 percent of the voting rights in the elevator maker, which has a market value of 16 billion francs.

Asia Push

Schindler is ’’working very actively’’ on the situation at Hyundai Elevator Co., in which the Swiss elevator maker owns 35 percent and tries to overturn a ban on access to the company’s accounts, CEO Juergen Tinggren said today at a press conference. “There will be things happening there in the next coming years,” he said, without giving details.

Schindler may also increase its stake in China’s XJ-Schindler to 100 percent from 46 percent, Tinggren said.

The company today said board member Peter Athanas a former chief executive officer of Ernst & Young’s Swiss business, will become senior executive vice president corporate development, reporting directly to Chairman Schindler.

Athanas will taker a greater role in mergers and acquisitions, Schindler said, adding that this move will leave CEO Tinggren with more time to focus on a savings program.

The Swiss elevator maker, which competes with United Technologies Corp.’s Otis Elevators and Finland’s Kone, predicts revenue to increase by around 6 percent in local currencies in 2013 and expects a net profit of around 740 million to 790 million francs.

Schindler also said it will propose economics professor Monika Buetler, former Jardine Matheson Group CEO Anthony Nightingale and 5th generation Schindler-Bonnard family member Carole Vischer to the board of directors.

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net