Half-year 2012 Results August 1, 2012
Disclaimer All forward-looking statements are Schneider Electric management s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
04 Overview 07 Strategy and business update 17 Finance presentation 26 Outlook 29 Appendices 3
Overview
Schneider Electric the global specialist in energy management Balanced geographies First half 2012 sales billion sales (last twelve months) of sales in new economies (last twelve months) North America 25% Rest of World 18% Western Europe 30% Asia Pacific 27% people in 100+ countries of sales devoted to R&D Diversified end markets FY 2011 sales Utilities & Infrastructure 24% Industrial & machines 22% Data centres 16% Non-residential buildings 29% Residential 9% 5
A responsible commitment supporting Schneider Electric s sustainable growth Green business Responsible commitment Measured progress Energy efficiency Access to energy New Planet & Society barometer 2012-2014 Clean products and sites Renewables Electric Vehicles Smart cities and smart grids poverty People well-being Commitment to communities Ethics & responsibility January 2012: 3/10 Objective 2014: 8/10 Published quarterly Audited annually Revised with each company programme 6
Strategy and business update
Focused execution and strong fundamentals to respond to mixed market trends Pricing power to offset the recent material inflation Operational efficiency drives earnings growth Cash focus supports the high level of free cash flow generation Integration of acquisitions to increase our added value and tap new markets 141 million in H1 H1 adjusted EBITA +9% H1 EPS +10% Free cash flow at 108% of LTM 1 net income Smart Infrastructure, Services, Mid-market, New Cities Improve solutions and grow services Targeting higher margins and Return on Operational Assets 2012 full year outlook confirmed 1 Last twelve months to June 2012 8
Solid growth for Power and IT, while Industry customers were sensitive to macro challenges % of H1 sales Organic growth Total growth Power 38% +3.0% +8.7% Double-digit solution growth Resilient product business in mixed markets Mixed geographical trends Infrastructure 21% -0.7% +16.9% Development of services and integrated solutions for infrastructure and oil and gas offset lower demand from utilities Industry 19% -6.3% -0.4% Tough market in Western Europe and Asia Growing success of innovative solution offers combining energy efficiency and automation IT 15% +5.1% +22.9% Growing across the board, especially services Collocation, virtualization and cloud computing continue to a strong driver Buildings 7% -2.2% +9.7% Reduced public spending in Western Europe Decline of advanced services 9
Balanced geographical exposure reduces specific country risk % Of Group sales in H1 +x% Organic growth in H1 +x% Total growth in H1 Western Europe North America 30% -4% +0% 25% +4% +20% Asia-Pacific Rest of the World 27% -1% +14% 18% +6% +11% 10
On track to improve solutions execution Solutions as % of sales Improve the solutions model 34% 37% 39% Offer simplification Footprint specialization for equipment Investment in reference designs for systems Solution centers capabilities scaled up 2010 2011 LTM Jun. 2012 Solutions organic growth Improve the financial performance +13% +4% Increase the cost effectiveness of equipments More selective on our project pipeline Services generating higher growth potential H2 2011 H1 2012 First signs of solution profitability improvement 11
Strong brand, innovation and added value support our pricing power Pricing in m Raw material inflation in m +482 1 +382 +195 +141 ~80% coverage of inflation +46 H1 2011 H2 2011 H1 2012 Last 18 months to June 2012 Last 18 months to June 2012 Continued positive pricing to offset the material inflation of 2011 More pricing expected for H2, albeit at a lower level 1 Includes 2011 raw material inflation of 477m excluding currency effects 12
Efficient implementation of cost initiatives in a low volume environment Industrial productivity in m 233 Support function costs in % of sales 24.5% 24.1% 120 Organic sales volume: +9.7% Organic sales volume: -1.2% H1 2011 H1 2012 H1 2011 H1 2012 Productivity impacted by negative volume and product launches R&D spending increased but operational efficiency drove SG&A cost reduction 13
Strong cash generation, attractive for our shareholders Free cash flow in m Dividend 2,062 919m 1.7 DPS paid in May 2012-159 397 Cash conversion at 108% of net income 50% payout 3.6% Long-term dividend policy Yield at current share price 1 H1 2011 H1 2012 Last 12 months to June 2012 Continued focus on cash H1 free cash flow seasonally low but positive 1 Share price as at Jul 30 of 47.3 14
Lead innovation to enhance value for our customers Premset Infrastructure business of sales in R&D expenses inh1 R&D engineers worldwide The next generation of MV switchgears Top performance compact size, safest in its class, 30% longer life expectancy & maintenance free 2-3 weeks shorter delivery time through modularity, configuration & supply chain Broader customer reach kit model Smart grid ready embedded intelligence StruxureWare EcoStruxure software suite Our unique software suite Significant scale-up of interoperability achieved Data Center suite deployed in 12 countries, Healthcare & Water suites will follow in 2013 Grid suite leverages Telvent applications Acti9 Major LV breakers range Launches met with success Launched in most major countries 90% substitution rate in countries launched Convincing customer values (Plug-and-play, 100% compatible, upgradeable) reinforce brand perception 15
Integrate acquisitions to enrich our offers and tap new markets Grow services Lead smart infrastructures Acquisition rationale: Energy management & sustainability services, pull through hardware offering Acquisition rationale: Become a leader in the efficient management of critical infrastructures In H1: Solid performance and initial synergies, stronger worldwide with M&C acquisition In H1: Starting to deliver synergies with the medium voltage business; suffered from very difficult conditions in Spain Expand mid-market offerings Reach out to new cities (Latin America) Acquisition rationale: Mid-market and geographic expansion In H1: Solid topline and earnings performance (India) Acquisition rationale: Leadership in local inverter and power storage market to enhance our access to the diffuse market In H1: Geographic expansion and initial synergies drove strong growth 16
Finance presentation
Reported sales increased 10.4% on scope and currency effects, organic sales stable Analysis of change in Group sales 10,336 Organic +0.2% Scope +5.9% Fx +4.3% 11,408 +10.4% H1 2011 H1 2012 18
Adjusted EBITA was up 9% in a low growth environment In m H1 2011 H1 2012 Change Sales 10,336 11,408 +10.4% Organic growth 0.2% Gross profit 3,965 4,304 +9% Margin % 38.4% 37.7% -0.7pt Adjusted EBITA 1,434 1,556 +9% Margin % 13.9% 13.6% -0.3pt The adjusted EBITA margin rate was stable excluding acquisition impact 19
Higher profitability on strong price, productivity and cost efficiency, offsetting mix and volume Analysis of change (in m) 1,434-63 Volume -134 Mix +141 Price +120 Productivity 1-46 COGS inflation 2 +8 Support function cost -44 Other +67 Change in scope +73 Currency effects 1,556 H1 2011 Negative mix from geographies, solutions and product launches Efficiency on SG&A spending offsetting salary inflation H1 2012 1 Of which Purchasing: 77, Lean Manufacturing: 33, Rebalancing: 31, Fixed manufacturing costs: -21 2 Of which Raw materials: -5 (excluding currency impact), Production labour & other Costs: -41 20
Strong margin expansion at IT, Infrastructure stable, Industry resilient Sales 11,408m Adjusted EBITA by business 1 IT 15% Buildings 7% Power 38% Power Infrastructure 166 199 835 855 8.2% 8.4% 21.2% 20.0% -1.2 pt +0.2 pt Industry 438 412 19.7% 18.6% -1.1 pts Industry 19% IT 194 304 13.7% 17.5% +3.8 pt Infrastructure 21% Buildings 59 52 8.1% 6.5% -1.6 pt 1 Before Corporate costs of 266m in H1 2012 ( 258m in H1 2011) H1 2011 H1 2012 m and as % of sales 21
Net income grew double-digit, EPS of 1.65 In m H1 2011 H1 2012 Change Adjusted EBITA 1,434 1,556 +9% Other income and expenses & Restructuring (62) (51) Amortization & impairment of purchase accounting intangibles (98) (118) EBIT 1,274 1,387 +9% Net financial expense (184) (189) Income tax (262) (281) Equity investments 13 18 Minority interests (39) (45) Net income (group share) 802 890 +11% Earnings per share 1.50 1.65 +10% 22
Solid cash generation leading to record last 12-month free cash flow of 2 billion Analysis of debt change in m H1 2011 H1 2012 LTM Net debt at opening Operating cash flow Capital expenditure net (2,736) 1,140 (329) (5,266) 1,199 (349) (4,474) 2,638 (766) Change in trade working capital (772) (149) 264 Change in non-trade working capital Free cash flow Dividends Acquisitions net Capital increase Other (Increase) / Decrease in net debt Net debt at June 30 (198) (159) (856) (642) 30 (111) (1,738) (4,474) (304) 397 (919) (164) 22 (225) (889) (6,155) (74) 2,062 (919) (2,395) 202 (631) (1,681) (6,155) 23
High cash conversion and solid balance sheet Cash conversion (Free cash flow / net income) Net debt / Adjusted EBITDA 101% 83% 108% 0.8x 1.4x 1.5x 2010 2011 LTM 2010 2011 LTM June 2012 June 2012 Adjusted EBITDA of 1,873m in H1 2012 ( 1,738m in H1 2011) 24
Our cash generation is not cyclical ROCE in % Cash generation past 10 years - in bn 12.9% 12.2% Cash flow from operations +0.19 +2.64 2011 LTM June 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 LTM Change in WCR 25
Outlook
2012 outlook The The uncertain uncertain world world economic economic outlook outlook and and mixed mixed business business trends trends in in the the Group s Group s key key markets markets continue continue to to limit limit near near term term visibility. visibility. In In this this context, context, assuming assuming no no further further deterioration deterioration of of the the economic economic conditions, conditions, the the Group Group confirms confirms the the full full year year outlook outlook of: of: flat flat to to slightly slightly positive positive organic organic sales sales growth growth an an adjusted adjusted EBITA EBITA margin margin between between 14% 14% and and 15% 15% 27
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Appendices
Definitions EBITA: Adjusted EBITA: EBITDA: Adjusted EBITDA: Cash conversion: Free cash flow: ROCE: EBIT before amortization and impairment of purchase accounting intangibles and impairment of goodwill EBITA before restructuring and other operating income and expenses EBIT before depreciation, amortization, provisions and before share-based compensation cost adjusted EBITA before depreciation, amortization, provisions and before share-based compensation cost Free cash flow / Net income (group share) Operating cash flow less change in working capital less net capital expenditures Return On Capital Employed See definition and calculation on the next page 30
ROCE After-tax adjusted EBITA / Average Capital Employed ROCE calculation P&L items LTM Jun 2012 EBITA (1) 3,212 Restructuring costs (2) -145 Other operating income & expenses (3) 3 = Adjusted EBITA (4) = (1)-(2)-(3) 3,354 * Effective tax rate of the period (5) 22.8% = After-tax Adjusted EBITA (A) = (4)*(1-(5)) 2,589 H1 2011 H1 2012 LTM Jun 2012 Balance sheet items reported reported Avg of 4 quarters Shareholders' equity 14,320 16,281 (B) 16,036 Net financial debt 4,474 6,156 (C) 5,823 Adjustment for Associates and Financial assets (at historical value) -661-661 (D) -661 - Electroshield Samara (50% stake) 266 266 266 - Sunten Electric Equipment (50% stake) 85 85 85 - Fuji Electric FA Components & Systems (36.8% stake) 84 84 84 - NVC Lighting (9.2% stake) 115 115 115 - AXA (0.5% stake) 111 111 111 = Capital Employed 18,133 21,776 (E) = (B)+(C)+(D) 21,197 = ROCE (A) / (E) 12.2% 31
Q2 sales details
Reported sales up 11%, organic sales stable Analysis of change in Group sales 5,392 Power +4.3% Infrastructure -3.2% Organic +0.1% Industry -5.8% IT +3.9% Buildings -3.3% Scope +5.4% Fx +5.7% 5,997 +11.2% Q2 2011 Q2 2012 33
Power Business Resilient growth led by solutions and new economies 2,027 Analysis of change: Power Organic +4.3% Scope +1.3% Fx +6.1% 2,264 +11.7% By product lines Products trend was positive and benefited from improving residential market and sustained industrial demand in North America and urbanization in new economies, offsetting weak demand of most key markets in Western Europe. Solutions business continued to experience high growth, reflecting continued demand for energy efficiency projects, as well as investment related to infrastructure, oil & gas and mining in the new economies. Solutions for renewable energy continued to be negative. By region Q2 2011 38% of Q2 sales Q2 2012 Rest of the World delivered the highest growth, followed by Asia-Pacific and North America. Western Europe, in decline, was impacted by tough market conditions in Spain and Italy. 34
Infrastructure Business Faced high basis of comparison for solutions business Analysis of change: Infrastructure 1,121 Q2 2011 Organic -3.2% Scope +14.7% 21% of Q2 sales Fx +3.1% 1,285 +14.6% Q2 2012 By product lines Products business experienced about flat growth, saw strong progression in secondary distribution products offset by less favorable trends with utilities. Solutions business was weaker this quarter, reflecting high basis of comparison and lower substations activities, despite support from oil & gas and mining projects. By region Asia-Pacific and North America continued to grow. Rest of World was negative with robust performance in Russia and Africa offset by softer demand in the Middle East and South America. Western Europe also declined, impacted by reduced investment in key countries. 35
Industry Business Sales decline stabilized and solutions remained a support 1,122 Analysis of change: Industry Organic -5.8% Scope +2.1% Fx +5.5% 1,142 +1.8% By product lines Products business reported negative growth in all business lines due to weak OEM investment, mainly in Asia and Western Europe, and still demanding comparison created by anticipated client orders last year post-fukushima. Solutions business growth accelerated primarily due to the success of end-users solutions, mainly for mining, oil & gas and water, and strong services performance. By region North America and Rest of the World were positive. Q2 2011 19% of Q2 sales Q2 2012 Asia-Pacific was down but improved sequentially especially in Australia and India. Western Europe continued to be impacted by the economic conditions and the lack of support from exports. 36
IT Business Grew in products and solutions, in particular services 749 Analysis of change: IT Organic +3.9% Scope +8.0% Fx +8.2% 900 +20.1% By product lines Products business growth was driven primarily by sustained demand for secured power in new economies, such as Russia and Middle East, but also in some Western European countries. Solutions business continued to outgrow the product business, mainly due to significant increase of services in all regions. By region Western Europe and Rest of the World posted double digit growth. Asia Pacific, impacted by Japan, and North America both reported about flat growth. Q2 2011 15% of Q2 sales Q2 2012 37
Buildings Business Impacted by lower public spending and services Analysis of change: Buildings Fx +7.7% 406 +9.1% By product lines Products sales declined. Solution business was slightly negative primarily as a result of a lower level of related public spending in Western Europe and a decline of advanced services in the US. 373 Organic -3.3% Scope +4.7% By region Rest of World posted the highest growth, followed by Western Europe. North America and Asia Pacific were down. Q2 2011 7% of Q2 sales Q2 2012 38
Growth in Rest of World & North America offset weak Western Europe, Asia-Pacific stabilized Analysis of change in Group sales 5,392 West. Europe -4% Asia Pacific -1% Organic +0.1% North America +2% Rest of World +6% Scope +5.4% Fx +5.7% 5,997 +11.2% % of Q2 sales West. Europe Asia Pacific 30% 28% North America Rest of World 24% 18% Q2 2011 Q2 2012 39
Contacts & agenda Carina Ho Head of Investor Relations Tel: +33-1-41-29-83-29 carina.ho@schneider-electric.com Grégoire Rougnon Investor Relations Manager Tel: +33-1-41-29-81-25 gregoire.rougnon@schneider-electric.com 25 October Q3 2012 Sales Conference call 40
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