BANK OF AMERICA MERRILL LYNCH GLOBAL INDUSTRIALS & EU AUTOS CONFERENCE London Mar 18, 2015 Emmanuel Babeau, Deputy CEO and CFO 1
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. For a detailed description of these factors and uncertainties, please refer to the section Risk Factors in our Annual Registration Document (which is available on www.schneider-electric.com). Schneider Electric undertakes no obligation to publicly update or revise any of these forward-looking statements. This presentation includes information pertaining to our markets and our competitive positions therein. Such information is based on market data and our actual revenues in those markets for the relevant periods. We obtained this market information from various third party sources (industry publications, surveys and forecasts) and our own internal estimates. We have not independently verified these third party sources and cannot guarantee their accuracy or completeness and our internal surveys and estimates have not been verified by independent experts or other independent sources. 2
We are the global specialist in energy management and automation 25 billion FY 2014 revenues ~5% of revenues devoted to R&D 43% of revenues in Solutions ~170,000 people in 100+ countries DIVERSIFIED END MARKETS FY 2014 revenues 1 BALANCED GEOGRAPHIES FY 2014 revenues Non-residential & Residential Buildings 33% Data Centers & Networks 14% 1 Estimated at the end of 2014 Industrial & Machines Utilities & Infrastructure 27% 26% 44% of revenues in new economies 25% North America 19% Rest of World 28% Western Europe 28% Asia Pacific 3
Four globally leading and focused businesses BUILDINGS & PARTNER INFRASTRUCTURE INDUSTRY IT KEY TECHNOLOGY Low Voltage & Building Automation KEY TECHNOLOGY Medium Voltage Grid Automation KEY TECHNOLOGY Discrete & Process Automation KEY TECHNOLOGY Critical Power & Cooling FY 2014 REVENUES FY 2014 REVENUES FY 2014 REVENUES FY 2014 REVENUES 10.8 billion (43%) 5.3 billion (21%) 5.6 billion (22%) 3.4 billion (14%) WORLDWIDE POSITION #1 GLOBAL COMPETITORS ABB, Eaton, Legrand, Siemens WORLDWIDE POSITION #1 GLOBAL COMPETITORS ABB, Siemens WORLDWIDE POSITION #2 (Discrete) #4 (Process) GLOBAL COMPETITORS ABB, Emerson, Rockwell, Siemens WORLDWIDE POSITION #1 GLOBAL COMPETITORS Eaton, Emerson 4
An integrated portfolio to deliver complete bundles and solutions END MARKETS 1 Buildings 2 (33% of group revenues) Industrial and Machines (Discrete and Process) (27% of group revenues) Utilities and Infrastructure (26% of group revenues) Data Centers and Networks (14% of group revenues) POWER (Low and Medium Voltage, Secure power) AUTOMATION SOFTWARE 3 (Enabling integration) 1 Estimated based on 2014 revenues 2 Including residential and non-residential buildings 3 Including standalone software ~65% of Group revenues ~35% of Group revenues 5
FULL YEAR 2014 RESULTS AND 2015 TARGETS 6
Solid execution delivered full year targets Invensys integration well on track Strong H2 performance lifted full year revenues growth Early cycle businesses together with IT drove growth, Infrastructure improved Improvement in mature countries balance new economies. Services kept their pace +6.6% in 2014, +1.4% organically, +3.2% excl. Infrastructure Gross margin up, adj EBITA margin improved at constant FX 1 Continued strong industrial productivity Positive net price (price less raw materials impact) Gross margin +20 bps, +60 bps excl. FX. Adj. EBITA margin 13.9%, +40 bps 1 excl. FX Net income growth despite unfavorable FX Solid free cash flow Net income +3%, c.+11% at constant FX 2 Free cash flow of 1.7bn Invensys integration well on track Organic growth in revenues, strong margin expansion and cash generation Highly EPS 3 accretive to the Group Revenues +2% org, adj. EBITA margin +5.5 pts Double Digit EPS accretion to the Group 1 Comparing to Group proforma 2013 of 13.9%, see page 23 2 Excluding post-tax FX impact on adjusted EBITA and FX gains and losses in financials 3 Based on reported EPS 7
Strong H2 performance drove full year revenues up 1.4% organically, 3.2% excluding Infrastructure Group organic growth, % Full year 2014 organic growth, % 2.5 Focus on growth initiatives and project execution in a turbulent market 2.5 3.5 Group +1.4% org. 4.3 +3.2% organic growth excluding Infrastructure 1.6 1.1-1.1-4.4 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Buildings & Partner Industry IT Infrastructure 8
Mature countries accelerated their growth in H2, balancing the lower growth from new economies Mature countries organic growth, % New Economies organic growth, % Mid single digit growth in the US Improvement in Western Europe 3 3 Slow down in China 2-1 H1 2014 H2 2014 H1 2014 H2 2014 9
Invensys performed strongly in 2014 and contributed doubledigit accretion to Group EPS in 2014 Order intake ( m) Invensys performance 2013 2014 Revenues ( m) 1,742 1,683 c. flat org. excl. unusual large orders Solid revenue growth in systems and software; and regionally in North America and Asia Pacific Adjusted EBITA margin up 5.5pts to 14.8% in 2014, driven by gross margin improvement and cost synergies, despite SFC investments Strong free cash-flow generation of c. 140m 2013 1,701 2014 Adjusted EBITA ( m) 2013 159 1,713 2014 254 +2% org. +5.5pts 1 Based on reported Earnings per Share 2 Including savings from Patriot plan announced by Invensys in 2013 Targets achieved in 2014, confirming next 2 years targets Double digit EPS1 accretion in 2014 c. 75m cost savings achieved by the end of 2014. 140m total cost savings 2 confirmed, targeting c.75% by end of 2015 and 100% by end of 2016 500m tax synergies confirmed, of which more than 300m realized by 2016, contributing to 3 to 4 pts reduction in effective tax-rate from 2014 to 2016 Confirming integration costs of 150m by the end of 2015, out of which 81m were incurred in 2014 10
2015 targets The Group expects North America to continue to grow, while Western Europe could show signs of stabilization. New economies will show a mixed picture: India should accelerate while Russia will face a difficult environment. China is expected to have a soft start of the year and should gradually improve during the year. Invensys is expected to continue to contribute to the Group performance. Group performance in Q1 will be impacted by a high base of comparison notably in China and for Invensys which may result in like-for-like decline in revenues in the quarter. In this context, the Group targets for 2015: > Low single-digit organic growth in revenues > Adjusted EBITA margin at 14-14.5% assuming no negative FX impact on margin > An expected significantly positive FX impact, estimated based on current rates at c. 1.5bn on revenues with no material impact on the adjusted EBITA margin 11
IMPROVE PERFORMANCE AND DELIVER ATTRACTIVE SHAREHOLDER RETURN DURING THE NEXT COMPANY PROGRAM 12
Create more opportunities for our customers and for ourselves Simplifying our work makes the difference to customers Digitize for our customers, for efficiency and simplicity Innovation to make our customers lives simpler and better Our customers get great service because great people work at Schneider 13
We target 3 to 6% organic growth across the economic cycle LONG-TERM DRIVERS OF OUR BUSINESS SOME SHORT-TERM UNCERTAINTIES MATURE MARKETS NEW ECONOMIES > Oil & Gas Capex investments > Renovation > Digitization > Efficiency > Urbanization > Industrialization > Digitization + > Currency volatility > Geopolitical uncertainties We target 3% to 6% organic growth across the cycle > More Energy Management > More Digitization > More Automation 14
We confirm our 13-17% long-term adjusted EBITA range and target a margin improvement over the next 3 years GROWTH PROFILE AND EFFICENT BUSINESS MODEL WITH LEVERS ON MARGIN WE REITERATE OUR TARGETED 13-17% ADJUSTED EBITA RANGE THROUGH THE ECONOMIC CYCLE POSITIVE IMPACT NEGATIVE IMPACT 15,4% GROSS MA ARGIN Organic growth Positive Net pricing 1 Productivity Negative Mix 13,0% 14,3% 14,7% 14,5% 13,9% SFC SFC savings Inflation 2009 2010 2011 2012 2013 2014 Reinvestment 1 Net price: Price less raw materials 15
We aim for high industrial productivity, improved cash efficiency and increased customer satisfaction TOTAL c. 1BN PRODUCTIVITY FROM 2015 TO 2017 + CONTINUE TO IMPROVE CASH EFFICIENCY + FURTHER INCREASE CUSTOMER SATISFACTION 16
We target 400m-500m support function cost savings from simplification initiatives by 2017 before reinvestments 400-500m SAVINGS 1 THROUGH SIMPLIFICATION AND EFFICENCY > Optimize R&D efficiency & solution execution > Mutualize back-office functions > Simplify our management set-up. > Increase focus and prioritization > Increase sales force efficiency c. 200m SAVINGS REINVESTED ON CORE GROWTH INITIATIVES > Services and software > Segment expertise > Expand coverage in key geographies > Brand Development > Digitization 1 Before inflation and reinvestment WE TARGET A REDUCTION IN SFC/REVENUES RATIO DURING THE COMPANY PROGRAM 26.4 2005 New 2 25.6% 25.8 2006 25.4 24.7 26.4 One 24.6% 24.1 23.3 23.1 Connect 23.3% 23.3 23.5 2007 2008 2009 2010 2011 2012 2013 2014 SFC to Revenue ratio (%) Restructuring costs of c. 700m-900m for 2015-2017 Restructuring costs for Connect (2012-2014) amounted to c. 550m 2 SFC excluding Invensys for Connect 2 17
We will continue to optimize our portfolio and consider the disposal of non-core/ non-strategic businesses WE HAVE OPTIMIZED OUR PORTFOLIO IN 2014 WITH THE DIVESTMENTS OF NON-CORE BUSINESSES > We will continue to review the portfolio and contemplate potential disposal of non-core / nonstrategic businesses APPLIANCE BUSINESS c. 900m cash generated through disposals > The disposal of potential non-core/ non-strategic assets might generate a capital loss or asset impairment of up to several hundred millions Euros > Potential capital losses or asset impairments if any would be adjusted in the dividend calculation 18
We reaffirm our long-term capital structure target of A- with flexibility to move to BBB+ on a temporary basis 2 000 1 500 OBJECTIVE TO INCREASE THE DEBT MATURITY > Current bonds duration stands at c. 4 years 1 000 500 0 2015 2016 2017 2018 2019 >2019 12 10 8 6 4 2 0 TAKING ADVANTAGE OF LOW COST OF FINANCING > Attractive financing market conditions Yield to maturity (in %) Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Feb 13 Jun 13 Oct 13 Feb 14 Jun 14 Oct 14 Feb 15 Bonds (EURm) by maturity (Dec-2014) Bonds benchmarks iboxx.eur.corporates.a.7-10 years iboxx.eur.corporates.bbb.7-10 years We take opportunity of historical low financing conditions to increase debt maturity and lower average cost of debt 19
Confirming c.100% FCF conversion target 1, FCF to be used in dividend, share buybacks and value-creating bolt-on M&A STRONG FCF CONVERSION + FLEXIBILITY TO BENEFIT FROM LOW COST OF FINANCING > Progressive dividend > 1.0-1.5bn share buyback in next 2 years 2 > Bolt-on M&A in our core businesses with strong EPS accretion and return on investment 1 Net income conversion in FCF across the cycle target 2 Including share buyback for neutralization of employees share plans 20
We target strong EPS growth in the next company program ORGANIC GROWTH AND EFFICIENCY INITIATIVES EBITA growth + SHARE BUYBACKS ( 1.0 to 1.5bn in next 2 years) Reduce share count + STRONG EPS GROWTH ACCRETIVE BOLT-ONS Strong EPS accretion 21
We set a progressive dividend 3.5 70 > Dividend payout targeted at c.50%, based on the Net income excluding one-offs such as capital gains or losses and, or asset impairments > Progressive dividend policy with no year-on-year decline 3.0 2.5 2.0 1.5 1.0 1.03 1.60 1.70 1.87 1.87 1,92 1 60 50 40 30 20 0.5 10 0.0 09 10 11 12 13 14 0 1 Dividend proposed and to be approved in Annual General meeting on Apr 21,2015 Dividend per share ( ) left-axis Payout (% Basic EPS) right-axis 22
We confirm our goal of improving ROCE but move targets by one year due to FX impact in 2014 KEY DRIVERS FOR ROCE IMPROVEMENT WE FOCUS ON ROCE IMPROVEMENT 10.9% 11.7% Adjusted for FX c.12% 12.9% 15.0% Organic growth 11.0% 12.4% 11.0% Efficiency 2013 proforma 2014 2015/2016 Target 2016/2017 target Mediumterm range Capital optimization > We aim to come back to ROCE pre-invensys level (c. 12%) by 2015/2016 > 1.5-2pt 1 improvement in ROCE by 2016/2017 > Medium-term target range confirmed 1 From 2013 proforma level of 10.9% 23
Q & A 24
HELP PEOPLE MAKE THE MOST OF THEIR ENERGY 25