Half-year 2015 Results. July 29, PDF Free Download

Half-year 2015 Results July 29, 2015 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

4 6 21 Overview Strategy and business update Finance presentation 30 Full year 2015 Targets 32 Appendices 3

Overview 4

Schneider Electric first half 2015 highlights Balanced geographies H1 2015 revenues 12.8 billion H1 revenues c.5% of H1 revenues devoted to R&D 27% North America 26% Western Europe 43% of H1 revenues in new economies 42% of H1 revenues as Solutions 18% Rest of the World 29% Asia-Pacific Four integrated and synergetic businesses H1 2015 revenues Buildings & Partner Industry Infrastructure IT 44% 22% 20% 14% 5

Strategy and business update 6

H1 Adj. EBITA up 6% in an environment with stronger than expected headwinds from China and O&G H1 revenues slightly up org. in all businesses except Industry, impacted by Invensys integration & headwinds H1 +9.8% reported H1 flat org. excl. Invensys Q2 flat org. Adj. EBITA margin stable excl. Invensys Good progress on cost adaptation Strong SFC control and good industrial productivity despite low volume Adj. EBITA up +6%, Margin 12.5%, stable excl. Invensys Invensys cost & revenue synergies execution on track Invensys H1 performance impacted by one-offs, O&G, and R&D investments Achieved >50% of 2015 cost synergies Net income impacted by higher restructuring as expected, and noncore business disposals Free Cash Flow up in H1 Adjusted net income 1 + 4% Free cash flow + 21% 1: see slide 28 for detailed calculation 7

Despite impact of O&G and China, revenues slightly up in most businesses. Infrastructure stabilizing H1 organic growth Infrastructure organic growth 0.4% excl. Invensys Group: -0.9% org, flat excl. Invensys. 0.7% 0.5% Utility stabilized in Western Europe 0.7% -2.4% -2.4% -5.3% -6.7% Buildings & Partner Industry Infrastructure IT H1 2014 H2 2014 H1 2015 8

Western Europe improving, Services continued to outperform the rest of the Group Organic growth in Western Europe H1 organic growth 1% -1% 6 pts -3% H1 2014 H2 2014 H1 2015 Rest of Group Services Solid execution in France Growth in Spain, Italy and the U.K. A mixed picture in Germany Services grew in most businesses Infrastructure services grew double digit 9

Buildings & Partner posted positive growth in most regions 5,102 Analysis Of Change of H1 Revenues ( m) Organic +0.4% Scope +0.6% 44% of H1 revenues Fx +12.0% 5,763 +13.0% North America up thanks to continued growth in the construction market in the U.S. and recovery in Mexico In Western Europe, growth in France, the U.K., Italy and Spain offset weakness in Germany and Switzerland Rest of World growing thanks to infrastructure investment in the Middle East Asia Pacific penalized by weak construction and industrial markets in China H1 2014 H1 2015 Wiser Air empowers home owners and utilities to drive energy efficiency Building Insights cloud-based solution for facility managers of small commercial buildings 10

Infrastructure is stabilizing thanks to focused execution of growth initiatives 2,364 Analysis Of Change of H1 Revenues ( m) Organic +0.7% Scope -0.1% 20% of H1 revenues Fx +5.8% 2,516 +6.4% Western Europe up from a low base, driven by project execution in France and growth in Spain, Italy and UK Growth in North America thanks to project execution in Canada, while the U.S. penalized by lower investment in oil & gas and delays in data center investments Mixed trends in Asia-Pacific: Difficulties in China, high base in Australia and growth in East Asia Rest of World penalized by weakness in Russia and high base of comparison in Africa Services were up double-digit H1 2014 H1 2015 Premset compact medium voltage switchgear Renewable Control Center solution remotely manages renewable energy production 11

IT was slightly up as growth in the US and Western Europe offset weakness in Russia 1,530 Analysis Of Change of H1 Revenues ( m) Organic Scope +0.5% -0.1% Fx 1 +13.0% 1,735 +13.4% The U.S. up thanks to project execution in a slow market. Western Europe positive, driven by active IT spending India impacted by one-off event in the first quarter and is recovering in the second quarter Weakness in Russia while growth in Middle East and Africa 14% of H1 revenues H1 2014 H1 2015 Prefabricated data center modules Highly efficient, easy to deploy and smart grid ready secured power 1: Excludes the positive impact of 15 million related to the price increase adjusting for the depreciation of the Rouble against the U.S. Dollar for IT business in Russia. 12

Industry was penalized by lower industrial investments related to O&G and weakness in China 2,704 Analysis Of Change of H1 Revenues ( m) -2.4% - Ex-Invensys Organic -5.3% Scope -0.1% 22% of H1 revenues Fx +10.2% 2,834 +4.8% Industry performance was temporarily impacted by Invensys integration Spain and Italy up driven by the demand from exportoriented OEMs while Germany down. The U.S penalized by lower industrial investments due to decline of oil price and strong dollar China impacted by weak OEM and lower industrial investments, H1 2014 H1 2015 Tricon CX compact system ensures safety in critical applications. ClearSCADA software enables remote control and optimization 13

Invensys synergy execution on track, but performance penalized by O&G and one-offs Synergy execution on track in H1 > 50% planned 2015 cost-synergies realized through - Simplifying process and organization setup - Suppliers optimization & contract renegotiation - In-sourcing of third-party products - Mutualization of global functions and sites Revenue synergies: c.50% targeted 2015 orders booked > Balanced market opportunities Performance overview Revenue > One-off impacts from ramping down China nuclear project and change of fiscal year closing > Underlying performance slightly down > Field devices down ~20% in H1 due to O&G headwinds > Trend flat to slightly down in project business in H1, but with improvement in Q2 > Software orders up in Q2 Margin Oil & gas Electric utilities Food & beverage Water & waste water Mining, minerals & metals > Penalized by one-off impact, volume decline, mix and continued R&D investment for future growth 21m integration cost in H1 > Margin expected to improve in H2 14

Industrial productivity remains at a good level despite the decline in volume Industrial Productivity ( m) Key drivers 168 177 151 Continued focus on supplier negotiation, optimized design and rebalancing Industrial footprint optimization Lean manufacturing H1 2013 H1 2014 H1 2015 15

Support function costs down 2.1% organically in H1 driving SFC ratio decrease Global functions > Optimization of external spend > Expansion of HR and Finance shared services 25.2% Sales & Marketing > Driving efficiency of sales back-office > Rebalancing marketing competencies and removing overlapping roles R&D > Project selectivity & portfolio optimization > R&D center footprint optimization > Standardize technical bricks across businesses 24.5% H1 2014 H1 2015 SFC to revenues ratio Good start of simplification program and initiatives to be continued in H2 16

Wave of new launches in H1 enhances technology leadership Buildings & Partner Industry Infrastructure IT AccuSine harmonic filtering improves power quality and extends equipment lifetime New generation UPS handles more power in less space New LED dimmer addresses over 90% of LED lamps First HMI with smart phonelike interface and wireless technology Minera SGrid transformer improves power quality for sensitive applications and enables integration of more renewable energy in the grid New micro data center solution provides power, cooling and software in a single enclosure New automation server enhances building operations The smallest contactor in the world for wind turbine & data center applications Zelio relay, a complete, compact and innovative solution for various applications The most compact arcresistant switchgear in the industry reduces maintenance costs and increases safety NetShelter, cost-effective rack system for data centers. Proven design facilitates installation. 17

and new software to accelerate growth in software and services Energy consumption insight reduces building operating cost New analytics enhance visualization and analysis of near real-time data from meters and devices Innovative integration of BMS 1 and DCIM 2 systems drives increased customer ROI Weather data integration maximizes power availability and reduces electrical maintenance costs for hospitals 1: Building Management System 2: Data Center Infrastructure Management 18

Creating a leading industrial software business with AVEVA 1 Strategic rationale Unique portfolio for full asset lifecycle management > Create a global leader in industrial software, with a unique portfolio from design & build to operations > Realize full value of contributed industrial software assets > Potential for material cost synergies as well as revenue synergies for enlarged AVEVA and Schneider Electric Design Key strengths Integrated offer for industry & > Create a platform for potential industrial software consolidation Key attributes of the combined business > Balanced geographical footprint and end market exposure Operate Assets Build infrastructure markets Covering entire value chain from process simulation to asset performance management > Combined revenues and Adjusted EBITA of c. 534m and c. 130m (c. 24% EBITA adjusted margin) > Schneider Electric would be a majority shareholder with 53.5% shares and consolidate its financials Mainly AVEVA software coverage Mainly Schneider Electric software coverage 1.The transaction remains subject to, amongst other things, the completion of mutual due diligence to the satisfaction of both parties, agreement on the terms of definitive legal documentation, the approval of the respective Boards of Schneider Electric and AVEVA, AVEVA shareholder approval and relevant anti-trust and regulatory approvals (if required). 19

Our Planet & Society barometer reaches 4.66/10 Indicators and objectives 2017 Planet Selected indicators 10% energy savings 10% CO 2 savings from transportation Profit Selected indicators x5 turnover of our Access to Energy program 100% of our recommended suppliers embrace ISO 26000 guidelines People Selected indicators 64% scored in our Employee Engagement Index 1,300 missions within Schneider Electric Teachers NGO Q1 2015 Q2 2015 2% 2.7% - 9.5% x1.18 x1.92 51% 56.4% - 61% 523 582 Barometer s score end of Q2 10 8 6 4 2 0 4.66/10 4.5 Target 2017 6 2 nd quarter 2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016 2017 This quarter, Schneider Electric was rewarded by: 8 1 st place Most sustainable company of CAC40 stock market index See detailed results page 36 20

Finance presentation 21

Revenues up 9.8% in H1 2015 Analysis of change in Group revenues (in m) -0.9% org, flat excl. Invensys +1.1% excl. China Fx +10.5% 12,848 +9.8% 11,700 Western Europe +1% Asia-Pacific -5% North America -1 % Rest of World +2% Scope +0.2% H1 2014 H1 2015 > Based on current rates, the positive FX impact on 2015 revenues is estimated to be c. 2bn. In this volatile FX environment, the Group continues to expect a limited impact on 2015 adjusted EBITA margin. 22

Positive net pricing and productivity partially offset negative mix and increased R&D cost Gross margin: analysis of change (%) 1.2-1.6 0.4 38.1 0.0-0.4 Raw material tailwind of 77m more than offset price decline of 33m, mainly due to China. FY RM tailwind expected at ~ 100m 1 pt : Large project pricing (impacted by competitive pressure & investment for future services) and a few project one-offs 0.6 pt : geography, business & product / solution mix New product launches drove up R&D depreciation -0.5-0.2 37.0 H1 2014 GM Volume Net price Productivity Mix R&D cost in COGS COGS infl. & others FX & Scope H1 2015 GM 23

Dedicated initiatives to improve project margin > Adopt tiered selection criteria by project profile > Drive performance through enhanced project governance Increase selectivity & hit rate > Strengthen pipeline management & tendering Increase profitability > Strengthen risk mitigation & contract management process Increase customer satisfaction > Implement a Tailored Supply Chain for customer projects > Enhance application expertise by targeted segment Gain consistency in practices > Move from country to regional setup to leverage a consistent approach > Deploy global support across regional platforms 24

Strong control of Support Function Costs (SFC). Adj. EBITA margin stable excluding Invensys In m H1 2014 H1 2015 Reported Change Revenues 11,700 12,848 +9.8% Gross Profit 4,457 4,752 +6.6% Support function costs (2,953) (3,151) +6.7% Adjusted EBITA 1,504 1,601 +6.4% 3 points growth rate difference between revenues and SFC Margin % 12.9% 12.5% -40 bps Margin excl. Invensys % 12.7% 12.6% stable 25

Group Adjusted EBITA margin impacted by Industry business H1 Revenue by business Adjusted EBITA margin (%) by business 1 H1 2014 H1 2015 IT 14% Buildings & 17.6 Partner 17.9 +0.3 pt, slightly up thanks to better support function cost control Infrastructure 20% 12,848m 44% Buildings & Partner Industry 15.5 18.2-2.7 pt, penalized by volume decline, especially at Invensys, negative FX, mix and higher R&D investment 22% Industry Infrastructure 5.6 6.2 +0.6 pt, benefiting from good control of SFC IT 16.9 16.1-0.8 pt down, penalized by FX transaction impact 1: Before corporate costs of 305m in H1 2015 ( 277m in H1 2014) 26

Adj. EBITA up 6%, but EBIT impacted by higher restructuring charge as expected In m H1 2014 H1 2015 y-o-y Change Adjusted EBITA 1,504 1,601 +6% Other income and expenses (57) (75) - of which losses on business disposals 0 (55) Restructuring (71) (158) Amortization & impairment of purchase accounting intangibles (127) (138) EBIT 1,249 1,230-2% Mainly due to disposal of non-core business, Telvent Global Services Higher restructuring cost to drive SFC improvement. 300-350m expected fullyear. 27

Adjusted for exceptional items, net income up +4% In m H1 2014 H1 2015 y-o-y Change EBIT 1,249 1,230-2% Net financial expense (201) (226) Cost of debt stable Income tax (241) (231) Discontinued operations 70 0 - of which gain from business disposal 25 0 Equity investments 6 (1) Effective tax rate 23%, Minority interests (62) (53) benefiting from Invensys Net income (group share) 821 719-12% Invensys integration cost post-tax (calculated at Group effective tax rate) Gain/losses on business disposals (from OOIE & discontinued operations) Restructuring charges post-tax (calculated at Group effective tax rate) 28 16 (25) 55 55 122 Adjusted Net income 879 912 +4% One of key elements for dividend consideration 28

Free cash flow +21% thanks to better working capital management Analysis of debt change in m H1 2014 H1 2015 Net debt at opening at Dec 31 (3,326) (5,022) Operating cash flow 1,083 1,134 Capital expenditure net (386) (382) Change in trade working capital (385) (283) Change in non-trade working capital (133) (253) Free cash flow 179 216 Dividends (1,095) (1,109) Acquisitions net (2,257) (77) Net capital increase 64 (72) FX & other (112) (404) (Increase) / Decrease in net debt (3,221) (1,446) Net debt at June 30 (6,547) (6,468) Better control on account payables and receivables Mainly due to FX impact on net debt and pension 29

Full year 2015 Targets 30

2015 targets In the first half, the Group saw stabilization of the Infrastructure business, improvement in Western Europe, and good progress in adapting costs and in achieving Invensys synergies. However the Group s performance was impacted by stronger than expected headwinds from O&G and China and one offs in Invensys. In the second half the Group expects continued growth in the U.S. construction market, sustained improvement in Western Europe, persistent weakness in China and in O&G related investments. Therefore the Group now targets for 2015: > Around flat organic growth in revenues > A significant growth in adjusted EBITA at current FX rate and a stable to moderate decline in adjusted EBITA margin versus 2014 In line with the plan to buy back between 1bn and 1.5bn worth of shares by 2016, the Group used c. 90m to buy back 1.4m shares in H1 and intends to accelerate share buy back in H2 31

Appendices 32

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 33

Q2 2015 revenues m Q2 2014 Q2 2015 Organic Scope FX Reported Buildings & Partner 2,679 3,062 +0.5% +0.6% +13.2% +14.3% Industry 1,368 1,463-4.2% -0.1% +11.2% +6.9% Infrastructure 1,275 1,367 +1.2% -0.7% +6.7% +7.2% IT 814 960 +4.8% 0% +13.1% +17.9% Group 6,136 6,852 +0.1% +0.1% +11.5% +11.7% m Q2 2014 Q2 2015 Organic Reported Western Europe 1,651 1,719 +2% +4% Asia-Pacific 1,775 2,013-5% +13% North America 1,531 1,871 0% +22% Rest of the World 1,179 1,249 +6% +6% Group 6,136 6,852 +0.1% +11.7% 34

Adj. EBITA up 6% Analysis of change of adjusted EBITA (in m) 1,601 1,504-45 -219 44 151-86 67-20 5 200 H1 2014 Volume Mix Net price 2 Productivity COGS (inflation SFC Other Net acquisition & R&D) 1 impact Currency effects H1 2015 1 : Of which Production labour & other Costs: - 38m and R&D increase in COGS: - 48m 2: Of which pricing: - 33m and RMI: + 77m 35

The Planet & Society barometer Our 2015-2017 detailed sustainability scorecard, as of Q2 2015 Planet & Society barometer (objectives for 2017) Start 01/2015 Results Q1 2015 Results Q2 2015 Target 12/2017 Overall score (out of10) 3.00 3.67 4.66 8/10 10% energy savings - 2% 2.7% 10% 10% CO 2 savings from transportation - - 9.5% 10% Towards zero waste to landfill for 100 industrial sites 34 39 49 100 100% of products in R&D designed with Schneider ecodesign Way TM - 0.5% 7.8% 100% 75% of product revenue with Green Premium TM eco-label 60.5% 64.1% 65% 75% 100% of new large customer projects with CO 2 impact quantification - - - 100% 120,000 tons of CO 2 avoided through maintenance, retrofit and end-of-life services - 6,669 19,338 120,000 x5 turnover of Access to Energy program to promote development for underprivileged people - x1.18 x1.92 x5 100% of our recommended suppliers embrace ISO 26000 guidelines 48% 51% 56.4% 100% All our entities pass our internal Ethics & Responsibility assessment - - - 100% 30% reduction in the Medical Incident Rate (MIR) One day training for every employee every year 64% scored in our Employee Engagement Index 85% of employees work in countries with Schneider gender pay equity plan 150,000 underprivileged people trained in energy management 1,300 missions within Schneider Electric Teachers NGO - 79% 61% - 73,339 460 19% 70.8% - - 78,448 523 23% 71.4% 61% - 86,060 582 The arrow shows if the indicator has risen, stayed the same or fallen compared to the previous quarter. The colour shows if the indicator is above or below the objective of 8/10. 30% 85% 64% 85% 150,000 1,300 36

Q2 revenues details 37

Q2 revenues of 6.9bn Analysis of change in Group revenues ( m) Organic +0.1% Fx +11.5% 6,852 +11.7% 6,136 Buildings & Partner +0.5% Industry -4.2% Infrastructure +1.2% IT +4.8% Scope +0.1% Q2 2014 Q2 2015 38

Buildings & Partner business continued to grow Analysis of change in Q2 Revenues ( m) 2,679 Organic +0.5% Scope +0.6% Fx +13.2% 3,062 +14.3% North America was up driven by continued growth in construction markets in the U.S. and Mexico. Western Europe grew thanks to good execution in France, and improvement in Spain and Italy. Asia-Pacific was down. China declined as expected, reflecting continued weakness in the construction market, while Australia and India grew. Rest of the World performed well, driven by infrastructure investment in the Middle East. 45% of Q2 revenues Q2 2014 Q2 2015 39

Industry was down due to lower O&G investment and weakness in China Analysis of change in Q2 Revenues ( m) Organic 1,368-4.2% Scope -0.1% Fx +11.2% 1,463 +6.9% Performance temporarily impacted by Invensys integration Western Europe was flat as growth in Italy and Spain, driven by OEM exports, was offset by a soft market in Germany and France. North America was down due to lower industrial investments related to the decline in oil prices and strong U.S. dollar. Asia Pacific declined, penalized by the slowdown in China while Japan performed well. Rest of the world was slightly up. 21% of Q2 revenues Q2 2014 Q2 2015 40

Infrastructure business remained positive thanks to focused execution 1,275 Analysis Of Change of Q2 Revenues ( m) Organic +1.2% Scope -0.7% 20% of Q2 revenues Fx +6.7% 1,367 +7.2% Western Europe grew from a low base thanks to improvement in Spain, Italy and the U.K. North America was up driven by project execution in Canada, while the U.S. was penalized by lower investment in Oil & Gas and delays in data center investments. Asia Pacific was down due to weakness in China and a high base of comparison in Australia while East Asia posted growth. Rest of the World was slightly up as infrastructure investments in the Middle East more than offset the decline in Russia. Services remained a growth engine, up double-digit. Q2 2014 Q2 2015 41

IT business experienced stronger growth in Q2 Analysis of change in Q2 Revenues ( m) 814 Organic +4.8% Scope 0% Fx +13.1% 960 +17.9% India posted strong growth after a one-off impact in Q1. The U.S. grew driven by channel initiatives and project execution in a slow market. IT investment in Western Europe remained positive. Rest of the world performed well as continued weakness in Russia was more than offset by growth in the Middle-East and Africa. 14% of Q2 revenues Q2 2014 Q2 2015 42

Q2 revenues by geography Analysis of change in Group revenues ( m) Organic +0.1% Fx +11.5% 6,852 +11.7% Q2 revenues 6,136 Western Europe +2% Asia-Pacific -5% North America 0% Rest of World +6% Scope +0.1% Western 25% Europe Asia Pacific 29% North America Rest of the World 27% 19% Q2 2014 Q2 2015 43

Contacts & agenda Anthony Song Head of Investor Relations Tel: +33-1-41-29-83-29 anthony.song@schneider-electric.com Alexis Denaud Senior Investor Relations Manager Tel: +33-1-41-29-51-24 alexis.denaud@schneider-electric.com Oct 29, 2015 Q3 2015 Revenues Conference call 44

Half-year 2015 Results. July 29, 2015