BANK OF AMERICA MERRILL LYNCH GLOBAL INDUSTRIALS & EU ... · 3/18/2015 · Schneider Electric – 2015 Bank of America Merrill Lynch Global Industrials & EU Autos Conference FY 2014

BANK OF AMERICA MERRILL LYNCH GLOBAL INDUSTRIALS & EU AUTOS CONFERENCE

1

INDUSTRIALS & EU AUTOS CONFERENCE

Emmanuel Babeau, Deputy CEO and CFO

London Mar 18, 2015

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.

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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.

We are the global specialist in energy management and automation

€25 billionFY 2014 revenues

~170,000people in 100+

countries

~5%of revenues devoted

to R&D

43%of revenues in Solutions

3Schneider Electric – 2015 Bank of America Merrill Lynch Global Industrials & EU Autos Conference

BALANCED GEOGRAPHIES – FY 2014 revenuesDIVERSIFIED END MARKETS – FY 2014 revenues1

25%North America

19%Rest of World

28%Western Europe

28%Asia Pacific44%

of revenues in new economies

1 Estimated at the end of 2014

Utilities &Infrastructure

Industrial & Machines

Data Centers & Networks

Non-residential & Residential Buildings

27% 26% 14% 33%

Four globally leading and focused businesses

Low Voltage & Building Automation

KEY TECHNOLOGYMedium Voltage Grid Automation

KEY TECHNOLOGY

BUILDINGS &PARTNER

INFRASTRUCTURE INDUSTRY

Discrete & ProcessAutomation

KEY TECHNOLOGY

IT

Critical Power &Cooling

KEY TECHNOLOGY


FY 2014 REVENUES

€10.8 billion (43%)

WORLDWIDE POSITION #1

GLOBAL COMPETITORS

ABB, Eaton, Legrand, Siemens

FY 2014 REVENUES

€5.3 billion (21%)


GLOBAL COMPETITORSABB, Siemens

FY 2014 REVENUES

€5.6 billion (22%)

WORLDWIDE POSITION #2 (Discrete)#4 (Process)

GLOBAL COMPETITORSABB, Emerson,

Rockwell, Siemens

FY 2014 REVENUES

€3.4 billion (14%)


GLOBAL COMPETITORSEaton, Emerson

Buildings2

(33% of group revenues)

Industrial and Machines(Discrete and Process)

AUTOMATION SOFTWARE3

(Enabling integration)POWER

(Low and Medium Voltage, Secure power)END MARKETS1

An integrated portfolio to deliver complete bundles and solutions


(Discrete and Process)(27% of group revenues)

Utilities and Infrastructure(26% of group revenues)

Data Centers and Networks(14% of group revenues)

1 Estimated based on 2014 revenues2 Including residential and non-residential buildings3 Including standalone software

~65%of Group revenues

~35%of Group revenues

FULL YEAR 2014 RESULTS AND 2015 TARGETS

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FULL YEAR 2014 RESULTS AND 2015 TARGETS

Solid execution delivered full year targets Invensys integration well on track

� Strong H2 performance lifted full year revenues gro wth• Early cycle businesses together with IT drove growth, Infrastructure improved• Improvement in mature countries balance new economies. • Services kept their pace

� Gross margin up, adj EBITA margin improved at consta nt FX1

• Continued strong industrial productivity• Positive net price (price less raw materials impact)

+6.6% in 2014,

+1.4% organically, +3.2% excl. Infrastructure

Gross margin +20 bps, +60 bps excl. FX.

Adj. EBITA margin 13.9%, +40 bps 1 excl. FX


� Invensys integration well on track• Organic growth in revenues, strong margin expansion and cash generation• Highly EPS3 accretive to the Group

Revenues +2% org, adj. EBITA margin +5.5 ptsDouble Digit EPS accretion to the Group

� Net income growth despite unfavorable FX� Solid free cash flow

Net income +3%, c.+11% at constant FX2

Free cash flow of €1.7bn

1 Comparing to Group proforma 2013 of 13.9% , see page 232 Excluding post-tax FX impact on adjusted EBITA and FX gains and losses in financials3 Based on reported EPS

Strong H2 performance drove full year revenues up 1.4% organically, 3.2% excluding Infrastructure

4.33.5

Full year 2014 organic growth, %Group organic growth, %

2.52.5

+3.2% organic growth excluding Infrastructure

Group+1.4% org.

Focus on growth initiatives and project execution in a turbulent market


-4.4

1.1

3.5

IndustryBuildings & Partner

InfrastructureITQ4 2014Q3 2014

1.6

Q2 2014

-1.1

Q1 2014

Mature countries accelerated their growth in H2, balancing the lower growth from new economies

Mature countries’ organic growth, % New Economies organic growth, %

• Slow down in China3

• Mid single digit growth in the US

• Improvement in Western Europe

3


• Slow down in China3

-1

H2 2014H1 2014

2

H2 2014H1 2014

Invensys performed strongly in 2014 and contributed double-digit accretion to Group EPS in 2014

2014 1,683

2013 1,742 � 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

c. €140m

Order intake (€m)

Revenues ( €m)

Invensys performance

c. flat org.excl. unusuallarge orders


2014 254

2013 159

� Strong free cash-flow generation of c. €140m

� Double digit EPS1 accretion in 2014

� c.€75m cost savings achieved by the end of 2014. €140m total cost savings2 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

Revenues ( €m)

Adjusted EBITA (€m)

Targets achieved in 2014, confirming next 2 years targets

+5.5pts

+2% org.

1,7132014

2013 1,701

1 Based on reported Earnings per Share2 Including savings from Patriot plan announced by Invensys in 2013

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.

2015 targets


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

IMPROVE PERFORMANCE AND DELIVER ATTRACTIVE SHAREHOLDER RETURN

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ATTRACTIVE SHAREHOLDER RETURN DURING THE NEXT COMPANY PROGRAM


Create more opportunities for our customers…and for ourselves

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

Simplifying our work makes

the difference to customers

We target 3 to 6% organic growth across the economic cycle

SOME SHORT-TERM UNCERTAINTIES

LONG-TERM DRIVERS OF OUR BUSINESS

> Oil & Gas Capex investmentsMATURE MARKETS

NEW ECONOMIES


We target 3% to 6% organic

growth across the cycle

> Currency volatility

> Geopolitical uncertainties

+> More Energy Management> More Digitization> More Automation

> Renovation

> Digitization> Efficiency

> Urbanization

> Industrialization> Digitization

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

Positive

WE REITERATE OUR TARGETED 13-17% ADJUSTED EBITA RANGE THROUGH THE ECONOMIC CYCLE

13,9%14,5%14,7%

14,3%

15,4%

Organic growth Negative Mix

GR

OS

S M

AR

GIN

POSITIVE IMPACT NEGATIVE IMPACT


Positive Net pricing1

Productivity

SFC savings 201420132012201120102009

13,0%

Inflation

Reinvestment

GR

OS

S M

AR

GIN

SF

C

1 Net price: Price less raw materials

We aim for high industrial productivity, improved cash efficiency and increased customer satisfaction

TOTAL c. €1BN PRODUCTIVITY

CONTINUE TO FURTHER INCREASE ++


PRODUCTIVITY FROM 2015 TO 2017

CONTINUE TO IMPROVE CASH EFFICIENCY

INCREASE CUSTOMER SATISFACTION

++

We target €400m-500m support function cost savings from simplification initiatives by 2017 before reinvestments

€400-500m SAVINGS1 THROUGH SIMPLIFICATION AND EFFICENCY

> Optimize R&D efficiency & solution execution> Mutualize back-office functions> Simplify our management set-up.> Increase focus and prioritization

26.425.8

26.4

New 225.6%

One

WE TARGET A REDUCTION IN SFC/REVENUES RATIO DURING THE COMPANY PROGRAM


> Increase focus and prioritization> Increase sales force efficiency

c. €200m SAVINGS REINVESTED ON CORE GROWTH INITIATIVES

2013

23.3

2012

23.1

2011

23.3

2010

24.1

20092008

24.7

2007 2014

23.5

25.4

2006

25.8

2005

> Services and software> Segment expertise> Expand coverage in key geographies> Brand Development> Digitization

One24.6%

Connect23.3%

SFC to Revenue ratio (%)

2

2 SFC excluding Invensys for Connect1 Before inflation and reinvestment

Restructuring costs of c. €700m-900m for 2015-2017Restructuring costs for Connect (2012-2014) amounted to c. €550m

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 / non-strategic 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

We reaffirm our long-term capital structure target of A- with flexibility to move to BBB+ on a temporary basis

OBJECTIVE TO INCREASE THE DEBT MATURITY

2 000

1 500

TAKING ADVANTAGE OFLOW COST OF FINANCING

> Current bonds duration stands at c. 4 years > Attractive financing market conditions

Yield to maturity(in %)

8

10

12


1 000

1 500

500

0201720162015 >201920192018

Bonds (EURm) by maturity (Dec-2014) Bonds benchmarks

0

2

4

6

Feb

08

Jun

08O

ct 0

8F

eb 0

9Ju

n 09

Oct

09

Feb

10

Jun

10O

ct 1

0F

eb 1

1Ju

n 11

Oct

11

Feb

12

Jun

12O

ct 1

2F

eb 1

3Ju

n 13

Oct

13

Feb

14

Jun

14O

ct 1

4F

eb 1

5

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

Confirming c.100% FCF conversion target1, 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 years2

> 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 target2 Including share buyback for neutralization of employees share plans

+

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

+

We set a progressive dividend

2.5

3.0

3.5

50

60

70

1,921

> Dividend payout targeted at c.50%, based on the Net income excluding one-offs such as capital gains or losses and, or asset impairments


1.871.871.701.60

1.03

0.0

0.5

1.0

1.5

2.0

0

10

20

30

40

14

1,921

131209 1110

gains or losses and, or asset impairments

> Progressive dividend policy with no year-on-year decline

Payout (% Basic EPS) right-axis

Dividend per share (€) left-axis1 Dividend proposed and to be approved in Annual General meeting on Apr 21,2015

We confirm our goal of improving ROCE but move targets by one year due to FX impact in 2014

15.0%

12.9%c.12%

11.7%Adjusted

for FX10.9%

Organic growth

KEY DRIVERS FOR ROCE IMPROVEMENT WE FOCUS ON ROCE IMPROVEMENT


> We aim to come back to ROCE pre-Invensys level (c. 12%) by 2015/2016

> 1.5-2pt1 improvement in ROCE by 2016/2017

> Medium-term target range confirmed

11.0%

Medium-term range

2016/2017 target

12.4%

2015/2016 Target

2014

11.0%

2013 proforma

Capitaloptimization

Efficiency

1 From 2013 proforma level of 10.9%

Q & A

24

Q & A

HELP PEOPLE MAKE THE MOST OF THEIR ENERGY

25

HELP PEOPLE MAKE THE MOST OF THEIR ENERGY

Documents

BANK OF AMERICA MERRILL LYNCH GLOBAL INDUSTRIALS & EU ... · 3/18/2015 · Schneider Electric – 2015 Bank of America Merrill Lynch Global Industrials & EU Autos Conference FY 2014