Investors Presentation September 2007 - Schneider · PDF file · 2007-09-11A world...
Transcript of Investors Presentation September 2007 - Schneider · PDF file · 2007-09-11A world...
_1_1
September 2007
InvestorsPresentation
Disclaimer
All forward-looking statements are Schneider Electricmanagement’s present expectations of future events and aresubject to a number of factors and uncertainties that couldcause actual results to differ materially from those describedin the forward-looking statements.
_3_3
_04 Overview
_08 Strategy and business update
_14 First-half financial results
_24 Progress of APC integration
_32 Outlook
_34 Pelco acquisition
_4_4
Overview
_5_5
A world leader in Power & Controladdressing 4 end markets
Control and protect machines and installations
Automation& Control
No. 2 worldwide
ElectricalDistribution
No. 1 worldwide
Make power safe, available
and reliable
Energy management
Ensure uninterrupted and high quality power, optimise energy consumption
Buildings – 37%
Industry – 32%
Energy & Infrastructure – 16%
Residential – 15%
_6_6
A worldwide coverage withstrong local operations
Rest of the World Asia-Pacific
North America Europe�€15.6 billion sales,
190 countries
�113,000 employees
�219 factories
�7,300 R&D people in 25 countries
30%
�~ 750,000 references
8% 18%
44%
Sales, Employees, Factories by geographical region
28 000 50 000
27 5007 500
2006 figures including APC on a pro forma basis
48
22 52
97
_7_7
�Excellent sales growth
�Strong earnings growth
� Fast progress of the integration of APC
�Acquisition of Pelco, worldwide leaderof video security
Highlights of the semester
� Synergies well on track: 78% of the $341 million incumulative synergies expected by the end 2009 already allocated in detailed roadmaps
+14.9%Perimeter effect
-3.6%Currency effect
+21%Net income
+14.0%Sales (Organic)
+23%EBITA
+25.3%Sales (Current)
H1 2007 % change
x2.5*APC-MGE EBITA
+17%*APC-MGE Sales (Organic)
� Record organic growth
� 24% average operating earnings growth achieved over the past 4 years
� Solid sales growth coupled with Large Systems profitability improvement
* This figure indicates the underlying performance of the Critical Power & Cooling Services « business unit » on a proforma basis in H1 2007 excluding MGE small systems
_8_8
Strategy and Business update
_9_9
�Massive electrification needs worldwide
�Pervasion of automation
�Rising demand for energy savings
�Outsourcing of non core competencies
�Power reliability and quality increasingly critical
A unique positioning in a promising industry
� #1 in Electrical Distribution (LV-MV)� 31% exposure to emerging countries
� Automation solutions for every segment� Open web-enabled systems
� Unique & comprehensive offeringfor energy usage efficiency
� #1 in Power Monitoring and Control
� In-house technical know-how� Very large installed base
� #1 in Critical Power� Energy efficient solutions integrating cooling
_10_10
Energy efficiency A high potential
Schneider Electric’s unique offer
Customers demand
Potential annual market growth of +15% to +20%
� Increasing needs for reduction of:
� energy costs� CO2 emissions
� Energy savings products Variable speed drive, motor control, sensors…
- 10% to - 30%of energy savings
for customers
� Measurement - Metering
� Automation everywhere Supervisory systems
� High value services Audits and assessments, performance based services, energy management tools…
� World energy consumption to rise 70% by 2030 , with 75% of new demand driven by emerging markets
_11_11
Energy efficiency: Enhancing performance on every market
Industry & Infrastructurea key target, especially
around motors
Buildingsthe biggest consumer,
hence a priority
Residentialfragmented but high
potential!
� Over 30% of the consumed energy� Motors account for 60% of the
electricity usage � Average facility can reduce energy
consumption by 10 to 20%
Lightingcontrol
� 20% of the consumed energy
� 10 to 40% electricity savings using energy efficient products
Shuttercontrol
Heatingmonitoring
Variable speeddrives
Automationsolutions
Energy management
systems
Power metering
Lightingcontrol
HVACcontrol
Power factorcorrectionBuilding
managementsystems
� Over 20% of the consumed energy
� Renovation can yield up to 30%of energy savings
Deliver a bundle offer
_12_12
An efficient growth model
Acquisitionsto enlargeportfolio
and providesolutions
New businessesMore growth
Less cyclicality
Investmentsto deploy
full offering in all
geographies
Technology and commercial
resourcesGeographical coverage
Customer satisfaction
InnovationComplete solutions & Services
Priority to organicgrowth
_13_13
A sustained focus on efficiencyin a context of fast-growing demand
� Rebalancing of production to low-cost countries
� Optimization of logistics
� Lean Manufacturing
� Monitoring of base costs
� Pricing management
� Integration of acquisitions
� Raw materials & components� Currency imbalance
EFFICIENCY INITIATIVES
COST HEADWINDS
� High-level of customer service� Deployment of new businesses
& change of mix
INVESTMENT IN GROWTH
OPERATING LEVERAGE
_14_14
First halffinancial results
_15_15
* Including APC on a proforma basis since February 15, 2006** EBIT before net depreciation and amortization***EBIT before amortization of purchase accounting intangibles of €27m in H1 07 (€10m in H1 06)
and including restructuring costs & impairment of €61m in H1 07 (€70m in H1 06)
+12%-0.4pt
3,37840.9%
3,00641.3%
+23%-0.9pt
3,37840.9%
2,75441.8%
Gross profitMargin %
14.2%1,175
1,38516.8%
8,254
H1 2007
(2)
COMPARABLE FIGURESREPORTED FIGURES
+15%
+21%
-0.3pt+23%
+16%-1.4pt
+25%
Change
(2) / (1)
13.7%997
1,25917.3%
7,278
H1 2006*
(3)
(19)(18)Minority interest
729604Net income
3.162.75Earnings per share
+10%-0.5pt
1,38516.8%
1,19818.2%
EBITDA**Margin %
+18%1,175954EBITA***+0.5pt14.2%14.5%Margin %
(107)(58)Net financial expense
(293)(264)Income tax
+13%8,2546,586Sales
Change
(2) / (3)
H1 2007
(2)
H1 2006
(1)
Strong increase of earnings 1/2
Key profitability indicators in €m
_16_16
�Sustained investments to deploy new businesses & ex pand geographic coverage
�On-time delivery to customer in a context of high d emand
�Strong price realization offsetting raw material co st increases: 2.4% of sales
** Sales organic growth*** Emerging countries: Eastern Europe + Asia-Pacific
+ Rest of the World
� Stringent management of the supply chain
* Orders organic growth
Strong increase of earnings 2/2
+12%Ultra Terminal
+25%Services
+19%Building Automation+22%Energy Efficiency
H12007*
+21%Inc. Emerging countries***
+25.0%Rest of the World+14.0%Group
+12.4%Europe
+15.5%Asia-Pacific
+12.5%North America
H12007**
_17_17
H1 2007H1 2006
VolumeGrossIndustrialProductivity
CurrencyEffects
954
1,175
+321
+126-216
-50+117
+16% -5% +12%���� 07/06 +23%
+155-9
Other
Organic Growth
* Of which Production Labour & Other Costs: -34, SG&A/R&D costs: -182
-91
Mix
Analysis of change in EBITA (in €m)
OperatingCosts*
RawMaterials
Reinvestment of higher growth benefits to deploy resources in promising areas
APC +88Other +29perimeter
-132
Price
_18_18
3.6%4.6%as % of products’ cost of sales*
1931Other plans
126148Gross industrial productivity
4761Purchasing
3330Rebalancing
2726Lean Manufacturing
H1 2007H1 2006
Breakdown of productivity gains (in €m)
Good level of productivityin a context of high volume growth
* Excluding cost of sales for services and related businesses
_19_19
Solid profit growth across regions and businessesInvestments in Asia Pacific and turnaround of Critica l Power
585+23%
15.3%+0.7pt
Europe
325+14%
14.2%+1.0pt
North America
162+5%
11.0%-1.0pt
Asia-Pacific
103+24%
15.3%+1.0pt
Rest of world
739+15%
15.6%-0.2pt
Electrical Distribution
313+11%
13.0%+0.1pt
Automation & Control
123+76%
11.0%+4.0pts
Critical Power**
Breakdown by region Breakdown by business
Sales breakdown
EBITA* (€m)
EBITA Margin*
46% 18%28% 57%8% 14%29%
* Compared to H1 2006 EBITA including APC on a proforma basis since February 15, 2006** Including MGE Small Systems business
_20_20
* Including R&D capitalization of €63m** Including bridging investment for APC financing of -€189m
(5,658)
(3,823)
(167)**
1,057
(4,322)
(668)277(4)
(454)(298)*1,033
(1,835)
H1 2007
1,103Capital increase
(120)Other
(3,444)Increase in net debt
(5,658)Net debt at June 30
75Change in non-operating working capital1,094Free cash flow(668)Dividends
(4,853)Acquisitions
2,030Operating cash flow
(481)Change in operating working capital(530)Capital expenditure – net
(2,214)Opening net debt
LTMUses and sources of cash in €m
Solid cash generation
_21_21
-1.4
+5.3
Days of Inventories
Days of Payables
Days of Receivables23.8%
21.2%
51.4
46.1
H1 2006 H1 2007*-1.545.3
46.8
H1 2007*
H1 2006
WCR components in days of sales WCR in % of sales
Increase of working capital requirementsin a context of strong demand and with the impact of APC
67.4
66.0
H1 2007*
H1 2006
H1 2007*
H1 2006
* Including APC consolidation on a 4.5 months period
APC impact
22.5%
_22_22
2,240
1,892
+12%
+8%
EBITA (LTM)
Capital Employed**
EBITDA (LTM)
* Including APC on a proforma basis since February 15, 2006** Capital employed = shareholders’ equity + net debt + provisions
2,693
2,402
14,725
13,676
ROCEAfter tax EBITA / Capital Employed*
10.9%
9.9%
Cash ROCEAfter tax EBITDA / Capital Employed*
+0.6pt13.1%
12.5%
+18%+1.0pt
Analysis of change in return on capital employed (i n €m)
Improvement of ROCEon a comparable basis
Cash ROEOperating cash flow / Shareholders’ equity
+0.7pt20.5%
19.8%
H1 2007
H1 2006*
H1 2007
H1 2006*
H1 2007
H1 2006*
H1 2007
H1 2006*
H1 2007
H1 2006*
H1 2007
H1 2006*
_23_23
12xNa24xInterest coverage (EBITDA / Debt costs)36%38%105%Operating cash flow / net debt
31%31% 66%Funds from operations / net debt**
9,8819,8168,838Consolidated shareholders’ equity
57%52%21%Net debt-to-equity ratio
5,6585,1091,835Net debt
H1 20072006
Including APC*
2006
Releveraged balance sheet supported by solid cash generation
* Including APC acquisition at December 31, 2006 and after capital increase on a pro forma basis** S&P definition
Financial ratios in €m
_24_24
Progressof APC integration
_25_25
�Strengthen leadership in electrical distribution th rough a widened offer and gain a new stature
�Critical Power & Cooling Services: a fast growing s egment, +8% per year
�APC – MGE : an uncontestable global leader with mark et share above 30%
�Sizeable synergies of $220m between APC and MGE (re search & development, SG&A, sales, services, purchasing, routes to market …)
�A turnaround opportunity in large systems
High value creation potential
Value creation of $3.3 bn
_26_26
Main action plans in progressalong key value drivers
TurnaroundEnterprise &
Systems
DeployProjects & Services
BoostManagement
Software
LeverageHome &
Distributed
To stop unprofitable
products lines
Accelerated product
roadmap
Common R&D program
BRIC countries presence
Installed base maintenance
A new line of business
Projects delivery
Commercial coverage / Quality & processes / On-Time delivery / Customer centric
Stranded capacity / Distribution center optimization / SKUs reduction / Supply & Demand optimization
Capture synergies
Purchasing productivity / R&D optimization / Administrative expenses / Commercial alignment
Deliver full datacenter solution
Ensure customersatisfaction
Improvesupply chain
A key differentiator
Total data center solution with Schneider Electric
_27_27
Strong increase in Critical Power & Cooling Services results
* On a 6-month basis without MGE Small Systems business** Excluding restructuring costs ($24m in H1 2007) *** Operating income before amortization of purchase accounting intangibles
x2.5+5.5pts
18010.9%
725.4%
EBITA before restructuring**Margin %
1569.4%
715.3%
EBITA***Margin %
+17%Organic growth+24%1,6591,337Sales
+33%+2.6pts
61837.3%
438
46434.7%
392
Gross ProfitGross Margin %
Operating Expenses
%chg
H1 2007Proforma*
H1 2006 Proforma*(in $m)
APC-MGE results
_28_28
Strong growth prospects
� Very attractive long-term growth drivers
�Solid growth for all lines of business in H1
Trend
A key differentiator with strong growth potential
21%3%“Management Software”
Strong demand for both APC and MGE value propositions
27%52%“Enterprise” + “Services”
US Channels restructuringTermination of unprofitable products lines
5%45%“Home & Distributed”
CommentsOrganicGrowth
% of sales
� Gartner Research: 70% of data centers managers recently said power and/or cooling issues are now their single largest problem
� Energy Efficiency is common issue across applications and businesses
_29_29
Strong improvement of APC performanceand first effects from synergies
H1 2006 ex-APC ex-MGE Synergies H1 2007
Analysis of Critical Power & Cooling ServicesEBITA increase (in $m)
72
180
�Strong improvement for ex-APC: Large Systems turnar ound
�Solid performance for ex-MGE after carve out of 0-1 0 KVA business
� $5m synergies “in the bank” after 3.5 months
+87
+16
+5
_30_30
x3.3
+6.7pts
132
10.6%
EBITA before restructuring*Margin %
+14%
+20%
% chg
Organic growth
1229.8%
EBITAMargin %
1,245Sales
H1 2007Proforma$m
APC results
APC performance improvement driven by a few key factors
�Pricing / Mix
�Productivity / Raw materials
�Support function costs
� Improved productivity / logistics
� Transfer to low cost countries
� Impact of lead cost increase
� Strong price management
� Stringent project selection
� Mix impact (Enterprise vs H&D)
� Unprofitable product line termination
� Headcount reduction
� G&A synergies (shared services, IT infrastructure, insurance, etc.)
* Excluding restructuring costs of $10m in H1 2007
_31_31
Update on synergies
2007 2008 2009 Aggregate
Synergies ramp-up (in $m)
Allocated to date
78%
�Definition of key action plans along:
� Synergy targets on track
� Leverage Home & Distributed
� Turnaround Enterprise & Systems
� Improve supply chain
� Deliver full data center solution
� 44 detailed roadmaps launched
� 19 additional roadmaps to be finalized by September
� 78% of 2007-2009 cumulated synergies of 341m$ allocated
� Confirmation of 2011 annual synergy target of 220m$
� Set-up Integration backbone
� Optimize commercial & marketing
� Optimize support functions
4 value drivers 3 transversal work streams
341166
63
112
_32_32
Outlook
_33_33
Outlook
Assuming current economic conditions,
Schneider Electric revises upwards its target
and anticipates a 2007 organic sales growth above 10%
_34_34
Pelco Acquisition
_35_35
Integration of HVAC and Security provides more than 25% savings on both Capex and Opex
Building Automation is more and more integratedinto a unique system to answer customers’ needs
HVAC & Power control Fire safetyElectronic security
BUILDING AUTOMATION
Temperature controlValves, actuators
Energy services & solutions
Fire DetectionEvacuation
Access controlVideo management
Intruder alarm / Monitoring
� Building is a significant market for Schneider Elec tric (52% of sales)
� Building Automation addresses 2 growing needs: Secu rity & Energy Efficiency
_36_36
91120
165204
242
306 308
388435
506
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Others 16%
Sensing(i)
61%
Control(ii)
23%
� A leader in the fast growing video security industry
� Strong sales & marketing organization
� Strong innovation capabilities with R&D representin g 7.5% of sales
� Broadest product line and unique ability to offer a fu ll end to end solution
� Premium customer base: world-class technical support and customer service
Pelco is a key leader of video security industry
� Highest brand recognition in the industry
(i) Sensing include cameras and domes(ii) Control include DVRs and NVRs
SalesEmployeesPresence
Key Figures$506 m
2,200130 countries
CAGR: 21%
_37_37
Schneider Electric rebalances its Building Automation solution portfolio by reinforcing its security offering
Current Building Automationsolutions portfolio : €1.0 bn*
� Video is the most attractive segment of security in dustry� Rapid and sustainable growth, expected CAGR 07-10: 12%� Shift to high value added IP protocol and software based systems
HVACControl
67%
Fire& Security
18% HVACControl
48%
Fire& Security
42%
Building Automation solutions portfolio with Pelco acquisition: €1.4 bn*
� Video is one of the critical application in the bui lding� Video provides the source data (location, movement, …) transported via IT infrastructure� Data is translated into meaningful information through video content analysis software � Video complements/replaces other security systems: intrusion, detection
* 2007 forecasts
EnergySolutions
15%
EnergySolutions
10%
_38_38
Pelco has a strong marginimprovement potential
� High operational leverage potential
� Significant investments achieved in the last few ye ars
� $100 million of R&D spending over the last 3 years to support the IP shift
� Expansion of international commercial coverage in 130 countries
� Strong sales growth track record, CAGR 00-06: 16%
� R&D spending has reached an adequate amount
� Most of commercial resources have been deployed
19
7.3%
20
10.1%
27
269
H1 2007
+3.0 pts
+100%
+2.6 pts
+50%
+13%
Change
38
6.0%
30
9.1%
46
506
2006
43
8.8%
50
11.4%
65
569
2007E
+2.8 pts
+67%
+2.3 pts
+41%
+12%
Change
EBITA
Margin %
R&D
EBITDAMargin %
Sales
$m
_39_39
Sales synergies: $168 million
� Sale of video solutions into TAC channels
� Pelco & TAC integrated access and video solutions
� Pelco cameras/accessories sales into TAC channels
Cost synergies: $32 million
The objective is to reach a 19% EBITDA margin including synergies
� Purchasing conditions
� Optimisation of back office
� Operating efficiencies
2011 Synergies Target
EBITDA$ 67 million
� Significant synergies will be extracted through the combination of Pelco and TAC
_40_40
Transaction
� Price to be paid in cash at closing expected by October 2007
� Debt-free/cash-free basis
� Approximately $320 m of tax benefits(i)
� Expected Return On Capital Employed (ii) to exceed cost of capital (iii) in year 3
� Transaction subject to antitrust and other regulatory clearance
� EPS accretive in year 1
� Total acquisition price : $1,540 m
� Enterprise value of $1,220 million
(i) Discounted at 7.5%(ii) After tax EBITA / Enterprise value(iii)Schneider Electric cost of capital estimated at 7.5%
_41_41
Appendices
_42_42
� Develop new businesses
� Increase advantage in R&D and innovation
� Deploy comprehensive solutions & services for each type of customer
� Optimise of logistics
� Develop competencies & diversity
� Expand geographic coverage
� Rebalance production
� Boost productivity & globalisation
new² priorities: an offensive strategyof profitable growth
_43_43
Contribution of emerging countriesto Group sales (%)
2004 2006
Sales organic growth2005-2006 average: +15%
27
31
2001
18South
America+26%
India+34%
AfricaMiddle East
+19%
OtherAsia Pacific
+9%
EasternEurope+17%
China+16%
Invest in fast growing emerging countries
� High growth in emerging countries in 2006 combinedto an exceptional performance in mature countries
_44_44
Energy Management
Low & MediumVoltage
Control
Building Automation
Home Control Ultra Terminal
Industrial Control
Automation
Services
Power
Orders organic growthaverage 2005-2006
+7%
+16%
+15%
Contribution of new businessesto Group sales (%)
+9%
+8%
Increase growth potential and reduce cyclesensitivity through new businesses
Critical Power Energy efficiency
+8%
2004 20062001
36
42
21
� Contribution of new businesses x2 over 2001-2006
_45_45
Rebalancing from high-costto low-cost countries
2004A
2006A
2008F
SalesProduction
costs
Sales
Productioncosts
SalesProduction
costs
% in low-cost countries
�Rebalanced production costs
� € 529m to low-cost countries
� of which € 250m to non-euro zone
�Stepped-up transfer of sourcing
� +70% in volume over 2 years
Produce closer to the customer to improve customer service & reduce logistics cost s
�Optimisation of manufacturing base
2005-2006 results
Rebalance production costs with sales
27%18%
31%28%
_46_46
Sales Organic Growth
Mid-term, assuming 3% world GDP growth>6%9.3%>5%
Initial new² targets
Actual2005-2006
new 2 second phase targets
EBITA* Margin
Over the business cycle13.0%-15.0%+2.2pts
(2006: 14.7%)12.5%-14.5%
ROCE** Improvement
Assuming organic growth in line with target+2pts+2.0pts+2-4pts
“Stimulate sales growth, achieve higher profitabili ty”
* EBIT before amortisation of purchase accounting intangibles** After tax EBITA / Capital Employed = Shareholders’ equity + Net debt + Provisions
new² second phase targetsPotential for further performance
_47_47
1995-2004
Organic growth relative to World GDP
Initial target2005-2006 new² second
phase target
+1pt
+2pts
+4pts
+3pts
5%
6%
World GDP 3%
+2pts
+3pts
Favourableeconomicconditions
Growth drivers:Emerging countries
New businessesInnovation
Initial
Secondphase
Mid-term organic growth target
APC stronggrowth prospects
Sales organic growth targetlifted to +6%
_48_48
1999 2000 2001 2002 2003 2004 2005 2006 2006Proforma**
13.4%
11.4%
12.4%
14.7%
13.0%-15.0%
EBIT margin sustained between 11.4% and 13.4%
* EBIT before amortisation of purchase accounting intangibles (€12m in 2005 and €18m in 2006)** Including APC consolidation on a full year basis
Target raised by 0.5pt
EBITA* margin up 2.2 pts vs. 2004
1999-2004 2005-2006Initial new 2 target
new 2 second phase target
APC acquisition
13.5%13.7%
EBITA margin analysis
EBITA margin targetlifted to 13.0%-15.0%
12.5%-14.5%
_49_49
+2.0 / +3.0pts
-0.75 / -1.25pt
-0.5 / -1.0pt
2007-2008 period
+1.0 / +1.5ptsvs 2006 Proforma*
* Including APC consolidation on a full year basis
Earnings drivers in pts of margin
Potential EBITA margin improvement> +1pt over 2007-2008
�Potential productivity savings(Rebalancing, Logistics & other)
� Investments in organic growth(New businesses and geographies)
�Business mix(Services, Packages & Solutions, …)
�Potential EBITA margin improvement(in the same economic environment)
+0.5pt� Turnaround of APC and synergies
_50_50
9.3% +2pts9.7%
11.8%
* Capital Employed = Shareholders’ equity + Net debt + Provisions,** Including APC consolidation on a full year basis
Assuming organic growth at 6%
ROCE analysis (EBITA / Capital employed*)
2005-2006 new 2 second phase targetAPC acquisition
13.2%
ROCE improvement target
2004 2006 at constant perimeter
2006Proforma**
2008Target
set at 2pts over 2007-2008
2006
Operating improvement
Impact of acquisitions
+3.5pts
Impact of APC
acquisition
_51_51
Air treatment – HeatingConditioning
Security systems - Emergency lightingAccess control – Smoke detection
TAC VistaWorkstation
Example of dedicated solutions for our customers:Etnapolis, leading trade center in the Mediterranean are a
Lighting bus
TAC Xenta401
CanalisKBA
Building Management ServicesIntegrated Supervision System
Electrical DistributionCommon Areas & Retail Store
Switchboards & Transformers
_52_52
Bus Duct
CanalisKBA
Energy management systems Electrical distribution
Switchboards & Transformers
Critical Power& Cooling Services
Power Logic – Energy Saving
Monitor ProWorkstation
Energy management – Power Control & Monitoring System PCMS
Example of dedicated solutions for our customers:Cairo International Airport, Egypt
_53_53
�
Lighting control system
Pumping control system Power Quality Public lighting
Peak demand avoidance HVAC control
Energy efficiency: Examples of products for applications
_54_54
☎☎☎☎: +33 (0)1 41 29 87 50www. schneider-electric.com
October 233rd Quarter 2007
Sales 9:30 Conference Call
Contacts and Calendar
Alexandre Brunet - Investor Relations [email protected]
Grégoire Rougnon - Investor Relations [email protected]
_55_55
Building
a New Electric World