Schneider Electric Sa

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question and answer session of today's conference. At any time, you may press star and the number 1 on your phone to poll for a question. If you need to withdraw your question, press star 2. I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. You may also choose your view on whether... Click on the layout tab on the upper right corner of your screen. Stack view allows you to see all speakers and side-by-side view allows you to see only the current speaker. I would now like to hand you over to our host, Mr. Amit Bhalla, Head of Investor Relations. Sir, you may begin.

Well, thank you, operator. Hello to everybody. Welcome. We're delighted that you can join us this morning in Europe, in fact, afternoon in Asia, which is where Our Chairman and CEO Jean Pascal Chiquard is dialing in from and we also of course have CFO Hilary Maxson joining us on the call. We will go through the first section on business highlights and strategic highlights and then Hilary will take us through the financial highlights. We'll make sure to keep enough time for Q&A towards the end of the call. Thank you again for joining. Just a quick reminder on the disclaimer as you would have seen on our slide. But I would like to pass the ball over to Jean-Pascal to take us through the strategic and business highlights.

Thank you, Amit. Thank you all for being with us today. Well, I hope wherever you are in the world, you are doing well. Here in Hong Kong is a bit of a special day because People in the West might not realize it, but we are on the eve of the new year. So it's very exciting to be sharing New Year's Eve with you. And I tell you, I'm even more excited because I'm so happy we live the year of the rats and associated germs and viruses. And we are now moving into the year of the bull, which from the stock market point of view means a great year. But when I look back to 2020, where I've been CEO of Schneider for roughly 15 years, and I've known two deep crises. One was 2009, and the other one is the one we experienced last year, which is not completely finished. And really, I think 2020 is more than an year of reaction for Schneider. It's the signature of the transformation, the profile of the company. If you dive back and go back in 2009, ourselves went down by 15%. Our profitability went down by three points. Fast forward in 2020, same kind of deep crisis, much more resilient profile, minus 5, actually minus 4.7 on the sales and we actually grew our operating margin and we signed a record cash flow which is almost double of the one we signed in 2009. So it's important for us to understand how much the transformation of Schneider has impacted the profile of the performance. So very fast on this slide to remind you that we are very focused on integrated company to business, energy management, industrial automation, which combining together support our customers in their solutions for sustainability and efficiency. All of that supported by our digital platform EcoStruxure that we launched in 2008. on the very balanced exposure in terms of end markets, being on data center 50%, industry and infrastructure 50%. Now, headline of 2020. I would say number one, 2020 has been the acid test of our purpose, our mission to our customers and to our societies. And we've proven that we are mission critical to many of the applications around the earth. Second point, high performance, and we're going to go into the detail of that today. On third, it's been more than a performance year. It's been an year of acceleration of our strategic transformation on many aspects, and I will go through the detail of this. So let's go on. First things first, on a very special year, our purpose is to empower all in the world, to make the most of our energy and resources, Leveraging technology to bridge progress on sustainability for all. We proved, I think, every day during the COVID crisis that we were helping and supporting our customers to make sure that life is on. And day by day, we are the digital partner of our customers for sustainability and efficiency. When I look back to 2020, it's been proven in every part of the world. 90% of the countries where we operate have technology. ranked us or classified us as mission-critical industries and have asked us to keep operating our factories, keep sending our service people on site to support critical applications like hospitals, data centers, critical networks of cities. We have also supported our customers to de-risk their operations and to remote operate them. This has also been an year of high performance and I'd like to focus on H2. Last time we spoke about our P&L was at the end of H1. And actually, H2 is already a recovered P&L. We grow in H2 by 1% respect to 2019. Both of our business are finding an increase of operating margin of 120 VIPs. And at the level of the group, by research of even more efficiency, we increase the EBIT margin by 140 VIPs. And when you look at the root causes of this great performance, we sell more products. That means what we've been doing systematically over the past years, which is to productize solutions that we have developed for our most advanced customers. Thank you for joining us. What we've seen also in H2 is a confirmation when we've reallocated resource to those that some segments were actually accelerated by the COVID. Residential, that's obvious. Non-office, non-hospitality building, speak about hospitals, logistics buildings, life science buildings, industrial buildings, a lot happening there. Data centers on networks accelerating, smart grids, on everything around machine manufacturers with a specific focus on things around packaged goods. And what we've seen also in 2020 and especially around the second part of the year is really a pivotal year with a world which is going to be more electrical, more digital, and more sustainable. Now, take a broader view to the year. Of course, our sales are going down by minus 4.7%, but we recover a lot from the H1, which was at minus 11%. Both of our businesses are delivering a very solid profitability, and the operating margin of the company is improving as well by 20%. Think about the contrast to what we had to experience in 2009. On the best quality signature or signature of quality of this year's execution, with our cash flow, which is breaking a record and falls a second time, is above $3 billion. Moving on, this performance is really based on a few factors. The first one I want to underline is the growing importance of software and services in our portfolio. are growing by 1% over the full year, 5% better, actually 6% better than the rest of the average of the group, with an acceleration of in Q4, plus 6%. And those business are really important because they increase the stickiness of our relationship with the customer, learnable recurring revenue, they are accretive in margin, They are the catalyst for growth because they pull through the sales of connected products which come with higher technological values than the rest of the catalog. We have all together to realize that this proportion of software and services is bound to increase following the acquisition that we have initiated and we are closing in 2021. Second base is a very resilient supply chain. I think it comes from the fact that our supply chain is both global on the one direction, but very regional on that we have fully pushed the digitization of the supply chain to be more reactive. So we find this year strong productivity in H2O. We are investing for resilience in some blind spots which have been revealed by the COVID. And we've been, over the year, really bolting on our relationship with suppliers because we have to work with them very closely to make sure that all of our supply chain is resilient. I'm very proud to announce that we've been progressing in the ranking of Gartner to the number one position in Europe and the number four position in the world, all industries compounded. And a large part of it is due to what we do in digitization and also in sustainability. On the other hand, in the supply chain, we keep growing. has taken up the ambition and we just launched a new program called Strive to boost the next level of performance in this field. Third pillar of our performance has been the agility in which we have innovated to transform the way we work. First with customers doing almost everything or a lot of things in digital, remote services, remote everything I would say, all the meetings with the customers, our innovation summits, Collaboration Practices have gone on digital in no time. And we have also transformed the way we work in the company. Frankly, it was not that of a revolution for us because in most of the places we had already hybrid workspace or work formula already operating. So all of our people were equipped to work from home. But we've really leveraged a lot our multi-hub organization, empowering our country presidents to take the right decisions in real time and in symbiosis with the local stakeholders. Very interesting also to see is that we've invested, as you know, in a lot of digital tools in the past 10 years. And we've seen tools like Adivas 3D, which is for the design of manufacturing and infrastructure collaborative design IGXO which is about ECAD on the M2 cloud-based platform of RIB for construction orchestration really taking off on accelerating with our customers as we were going through this very specific year. And what we've seen is that 2020 has been the biggest catalyzer of digital adoption. I really wish that 2021 will consolidate this adoption. And I see no way back to the way we are working. The future will be an hybrid between what we've learned in the past 12 months and what we used to do before. So... We've kept on being very active also in 2020 with projects. And you have here a list of examples. I just want to point on one which is very dear to me, which is what we do in Egypt to provide electricity to 20 million people in this fast-developing and populous country with state-of-the-art high-tech smart grid that we are putting into place. So that's about the headline. Strong performance based on strong fundamentals. Now 2020 has been also very specific year for us because we've made of it an year where we accelerated our strategic transformation. On the first point concerning that strategic transformation is of course acquisitions and partnerships. We acquired, we initiated directly or indirectly or closed the fundamental or the foundational acquisitions of Larsen Toubro of ProLite, RID, initiated OSI on ETAP and concluded a very strong partnership with Planon. And at the same time, it's not all about acquisition. We concluded numerous partnerships and then singled out two years. What we do with Autodesk in the field of Building Construction Digitization on Fortinet in the field of OT Cyber Security, making sure that our solutions are augmenting each other. So the acquisition of Larsen Turbo in India consolidates India as a very strong country for Schneider on next of our India team, the fourth global hub of Schneider, inclusive of product marketing, R&D, supply chain suppliers, and sales, and that validates a model which is extremely local and which has been extremely useful at a time of COVID when people cannot travel and things and situations to face were very different from one geography to the other one. The other acquisitions that we have either initiated or closed directly or indirectly together with Aviva are appearing on this table and they show the very strong reinforcement that we are aiming to achieve through this. ProLite, reinforcing our automation capability in food and beverage. The contemplated combination of Aviva on its unparalleled catalogue of functionalities together with the leading position of OSI in the field of ingestion and structuration of data. The fact that we complete our digital thread in the field of electrical CAD, ETAP potentially completing IGE on IP to form a unique chain of electrical design. on R&D on Planon, bringing cloud-based solution for construction orchestration on facility management optimization. In the case of Planon, I repeat, it's a partnership that is reinforced by a stake that we take in the company. So first point of strategic construction, acquisitions. Second point is really accelerating on digitization. And we see digitization accelerating in all our end markets. Smart buildings, data centers where we have a leading position, smart grids, industry 4.0. All of this is boosted by the convergence of technology disruption, 5G, which is multiplying the number of sensors, big data where we can put together a lot of data at a marginal cost, and AI that gives sense to the data. and that goes exactly in the direction of the world that we have prospected with you for the past many years of an all digital and all electric world. Our value proposition in digital is not only digital, it is bridging the world of IT and OT. When you speak about the Internet of Things, the unique value proposition of Schneider is It should be able to be operating in the digital space and in the real world of our customers, which is the physical space. And that goes with putting together connectable products, which are 25% of our business today as we speak, which connect into edge control systems, which control systems on site. The data collected by those connected products and those controls are given sense by an old portfolio of software and digital services, already today 7% of our business. And while those digital tools are put in on the monitoring, the installations of our customers, we are able to deliver a solution on the shop floor, in the facilities, through our field services, who are representing 10% of our business. So 50% of our business which is already in this flywheel of digital and services. The proof of the traction for this is that in 2020, which is an year of crisis for everybody in the world, we have increased the number of assets on the management. I mean, assets that our customers ask us to manage for them by 1.3 million new assets. growing the number by 46%, and we've seen also the community of people in Schneider Exchange, people who work on developing solutions on EcoStruxure, growing again in 2020. It's true that we propose for our customers a unique value proposition, an entire level of integration around the four dimensions, which is bridging together energy and automation systems, or energy and process efficiency, making systems completely transparent from endpoint to the cloud through EcoStruxure, providing a full suite for digitization of facility on manufacturing and infrastructure lifecycle from design and build to operate and maintain. And this is what I was describing, describing the added value of the acquisition we started in 2020. and finally allowing our customers to go from traditional way of managing a company side by side to an integrated company management through unified operation centers. So second strategic construction or acceleration is digitization. The third one is really a lot of innovation. And let me single out a few of them. EcoStruxure Automation Expert, which is a completely new approach to automation. I would call it software-defined automation, making the bridge between IT and OT much more natural and cutting the cost of designing and implementing automation systems. Another one is getting rid of SF6 in medium voltage with our Airset new line of products. And finally, I would like to underline all the new products we bring in low voltage for native connectivity or the system of systems that Aviva has developed for data centers with a unified operation centers for IT customers. 20 new lines of products which are coming to the market in H1 2021. At the same time as we innovate in technology, we bring innovation in the way we do business with our customers and we digitize the way we work with our natural partners, our distributors, our integrators. And from that point of view, the COVID year has been a massive accelerator of e-commerce, which for instance in 2020 represents one quarter of the sales we do with our distributors. We have already some countries where more than 50% of the sales we do with distributors are going through e-commerce. Fourth, I would say a key acceleration of 2020 is sustainability. First, inside Schneider. We finalized our three-year plan that we have explained to you, and we moved on to the next Schneider sustainability impact with an upped ambition, increased targets in all directions. We want to do 80% of our revenues in green revenues by 2025. We keep researching the assessment by external agencies and we've seen the ranking of Schneider keeping on increasing. We've been actually ranked in Davos two weeks ago as number one more sustainable company in the world. but at the same time as we apply and discover and innovate inside Schneider, we are becoming the digital partner of our customers for sustainability and you see here a few logos with whom we have A deeper relationship. Want to single out Walmart that engage us to work with hundreds of their suppliers to save one gigaton of carbon or the contracts that we or the partnership we initiated with Floresia on STMicroelectronics during 2020 to work bilaterally on technologies to become more sustainable. Finally, I would say that in 2020, we've not stopped building up the competency of our companies on recruiting people to prepare for the future. We often say at Schneider that great people make a great company, and people who join us join us because we have a meaningful mission, because we want to be the most inclusive workspace in the world. and because people who come at Schneider are locally empowered. They can impact decisions of the company. Doing all of this, we've certainly not lost sight of our shareholders. And would it be on a one-year period or three years period, on a peer group that we publicize in our annual report, we come as number one in terms of TSR. and we are going to propose at the next AGM the vote of a dividend of 2.6 euro per share which is an increase of two points respect to 2019 honoring a commitment of now 11 years of a progressive dividend as A return of our shareholders who have followed and supported all the strategic transformation of our company. So now that comes as an introduction on the headlines of 2020. Now I'd like to call Hilary to come and explain into more details what happened in our series.