Schneider Electric Sa

Welcome to Schneider Electric's 2021 Full Year Results with Jean-Pascal Tricroix, Chairman and CEO, Hilary Maxson, Chief Financial Officer, and Amit Bhalla, Head of Investor Relations. Thank you for standing by. At this time, all participants are in a listen-only mode until the dedicated question and answer session of today's conference. At any time, you may press star 1 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. I will now hand you over to Amit Bhalla. You may begin.

Well, hello, everyone. A very warm welcome to our full year results. We join you today from our Innovation Hub here in Paris, of course, with Jean-Pascal Tricouar and Hilary Maxson, our Chairman, CEO, and CFO. Let's get started. I want to just make a mention about the disclaimer, as usual, that you see on the slide. The slides are on our website, and we will keep enough time for Q&A. So with that, I'm going to pass it over to Jean-Pascal.

Thank you, Amit. I'm really delighted to be today in person, in COVID times, in Paris, in the Innovation Summit to speak with you. And by the way, you are all welcome to visit us and to visit this Innovation Summit when you happen to be here in Paris. I'm going to scroll through the headlines of the year and remind you first that we are a very focused company We are focused on being the digital partner of our customers for sustainability and efficiency at a time where sustainability and digitization are on the top agenda of all of our customers. If I would summarize the results we're going to present today, they are the proof that those transitions in both digitization and electrification are truly happening as we speak. And they are in full swing and in full acceleration. So let's go first through the headlines of the year 2021. On here, I'm going to describe five historical highs in the history of Schneider. 29 billion euros of sales for the first time 13%, 12.7% of organic growth for the full year and actually limited by supply. We could have done better if we would have had supply at the level of our demand. Second, historical iron. It's really important. First time we are at 5 billion euro of adjusted EBITDA on reaching the threshold of 17%, actually overshooting the threshold of 17% at 17.3% one year earlier than we had forecasted in our plan. Next high is the first time we passed the 3 billion in terms of net income and it's probably the best signature of the quality of the year plus 51% on the net income. Azure 30PS again historical high 6.13 plus 30% on an operating cash flow at 4.5 billion euro in increase of 22% and we're going to explain after that the free cash flow is in decrease and it's a very conscious choice of building the strategic stock to face the demand we have in our backlog and we have in front of us. So five historical high as a signature of this year. I would add to that, as a second signature, the adding of very important companies and capabilities to our portfolio, OSI, RIB, ETAP, IGE. In the past quarter, two early stage companies that complement our energy management portfolio. Third one is, of course, signature of the year is Our new ambition on our performance and recognition in sustainability, 2021, the most sustainable company recognized by Corporate Night in Davos. This year, we make it to number four, which is great to be belonging to that top group of companies dedicated to sustainability. And as you know, the relaunch of a new cycle around our Schneider sustainability impact that will carry us through the next five years. And then a very good year of very strong focus to the return to shareholders with the TSR at more than 50% on the proposal at the AGM of a dividend at 2.9 which would sign the 12th year in a row of a progressive dividend at Schneider. to thank you for your continuous support through our transformation and through our progress. So let's come back to the foundation of Schneider. What we do at Schneider is extremely focused and it's that combination of energy management and industry automation to support Both the energy transition and particularly decarbonization and the move to industry 4.0, the digitization of everything around us. And what you see is that software is more and more central to that transformation. And this is based on a unique operating model that we've spent time to explain to you the fact that we are one integrated company to offer one integrated solution bundle to our customers. That we are organized in multi-hub, close to our customers, close to our people, and able to react rapidly and in a very practical manner to the request of the market. That everything we do is incorporating ESG and we have the ambition to be an impact company which we defined during the CMD and finally the fact that we are the company leveraging the most partners whether it be on the supply side or the integration side around us. This, what you will see about 2021 is in perfect consistency with what we explained to you two months ago with explaining that Our growth drivers with foundational market accelerating, actually doubling their average growth with new growth drivers supported by our model. The will and the strategy to go to more recurring revenues, especially in software and services, which support long-term financial ambition and especially the aspiration to be a company of 25. Now let's go a little bit more granular about what 2021 has yielded. So 29 billion plus 13% both of our business, energy management and automation are growing double digit. Both are improving their profitability at very high level. And then the total improvement of the profitability of Schneider is that 140 BIPs to reach 17.3% and we passed the bar of 17% one year earlier than we had prospected to you a few years ago. So a very strong year of acceleration on both growth and making sure that this growth translates into profitability. Now, Hilary will go into a wealth of details on the year-over-year performance, but from the beginning of the COVID, I told you that the base of comparison we'd be using at Schneider would be the last sort of stable year that we had known, which is 2019. And even if you compare to 2019, after two very shaken years, it's still a very strong result, 7% in sales, Close to 20% improvement in adjusted EBITDA or increase in adjusted EBITDA in organic growth and a net income increasing by 33%. So very solid in both growth and improvement of financial performance. And all of this comes with a systematic and persistent implementation of our strategies that we've shared with you for now the past four years, really making sure that we sell more products, 11% organic growth, If you compare 2021 to 2019, and again here we will go into the details of the year, with particularly very strong performance in OEMs, in industrial sector, in data centers, and in residential. We have had price action throughout the whole year in front of a cost increase that we had never known at this level before. And this performance in product, in growth, could have been much higher because it has been impacted by supply chain pressures. At the same time, the second strong growth that we have is the software that we provide at Schneider. Energy management software that we've been building over the past three years is having a strong double-digit performance. Aviva is impacted by a very high base, especially in our Q4, which is their Q3, and digital services which are linked to the assets that we connect to the cloud and to analytics are really growing faster than the rest. Services growing only 5% and that would be respect to what we explained to you the percentage deployment but it can be very easily explained We were restricted access to sites by lockdowns in many places and sometimes by shortages on spare parts. But we have no doubt that the setup we have, that the people we've put in place, the thousands of people we have in place on the market will be able really to catch up and to redeploy as markets are opening when countries learn to live with COVID. And finally, a very good and very strong year for what we do in consulting on digital for sustainability with a strong double-digit growth. I'm going to scroll quite fast on these elements, but first when you take our core central historical market, A flurry of innovation this year. I just want to mention what we do in Smart Grid. I want to reiterate the big disruption on innovation that air set is in medium voltage, a totally gas free switch gear based on air and really completely compatible with the previous generation. I want to mention EcoStruxure Automation Expert which is the first generation of software-defined automation on everything we do in the field of smart home and smart building and especially the energy center. All of this supported by services and partnership with our partners. A few examples of wins with our customers, KB Homes using the Energy Center. The Energy Center is sort of your energy orchestrator for your home, taking care of your renewable source, storage source, on the utility supply. What we do with the Finnish university in the field of open automation on the pilot that we have in France with Enedis in gas-free, in gas-free medium voltage. and we don't speak a lot about it but remind you that we keep registering new patents and we have a lot of patents supporting our technological advance in both automation and energy management. If we speak about products, the biggest headwind we have had to fight against and we are still battling with over this year has been the supply chain constraints. and we have of course leveraged all the specificities of our model. The fact that our supply chain is globalized under one responsible person, one VP reporting to me. The fact that we have structured that global organization by region to be very local, to react faster. We've worked on We are centralizing and globalizing the purchasing to make sure that we had a very transparent and strong discussion with our suppliers. We have leveraged a multi-hub. We are, of course, leveraging automation and digitization of infrastructure to be better. We have put in place specific action, control towers by region to organize the best optimization between the demand and the supply, real-time coordination. We are entering really in much stronger and deeper and strategic relationship with our suppliers. We are redesigning some product lines. And while this year has been very difficult at times from that point of view, our net satisfaction score, which is improving, shows that this constant and persistent dialogue with our customers as some were paid. But face it, we started the year with an estimation of the market growing mid-single digit and we finished in a very high growth and that has had the consequences on our supply chain that we've seen. So that's about more products. Now more software. We explained to you during the capital market day all the work of convergence we are doing all over the life cycle of the installations and around the three threads that we are putting together. Industry, power building. We see already customers adopting that convergence and adopting several parts of our portfolio. All of this links into the world of OT's reconstruction. Once again, assets under management grow by 50%, so more customers Trust us to manage the performance of the asset. More customers are coming to our marketplace where people can trade software, tips, application, and establish relationships, Schneider Electric Exchange, and we see a continuous acceleration of e-commerce. Large part of it we manage with our distributors, but making the relationship with our customers more transparent and more digital. There is anyway in digitization we see an acceleration. Those supply chain issues that are happening everywhere mean that all of our customers are accelerating their digitization journey. And we leverage the experience that we accumulate in our 200 factories where we deploy the best of our technologies to put them at the disposition of our industrial customers. And you have here a few examples of customers with whom we work to provide the whole benefits of digitization, which is not only productivity, which is a more traditional way of looking at things, but safety of the operators, sustainability, traceability, quality, are really on lean ways of management, are really the collateral benefits of the digitization journey. Going on to some very practical example, example with Mars, where we work, in this case, together hand-in-hand with Aviva to supply a complete solution. Example with electrical contractor leveraging our EcoStruxure power together with IGXAO portfolio to digitize the whole journey. Cement in China, cement in India, sorry, More examples in China where we bring that digital capability to our customers. The example in India shows that we have also established bridges, productive bridges with L&T to supply our complete solution. So, we spoke about software, now let's speak about services. So, services we've been expanding our offering. Frankly, the biggest issue we've had over the past two years has been the openness of customers to their sites because of lockdowns which have happened in a recurrent manner. But again, we've been strengthening our offer, we've been reinforcing our setup, and we've been digitizing a lot what we do in services. And this digitization of services in our reporting appears in software. But those two, services and software, in many cases can't be dissociated because digital is a way for our customers to stay connected to their installation. On the third layer, if you remember, software service is sustainability, where we are advising more and more companies in understanding what they consume, what they emit, in strategizing how to consume less with energy efficiency and process efficiency, on how to consume better, that means source more decarbonized energy, and to take a company in a sector that is probably closer to yours, sign a very meaningful agreement with Equity to work on the decarbonization of their portfolio, and at the same time in the industrial sector, a recent agreement with Plastic Omnium to work on carbon neutrality on their all-industrial setup. We are today, as we keep progressing to our objective of 800 million metric tons of CO2 saved for our customers at 350 million tons since 2018. This commitment to sustainability that we have in business, remember, core business growing faster, Software Services and Sustainability is also applying to Schneider. So at the beginning of 2021, we launched a new set of targets in sustainability. And the first year shows a strong start. Again, that set of 11 objectives, of which one objective is very local. I want to mention particularly what we've started with our suppliers, with our 1,000 top suppliers to help them cut in their emissions by 50%. We've confirmed our ambitious target for Schneider in the field of sustainability, received a number of external recognition. For us, it's really important to have that external eye to confirm if we are doing right or if we are going at the right speed. And we'll keep making sure that ESG is part of everything we do at Schneider. And I want also, and really, at this end of 2021 and beginning of 2022, reiterate that all of this is possible thanks to the incredible and formidable engagement of our people in sometimes difficult conditions. Even with everything we've been facing, no trips, sometimes separation from families due to quarantines and so on, and difficult conditions of operation due to disruption of supply chains and everything. The engagement of people has grown up again by seven points this year. At Schneider, we believe that what gathers us is the fact that we work for a meaningful mission, that we are a very inclusive place of work, and that we empower people through our multi-hub on hybrid model based on trust so that everybody can make an impact. And I will finish here by saying that while we do all of this, we are convinced that performance cannot be dissociated from sustainability and we stay very committed to delivering the performance to our shareholders VC ETSR at 50%, 3 ETSR over 200%. We're going to propose to the AGM a dividend of 2.9, signing the 12th year in a row of a progressive dividend. So that's for the headline of the year. Now I'd like to hand over to you, Hilary.