Schneider Electric Sa

Welcome to Schneider Electric's 2022 full-year results with Jean-Pascal Tricouart, Chairman and CEO, Hilary Maxson, Chief Financial Officer, and Amit Bhalla, Head of Investor Relations. Thank you for standing by. At this time, 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, then the number one on your phone to poll for a question. If you need to withdraw your question, press star and two. 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 hand you over to Amit Bhalla.

Good morning, everyone. Welcome to our full year 2022 financial results. We join you this morning from Paris, joined with our chairman and CEO, Jean-Pascal Tricroix, our CFO, Hilary Maxson. All of the presentation and release is available on our website as well. Without further ado, I'm going to pass it to Jean-Pascal to talk about our 2022 results and our new governance structure.

Thank you, Amit. Delighted to be with you. We've got to be with Hilary to comment on 2022, speak about 2023, and make a few important announcements regarding the governance of the company. I'm going to go straight into looking at 2022, which has been a very intense year. If you look at the central part of that slide, we've been facing no surprise because of what we do. We've been facing a very strong demand on most of all of our markets. We've been able to deliver a stronger whatever those pressures. We've also made our 1 billion euro of structural cost savings that we completed in the period of 2020 to 2022 and we come out with Our all-time high results in revenue, in operating results, and in net income, but I'll comment more later in this presentation. The second big element of 2022 has been a very intense year of strategic transformation. Of course, the integration of Aviva into Schneider put in all of our Agnostic Software, Neutral Software, under the roof of Schneider, allowing us in the future to build a complete company in software, which actually is 2.6 billion companies in software. And we've also, in 2022, completed our disposal program, reaching 1.7 billion of revenue that will exit Schneider as being less central and less strategic to the future of our Schneider. And of course, 2022 has been also a very intense year, disturbed, or not disturbed, but really collided by the Ukraine war, and gave us, we really paid a lot of attention, and we took care of our people in Ukraine, and also divested our Russian operation, which was closed in October, to our Russian employees. So a very busy year, strong delivery, But dealing with external factors like the Ukraine war on driving forcefully the continuation of our strategic transformation. So, here are the figures. For the first time in our history, 34 billion euros of revenue, 18% of current growth, 12.2% of organic growth, both energy management and industrial automation are growing with strong dynamics. Industrial automation beat below, mostly impacted by supply chain, being more electronics more impacted by the issues of disruption, both profitabilities of business and that drives us to an adjusted EBITDA margin of 17.6% in improvement of 40 bps and that means that our adjusted EBITDA growth is growing by 14.4% in organic at the top end of the revised target range. Hilary will speak about that in detail but what is really comforting is that Q4 was stronger with 16% of growth in organic which shows the easing and the unlocking of the supply chain happening. Now, these are the headlines. 34 billion in sales. Adjusted EBITDA, 6 billion for the first time. Adjusted net income, 4 billion for the first time. Free cash flow, 3.3 billion, growing by 19%, which means that we are going to propose at the AGM a dividend of 3.15 in increase of 9%. And if you Take a little bit of distance and look at those figures. In 2022, we're going to have added €5 billion of revenue. That's 18% growth. We're going to have added €1 billion of profit, up to €6 billion. We're going to have added €550 million of adjusted net income. We're going to have added €500 million to our free cash flow from 2.8 to 3.3. And this dividend at 3.15 will sign 13 continuous years of progressive dividends to the shareholders of Schneider. This includes, of course, the employees of Schneider who are shareholders. Well, this is an year also where the specificities of Schneider were once again recognized around our meaningful mission, around sustainability, electrification, digitization. about our complete commitment to being the most inclusive workplace in the industry and also our unique structure, our multi-hub structure, empowering all our regions to innovate, create, manufacture, and react fast to the characteristics of the market. So that's about 2022, and don't be worried, there will be plenty of details by Hilary later in the presentation. Now, I come to the very important announcement that we do today, which is putting in place a new governance for Schneider. We had, if you remember, announced two years ago, at the renewal of my mandate, the dissociation during the time of my mandate, And this is, we announced it today, and it's going to be effective at the AGM in May 2023. On the board, on myself, anonymously, I've chosen Peter Herweck to succeed me. Peter is coming as a natural candidate to do that. He's got 30 years of experience in our industry, of deep experience in our industry. In both facets, energy management and industrial automation. He was trained at university as an electrician, then worked in Mitsubishi and Siemens part in energy management on in automation on digitization and he knows very well Schneider because he joined us seven years ago and he's been exposed to the experience of the CEO in Aviva where he drove a triple transition at the same time the transition of business model to subscription a technology transition to one platform and especially one data platform and finally the integration of the largest acquisition that Aviva has done in software which is the integration of OSI. So strong experience in our industry, very strong technology background both in energy management, in digital and in software. A very global carrier, Peter lived in Japan for a long time in China, in the US and of course being German in Germany and spending in the past years, many years in France and truly committed to the fundamentals of our culture in terms of inclusion, diversity and a commitment to a multi-hub and multi-regional hub. I'm personally delighted about the choice of Peter as he comes with a strong experience and a strong direct exposure to the world of software. And I tell you, after 36 years in the company and 20 years at the leadership as a leader of Schneider, as CEO and CEO, I'm really excited to go into that new phase in a new role Supporting, helping the team to develop its strategy. I'm going to be more helping on the strategy and technology and more as a coach. And really, I'm excited to support the whole team and especially Peter as we go forward. Few elements to be more precise, so we announce this today. It's going to be, as I said, effective after the AGM. The process of selection has been a four-year process. It started by using external consultants where a whole row of internal candidates were reviewed. Actually, a diverse row of candidates were reviewed. We looked, also the board looked, also outside of Schneider. The board came to the conclusion that the candidates of Schneider were the strongest among all of that, which allowed us in 2021 to announce the dissociation, that we are ready. Of course, 2020, 21, 22 were pretty disturbed years, as you know. We can all remember, but I think now is the right time because Schneider is in a very strong place on a very strong market with the acquisition of the minority shareholders of Aviva. We have a clean house in software and that closes the cycle and really again ensures to go into the next cycle with Peter and the team and to serve in a different manner. So, usually when we go into the yearly result presentation, I normally make a presentation, a strategic presentation of what happened in the past year. But today, with an exception, you're going to have a much bigger package because we're going to extend that one year to the past 20 years and look at how the transformation of Schneider that happened over the past 20 years explains what happened in 2022 on the perspective that we have in 2023. And before I go into that rewind on the explanation, I want really to thank you, you on the phone, for the long partnership on your patient listening to my explanation for the demanding dialogue. And I can confess that many of the strategic orientations that I gave to Schneider were actually originated in many of your demanding questions, or insightful discussions that we had about our industry. And I think we're all passionate about the industry and that really was very helpful for me, devising, creating and building the strategy of Schneider for the past 20 years. But let's go into that transformation. We've positioned Schneider really in the past 20 years to be really benefiting of all the major mega trends in our industry. COVID-19 and the need for reshoring expressed by many governments, the incentives to reshoring are boosting to a new level the need for digitization. And the combination of the energy crisis and the climate crisis are pushing all of our customers to have an agenda for sustainability and therefore for electrification, which is the only way to decarbonize. When we meet customers today, we always speak about their two main agenda, which is sustainability and digitization and facing in some parts of the world the energy crisis. And what we've done at Schneider in the past 20 years is be prepared for this inflection point. So now let's look at the transformation of Schrader, what we've become. We've multiplied over the past 20 years our revenue by four, our net income by nine, our R&D spent by 3.6, which gives us much more firepower to innovate and pioneer the major inflection of our industry. And as a result, and thank you for believing into that transformation, our market cap has reached a new level and has been multiplied by seven. And in direction of our shoulders, we've been serving you a progressive dividend as a sharing of that progress, of that development for the past 13 consecutive years. And what I'm going to detail afterwards are the main markers of Schneider. A technology company leading in the triptych of sustainability, digitization, and electrification. a true global player with a true local footprint, multi-local footprint, and an impact company because we are one of the few companies in the world who has completely aligned strategy with sustainability. So what we've done has been actually to transform completely the portfolio, multiply by 15 our digital sales to a level of 15 billion euro, multiply our leadership in electrification by a factor of 4 to 26 billion euros, and reach today, as we speak, in 2022, 25 billion euros in what we call sustainability impact revenues. That means revenues that we do with our customers that help them on their trajectory to net zero. On our journey to digitization, I want also to point out that we have built, and I said that in my introduction, a 2.6 billion euro agnostic software portfolio, Aviva, ETAP, RIB, IGXAO, Planner, and so our strategic participation into Planner. which creates actually a reference platform in the connected industry. So with that, we have now a clean house in the field of software that we can accelerate and keep developing as we go forward. So the whole transformation has been to acquire more in digital and at the same time to dispose of the companies that were not as central and strategic in our portfolio. And we, at the end of 2022, we finalized our divestment program. With the objective for our customers to connect everything in their facilities, their buildings, their industries, their data centers, their infrastructure, thanks to our IoT platform, EcoStruxure. Get all the data gathered, repositioned, federated, contextualized in our data hub, our PI Data Hub, to enable the whole ecosystem of our people, of the people working on installations, the developers of software, the users of factories, buildings, The suppliers like utilities and all the software developers to apply analytics, intelligence, and enable optimization on installation. Our project is one software with one data, one customer experience on one digital twin for our customers. At the same time, for the past 20 years, we've kept reinforcing our world leadership in products. We are in our industry by far the company that works the most with integrators, with distributors, with people who put our technology together to offer local solution. But at the same time, we've built A business with a longer cycle by developing our system business and with that grew our ability to deal with mission-critical applications in all segments, industry, infrastructure, data centers, the greenest building in the world. And that has reduced our cyclical exposure by balancing our exposure towards industry and infrastructure. and at the same time we also created new growth driver around services, software and sustainability. And you see that now those business that you have supported us in building are representing a very significant part of our business on really rebalancing the equation of Schneider in a very nice manner in terms of growth capability, of course, but also in terms of resilience. We've not forgotten that we are a technology company and we are very proud of the products which is for us a world leading franchise. We work every day with thousands of partners around the world who put together those technologies to build complete solutions. And we've, in energy management, Two industrial automation into the integration into ecostructure build revolutions in our industries which have pioneered and led the change, the transformation of what the whole industry is doing. I want to mention, for instance, what we are launching today with Airset, which is a full range in medium voltage without SF6, or EcoStruxure Automation Expert, which is a completely open platform for automation. These are Just examples of what we keep doing and why we keep ramping up the amount on the investment we put in R&D. Another big marker of us has been the will to create a global company. Over the past 20 years, multiplied by close to two, our business in Europe By five, our business is North America, and by more than eight, the business we do in Asia-Pac and in international. And all of this is based on our unique multi-hub structure whereby our leadership is spread out into the geographies where we have the biggest business, the biggest potential, and the largest pool of talents, and where we empower regions on their capacity to innovate, to react, to be fast, and to respond to their customers as a local player benefiting from the backup of a global company. The great thing is that our shareholders have supported this globalization or this internationalization. And as a European company, we are today more exposed than most European companies to North American shareholding, which is our largest business in the world. The U.S. business is our largest country. on a greater Asia-Pacific exposure than all direct peers because there, again, Asia-Pac and North America are roughly at the same level in terms of business exposure. But I'm very attached to keeping on going with that dialogue in North America and Asia-Pac and bring the Sheraldine to the level that these regions represent in terms of business for Schneider. I want also to mention one thing I'm extremely proud of, is that we are one of the stocks most widely held within ESG Fund. We are actually the third one, all industries included, and we are the number one security all within ESG Fund among the industrial sector. And that drives me to my next chapter. We are a company that has completely aligned sustainability and strategy. We develop technologies for sustainability and we are doers in sustainability. We come to our customers with practical solutions based on digitization for efficiency and based of course on electrification for decarbonization. And we drive that dimension to all our stakeholders, our suppliers, the communities around us on the value proposition to our shareholders where we have engaged to increase even our sustainability impact revenue as we go forward. We've taken very ambitious targets in this field. We got them certified by SBTI, which not too many companies have done. And I know that it's the object of debate, but we measure on benchmark by external agencies that rank companies in their performance on ESG. Where we are today, there are only two other companies in the world that get that level of ranking and level of recognition. So it's not an easy thing, and we combine internal objectives and external objectives to measure our progress in all the dimensions of ESG. And finally, probably the thing which makes us the most distinctive is our culture and our operating model. And Peter is clearly very supportive of that, of that difference, coming from a different environment, originally only seeing which kind of difference it can make. And we're going to be both really pushing on developing this, which is probably the biggest are the strongest asset of Schneider today and as we go into the future in a world where empowerment of people is probably the most important. So looking back also, you've supported this project, you've supported this transformation. Schneider has grown from the 19th rank in the CAC 40 to 2003 to the 7th rank in the CAC 40 and we entered the Eurostock and we are now number 16 in the Eurostock. And I want once again to thank you, to thank our investors, to thank all the analysts who have followed us for the robust dialogue, demanding dialogue, for the patience in the time when we are building strategically the company and there was some plateau in our performance because all of this needs a lot of effort. I want to thank you for having supported this journey across the transformation and around value creation. Patience has paid, but I remember every year of the way and remember every of the discussions we've had, but again, many thanks for the time when you supported us in those times of transition. I want also to mention that these values that we brought to Shareholder, we brought it to our employees also who own close to 4% of the shares and have benefited of that collective performance that realized and that has been recognized by the stock exchange. So just to close, to say that we have positioned Schneider to be the natural partner in sustainability of customers with practical solutions, clear leadership in electrification on one of the leadership position in the field of digital with an incredible portfolio You know the five integrations that I've spoken to you many times in enabling the integration in a digital twin for our customers of their company. We see a lot of potential. We see a lot of potential in mature countries around the energy transition, electricity 4.0, industry 4.0. Everything will get connected. Everything will get retrofitted. And we see a lot of similar packages like the IRA, not only that, but in other parts of the world, stimulating this investment on the market. And at the same time, new economies will remain the barycenter of urbanization, industrialization, and digitization. We see as a very important mission for us to bring clean electricity to 2 billion people who don't have access to reliable electricity. And we see also that in the next cycle the resource-driven economies will benefit of a lot of resources to modernize every part of their infrastructure. And our strong place in Asia is a great asset for Schneider as today in 2023, 75% of the GDP growth will happen in major Asian emerging market economies and it's still only 25% of the revenue for Schneider. So still a large runway for progress as we look forward. Concluding, nothing has changed. We came to CMD recently to tell you this is a play. We are focused on electric and digital. We are developing new growth engines around service, software, and sustainability. And we are very attached to the key parts of our DNA, the integrated focus business model of Schneider. The partnership, we are the most partner-oriented company, the multi-hub on ESG embedded everywhere in the company. Thanks for the journey. I'm even more excited about the next steps of the journey that I will accompany from May in a different sort of role. But with that, I would like to go into the details of 2023 and hand over to Hilary. Hilary, the floor is yours.