Schneider Electric Sa

Good morning, everyone. Thanks so much for spending the time with us for our Q3 revenue release. You have the press release and the presentation is on the screen, so I'll hand it over to Hillary and then we come back for Q&A.

Thanks, Amit, and good morning, everyone. I'm happy to be here with you today to comment on our Q3 2024 revenues, as well as update you on some recent M&A transactions and share our expectations for the rest of the year. Starting with slide three, I'm happy to report another strong quarter with sales of 9.3 billion euros, a new record for a Q3. In energy management, we see strong demand, particularly accelerated by data center and with continued momentum in electrification. In industrial automation, we continue to see the impacts of weak market for discrete impacting our sales, with some early signs of turnaround in demand against a low base, particularly in China. Overall, we were up 8% organic in sales, reflecting the strong positioning of our portfolio, much of which is tied to the global megatrends we highlighted in our Capital Markets Day, plus the benefit we have from diversification across geographies and our business models. In terms of business models, in products, which reflects our shorter cycle business and sales through partners, we were up plus 2% despite the continued weakness in discrete automation. Price on products continues at the more normalized levels we spoke about earlier this year, so volume is a positive contributor. In energy management, across categories, products continued with strong demand, including distributed IT, and residential products were flat to positive against a low base. Our systems business, which includes medium voltage, continues with strong double-digit growth driven by secular demand trends, particularly in data center. Software and services was plus 7% for the quarter, with reported revenues at Aviva impacted by timing and its continued transition to subscription. ARR at Aviva was plus 15%, and we saw strong growth in recurring revenues in energy management software, so we're well on track for a success in shifting our software business model to subscription. Digital and field services, which includes our sustainability advisory and efficiency offerings, were together up double digit, tied to our strong growth in systems, as well as continued good momentum in grid automation. Turning now to our own sustainability performance, we remain well on track to achieve our year-end target of 7.4, with cumulative performance at the end of Q3 at 7.29. I'll particularly highlight our SSI number nine, where we have a goal to provide green and reliable energy to 50 million people to support a just energy transition. We've now achieved that goal one year in advance of our ambitions, by installing our solar power solutions in public facilities across India and Africa. We've also highlighted a couple of awards and initiatives on the right hand of this slide, including our recognition by S&P Global as an industry leader in our group for the third year in a row, with a score of 86 out of 100 on our corporate sustainability assessments. On this slide, I'd like to give one interesting example of where sustainability and business cross in a positive manner for both companies as well as for the planet. As we work to ensure our access to continuous supplies of materials in potentially constrained markets and to ensure those materials are responsibly sourced, We're partnering with Glencore to acquire copper directly on behalf of our sub-suppliers in the European market. We're also working with Glencore on digitizing and decarbonizing their raw materials supply chain with solutions like Aviva Pi, ETAP, and our power and energy management systems. And as you may recall, Glencore is also a key endorser on the Materialize program, a supply chain decarbonization program for the mining industry Similar to the Energize program we have for pharmaceuticals and Catalyze for semiconductors. Turning now to the details of our Q3 revenues. We finished the quarter at €9.3 billion in revenue, up 8% organic year-over-year, with a particularly strong contribution from systems, as I mentioned prior. In terms of geographies, we're back to positive growth across all geographies, driven primarily by results in energy management. Rest of world continues with strong double-digit growth, driven by strong demand and supported by pricing. North America continues with strong double-digit growth, driven by demand in the U.S., and as we continue to unlock supply constraints there. In Asia Pacific, we were up 2%. with China down mid-single digits, still impacted by weakness in the construction markets, while the rest of Asia-Pacific was up high single digits. Western Europe was flat to positive, supported by good growth in energy management, and I'll further detail the comments by geography in the coming slides. Scope impacts of around 60 basis points are due to our exit from our sensors business. and FX impacts are primarily due to the weakening of the U.S. dollar against the euro and some further devaluation in a few emerging markets. Estimated full-year impacts on our top line based on current rates are minus 450 to minus 550 million, with estimated impacts on our adjusted EBITDA margin remaining around negative 40 basis points. Turning now to some highlights by our end markets, with my comments regarding demand based on what we're seeing in our orders. Starting with buildings, we continue to see strong demand in non-residential buildings where we particularly benefit from our exposure to what we call technical buildings like hotels, hospitals, schools, stadiums. And we also continue to see positive renovation trends. For residential buildings, we do seem to have hit a point of clear stabilization with signs of improvement in demand across geographies, of course against a lower base from last year, with the exception of China and Southeast Asia. And sales in residential are positive, supported by demand trends, as well as continued improvements in our supply chain in North America. Demand for data center and networks is very strong, driven by strong trends in data center, AI and traditional, and with demand and sales growth and distributed IT now recovered to high single-digit levels. In infrastructure, we do continue to see a focus on grid and water infrastructure improvements at utilities, and in industry, we continue to see negative sales and discrete automation, but with some early signs of demand pickup against the low base in the later parts of the quarter. Overall market trends continue to be positive for process and hybrid. Turning now to Q3 revenues by business and geography. Energy management was up plus 12% organic for the quarter to $7.7 billion. We saw continued double-digit growth in North America up 18%, driven primarily by strong double-digit growth in the U.S., due to continued strong demand trends there in systems, particularly data center and good demand for products. Sales were also supported by a step up in our supply chain as we invest in our capacity and resilience there. And services was up double digit across the region. Western Europe was up 6% organic with all of our key economies contributing to growth supported by strong demand from data center and infrastructure, as well as a return to growth in residential, with the exception of Germany. Services also saw strong growth, driven by trends in renovation. Asia Pacific was up 5%, with China down mid-single digit, impacted by continued weakness in the construction sector, only partially offset by continued recovery in data center. India was up strong double digit, with continued strong demand dynamics across end markets. Australia was up low single digit, driven by demand in data centers, and the rest of the region delivered double digit growth, driven by projects in data center and industry. The rest of the world was up 18%, including some strong pricing actions in economies with significant devaluations. Excluding these pricing actions, the rest of the world was up double digit, with strong contributions from South America and Africa, driven by projects in data center, industry, and infrastructure, alongside a return to growth in residential. Turning now to industrial automation, revenues were down 6% organic to $1.7 billion, impacted by discrete automation and by the transition to subscription at Aviva, while process automation continued with growth for the quarter. North America was down 5%, with the U.S. down mid-single digit, with strong growth in process automation offset by negative performance in discrete, with higher inventories at distributors and OEMs still working through the system. Western Europe was down 16%, impacted by discrete automation and the transition to subscription at Aviva. France, Italy, Spain, and Germany were all down double digit with relatively better performance in UK supported by software. Asia Pacific was down minus 8% with China close to flat supported by a return to growth in some early cycle products offset by negative growth in process automation. The rest of Asia Pacific was down double digit against a stronger base of comparison. Rest of world was up 15%, including some strong pricing actions in economies with significant devaluations, and supported by growth in discrete, in process, and in software. Outside of pricing actions, growth was driven by the Middle East, again with strong demand across discrete, process, and software. Before I move to our expectations for the remainder of the year, I wanted to mention an exciting bolt-on investment we announced earlier this quarter, as well as a JV to support our focus on prosumer. As you know, we're the market leader in the data infrastructure space with the most comprehensive offer across the industry. Through this acquisition of Motivair, a U.S.-based company with a world-class portfolio of liquid cooling, We'll enhance our thermal management capabilities to ensure we're ready to meet all the needs of AI data centers. We're acquiring 75% of the company for $850 million, a mid-single-digit multiple based on expected 2025 revenues, with the intention to acquire the additional 25% in 2028. We also entered into a JV with StarCharge, a global leader in EV charging infrastructure and microgrid to create a European prosumer hardware company with cost competitive offers. Both transactions are subject to regulatory approval and are expected to close in 2025. Moving now to slide 12 with an update of our market dynamics, primarily focused on the Q4. These remain unchanged, with the exception that we've now started to see signs of demand recovery in consumer-linked, distributed IT is effectively recovered, and residential is showing signs of positive demand with the exception of Asia, and we expect this demand recovery to continue, particularly as interest rates slowly decline. Additionally, while it's early days, we did see some signs of recovery in demand in industrial automation products, against a low base in China and parts of Europe. We would expect this demand recovery to continue, albeit only broadly impacting sales for discrete in 2025. With this backdrop, we're reiterating our full year 2024 guidance of organic growth in our adjusted EBITDA of between 9% and 13%, which we expect to be driven by organic growth and revenues of plus 6% to 8%, and an expansion of our adjusted EBITDA margin up 60 to 80 basis points organic. And you might have seen from our press release, we've shared a decision by the French Competition Authority received yesterday regarding a previously disclosed legal case. As indicated, we firmly disagree with the findings and reserve the right to appeal. However, the fine is not suspensive, so we'll update you on the timing of that payment when we have it, likely 2025. And with that, I'll turn the call back to Amit for the Q&A.

All right. Thanks very much, Hilary. We'll move to the Q&A. As always, try to give everyone a chance. So one question per analyst, please. And we can start with the first question.