Schneider Electric : Q3 Revenue / {Transcript

Raw Transcript

22-Oct-2020

Schneider Electric SE (SU.FR)

Q3 2020 Sales and Revenue Call

	Total Pages: 20
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Schneider Electric SE (SU.FR)	Raw Transcript
Q3 2020 Sales and Revenue Call	22-Oct-2020

CORPORATE PARTICIPANTS

Amit Bhalla

Vice President-Financial Communication & Investor Relations, Schneider Electric SE

Hilary Maxson

Executive Vice President and Chief Financial Officer, Schneider Electric

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OTHER PARTICIPANTS

Alasdair Leslie	Andre Kukhnin
Analyst, Société Générale SA (UK)	Analyst, Credit Suisse Securities (Europe) Ltd.
Andreas Willi	Martin Wilkie
Analyst, JPMorgan	Analyst, Citigroup Global Markets Ltd.

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MANAGEMENT DISCUSSION SECTION

Operator: Welcome to Schneider Electric Third Quarter Results with Hilary Maxson, Chief Financial Officer; and Amit Bhalla, Head of Investor Relations. At this time, all participants are in a listen-only mode until the question- and-answer session of today's conference. [Operator Instructions] I would like to inform our parties that today's conference is being recorded. If you have any objections, you may disconnect at this time.

I'd like to turn the call over to Amit Bhalla.

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Amit Bhalla

Vice President-Financial Communication & Investor Relations, Schneider Electric SE

Thank you very much, operator. Hello to everyone and welcome to our Q3 revenue results. I'm very happy to be here with you today, joined by our CFO, Hilary Maxson, who will be taking all of you through our business highlights and our financial results. We will make sure to keep time for some questions at the end of the presentation. You can follow the presentation on the webcast, but otherwise, it's available on our website in case you are dialing in just through the phone.

With the usual disclaimer on slide 2, which I must point you to words, I would like to get started. And I'd like to hand over the floor to Hilary.

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Hilary Maxson

Executive Vice President and Chief Financial Officer, Schneider Electric

Thanks, Amit. Good morning and good afternoon, everyone. Great to be here with you today to comment on our Q3 revenue numbers which showed a strong rebound, another demonstration, I think, of the resilience we spoke to on the H1 as we go through the uncertainties of this ongoing crisis.

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Schneider Electric SE (SU.FR)	Raw Transcript
Q3 2020 Sales and Revenue Call	22-Oct-2020

Starting with slide number 5, I'll start with some highlights on the top line for the third quarter. First, I'm glad to report that Q3 sales shifted to positive year-over-year organic growth of plus 1.3%. Both businesses showed sequential improvement versus a tough Q2 which we believe represented the trough in our sales, Q2 earning, as a consequence of the coronavirus lockdowns we witnessed. You'll also see, there's a divergence in performance in the quarter with energy management shifting to year-over-year growth, while industrial automation is still in negative territory.

In terms of geography and you're aware we have a strong balance across our geographical footprint, North America, Asia Pacific, and rest of world, all shifted to year-over-year growth for the quarter with only Western Europe still negative. We're happy to see this broad-based sequential recovery and I'll speak through some of the factors behind that as well as our expectations for the future throughout the presentation. And while the current environment is still uncertain and only getting more uncertain in the past weeks, we're upgrading our 2020 target and I'll follow up on that at the end of my presentation.

Turning to the next slide, let's now go into more detail and I'd like to start with our strategic growth pillars. As we've mentioned consistently, our execution priorities are more products, more software and services, and better systems. First, on products, we continue to leverage our unrivaled partner network, our innovation, and our multi- local set-up to drive mid-single digit growth.

In Software & Services, we continue to grow services, field services and digital services, with positive performance in both energy management and industrial automation. Internally-developed software was also positive for the quarter while AVEVA was down with its performance impacted by the early renewal of a large contract in 2019 and some deal slippage. In its trading update issued on October 12, AVEVA reiterated its full year outlook.

Strong growth also continued in assets under management, an important metric we follow to track the potential for increased digitization and future possibilities within our installed base. In systems, our focus remains on profitable projects and management of our margins from pipeline to execution. The mid to late cycle portion of our systems business particularly in Industrial Automation continues to be impacted negatively largely driven by oil and gas, further exacerbated by impacts from coronavirus. We continue to develop our pipeline for systems in BMS, data center and infrastructure.

Turning to slide 7, and as we've mentioned a few times previously, one point becoming more and more apparent from the coronavirus crisis is that it's been an accelerator of digitization. Effectively all of the customers that we speak to nowadays have digital agenda as part of their top priorities. We also see an increasing number of customers focused on sustainability where digital plays a key role. We have around 50% of our business within the flywheel of digital and services that we shared with you in July.

Customers can enter this circle at any point, and then we and they have the opportunity to move across the wheel, from picking and choosing a few connected products to a full plug and play solution to drive their sustainability, efficiency and resilience. This also leads to a more sticky and ongoing relationship with our customers across the full lifecycle.

Turning now to the right-hand of the slide, we continue to shift more and more of our world-class product portfolio to digital. It's no surprise that many of our new offers come with a menu of connectivity options, and our R&D focus is geared more and more towards digitization.

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Schneider Electric SE (SU.FR)	Raw Transcript
Q3 2020 Sales and Revenue Call	22-Oct-2020

To give you some examples of our recent launches combining innovation with digital, I'll start with PrismaSeT, our new generation of LV switchboards featuring native connectivity to the cloud for enhanced simplicity, power availability and fire prevention. And our new generation of compact circuit breakers also with native connectivity and in the same footprint of our previous models to simplify retrofitting.

We spoke in the H1 and at our recent innovation summit about the significant innovations in SF6-Free or our gas- free medium voltage offer. But I think it's worth mentioning again as it well represents our focus on innovation for sustainability and digitization. The SM AirSET switchgear is a key innovation to one of our most popular classic product ranges. It uses air now for vacuum interruption instead of SF6 gas and comes with a number of digital connectivity options. I'll just mention that those products are all coming from energy management where I was recently CFO, so super excited to see those launching in the market.

And lastly in industrial automation, our EcoStruxure automation expert is another great addition to our EcoStruxure software portfolio. It creates a digital twin for automation that allows for a simpler and more efficient experience in designing, operating and modifying installations. Through this offer, customers can realize between three to five times reduction of their engineering time.

Turning to slide 8, and before I turn specifically to our Q3 financial performance, I'd like to speak on some I'd like to speak on some near-term trends and longer term opportunities in our end markets. We already shared during our H1 call that around 80% of our end markets are positioned either neutrally or more positive in the aftermath of the coronavirus crisis. There are some segments remain challenged.

Starting with building, around a third of this end market for us is residential where we continue to see accelerating positive trends across most of the world. This strength is both across new build and renovation and home improvement helped by increased consumer spending and working from home trends.

We've also seen good recovery in commercial and industrial building activity over the past months and accelerated interest in healthier and smarter buildings. However, we do think the outlook on new CapEx for office building is still uncertain for the near term. Longer term, buildings represent a significant portion of the world's energy usage and carbon emissions. And it's only through innovative and efficient newbuild, renovation, and digitization that we expect this can change. Government stimulus particularly in the EU is focused on building upgrades to support sustainability and modernization.

In the data center market, demand continues to remain strong helped by increased trends and working from home, further digitization, and IoT. I think about data center in two different buckets. The first is hyperscale, which is around 25% of our data center business, and then we have the business of smaller enterprise data center and [ph] colos 00:09:39. Those categories are, of course, driven by the key trends both short and long term mentioned on the slide.

One point I'll particularly note is that 50% of IoT processing is now expected to be at the edge by 2024. And we start to see more and more signs of demand in smaller data centers and the edge as latency becomes noticeably more important. And there's also more concern about local resiliency and data security. And we're well positioned to benefit from that trend in edge computing.

In infrastructure, noticeable near-term trends for us are in electric utilities through smart grid and a renewed focus on transforming toward a more sustainable world. Wastewater and mobility markets remain impacted by coronavirus.

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