Schneider Electric reports 2019 revenue up 6%, growing focus on digital offerings
Schneider Electric is a massively complicated company, making everything from home energy management solutions to software to operate production facilities. And, as we saw last week, looking to get into building construction with its proposed acquisition of RIB Software. For 2019, Schneider Electric reported total revenue of €27.2 billion, up 6% as reported and up 4% on an organic basis. You can see the details of their results on the investor website; I peek at their results to get macro-economic factoids and follow the software offerings.
Before I share what I learned on that front, here’s something of note: I live in America, where there is little appetite for declaring a corporate concern for the environment. Europe is very different; companies there are pushed to set targets for how they, themselves, and their customers through the products they sell, will improve the environment. Schneider Electric (SE) CEO Jean-Pascale Tricoire told investors that in 2020, SE will bring to market a set of switchgear solutions that don’t use gas –just air–, which he says is a major innovation in how buildings and factories are linked to the electrical grid. He also said that in 2019 SE customers reduced their carbon dioxide emissions by 90 million metric tons which, he said, was equivalent to 2/3 of the yearly carbon footprint of Paris, or all of Toronto’s, or all of Melbourne’s, or the equivalent of 9 million cars in the US for a year. “Our business is really contributing to the decarbonation of the planet.” Extremely cool.
But it wasn’t all peace and love and green. SE’s fiscal 2019 results were affected by economic uncertainties and trade tensions as the US and China poked at one another. SM. Tricoire mentioned several times that US industry slowed investment in new plants and upgrades, as manufacturers were uncertain about if and how their goods would be received overseas.
And it seems US sanctions may be backfiring. M. Tricoire said that sales of SE’s Industrial automation offerings improved in China late in 2019, and process automation and software are gaining traction. Why? Because economic uncertainties feed into a long-term trend that pushes China to greater vertical integration, which leads to more industrial investment. So sanctions stalled investment in the US but increased investment in China’s manufacturing sector. Hmm.
Speaking of China, M. Tricoire said that the coronavirus is likely to cost SE roughly €300 million in lost sales in January and February. He said that early focus was on containing the spread of COVID-19 by keeping people in place — M. Tricoire now sees China’s priority as getting back to work.
In a more global sense, SE sees itself becoming more digital. Across its entire business, Digital and Services now account for around 25% of total revenue. M. Tricoire said this is due to a growing appetite for digitalization across SE’s end-industries, especially when building, factory and other asset’s owners look at sustainability, efficiency and automation. That digitalization focus leads to a stream of recurring revenue and increased customer “stickiness”. Sound familiar? It’s what our PLMish companies have been working towards for decades.
One investor wanted more rationale for the proposed acquisition of RIB. RIB, said Deputy CEO Emmanuel Babeau, fits into SE’s vision of becoming more technological, more cloud. M Tricoire added that SE is keen to add RIB’s costing, planning and scheduling capabilities, specifically for the “build” phase of AEC projects. He sees this as plugging a hole in the overall offering, which currently centers on building operations (via existing hardware and software offerings) and plant design, via AVEVA.
Earnings calls are usually quite predictable. Questions about the forecast, some metric that needs more explanation, a deep dive into tax payments. The last question during this earnings was a doozie: how does SE management view their shareholding in AVEVA — and do they have any advice for other AVEVA shareholders? I think the question has to do with SE’s ability to buy additional shares in AVEVA –maybe to own the whole thing– as laid out in the original purchase agreement. I get that question every so often since it has to do with gambling on AVEVA’s share price. The SE execs certainly weren’t going to tell the market if or when they might buy more shares. After a beat, M. Babeau listed why SE is so happy with its AVEVA acquisition: The share price has almost tripled, AVEVA is now on the FTSE100, the market cap is around €10 billion, it’s a pure play software company that creates synergies with SE’s hardware businesses, it can recruit the best people in software … So happy, yes. But buying more shares? Why? At a market cap of £8.1 billion after today’s close, it seems quite expensive, And SE already owns 60%, so it’s not like someone can swoop in and steal it. Unusual ending to an earnings call, but must have made the AVEVA team quite happy.
Main takeaways: AVEVA is a small but mighty part of the SE vision. Aside from AVEVA, things are going well. Business in China is already getting to a new normal and should recover by year-end. Sanctions seem to be having unintended consequences in the US. And it’s time for US companies to talk about their efforts to reduce pollutants/improve the environment in some way. Aside from being the right thing to do, it’s great marketing: if you’re choosing between two alternatives, you’ll pick the one that makes you feel better about yourself, every time.