Successful execution of strategy drives record 2019 performance: Revenue €27.2bn, reported revenue growth +6%, Adj. EBITA, Net income and FCF at all time high levels

RUEIL-MALMAISON, France, Feb. 20, 2020 /PRNewswire/ -- Schneider Electric announced today its fourth quarter revenues and full year results for the period ending December 31, 2019. 

Jean-Pascal Tricoire, Chairman and CEO, commented: 

"In 2019, we reach record levels in revenues, gross profit, adjusted EBITA and a step change in our free cashflow to €3.5bn. We strike a strong Q4, comparing to high base in 2018. We accelerate the execution of our strategy to be the partner of our customers in digital solutions for sustainability and efficiency. We grow in both our synergetic businesses and across all regions. We continue to execute on our strategy of more products, more services, more software and better systems bringing together full digital solutions in energy and automation. 

We confirm a strong organic growth in Energy management, above 5%, clearly above market, and we grow in Industrial Automation, compensating the softness of discrete markets by a great performance in hybrid and continuous process and Aveva. Across those two businesses, Digital and Services now account for around 25% of our turnover, grow above the average, and bring both recurrent revenue and a deep customer relationship. EcoStruxure adoption is accelerating, as shown by assets under management up 50%, and cloud based recurring revenues growing double-digit. 

We continue to deliver good industrial productivity and put focused efforts on cost efficiency. We keep optimizing our portfolio in a responsible manner. We divested/deconsolidated €0.6bn, as we continue to execute our portfolio optimization, reviewing assets generating revenues of between €1.5bn - €2.0bn between 2019-2021. 

Over the past 5 years, we have generated organic growth of the adjusted EBITA of 6.4% on average. We reiterate our commitment to our across-cycle organic growth of 3% to 6%, on average and our mid-term margin ambition of c.+200 bps with more to come beyond 2021. Our performance in 2019 puts us well on our trajectory of achieving that improvement of c.+200 bps, thanks to the optimization of our portfolio, the organic improvement of our margin, and accrued work on productivity and resource reallocation to our priorities in R&D, digital, services and sales.

We remain committed to strengthen the Group core and pivot gradually towards more connected products, automation, software and services. Aveva continues to develop very successfully and we announced last week our offer on RIB Software to support the development of digitization in project costing, scheduling and monitoring in our Buildings and Data Center end-markets.

We deliver strongly for our shareholders, with total shareholder return up +60% for 2019. In addition, we continue to return cash, proposing today a dividend of €2.55 per share, an increase of +8.5%; reaching 10 consecutive years of progressive dividend; as well as reiterating our commitment on share buyback".  

I.  FOURTH QUARTER REVENUES WERE UP +3% ORGANICALLY

2019 Q4 revenues were €7,310 million, up +3.0% organically and up +4.0% on a reported basis.   

The breakdown of revenue by business and geography was as follows:

Across the Group in 2019:

Products grew +3% org.  with good growth in offers for Residential & Small Buildings, and continued traction in Commercial & Industrial Buildings (CIB), working through the Group's extensive network of partners. The growth generated from Products was limited due to the weakness in Industrial sector, impacting sales into discrete automation end-markets, across both Industrial Automation and Energy Management technology.

Systems (Projects and Equipment) grew +5% org. with consistent good growth in mid/late cycle segments. Energy Management systems saw good growth across end-markets, notably in Data Center, incorporating Secure Power and MV/LV systems technology in a complete offer. In Industrial Automation, systems growth was more mixed, with good demand from Process Automation markets, but with headwinds from the weakness in Discrete Automation markets, notably in respect of sales to OEMs.

Services grew +8% org., with a strong performance in field services across regions based on efforts to consciously increase levels of tracking and servicing of critical asset installed base and as a result of the ongoing commercial hiring initiatives. With digitally enabled services, the group saw good traction on its offers designed to use analytics to meet the efficiency needs of customers with strong growth in offers for Smart Grid.

Energy and Sustainability Services (ESS) which represents the direct touch point to address the sustainability linked needs of our customers, grew +9% org. and contributed strongly through the year across segments. The Group continued to develop and enhance the 'Advisor' layer of its EcoStruxure architecture for the benefit of customers across the entire portfolio with notable performance for data analytics across buildings end-market which grew strongly. The Group's growth in Services was enabled by both field services and digitally enabled services contributing in a consistent manner across quarters and businesses. 

Software grew double-digit org., with strong performance from AVEVA, driven by sales execution and benefitting from cross-selling of AVEVA's combined product portfolio to their enlarged customer base while shifting their business model towards higher subscription revenue. The successful adoption of AVEVA technologies by customers drives pull-through growth for Schneider's offers to Process & Hybrid end-markets, and vice-versa. The Group's software offer linked to Data Centers grew double-digit.

GOOD PERFORMANCE IN ENERGY MANAGEMENT IN Q4 UP +3% ORG. 

The Group maintained a good level of performance in Energy Management in Q4 up +3.3% organic, with growth across all geographies.

The main developments by end-market were as follows:   

• Residential and Small Building offers, mainly sold through the Group's network of partners, sustained mid-single digit growth in Q4 and for the year in total.
• Offers for Commercial & Industrial Buildings continued to contribute positively
• Growth from Data Center offers was strong across Energy Management technologies in Q4, including both larger and smaller installations
• The slowdown in Industrial end-markets continued into Q4, with a negative impact on sales of Energy Management technologies into the electro-intensive industrial end-user market.
• Services showed strong growth in the quarter at +8% org.
• The Group's non-consolidated subsidiary Delixi continued to show good growth, consistent with the performance of the consolidated Energy Management business in China
• Good performance of overall distribution confirming strength of our partner model, with full Schneider Electric offers leveraging both generalist & specialized distributors.  

Trends for Energy Management, by geography: 

North America (30% of Q4 revenues) was up +3.4% organic for the quarter, slowing from Q3 as expected due to a high base of comparison, but continuing to deliver revenue growth across end markets. The market dynamics between Canada, the USA and Mexico were mixed; The USA was up mid-single digit across Energy Management, with highlights including a resilient residential market, good growth in data center, and a strong double-digit performance from recent acquisition ASCO, while a slowdown in demand from industrial end users impacted the pull-through growth for Energy Management. Mexico continued to be difficult. Canada rebounded to grow strongly in the quarter, although against a low base of comparison. In terms of end-markets, Buildings remained positive, with continued demand for the Group's offers across the life cycle. The residential market showed strength where the roll out of regulations relating to the adoption of "dual-function" circuit breakers in the USA continued, resulting in demand for the Group's technologies. CIB also saw growth with strength in certain segments. The Data Center end-market remained strong, with good growth from both hyperscale and smaller data centers, adopting the multiple technologies forming part of the Group's portfolio. The Group continues to see good opportunities in the Infrastructure end-market, with demand for digitally driven technologies for efficiency. The slowdown in Industrial end markets continued in Q4, with lower demand for Energy Management technology across energy intensive industrial sectors. Services showed strong growth in the quarter, with the Group's offers for Energy and Sustainability Services growing double-digit, and with good growth in field services.

Western Europe (26% of Q4 revenues) posted growth at +1.8% organic. The performance across all countries contributed through a combination of traction in Data centers, Residential markets and Commercial buildings. The Group won some significant renewable energy projects in the quarter and had new product introductions for commercial buildings benefitting the UK which grew despite some uncertainties around Brexit, with good momentum in Life Science and F&B. Spain grew with positive results from offers in Residential and nonresidential markets. France grew thanks to good performance for offers in the Residential market as well as services while the industrial end markets were challenging. Germany was resilient with growth in Data center end markets but softness in Residential and non-residential markets and a challenging industrial market. Italy delivered good growth across several offers. Nordics delivered a good performance notably in LV/MV. 

Asia-Pacific (27% of Q4 revenues) posted growth at +4.6% organic with most countries contributing. China grew high-single digit, delivering a strong performance in commercial and industrial buildings supported by an improving macro-economic environment, with healthy investment levels in infrastructure and transportation leading demand for MV/LV products. India resumed growth post-Q3 from a more normalized base of comparison and on the back of demand mainly driven by MV/LV products. Indonesia & Singapore contributed to the overall growth amongst South East Asian countries with good demand in Data center markets. Australia residential market continued to slow down in Q4. 

Rest of the World (17% of Q4 revenues): Energy Management showed solid performance through the fourth quarter, with a good level of growth overall, up +3.5% organic, however contrasted between countries as expected. South America grew strongly, including strong demand for MV/LV products in Argentina & Brazil. Central and Eastern Europe grew low-single digit. Africa grew strongly across the zone, particularly in Egypt which was supported by infrastructure projects and strong channel sales. Middle East was flattish, with Gulf countries impacted by delays in execution of projects and a difficult environment for credit. The situation around lower demand from Utilities in Saudi Arabia continued in Q4. CIS was flat.  

INDUSTRIAL AUTOMATION GREW WELL, UP +2% ORG. IN Q4 

The Group delivered +1.9% organic growth in Industrial Automation in Q4. The business benefited from its balanced portfolio – revenues from Process & Hybrid end-markets were good, while revenues from Discrete markets were around flat for the quarter though contrasted by region. Software grew moderately with AVEVA continuing to transform its business model towards subscription and on the back of high comparables. 

The main developments by end-market were as follows:   

• Sales to the discrete and OEM end-markets were flattish. North America and Europe were negative while pockets of growth remained in several geographies including China and Rest of the world.
• The Group's revenue from process and hybrid end markets was up mid-single digit in Q4. Orders continued to grow in Q4 in targeted segments, such as Oil & Gas (O&G) and Water & Wastewater (WWW).
• The Group continues to successfully progress the joint go-to-market strategy with AVEVA.
• Services grew +8% org. in the quarter.

Trends for Industrial Automation, by geography: 

North America (20% of Q4 revenues) was down -4.7% organic in Q4. Discrete end-market weakness continued as expected, with growth down mid-single digit across the region. Process and Hybrid end-markets saw a mixed picture in the quarter, with growth of the Group's Software offer impacted by a very high base of comparison, while outside of Software this part of the business grew nicely, with good demand in targeted segments including O&G and WWW. By country, the USA was down on continued low demand from OEM's, some softness in the market for field devices, and the high base in Software. Following a continued period of weakness, Mexico saw positive growth in the quarter as a result of project execution in Process & Hybrid endmarkets, however the underlying uncertainty in the economy remains. 

Western Europe (30% of Q4 revenues) was down -1.6% organic in Q4, driven by a general slowdown of discrete activities. The UK was up as a result of project execution, incorporating both Software and services. In a positive local industrial environment, France was stable. Germany was negative in a difficult industrial environment. Italy was negative, impacted by the slowdown in the export OEM markets. Good demand was seen in segments such as O&G, Transportation and Life Sciences.

Asia-Pacific (30% of Q4 revenues) was up +3.8% organic in the quarter. China grew from a low base of comparison on account of discrete end markets impacted by some degree of confidence around the U.S./China trade dispute resolution. India grew double digit for the quarter with growth in both Discrete and Process & Hybrid end-markets. Japan was down as growth in Process and Hybrid end markets could not compensate for weaker OEM markets. South Korea saw good project activity in Process and Hybrid coupled with good traction from Software, while the rest of the region recorded good growth, with project delivery for process industries and software balancing the decrease in OEM markets. 

Rest of the World (20% of Q4 revenues) grew strongly, up +13.6% organic, driven by strong growth in South America, Middle East and CIS, with Central and Eastern Europe and Africa being around flat. Within the region, discrete automation offers as well as process & hybrid automation offers both grew at double-digit levels while software performed well. South America grew strongly driven by Brazil which saw traction across the full-line of automation offers. The Middle East saw stronger growth mainly driven by Gulf & Turkey. CIS saw strong demand driven by Industrial markets in Russia.

CONSOLIDATION⁷ AND FOREIGN EXCHANGE IMPACTS IN Q4

Net acquisitions / disposals had an impact of -€59 million or -0.8% of Group revenues. This includes the disposal of Pelco (Energy Management) and the U.S. Panels business (Industrial Automation) which were both announced during H1 2019, along with some minor acquisitions / disposals.

The impact of foreign exchange fluctuations was positive at +€128 million or +1.8% of Group revenues, primarily due to the strengthening of the U.S. Dollar against the Euro.

Based on current rates, the FX impact on FY 2020 revenues is estimated to be c. +€400 million. The FX impact at current rates on adjusted EBITA margin for 2020 is expected to be around flat.

II.  PORTFOLIO OPTIMIZATION ON TRACK

The Group continues to make progress in relation to the €1.5bn to €2bn portfolio optimization program announced in February 2019 with further progress anticipated in the coming months. To-date, €0.6bn of revenues have been addressed. The updates since Q3 2019 are as below:

• The Group closed the transaction announced in Q4'19 for Schneider Electric to sell to Vinci Energies it's Converse Energy Projects GmbH, specialized in energy distribution projects in Germany. This activity generated revenues of €138m in 2019 (consolidated within the Energy Management business).
• The Group closed the transaction announced in Q3'19 to establish a JV with the Russian Direct Investment Fund (RDIF), to further strengthen the long-term outlook for the Group's Electroshield Samara business, which generated revenues of €168m in 2019 (consolidated within the Energy Management business). As a result of the transaction, Electroshield Samara will be deconsolidated in 2020 due to the change in control.
• The Group also closed a number of smaller divestitures, in its Energy Management business, including an engineering services business in the U.K., and a Data Center operations business in the U.S. The revenue impact from these smaller disposals is included in the cumulative figure of €0.6bn.

The adjusted EBITA margin impact of the disposals/deconsolidation completed so far would be around +20bps in 2020. 

Acquisitions:

• The Larsen & Toubro (L&T) Electrical & Automation (E&A) transaction continues to progress having received necessary regulatory approvals in India during 2019 and is expected to close in the coming weeks.
• On February 13, 2020 the Group announced its intention to launch a voluntary public tender offer for construction software provider RIB Software SE for Building life cycle management.
  More details on: https://www.se.com/ww/en/assets/564/document/118678/financial-release-ribhttps://www.se.com/ww/en/assets/564/document/118678/financial-release-rib-offering.pdfoffering.pdf 

III.  FULL YEAR 2019 KEY RESULTS

• ADJUSTED EBITA MARGIN AT 15.6%, UP +70 BPS ORGANIC THANKS TO THE COMBINATION OF STRONG TOP LINE PERFORMANCE, PRODUCTIVITY AND PRICING ACTIONS

Gross profit was up +5.5% organic with Gross margin improving by +50bps organic to 39.5% in FY 2019 mainly driven by net price and productivity. 

FY 2019 Adjusted EBITA reached €4,238 million, increasing organically by +8.7% and the Adjusted EBITA margin improved +70 bps organic to 15.6%.

The key drivers contributing to the earnings change were the following (see appendix for H1/H2 view): 

-  Volume impact was a positive +€347 million. 

-  Solid execution of Tailored, Sustainable & Connected supply chain contributed to a FY 19 industrial productivity level of +€331 million. In a positive environment for volume, the Group was impacted by trade tariffs and other inflationary factors. 

-  The net price¹⁰ impact was positive at +€295 million. Pricing on products was positive at +€199 million due to carryover from actions taken in H2 2018 and 2019 actions. In total, RMI was +€96 million.

-  Cost of Goods Sold inflation was -€121 million in 2019, of which the production labor cost and other cost inflation was -€101 million, and an increase in R&D in Cost of Goods Sold was -€20 million.

-  Support function costs increased organically by -€219 million in 2019. Overall SFC to Sales ratio continued to reduce from 24% to 23.9% improving organically by 20bps. The Group will continue to focus on the organic improvement of SFC to sales ratio while ensuring appropriate investment in critical growth drivers for the mid- to long-term.

-  The impact of foreign currency increased the adjusted EBITA by +€34 million in 2019.

-  Stronger growth in mid- and late-cycle businesses resulted in unfavorable mix of -€139 million in 2019, which also includes the impact of geographical mix. 

-  The impact from scope & others was -€165 million in FY 2019. Scope was around neutral taking into account the disposal of Pelco, while others included certain technical risks, depreciation of some obsolete inventories and one-offs.

By business, the 2019 adjusted EBITA for: 

-  Energy Management generated an adjusted EBITA of €3,842 million, or 18.4% of revenues,  up c. +80bps organic (up +60bps reported), thanks to strong growth in volume, improved pricing, and continued productivity gains.

-  Industrial Automation generated an adjusted EBITA of €1,141 million, or 18.1% of revenues,  up c. +30bps organic (and +10bps reported), thanks to positive pricing and a continued focus on costs at a time where positive topline growth is moderated by the high base of comparison from 2018, and with a softening market environment for discrete automation.

-  Central Functions & Digital Costs in 2019 amounted to €745 million, slightly reducing as a percentage of Group revenues at 2.7% (2.8% of Group revenues in FY18). Approximately 50% of these costs are transversal investments supporting the development of the two businesses, including IT, Digital Infrastructure and Marketing. A further c.20% of these costs are due Performance Shares. The remaining c.30% of costs represents the underlying corporate cost of around 0.8% of Group revenues, which has been stable in recent years.

• ADJUSTED NET INCOME UP +14%

Restructuring charges were -€255 million in 2019, €57m higher than last year, but broadly in line with the range of €200 million to €250 million on average over the next four years communicated in the June 2019 Capital Markets Day. This is the level of restructuring spend anticipated to generate industrial productivity and increased SFC efficiency.

Other operating income and expenses had a negative impact of -€411 million, including the loss on disposal of Pelco from H1, some asset impairments, along with some M&A and integration costs vs. €103 million in 2018 consisting mainly of M&A and integration costs.  

The amortization and depreciation of intangibles linked to acquisitions was -€173 million compared to €177 million last year. An increase in amortization due to intangible assets recognized in association with the AVEVA acquisition was offset by a reduction in amortization due to the disposal of Pelco. 

Net financial expenses were -€261 million, €49 million lower than in 2018, driven mainly by a continued decrease in the cost of debt, reduced by €53 million year on year.

Income tax amounted to -€690 million, lower than last year by €3 million. The effective tax rate was 22.0%, in line with the expected range of ETR of 22%-24% in 2019.

The result of Discontinued operations was -€3 million, relating to the net result after tax of Solar activities. 

Share of profit on associates increased slightly to +€78 million, from +€61 million last year. The Group share of Delixi net income was +€65m, up c.+€15m year-on-year. As a result, Net Income (Group share) was €2,413 million in 2019, up +3% from 2018. 

The Adjusted Net Income¹¹ was €2,933 million in 2019, up +14% vs. 2018. 

• FREE CASH FLOW REACHED €3,476 MILLION, +1.5x AMOUNT FROM 2018 (+1.6x INCLUDING IFRS 16)  

Free cash flow was very strong at €3,476 million, mainly due to the strong operating performance, and supported by favorable working capital evolution driven by end-to-end digital planning

Net capital expenditure reached €806 million, representing ~3% of revenues, due in part to supply chain capacity investment and capitalized R&D linked to new products. Changes in working capital were a tailwind in 2019, down €270 million. The impact of IFRS 16 increased free cash flow by € 274 million.

• BALANCE SHEET REMAINS STRONG

Schneider Electric's net debt at 31 December 2019 amounted to €3,792 million (€5,136 million in December 2018) after payment of €1.4 billion in dividend, a share buyback of c. €266 million in 2019 and net acquisitions of €79 million.

• CASH CONVERSION & PROPOSED DIVIDEND

Cash conversion was 133% in 2019 (before the impact of IFRS 16) compared to 90% in 2018. Taken on a normalized basis, free cash flow excluding IFRS 16 impact of €3,202 million and Net Income of €2,641 million (mainly excluding Pelco) show a cash conversion of 121% (4-year average 109%). 

The proposed dividend¹² is €2.55 per share, up 8.5% vs. 2018. 

IV.  PERFORMANCE AGAINST 3-YEAR TARGETS (2017-2019)

At an Investor Day held in October 2016, the Group set out its 3-year targets for the period 2017-2019 emphasizing how its strong and efficient model was to continue to create attractive shareholder value over the next years.
https://www.se.com/ww/en/assets/564/document/17911/release-investor-day-2016.pdf 

The targets as well as the performance achieved is shown below:

In demonstrating the ability to execute on its strategic priorities and deliver on its financial targets, the Group considers it is well positioned to deliver on its medium-term ambition for the period 2019-2021.

V.  SCHNEIDER SUSTAINABILITY IMPACT

The Schneider Sustainability Impact 2018-2020 is the Group's transformation plan and steering tool measuring progress towards its ambitious sustainability commitments. Details can be found on our sustainability page 

In Q4, the Schneider Sustainability Impact posted an excellent result of 7.70 out of 10 (vs. a 2019 target of 7.0/10), as the Group continues to execute its three-year sustainability plan.

VI.  DIGITAL UPDATE

Innovation update: In 2019, Schneider Electric hosted seven large customer events to showcase new innovations and digital technologies across multiple end-market segments. These targeted events around the world were attended by over 13,000 customers and generated €80 million pipeline while enabling extensive dialogue with customers. The Group's focus on digital transformation for customers continues to deliver. This is evidenced by the growth in Assets under Management which reached 2.94 M representing c.+50% growth year on year. 

In April 2019, Schneider Electric launched "Exchange" which is an open ecosystem platform for IoT energy management and automation to create & promote ideas, to collaborate with experts to co-create solutions & find answers and to scale by promoting expertise. As at end of 2019, the platform includes around 100 communities of cross-industry experts tackling challenges and exchanging ideas developing with +50 000 registered users, around 300 developed applications and more than 150 service providers listed. 

Growing the proportion of Digital and Services

Schneider Electric remains focused on developing the Group portfolio to be best positioned for an all-electrical, all-digital, autonomous future. The Group aims to be closer to our customers, more digital in our offerings, and to generate a higher proportion of recurring revenues. The pathway can be demonstrated in the progress that has been made in the Group's EcoStruxure architecture, the strong development in software offering through AVEVA, and the growth in digitally enabled services. When taken together, the top two layers of the EcoStruxure architecture (Edge Control, and Apps, Analytics & Digital Services – including AVEVA), along with the Group's Field Services offer today represents c.25% of Group revenues and is growing faster than the Group average organic growth and is margin accretive. This area of the portfolio is complimentary to the Group's offers of connected and connectable products, creating synergies throughout the portfolio. 

VII.  SHARE BUYBACK AND SHARE CANCELLATION

On February 14, 2019, the Group initiated a new €1.5bn to €2.0bn share buyback program over the period 2019-2021. The program has been launched under the 15th resolution approved at the 2018 Annual Shareholders' Meeting and pursued under the 14th resolution approved at the 2019 Annual Shareholders' Meeting. These buybacks were part of a policy to neutralize the dilution resulting from capital increases reserved for employees or from performance share plans and the exercise of options.

Since the beginning of the program, the Company bought back 3.5 million shares for €266.3 million at an average price of €76. Due to commencing the buyback only after the April 2019 AGM, and the suspension of the program from early December when the share price threshold set by the board (€90) was exceeded, the active period of buyback was limited to approximately 7 months in 2019. The Board, in its meeting of February 19, 2020, has approved the raising of this cap to €150 per share, and this proposal will be put before shareholders at the Annual General Meeting on April 23, 2020.

All the shares acquired by the Company as part of the share buyback program are held to cover performance shares plans.

Schneider Electric remains committed to the program of about €1.5bn to €2bn buyback to be completed over 2019-2021. As at 31 December 2019, the total number of shares outstanding was 551,021,671 (the total number of shares in issue was 582,068,555).

At its meeting of February 19, 2020, the Board of Directors decided to proceed with the cancellation of 15,000,000 treasury shares, representing 2.58% of the share capital as of January 31, 2020, in pursuance with the authorization granted to it at the Annual Shareholders' Meeting of April 25, 2019 in its 24th resolution.

Post this cancellation, Schneider Electric holds 16,043,977 of treasury shares, representing 2.76% of the share capital as of January 31, 20120 after capital reduction.

VIII.  CORPORATE GOVERNANCE

The Board of Directors, at its meeting of February 19, 2020, decided, upon recommendation of its Governance and Remunerations committee, to propose the renewals and appointment of the following directors:

• The renewals of Mr. Léo Apotheker, Ms. Cécile Cabanis, Mr. Fred Kindle and Mr. Willy Kissling
• The appointment of Ms. Jill Lee who will qualify as an independent director.

These recommendations first aim at ensuring an optimal succession to the functions of Vice-Chairman lead independent director, the appointment of whom is required if the positions of Chairman and Chief Executive Officer of the Board of Directors are exercised by the same person (article 12.2 of the Articles of Association). Since Mr. Léo Apotheker will no longer be able to assume these duties after the upcoming general meeting, when in accordance with the AFEP-MEDEF corporate governance Code he will lose his independence status because of the length of his tenure to the Board, the Board has selected Mr. Fred Kindle to succeed him. 

Mr. Fred Kindle sits on Schneider Electric's Board since 25 April 2016. He currently chairs the Investment committee and participates actively to the works of the Governance & Remunerations committee that he joined in April 2018. He has also been contributing to the works of the Audit and Risks committee since his joining, thereby gaining a deep knowledge of the Group. In application of Article 10 of the internal regulations of the Board of Directors, Mr. Fred Kindle shall chair the Governance and Remunerations committee of which Mr. Léo Apotheker shall remain a member.

Mr. Léo Apotheker, Ms. Cécile Cabanis and Mr. Willy Kissling bring to the works of the Board their expert insights along with a strong independence mindset and are invited to stay with the Board.

Ms. Jill Lee joined Schneider Electric SE's Board of Directors as a non-voting member on January 1st, 2020. Ms. Lee, 56 years old, a Singaporean citizen, has been serving as the Group Chief Financial Officer of Sulzer Ltd. since April 2018. Ms. Lee began her career in finance in 1986 at AT&T and Tyco Electronics in Singapore. She pursued her career within Siemens and then ABB, mainly in China and Europe. In addition to strong financial skills, Ms. Lee will bring to the Board her thorough knowledge of her experience in the industrial sector and an expert understanding of the Asian markets. Ms. Lee is an advisory board member of Nanyang Business School (Nanyang Technological University) in Singapore and a member of the supervisory board of the Dutch leading lighting company Signify Ltd. (formerly Philips Lighting). Her position within Sulzer Ltd. will not jeopardize her independence: the business between Schneider Electric and Sulzer is deemed immaterial on both sides as it is below 0.1% of the consolidated revenues for each Group. Ms. Jill Lee generally satisfies all criteria to qualify as an independent director in accordance with the prescriptions of the AFEP/MEDEF Corporate Governance Code.

At the close of the Annual Shareholders' Meeting of April 23, 2020, should the renewals of Mr. Léo Apotheker, Ms. Cécile Cabanis, Mr. Fred Kindle and Mr. Willy Kissling, and the appointment of Ms. Jill Lee be approved, the Board of directors will comprise 13 members, 42% of women (excl. the employees' representative) and 69% of foreign directors.

The Board of Directors also decided to propose to amend Article 11.4 of the Company's Articles of Association pursuant to Article L.225-27-1 of the French Commercial Code modified by the Law n°2019-486 of May 22, 2019 relating to companies growth and transformation, known as PACTE Law, which reduces the threshold for appointment of a second director representing employees from twelve to eight. In addition and in line with the prescription of Article L.225-27-1, III, 4° of the French Commercial Code, the proposed modification of the Articles of Association also provides that the second director representing employees is appointed by the European Works Council, employee representative body of the Company set up in pursuance of Article L.235216 of the French Labor Code, ensuring thereby a higher representativity of the Group employees within the Board.

IX.  2020 TARGETS

In its main markets, the Group currently expects the following trends:

• In North America the Group anticipates that markets continue to be positive in 2020 though H1 would be impacted by the high base of comparison for Energy Management and the impact of certain large projects. In Industrial Automation, the Group expects pressure on discrete to remain in H1, though a rebound could be expected in H2. Mexico is expected to continue to remain challenged in the near term.
• China continues to remain a growth market with dynamism in many end markets and segments including construction, infrastructure, transportation, data centers and healthcare. The OEM demand could strengthen in H2. The Group is assessing the impact of the Coronavirus to the business. There will be an impact in Q1 2020 due to factory closures in January/February. At this point, this impact has been estimated at c. €300m mainly in China and the Group assumes it will be almost entirely compensated in 2020 largely in H2.
• For the rest of Asia Pacific, the Group expects India and South East Asian countries to continue to be growth markets.
• The Group expects Western Europe to grow at a moderate pace with a higher weight in H2.
• The Group expects the performance in Rest of the World to be contrasted based on country.

In the current macro environment and incorporating the current view on the impact of coronavirus, the Group expects positive growth in aggregate in 2020 as it continues to deploy its strategic priorities in key markets.

In 2020, the Group therefore sets its targets as follows:

• Revenue growth of +1% to +3% organic
• Adjusted EBITA margin between 16.0% and 16.3% (excluding FX and impact of acquisitions)

Further notes on 2020 available in appendix 

X.  ACROSS CYCLE GROWTH AND MEDIUM-TERM MARGIN AMBITION 

The Group re-affirms its through-cycle objective of +3% to +6% organic growth in revenues, on average. 

Over the period 2019-2021, the Group will continue to focus on profitability levers within its control, with an aim to improve its adj. EBITA margin by c. +200 basis points (at constant FX), assuming no major change to the current macro-economic environment.

This underlying improvement would be achieved through a combination of organic growth, portfolio optimization, organizational simplification & efficiency and continued productivity.

The impact of the portfolio optimization program thus far, together with the organic margin improvement already enable us to achieve close to half of the c.+200bps margin ambition.

************

The financial statements of the period ending December 31, 2019 were established by the Board of Directors on February 19, 2020. At the date of this press release, the audit procedures were carried out and the report of the statutory auditors is being finalized.

The Q4 2019 & FY 2019 Annual Results presentation is available at www.se.com 

Q1 2020 Revenues will be presented on April 17, 2020.

The Annual General Meeting will take place on April 23, 2020.

Disclaimer: All forward-looking statements are Schneider Electric management's present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For a detailed description of these factors and uncertainties, please refer to the section "Risk Factors" in our Annual Registration Document (which is available on www.schneider-electric.com). Schneider Electric undertakes no obligation to publicly update or revise any of these forward-looking statements.

About Schneider Electric: At Schneider, we believe access to energy and digital is a basic human right. We empower all to do more with less, ensuring Life Is On everywhere, for everyone, at every moment. We provide energy and automation digital solutions for efficiency and sustainability. We combine world-leading energy technologies, real-time automation, software and services into integrated solutions for Homes, Buildings, Data Centers, Infrastructure and Industries. We are committed to unleash the infinite possibilities of an open, global, innovative community that is passionate with our Meaningful Purpose, Inclusive and Empowered values. 

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Appendix – Further notes on 2020 

• Foreign Exchange impact: Based on current rates, the FX impact on FY 2020 revenues is estimated to be around +€400 million. The FX impact at current rates on adjusted EBITA margin is expected to be around flat. 
• Scope: around -€400 million on 2020 revenues and c. +20bps on 2020 Adj. EBITA, based on disposal actions in 2019. 
• Tax rate: The ETR is expected to be in a 22-24% range in 2020.
• Restructuring: For the full year 2020, the Group expects restructuring charges to be in the range €200 million to €250 million, in line with announcements in the 2019 Capital Markets Day.

Appendix – Revenues breakdown by business 

Fourth quarter 2019 revenues by business were as follows:

H2 2019 revenues by business were as follows:

FY 2019 revenues by business were as follows:

Appendix – Consolidation  

Appendix – Adjusted EBITA, Analysis of Change 

Appendix – Results breakdown by division 

Appendix – Adjusted Net Income & Adjusted EPS

In 2019, the Group has changed its definition of Adjusted Net Income, which includes the adjusted EBITA, PPA amortization (excluding impairment), net financial income & loss, income tax expense on the above at the effective tax rate, discontinued operations net income, share of profit & loss of associates and impact of noncontrolling interests. This enables the Adjusted Net Income to be more transparently derived from the financial statements. The 2018 Adjusted Net Income has been restated to reflect the revised definition, resulting in an increase of +€12 million compared to the published figure. The Adjusted EPS for 2018 improves by €0.02.

Appendix – Impact of IFR16

The Group has adopted IFRS 16 on January 1, 2019, according to the modified retrospective approach. Under this method, the standard is applied retrospectively with the cumulative effect of the initial application on the date of application.

The impact on the 2019 results are as follows:

Income Statement
-  Adjusted EBITA improves by €21 million
-  Finance costs are higher by €39 million
-  The tax impact is a reduction in the tax charge of €4 million
-  Overall the impact on Net Income is a reduction of €14 million 

Cash Flow
-  Free cashflow is increased by €274 million
-  Cash flows from financing activities are decreased by €274 million

Balance Sheet
-  Property, Plant and Equipment is increased by €1.1 billion
-  Other liabilities are increased by €1.1 billion

Appendix – Free Cash Flow and Net Debt

Appendix – ROCE

1. Subject to Shareholder approval on April 23, 2020
2. At this point, the potential revenue impact of Coronavirus is expected to be around €300 million in Q1, mainly in China, and expected to be almost entirely recovered through the rest of the year, largely in H2.        
3. Excluding FX but incorporating impact of disposal program
4. FCF at €3.2 bn, up +52.3% excluding impact of IFRS 16 (€274 million)  
5. Adjusting for the U.S. panel impact in Q1, FY 2019 organic revenue growth for Industrial Automation North America was c.-2%
6. Adjusting for the U.S. panel impact in Q1, FY 2019 organic revenue growth for Industrial Automation was c.+1%
7. Changes in scope of consolidation also include some minor reclassifications of offers among different businesses.
8. See appendix Adjusted Net Income & Adjusted EPS
9. Includes IFRS 16 impact of +€274m in 2019
10. Price net of raw material impact
11. See appendix for Adjusted Net Income calculation
12. Subject to Shareholder approval on April 23, 2020

SOURCE Schneider Electric

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