In Brief: Schneider Electric SA

Schneider Electric calls itself the “global specialist in energy management,” providing solutions, products, services, and support in electrical distribution, automation and control.  Well-established and super-sized, (worth over $27 billion), Schneider’s mission is to address all aspects of sustainable development.  Schneider serves the energy and infrastructure, industry, data center and networks, commercial buildings (hotels, hospitals, offices, retail) and residential building markets.  Its specialties include design, manufacturing and sale of products, solutions, and services for electric distribution, automation and control (see detail in sidebar).  Company products are marketed under various brand names including Square D, APC, Merlin Gerin, and Telemecanique.

The company uses a proprietary tool, the Planet & Society Barometer, to measure its corporate social responsibility performance.  With criteria covering people, environment, community and governance issues, the barometer defines the company’s commitment to promoting sustainable development.

Strengths

Schneider is well-established with a large global presence in over 100 countries.  The company is broadly diversified throughout the global regions - 44% in Europe, 27% in North America, 19% Asia-Pacific, and 10% in the BRIC countries, with plans for further expansion in these regions.

The company provides solutions for the segments responsible for 72% of the world’s energy consumption –infrastructure, industry, buildings, and residential markets.  Using its energy efficiency solutions, Schneider proposes that up to 30% of this consumption can be saved.

The company’s new EcoStruXure energy management platform is meant to "declare war" on electrical system waste.  The initiative is built around understanding the end user.  Four elements of its approach to the energy efficiency lifecycle are:

1)   Energy audit and metering

2)   Fixing the basics through lower consumption devices

3)   Automating solutions for building and power management, motor and lighting control

4)   Monitoring the solutions and consulting

The company has committed to education of the next generation of workers. Schneider launched Energy University, a vendor-neutral series of online courses, complete with quizzes. The Web-based information center courses and white papers focus on energy efficiency.

Schneider Electric's EEM technology gives managers a Web-enabled dashboard presenting key performance indicators to validate the resulting return on investment of efficiency projects.  With a built-in rate engine, EEM supports accurate utility bill analysis, cost allocation, forecasting and rate comparisons to optimize energy procurement. The software also offers advanced power quality event classification, filtering and correlation to quickly isolate conditions that may be causing production disruptions or equipment damage.

Schneider’s solutions and strategies for market growth seem to be working.  Doubling in size, largely through acquisition, between 2004 and 2008 the solutions-based businesses within Schneider rose from 36% to around 50%.  Strategies guiding the solutions businesses:

1)   Customized solutions with strong energy efficiency benefits

2)   Promotion of a common architecture (EcoStruXure®)

3)   Alignment with end-user segmentation

4)   Strengthening presence in new economies, especially Brazil, Russia, India and China

5)   Using local R&D and marketing promotion to better fit markets’ specificities

6)   Using local sourcing and manufacturing

Challenges

Schneider has made simplification a pre-requisite for many of its strategic initiatives.  Its goals – to cut products and suppliers in half, active brands from 155 to 10, paring operating sites by 30%, and reducing reporting entities by 40% –over the next 3 years are ambitious indeed.

FY 09 sales are projected to be down by 15 percent over FY 08.

Schneider Electric agreed to settle a 3-year patent lawsuit brought by Chinese rival, Chint Group.  The payment of 157.5 million yuan ($23.05 million) is nearly half the original award. 

Our View

Schneider understands the demands and opportunities in the new energy world.  This understanding has led Schneider to transform itself from a products business to products and solutions business.  The energy management solutions start with an end-user focus.  Fundamental to Schneider’s strategy is the one team / one customer approach for providing all of its solutions.  Along with that, Schneider’s commitment to energy-efficiency and green products puts them at the head of the pack in social responsibility.  

With an ambition to be the champion of the new economies by 2011, Schneider’s playbook covers boosting R&D and marketing in those regions, keeping it as local as possible.  It wants to make SE’s brands a household name in those regions.  By moving more of production to those regions, it intends to capture opportunities in productivity.

As an investment, the company’s valuation is compelling when measured against other companies in the electrical category, offering the highest dividend yield in the sector.