RUEIL-MALMAISON, France — Schneider Electric released its second quarter revenues and half year results for the period ending June 30, 2017.
Jean-Pascal Tricoire, Chairman and CEO, commented: "In the first half of this year, we deliver a solid organic growth of +4.1% in Building, Industry and IT and a total organic growth for the Group of +2.7%. In line with our plan, we continue to grow our profitability, achieving +60bps improvement in our adjusted EBITA margin. We also deliver strong cash generation with Free Cash Flow up +15%. In H1, we continue to maximize the synergies between our technologies through our integrated sales & delivery model, providing added value for our customers. We continue to grow our products, services & software and improve margin on systems. Infrastructure Rebound is on track, achieving double-digit margin in the last 12 months with an H1 margin improvement of +1.5pt. We project the next phase of the Rebound, with the aim to improve the performance of Infrastructure to the next level. Our Digital EcoStruxure platform is accelerating and we continue to scale up in our 6 domains. Following this strong H1 performance, we raise our objectives for 2017."
2017 Q2 revenues were €6,333 million (USD $7,439 million), up +2.2% organically and +2.9% on a reported basis. Excluding c.-€60m (USD -$70.48m) from project selectivity and ~-1.5pt working day impact in the quarter, organic underlying growth stood at c. +4.7%.
Organic growth by business
Building (Low Voltage, 43% of Q2 revenues) was up +4.2% organically and showed solid growth across all four regions. The Group's strategic initiatives delivered good results: Final Distribution & Wiring Devices was up c. +5% thanks to initiatives leveraging its partner network, and EcoStruxure Building showed encouraging results. North America saw solid growth in Final Distribution & Wiring Devices. Additionally, the U.S. benefitted from good traction in datacenter and healthcare segments, as well as the execution of projects in energy performance contracting. Despite a negative working day impact, Western Europe grew in favorable endmarkets. Asia-Pacific performance benefitted from good momentum in China where construction remained positive and diversification to targeted segments delivered results, while Australia remained negative though sequentially improving. Rest of the world was positive, with particularly good results in CIS, thanks to the medium offer strategy, and Africa. South America was down while the Middle East was slightly up.
IT (Secure Power, 15% of Q2 revenues) was about flat in Q2 organically. The Group continued to see good trends in datacenters, particularly in 3-phase and in medium and low voltage. The U.S. saw growth in 3-phase UPS, but the performance was impacted by lower sales in IT channels, although orders grew slightly, and racks. Western Europe was slightly up with growth in datacenters in France, Germany, and the U.K., notably in the 3- phase UPS offer. Asia-Pacific was up benefiting from strong growth in India, where the Luminous business performed well, and from growth in China, where the focus on the datacenter segment is yielding results. Japan performance was impacted by distributor destocking. Rest of the World was stable with growth in CIS but a decline in the Middle-East. Services continued to grow strongly.
Industry (Industrial Automation, 24% of Q2 revenues) was up +6.0% organically, with growth in all four regions. The Group saw continued success in its expansion into growing segments and benefitted from good growth in products sold through distributors as well as good momentum in its EcoStruxure offers. Process Automation returned to growth with increasing opportunities in brownfield operations. In this positive market, the Group has seen a tight market in the procurement of some electronic components which has tempered even further growth. China performed strongly with high demand from OEM and targeted segments. North America was up strongly. Western Europe was up with growth in German and U.K. OEM markets offsetting weakness in France. Software was about flat, still impacted by the weaker resources market of last year, though orders grew in the quarter.
Infrastructure (Medium Voltage, 18% of Q2 revenues) was down -4.9% organically, flat excluding selectivity initiatives which impacted revenues by c. -€60m (USD -$70.48m) in Q2. The Group continues to progress on the Infrastructure Rebound program focusing on growing transactional, services and EcoStruxure Grid, while turning around its lower margin businesses. An additional update on the Infrastructure Rebound program is provided on p.7. During the quarter, transactional sales grew in the U.S. and China, and the business saw good traction with service orders. Selectivity initiatives will be completed by Q4 2017, to reposition the business for continued margin improvement.
In Q2 the product business represented 59% of revenues and was up +3% organically. Services grew +2%.
Organic growth by geography
Western Europe (27% of Q2 revenues) performed well, capitalizing on channel initiatives employed across the region. In Q2 sales were flat after including the impacts of negative working days and selectivity. The trends remain favorable in construction and OEM markets. Spain, Italy and Germany grew, the U.K. was slightly down, while Nordics suffered from a high base of comparison linked to new ranges launched in 2016. In France, end market trends remained positive but performance was impacted by distributors' destocking, which should reverse in H2.
Asia-Pacific (28% of Q2 revenues) was up +6% organic, mainly driven by growth in China. China benefitted from strong growth in industrial demand and further repositioning on growing segments, including consumer related industries. India was up for the quarter. South-East Asia was mixed with good growth in Malaysia and Vietnam offsetting Korea. Australia was negative but showed some early signs of sequential improvement.
North America (28% of Q2 revenues) was up +1%. The U.S. posted strong growth in Building and Industry. In a positive construction market, Building continued to benefit from the rollout of some offers and from its focus on growing market segments such as datacenters and healthcare, and a rebound in industrial buildings. Industry grew in its offers for OEM, in a favorable market, and Process Automation improved. IT declined, though the outlook remains positive, and Infrastructure continued to be impacted by the weak capital expenditure demand from last year and selectivity initiatives. Mexico grew, mainly due to a favorable construction market. Canada declined on lower Infrastructure project execution.
Rest of the World (17% of Q2 revenues) was up +2% organically, driven by growth across businesses in Africa and CIS. Middle East continued to suffer from a difficult economic environment with additional impact seen in Qatar, while Turkey posted solid growth. South America was mixed, with Brazil stabilizing while Chile performance deteriorated in a difficult market.
Q2 2017 revenues in new economies were up +5% and represented 42% of total revenues.
Consolidation and foreign exchange impacts
Net acquisitions had an impact of -€8 million (USD -$9.40 million) or -0.1%. DTN (consolidated under the Infrastructure business) and some minor acquisitions and disposals in other businesses.
The impact of foreign exchange fluctuations was positive at +€51 million (USD +$59.90 million) or +0.8%, primarily due to the strengthening of the U.S. dollar and several new economies' currencies against the euro.
Based on current rates, the FX impact on FY 2017 revenues is estimated to be around -€250m (USD -$293.65m).
Half year 2017 results and more information can be found here.