Circle of Energy Efficiency

French Power-Management Company Schneider Electric Push Into Emerging

Markets Defies Global Downturn
By Inti Landauro
October 31, 2011

PARIS—Jean-Pascal Tricoire is a compulsive traveler. "I spend my time on the plane,"

says the 48-year-old chief executive of French electrical-engineering and power-
management company Schneider Electric SA .
He is constantly visiting his company's factories, local offices and customers around the
globe. He says he spends 30% of his time in Western Europe, 25% in North America and
25% in Asia and the remaining 20% in other emerging-market areas. His time in Asia is
only likely to increase, as the company is currently overhauling its Hong Kong base.

"We have a strong corporate pole in Europe, another one in North America and we need
to strengthen the pole in Asia," he says. Hong Kong is "a place that puts me in the time
zone convenient for the Asian business."

Officially, he is still based in the Paris suburb of Rueil-Malmaison, he says, but his wife
and three children have already moved to Hong Kong to be able to spend more time with
him.

Jean-Pascal Tricoire, speaking to shareholders in April, has largely held off from big acquisitions for Schneider
Electric since becoming CEO in 2006. BLOOMBERG NEWS
It's Mr. Tricoire's fondness for travelling, meeting new people and experiencing new
cultures that led him to accept posts in Italy, China and South Africa soon after joining
Schneider Electric, 23 years ago.

Back then, he saw at first-hand the potential in the new economies, as he calls them.

At the time, Schneider was making electronic devices such as panel boards, switches and
circuit breakers to connect buildings, houses, factories to the electricity grid, plus
automation devices for opening doors, moving surveillance cameras and synchronizing
lights for factories, data centers and residential buildings.

By the late 1990s, when Mr. Tricoire returned to France from South Africa to run the
company's international division, Schneider had become a manufacturer of a full range of
electronics devices for industry and construction.

Customers at the time wanted "safe energy, no electrocution and no fire," he recalls.

But Mr. Tricoire and his team anticipated that such basic requirements wouldn't be
enough for long. As energy prices and environmental concerns increased, Schneider
started to offer customers bundled deals of its equipment plus services and software that
would allow them to cut their energy consumption through efficiency. At the same time
the company foresaw that rising demand for electricity from IT systems—"a real energy
guzzler," Mr. Tricoire says—would require new company infrastructure in both mature
and emerging markets.

The need for "intelligent," reliable and efficient electronics would be huge in emerging
markets, Mr. Tricoire realized. "When you go into a call center in India, they use top-
notch technology. Same thing in Brazil or China."

Mr. Tricoire pushed Schneider hard to develop these new markets, and this has turned out
to be a smart move.

In 2004, Western Europe and North America accounted for 80% of the company's
business. Now, emerging economies account for just over 40% of Schneider Electric's
revenue and their share keeps on growing, Mr. Tricoire says. Schneider's services and
equipment are in great demand in countries where energy is expensive, supplies are
unreliable and where electricity grids are patchy, as is the case in all the big emerging
markets. "This is where new cities are being built," Mr. Tricoire points out.

He was appointed chief operating officer in 2004 and two years later took over as the
company's chief executive and chairman.

Under his guidance, the company started selling its products direct to the final customer,
rather than through wholesalers.

A typical company that invests in Schneider's equipment and services recovers its outlay
in three to five years, thanks to the energy savings, Mr. Tricoire estimates. And demand
for Schneider Electric's products is likely to rise along with energy costs, says James
Stettler, an analyst with Unicredit. "The model is clever," he adds.

Mr. Tricoire is adamant that Schneider will continue to manufacture the equipment it
sells and won't turn into a service-only company. Its engineers are constantly working to
develop new products and new ways to make energy use more efficient, he says.

Schneider Electric's bet on emerging markets paid off in the 2009 crisis. Its exposure to
economies that kept on growing, such as China's, India's or Brazil's, even while
developed economies contracted, has shielded Schneider from the more serious effects of
the crisis.

Its sales revenue in 2010 was 6.9% higher than two years earlier, before the crisis hit,
whereas peers still saw 2010 sales falling short of 2008 figures, Swiss-based ABB Ltd by
13%, and German-basedSiemens AG by 1.7%. All three companies experienced falls in
sales in 2009.
"We maintained the margin at a very high level and we had the best cash-generation level
ever" in 2009 and 2010, Mr. Tricoire says.
But Schneider's business model has its limitations; earlier this month, the company
lowered its operating margin target for 2011 to 14% from a previous 15%, citing higher
commodity prices and slower sales growth in Europe, where margins are wider.

Mr. Tricoire says inflation and wage pressures in Asia also put a squeeze on margins. He
says, however, that the company will eventually be able to pass on the rising commodity
prices to its customers.

The company's track record makes Mr. Tricoire sanguine about the coming months, even
as companies are finding credit harder to come by as banks shrink their balance sheets.
"We haven't taken too much risk and we are already prepared," he says. The company has
a credit rating of A- and its activities generate enough cash to keep it "on the good side of
the equation," he says. It has managed to borrow at competitive interest rates, he says,
pointing to an eight-year bond the company recently sold with a coupon of 3.65%.

"Crises are always times of opportunity; crises force the decisions," Mr. Tricoire says.

Schneider took advantage of the last crisis to rejigger its corporate structure and
streamline its various different units. Crises are also good, he says, for strengthening
teams and personal relationships within a company.

And despite the tough economic times, Schneider Electric and its boss are planning
expansion. "We know where we want to develop, we want a more complete portfolio and
more complete geography," he says.

In the past, Schneider has expanded by opening new plants and buying up local
manufacturers. Since 2009, the company has added almost €3 billion to its annual
revenue through acquisitions.

Under Mr. Tricoire's management, it has held off from big acquisitions, with the
exception of the €1.4 billion purchase of U.S.-based software company Telvent GIT and
a stake in the distribution and transmission unit of French state-controlled energy
company Areva SA.
Mr. Tricoire admits he is cautious on acquisitions, preferring to buy small, family-run
firms with which Schneider has already worked. "We have been quite successful in this
model of acquisitions," he says. "We know what we are buying and what we are doing."

Write to Inti Landauro at inti.landauro@dowjones.com