Schneider Plans Share Buyback as Margin Forecast to GrowFrancois de Beaupuy
Schneider Electric SE, the world’s biggest maker of low- and medium-voltage equipment, plans to buy back stock, reduce spending and sell assets in coming years to focuses on profit growth and shareholders’ return.
Schneider will buy back 1 billion euros ($1.14 billion) to 1.5 billion euros in stock in the next two years, and is pledging not to cut dividends, maintaining a payout ratio of 50 percent of net income, the company said Thursday in a statement outlining strategy through 2020. Disposals of businesses that aren’t part of its main focus might lead to a capital loss of several hundreds of millions euros.
“We’ll try to maximize shareholder return through various levers,” Chief Financial Officer Emmanuel Babeau said in a phone interview. “We’re not closing the door to M&A” that would provide “quick returns” through bolt-on acquisitions in the manufacturer’s most profitable businesses.
The company reported 2014 earnings that beat analysts’ predictions and forecast that profitability will rebound this year as North America continues to drive revenue growth. The company is targeting a margin improvement over the next three years, 1 billion euros of “industrial productivity” and as much as 500 million of other cost savings by 2017 to adapt to a construction-industry slump, government austerity measures and weaker demand from utilities in western Europe.
Schneider fell as much as 0.9 percent and was trading down 0.2 percent at 69.85 euros at 9:04 a.m. in Paris. The stock has gained 15 percent this year, valuing the company at 40.8 billion euros.
Net income climbed 2.8 percent last year to 1.94 billion euros, Schneider said in a separate statement. Analysts had forecast profit of 1.91 billion euros, according to the average of nine estimates compiled by Bloomberg. The company, based in the Paris suburb of Rueil-Malmaison, plans to raise the dividend 3 percent to 1.92 euros a share.
Adjusted earnings before interest, taxes, and amortization increased 3.2 percent to 3.46 billion euros in 2014, representing 13.9 percent of sales compared with 14.3 percent the year before. Excluding currency effects, the margin rose 0.4 percentage point from the 2013 pro-forma level, which includes software maker Invensys that was acquired in January 2014. The margin gain was at the low end of Schneider’s target.
The adjusted-Ebita margin in 2015 will be in the range of 14 percent to 14.5 percent of revenue, assuming no negative foreign-exchange effects, the manufacturer said.
Sales rose 6.6 percent last year to 24.9 billion euros, a 1.4 gain when excluding acquisitions and exchange-rate fluctuations. Revenue exceeded the 24.8 billion-euro average of 19 estimates.
The company predicts “low single-digit” revenue growth in organic terms this year, and about 1.5 billion euros in extra sales from positive currency effects based on current rates, with “no material impact on the adjusted-Ebita margin.”
“For 2015, we see continued growth in North America, signs of stabilization in western Europe and a mixed picture in new economies,” Chief Executive Officer Jean-Pascal Tricoire said in the statement.
Business in India should accelerate this year while Russia will be a difficult environment, Schneider said. China is expected to have “a soft start of the year and should gradually improve during the year.”
Invensys is expected to continue to contribute to earnings growth this year, Schneider said. The first quarter “will be impacted by a high base of comparison notably in China and for Invensys, which may result in like-for-like decline in revenues.”