Schneider Electric’s Future Financial Health

free essayOperations of Schneider Electric can be traced from early 1800’s. The company has had operations in various industries including: ship building, steel and iron industries, as well as heavy machinery. However, Schneider Electric has been constantly scaling down its operations in other industries, so as to avail more funds towards investing in energy (electricity) provision. Schneider Electric began venturing in electricity in the year 1891, and in 1919, the company managed to enter the Eastern Europe and Germany markets through EIFU (European Industrial & Financial Union).

Since the year 1919, Schneider Electric has partnered with other companies in an endeavor to facilitate the manufacture of electric equipment as well as power generation. Between 1980 and 2000, the company managed to develop a policy that aimed at focusing on the electricity industry while abandoning non-strategic activities. In order to achieve this goal, the company utilized an acquisition strategy, and the major acquisitions were accomplished in 1991 (Square D) and 1992 (Merlin Gerin) (Bernasconi, 1981).

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2.0 Analysis of Fundamentals: The Revenue Outlook

Until the end of the year 2012, operations at Schneider Electrics were organized around five distinct businesses. The businesses included infrastructure, power, information technology, as well as buildings and industries. The Group has since regrouped, and its historic businesses are now under an umbrella that is referred to as the Partner and End User Group (Kiessling & Puschmann, 2009).

  • The Partner Group is essentially comprised of what used to be regarded as the Power business during the earlier arrangement. This was renamed for the purpose of highlighting its focus on the model of business that is geared towards partnering with the customers.
  • The End User Group is focused on an end-user model. It has managed to regroup the rest of the business activities including building and infrastructure, as well as information technology.

As it has been the case throughout the Group’s history, each of the business segments is required to assume the responsibility of targeting the end-market segments. Such a level of success at a time when the global financial crisis was still being experienced indicated that the Group’s financial outlook was healthy. The table below indicates a significant section of the improvement that has been experienced within the last four years (Kotlikoff & Burns, 2004).

The figures in the table indicate that the organization was able to deliver sales and profitability, which were record breaking during the year 2010. During that year, the Group’s sales figures were in excess of €20 Billion. This was record breaking since it had not been attained any time before. The entire Group’s activities registered significant growth during 2010. The revenue acquired in 2010 and the trading period that followed has enabled this group to refocus on its strategic goals. Indeed, it has been appreciated to have enough revenue to facilitate the improvement of end-markets, consumer-focused activities, as well as indispensable footprints towards future growth (Smith, 2012; Morris & Morris, 2002).

3.0 Investments towards the Support of Business Units and Strategies

The Group’s solid balance sheet is believed to be what enabled the organization to pursue value creation, external growth, as well as the accelerated strategic deployment. The group registered continued growth all through and, as it is indicated in the table below, the fourth quarter sales of the year 2010 went beyond 5560 Euros for the first time in the company’s history. Indeed, this was a 36% increase within a very short period of time. The table below indicates the Group’s growth during the 2010 fourth quarter. The figures are broken down business by business (Smith, 2012).

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According to the available statistics for 2010, the Group registered over 50% rise in sales during the fourth quarter. Sequential improvement associated with the rest of the units was confirmed. The growth was aided by improved key market trends and, in particular, the infrastructure and energy segments. Since that historical growth, the supplied voltage did continue to accelerate. This benefitted the upturn trends in most end-markets (Smith, 2012).

3.1 Sales Revenue Outlook

The above graph depicts the sales revenue in terms of markets in which Schneider Electric operated during 2012. It follows that Western Europe is the major market, followed by Asia Pacific, North America in that order. More specifically, Western Europe accounted for 30% of the total sales revenue in 2012, while Asia Pacific, North America and the rest of the world accounted for 27%, 25% and 18% respectively (Smith, 2012).

The above graph depicts that the sales revenue for Schneider Electric has been fairly rising. In this regard, the sales revenues for 2008, 2009, 2010, 2011 and 2012 were 18,311, 15793, 19580, 22345, and 23946 million euro respectively. This means that there has been a constant improvement in the business performance (Smith, 2012).

Sales Revenue in terms of Business Units

The above graph shows the sales revenue generated by various business units. It is clear that the main revenue generating business for Schneider Electric is power, followed by infrastructure, industry, IT and buildings, in that order. More specifically, power accounts for 37% of the total sales revenue while infrastructure, industry, IT and buildings account for 22%, 19%, 15% and 7% respectively. These results can be justified by the fact that Schneider Electric has been scaling down operations in other businesses and concentrating more on power provision.

During the following month, April 2011, the Group acquired the Lee Technologies. Lee Technologies was a leading provider of services relating to North American data centers. These acquisitions empowered the group to overcoming the challenges that were associated with the turbulence of the global economic crisis. During the month of August 2011, the group managed to acquire Telvent, a leading software and solutions vendor. The acquisition availed value and real-time managerial capacity. This was especially noteworthy where critical infrastructures were concerned. The company is highly empowered to offer services via the smart grid, as well as a host of other efficient infrastructures. It is for this reason that it has managed to retain its dominance in the industry despite the entry of other equally powerful players (Smith, 2012).

4.0 Future Profitability and Competitive Performance

The Group has made decisive steps in laying the path towards profitability. This development is encouraging, considering that the industry is undergoing a major realignment with regard to the technological landscape. The Group is, therefore, considered to be competitive in the increasingly complex market place. Technological innovations and better planning and management are among the factors which are believed to make profound impacts on the present, as well as future profitability.

Schneider Electric does also guide the clients through the current challenges within the market. The Group avails expertise on the utilization of the infrastructure in a manner that is flexible. This is important since it avails a combination of partnerships across the entire electrical industry. Appropriate arrangement enables the stakeholders to meet a host of perplexing challenges while achieving the strategic business goals (Smith, 2012).

From the implementation to planning of activities, the harnessing of the next-generation efficiencies has been made possible through the virtualization of infrastructure. Indeed, the stakeholders can facilitate a full transformational lifecycle within the recognized frameworks. They have been able to master the best security processes and practices and, with a strong approach to business, the management has been able to support sustainability and efficiency (Weston, 2005).

5.0 Future External Financing Needs

Schneider Electric’s technology and expertise allow the Group to offer the best solutions in the industry, which facilitate the streamlining of the business practices and processes in the most reasonable and cost effective manner possible. The Group’s expert consultants are able to design, implement, as well as maintain the best practices on the basis of the enterprise’s business requirements. The organization’s portfolio includes (Weston, 2005):

  • The implementation of solutions in a manner that meet the intended business processes. In particular, utilities are considered to be some of the items which gain profit.
  • The processes and data integration is achieved via SOA and middleware environments, and this facilitates the company’s own as well as other third-party business solutions.
  • The Group has implemented unique operational solutions which enable it to manage numerous complex events as well as high performance reporting. This enables the organization to solve huge chunks of data within a short period of time.
  • The architectural design and its implementation necessitate an accurate utilization of information, and this is based on universes, data warehouses, as well as the in-memory technologies.
  • The process implementation facilitates the administration of people, incentives, and payroll calculations by the use of chief human capital management resolutions. This includes Meta 4, SAP HCM, as well as PeopleSoft.

6.0 Access to External Sources of Finance

The stakeholders appreciate that, if the organization is to continue thriving, then it is important that it could start on projects, as well as finance and manage them without unnecessary impediments. The stakeholders aim at making the organization the company of choice of most clients, especially considering that the number of players has increased (Weston, 2005). The stakeholders have already assessed most of the challenges in terms of implementation of projects. They identified the barriers which impede growth, and they have been addressing them in a manner that creates appropriate conditions for growth. The following graph indicates the reasons for seeking external funding. The graph is developed using data relating to the period from the year 2007 to 2010 (Smith, 2012).

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Since the onset of the financial crisis, organizations have been experiencing challenges while accessing external funding. The economic challenges facing the Euro Zone have expounded this problem. Nonetheless, since the Group has managed to come up with appropriate steps, its access to external finances for investment and management of growth has been sustained. All said and done, there are a number of structural issues which have to be addressed before the greater opportunities can be realized (Bridgforth, 2007).

The above graph indicates a number of methods which can be utilized for the purpose of securing external funding. However, since 51% of the funding for projects is sourced internally, the graph indicates a number of means, by which the organization supplements such funding. The main source is the bank overdraft, while the least significant are the loans acquired from several other parties.

7.0 Viability of the 3-5-Year Plan

Business plans are formal statements which are prepared for the purpose of setting goals. They are based on what the organizations in question believe to be attainable. They are also consisted of the organization’s background information, as well as the information which empower teams into achieving their goals. For Schneider Electric, its business planning is based on the targets in branding and consumer perception. The existing business ventures are assumed to last way over 5 years; therefore, the organization has come up with 3 to 5-year plans so as to implement its strategic plans in the best manner possible (Enriquez, 2001).

The planning takes care of revenue shortfalls as well as cost overruns. This has been found to be important since revenue and cost estimating is important for any planning to take effect. Plans make it possible to assess the viability of ventures and also assess the risk of experiencing overruns, shortfalls, as well as non-viability.

The Group’s strategic plans are viable since they include all financial liabilities, as well as legal concerns which the stakeholders find being detriment investments. Depending on how much is being planned for, caution is exercised since failure to take precautions may result into severe financial jeopardy. However, all important aspects are taken care of; therefore, the plans are viable.

8.0 Stress test under Scenarios of Adversity

The Group’s major source of stress is the financial crisis. The crisis cause impediments towards credit flow from individuals as well as the financial resources. Such situations cause adverse effects and unexpected substantial loss of investments. The organization does, however, have an effective system of risk management, and this means that it is able to mitigate stress. The organization is able to utilize various financial instruments for the purpose of obtaining financial resources (Fuchs, 1993).

How It Works

The Group has recently acquired stakes in the Solution business. This and other acquisitions have enabled it to focus on technologies, which may be integrated and combined with the existing infrastructure in an endeavor of enhancing the management of the clients’ requirements. During March 2011, the group acquired the Summit Energy. This acquisition was a leader with regard to the outsourced energy solutions, as well as the sustainable development undertakings. This is meant for commercial and industrial institutions and enterprises.

Such development prompts the external stakeholders to consider cooperating with the Group despite the challenges in the industry. External stakeholders are able to offer their financial support through stocks and bonds. As it has been explicated in earlier sections of the paper, the organization does also manage stress due to its appropriate form of leadership. With leadership, willingness to venture in broad new areas, and accessibility to financial resources, the organization has managed to continue implementing its strategic plans in an unabated manner (Loeb, 1996).

9.0 Current Financing Plan

The following is what makes the Group a strong provider, and an organization which has a competitive edge versus the others.

  • The Group’s market: this is what makes it a leading player in the industry of automated solutions.
  • The organization is able to deploy the services within the least time possible, which results in a reduced level of operational costs.
  • The group has also formed a strong partnership with other key players and providers within the organization.
  • The Group deploys services within three main domains: the human resource, business intelligence, and enterprise resources.

Such a clear strategy has made it possible for this organization to secure opportunities for future external finances. The planning that has been done by the management of this organization has made it possible for financial providers to consider partnering with this organization. The willingness is also boosted by the past positive performance, especially within the past three years. Additionally, the mergers and acquisitions facilitate the expansion of the revenue base. The expanded revenue base means that the organization can access funds for future projects without challenges (Smith, 2012).

10.0 Conclusion

The Group has also endeavored to become a consultancy as well as an information technology integrator. In this regard, it is geared towards specializing in sustainability and efficiency. The fact that it has been offering a distinguishing combination of technology and knowledge has enabled it to have cutting edge competitiveness as well as the capacity to survive in an ever changing industrial environment. The competitiveness of this organization is evident in the sense that over 90 percent of the customers opt to renew the contracts they have with the Group (Smith, 2012).

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As it has been explicated above, the Schneider Electric Group began the year 2011 with a solidified momentum. Basing on that renewed phase cycle, the Group endeavored to make investments which were thought to be geared towards energy efficiency, smart grid, as well as new economies. In parallel, the Group endeavored to progress with the drive cost efficiency, and this was in line with the strategic roadmap that the stakeholders had managed to pursue.

The enhanced revenue within the recent years, as well as appropriately designed solutions, enabled the organization to register positive growth in such markets as Asia-Pacific, Russia, and Latin America. The company manages to attract more customers due to its provision of comprehensive solutions and products. The solutions facilitate the controlled and logical growth in a manner that benefits all units in the most reasonable manner possible (Brock, 2004).