Well, all right. Good morning, and welcome. Welcome to all of you. I'm so happy that we have a pretty full house here today. I'd also like to welcome so many of you who are joining us on the webcast. I believe that we had more than 1,000 registrants for the webcast as well. So delighted on behalf of all of Schneider Electric to have you here for our Capital Markets Day of 2023. You know, when we were planning for this day, one thing we wanted to be sure of was that we wanted to use a customer site. And I have to tell you that we were inundated with the options that we had, but we finally chose this magnificent venue today, which is the world's most technologically advanced stadium. And what's exciting is that it's full of Schneider technology.
You'll have a chance to experience it all today, later in the afternoon. At the same time, I want to talk about the agenda that we have for today, but before I do that, just a quick reminder of the disclaimer. You know this well. We talk about it. But when we work out the agenda for the day, and as we were planning it, you know, we've really taken the feedback from all of you in the last several months. So what we have is the opportunity to meet and listen to a lot of our executive team. Several of them will be up on the stage here today, and several others are in the room, so please take the opportunity to meet with them as well. We'll obviously talk about strategy. We have a specific focus on software, our agnostic software portfolio.
We are gonna talk about end markets and key segments, and more importantly, what are the offers, the specific offers that we have for those end markets. We do have a break in about two hours' time, at 10:30 A.M. And then we have sessions with our businesses focused on innovation and R&D. And then, obviously, it's the financial targets, and you probably are already aware that we have a financial press release, which has been, which has been, released this morning. We will have a Q&A session, and after that, I'll come back with more details, but there'll be the opportunity to see the technology in action.
I have to point out that we have some very special guests with us today as well, some customers who have come, and we're excited to be able to have discussions with them as well. So that having been said, without further ado, I'm delighted to welcome on stage our CEO, Peter Herweck.
Wonderful good morning from my side as well. Really delighted to be here and have this in person. We've had, I think, the last 2 or 3 capital market days that I participated in, in Schneider, of course, in a different function. We just looked at this camera and you know, no feedback in the room, so it's fabulous to be in person, and then, of course, also have 1,000 people online. This is a great showcase place. I went and looked yesterday. Really impressive. Really, really impressive. Also, for other clients that have come here copying the technology, you'll see that later on. You know, you wouldn't imagine what this building here can actually absorb in respect to technology.
I think nothing that we're doing, you won't be finding here in the location, so that's, that's great. There are two things I want to achieve, today at the, at this presentation. Number one is to talk, talk about the next Nrontier, for the, for the group, and, in that, what is our number one value driver, for the company, which, we believe, is growth. Secondly, as we're kind of, you know, bring the company more and more into the tech space, we talk about industrial tech, and I wanna, leave you with, some key insights why that's, that's the case. Of course, please don't, expect a revolution here.
I've been in the company for seven years, so this is rather, you know, a change in continuity with what I will promise you a stringent execution. Now, you know, the company is, for those many of you follow us for a long time, we're just amazingly simple, a powerhouse of electrification and digitization. Very simple, no distraction, and an ESG champion. That has really positioned us so well in the market, and we say sustainability is driven by electrification and digitization. When we say digitization, that's, of course, automation, and our software together in that space. The sustainability approach and the software approach has started to bring us at the C-level of our clients.
Many people that follow us for many years, we've evolved from being a pure partner-led company to now being close to our customers with a big portion of our business, and have really the talking points in respect to sustainability and digitization with our customers at the C-level. Now, our distinct Multi-Hub setup, and I'll talk about this a little bit more because we think it is very special. Our clients think it is very special, and you'll see it is very special, has brought us forward in a very world-leading portfolio, that is adjusted to the geographic needs where we are active. Now, of course, I was handed the keys of a company that's in good shape.
Here at the 2022 final values that we had in revenue and profitability and in free cash flow, three KPIs that I will follow on very, very stringently. Now, you know, we're a committed guardian of the company, and I always say the key of the company has just handed to me, and I'm very humbled to have taken over a company and the legacy that has been built over the last 35, 40 years, with a technological leadership, then with a sustainability focus. Very proud that I have personally participated the last seven years in building the digital transformation of the company with a couple key acquisitions that we've done, and we'll talk about what's next in that respect.
Now, you know, as I said, as we curated our portfolio to drive the decarbonization and sustainability at our customers in the core, on the electrification side, I think it's very clear to everybody, clear number one position across the world in all geographies, in the US, in Europe, in India, in China, no question, a number one position, and very well-positioned also against the local players, which is very, very important. Now, when you move to the automation side, you know, a full liner, from grid to building to process automation to discrete automation, we've built a distinct portfolio that allows us to have specific position with great products and, you know, trying to disrupt the automation space with a software-defined automation as we go forward.
Now, on the digitization side, really, really leading end-to-end life cycle software portfolio in exactly what our customers do. That differentiates us from others. Now, let me go a little bit more into detail how we set this up also from a reporting perspective and how you see us from the outside. With the two distinct businesses, Energy Management, and, you know it, 2022, roughly a EUR 26 billion franchise, number one in medium voltage, number one in low voltage, number one in field devices and wiring accessories, together, and number one in UPS, by the way. So super great portfolio in that perspective. If we go to IA, reaching EUR 8 billion, roughly, last year, leading in safety, in the contactors, in other automation products, very distinctive position in motion.
Then on the control side, we're trying to disrupt the space with a software-defined offer that we're driving out. Now, these two franchises, with the software and the sustainability offer as the sticky glue for our clients, make us really, really, really unique. So on the software side, many questions. We've moved to a very high level of recurring revenue. We'll talk about this in much more detail as we've put our agnostic software together very quietly over the last couple of months. Very happy today to have representative of all our end markets of clients, either here or on video, who will be talking to you to give you an idea of what they do with our offers, with our knowledge, and to drive value.
Now looking forward, what are some of the key drivers for Schneider, specifically for us, that will drive the expansion of market? I'll talk about those 5 mega trends in the new frontier. I just want to give you an indication what we are thinking about the accessible market for us is 6%-7% CAGR over the next 4 years. That's EUR 100 billion more of market potential for us to capture, and I'll outline this a little bit more in the end markets so you can see why we believe that we're ideally positioned to drive in those markets. Let me go quickly through those mega trends, and I start off with the one that's on everybody's mind at the moment, digitization and AI. Of course, we've been talking about AI for 50 years.
Actually, as a young student, I wrote my thesis on AI. What happened the next 30 years? Nothing. Nothing. But if you look at the last 12 months, with the evolution of large language models and AI, this market has tremendously taken off. I believe it's bigger than the World Wide Web from what we see in the future. It will need massive compute power. We like compute because compute needs power, compute needs cooling, compute needs more data centers. It will also drive much more usage of structured data and applications and connected products, all the things we've built and lined up over the last couple of years to be able to materialize on this trend. You'll also see that the Digital Twin with this technology will have a totally new meaning.
When Rob presents it later on in the next presentation, that you will see fabulously how we can use that technology also embedded in our products. So a great presentation to come. Second mega trend, climate change. This is a big problem... a big challenge for all of us, and I believe our generation and technology needs to help to resolve this challenge in that respect. It will also change the energy landscape in respect to generation. While we're not in generation, of course, we help energy generators to drive new energy forms forward. While hydrogen and carbon capture storage utilization are still at its infancy, they generate quite some nice revenue for our software companies to be able to design and build and simulate these plants as they come to market.
You will see later on as well. Now, on the nuclear side, it's probably a renewal of nuclear, ideally positioned as well with our franchise in electrification, also in automation, and then in the software. Some of our software offers are the only software offers that are qualified and allowed to do simulations and usage in the nuclear environment, in ETAP. So great opportunity for us. We think nuclear is gonna be big. The biggest of those four is what we call a prosumer. So let me go a little bit more into detail in respect to the prosumer space. So you consume, you produce, and you control your own energy environment in your ecosystem. That can be a building like this one.
You'll see that today with some of our power advisors that are here in the building. It can be a residential space, where you have an app to control your energy usage while you're at home or maybe not at home, and it's different also from geography to geography. Even in some geographies, if we take the U.S., for example, and Aamir can talk much better about this, and we sure will, but if you go to California, for example, there's regulation. Every new house needs a solar rooftop. That has influence on your panel in the house. Now, in the U.S., four out of ten panels are our panels. I mean, it's the customer's panel, but our stuff is in there. We build it, our contractors have built it, our electricians have built it.
You go to another market, I just was in Germany two weeks back, and in Frankfurt, they're building one large complex, four houses, smallest one, 120 meters high, the largest, double. Multi-usage. You go into the garage, 400 charging stations. 400 charging stations. In this new development, everything from Schneider. Of course, you need to manage your energy within this small mini grid to be able to balance the loads that you have. And if you come as a user, you wanna reserve your meeting room, you wanna reserve your charging place, and so forth. So that's where some of our software is used.
That's why the multi-hub concept is so important, because our people understand locally what the requirement is, and it is different, and they have the ability to decide and translate it into products. Of course, we make sure that it's on the same platform. So quite an interesting market that we believe will double in the next four years. Our first hardware offers and software offers have hit the market or will hit the market this month, and we go geography to, by geography to build it out. Also, a couple software companies we bought early stage, as you can see here, and we're starting to bring those together, as we grow them and materialize on, on their abilities. Now, when we talk about the energy transition, energy transitions, because again, different by geography, big, big, big opportunity for us.
Two things I want you to remember from this slide. One is 2020, 20% of the energy mix is electrification. 20%. Electricity is the most efficient secondary energy form on the planet. No need to go from electrification to something else, to something else, to go back to electricity, and in between, lose a lot of percentage. So this will go from 20% to 30% in 2030 to 50% in 2050. So a huge expansion of electrification, plus the incremental demand on energy that I've been talking about. The second is, of course, how do we, how do we help to decarbonize? And already today, the technology that we have can actually decarbonize or remove 70% of the CO2 in respective markets.
If I, if I move to what we call the evolution of wealth, others would say, you know, how is the, how is the world expanding? Where will it expand? Big opportunities, again, for Schneider. If you just look at the population growth and the growth in urban areas, and the amount of people that will come into those areas, we, we are talking rather the southern hemisphere, of the planet. So India, Middle East, Africa, very important position for us, and most people don't know, if you look at India and the Middle East, Africa, that's roughly, for our business, the size of China.... It's big. It's very big. And if you need to build space for those people to live, we need to build 100 billion square meters of living space.
For those who like sq ft, it's an even more impressive number. It's 1.X trillion, 1.1 trillion sq ft of living space that needs protection. It, it needs power products. And I tell you, in those areas where it's built, the population is much, much younger. They expect digitization from day one. If you go to India, at least, I know of 13, 14 smart cities being built. All of them, deploy AVEVA software and other products from, from Schneider. These cities will be built digitally. Big opportunity for us. But then, you know, we shouldn't, we, we shouldn't be depressed. Also, in, in Europe and other, mature, economies, we need to refresh what we have. We need to refresh what we have because we need to decarbonize.
If we continue to decarbonize at the speed that we're taking at the moment, it's gonna take us 150 years, 150 years, to decarbonize the existing infrastructure. So we need to go 10 times faster. That's why we're so glad with the International Energy Agency in June, when we're sitting together with 40 CEOs and even more government officials, that we jointly developed 10 actions to go 10 times faster in the decarbonization of the existing infrastructure. That's the big opportunity again for us. Now, last megatrend, what we call the new equilibrium. It's complicated, and we believe it will become more complicated. And the landscape, the new landscape, may pose risks. At the same time, we believe we're very well prepared, again, with our multi-hub setup. Why is that?
Because we can decide locally what products to do, how to do them, manufacture them, and be almost independent in those geographies. The good thing is that in these important geographies, some of my executive committee colleagues sit. They're local there. So when we sit at the table and discuss in our executive committee, I have eight different passport holders, and they come from eight different countries, very deeply rooted, and they understand what's going on. We don't need to call somebody. We're all sitting at the same table to be able to decide. And these countries, we can have them run quite independently, which may be necessary if, if needed. Of course, there is also opportunity because people start reshoring. They start worrying about their supply chain, so it's all good for more automation and for more electrification.
Why do I say both? Because automation, because of the workforce that may not be there in the country. Secondly, the bill of material in respect to energy is gonna be one of the highest ones that you have if you move to some other geography. So you wanna reduce your energy bill, plus you need to automate, and the best thing is you do it together, and that's where Schneider comes in. So quite good for us, and there are big investments in the U.S., in Europe as well, and in India, supported by government programs. You know all the abbreviations. I'm not gonna go through those. There are plenty of them, and I'm sure we're gonna be talking about this.
So we have a very, very, very good visibility on what's going on in those markets, into the pipeline, into the projects that are coming, and with that, we can and want to be bold in our ambition. Again, these megatrends just reinforce our strategic positioning and vision. It's very important because maybe everybody has it, but it's about how are you positioned to materialize on those unprecedented opportunities? Of course, we're seeing that there are some volatilities in the market. You know, we're not blind about those, but one needs to see the bigger picture, and then on a quarter-by-quarter basis, we worry about what's going on in an agile fashion, and we'll talk about this as well as we go into some capital allocation and so forth. And the end markets that we've chosen, very, very good.
It's deep into the company, because if you see the megatrends, it's all about making the best out of the energy and resources that are there to bridge progress to sustainability for all. Remember the 1.5 billion people that are more in the Southern Hemisphere? For all. And that's why you need to be, and our mission is to be the digital partner for sustainability and efficiency. Now, I'm not gonna go into all details, but we hear you. You'd like to have a little bit more detail on, you know, our end markets. What are the specific segments? What's our positioning? How do we see the CAGR of those markets a little bit more differentiated? And, what are the key drivers to drive growth as we see it? What's our business model in respect to product systems?
And you see, in particular, and that, that's what I want to point out, our distinct position in industry and infrastructure is because of the, you know, the combination of energy management and Industrial Automation and software. And you see it's the highest software content on a percentage basis in infrastructure that makes us so unique in those markets. You know, we've picked, of course, also carefully the end markets where we want to be active, because we have distinct offers that allow us to be successful in those. Now, you know, everybody, of course, wants that we talk about data centers. We do. But we have some showcases outside, because it's probably the largest opportunity at the moment that's in front of us.
It's top of mind of everybody, how we can serve that demand in a good way, respectively. You know, we have an unprecedented set of offers that you can see here. It's very, very small, or maybe here's a little bit larger. Just shows you the comprehensiveness of our set of offers to attack this market, to take away interfaces for our clients, to make it very simple for them to drive solutions forward in these high-productivity data factories that we're doing there, be it a hyperscaler or colocation provider. And a lot of the AI will also go, at a certain point in time, to the edge, where we also have a very, very strong position. Today, 19% of the group, undisputed number one position, Schneider Electric. Undisputed.
You calculate yourself the revenue that we have here. It has been, and it will continue to be, a double-digit growth market. You can go back and calculate the last couple of years, and you'd say, "Well, this was not 10%." No, it wasn't 10%, our number. The market may have been. So we're driving penetration into this market. We like the mix that we have in respect to geography, in respect to offer, in respect to business model, products, systems, and also software that is important. Even more important when you go into a heavy AI learning model data centers, where you wanna distribute the heat quite carefully in that respect. But you know, why should I give you all the sales pitch about it?
I'm very happy that we have a visionary in the field with us, founder and CEO of Compass Datacenters, Chris Crosby. I'm looking forward to your speech earlier. Thanks very much to making the way here and joining us. And next to Chris, we'll also have remotely Nicole Dezen. Nicole is the Chief Partner Officer of Microsoft, the largest driver of large language model AI at the moment, and she's gonna be talking about our partnership as well, and you'll get a picture at the end of the day why we're confident in this space to deliver in multiyear engagements, because this is gonna be a growth market. Will it stop at a certain point in time? Hey, I don't have the glass ball.
We said this, it stopped five years ago, and then we had streaming. Five years earlier, we said it's gonna stop, then we had blockchain. So, you know, we had all kinds of new ideas that came over time and that continued to grow. I don't know what's gonna be there in 10 years, but I can tell you this trend is gonna be with us for some time. Now, you know, when we talk about sustainability with electrification and automation, why we're also confident, and these drivers here, they're all precisely wrong. But for me, what's more important is that they're directionally correct. They're directionally correct and show the expansion of electric vehicles, they show the expansion of heat pumps, battery storage, and so forth.
So what does that mean for our gears and our automation in those? Let me pick just two examples. If you take EV and the expansion of EV, no matter where it is, and for those who haven't been to Shanghai lately, I can recommend you go. It's 50% electric vehicles already. 50%. Tremendous speed, that's that is deployed there. Will there be bumps in the road? Of course, but long term, this is gonna, this is gonna come. Now, if you put EV, for example, in the U.S. into your house, it has influence on the power load of roughly 40% fluctuation. This needs to be managed, and it has influence on the panel. The panel. Who's the owner of the panel?
Just a reminder, the owner of the panel to the 4 out of 10 in the US, us, and we wanna expand on those opportunities with our electricians and with a couple of thousand of contractors that are on our platform that I, that I showed you earlier. Now, if you go to one of the slower starting trends of process electrification, and there are some challenges to it, but if you look at the speed that is anticipated, great opportunity for us in respect to bringing software, automation, and our gears together with a process simulation of AVEVA. We simulate the process, how we can improve the process, then we simulate the electricals to see what it means to the cabinets that need to be put in there.
So dynamic simulation for the process, for the electricals, you go into the cabinet, and you go into the process automation. It's a big opportunity for us in that respect, and you'll see some examples of it. Now, Caspar will present AVEVA and our agnostic portfolio and what kind of opportunity it brings for us in the IoT-enabled world. And you see our end markets here on the chart, paired also with AI and GenAI. We use that stuff already.
You'll be impressed later on in the presentation that you see how we allow them to, our clients, to use GenAI to better utilize the strong platform that we have, and that's why I believe I can be talking about an industrial tech company, Schneider Electric, leader in the field, leader in creating holistic efficiency for our clients with our agnostic software portfolio. You know, a couple of years ago, when we acquired OSIsoft, people thought this was quite expensive, but they also congratulated us because it is the industrial data platform in the world. Thousands of clients, very low churn, and industrial data is getting more and more and more expensive.
As you make this data available on a platform that we call Connect, and you'll see that later on, it will be agnostic, where our software companies will utilize this data that is available on-prem and in the cloud with one data infrastructure, and we give the customers one experience. They can use one currency that we call Flex. With that currency, they can subscribe the software, and they can subscribe any of those software with the flex points that they have bought, and that enables them to do one Digital Twin, be it in the energy space, be it in the process space, be it in the electrical space, or be it combined. You'll see that in a minute. We've put this wonderful cloud there in the background, if you hadn't recognized it. All of that is available on the cloud.
So the journey to subscription and to SaaS has gained speed since we have taken... I wouldn't say we've taken AVEVA private. We've taken it from the U.S. stock market and put it into the French stock market under the umbrella of, of Schneider. But the speed of, subscription and SaaS has substantially, improved. Now, all these software companies that we've, acquired can now benefit of one backbone in the company to drive subscription, subscription management, IT systems, and so forth, to gain efficiency and gain speed in their journey to, to, to subscription. Now, it's not only about having great products, it's also about how do we bring them to market, and why are we, why do we believe, we're ideally positioned to do that?
So I wanna talk about the key markers and strength of the company that will allow us to be more successful. Again, five and five megatrends, five key markers. The ecosystems of partners, I'll talk about this in a minute. Our multi-hub, I go a little bit more into detail. Of course, our global footprint, sustainability, and then also the culture in the company that is so important. Now, a lot of people can talk about these huge numbers of a partner ecosystem, and we'll have one of our largest billion-dollar partners talk to you later on, the Chairwoman, President, and Chief Exec of Graybar, Kathy Mazzarella. She will be talking right after my speech to you, to give you an idea about those generational partnerships that we have. And they're not a generational and old.
They're generational, and we've transformed them. We've transformed them to be more digital, to be more connected, to be closer to the customer. How the world of distribution has changed, you'll also see. It's about the management of these partners, the training, the close working together that, that we have. You know, if I, I was thinking of words to describe our partner ecosystem, you know, I think it's long-term, it's unprecedented, it's unique, it's distinct, it's loyal. Long-term partnerships, global and local. People from the outside admire this, and I can tell you, this is very, very difficult and long-term to build and very strategic for us.
It creates and it turns roughly 60% of our revenue, while we spend a lot of time, of course, also creating demand, as I said earlier, as we have access now to the highest level at our clients and drive this forward. Now, the multi-hub, I mentioned it, I don't wanna dwell on it. You see how our revenue, our headcount is divided, and also how we're able to locally design products, develop them, manufacture them, source, sell to the local needs, all the way to the executive table in the company to make that happen, and do it in a very agile manner if we make mistakes.
I want to spend a second on the industrial footprint or our balanced footprint, and I pick India because it's on everybody's mind. We may not have been the first one to be there, but I can tell you we're committed. We've taken big steps into China, into India. 38,000 people working for Schneider in the country, with plenty of facilities, and with the acquisition of L&T E&A, we've now been able to also address the rural area where we weren't so strong. So we're covering the rural area with L&T E&A, and with our office, we're covering more of the urban areas, and that positions us super clearly as the number one in this fabulously growing market. Of course, we've been working on our supply chain.
We're proud that we've been named number one supply chain by Gartner. Have we had supply chain problems? Of course, everybody had last year, but we're ideally prepared to drive the growth going forward. Now, if I go beyond and look at the focus on sustainability, one model that we're trying to drive forward with our clients, we help them in defining their sustainability journey, to strategize with them in a consulting fashion. Then we help them to digitize, so they have full visibility of their operations, and then also help them to decarbonize with our equipment, with PPAs, with managed services, and so forth. Great business that has meanwhile grown to roughly EUR 700 million next to our own efforts that we're driving.
And the reason we can talk about this, in this fashion, 40% of the Fortune 500 companies are our clients, and we help them in their decarbonization journey, also in networks, to drive decarbonization in the semiconductor industry, in the transportation industry, and in other industries. Talking about culture, I think, is something very important for every company and is on the top of the agenda of the CEO. We are very proud to report that our engagement index with the people has yet increased another three points when we measured it this summer. And the second key point I want you to take home, the third largest shareholder of the company is our people. We're very proud of that.
More than 40 countries, we've our own employee shareholder program, where they have acquired shares, quite. It's not only our view. Here, you can see a couple of logos of companies that also recognize for it. It's something we work on actively, we're proud on. We're proud that our people create impact for it. Now, of course, you know, we've talked 5 megatrends. We've talked about the 5 key markers. What's on your mind, Peter? We see you the first time in this role. What are... Again, the 5, it seems I like the 5, by accident. What's on your mind and focus areas? So I want to give them quickly to you. Number 1, execute on sustainable growth.
The megatrends are going to help us to do that. We're ideally positioned, and we're driving a growth culture in the company, to materialize on them. Secondly, we have a unique position in ESG, and we're going to continue to drive that with electrification plus digitization, to drive sustainability at our clients, but also internally. It's deeply rooted in the company, and there's a lot of engagement in the company, to do it and reach our Scope 1, 2 targets for 25 and 30. You have them all lined out there, and also the first partnerships in the upstream, a few Scope 3, to drive it forward. It, it's the right thing to do. It creates a business for us, and our people love it.
Organic expansion of our product franchise, and, Hilary is going to go, of course, into more detail on that. I can tell you that we will be ramping up our R&D intensity. Also, as we shift more towards edge controls and software, that comes naturally, but also investment into our product area. So our R&D intensity will probably go up to 7%, in this next frontier. Something that I'm attached to, also the return on the invested capital. Of course, I will see, and the team, Olivier and Barbara, will talk about this in one of the sessions. The software in Prosumer offers great opportunity for us to bring us into the top level of our clients. We've talked about one data, one experience, one Digital Twin.
We want to be the digital partner for our clients and continue to drive in that respect. And then number five, AI, as I said, is the biggest opportunity that we have. We're ideally positioned with GenAI, respectively, in our products, in our own company, and how we help our clients and the world to use it in the data centers that we're building together. Now, you take those management priorities, coupled with, of course, some, you know, financial priorities, and of course, Hilary can talk about those much more eloquently than I, so I won't be doing it to create the shareholder return.
But I do talk about the disciplined capital allocation because it's something that you wanna hear from myself and say, "What's the, what's the CEO saying?" And we're really attached to our investment credit ratings, in particular, with rising interest rates. That's important for us. We will continue to focus on progressive dividends like we've had done in the last decade plus. And then, as I said, you know, fund our organic growth with up to 7% in the next frontier on R&D intensity. And then, of course, there's portfolio evolution and share buyback. Very clear, no transformational M&A on my current agenda.
The portfolio evolution, we've gone quite good in the last sequence, and we'll continue to work on a divestment and portfolio optimization where needed. In respect to acquisitions, we continue to be opportunistic in areas that follow exactly our strategic priorities and growth markets. So where does that journey bring us? And I'm mindful of the fact that I'm 5 minutes over. I like 5. I also like 50. EUR 50 billion. EUR 50 billion revenue, we think, in the market with the mega trends, how we're positioned, how the team is driving it, is possible. But we cannot feed you with revenue. We need profitability, EUR 10 billion, 2 times 5, adjusted EBITDA. And of course, we wanna translate this into a free cash flow.
So we talk about the conversion, and that's to be expected to be at 100% of net income over the and across the cycle. So, that's it. Nothing more, nothing less. Looking forward to the rest of the day. I'll see you again for the Q&A in the breaks, and with that, thank you for the attention. Sorry for my voice, and see you in a bit. Let's hear Kathy. Also, an impact maker.
Hello, I'm Kathy Mazzarella, Chairman, President, and CEO of Graybar. Graybar is one of the largest North American distributors of electrical, industrial, data, communication, and security products. With more than 9,000 employees, 325 locations across the U.S. and Canada, and $10.5 billion in revenue, we are a leader in providing comprehensive solutions to the industries we serve. Graybar's relationship with Schneider Electric dates back more than 120 years. Today, Schneider Electric is Graybar's largest supplier, and Graybar is Schneider's largest North American distributor. A relationship like ours that not only endures, but also becomes stronger over time, is truly extraordinary. This relationship is deeply rooted in a shared commitment to integrity, ethics, and doing business the right way.
Graybar and Schneider are both companies that uphold the highest standards, and from the beginning, our relationship has been built on a foundation of mutual trust and respect. We are extremely proud of our work with Schneider, and we are even more excited about our future together. Schneider is widely recognized as an industry leader for its focus on innovation. The company continually enhances its offer to remain relevant to its customers. Schneider also focuses on expanding its capabilities with integrated solutions that improve sustainability and efficiency across a wide range of industries. One of Graybar's key strengths lies in our experience with both energy management and industrial automation. Schneider Electric plays a pivotal role in the solutions we offer for these applications, which allows us to bring even greater value to our customers. As a distributor, having the right manufacturers and products is vital to our success.
Our strategic relationship with Schneider is unlike any other. We count on Schneider for the innovative products our customers need, so that together, we can deliver exceptional results for those we serve. Like Graybar, Schneider has a long-term perspective and a bold vision for what is possible. We believe the future is bright for clean energy, digital, smart building solutions, and we are excited to work with Schneider to bring those solutions to market. Graybar is also investing in the technology and capabilities to transform our business and to deliver even greater value in this fast-changing world. Over the past 120 years, Graybar and Schneider have proven that both companies are better because of the great work we do together. We look forward to the future with confidence as we explore new ways to make a difference for our customers, our industry, and our planet. Thank you.
... It's a pleasure to be here today. My name is Caspar Herzberg. I'm the CEO of AVEVA and the ExCom responsible for software, for the agnostic software companies in Schneider Electric. For those of you who haven't met me, I've been at AVEVA about two years, on the commercial side under Peter. Took over as CEO in March, and before that, I worked at Cisco, Accenture, and of course, Schneider Electric. I'm gonna talk to you today about what we have in terms of capabilities in our software companies. I'm going to talk about what we are planning to do, how they are commercially faring, and what our vision is, as laid out by Peter already. But at the heart of our presentation is what it's all about, which is...
I'm very lucky that Rob McGreevy, our Chief Product Officer and the godfather of many of our solutions, is here today, and he's gonna spend quite a bit of time showing you how it really all comes together on one platform, adding value for our customers in the industrial space. Okay? So that's what we're gonna cover. Now, the first thing to say is that within Schneider Electric, and as a matter of fact, as laid out by Peter, in industry in general, digitization is core. It's core to Schneider's journey, it's core to the journey of much of industry today. And our agnostic companies, so AVEVA, industrial software, RIB, construction management software, ETAP, electrical design software, are perfectly positioned to play a key role in this journey, in this journey to a more sustainable, better future, right?
They seamlessly interface with aggregation infrastructure like EcoStruxure. They interface with many other such layers, and they are fed by with data in context, whether that's time series data, whether that's other data that comes from other software systems, from systems in general, from sensors, from the sensors that sit on the edge, that create enormous amounts of data today. That feeds, if you like, not just the performance applications that make much of what these softwares do today, but also the industrial artificial intelligence that we use to manage and operate and predict much of what happens in the industrial life cycle. Okay? So that's our position within this. Now, the mega trends that Peter laid out very much apply to us, right?
Simply put, they are driving, other than good leadership, of course, they are driving our software growth, right? We truly feel that we have wind in our sails. On the one hand, you have what is truly a tech tsunami. You have all these new applications coming to market at increasing speed. We talked about AI, but there's also virtual reality. There's many, many other powerful analytics solutions coming out. They are the living digital twins, the ability to have a life-size, not just exact depiction of a complex industrial asset, but also to feed operational data through it and see that and interact with it, whether you're an engineer or a CEO, right?
You have, at the same time, these, the reconfiguration of supply chains, which in simple terms for us means a lot of new assets are being designed and are being brought onto into action. All of this needs software, all of this needs to be managed and operated, right? And of course, you have multiple energy systems now competing, if you like, right? Sustainable technologies competing because of the big second trend, which is the societal demand that is accelerating every summer when it gets hotter, right? Demanding that we do more with less. And the only way you can do more, sorry, you can do more with less is by using software, using the power of AI, and working with data, structured data that you can trust.
That's the only way, and that gives us that additional wind in our sails that we are feeling. Now, what do we have, right? We cover between AVEVA, ETAP, and RIB, the entire design, build, operate, and optimize cycle of industry. You can see AVEVA and ETAP in design. I will show you a screenshot of how that really looks in a second, right? You have RIB and AVEVA in build, working on the building, the construction of assets, right? You have, of course, AVEVA with Wonderware, one of the famous long-term, well-planned early acquisitions that Schneider did, right, in operate. 23,000 customers, hundreds of thousands of industrial assets operated by monitoring and control software today. And then, of course, you have in optimize, not just the performance applications that you use to optimize-...
but also the PI System, the world's leading industrial data historian, right? Most of the world's industrial data, in some form, sits in PI, and that feeds these performance applications, right? So what you see here are some screenshots, simple ones. You see here design software used for a complex asset, whether that's a power station, a refinery, or any other complex asset, that's AVEVA E3D. Then you see in build, RIB costing software, project costing software, and you will see some of that in the demo that, Rob has. You see under operate, monitoring and control, I just spoke to that. And under optimize, you see predictive analytics.
Predictive analytics, a solution that uses AI, that is powered by time series data from the PI system, like years of temperature data of a, let's say, a turbine, of vibrations of a turbine, used to predict maintenance schedules and prevent unforeseen shutdowns, which are very, very expensive. This is a very powerful software that we use. Now, we have hundreds plus softwares, individual solutions today, right, that have been put together patiently, strategically, by Schneider over, decades with an S, right? These, we are now in the process of bringing together on one platform, a platform that we call Connect. And what Rob is going to show you now is how that really looks like beyond just this beautiful screen in a real live demo that he, put together. Rob?
Great. Hi, everyone. Thanks, Caspar. It's fantastic to be here. I'm gonna essentially cover a number of capabilities that Caspar and Peter outlined, and how this sort of vision ultimately comes together for us. Essentially, what I'm gonna do is walk through this, this concept that we call Unified Operations Center. It's essentially the tool by which we bring together these different disciplines across that design, build, operate, and optimize lifecycle. I will point out that this technology is, as Caspar alluded to, really is the culmination of 50 years of deep domain specificity and expertise that we've accumulated over the last many decades, and it's been infused and refreshed with cutting-edge leading technologies, things like augmented reality, virtual reality, 1D, 2D, 3D visualization technologies.
We've connected it into the cloud, we've leveraged the compute cycles and massive storage that's available to us. Of course, as Peter mentioned, the trend towards analytics and AI, we've been infusing predictive and prescriptive analytics for many years now, and I'll show you in this demonstration how we're beginning to leverage some of the large language models Peter alluded to, and how we're using that for generative, and how we see that sort of changing the shape of this. Ultimately, what this all sort of culminates in is this digital backbone, this environment by which we can create digital twins, plural, that allows us to digitize all aspects of that design, build, operate, optimize lifecycle to create net new value realization for our customers, prospects, and partners.
Obviously, that sets us up for continued growth, not only as a neutral, sort of agnostic software entity, if you like, but also as a great technology enabler for Schneider. With that kind of as a, I guess, a backdrop, let's go ahead and run the demo. This is what the Unified Operations Center essentially looks like. And what you can see here is, we're essentially amalgamating lots of different systems and sources across the entire value chain. Performance data, about how we're performing against plan, efficiency metrics about specific assets, critical pieces of our business, information about financials, health, safety, environmental. Where do we have incidents and issues to address and deal with? Sustainability metrics. How are we doing on NOx emissions, CO₂?
Of course, all sorts of other metrics that are necessary to operate all aspects of this value chain. We do that using different personas and different use cases, depending upon who you are in the organization. Again, you do this in a very highly visual, contextually aware environment that allows you to navigate through the system to address different use cases and different scenarios. I'm gonna do my best here to try and navigate you through some of those scenarios as we go through this demo, and I'll apologize in advance. It does go a little bit quick, but I'm gonna try to hit some design scenarios, some operational scenarios, and I'm gonna end with some analytics and AI capabilities. So if we start off with the design engineering hemisphere of the world, this is the CapEx lifecycle.
We've sort of panned out in our Unified Operations Center. You can see this is a new build of a plant. In this case, it's a hydrogen plant, and we'll see all this sort of design engineering information about the equipment, the machinery, the actual 3D models. You can actually see kinda how it fits in terms of the overall operations on our geographic layout. Upper right-hand corner shows a detail of enterprise project cost summary. So this shows us on the project itself, where are we ahead and behind for man-hours, for engineering data, for construction data, plan versus actuals. And then you can see these charts at the bottom here that give you performance information about the different schedule. Lastly, there's the key construction quantities that sort of shows, hey, how are we on asphalt, packed fill, buildings, concrete?
All the sort of quantities of information. And of course, there's an anomaly that we're drilling into here that essentially shows us all the detailed data about the materials. So we had a bit of an issue on the project where we have a shortage. That shortage is impacting the downstream production project. That's affecting the financials, and now as an analyst, I can drill into this detail and look at the pipes in this case and see where those material shortages are from, and obviously take some corrective action about how to sort of remediate that. Now, if we switch gears and go to the operational side, so panning out a bit, now we're looking at an actual operating hydrogen plant. Upper right-hand corner shows real-time graphic visualization of the hydrogen facility. Below that, we've got all the electrification.
This is information from the ETAP toolset that gives us sort of the layout and the simulation for how this thing is behaving in the real life, real world. And then off to the right side here on the screen, we've got average plant availability, losses, maintenance, et cetera. All sort of the operational aspects of everything that I need to sort of operate my value chain. And again, I can navigate this sort of in and out based on different contexts. Now, since this is a green hydrogen plant, the green means it has to be driven by renewable energy, wind and solar. And so that dashboard at the top shows us that we've got some energy assets. This red dot shows me I have a bit of a problem, a little bit north of the UK here.
So now I'm gonna drill into that energy facility, and this happens to be a wind farm, and you can see it's displaying all of the elements, all the assets in my specific wind farm, all in real time. And from here, I'm actually could drill in further to any of the individual assets. But in this case, I'm very interested in the performance of the fleet, and so I'm gonna kick off our predictive analytics, which is telling me that we actually have some anomalies we need to pay attention to. This particular red dashboard is saying, "Hey, if we look at all the process, production, engineering, and design information in the context, and we run our models, our predictive models," what the system is essentially saying is that we're gonna have some potential problems.
So if I click on this fault diagnostic tool, it's the little stethoscope, it's telling me that in one of those particular assets, we may have a high probability of yaw failure or rotator pitch failure. These are issues that occur in the wind farm. Drilling in further, the tool actually gives me some remediation. These are the things to go do to fix the problem before it actually happens. So this is predictive and prescriptive analytics sort of manifest in a real application. Now, we talked a lot about generative AI, so if I transition now on where this world is sort of heading, what we believe is gonna change is that this, this notion of generative is gonna allow us to interact with these systems in a very, very different way.
In this case, I'm just asking the system, "Hey, are there any issues with my wind fleet, with my, with my turbine?
Anything I should be aware of?" The system comes back using a generative AI model and says, "Yeah, you know, you've got some issues." In a very verbose way, it's describing, "Hey, you've got some problems with this specific turbine, and oh, by the way, you might wanna look at these, these variables." And so I can come back to the system now and essentially ask it more questions, say, "Hey, can you give me, sort of more information or more details specific about, the utilization, for this asset, and the things that may be affecting it?" So the tool comes back with, "Hey, the green is where you were producing power, the red is where you were not producing power," hence, utilization. And on the right, it's showing me that it was affected by temperature.
And so I come back into the generative environment and say, "Hey, it looks like there was an issue with these high temps on this particular asset. Can you find me all the bearing and nacelle temperatures? These are things that affect the process." And as you can expect, the system comes back with a response from the language model, but we've infused into the language model real-time process and production data that's descriptive of the actual problems for this actual asset, wherever it is in our fleet. So it's pretty interesting use of the technology. And then from here, of course, we can link that to some of the visual elements. Now, I can see that the actual variables and temperatures on a chart, I can see where they sort of drop off, where they're predicted to end up.
So it's a great, sort of cohesive environment for sort of navigating all this information in the context of the operations that I have. And last but not least, I can, I can also ask it to pull up a 3D model because I wanna go do some maintenance or go inspect this thing out in the field. And so in this case, it knows, based on where we are contextually, what this asset is, GE07 in the nacelle environment, navigates directly to the right 3D model, highlights for me in context where the sort of offending variables and issues are, and from here, I can plan my work, scaffolds, maintenance, whatever the activities are.
So I realize I went through that sort of at a very high pace, but Kim Custeau and the team are out here to show this to you at a little slower pace. But hopefully, what you've seen here is how we're sort of manifesting all the 50 years of innovation that we've accumulated, infused it with brand-new technologies to create net new value, net new use cases, and how we're building this digital backbone to allow us to transcend all areas of that design, build, operate, optimize. And of course, as Caspar and Peter alluded to, that culminates in this thing that we call Connect.
Now, the last thing I wanna point out is that I showed you a demonstration of a hydrogen plant and some wind farms and solar, but we do this across all the end markets and segments that we serve. So we have these applications deployed in data centers. We have this deployed in water, wastewater, power, utilities, transmission, distribution, mining. It's very much a horizontal technology that gets verticalized across these end markets. And so with that, I hope you had a good taste of some of the technology, and what I'll do is turn things back to Mr. Caspar Herzberg.
My pleasure. Thank you very much. So what you've just seen from Rob is a platform that brings not just our softwares, right, our disparate softwares together, and by the way, this is done in, depending on the complexity, in month, with a small s, the implementation of what you've just seen, because they easily interface not just with each other, as you would hope for, but also with other data sources and other softwares. And that is a neat way of going into, a competitive comparison, if you like, to other software vendors. Let's start with the integrated, industry and software players, right? Compared to them by being agnostic, by interfacing easily with anyone, hardware, software, we scale better.... We scale faster, both as a software and, of course, also in business.
Secondly, compared to our industrial software peers, we have, in the process, batch, and hybrid industries, a far, we believe, wider footprint spanning design, operate, design, build, operate, and optimize. So a much wider footprint. And then, if we were to look at the hyperscalers, important partners, but, you know, just to look at what they do, while they have important data aggregation capabilities, right? And, of course, the ability to host on their own cloud infrastructure, they are not focused on, from a business model point of view, on the deep domain expertise that you need to be not just credible in industry and the multiple processes and industry systems, right? But also to be successful. Without decades of deep industrial skills, this is a very difficult market to be successful in, right? So that, in short, is how we see ourselves.
Now, where do we generally play? Now, you know, of course, that we are an important player in industry and in infrastructure. A lot of our capabilities are market-leading in oil and gas, of course, refining, but also in utilities, in generation, whether that is traditional generation, whether that is renewable generation, whether that is in transmission, right? With the PI System and its sensors, whether that is in distribution, whether that is in to move on in manufacturing, food and bev, pharma, and so on. So this is where the majority of our business is today. Now, through RIB, we play in buildings, right? An interesting fact is that architectural design firms are power users of RIB, right?
And of course, you heard from Peter, smart cities, especially in emerging markets, especially in places like India, are early adopters of the technology that Rob has just shown, with the Unified Operations Center used to manage anything from traffic, to water, to electricity, all in one place, in a number of cities in the Delhi Mumbai Industrial Corridor, right? And then, when we look at data centers through ETAP electrical design, we are now growing our footprint in this important end market for Schneider. Now, allow me to say a couple of words on the performance of our agnostic software companies and give you a high-level view of that performance. First, I'm happy to report that we have a positive outlook, with growth from innovation driven by technological and societal megatrends, like I said earlier.
AVEVA, the largest of the three companies, is on track, on track to meet the targets set by our management. On track. As expected, subscription and also the accelerated SaaS transition has an impact on the revenue performance, as you would expect, as is in our plan. But in the medium to long term, we see that transition to be positive for all key metrics. In the short term, so today, our strong annualized recurring revenue growth of above 15%, we see as good. When we look at the total agnostic portfolio, it is also positive. Now, RIB and ETAP are at an earlier level in the transition to subscription. What we believe, we're very confident that we will be able to transition them fast, as we've learned a lot, frankly, in the AVEVA experience. And what will you have learned once, you don't need to learn again.
At least you should avoid learning it again, having to learn it again. Now, our total agnostic revenue, as you can see here, is at just under EUR 2 billion, EUR 1.9 billion. And over the timeframe that we are discussing here, is expected to grow double-digit revenue CAGR, as is or as are, the EUR 700 million of Schneider revenue that comes from the Schneider advisors, the grid software, and so on. That is where we are. Now, let me tell you where we intend to go.... What we intend to go, to do, in very simple terms, is to take not just all the assets that you have seen today, so the AVEVA industrial softwares, all the different solutions, the RIB solutions, the ETAP solutions, the partner solutions, other software solutions that are already on the platform today.
TwinThread is one. In combination with Data Hub See is another. These are high-performance applications, optimization applications. We intend to bring all of these, and in the future, many others, together on this platform. This platform that we call Connect, that you can visualize by what Rob has shown you. This is how it really looks. This is what it looks to the customer. This is what it looks to the engineer or to the CEO. This is how it looks on a big screen. This is how it looks on a tablet. The same information, the same data, the same one data on a handheld, on your phone, so that everyone works from the same data, the same trusted data.
Because that, we believe, is not just making life easier, but is a core tenet of being successful as supply chain ecosystems compete with each other in trying to do more with less. There's no other way of getting that uplift, that 20%, less energy spent, and the other benefits that you can get on optimizing. Secondly, all of these softwares, you will experience, you will consume on the same platform. You will-- You heard that from Peter. You will use one credit, the Flex credit, to buy not just our software, but the partner softwares. So it is a much easier way of commercially interacting across an ever-increasing wider ecosystem of solutions. How often, think of it, does something not get done because it's just too hard to, like, do another contract? This is feedback from our customers.
So one easy experience, and what that then together gives you is the one digital twin, the one place where all your data comes together, where everything is true, is the exact depiction of the asset, where operational data flows through, the place where you deploy, not just your generative AI to ask questions, but your industrial AI to let processes run and self-optimize and predict and save huge amounts of money. That is what Connect is going to bring you, the one place for the industrial ecosystem to come together. With that, thank you very much. I'm going to now play a video that says what I just said, much better.
Open your eyes to a world without limits, where there's no beginning or end, only infinite possibility to collaborate, understand, and connect the industrial ecosystem with data, AI, and deep domain expertise for sustainability and efficiency. Let's accelerate into this bold new world with deeper intelligence, richer insights, and more speed to value than we ever imagined. Using our open industrial cloud platform, we bring together data from all sources across the industrial ecosystem to break through traditional silos and transform networks into intelligent, agile, and trusted ecosystems, where living digital twins go beyond analytics to deliver value faster, more efficiently, and more cost-effectively than ever before. A new era has arrived. Welcome to the connected future. Welcome to Connect.
Hi, I'm Nicole Dezen, Chief Partner Officer at Microsoft, and I'm really happy to join you at Schneider Electric's Capital Markets Day. We've been partnering with you for more than 30 years to expand capabilities, drive scale, and accelerate development for our mutual customers. Today, we enjoy a very rich 360-degree relationship with Schneider Electric across four dimensions. First is buy from. Microsoft leverages Schneider's know-how in energy solutions and management for our data centers. Second is sell to. Microsoft sells technologies and solutions to Schneider for employee productivity and to power its client-facing offerings. The third is build with. We co-engineer and contribute to the development of Schneider solutions using Microsoft Cloud, IoT, and AI technologies. And fourth is co-sell. Schneider Electric and Microsoft collaborate to drive digital transformation with our joint customers. Cloud technology is expanding access to innovation beyond the IT department....
More recently, the emergence of a game changer, generative AI, is rapidly increasing the need for additional data center capacity. To meet this strong and lasting demand, Schneider Electric and Microsoft collaborate deeply on topics like energy innovation for data centers. We've entered into an agreement ensuring supply chain certainty and planning for Microsoft. The power of Schneider Electric's domain-specific solutions, operating securely on the Microsoft Cloud, enables organizations around the world to transform their business, modernize and automate their operations, redefine their energy and sustainability strategy execution. We are working to bring the best of Schneider Electric and Microsoft technologies together to transform grid management. A great example of this at work is our partnership with Pacific Gas and Electric in Oakland, California, which can more effectively maintain grid reliability and accelerate customer adoption of distributed energy resources, including electric vehicles, energy storage, and rooftop solar.
This is a major step to redefine how the grid of the future will operate. We're also working together on the latest and most impactful technologies, including generative AI. Through GenAI, Schneider Electric is reimagining its approach to operational processes, streamlining time-consuming tasks, optimizing resource allocation, and gaining speed and efficiency. We will continue to work together to revolutionize how businesses approach energy and sustainability challenges. Thank you so much for your support, your partnership, and for innovating with us.
All right, we start with our first panel, and as I was saying earlier in the day that, you know, as we were planning the day, the idea was to take feedback from all of you in the previous months. And one of the things that we've been hearing back from you has been that tell us more about your end markets. Tell us more about the specific segments where you operate, and not just the mega trends, but tell us exactly what you offer, what are your products, and what's the focus area. So I'm joined by two of our Executive Committee members here. So let me introduce them. Laurent Bataille, who leads France, important market, and Aamir Paul, who leads North America and, of course, U.S. within that, also being an important market.
But for the purpose of this panel, please, different hats, which is you're not speaking just for your specific countries, but for Schneider as a whole. And as we've heard earlier in the morning through, you know, from Peter and the others, the topic around net zero, the topic about, you know, what's the role of electrification, digitization, automation. And it always comes down to the topic of, is it possible? And really, one of the bottlenecks, and there have been recent research, a lot of them probably written by folks in this room as well, around what that means for things like the grid. So let's start with the grid. Maybe I pass it to you, Laurent, and tell us that, you know, what really is the amount of investment that's actually required out there?
It's pretty massive. And actually, you've heard from Peter, you know, the impact of electrification across industry, building, transportation. Analysts also see an acceleration of investment in the grid. In fact, Bloomberg New Energy Finance this year published a report announcing that the annual CapEx into grids would triple from a current $275 billion to close to $870 billion per annum in the 2040s. So it's a pretty big investment. It goes towards grid expansion, of course, also retrofits, but up to 25% of that money is actually gonna be for digitization of the grid.
So when you're actually getting in front of customers, what is really top of their mind? Because these are, like, huge numbers. Practically, what is it that the customers are looking at?
Their main concern, of course, is to make the grid smarter, because that's really very important to have a more reliable and resilient grid. The reality is, over the past decade, we've seen a multiplication of DER, distributed energy resources, connecting to the grid, particularly the distribution grid. So there's a change of paradigm where, you know, historically, the grid is distributing centrally generated power to the point of consumption. But now, with a lot of DER, you actually have more variance. You need a more dynamic grid that is actually bidirectional. And because the reality is you want to avoid the instability of the grid, you know, grid violation scenarios. So what the grid operators actually need is the ability to have situational awareness and also orchestration capabilities. In a word, a smarter grid.
Smart grid. So that's the buzzword. We've been hearing it for a while. Let's come back to Schneider. What can Schneider do to make a grid a smart grid or a smarter grid?
I think one thing that is really unique is the full portfolio that we are bringing to the table here. Because when you want a smart grid, you actually need to activate four levers. In the first one, and we've heard about it, is to have the right data infrastructure. You know, grid operators have to collect, structure, and contextualize, expose data in massive amounts, millions of data points coming from inhomogeneous sources, you know, whether it's smart meters, the transmission grid information, some of their own assets. And to do that, you need a data infrastructure. That where, for us, AVEVA PI System plays a key role because it enables the access, easy access, quick access, to vast amounts of data, contextualized, trustworthy, easy to leverage.
So many of the grid operators in the world are already using AVEVA PI System, and it's really a foundational investment towards smart grid. Now, the second very important thing, once you have this data infrastructure, is, of course, application software. That's where our digital grid portfolio really helps, particularly with two very important software. The first one is ADMS, Advanced Distribution Management System. The ADMS is really a modeling and real-time measurement software that really enables to understand and have visibility into the functioning of the grid. So it gives you parameters about open points, close points, voltage level, current flow, but also grid violation. And because the ADMS also manages the assets of the grid operators, it can create reconfiguration scenarios in case of outages and also optimization scenarios, so a very important piece of software.
A second one I'd like to highlight, DERMS, Distributed Energy Resources Management System, which really helps grid operators manage third-party assets on the grid. Very important, for instance, to actually give a zone of operation for the solar inverters that are plugged into the grid so that you manage the rate of injection, and you protect the stability of the grid. So that's really the second pillar, software application. The third one is to transmit the commands and control. You need an automation layer, and we offer that with our medium voltage control products. So here we are talking about remote terminal units and also medium voltage protection relays. Very important. They take the commands from the software and actually send them to the physical grid. The fourth point, and we are very proud of that, is we are still bringing innovation to the smart grid through hardware.
So I'll take the example of AirSeT. AirSeT innovates, which is our medium voltage switchgear. AirSeT innovates in three regards. First, it helps decarbonizing the grid by getting rid of SF₆ gas and replacing with air. Second, it really changes the way maintenance is done on the grid because it's full of sensors, and it's natively connected, so it can actually self-measure its own health. But the third point, which is very important, is we've innovated on the core mechanism, the Compo Drive, bringing new materials so that it has better endurance, which is very important. A smart grid will need to switch more frequently, and you need that endurance.
That's pretty impressive, and I think, you know, there are some of these products outside in the demo as well-
Yes
... which can be seen. Though not in a grid application, there's a lot of these products which are also somewhere in the infrastructure in a building like this. You spoke about customers.
Yes.
Which customers have actually deployed some of this for us? You wanna share that?
So many grid operators of all sizes are actually using parts of that portfolio, some of them actually the full stack. But we are very happy to co-innovate with many of the leading grid operators in the world, whether in Europe, so that could be Enel, E.ON, EDF, Iberdrola. In the US, that would be SDG&E, PG&E, we heard about, Duke, and in Asia, PEA in Thailand. But I'd like to zoom on an example that, that we are very proud of, which is SAPN in South Australia. And why? Because they're actually operating a grid where there's a lot of solar injection, distributed solar. You know, more than 40% of homes are equipped there, with PV on the roof, and so you really have to preserve grid stability there.
We've deployed with SAPN both our connected equipment and our automation products, but both ADMS and our DERMS solutions, and I think the outcomes are pretty impressive because today, SAPN really has an automated grid. So they are able, as an example, to actually reconfigure the grid in less than 60 seconds in case of outage. And at the same time with DERMS and their ahead forecast, they're able to actually send controls to this myriad of solar inverters to manage the rate of injection onto the grid and keep it pretty stable. And thanks to that, they're actually avoiding a lot of penalties.
Thank you very much for that, and it's good that you didn't pick an example from your home country-
I did not.
... but I'm sure you have. Anyway, let's switch gears. I'm gonna move to the next sort of end market and topic. We've already discussed some of it earlier, and we'll be discussing some more, but that's obviously data center. Aamir, I'll bring you in. Of course, you know, U.S., big market for data centers, but again, for us, it's a global opportunity. Peter spoke about generative AI. Line it up for us that what does that actually mean on the ground then?
Well, look, like we've said, we've been in this market for over 30 years. We are the undisputed leader in terms of our solutions capability and just the amount of solutions we've deployed.... Just in 2022, with just the top ten cloud and service providers, we helped them deploy 5 GW of capacity in 35 countries across 6 continents. So with all that capability, we're saying that we've never seen something like AI and its impact, right? We've been doing this for that long. We've seen the first Web 1.0, Web 2.0, and cumulatively, we've never seen something like what we're seeing right now. If you think about the training period of a large language model, you're looking at energy densities that are 10 times greater. Then, when you settle in on a GPU-based compute architecture, the density at the rack level is sustainably 4 times greater.
So we have this incredible challenge where, on the one hand, we want speed to market. We want whoever can get these out first wins. We want to make these much more dense, much more stable, good actors in an unstable grid environment, better community actors from a water usage standpoint, and we want to optimize how we actually run them from a sustainability standpoint. So these are competing goals, and one of the big differences that this is driving is the scale speed of the solution means that the idea that you're going to think about it one building at a time, one project at a time, is a very '90s idea. It doesn't work anymore. You have to build this as a systemic, multi-year architectural framework, and that's exactly what you heard from Nicole. That's what we're doing with Microsoft.
We're sitting down at the research level and planning, because to get those competing variables right and make sure we not only build these capabilities, but build them in a more sustainable way, we have to approach it differently. It's an end-to-end solution, and it requires a different kind of partnership model.
Very interesting. I think in terms of... Again, let's focus a bit on offers, and I'm sure there's some commonality, of course, in terms of the core offers, which goes across end markets. But for data centers, specifically, you want to lay out what is it that we are doing for data center, offers-wise?
Look, the end-to-end cycle is a good way to think about this, right? So the first thing we want to do is we want to start with building a digital model. And from a construction process, that's using RAB, from an electrical simulation process, that is using ETAP. And by the way, that's becoming really important because where you physically put the data center is a function of power availability. And so that digital twin, that consumption model, has to actually be something you sit down with the grid operator and say, "This is the amount of load I want to bring into your environment. Can I actually make this work?" So having that digital twin is critical. The other reason it's so important is, at least in developed markets, labor availability to actually do the construction is a real issue.
So you have to start with that digital model. Then you get inside the facility, and one of the things that these data centers have to do is prepare for a world where the source input is going to be multi inputs, right? It's not just the utility, it's not just the diesel generators, 'cause that's a backup source, but not a clean one. It's all the other renewable and distributed energy sources. So source management becomes really important. That's where our ASCO technologies that provide source management come into play. Then you come inside the building, and you have the power distribution. So you have the medium voltage, low voltage distribution that provides power efficiently and in a more dense way to that environment.
Then you go to the core, into the rack environment, and the UPSs that power at the rack level as well, as well as the facility level. And then finally, you start thinking about, how do we ensure all of this is monitored appropriately? So every asset has connectivity, and as Caspar and Rob described, we can then bring that back into a monitoring layer. The reason this is so important is not only are you constrained by construction labor, you're constrained by operating labor. Because the best places to build data centers are places where there's a lot of power, no people.
So that's wonderful, but it's complicated to construct, and it's complicated to operate, so the best way to operate it is to make sure that you need as few people on site as possible, but with the highest fidelity, predictive analytics, so you can come in and maintain that downtime environment that you're looking for. So it's that combination of things that we bring together. And the thing I'll say that's really important is, you know, the art of construction of a data center used to be something people were proud of, right? They really cared that this one I made this way, and this one I made that way. We have to industrialize this. We are never going to get the outcomes and scale and speed and sustainability that we want if we do it the old way.
This industrialization of the process means it's the complete portfolio and the delivered outcome that the customers care about. With Chris, we'll talk a little bit more about that.
No, sure. I think that's very interesting. Hopefully, that gives a good perspective to the audience here as well. 'Cause, you know, we hear this question several times to say, "Look, you know, there, there's offers which are out there with other people." But really, you know, our position is that, you know, putting all of this together is real value.
It's not our positions, our customers.
Oh, yes, customers' positions. That was gonna be my question that, of course, we'll hear from Chris, but that's, that's something that is resonating with customers from your standpoint. All right, so I think, let's, let's move on, and I think I'll get to the next topic, which is, roughly... And, and just for perspective, right, for the first two as well, what we do in grids, we've said publicly, previously, high single-digit exposure for Schneider. What we do for data center, we've mentioned earlier today, roughly 19%, of, of our business that's based on orders at the end of, last year. And we talk now about buildings, which is, which is around 34%, of our business.
So, again, I think we've, we've mentioned this many times, that it's absolutely critical, if we need to get to Net Zero, that, you know, there has to be significant transformation in the building space. So, our exposure is more on the non-residential, technical side. Take us through that, please, Laurent.
Yes, indeed. I mean, buildings are, I mean, they represent a pretty fragmented market, but a massive one. So when you have a look at, CO₂ emissions, they represent close to 37% of global emissions, so it's very key that we tackle them, to reach net zero in 2050. Here, of course, we're gonna have to do two things. One is upgrade the full existing base of buildings by then, and the second one is make sure that new buildings are net zero in operations by design. There's a pretty good recipe to do that. And really, you have three levels to use in that case. The first one, of course, is electrification. Electrify as much as possible the key loads of buildings.
Typically, that's gonna be HVAC and particularly heating, but also the transport infrastructure through the EV charging capacity in the, in the buildings. The second very important point is to deploy at mass scale the energy management capabilities, so both automation and software, to drive the technical system and energy system of buildings much more efficiently. The third part of the recipe, if you can, depending on buildings, is to install production on site locally. So typically, there's gonna be solar PV, potentially storage, so that you increase the rate of self-consumption on site. Interestingly enough, these three levels are perspective, they're deployable, and typically, they bring very good and short payback, certainly less than 10 years.
So give us an example of use today's venue for that, but actually, one in Finland that we're pretty proud of, Citycon Lippulaiva, which is actually the second largest shopping center campus in Finland, and that was built in 2022. And they've done exactly that with our support. They've electrified their loads. So one of the big decision was, of course, HVAC. They went for heat pumps that are actually boosted by geothermal, so very efficient HVAC architecture there. Of course, a full EV infrastructure. The second important thing is they've actually deployed a pretty sophisticated energy management capacity in the building, both with distributed metering architecture, so that they can really understand what's going on. And then our BMS, our building management system, as the orchestration software for this infrastructure.
The advantage is, thanks to the BMS, we can actually manage the demands and the demand curve of the building, depending on, you know, time of day, weather, the forecast, and the production of electricity. So we create real flexibility, and on top of that, of course, very good energy efficiency. This is a sophisticated, complex building, welcoming a lot of visitors and still achieving an 84 kWh per year, per square meter gross energy performance, which is really good. And the third point is they've actually installed solar PV storage, and they have a full microgrid on site.
And here, EcoStruxure Microgrid Advisor, one of our software, is actually automating the key decision of knowing whether you tap into the electrons from the grid, from the storage, or from the PV array, depending on the forecast, and of course, the price of electricity. Thanks to this arbitration, that is automated, the payback on these microgrid is gonna be less than five years for this building. So very, very good performance. Now, I could actually turn to the U.S. We have a few very interesting showcases that are gonna come live pretty soon. I mean, one of them, of course, is the J.P. Morgan global headquarters. We are very proud to support J.P. Morgan there. It's gonna be a 60-story skyscraper in New York.
It's the first full electrical skyscraper there with net zero emissions in operation, so very impressive. Another one is gonna be JFK Terminal one, which is a great gateway into New York City. And that will have actually the largest on-roof solar array of the region, with 7.7 megawatts of solar, and actually, a microgrid that helps the airport be very resilient because it will be able to fully operate off-grid in case of power disruption. So you see good examples here. Oh, I think those are great examples, and I'm sure I know that we have several more. I think for the new build, for the new build, it's a no-brainer, right? Yes. You put all the technology. What about the existing stock and the ability to modernize, retrofit?
Maybe you wanna give us some examples and opportunity there. Yes, you're right to point out the challenge of retrofits, because that's gonna have a very big impact on the market. That's where you have very big masses. It's very interesting to see that, for instance, hospitals, which are fairly critical and complex buildings, 70% of them have pretty extensive upgrade or expansion programs in the three coming years. So there's a real opportunity here to really upgrade the existing systems. And in that regard, I'll take an example closer to home. Actually, in France, in the region of Metz, it's a hospital, I would say a typical hospital, that went through a difficult event, actually a pretty bad blackout and outage.
They've discovered that their electrical system over the years had kind of drifted and was not up to par with the resilience expectation you need in such critical buildings. So we've worked with them in order to upgrade their electrical distribution system, bringing really three different values. I mean, the first one is, of course, resilience. So we've changed the transformers, the medium voltage switchgear, the low voltage switchboards, and now, you know, they have a very solid and robust electrical architecture and best-in-class equipment, making sure, in case of outage, they would be able to recover very fast, and that any fault in the energy is very, very contained. Now, the second value here is asset management.
Again, we've talked about the sensors and the native connectivity of this equipment is the same here, meaning there's a self-assessment of the electrical infrastructure, enabling remote maintenance and, of course, giving the ability to anticipate on potential problems. And the third thing is, with the right metering infrastructure, there is now good visibility on potential energy waste and much better energy efficiency in this hospital. So I think what it brings back to the core is when you want to decarbonize and have resilient infrastructure, taking care of the energy power chain is fundamental.
No, and I think, probably several people in the room, 'cause you've been long-term shareholders, would remember one of our earlier Capital Markets Days where we actually had Penn Med.
Yes.
Just a reminder that, you know, healthcare is an important end market segment for us as well, not the only one. But I think the other point also, just, it came to my mind that, you know, we've obviously deployed a lot of this in our own-
Yes
... network as well, Intensity-
Intensity
... which is the other example-
Yep
... in France, which is a flagship. And I think at the end of last year, we had over 75 or 77 net zero sort of, you know, offices and buildings of Schneider itself. Maybe we'll switch gears now and get into... We've spoken about grid and data center and buildings. Let's talk about more of the industrial segments. And let me start by, you know, this, in this area, we haven't been focused on automotive like several of our customers for in the past. But now when we look at the new energy landscape, you know, the sort of the landscape is changing. So maybe, Aamir, over to you. What is our play when it comes to EVs, for instance, from an industrial standpoint?
Well, look, the battery market is really incredibly exciting. I was gonna say it's blowing up, but that doesn't work too well in a battery market context, so let's just go with terribly exciting. The stats are astonishing. By 2030, the total market output will triple. The battery market has obviously got a use case in EV, but also those batteries are being deployed in homes and for backup systems across different application sets, like buildings. This building is ultimately gonna be an example of that as well. It's also getting much more regionalized. So you see real policy conditions in Europe and North America saying, "We want to have it locally produced." So estimates put that 6x increase in European and North American battery production.
In China, which is by, by a long way, the world leader today, even that market is gonna double. There's growth pretty much everywhere. One of the things we see in this market is a real, again, combination of speed and flexibility. On the one hand, we wanna build, our customers wanna build these massive battery facilities, and they want time to market. But at the same time, they know that in Europe, there are different regulations on recyclability, there are different regulations on traceability. Every, every sovereign entity is putting in different sort of environmental controls on it, and how they wanna trace and recycle this infrastructure. Second, the unit economics have to get a lot better. The cost of a battery and the power it provides has to come down, and the chemistry and the physical design will change.
So on the one hand, you have this variable that says, "Let's go invest $ billions in a large facility." On the other hand, you have to make sure you're future-proofing it in real ways as your technology and designs change. And that's where, you know, the approach we take is we have to start with open automation. You have to start with this mindset that you're gonna be able to bring in different components, and EcoStruxure Automation Expert, which Barbara will talk about later, is a core element of making that work. The other element is the battery process is much more energy-intensive, right? The entire industry, whether it's automotive or the production of this, is moving towards delivering an electrical outcome.
So various parts of the process require much more energy intensity, power quality management, power quality management, and again, the interfaces with the utilities as you build these plants. Again, they're massive impacts to the grid from a load standpoint. And so converging energy management information and automation information to a single platform. On the automation side, you have our PLC solutions, our drive solutions, our motion solutions, on the energy management side, our power quality and management solutions, and bringing all that together using a AVEVA UOC solution is how you build at scale today and have the flexibility to adapt for tomorrow.
No, I think, and, and, just a reminder to this audience as well, that when you look at the industrial and infrastructure end markets, that's where you have the natural sort of cross-sell between both the, both the businesses that we have here. You mentioned, energy intensity, electro-intensive, nature, right? That's strategically the sort of end market segments that we've been focused on. So, let's leave aside the new energy for a moment, but just come back to the key electro-intensive, heavy industries, and give us a sense of, of that.
Sure. Look, we work across a lot of these, energy and chemicals, metal minings and minerals, increasingly hydrogen. You know, North America, for example, is investing massive in hydrogen hubs, green hydrogen hubs, and you see that happening in Europe as well, and you saw an example again from the AVEVA team on that. So I think, across all of these, there are a couple of elements that customers are trying to do. They're trying to decarbonize their operations, they're trying to drive productivity, they need more automation, and they're also working on a workforce transition. One of the really interesting takeaways during the COVID period was there was a distinct ability to measure. We ran sort of a universal AB test of companies with a digital backbone, as Caspar and Rob described, and companies without.
Companies that had the digital backbone were able to get the right technical resources on the right problem at the right time, regardless of physically where they were, 'cause everyone had a common understanding of the operation of the data. Where that didn't exist, you saw real degradation in secondary facilities. In addition to everything I talked about in resilience, there's a big push to build this digital backbone in these facilities. Again, we believe in open automation and the convergence of energy management and automation data, and our solution here is EcoStruxure Power and Process. Where we've deployed that with our customers, again, supported with the AVEVA backbone, we've seen 10% reduction in process energy use, 15% reduction in unplanned downtime, and these are, you know, incredibly important statistics to these customers.
They have the ability now to introduce distributed energy, which is a big part of their decarbonization focus, and they have a platform to start doing job training, because as the age transition happens in their workforce, the new people coming in need to be trained in the digital environment. That's the only environment they know.
What lighter industries, more discrete, light industries?
Yeah. So again, look, everyone needs to be agile, faster. The shocks of the last few years and COVID have helped us really rethink how we operate our facilities. And this is a great example because I think we started by drinking our own champagne. We have a different permutation of that in the U.S., but let's go with drinking our own champagne. And the drinking our own champagne was, we have 100 facilities across more than 100 facilities across Schneider's own manufacturing footprint. And so we deployed our technologies to see how we can make them more efficient, more sustainable, and drive more output at a lower unit cost. Lots of examples, but one I'll focus on is Lexington, Kentucky. Peter talked about the fact that 4 out of 10 homes in America have our product content in them.
Well, 9,000 of those panel boards and safety switches per day are made in Lexington. It's a 64-year-old facility, and we deployed. Actually, at a bottoms-up level, we gave the operating team access to AVEVA technologies, so the AVEVA Operations Control, insights, web studio, a lot of our EcoStruxure set, and obviously, our latest industrial automation toolset. Over a period of 5 years, they have deployed these technologies, where today, Lexington, Kentucky, is a World Economic Forum Lighthouse for automation and a World Economic Forum Lighthouse for sustainability. That facility has reduced its carbon footprint by 30%, its energy usage by 26%, its water usage by 20%, and my personal favorite, the use of paper in the facility has gone down by 90% because we're running it as a digital asset. It's a 64-year-old facility.
So the point is, just like buildings, the biggest gains aren't just gonna happen in new builds. They're gonna happen in bringing these technologies in an open way, not in the closed architectures of yesterday's technologies, but in an open way to existing facilities, and we've demonstrated that we can do that. 5, actually, of our 100 facilities are now World Economic Forum Lighthouses, and more are in the pipeline.
Yeah. No, super proud of that. Any other example, maybe on the-
Yeah. Sticking with the food theme, a European chocolate manufacturer. So, this manufacturer is known for the precision of their packaging, the look and feel, the fact that they have seasonal varieties, and their commitment to sustainability. And this is a really interesting example in terms of how customers approach Schneider. So the first conversation here didn't start out with the solution we provided. It started out with a common view of values around sustainability. They saw what we were doing in this space and what their own ambitions as a company were as really compatible, and that's where the conversation began. And from there, the problem they brought to us was they wanted to change to a much more recyclable pac kaging solution.
But at the same time, they wanted the flexibility, again, with seasonal variations, just the velocity, where they're doing 6,000 pieces a minute in their production line, to have the ability to say, "Look, we want this to be very modular. We want it not to be sort of a fixed architecture." And so we literally sat down with them with a clean sheet of paper and said, "What does this future packaging solution look like?" We deployed our high-performance motion solutions. Again, we deployed our EcoStruxure technologies, a lot of our Industrial Automation content, and we built them something, not just with us, but actually with the machine builders and OEMs involved, that was a first in both the modularity and flexibility it offers them and the ability to take that Digital Twin and that actual line and put it in existing facilities.
First packaging solution built for recycled packaging solutions for this chocolate provider. There are many more examples like that, where there's a particular part of the process they want to reimagine, and because we have an open architecture, we can do that and fits in seamlessly with their existing footprint.
... Well, well, I see that we're probably coming close to the end, but I do definitely wanna use the opportunity to get your operational hats back on for just a couple of minutes. And what's pretty clear is that, you know, there's a breadth of offer out there and good value proposition. How does all of this come together from a commercial standpoint or a sales standpoint? I mean, that's a question my team and I get often as well. So maybe just quick perspective from both of you on that.
Yes, so I'll take really an end user coverage approach here. I mean, it's a model that we've worked upon over the past few years, but certainly, the idea of exposing this broad solution portfolio to end users is absolutely key.
The way we go about that in the country organization is really to make sure we have strong collaboration between our sales team at the service of the client, with particularly, I would say, teams that are focused on the accounts, typically with a strong knowledge of the segment and the application of the clients, and, and with the support of technical experts that we would call solution architects, and at the same time, specialist salespeople, so that we can really make sure these teams think holistically end-to-end about the problems and the solutions that we can bring, and then leverage the expertise of the experts.
Amit, anything to add?
Look, I obviously agree with that, and I think, you know, it works very cohesively with our partner network, because as we build this segment expertise and solve customer problems, once we standardize them, we then get to leverage that immense partner network Peter talked about. So we have 45,000 system integrators and developers. We have over 600,000 channel partners and delivery personnel that we can tap into. So our job is to make it simple, make it easy to deploy, and then help scale it, and that's where the partner network... That is not something you build overnight. That's something we've built over 100 years, as you heard Kathy talk about, and that gives us ability to scale a new technology into a market much faster than anybody else. And so it's the combination of both these things together that really makes the difference.
And we obviously have a Q&A session later, so but I can't resist one question 'cause, you know, you're representing North America, and we just get these questions all the time. A lot of attention with regards to the IRA and the incentives, et cetera. So do you want to do you wanna tell us what that means for us or for you?
Look, it's creating an unbelievable investment environment. As a percentage of GDP, it's the largest investment the US has made in infrastructure since the fifties. And I think there are a couple of areas where there's just an unbelievable amount of money going in, and the question is: how quickly will we see it materialize in our pipeline? So semiconductors, clearly, batteries, clearly, hydrogen hubs is a big investment, preparing for the energy transition from a transport standpoint, both airports, bus hubs, and consumer transportation in terms of EV and building the right accessible EV infrastructure, incentives to prosumers. So the way it's showing up for us right now is the deal sizes are getting larger. Our pipeline is much bigger in terms of mega deals.
Now, those tend to move a little bit slower, and, you know, the way the funding structure works, it goes from the federal government to the states, and the states then allocate it to the municipalities. But we're seeing very exciting outcomes in our pipeline. We're following these mega projects very closely, and we expect to see that, just on that phase, to continue, through the next few years. And the last thing I'll say is, I get a lot of questions about, you know, politics and what will happen in a different administration. One, generally speaking, politicians like spending money, so we think that'll continue in any scenario. Second, resilience requirements are true everywhere. Grid resilience is still a problem, right? Weather events are driving it. Last year, weather issues cost U.S. businesses $150 billion due to downtime.
We think these investments are the right thing to do. There'll always be the push and pull of politics, but generally, we see it proceeding and proceeding at a very heavy clip.
No, that's, that's great to hear. Maybe last one for you, Laurent. We're, we have a fantastic stadium, today, sports stadium. Next year, I think all eyes are on your country for the Olympics.
Yeah.
Uh-
Indeed. We just went out of the Rugby World Cup, but yeah, a few months away from the Olympics.
on a more sort of selfish,
Yeah
...note, do you have some nice CMD venues for us for the next time?
Of course, we could talk about stadiums. No, I think the Olympics are happening on the backdrop of a pretty significant infrastructure investment in the Paris area called the Grand Paris. And so, whether we're in a stadium, in a building, what is certain is you're probably gonna use some of these new transportation infrastructure that is either powered or protected or automated by Schneider Electric. Very high chances.
All right. No, well, thank you very much for that. I think I'd mentioned earlier in the day that we'd have a break now at 10:30. I think we're gonna just push it by 15 minutes. I wanna thank both of you for your, for your time.
Thank you
... and, you know, honest discussion. I'd also like to use the opportunity, Amit, you stay on the stage, to welcome our special guest. Chris, thank you for being with us. It's all yours.
Where do you want me to sit?
Right here.
Okay, perfect.
All right, Chris. Well, thank you very much for making the trip across the pond. I, I really appreciate it. You know, you've been in the industry for a while, founder, and now scaling up Compass Datacenters. Just start there. Tell us your story and the story of Compass and a little bit about the company.
Sure. So I got in the industry right after the telecom bust.
... and at the nascent stages of it, was part of a few companies, including Digital Realty Trust, and then, started Compass around 12 years ago. So we've been on a growth clip. Last several years were 100%, over 100%, and this year's over 300% growth. Seeing about $8.5 billion worth of development that we're doing, just in terms of scale. And, you know, the AI boom, I've noticed a lot of people taking notes in here. You won't be doing that very soon. You'll be using a tool, and it'll do it for you. So, it's gonna be compar-- part of all of our lives.
Yeah.
There's no killer app-
Yeah.
It just makes everything a little bit more better.
You know, I'm always struck, Chris, by in that I've known you for at least 10 years now, and your stress management and my stress management have clearly led to very different outcomes.
It's the only part that works in there.
So, there's a lot, there's a lot to learn. So, you know, we've talked about our view of the challenges in the data center. You're actually out there building them, building them at an unbelievable clip. Like, what, what are the things you're facing? What are the problems you're running into?
You know, having come originally from a manufacturing background, design and construction has always been very odd to me, the way that it's done, all the snowflakes that you mentioned earlier. And so Schneider's been with us on the journey of how we're industrializing and really creating repetition. We've created the concept of mass customization, where we can match the topologies that our clients need, but from the same product. And, you know, we've enjoyed that development process. It's taken a lot of R&D, it's taken a long time to get there, but today, 80% of... 70%, going to 80% of our cost shows up on a truck, including the building itself, and that allows for speed, safety, sustainability, and, you know, really helps us out a ton.
I wanna come back to sustainability, but let me expand on the point Chris just made, right? With Pankaj's team, who leads all of our technology development in this space, we actually sit down with Compass and plan their technology footprint three years ahead of time. So we're looking at everything from what it takes to get that data center online, in terms of the construction labor, and how can we take more steps out and do them in a prefab facility so that the on-site time to market is compressed, to how do we monitor and make sure that we can predictively prevent failures-
Mm-hmm.
to the serviceability of the environment? So it's, it's an entirely different relationship. It's not a relationship for a project or a building; it's a relationship for a company and its core strategy. And I think your vision in that has really been inspiring. So talk a little bit about sustainability. You focus really on Scope 3 a lot. You've done incredible things. I think you're almost zero water in terms of cooling.
We are, yeah.
So, say more about what you're doing in that space.
Yeah, our benchmark versus industry, we're about 19% less on emissions in what we're doing. We're continually trying to innovate there, but, you know, one of the core focuses is elimination of waste. Obviously, the more we can do in a factory environment and prefabricate, and then bring to site, versus doing things on-site. But, you know, innovation comes in many ways, but it's incremental from a Compass approach. So it's continuously improving one step at a time. I think there's no panacea for sustainability, it's just continually do the right thing. Built to last is a big component of what we do.
Yeah.
And that mentality of time, which unfortunately isn't part of Scope 1, 2, and 3, I think it should be, you know, the... And how long things last, I think is very important. That durability is very important.
Yeah, and one of the other things Compass is doing is using VPP solutions, so they're a virtual power plant to the utility, so they're actually a good actor in the community, where if the utility needs to shed load, the data center is set up in a way that it can actually be a good actor in that environment. There is one last thing, isn't there? So everything we've talked about and the relationship we've had has been fantastic, but let's put some numbers to this. So we're announcing the next phase of our growth together.
Yeah.
I'm so glad you're here to share this. So why don't you tell the audience what we're working on?
Yeah, so a $3 billion multi-year agreement for supply for PowerCenter units. And, you know, the tip-to-tail nature of things is very important, but from the R&D, all the way through to the supply chain analysis that we do, multiple lines in factories and then bringing in predictive analytics, and the first of its kind service agreement as well, that's included within that. Think of it as an automotive model being brought to the data center environment, in terms of Schneider being able to do predictive analytics, see what needs to get fixed, and truck roll when it's necessary, which we expect to be very high margin for them, while it's lower cost for us, which is the whole concept behind a closely coupled supply chain.
Well, we appreciate your trust. I often describe you as the Henry Ford of data center industry. So thank you for bringing the rational scalability the industry needs.
Awesome.
Appreciate it.
Thanks so much.
Thank you.
Well, thank you for staying on for an extra 8 minutes. We wanted to announce the EUR 3 billion before we broke for the break. So we will take a break now, and we will come back in about 20 minutes, 22 minutes. We're mindful, 'cause there's the web audience as well, so there's some content for you to watch while we take a break here. So back in about little over 20 minutes at 11 A.M. GMT. Thank you.
Hi, I'm Mark Towe, Executive Vice President with JLL, a global real estate consultancy. I'm a member of our firm's technology infrastructure group. We help clients with needs ranging from EV charging stations to edge computing solutions. Though Schneider and JLL have had a long history of collaboration, this particular initiative around edge computing is novel and at the intersection of booming trends such as AI, IoT, and 5G. We had the land, we had the fiber, we had the power, but the missing link was a trusted partner to help us deploy turnkey modular data solutions quickly, cost-effectively, and with scale. We had vetted other suppliers, but Schneider clearly stood out as the partner who could beat this challenge. Beyond Schneider's sheer size and stellar reputation, it remains nimble, hungry, and innovative.
We're still in the early innings of edge computing, and we look forward to shaping the landscape in the years to come.
My name is Yannick Lestiboudois, and I am the Chief Digital Officer at Vicat. Vicat is a global, family-owned company operating in 12 countries, and we are one of the leader in the cement and concrete industry. We are partnering with Schneider for 3 years now, and our goal is to improve and secure our infrastructure. We have some very strong relationship with them because they are agile, reliable, and they are proposing agnostic solution, and I guess that we have also the same values.
All right, we're back for another panel. This one's gonna be shorter than the previous one. I'm happy to introduce the two guests here. Most of you will already know them, the leaders of our two businesses, Barbara Frei, who's leading Industrial Automation, and Olivier Blum for Energy Management. The idea behind this particular panel was, in some ways, linking it to what was said earlier in the morning by Peter around the focus on R&D, on innovation. And as he mentioned, and Hilary will give more details, the idea is to step up on the R&D. That's a message we had the past, you know, starting a few years ago already. So the focus would be around innovation and how innovation enables, you know, growth for the company.
Maybe, Olivier, start with you . How is it, because, you know, businesses, both of you, in fact, are responsible for the R&D roadmap, how, for the entire company, do we think about innovation, about new offer creation, new product creation?
Yes, sure. I mean, so first of all, just for you to know, we have about 12,000 R&D engineers everywhere in the world, and I think you've seen a lot since this morning. And to deliver them, basically all the solution that have been presented by our colleagues, it's super important that we are more and more aligned everywhere in the world with the way we do R&D. And as you said, I lead energy management, Barbara lead IE. But we want to really to have a common process to make sure we can deliver bricks which are compatible, that speak to each other. So what are the key principle we try to implement everywhere in the world? Number one is what we call agility and multi-hub, and the two goes together for us.
You know, there was a time at Schneider, and I've been in this company for many years, where we used to take 10 years to develop a new switchgear. That does not work anymore in the world of today. So agile for us, it's about being much faster to the market, being able to test our market assumption, and being able to stop projects, which is very, very important to us. And we'll discuss later, you know, about multi-hub, but multi-hub is about being close to the market, having very strong customer intimacy, because even if we can develop global platform, what we will do in different part of the world, we will be different. So that's really multi-hub and agile first, which is really our key principle.
Secondly, we have a set of principles which are very, very important because we have learned year after year that we cannot do R&D by chance, you know? So in every single project, for instance, decarbonization is paramount. What are the Scope 3 emissions, upstream, downstream of a new offer we bring to the market? What are the environmental data that we should provide to our customer? That's not something you can think at the end of the project. So that's really, really important. The second point, which is very important, is serviceability. You know, we've talked about our ambition, a big part of our business today around services. We need to design products which are serviceable by design, you know, at the origin when we launch them in the market.
Last but not the least, which has been probably the most important transformation in the past year, is native connectivity, and we'll discuss later about what we have been doing. But to be able to deliver all those solutions, we need to be really digital native in terms of connectivity, so that's very, very important. The last point that I would like also to bring to the discussion, you know, in R&D, we like also to be very much focused on what we deliver in terms of performance. So these are probably different metrics that we are using, but the Vitality Index, you know, of our offer is very important, but also comparing systematically how we perform versus our business case is important, like you would do in M&A. You know, you have a business case you want to deliver.
So we have been, with Barbara, those principles of being very, very strict in terms of performance. R&D is not an exact science. You have a lot of unpredictability in the process, but we want really to make sure we always monitor the performance. And last is reprioritization. Peter said it, we are in an important growth cycle. We have massive opportunity in front of us, and we have really to be very selective and to prioritize where we want to spend our money in the next cycle.
Yeah, that's quite clear, and, and, and all the principles that you spoke about obviously applies to, to both businesses over there. But Barbara, maybe a question to you. Still, you know, different product sets, et cetera, is there some level of commonality at all when it comes to R&D between the two businesses?
There is quite some commonality. Like we talk about integration, it's very much EcoStruxure. That's our common digital backbone, where we want to provide to the customer the same look and feel, the same experience. But then also we look at standards on cybersecurity, that they are held in the same way, the communication protocols, facilitating also the integration of our connected products that just Olivier was mentioning. So for instance, the Altivar Process Variable Speed Drive, that you can afterwards touch outside, is natively integrated into the edge layer called Power Monitoring Expert. And with this approach, you can really have a very granular visib ility into the plant. What is the energy consumption of the different motors, and how can you really optimize it? So this is really a big lever in that sense. Then, of course, sustainability, that is really at the core.
Here we are looking in the R&D teams to collaborate regarding eco-design rules. What does it mean to be eco-design? All the green material initiatives, so we need low-carbon metal, steel, copper. We also need recycled plastics, which are fulfilling the specification of normal plastic, and this we all do together. And then, of course, what Amar was mentioning very strongly is really when we combine our portfolio. So EcoStruxure Power and Process is one of those offers where we have in a common R&D work, integrated the controls, and also on top of it, with AVEVA software and ETAP, we can optimize really energy-intensive end users and bring to them the savings. So this 10%-15% that Amar mentioned are really reality.
We have a customer, a metals customer in Austria, and they wanted to optimize their cold mill lines, just not only efficiency of energy, but also on productivity, and we achieved really good numbers here. 10%-15% reduction in energy consumption by bringing this combined portfolio, which is heavily integrated to his plant.
Yeah, and earlier this morning, of course, we saw the size, sort of size and scale at which, you know, our company is operating. So if we link that back with innovation, and that obviously is going back in the past, can you both talk about some of, let's say, the past innovations or flagship world-leading franchises that we have, just for everyone to be able to link that with the kind of numbers that we've been able to deliver? Maybe Olivier first.
Yes, sure, sure. So in energy management, of course, we have created a massive position, you know, in in electrical distribution, in low voltage and medium voltage. Peter mentioned it this morning. In low voltage, overall, we are two times bigger than the second player in the market. And you know, low voltage, at one point of time, long time ago, was just, you know, hardware that you have somewhere in your home, in buildings, and so on and so forth. But when you step back, this franchise we have built is the place everywhere in the world where you have access to the energy data. So the fact that we have been able to build this massive franchise everywhere, like Amar said, by the way, through partners, which create a big difference in the market, because we sell all those products.
This is installed by all our partners everywhere in the world. It has given us a fantastic position in the market, for sure, that we have leveraged for many years. Now, what have we done differently in the past few years was to make sure we don't only deliver product, hardware, and equipment to our customer, but more and more making sure that they are connectable, that you can connect them, you can extract data. And this data, of course, give you access to all your energy consumption, to all your energy data, which is in a world where you need basically to become Net Zero, is basically what you have to access as a customer. And you imagine the type of opportunity that give you two more if you want to sell, for instance, more digital services to your customers.
So those kind of position we have built in the past, those low voltage franchise, medium voltage franchise, are unique position. And sometimes we got the question, are we going to stop our product business? No way, because that's the foundation of our company and everything we do, want to do when it comes to sustainability and digitization.
Well, that, that's certainly not a question that we are getting from the investors, and I think everybody loves that piece. But as you said, you know, there's innovation in terms of what more value can be added. Barbara, on your side?
Yeah, I would like to start in that sense from the Invensys acquisition that we did in 2014. We got two very good brands on board, Foxboro and Triconex, successful systems by itself, and specifically having a leading position in process safety. Out of this, then we also developed new offering, like the Hybrid DCS. So we took the Citect SCADA and combined it with our PLCs, the Modicon M580, and this is a great success in emerging markets like India, China, the MEA, and also in France and U.S., where we really have double-digit growth in bringing and deploying this solution to the market. And then I would also like to mention the AVEVA System Platform, which came out of this Invensys acquisition, which is an operations management interface.
I would say with this software, we are uniquely positioned in conjunction with the Schneider Electric solution to calculate the real cost of a unit produced. So if you really want to tell your customer: Look, this, this is the energy consumption, this is the real cost, which is related to this product, then you can do this by applying AVEVA together with our PME solutions, and it provides you the real data here. And I think that's quite powerful. And then, of course, I like to brag about our motor management. I think we are number one in the world in motor management.
It starts that we take really the expert services on how to design a motor application, also advanced motor control, which means you sell a soft starter or you sell a variable speed drive, and then you also need to protect it, and you protect it with a contactor, and you do the integration into the control system. Last but not least, you also need to do asset management on it. That's also where we have software solutions available. This business has tripled over the last 15 years, and with the current more use of electricity, this business will continue to accelerate.
... And Olivier, you made mention of multi-hub, and we heard it earlier today. We've spoken about it for a while. What does that mean for R&D?
Well, look, it's super important, and I think multi-hub is a really unique differentiation we have at Schneider. Because what it mean for us, even if, in R&D, we always like to have global strategy, global innovation, and global breaks for platforming, what is important for us, again, is to be, very, very fast and close to the market. So what does it mean in R&D? It means that in every major part of the world, we want to have a complete set of capability, from marketing to R&D to industrialization, and of course, we are doing that together with our colleagues from the operation and our colleagues from supply chain. But that give us a tremendous advantage, because in every single R&D program, we have the capability to be as close as the market.
So we cannot do it everywhere in the world, let's make it clear, but in the past, I wanted to say decade, but actually in the past 20 years, we have decided really to have a very strong multi-hub focus for North America. As a European company, North America was very big priority for us, in China, and lately, in India. So these are basically what we call the four biggest hub of Schneider, where we make sure that we have a very, very dedicated approach to those market. And if you look at North America, which is, for instance, a NEMA market in electrical distribution, it makes a lot of sense to have decision from an R&D standpoint, which are made in North America for North America.
It was not the case 20 years at Schneider Electric, and I can tell you it's still not the case in many companies today. Now, if I take with my colleague, Yin Zheng, in China, I can tell you from an R&D standpoint, there are a lot of things that we need end-to-end in China, from the hardware part, to the connectivity, to the services opportunity. We cannot replicate the same story. And the last point that I want to mention, that we don't discuss probably enough, what has been one of the biggest benefit is about attracting and retaining the best people in the market. Because, you know, R&D people in different part in the world, they don't want to be a subcontractor in China for corporate decision, which are made in the U.S. or in France, and vice versa, by the way.
I can put it in all the order. To retain the best R&D engineer in the world, you need to give them a job where they feel accountable end-to-end in the program. They don't want to be just a subcontractor from a, you know, a global corporate somewhere else in the world. So that multi-hub model, which is something that we are working together with my colleagues on the executive committee, is making a huge difference in terms of time to market, customer centricity, and also people retention.
All right, let's. You know, we've spoken about the past, we've spoken about the great franchises we already have and we're building upon. Now, if we're stepping up, as we look, what are we looking forward to, let's say, over the next five years or so? Where is the money getting deployed, and what's the focus area for both of you?
Well, look, on the energy management side, if I continue on the example I've taken on the franchise, again, we want to continue to develop organically a very important market share in all our product and equipment business. Because again, as I said, this is a foundation of all our EcoStruxure strategy, being always connected. The next big reason is definitely on the digital side, because once you sit on this superb and unique positioning in the market, is how much more you can deliver to your customer. And you heard from the CEO of Compass, it's about how I can, for instance, monitor, really, my assets once they have been installed. So we are providing a lot of solution which are more and more digital, digital services for monitoring, for alarming, for condition-based maintenance. We call that EcoCare.
So EcoCare is the next big franchise that we want to develop to provide digital services to our customer. That creates stickiness with our customer, that give you opportunity over time to upsell new services, new solution to your customer. And of course, from a financial return, it's all about recurring revenues, and we love recurring revenues at Schneider. So of course, we want to do it more and more for our new business, but there is an opportunity also for retrofit, for more than modernization on all installation, where we can come, install sensor, and again, develop the same value prop for our customer. So that's really the next big reason for energy management.
And Barbara?
So it's clearly software-defined open automation, which really provides you greater flexibility and resilience. And it's a different approach to automation compared to the proprietary systems which are now in the market. And this is not something that we invented at Schneider Electric to say, "Now let's do that." It was really the customers, like energy customers, customers in infrastructure, coming to us and saying, "Hey, we want to have open automation because it gives us more flexibility in the way we work and in the way we want to optimize our plant." Now, what are the important elements here? First of all, open automation means you detach the software from the hardware. So you can, in principle, run the software on the hardware that you think is appropriate in a certain setup, and it's not anymore natively linked to each other.
What is another benefit then is that you can also detach the innovation cycle. So you can say, "Hey, I can bring more software versions to the market independent of the hardware and add more functionalities, software-defined," which is, of course, a big accelerator for innovation. The second important point is also that you will see it outside, and you saw it also in Aamir's explanation. There are many customers confronted. They come to a plant, and there is many different systems installed there, just because there is OEM one, two, three, and there is somebody who made the building automation and so on. Now, to orchestrate all these together, open automation is the right approach.
Furthermore, with the big data, a lot of big data is happening on the edge layer, and how to bring this data into the IT layer and start to make the analytics alongside with machine learning and other tools, for this also, open automation is the right approach. Now, in Schneider Electric, we launched our first product offering based on open automation in 2021. It's called Automation Expert, and you will see it outside in the booth, and in the afternoon, we do a bit more explanation about it. But to make it now more tangible, let me give you two examples. You have pumping stations in water applications, which are quite simple, and in that sense, the hardware architecture can be really streamlined, so you don't need an additional control.
What you do, you run the control on the variable speed drives, which are anyhow installed in this pumping station, which gives you a benefit in the sense of saving hardware here, but nevertheless, having more functionalities. The second example is that in waste weight, waste, wastewater treatment plant, the operator can run directly, in principle, analytics by having the data real-time available. Why does he need this? There is a lot of chemistry involved in the process, and when he wants to minimize the use of chemistry and therefore also the impact on the environment, he needs this data to continuously optimize. Also here, an easy integration with automation expert is given to make this. Overall, a big benefit to the world, but it's, it's disruptive because we are shaking the old structure on how you do automation in the industrial world.
All right, thanks. So there's a clear roadmap, and of course, we've shared some of it today. I'm mindful of time, and but I do also want to, even on this panel, probably shift gears a little bit back to just the differentiation of the uniqueness, and I think we've spoken about it through the course of the day today. But as the leaders of each of the businesses, how do you see the uniqueness in your respective businesses and the collaboration between the two and how that adds, you know, the one plus one is more than. You know what my question is, so.
For sure.
You prepared it well, so.
You know, it's fairly simple, and back to the beginning of the day, which was a presentation of Peter. At a time where really the climate transition is top of the agenda, what we have been doing at Schneider is very simple. We say we want to be a digital partner for efficiency and sustainability. What does it mean? We have set up really a unique portfolio of solution, which are a combination of hardware, equipment, services, consulting capabilities, software, where we can really support large, medium, and small customer everywhere in the world to go through their decarbonization journey. And you've seen what we've presented today, what we call strategize, digitize, decarbonize. It's fairly simple. We have created unique consulting capability to be able to start the process early on with our customer to help them to define their strategy.
By the way, we've just announced the acquisition of EcoAct that complete nicely the capabilities that we have in consulting. Second thing is about data. We know that 80% about CO₂ emission is related to energy, how we help our customer to monitor their data. And last but not least, when we say decarbonize, it's about you leveraging the entire portfolio of Schneider Electric that we have built about over so many years to help a customer in building, in data center, in grid, and all the other example we presented before to go through their decarbonization journey. What we call decarbonization journey is basically executing their roadmap to make sure they can achieve their goals.
And when I say that, I don't speak on behalf of energy management, I speak on behalf of Schneider, because of course, energy management will bring one part, but Barbara will bring one part of the solution when it comes to digitize and decarbonize. Same with Caspar, with all our software solution that we have. So this is where we create a unique combination of solution, and I don't see too many players in the market who can claim the same really as of today. So that's, I think, our unique differentiation.
Anything to add to that, Barbara?
Yeah, I can only add here a very concrete example. So it's, let's take the Metro of Barcelona. It was on the slide that Peter presented in the beginning. So it's a customer since 20 years. For many years, it was a customer for medium voltage switchgear, but then they came to us and said, "Now we really want to manage centrally our energy consumption and the facilities." And the entry point in the beginning was our PLCs to do that because they are known for their strength in infrastructure. But then we extended it with the network simulation from ETAP and then the optimization from AVEVA, and now we really were able to deliver a relatively high scope into this application.
I think that's the way to go, where we can really positioning our unique portfolio, building on our long-lasting, let's say, customer relationship, and then build on the C-level to get in more software solutions, more services.
All right. No, very clear. I think we're getting to the end of the time. All of the people, at least in the room, there's more chances to interact with both of you outside in the demo area, where we'll be talking about exactly these topics in more detail. At this stage, I thank both of you. I think Olivia and myself will come offstage, and Barbara, I'll let you introduce our very special guest.
Yes
... for the next panel.
Yes, yes. I would really like to invite. Please come up, two leaders representing companies which are innovating and which are having an impact in different ways. And I'm really happy to welcome Anne Le Hénaff. She's the Senior Executive Vice President for Worldwide Water Technologies in Veolia, and Veolia is really the market leader in water services. And then we have James Lloyd Jones. He's the CEO and founder of Jones Food Company, which is the number one in vertical farming in the UK. So please take a seat. Is it okay? This is a bit, so in principle, we are all looking at the same mega trends, and what we also heard from Peter this morning, urbanization is one of these mega trends.
When we look at 2050 projection, two-thirds of the population will live in an urban environment, in a city. This gives, of course, very big challenges to the water supply and also, of course, to the, to the nutrition. So, first question to you, James, also because we are here in Tottenham, and-
Yeah.
18 months ago, you went with us to Tottenham, and you were watching the grass grow, so to say. Can you tell us what this has to do with vertical farming, and what is the mission of your company?
Well, firstly, it was nice to come to Tottenham when it was totally empty, and it was where the pitch goes into the car park, and how they're keeping it at the top performance pitch with the lighting and the watering, while then you can do concerts or the NFL. So what does that have to do with vertical farming? Well, it was a fantastic talk round, but there is similarities in just, firstly, how you grow crop. We grow crop in multi-layers, in racks, using light, large environment, HVAC systems and a water delivery to get the nutrient-rich water to the plants for it to take up, similar to the pitch that rolls in and out.
But what we're doing and why we're doing it is we wanted to create, or I wanted to create when we were starting, this new agricultural asset, effectively, where we can ensure that you get a much higher nutritional value into your food, but by using far less water and far less energy and the likes. I always thought it's silly that our food has a greater mileage before we eat it with the amount of imports, so by building something that's a sustainable machine and trying to get it as standardized as possible to be able to work in both food, pharma, and cosmetic was the idea. But we haven't got on to the football pitches quite yet as an idea.
Out of curiosity, where do you build those vertical farms?
So our first one was in Scunthorpe, in North Lincolnshire, which was opened about 5 years ago, and got to the point of providing about 30% of the UK's cut basil. So we see the vertical farms as monocrop systems. You know, you get them working really well, doing one thing brilliantly into the market. Then we had an R&D site in Bristol, and our newest farm, which is. I always joke with some of your colleagues, it does look like a Schneider vertical farm when you go in, because of how many Schneider parts in, is in Lydney, in Chepstow, and that supplies people like Asda and things like that into the UK retail at present.
So, Anne, now looping you in, we heard from Amar that water is a basic need for humans, huh? So can you explain us how Veolia works on this need over the last years?
Yeah, well, at Veolia, we do work on water, waste, and energy management, but our purpose is ecological transformation. We decarbonize, we depollute, and we regenerate. And I think water is probably the best example to illustrate that, because while we talk about water scarcity, there is water, but the water is never at the right place, at the right moment, at the right quality anymore to supply our communities or our industries, whatever the kind of industries. So we at Veolia, we provide solutions to treat any kind of water, from drinking water, to wastewater, to ultra-pure water, depending on what we want to remove or what we want to add, depending on the needs of the industry. And you understand very well that doing that, we also need to tackle two other challenge.
The first one is that we need to be safe and reliable at any time, because our customers need that. I mean, for food and bev, for example, there's no way, or for pharmaceutical, there's no way that at one moment in time, we are not exactly at the right quality or at the right place. The second challenge is that, because this is our purpose at Veolia, we need to reuse water. It's too valuable to be used only once. This is what we say. But we also need to take care of the energy that we consume to treat that water. We also need to take care of using as less chemicals as we can-
Mm.
We need to make sure that we regenerate or reuse whatever can be reused. So this is, this is our motto, this is what we do, and this is where we need to be reliable at all time.
Okay. It's good to hear that we all share common goals here, so... in the mission. So, James, as a startup, digitalization might have been also in the core of what you're doing to really get the efficiency from day one. Can you tell us what were the technologies or the approaches you have chosen and how you have applied them?
Yeah, so digitalization was... When we started, it wasn't forefront. It was, how can we get the hardware to work in a very efficient way? And digitalization has now come through the business, because it's very well getting that hardware working to get good yield and consistency out of the automation and the hardware itself. And then, it's all, you're always looking for that 1% more on yield, or how do you use energy more efficient, efficiently, and getting that data out, which is key because it's good for both traceability and also benchmarking.
We want to prove that our product is both clean, long shelf life, nutritional value, low microbe, and we use digitalization into sort of take all that information and almost give it a passport and say, "Yeah, we're good there." But for energy efficiency and how we deliver water, and then the nutrients into the plants, and the digitalization's becoming really important because, let's be fair, I deal in a market that deals in pennies on the kilo. You know, we're not selling gold bars, so we have to ensure that every input we put in, we're monitoring 100%. And a bit like a Formula One team, we're trying to look at how do we get that 1% down every single day.
So it has become a huge part of the company and our thinking, you know, how do we use the data that we're getting, and how do we then interpret it, again, just to get a consistent product into the market every day that we grow?
How much were you instrumental as a leader to bring this forward?
Well, if you ask our staff, they'll probably say that I was very instrumental. I think it was actually driven a lot by a number of teams, because it's all very well, you know, writing checks and thinking: Okay, we've got all these OpEx costs and things like that, and almost taking it as that, as the norm. So it was more, it was quite collaborative, actually. So the growers would say, "Well, hang on a minute. We're putting this much nutrient into, in through the water, and then it's coming out, and we're recirculating it. How much are we using so that we want to bring the use of nutrients down?" and then without sounding too boring, the accountancy department going, "You're spending a lot on that energy.
How do we change it?" And it really became from a number of different work streams within the company of going, "Okay, let's—how do we monitor this better? And then use that information to keep everyone happy.
Really strongly working together.
Very much so, yeah.
Okay.
Yeah.
So coming to the topic of partnership and coming back to you, Anne, in Schneider Electric, we deeply believe in the strengths of partnerships and collaboration. And now, in the 170 years of experience in transforming, in principle, to meet the market demands, how did we support you, or how did we work together with you?
Yeah, indeed, there is quite a lot of water gone under the bridges.
Yes.
Since the decree signed by Napoleon itself, you know? At Veolia, we've transformed along the way, of course, coming from bringing water to the tap, sanitation, to the transformation that we need to tackle today. And, of course, it's a transformation that goes around whatever is way of life, health and safety, quite a lot, and digitalization altogether. And this is what we've seen being accelerated by the recent crisis. It's been a bit more than 20 years that we work with Schneider as a partner, and we are also very much convinced of the need for partnerships, so everybody can focus on its core business.
And for us, it's key that we bring our expertise on the environmental solutions and water solutions for the water technologies, but that we are not a platform provider, and that we are not in automation and digital. So this partnership with Schneider has been key. For the same reason than James, I would say, for efficiency, and because we deliver proof, not promises. This is one of our motto. We need to demonstrate at any time that we are doing exactly what the customer is expecting. And on that, Schneider has been very useful because we operate across all kind of industries, and Schneider is a very transversal, has a very transversal expertise on that.
So it has been very useful to be able, whatever the type of industry that we serve, to have that partnership, to demonstrate our real-time efficiency and also to innovate, because along the way, we've made our systems more and more complex. So we are now building huge and very complex plants for example, desalination in the Middle East, or the new emerging and cutting-edge markets, microelectronics, and recovering lithium, for example, from mining, or even pharmaceutical with the ultrapure water. So our system are more and more complex. Sometimes we're building plants that will provide thousands of cubic meters of water, and for that, we use Schneider a lot, with the engineering platform that you provide to us.
So you mentioned now this very large water supply projects, desalination and so on, and you mentioned before really safety, reliability is a big, a big requirement. So how are you now really going to implement this?
Well, we have expertise, but our expertise is all around the world. We operate everywhere, and our engineering expertise is centralized or whatever it is in the world, people need to work together. So, how we are going to use that and how we are using it today? Well, for example, we use the AVEVA engineering platform. So I have something like 200 people-
Mm
... that can connect to a data-centric platform and work collaboratively on a single project.
In the whole world?
In the whole world.
Yeah.
So that's very, very important to us because that expertise cannot be duplicated everywhere, and then we have a platform where we can standardize. That's automating, which makes our life, of course, easier, but makes our services more efficient, too.
... The second example is that we use the your platform on planning and using the resources, the AVEVA resource enterprise resource platform, and that's very useful as well for us to plan a little bit better. In the years to come, what we absolutely want to accelerate, because the ecological transformation needs to be accelerated, is to go, of course, further with AI on digital twins to better enter into the predictive maintenance and make sure that, again, whoever our industrial customers are, we provide them with the best solution. And we are, of course, happy to be with you on this journey. So James, final question to you. We have heard now several times during the day, the labor shortage.
How did you take this into account in your concept when you started up the production? What was on top of your mind how to optimize-
Yeah
... your production processes?
So labor shortage in the U.K., especially in farming, is quite acute. It's often in the papers, you know, food rotting and things like that. So automation has been key all the way through. So how do we get a crop grown through and to be harvested, packed without being touched? And on average, your food's touched 13 times before you eat it, so I wanted to sort of cut that out and make it as clean as possible. So by working with automation partners, so one of our investors is Ocado, who that's how I came and found Schneider, 'cause they use a lot of your products and things. So we were able to-
Good.
They, yeah, and they were able to go, "Look, we, we need to optimize drives, for instance." So how do we... And it goes again, back to the energy, you know, how do we make sure the conveyors and the harvesters and things work when they need to work and ramp up properly? So, automation's key in taking also away the sort of jobs that are maybe low skilled or low paid. So we're able to then have well-paid people in communities that actually have more spending power in the community. So we're a bit more light than just having lots of people coming in.
Mm-hmm.
But with the automation, it's... I'm more almost talking about hardware, but we've worked with AVEVA to see where R&D, how we get to the point where we take all the data in from the automation and growing it, and then make it all talk to each other. So you're getting to the point where you can grow something without ever touching it. So it will say, "Right, this is happening," and then the AVEVA system will say, "This is the perfect climate," and then run the HVAC and things and all the other auxiliary systems. Then it goes on to the automation and through. But automation's key to also ensure that when you build a facility, bit like the other, this is not a three-year machine, you know?
You want it to have 20, 30 years of operation. So by using the likes of AVEVA and now looking at all the new parts, we're moving a lot of our stuff to PLCs with Schneider and the sort of new digitalization platform. It's so that we can keep... It's always getting back to that 1% and bringing it down. But the automation hardware has to talk really well to the software, otherwise you've got really expensive kit not doing stuff optimally.
It's good to hear, and again, it's not that the robotics or automation has eliminated workplace. It rather has increased the quality.
You've increased-
In that sense.
Yeah, definitely. You've increased your staffing and the training.
Yeah.
So, because we don't want people leaving, you know, it costs-
The retention then.
The retention is much better by having really skilled staff that actually like coming to work and working with new ideas and new pieces of kit. So yeah, so it's-
Very good to hear.
Yeah.
Thanks a lot for your inspiring insights that you have shared with us. We very much appreciate it. Yes, let's continue our partnership, both for the software piece, for the product piece, for the services piece, and looking forward to that, Tom. Thanks a lot.
Thank you.
Thank you.
We are Iberdrola, a global leader in clean energy, grids, and storage, with more than 170 years of history. Iberdrola has been committed to the energy revolution for more than 20 years as a fundamental pillar for building its clean, reliable, and intelligent business. We started working with Schneider Electric more than 75 years ago, and has become a technology partner of reference for our grid, renewables, and decarbonization needs. Our strategic plan reaches EUR 47 billion from 2023 to 2025. Schneider Electric is helping us address our needs to develop an energy model based on sustainability and innovation. Top of the market and reliable equipment for new grids and renewables is key, but Schneider Electric is also showing us its strength in new challenges closer to our customers, like energy efficiency, demand flexibility, digitalization, and carbon footprint reduction.
From Schneider Electric, I would like to highlight their customer obsession and technological capabilities. There is a great relationship between teams that allow us to quickly find the best solutions, not only to our daily problems, but to build new, innovative and strategic businesses through digital and software solutions that facilitate the energy transition and boost decarbonization.
Hi, I'm Philipp Frenzel from Covestro. Covestro was a chemical company, and among the leading suppliers for premium polymers. We are using several AVEVA products, like AVEVA Process Simulator, to design new and improve existing processes, AVEVA Predictive Analytics to monitor asset conditions, and the PI System as our historian to save process data. Predictive maintenance is important to increase safety and reliability. As part of our predictive maintenance strategy, we are using AVEVA Predictive Analytics to monitor asset conditions in order to get actionable insights to schedule maintenance activities. Measured data is not always available, for example, because it is a brand-new process, or at this position, no instrument is installed. We are filling this gap with AVEVA Process Simulator by simulating the asset process based on physical laws.
I really enjoy working with the AVEVA team because they know our industry, understand the challenges, and translate this into the right digital products.
Marel is a global leader in high-tech solutions for the food processing industries, transforming the way food is processed, with digitalization, automation, and sustainability as the key focus areas for our innovations. To be able to do so, we teamed up with Schneider in the product development, and we co-developed a delta robot that can withstand the harsh environments in the protein industries. Next to that, Schneider helped us also with making the software more suitable for our markets, and Schneider also trained our service technicians, giving our customers the opportunity to enjoy the high reliability of our product lines. We especially appreciate the open collaboration and the high trust in the collaboration with Schneider, two key pillars in a strong partnership, transforming the way food is processed in a sustainable and affordable way.
And that are the key values that Marel and Schneider shares, which is crucial for future partnership. Tottenham Hotspur Football Club is focused on people, those on and off the pitch, and at the heart of this are our fans and visitors to the stadium. Providing a memorable experience is our priority, and the recent work we've carried out with Schneider Electric across the stadium helps us bring our vision to life. I'm Todd Kline, Chief Commercial Officer at Tottenham Hotspur. We're so proud of our rich history, from humble beginnings to the world's most technologically advanced stadium, and being the first in the world to host a net zero carbon football match at an elite level. We're on a journey to evolve, and working with the right partners enabled us to do that, both sustainably and responsibly.
Schneider Electric provides technologies and solutions to help us distribute power efficiently, safely, and reliably throughout our stadium, automate and control the guest experience, and to ensure our stadium is as energy efficient as possible. The EcoStruxure platform allows us to monitor our energy usage across all stadium operations, so that we can then use this information to drive further efficiencies on a day-to-day basis. Then, the cloud-based analytics provides real-time monitoring of critical infrastructure to ensure the safety of our visitors and employees, and to further optimize the running of our stadium, make the shift from preventative to predictive maintenance. The club has demonstrated its commitment to playing its part to ensure the sports sector is on the path to a low-carbon future, and partnering with Schneider Electric is another step towards our commitment to sustainability.
Todd, welcome to your stadium.
Yes. Thank you. Thank you, Kelly, and, if I may, I should just say, first off, it's an honor to be here. But on behalf of our entire football club, our chairman, Daniel Levy, and the rest of our board, welcome to Tottenham Hotspur's stadium. It really is an honor to have you here and excited for the discussion today.
Perfect. So Todd, why don't you tell us a little bit about Tottenham, the history, the community in which Tottenham is operating, for, for two Americans-
Yeah
... to talk football here-
Yeah, yeah
... I think, you know, will help everybody else in the audience who maybe isn't a football-
Yeah, well, and we're gonna talk, we're gonna talk football inside the NFL locker room, too, which is, which is... kind of funny. And we only have 15 minutes, so-
Yeah
... I wanna be careful, 'cause we can talk about this, 'cause we're really proud of our heritage and our history. This club has been here since 1882, and to look at where it is today and to look at the growth of not just football around the world, but to look at the growth of the Premier League and to really be on the forefront of what's happening at the stadium, and to be only using infrastructure as a way to power, not just fan engagement, but to be able to power a deeper connection with all the consumers around the world. For all of our content that we have here, whether it be the National Football League, the Premier League, European football, rugby... We've announced a 15-year partnership with Formula One.
Everything we do emanates and really is driven to benefit our community, where we live here in N17, but also be able to create a greater and longer legacy. We'll get judged as a board, not how we found it, but how we leave it, and we operate under that principle every single day.
10+ years ago, the club decided it needed a new facility to represent the community, and what the club was really standing for as it sort of went up the Premier League ranks.
Yeah.
So what was that process like as you guys began to think about a stadium? What were the key attributes you were-
Yeah
... looking for in partners? How did Schneider fit into that?
... So I love stadiums, and I, I'm like, my, like, silly grin in that photo is like I just love looking out the window and seeing what we've built. But coming from the States, in the U.S., where infrastructure in stadiums and arenas are part of the experience, and really part of the community, I, you know... So remember, if I asked all of you, I guarantee you remember the first concert you went to or the first football match you went to. So we really believe that the right infrastructure is really where we're gonna attract not just the best talent in terms of players, not give us a competitive advantage on the pitch, but also in terms of running a commercial operation to compete in, which we all have, you know, different businesses that we compete in. We needed an edge to compete.
When you look to build a stadium, I sort of joke that in Europe there was, like, the Colosseum, and then there's really this. Like, there really hasn't been a lot in between, right? So, we needed to look at things, and it really came down. Our chairman has a great vision, but really, it's about partners because we don't. No, I'm not an architect. Thank you, Populous, right? I'm not, you know, we're not designing things or building. Thank you, F3 Architect. And honestly, we're not building management operator experts, right? So we have to find partners like Schneider, who help us. And we're only gonna build one stadium in our lifetime here, right?
Yeah, absolutely.
That's a joke. So we had to find a partner that could actually help guide us make decisions to not just kind of plan for solve the problem for today, but we call it a sustainable solution that's gonna help solve this for tomorrow as well. I think that's where we were very, very lucky very early on, as a, what, 10-year-plus process-
Mm
... from design, land acquisition-
Absolutely
...build, and now getting into operation and future. We were very lucky to work with great partners, particularly Schneider, to help us deliver on the vision.
I think the brief for everybody was actually to work together, right? For architects to work together, and the consulting engineer firms, and Schneider is an example, which is really critical. It's probably fair to note at this moment, neither Todd nor I are the technical experts in the room. However, it's worth showing the breadth of everything that is in the stadium. As James was talking about before, I think the coolest thing we do here, quite frankly, is out on the pitch where we move the NFL-
Move this, yeah.
... pitch or the NFL field, I guess, and the pitch-
Well, look-
- back and forth.
As Americans, the coolest thing we do is actually cool. We love air conditioning, okay?
That's true.
It is a right in our land, not a privilege. And literally, like, something as simple as the correct HVAC and controlling systems in a building like this. Like, this is a massive facility for us to run, and if you look at today, like, we have a pocket of people here. We have our staff over in Lilywhite House. We're doing a commercial shoot in our F1 karting facility, and the reality is, I don't need to be running power in every single location. How am I managing lights? How am I turning on and off things? How am I cooling the right zones but also not letting other areas get too hot and spoiling product that may be in a refrigerator?
Like, operational efficiency for us is all about the experience, and you'd be surprised how much the climate, the environment, and what Schneider does, helps us deliver on what people expect from the best stadium in the world.
Well, I think we've had people embedded in the stadium-
Yeah
... for, pretty much since about 2016 and during the several-year construction process. Stadium opened in 2019, so it's been open and operating for four years. Can you talk a little bit about what it means in the stadium when you run an NFL game, and two days later, you're trying to have a concert, and what that takes to actually-
Yeah
... happen in a facility like this?
Well, it's funny. You saw in that video, if you got a chance, there was a moment where I was looking at a screen with... And you go to our control room, and it's not just our head of security watching the ingress and the egress with the police. It's not just our ticket office that's looking at, you know, our ingress, you know, our fortress for how many people have scanned in. We actually have Schneider in that control room with us, part of our team, helping us manage our building facilities and our plans. That is critical. And it's... You know, we'll play a Tottenham match on a Saturday, and we have the New Zealand All Blacks here on a Sunday, right? We'll do NFL and Tottenham within literally six days, or Beyoncé will come in here with 110 trucks.
If you don't have coordination among all your... That's why we don't like to call them, I'll say it, vendors. 'Cause they're not vendors, they're partners. We can't do it. We can't do it. We can't do it. We're about 700 people in our company, and on a given match day, we'll swell to about 3,000. And the reality is, if we don't have great partners, we can't make that transition. We can't move our pitch and have the first-of-its-kind NFL pitch field right below. We can't load Beyoncé in correctly. We can't... Again, we're American. We can't put the fireworks on the roof right, right? If we don't do it, and it has to be through coordination, it has to be through planning, and it has to be through, really, technology, software, and systems to allow us the operational efficiency to do it.
And I think when you and I met three years ago, for the first time, when I took this role and, and you came into this job, we talked a lot about, "Okay, the stadium is operational now. It's working. Now, what do we need to do from an energy perspective to make sure we actually deliver on our commitment as your official energy partner, and also actually deliver?" So for those who don't know, 50% of the buildings in the U.K. basically waste energy, and so I think the club was really committed to not doing that, not being part of the problem, but actually being part of the solution. So when you and the board talk about energy usage and the multi-components of what happens here, how high is that on the agenda?
Look, we are... We've been the top of the Premier League sustainability table since it debuted, three years running. Sustainability is not just a buzzword. You know, everyone in the UK, we experienced quite a bit surge energy prices, and we were the only team, or we were very happy with the decisions we made with Schneider, to be able to be prepared to handle it.... Right? Doesn't mean we're happy with the rates we're being charged, but the reality is we actually have the ability to work through it with a partner. And sustainability for us, like, you know, we're very proud that 100% of our energy powering all of our systems is renewable, and the reality is we were the first team ever, and I love saying this, we're a club of firsts.
We are the first team ever to hold a net carbon zero game here at the stadium, right? And the reason we did it, one, it was an immense amount of work, but we did it, so we learned what we had to do to sign the UN climate pledge to become net carbon zero by 2040, right? And so for us, it was about the learning, and Kelly said it perfectly. We're not the technical experts. I shouldn't know what Scope 1 and Scope 2 emissions are, right? I should know what center backs do and what concerts we should put in the stadium, and, right, what we should put in all of our suites and for catering, but that's how detailed we're getting at the board, is down to our employee commuting tendencies, right?
Of what our power usage is and where we can improve, but also where we can use... and that data comes from the 24/7 monitoring that Schneider does for us. And we'll understand, like, what's happening over here in this quadrant of the building? Why is my building maintenance facilities leaving this on? Or why is there so much power coming out of here on this event, right? It's allowing us to structure better contracts with our, with our content partners. It's allowing us to run our building more operationally efficient, and I'll make this a bit about sports, if I can. Why that matters is so we can invest everything we make back into our first team, our women's team, our academy, because that's what we do here. Like, we are a football team, right?
All this operational efficiency, while it drives experience, keeping costs where they need to be through partnership allows us to deliver a better product on the pitch.
I think I'd be remiss in saying that we're super proud of this relationship, the 20% reduction in energy usage that we continue to monitor. We have people embedded still full time on the site, and we continue to work through this as partners and are using the Tottenham examples with other stadiums around the world, who are all realizing that they have a place sort of on the climate journey, and that they have huge footprints that they've got to control as well.
I think it's... When people look at the stadium, and you look at partnerships with Schneider, you realize it can be done. There's really no excuses. You just have to put time, effort, and energy into doing it, and you have to be willing to ask for help, right? You have to be willing to ask for best-in-class partners to be able to help you deliver on your vision. And money solves a lot of problems, but this isn't just about reducing costs. This is about being a better citizen in the world. This is about leading in an area that actually sports should lead. We're not just a football club.
We believe that we're a public institution, and what Tottenham should stand for in terms of sustainability, in terms of diversity and inclusion, in terms of the role we play in the community, we have a lot bigger say than maybe a company in another industry. We don't take that lightly at all, and that's why sustainability has been at the core since the building opened. It really allowed for us to be able to put it at the center of what we do and be able to think about it, not just, like I said, for today, but where we're going in the future, whether it be renewables, whether it be battery, whether it be solar. These are all the things that we're talking to Kelly and her team about on a regular basis.
Well, and I think the impact and the values that you guys have a club, have as a club, is aligned to who we are, as a company. So as Todd said, we're constantly talking about what's next, what could be. If you gave people a little bit of a preview of beyond this facility, where's the vision of the club? What else do you expect to do in the community?
Yeah. Well, look, I think you're looking at, you know, sports-led regenerations, and I, I take it we have some people joining us from all over the world. But if you look at certain cities like downtown Los Angeles and even Brooklyn, some other cities around the world, really, when you put an arena in the middle of a, of an urban environment, you can really do a lot of good. And we're very proud of the fact that just when the NFL is here, we have an economic impact of just N17, which is our postcode, of over GBP 300 million. And so we're looking to invest more. We have a multi-phase, 10-year roadmap of a full regeneration of the area.
We'll actually break ground on our hotel, which is 202 rooms, which will be on our south podium, which all of you probably could have stayed in last night, and we could have invited more people to the building, which will completely change the conference and events for this area. We're building 3,000 apartments on campus. We're building a new live, work, play environment with student housing. We're building a creative quarter right now. We're very proud that Sarabande Foundation and the Alexander McQueen Foundation have already moved in, and so we're actually looking to actually really regenerate the area. There may or may not be plans for some other venues in and around the facility, which we can't haven't gone to planning yet, so don't want to break news here on Schneider Capital Markets Day.
But the reality is, as we expand, the thing that Kelly and Schneider have brought us is the scalable solution, right? We want to manage one plan. It needs to be central. We need that central nerve zone to be able to talk to what's happening across the entire district, which starts as a stadium, is gonna expand to an entire footprint, city blocks, right? And that's the difference. And if you don't do it with the right infrastructure, we're only as good as the foundation we built on and the technology and the software that we run it on.
Well, we're excited to partner together. I think it's worth noting that Tottenham has been named for the last several years, the Premier League's greenest club, which we're incredibly proud to play our role in, but obviously, you guys are doing so much more. So thank you, Todd, for the partnership.
Thank you.
Thank you for the commitment.
Thank you very much.
We look forward to working together and using you guys as a shining symbol of what working long term and thinking together-
Yeah
... could look like.
Kelly, thank you for the partnership. It is. We started at a very similar time, and we've been great friends and a great ally to what we're doing, and we welcome all of you here. We hope you enjoy your experience. We hope all of you are Tottenham fans moving forward. But if not, we hope you come back for F1, we hope you come to NFL, we hope you come to our concerts. That's what a multipurpose global entertainment destination is, and we can't do it without great partners, and therefore, I'm very appreciative of you, as well as all of Schneider, and for you to all be here today. Thank you very much.
... Thanks, Jim. It was awesome. Thank you, buddy. Great, I thought. Super excited to look more at this stadium later today, and happy to be with you guys that are here in person and also for you guys virtually. I have the pleasure to be the last presentation of the day, so hopefully, I can keep your attention. Just two topics that I'm gonna cover. First, the translation of all of the strategy we discussed today into value. Now, of course, we talked a lot about the translation of value to our customers. I'm gonna talk about the translation of value to our shareholders, and our financial expectations for 2024-2027 and into the next frontier. So I'll start with a quick look back on our last capital markets day.
In November of 2021, we talked about sustainable and scalable growth, in particular, organic growth in sales of 5%-8%, and that was from 2022 to 2024, and that was a big step up from where we were performing before that in the past. Plus, we talked about an expansion in our EBITDA of 30-70 basis points per year, and I'm pleased to say that we're well on track to meet these commitments. And as part of that EBITDA expansion, we talked about around EUR 1 billion structural savings program. We completed that in 2022, and all of this was translating to a step up in our cash flows to around EUR 4 billion by 2024, and we remain on good track there as well.
I'm not gonna cover all of the details of this slide, but we spoke also that day about an evolution in our revenues towards more digital, more sustainable, and more recurring, ensuring that growth remains scalable in our margins, and all of that powered and fueled by more investments and a step up in innovation. Those focuses continue in the updated journey that we've shared with you today. Now to shift to the future. The first topic, and Peter mentioned it already, but no doubt, the first topic driving value for us over this next set of years is definitely growth.
Getting into growth, in 2021, we said we saw a doubling of our markets from around 2% to maybe 4% in the 2022-2024 timeframe due to the mega trends that we talked about today, or, sorry, we talked about then. Now, today, we've talked more about the mega trends throughout everything that we've already said, and as you can see, we see an acceleration in those mega trends, plus new mega trends coming into the picture, all leading to an acceleration in our addressable markets, now in the range of around 6%-7% for the next four years. That strength in mega trends, plus our unique company positioning, plus our focuses on innovation, more software, more prosumer, artificial intelligence, that's giving us the confidence to upgrade our expectations for our organic growth, and that's a CAGR between 2024...
or starting with our performance in 2024 through 2027, to 7%-10%. That's not a guideline for any of the given years within that cycle, but what we expect over that cycle in entirety over the next four years. Another big step up for us in terms of revenue growth. All of that requires the growth culture and the execution that Peter talked about, and we talked about early, throughout the day today. Now, we have a different market now than what we had in 2021. Those mega trends, alongside with the macroeconomic backdrop, are leading to more divergence in terms of opportunities, whether across our geographies, across our business models, or across our end markets, and I'll speak a little bit more to that in a minute.
Peter spoke about the key strengths of Schneider, and I think you can see these reflected across our four key business models of products, systems, software, and services. That mix of diverse business models means that we're well positioned for growth across the economic cycle, so through a mix of longer cycle business, shorter cycle business, and increasingly sticky and recurring revenues. All four of these business models are impacted positively by the mega trends. Starting with our market-leading franchise of products, we continue to see strong opportunities in products and growth of mid to high single digit from 2024 to 2027, all supported by innovation…. Our systems business model, we've seen a big pickup there recently.
This is where we serve our end customers directly and continues, and we expect it to be continued to be supported by trends in artificial intelligence, in energy transition, in government actions, and our key segments here, we talked about a lot of them today, data center, grid, across our process industries. In many of our key markets, our backlog in the systems business model now extends into 2025. So we're confident that we'll see double-digit growth in this business model through 2027. We talked about the strong opportunities in software with Caspar and with Rob, and in services, we also see strong opportunities, so we expect double-digit growth in both of those business models.
Now, of course, in software, that's going to show first in the ARR growth that we're showing during the transition to subscription and after in the expected double-digit revenue growth that we see here. And both of those business models also show more and more increasing recurring revenues over the cycle. To give you a geographic perspective, we have some markets now with particularly strong opportunities through 2027, and here on the slide, you can see our five largest markets. In the U.S., you can see in the U.S., we're almost a EUR 10 billion company. No doubt, the strong market leader there, particularly in energy management. We talked with Aamir about the great opportunities that we have in the U.S., and that really extends across all of the business models.
We also see significant opportunities in India, where we've already seen double-digit growth in the past across the last couple of years. And where we're uniquely positioned after closing the acquisition of L&T's E&A business. I think Peter mentioned that earlier. We closed that at the end of 2020. Middle East Africa is another area I'll call out, where we've been performing strongly, and we expect strong growth opportunities there to continue. In China, we continue to see growth from 2024 to 2027, although relatively lower than in the decades when that market was maturing. And in France, and also in Europe, we continue to see growth opportunities, particularly tied to energy transition, but this is an area we expect will grow at a relatively lower pace than the rest of our portfolio from 2024 to 2027.
Given this expected differential in growth opportunities, we're focusing our resources accordingly. Now, all of this continues to drive an evolution in our mix of revenues, more digital, more sticky and resilient as we transition to a leader in industrial tech. We track this both in the past and will continue to track this through our digital flywheel, so of connected products, edge control, software, and services. Each of these plays a key role in our customers' digital journey, and I think we saw that throughout the day today. We expect to continue to progress our digital revenues overall, with the flywheel stepping up to 60%-65% of our total revenues by 2027.
In terms of recurring revenue, we also expect a strong progression, particularly in agnostic software, as we finalize our transition to subscription at AVEVA, driving our overall recurring revenues in agnostic software to around 80% by 2027. In services, which, like our software business, tends to anyways be more sticky by nature, we also expect to continue to see progress in our recurring revenues, and that's through transformation of our contracts and also digitalization there with our digital services. I've gone through our expectations for growth in the prior section. I'd like to talk a little bit about profitability. We've definitely had a strong trajectory in our profitability over the last few years, and it's important to us that our sustainable growth journey remains scalable from 2024 to 2027.
Through a combination of the strong growth that I just mentioned, strong gross margin, and our agile operating model, we expect to expand our organic adjusted EBITDA margin at a CAGR of around 50 basis points over the period. And again, that's a CAGR that I've given here, so it's not indicative for any of the, any of the particular four years. Starting with the elements that will support and drive our gross margin over the period. We've historically been a price leader in most of our markets, and we expect that strong pricing power to continue. You can see here, just as an example, we've driven around 30 basis points average improvements to our gross margin over quite a few of our past years due to what we call net price.
And the way we calculate that is all, the sum of all the price that we put on our products, subtracting our raw materials index. And we believe that that pricing power continues in 2024-2027. And that pricing is not just in products, which is what I've shown for the 35 basis points here, but we're focused on driving value-add pricing across all of our business models, so including opportunities in software, in services, and in systems... Industrial productivity has always been a driver of our gross margin in the past. And you can see in the graph here that between 2005 and 2020, we drove around EUR 300 million of industrial productivity per year in terms of gross margin.
Of course, between 2020 and 2023, and you can see that on the graph already, we were strongly impacted by the supply chain crisis. But I've mentioned a couple of times in the past already that we expect a partial turnaround towards more normal levels of industrial productivity in 2023. We expect that to continue into 2024, and we expect industrial productivity to be a strong contributor for us between 2024 and 2027, similar to what we saw pre-2020. The last point I'll make on our gross margin is around mix, and the biggest driver of our mix, no doubt, remains the differential in growth rates between our business models.
From 2024 to 2027, we clearly have a difference in mix between business models than what we've seen over the recent years, with systems growing faster than products, but also with software back to double-digit after the transition. The software business is a key contributor here for us, as it has significantly higher gross margins than the overall group. Our systems business does have a lower gross margin level than the group. However, this difference has decreased by more than one-third since 2016 due to our focus on operational excellence and pricing in that business model. Overall, we would expect the accelerating growth in systems to negatively impact our mix over this time period, but to a lower degree than what we've seen in the past, and partially mitigated by software.
The systems business is less OpEx intensive, so at the level of our adjusted EBITDA, we would expect that mitigation to be even stronger. In addition to gross margin, the other key driver of our adjusted EBITDA margin is our costs and how we choose to manage them. We do expect to invest for growth between 2024 and 2027, given all of the significant opportunities that we mentioned here today. And one of the key elements to ensure that we execute for sustainable growth, and we talked about it throughout the day quite a bit, is innovation, and that's fueled by our investments in R&D, particularly in products, in software, and in sustainability.
We'd already mentioned in 2021 that we expected a step-up in our R&D as a percentage of sales, and we started at that time at around 5%, 5.7% of our sales in terms of R&D, and we expect that to step up to around 7% by 2027. Peter mentioned that we continue to expand our position as an ESG champion, something we view as a key driver of our internal culture and also opportunities that we have with customers. So we expect investments of around EUR 400 million in our own sustainability journey between now and 2030, as we look to proceed towards net zero. And we do expect incremental investments in CapEx, around EUR 2 billion, to support growth over the same period, 2024-2027.
But to put all of this into perspective, our tangible CapEx, so that would include the sustainability, the capacity, also additional investments in resilience. As a percentage of sales, we expect to remain in a range of around 2%-2.5%, and we're about at the top end of that range already today. So we remain a very capital-light company, low capital intensity, with a highly agile operating model. And to support that agility further, we mentioned a couple of times throughout the day the opportunities we have with AI and with digital. That's for our own customers, but for ourselves as well. So we expect to invest there to drive internal efficiencies and process improvements over the next few years.
Now, I mentioned, we mentioned a bunch of times the multi-hub model, the empowerment it drives, the innovation that it drives, in putting the decision-making closer to our markets. It also plays a key role as we drive for simplification and more agility in our operating model. We don't, of course, have a perfect crystal ball to the future, and we're talking about a time frame of 2024-2027 here. So that operating model agility is more and more important, with increasing geopolitical tensions and a differentiating return profile across our markets. We definitely intend to invest for growth. I talked about that in the prior slide, but we also continue to expect to responsibly manage our support function costs, or our SFC, or really the entirety of our OpEx. That's what we call it.
And we do expect to drive a reduction in our SFC-to-sales ratio between 24-27, further supporting our expansion in adjusted EBITDA margins. Turning to cash flows, we have made a step-up in our cash from starting around EUR 2 billion on average for quite a few years, up to EUR 3 billion, and we remain on track, like I said at the beginning, for the EUR 4 billion ambition by 2024. I mentioned we continue to be a low capital intensity company, and we continue to expect a cash conversion ratio of around 100% over the cycle on average. So that will support another strong step up in our free cash flows over this period to 2027.
Behind all of these financial targets is a focus on adding value, and one of the key metrics we focus on there is our ROCE, or our return on capital employed, in our core business, but also to track the value add of our acquisitions over time. Based on the ambitions we've shared today, we expect to drive our ROCE towards 15%+ in the next few years. Turning now to capital allocation, and Peter covered this a little bit. We've adjusted our priorities, particularly to include funding organic growth, as we see a large part of our 2024-2027 journey tied to the execution of all of the growth opportunities that we're uniquely positioned to pursue, and we talked about that today. The rest of our priorities remain primarily unchanged.
We're focused on disciplined capital allocation with a focus on shareholder returns over the short, medium, and longer term. And I'll go through a little bit of detail in the next slides. First, as a key priority, we remain committed to strong investment-grade credit ratings, ensures reliable access to the capital markets, gives us flexibility to manage our strategy, supports low cost of debt, at least relative to others, in the market. I can't say that debt is generally low cost nowadays. Secondly, we've maintained a progressive dividend for the past 13 years, and that return to shareholders in the form of reliable and progressive dividends remains important for us and a key priority going forward. In terms of portfolio evolution and shareholder returns, well, I already mentioned the funding organic growth, and we went through some details on where we expect to spend that funding.
In terms of the portfolio, the current priority, without any doubt, is organic growth. We remain opportunistic and agile towards acquisitions that reinforce our unique portfolio positioning in growth markets. And some good examples of that I would give in the recent past would be the purchase of the minority interest from AVEVA, the acquisition of OSIsoft, and the acquisition of L&T's E&A business in India. In terms of divestitures, we continue to regularly assess our portfolio to ensure that all the aspects remain strongly linked to our long-term strategy. But in both cases, either acquisitions or divestments, we don't see any transformative transactions in the near term. And lastly, we completed our shareholder buyback program of EUR 1.5 billion-EUR 2 billion quite recently, and we expect to only buy back shares to neutralize employee share plans going forward.
Now, of course, we remain a strong free cash flow generating company, so we would expect a return to shareholders in some form in the case of any excess cash build-up at the company. I'll finish just by summarizing all the key financial metrics we presented here today that translate into strong value creation for our shareholders. First, we're uniquely positioned to continue to capture growth through our portfolio and our execution. We expect to continue and to step up our sustainable growth journey with organic growth CAGR of +7%-10% from 2023 to 2027. Again, that's a four-year CAGR with the baseline 2023, so that starts with our first year in 2024. We believe that that growth journey should remain scalable, so we don't think we're at the end of our margin expansion journey.
We expect to expand our adjusted EBITDA margin at a CAGR of around 50 basis points organic over the period, supported by our execution on growth, our strong gross margins, and our agile operating model. That expansion in top line and in margin will drive another strong step up in our cash flows, and combined with disciplined capital allocation, this all translates to strong total shareholder returns. One last comment I'll make is that we continue to strive towards a consistent company of 25. That's a sum of our organic growth and adjusted EBITDA margin, and that's across the cycle, so beyond 2027. We think that does continue to be a big goal for us and one that's worth aiming for. With that, I think we can change to Q&A.
Microphone working? I think the microphone is working now. Now, I was just saying that it's between this session and lunch, but I think it's very important that we get through the Q&A, and I'm sure that you're all been waiting for that. We will obviously take the Q&A from the room for the folks, you know, who are over here. What I suggest is that yeah, keep it to one, as we always say, so that there's opportunity for more questions and more people to ask them.
... So, we can get started. Hands up in the air. Okay, let's go with you, Andre. How are you?
Hi, it's Andre from UBS. Thank you very much for the opportunity. I wanted to ask a question on, I guess predictably, on the growth versus margin expansion, and how you think about these two, given the macro backdrop that is affecting, I guess, at least some of your verticals, despite the megatrends and all the very strong drivers that you presented. So in the, kind of tactically, the next 12 months, how are you thinking about this, both kind of feet on the gas on margin and growth, or are you trying to prioritize one or the other?
You know, so as we said, we've been talking about this period of four years, and we do see some headwinds in some markets. It's, in totality, more complex than it was in the last couple of years, where everything was, you know, swinging in sync. And now one needs to look at different end markets and the geographies to pinpoint on the right areas of growth. Now, today is not the day to talk about the 2024 guidance. We'll do this once we've finished this year. So, you know, Q4 is in full run. We've finished the first month of it.
As Hilary said, we and myself, we're gonna have a very agile operating model as we go through the quarters of 2024, because in some markets we do see headwinds. In some areas, we have backlog until 2025. You've heard Chris talk on the, you know, what's happening on the data center side. Nicole didn't give a value that we didn't wanna disclose, but, you know, I can tell you I like it a lot. From, you know, from that perspective, one needs to look at those different markets, respectively. We will see that certain areas will be a little bit slower, you know, in the next couple of quarters, maybe also turning negative, and others are gonna be well double-digit.
All right. Phil, please, please introduce yourself for the others in the room.
It's Phil Buller from Berenberg. Hi. Thank you for the presentations. They were very insightful. Can I just start by clarifying the guide first, please? The 50 basis point CAGR in the margin, just in simple terms, 'cause normally margins, we don't hear about in a CAGR-type fashion. So is that implying a, we're shooting for a 20% margin, or is that the w rong way to interpret that? That's kind of the first clarification, if I can, please.
So no different, in my mind, than a CAGR that you would give on the top line. Therefore, you know, if every single year was identical, then it would be 50, 50, 50, 50, if that explains it.
Thank you very much. Then in terms of the, the growth guide, as Andre's question was, it sounds quite ambitious from, from the outside, which is fantastic, but is there gonna be a change to your, incentive structures to align to some of those new growth and margin objectives, please? Thanks.
We, you know, I think we haven't thought about those respectively. On the long-term incentive anyway, these are set for, you know, for the next couple of years. And we will put different weights on different of the KPIs in years of growth importance that has had a little bit more weight than others, and we do that as it makes sense.
All right. Thank you. Let's stick to one. Jonathan?
Hello, yes, it's Jonathan Mounsey from BNP Paribas Exane. And, yeah, thank you for letting me ask a question. I think, I mean, you said it, I think it is a 20% margin, EUR 50 billion and EUR 10 billion of EBITDA. When you get there, if you get there, as you said, you're capital light, you gave a feeling for the CapEx plans. Your targets for the P&L kind of, and your free cash flow conversion target, do kind of imply, in combination with the M&A bolt-ons, that you're gonna have a lot of excess capital when we get there. You talked about capital return to shareholders. I'm just wondering, if you won't sort of say explicitly how much you would give back, do you have a sort of feeling what your ideal leverage might be, financial leverage, please?
You want to take this, Hilary?
I think,
It's too complicated for me. I'll, I'll give this to Hilary.
You've seen that our leverage has moved a bit over the past few years. You know, we made the OSI acquisition, then we made the acquisition of the AVEVA minorities. In both cases, I would say that I, you know, we, we have sort of a peaking of debt here. We talked about the fact that we have investment grade as a, as a key, as, as actually our top priority in terms of capital allocation. So in general, we would look probably just like we did after OSI, to have some decrease versus the level of, versus the level of leverage that we have today. Probably those peaks after OSI or after AVEVA, well, I don't give a particular number for it.
Probably, those are probably the peaks that we would, we would not wanna retain at, and then, and then look to trend down from that over time, just like we did after OSI. We haven't yet started trending down after AVEVA, but I would expect that that would be, that would be the case. And in terms of excess capital, then, I, I think I answered the question. Today... That's not the case. You can see that, in fact, we're, we have the leverage because of the, acquisition that we made at the, really, at the beginning of this year, I guess, is when we did the close. In terms of excess capital, you know, we talked through debt, so that's something that we would look to trend down in the ratios that we have today.
We talked about the progressive dividend, and then, of course, we've always been a company that looks for opportunities in terms of M&A. I wouldn't expect that to change. That's something that we talked about here today. But if we did have excess cash, then we're certainly not averse to giving that back in some form. And I mean, you know the two major forms, right? Whether that's some sort of special dividend or that's some sort of share buyback. We don't—I think as a company, we don't think that we would be really interested in gathering a lot of excess cash for no reason.
Thank you. James.
Thanks for the opportunity. It's James Moore from Redburn Atlantic. I want, I really want to ask so many questions, but on the growth, wondered if you could just elaborate the price versus volume equation. But my real question is about automation. As we've touched on the key topics, software-defined as a disruption, when everybody talks about open, what is really different? And Connect, is Connect effectively an EcoStruxure for software? When we did EcoStruxure, and it's been amazing, there were two, three years of internal investment before it really came through. Should we expect some internal investment before it really comes through?
Let me take the two-second question, and then the first one I leave for Hilary. And I start backwards. On the Connect platform, that hasn't just come out of the woods, for this event. You all know that I've been working at AVEVA for two years before, and Rob and I and the team, we've been talking about how can we bring the software on one platform together with Schneider, with Peter's team, who sits here, the other Peter, my digital twin. How can we also connect many of the advisors that have been built in Schneider? How can we bring this all in one platform?
Because we've seen that the usage of a flexible currency that you use, and then if a client in a project needs more engineering, then he uses the engineering. When he's done with the engineering, moves into operation, he drives down the usage of engineering, he drives up the usage of operational software. And why having ten different contracts with him? It's quite complicated. So we've, we've said we wanna, we wanna do that.
At the time, we just had this as AVEVA, and one of the reasons we acquired the rest, or at the time, Schneider acquired me, if you will, the remaining 40%, was to make this journey faster and bring this value quicker to the market without necessarily always having a lawyer in the room and discussing a related party agreement. So hence, the journey has been enhanced. I think last week, two weeks back, was the AVEVA World Conference with 5,000 interested people that came, and kind of a soft launch that was going on. So the platform is there. It's not a total vision of the future. Now, is every of those components 100% there?
Software is never ready, unfortunately, and fortunately, so that's ongoing with the team. The good thing is, already basically three other companies outside our own environment have committed to move onto this platform. So, we see that more are coming, and you've seen also the color that we've used is a different one, and Connect has not been branded. It's, if you come in as an AVEVA client, it will be AVEVA Connect. You come in as an ETAP client, it's gonna be ETAP Connect. You come in as Schneider, as a Schneider Connect. If you, if you're Eros, it will be Eros Connect, and, and then everything is gonna be available for everybody. So we're quite advanced on this one.
On the automation question, and you know, many of you have been following us for a long time, this goes back 2-3 years, that we announced that we would do software-defined automation. What it really does, if you think about it, the franchise of a PLC, plus the respective input/output modules, the IO modules that will come with it, are usually one closed box. It's been driven by a couple of companies out there, including ourselves, and we said: Why can't we disconnect the two?
That may mean that we're gonna be selling a less PLC hardware, but we're gonna be selling more software, and the software can run on a drive, the software can run on an industrial PC, the software can run on any hardware that is ready for it in the network of this automation system. And we've gathered in our open automation community, I don't know how many players, Barbara?
Fifty-seven.
57 other companies in an organization. So it's not a Schneider organization. It's the 57 companies have built this. They have all signed up for this. So we know that these innovations take time until they get there. And, of course, some of the very large ones, you know, I wouldn't expect them to sign up. Their fear is that they lose their IOs and their PLCs over it. I have no fear of being open because it's been the fundament of the company to deliver open architecture. And on the pricing, the-
So I mentioned that, you know, one of the drivers we have in terms of gross margin is pricing. But as you know, we've had a big amount of pricing over the last couple of years. Not just us, but everybody, in this inflationary environment. So we haven't assumed that price would be an enormous driver of volumes in that 7%-10%. We have varying scenarios, but I think it will be back to sort of the more normal contributions that we had in terms of price, more value-add price, over the last few decades before that.
All right. Keep it, keep it to one question, please, Martin.
Yeah, thank you. Good morning. It's Martin Wilkie from Citi. My question was just on drivers and catalysts for some of the markets. You, you touched on the Inflation Reduction Act being big, and that's relatively clear, but there's others that are less so, like the buildings renovation regulation in Europe and so forth. Do you need more government programs to drive this growth, or does the return to the customer, is that enough in its own right to drive the growth?
You know, what we put out here is not a wish of more government programs, and then it's gonna come. We see what's there, and I think Aamir said it earlier, you know, with the... What we like is that politicians like to spend money, and we know different politicians will, may spend it somewhere else. But we see certain regulation coming, and then we're trying to adapt, and it's really different from market to market. I gave the example of California, where certain regulation is out there. Now, is that relevant for every house that's gonna be built in California? Yes. Is that gonna be relevant for us in every house? Maybe not.
So we're trying to focus there on the high end, because the high end is good for us, it's good for you. And then when we go into Europe, there is different regulations, sometimes in different countries. You know, even so I'm German, I'm not so clear how the heat pump has really landed in Germany, but we know what it means to the planet. And so from that perspective, we need to be agile with those. What's very clear is with the increase also of energy costs, and I don't foresee that to go down in the next couple of years. There is a lot of kind of last euro spend in energy efficiency. Listen, for example, I live in Switzerland.
I haven't seen so much solar and so much EVs that are put into the market as it was in the last, in the last year. People wanna be, wanna become independent of, of external forces, into, into their, residential areas, and then you've seen it for the, for the large, facilities like, like this one. People have long-term plans, and we're helping in their long-term plans. And, and there we have good visibility on what's going on. All right. Ben.
Morning, Ben Uglow from Morgan Stanley. Thank you for the presentations. I keep coming back to this strategy issue within automation, and Peter, I know you know this deeply. Aamir talked about North America and the opportunity, and those opportunities are in big, big, big projects in stuff like battery and EV. You've called it out yourself. But you are significantly subscale in PLC, I would argue, globally, and in particular, in North America. So what can you do to actually enhance that position? I realize there are not obvious properties from an M&A standpoint, but, you know, the market leaders expanding capacity dramatically. Rockwell announced a big increase in their investment yesterday.
So what can you do to really beef up what you have in the PLC, in the traditional, boring, hardware domain, in the core markets? Because that is, that is a clear weakness in the portfolio.
You know, appreciate the question, Ben. As you know, for many years, we've been discussing automation. As I said, you know, our automation franchise is very distinctive. If you know, if we put this a little bit into perspective to kind of think about this, and it's much different to some of the other players you are thinking of, I would imagine. The roughly 50% is, you know, process and hybrid market, and 50% is in the discrete world. Now, in the process and hybrid market, we have a pretty strong position with our DCS system, with our safety system, with the connection to AVEVA, with our cybersecurity offers that we've talked about, I think, two Capital Markets Days back.
This has developed to a very nice multimillion business for us, very sticky with the clients. So that's 50% of it. And there, it always depends where do you have investment? Who is gonna win some projects? So on a quarterly basis, this goes up and down. We look at the pipeline that we have and compare this on a longer term with our competitors. I'm quite confident with that business in combination with what we had to deliver in AVEVA. Now, if you look on the more discrete side, that's probably 50% product and 50% is more, you know, OEMs and PLC solutions. Now, on the product side, it's a great franchise.
You know, I like it a lot. And if you then look at the rest, are we smaller than the two others in respect to the number of PLCs we're selling? Yes, but not substantially. Not substantially. I would say, you know, could I double and then come there? Yes, but should this be the focus for a couple % of the business? We have picked the markets where we can be very successful. So we stayed out of automotive, you know, where you go into powertrain operations, where you go into the body shops and stuff like that. We stayed away for years because that market was taken. And the same for quite some of the discrete manufacturing facilities.
So first-tier, second-tier suppliers to that in aerospace, in automotive. If you go to markets where we're good, food and beverage, high-speed motion, very excellent. So it's quite distinct, the business. By the way, you know, as I said, 2022, we're just scratching EUR 8 billion. Last time I checked, in Milwaukee is not there.
All right, Daniela.
Thank you for taking my question. Actually, a question back to the margin, and if I recall correctly, one of the slides on AVEVA had the tailwind on from AVEVA margin significantly increasing already in 2024 with less of a headwind, and then the 2026 bar, I don't think, had a headwind from the transition. So wouldn't that make for a margin path on your 50 basis points that is more front-loaded than back-end loaded, or what are the counterbalances that one should think of?
I spoke about it a bit, so, and actually, Caspar spoke about it also. So on that slide, we showed the AVEVA transition to subscription. We also have the rest of the portfolio, so the energy management software with RIB and ETAP, that's behind in the journey and will be accelerating now in terms of that transition to subscription. AVEVA, for sure, we expect in that 2026-2027 time frame, that we should be through the big impacts in terms of revenue, and of course, then just straight down to the bottom line in EBITDA. With, I think, Caspar talked about the fact that we think that we c an do the acceleration at the other two businesses fairly quickly as well.
So we have some different dynamics with the pickup in AVEVA, but more transition to subscription in the early years with ETAP and RIB. Without any doubt, software will be a strong contributor in the back end. And then at the same time, we have the systems business that's picking up. You can see how that's been picking up throughout 2023, and you can, you know, infer, I think, based on everything we've said here, that that pickup will continue into 2024 and beyond. So we have those two different aspects that are coming together. Even I can't know what the timing it will be exactly perfectly, but probably more contribution from the software in the last couple of years.
And the 2024 guidance in February. Alex?
Thank you. It's Nick Green here from Bernstein. A different question on your competitive advantage, please. You have probably two flagship software assets, the heavy process digital twins with AVEVA and then the operational data historian with the OSI business. Maybe your RIB, your ETAP, and your other software, they are good businesses, but they don't have quite the same market credibility, so or maybe market positioning is a better way to put it. Can you describe then in your plan how you intend to replicate that top-drawer software expertise in the existing flagship assets across these other businesses you're targeting? Thank you.
No, thank you very much for the question. Certainly, you picked two flagships. I would add a third one, which is the Wonderware franchises on the operational side. So those are the three big franchises that are in AVEVA. Now, you go out in the electrical world, I think everybody is envious about ETAP. It is a great, great, great franchise that has not the global expansion that we would like to have. It is a very technical software, and that's why it's gonna be very good that, with the collaboration with the Schneider offices, around the world, that will help open doors, and then the global footprint that AVEVA brings to it, and then bring it on one platform to make it easier to subscribe, I think it's very good.
One example is, you know, I talked about the nuclear earlier. There's no software out there that actually is certified to go into nuclear. Every nuclear player we're talking to, they love ETAP, and I think they would also be willing to pay a little bit more to keep it and put it on subscription.
All right, we go back to the back of the room, please. Alex.
Thanks very much. Alexander Virgo, Bank of America. I wondered if you could just talk a little bit to the tension of the cadence of this 4-year period. I think the broad tailwinds around electrification and digitalization, et cetera, we, I think everybody subscribes to. The concern is obviously what's gonna happen in the next 12 to 18 months, particularly around some of your big construction end markets. So the implication, of course, is that you have quite a hockey stick effect if the near term is, is depressed. So I wondered if you could talk a little bit about, too, the visibility. You mentioned, Hilary, the, the backlog in systems. I guess-
... data centers is clearly a very strong part of, of the growth in the near term. Just trying to understand the tension. And I appreciate you don't want to give annual guidance, but it feels quite difficult to reconcile at the moment. Thank you.
But, you know, we can go back to our Q3 results that we've mentioned. Where we said that, you know, in particular, the OEM market shows some weaknesses, you know, predominantly started in China, then also in some of the key markets in Europe. The OEM market has always been a volatile market, and of course, through COVID plus the supply chain crisis, this has actually, in the amplitude, been a little bit augmented. And, so plus the whatever is in the supply chain with us, with some of the partners to the OEM clients, in their backlog, is something that one not needs to understand in depth.
These cycles have traditionally had a certain period over several quarters. I would anticipate that that's gonna be similar, this time, this time around. From, from that perspective, you, you know, I'm, I'm not worried about the over the whole cycle of what's going on here. If we, if we talk about our visibility, and I've been asked in the break, "What's your visibility into the project pipeline, for example, in, in the US?" It's, it's pretty good. I don't know, Aamir, you want to give a couple comments to it? Oh, you have no microphone. Okay. Can we give a microphone to this man here?
Yeah, just to add, Peter, as you said, we have the highest visibility we've ever had on data centers. As Hilary mentioned, it's well into 2025, but the Compass contract was 5 years. It's not the only one that we have signed for longer than a 3-year period. So not only is the organic backlog visibly high, but also these contract structures give us more certainty on systems business for some time.
All right. Gail, right over there.
Thank you. Gail Deprez from Deutsche Bank. Can I actually start with the Compass contract you've just announced, the $3 billion over what, 5 years? I mean, if I do the math, I think that's nearly equivalent to about 20% of your targeted growth over the next four years. Just checking this, the math is... Well, there is some truth and logic in the math.
It's not a new customer. We've had them before.
Okay.
But it is a growth.
That, that's still quite substantial, right?
It, you know, what's really substantial is you have one of the biggest colo providers, a company that's rapidly growing and that understands that this will become a supplier's market. They've secured capacity, and they've industrialized it. Also, when we talk about the systems business, Hilary has talked about it, you know, we're moving from what is called engineer to order, ETO, to more of a configure to order, so it's industrializing these things. You know, I'm an engineer, so I tell our people, "Don't give a blank sheet of paper to an engineer because he's going to design something great for the customer, and if you give him another sheet of paper, he's going to design something great for the next customer." That's what's ETO. With those clients, we have a configure to order, so it's industrialized and so forth.
So we actually have machinery cut the cable, comes right out of our, of our ETAP system, where we do the electrical design, that needs to go into this data center. It goes down to the machine. We cut the cable. It's really industrialized in factories that we've built in El Paso, Texas, and also in neighboring Mexico, where we have all the land use rights that we need. If we want to build in El Paso five, then we build in El Paso five. I don't need the land. I have it. I just replicate. So I don't need to make a lot of noise for that stuff. There is quite some industrial systems business in front of us.
Thank you.
All right,
Can I-
We'll take one at the back there. Come back to you, Gail.
Thank you. It's, it's Nick again here from Bernstein. It's a question for Hilary. 18% software and services in 2022. You gave us some growth figures, in text form on the slide. Can you give us a sense by 2027 what that number could rise to, please? Thank you.
Yes. So this time, we didn't give the in-depth detail into the various pieces of the digital flywheel. I think you can start to infer, though, you know, what we have happening is that we have the software and services business growing at double digit. Therefore, we would expect faster than the growth overall. We also have systems growing at double digit. So, the growth within the flywheel may not be as high as it has been in the past, but we still expect to see good growth with the, of systems and services within within the flywheel.
The systems business for us, a big focus and something that we've seen more and more on, is a higher and higher attach rate, and we gave it in a few of the slides, kind of the mix of what we have across the business models, but a higher and higher attach rate for services and for systems tied to that systems, sorry, services and software tied to that systems business. So I think as we, as we, progress forward, we would expect even further acceleration in those two business models tied to this big mountain of systems business that we see in front of us today.
All right, maybe take a couple more. Andrew?
Hi, thank you. It's Andy Wilson from JP Morgan. Just a question on the R&D. Obviously, big plans to continue to expand that, and I guess I think you touched on it a little bit in terms of the sort of KPIs that you look at. Can you just flesh them out a little bit and how they've been trending over time? I'm just interested in what feels like quite quickly evolving markets. There's obviously the risk that the R&D burden goes up, but you're not necessarily able to deliver the value simply because the product cycles accelerate. So really interested in just a bit more color on that, please.
Yeah. The, you know, maybe have two or three KPIs that we're looking at. It's quite... We've built up quite a consistent system now, throughout the company to see how we're successful with the various programs, that's how we call them, that we're driving. So, one is, in the businesses, we look at the Vitality Index, meaning how much of the revenue is generated with products that have a certain age group, and, that Vitality Index needs to go up. It means that we're successful in bringing new products to the market. For the individual products, of course, we, we do look at NPV analysis, and, then, you know, to understand also when, when's the payback period, and, stuff like that.
Then, we're following quite closely a dedicated process for not only the development, but also introducing to the market. We make them what we call hero offers. We select the markets. We follow closely whether we reach the units of our desire, whether we meet and exceed them, and if not, we can take respective actions accordingly. I don't know, Olivia, anything to add? Fine, yeah.
Alastair.
Thanks. Alasdair Leslie, Goldman Sachs. Just a couple of questions really on the margins. Just on the systems kind of gap to the rest of the kinda portfolio margins, just how much perhaps you can sort of still close that? I think you said you closed that gap by a third. How much can we still close that going forward? And then on the SFC ratio, I think we're around 23% at the moment, if I'm not wrong. I don't think you gave a target for that, but I think sort of historically, it was maybe between sort of 21-22. Could we still see that come down by maybe 100-150 basis points? Thank you.
Sorry, what was the first question?
Systems.
Oh, yeah, sorry, on the systems closing of the gap. So in terms of the closing on the gap on systems, I'd mentioned that we've closed the gap by more than around one third over the past few years. We do have a particular program in systems where we expect to see a continuation of closing in that gap of that gap closer to the group, the group gross margin. That said, we would never expect that our systems business, where we do business directly with the end customer, you know, we announced, for example, EUR 3 billion, five-year contract. We would never expect that that would be at the same gross margins as, as some of the more diffuse business we have in the rest of the group or in, in software, for example. It's just a different business model.
But we do expect over this timeframe, that 2024-2027, a bit more closing of that gap. And the business, the other thing that we focus on is the business is definitely less OpEx intensive. So at the level of the adjusted EBITDA itself, we actually have the opportunity to take quite a bit of systems business that doesn't end up impacting our overall adjusted EBITDA margin.
All right. Eric?
Yes, Eric Lamarié, CIC. Thanks for the opportunity. I got one question for Peter. You CEO since last May, and I was wondering whether you could tell us whether you have been positively or negatively surprised by some particular issues within Schneider since you are CEO? And I was wondering, too, since you're the CEO of Schneider, how much of your time has been dedicated to meetings with clients? I ask the question because you're an engineer.
Well, thank you very much for the question. I appreciate it. The only surprise was it's a lot of work. I knew that before. Joke aside, we don't wanna spend the time on joking. No, I've not been negatively surprised. You know, I've been seven years in the company, and Jean-Pascal and I have worked very closely together in those seven years. And you know, everybody in the ex-com, we've been colleagues and have a very good working relationship together. Other issues, you know, there's always an issue every day, and you go, you attack it, or somebody in the organization does it. So I think, you know, a well-prepared company, number one, and number two, a well structured handover.
From that perspective, it's, you know, I'm pleased and we have potential. How much time do I spend with a client? I actually have a pretty solid understanding of my calendar on the 15 minutes every day, so I can give you a pretty precise answer. But my usual answer to the colleagues is: a customer a day keeps the doctor away. Also, for the CEO, if you spend a customer a day, that's more than 10% of your time. I can tell you, and there's publications out there, that's three times the average.
All right, I see we're sort of three minutes over. We have to call it a day here for the Q&A. Thank you, especially for the folks on the webcast, because for them, this is the end of the Capital Markets Day, at least for the ones who've been watching on the screen. So we'll just give that a minute. Thank both of you, and I'll be giving you the instructions what's gonna come next.
Thank you. Thank you.