APC 2014 Annual Report Download - page 38

1OVERVIEW OF THE GROUP’S STRATEGY, MARKETS AND BUSINESSES
RISK FACTORS
Regarding cyber-security, a specific investment program has been An integration plan is drawn up for each acquisition and submitted
launched to develop specific capabilities. Specialists have been to the Acquisitions Committee for approval. The plan is
embedded in the main development teams/centers are involved implemented by an integration manager who reports to a Steering
from the early phases of the design to make products inherently Committee that initially meets at monthly intervals and then on a
safe. A constant monitoring of emerging threats has been quarterly basis.
implemented in partnership with specialized firms and specific The unit that presents the acquisition project is accountable to the
incident response processes have been established to support Group’s senior management for meeting clearly defined business
customers in case of cyber-attack against Schneider Electric plan targets covering future performance and expected synergies.
products. Actual performance is measured against business plan targets
The market for software-based solutions has faster cycles than during quarterly business reviews and, for the largest acquisitions,
some of Schneider Electric’s hardware markets. As a provider of by the board of directors.
critical infrastructure management solutions, the Group Value in use is determined by discounting estimated future cash
nevertheless does not compromise its standards of outstanding flows that will be generated by the tested assets, generally over a
reliability and security. As a consequence, a program is underway period of not more than five years. These future cash flows are
to generalize the latest standards of System Engineering, allowing based on Group management’s economic assumptions and
different teams to work in parallel on complex products or operating forecasts. The discount rate corresponds to Schneider
systems, while assuring the highest quality standards. Coupled Electric’s weighted average cost of capital (WACC) at the valuation
with techniques such as early prototyping, leveraging 3D printing, date plus a risk premium depending on the region in question (local
and simulation, these efforts contribute to the continued reduction risk-free rate), the nature of the target’s business (appropriate
of go-to-market lead times. beta), and the structure of the financing (taking into account the
To sustainably manage these challenges, the Group needs to debt to equity ratio and risk premium on the debt). The Group’s
constantly invest in the competencies of its 11000 R&D engineers, WACC stood at 7.6% at December31, 2014, slightly decreasing
both to reinforce its traditional domains of expertise and develop compared to the 2013 financial year. The perpetuity growth rate
new ones. Worldwide competency networks, which extend into was 2%, unchanged on the previous financial year.
universities, research centers and partners remain the backbone of Goodwill is allocated to a Cash Generating Unit (CGU) when initially
Schneider Electric’s R&D organization. Each network constantly recognized. The CGU allocation is done on the same basis as
monitors emerging technologies and competitive trends in its used by Group management to monitor operations and assess
domain, decides the launch of research efforts to position the synergies deriving from acquisitions. Impairment tests are
Group ahead of those trends and ensures the related upgrade of performed at the level of the cash generating unit (CGU), i.e. in
the network’s talent pool. 2014 the Buildings & Partner, Infrastructure, Industry and IT
Schneider Electric’s strategy involves growth
businesses. Details on asset impairment are provided in note1.11
to the consolidated financial statements (Chapter5).
through acquisitions and mergers that
Where the recoverable amount of an asset or CGU is lower than its
book value, an impairment loss is recognized. Where the tested
arepotentially difficult to execute
CGU comprises goodwill, any impairment losses are firstly
The Group’s strategy involves strengthening its positions through deducted therefrom.
acquisitions, strategic alliances, joint ventures and mergers.
The Group’s success depends on its ability to
Changes in the scope of consolidation during2014 are described
in note2 to the consolidated financial statements (Chapter5).
attract and retain qualified individuals, and
External growth projects are examined in detail by the businesses
engaging its workforce to support our Growth
and corporate functions (strategy, finance, legal affairs, tax and
ambition for the future
Human Resources) concerned, under a rigorous internal process
developed and led at Group level. A launch committee is Competition for highly qualified management and technical
responsible for initiating the review process to identify the risks and personnel is intense in the Group’s industry, and becomes a bigger
opportunities associated with each external growth project, while a challenge as the Group continues on its trajectory of growth in
number of validation committees review the results on an ongoing mature economies as well as in new economies. Future continued
basis. Projects that successfully come through the review process success depends in part on the Group’s ability to hire, assimilate
are submitted for approval to the Group Acquisitions Committee and retain engineers, sales people and other qualified personnel,
made up of the main members of senior management. The largest especially in the area of energy efficiency solutions. This ability can
projects require the prior approval of the Chairman and CEO, and, only result from a strong employee-centric Human Resources
in some cases, the board of directors. strategy and its ability to prepare its workforce for the future
External growth transactions are inherently risky because of the through learning and identifying talent within the organization.
difficulties that may arise in integrating people, operations, The Group’s Human Resources strategy is strongly anchored in its
technologies and products, and the related acquisition, «Total Employee Experience» philosophy, ensuring that Human
administrative and other costs. Resources offers at every stage of an employee’s life cycle within
This is why an integration procedure for new acquisitions has been the company remain attractive in order to recognize, reward and
drawn up. The integration of acquisitions is a process that extends retain employees. The Human Resources Function is valued as a
over a period of six to 24months depending on the type and size backbone of support for the business, bringing efficiency and
of the newly acquired company. The integration scenario for each quality to the employee experience. Our entire HR Strategy is being
acquisition varies depending on whether the business was developed to support our 2020 vision on leadership and culture at
acquired to strengthen or extend the Group’s existing line-up or Schneider Electric. It defines the values and transformation we
enter a new segment. There are a number of different integration want to accomplish, one of them being to increase our diversity.
scenarios, ranging from total integration to separate organization.
36 2014 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC