APC 2015 Annual Report Download - page 40

2015 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC38
OVERVIEW OF THE GROUP’S STRATEGY, MARKETS AND BUSINESSES
1RISK FACTORS
Regarding cyber-security, a specifi c investment program has been
launched to develop specifi c capabilities. Specialists embedded
in the main development teams/centers are involved from the
early phases of the design to make products inherently safe. A
constant monitoring of emerging threats has been implemented in
partnership with specialized fi rms and specifi c incident response
processes have been established to support customers in case of
cyber-attack against Schneider Electric products.
The market for software-based solutions has faster cycles than some
of Schneider Electric’s hardware markets. As a provider of critical
infrastructure management solutions, the Group nevertheless does
not compromise its standards of outstanding reliability and security.
As a consequence, a program is underway to generalize the latest
standards of System Engineering, allowing different teams to work
in parallel on complex products or systems, while assuring the
highest quality standards. Coupled with techniques such as early
prototyping, leveraging 3D printing, and simulation, these efforts
contribute to the continued reduction of go-to-market lead times.
To sustainably manage these challenges, the Group needs to
constantly invest in the competencies of its 11,000 R&D engineers,
both to reinforce its traditional domains of expertise and develop
new ones. Worldwide competency networks, which extend into
universities, research centers and partners remain the backbone
of Schneider Electric’s R&D organization. Each network constantly
monitors emerging technologies and competitive trends in its
domain, decides the launch of research efforts to position the
Group ahead of those trends and ensures the related upgrade of
the network’s talent pool.
Schneider Electric’s strategy involves growth
through acquisitions and mergers that
arepotentially difficult to execute
The Group’s strategy involves strengthening its positions through
acquisitions, strategic alliances, joint ventures and mergers.
Changes in the scope of consolidation during2015 are described
in note2 to the consolidated fi nancial statements (Chapter5).
External growth projects are examined in detail by the businesses
and corporate functions (strategy, fi nance, legal affairs, tax
and Human Resources) concerned, under a rigorous internal
process developed and led at Group level. A launch committee is
responsible for initiating the review process to identify the risks and
opportunities associated with each external growth project, while a
number of validation committees review the results on an ongoing
basis. Projects that successfully come through the review process
are submitted for approval to the Group Acquisitions Committee
made up of the main members of senior management. The largest
projects require the prior approval of the Chairman and CEO, who
refers to the the board of directors, if necessary.
External growth transactions are inherently risky because of
the diffi culties that may arise in integrating people, operations,
technologies and products, and the related acquisition,
administrative and other costs.
This is why an integration procedure for new acquisitions has been
drawn up. The integration of acquisitions is a process that extends
over a period of six to 24months depending on the type and size
of the newly acquired company. The integration scenario for each
acquisition varies depending on whether the business was acquired
to strengthen or extend the Group’s existing line-up or enter a new
segment. There are a number of different integration scenarios,
ranging from total integration to separate organization. An
integration plan is drawn up for each acquisition and submitted to
the Acquisitions Committee for approval. The plan is implemented
by an integration manager who reports to a Steering Committee
that initially meets at monthly intervals and then on a quarterly basis.
The unit that presents the acquisition project is accountable to the
Group’s senior management for meeting clearly defi ned business
plan targets covering future performance and expected synergies.
Actual performance is measured against business plan targets
during quarterly business reviews and, for the largest acquisitions,
by the board of directors.
Value in use is determined by discounting estimated future cash
fl ows that will be generated by the tested assets, generally over
a period of not more than fi ve years. These future cash fl ows are
based on Group management’s economic assumptions and
operating forecasts. The discount rate corresponds to Schneider
Electric’s weighted average cost of capital (WACC) at the valuation
date plus a risk premium depending on the region in question
(local risk-free rate), the nature of the target’s business (appropriate
beta), and the structure of the fi nancing (taking into account the
debt to equity ratio and risk premium on the debt). The Group’s
WACC stood at 7.3 % at December31, 2015 , slightly decreasing
compared to the 2014 fi nancial year. The perpetuity growth rate
was 2%, unchanged on the previous fi nancial year.
Goodwill is allocated to a Cash Generating Unit (CGU) when initially
recognized. The CGU allocation is done on the same basis as used
by Group management to monitor operations and assess synergies
deriving from acquisitions. Impairment tests are performed at
the level of the cash generating unit (CGU), i.e. the Buildings &
Partner, Infrastructure, Industry and IT businesses. Details on asset
impairment are provided in note1.11 to the consolidated fi nancial
statements (Chapter5).
Where the recoverable amount of an asset or CGU is lower than
its book value, an impairment loss is recognized. Where the
tested CGU comprises goodwill, any impairment losses are fi rstly
deducted therefrom.
The Group’s success depends on its ability to
attract and retain qualified individuals, and
engaging its workforce to support our Growth
ambition for the future
Competition for highly qualifi ed management and technical
personnel is intense in the Group’s industry, and becomes a bigger
challenge as the Group continues on its trajectory of growth in
mature economies as well as in new economies. Future continued
success depends in part on the Group’s ability to hire, assimilate
and retain engineers, sales people and other qualifi ed personnel,
especially in the area of energy effi ciency solutions. This ability
can only result from a strong employee-centric Human Resources
strategy and its ability to prepare its workforce for the future through
learning and identifying talent within the organization.