Schneider Electric SA (DG) is testing software to manage power grids, pipelines, water networks and road traffic in cities around the world, in a global infrastructure push that competes with Siemens AG (SIE) and ABB Ltd. (ABBN)
The French company is using undisclosed towns in the U.S., China and France to test a mix of services it developed along with systems gained in the $2 billion acquisition of Spain’s Telvent GIT SA (TLVTF:US) last year, Michel Crochon, head of the infrastructure unit, said in an April 4 interview.
“Telvent is bringing us the ability to monitor and simulate” events such as floods, manage power outages and detect faulty equipment remotely, Crochon said. It also has a “gold nugget” in the form of a weather forecast model that can help anticipate water or power demand, he said.
Schneider is vying for so-called smart city projects to keep up with Siemens, which created a division called infrastructure and cities last year, and ABB, which spent more than $1 billion in 2010 to buy a maker of software to manage energy flows. Crochon sounded a note of optimism about business this year, saying some of the issues that weighed on the division’s earnings in 2011 have abated.
“The smart cities initiative is a new market, a new approach, which has accelerated with the acquisition,” Crochon said at the company’s headquarters near Paris. “We’re very confident in the growth of Telvent.”
Telvent, which had sales of 260 million euros ($341 million) in the fourth quarter of 2011, is run as a stand-alone business for now, the executive said. Schneider already offered electricity networks, building controls and video surveillance systems before the Spanish takeover. The systems help local authorities as cities get more crowded and global resources become scarcer.
“We didn’t have high-level software for infrastructure,” Crochon said. “With the arrival of renewable today and electric vehicles tomorrow, there’s a real need for integration.”
Crochon expects profit to improve at the unit he manages, which also sells products such as switchgears and transformers to the oil and gas industry.
Sales at the division, which accounted for 22 percent of Schneider’s revenue last year, rose 7.5 percent on an organic basis to 4.90 billion euros. Earnings before interest, taxes, and amortization were unchanged at 10.5 percent of sales in 2011.
“There’s no cause for concern” for this year, he said. “I see neither a collapse nor a boom, but a normal continuation of the business” at the start of 2012.
Crochon said profitability of the infrastructure business was disrupted by rising raw materials and a “slightly more difficult market” for transformers in 2011. These two factors are non-recurring, he said.
For the company as a whole, Schneider Chief Executive Officer Jean-Pascal Tricoire in February predicted “flat to slightly positive” organic sales growth this year, held back by the economic turmoil in parts Western Europe.
Before buying Telvent, Schneider acquired Areva SA (AREVA)’s power- distribution unit for more than 1.1 billion euros and 50 percent of Russian switchgear and transformers maker Electroshield-TM Samara for 265 million euros in 2010 to beef up its medium- voltage offering.
The cooperation with Electroshield is “following its course” and the purchase of the remaining stake may come under consideration this year, Crochon said. He declined to give details on acquisition plans.
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