Schneider Electric Announces Strong Growth in First-Half 2005

July 292005
(Rueil Malmaison – July 29, 2005) – The Board of Directors, chaired by Henri Lachmann, met on July 28, 2005 to examine the first half financial statements ended June 30, 2005.

Commenting on the results, Henri Lachmann, Chairman and Chief Executive Officer, commented: “Thanks to its efficient repositioning in emerging markets and new businesses, Schneider Electric continues to generate high sales growth. This growth, combined with stepped-up deployment of our efficiency plans, has driven a new strong increase in our half-year 2005 financial results, building on an already remarkable performance in 2004. The successful launch of the new² company program and the strong resonance with all our employees give us confidence in Schneider Electric’s ability to deliver growth and create wealth.”

I. SUSTAINED VERY POSITIVE MOMENTUM IN NORTH AMERICA, VERY GOOD PERFORMANCE IN EMERGING MARKETS.
Schneider Electric’s sales for the first half of 2005 amounted to €5,399 million, a strong growth of +8.5% over first half 2004 at current structure and exchange rates.

Acquisitions – Kavlico, Andover Controls, Elau and PMI – contributed a significant €172 million to first-half sales (+3.5%). Currency effects remained negative at €70 million (-1.4%).

On a constant structure and exchange rate basis, sales were up a strong +6.4% in first-half 2005 over first-half 2004, led by the sustained very positive momentum in North America and a very good performance in emerging countries.

In the second quarter 2005, sales amounted to €2,873 million, an +8.0% gain at constant structure and exchange rates, favored by the reversal of the negative seasonal effect seen in the first quarter in Europe and high billings in the Rest of the World.

Sales growth remained strong in North America: thanks to its successful sales actions, Schneider Electric is fully benefiting from a favorable economic environment.

Restated for seasonal effects, growth was higher in Europe than in the first quarter, due primarily to an upturn in business in Eastern Europe, where sales rose 10% in the second quarter after a difficult start this year. The trend improved slightly in Western Europe, with mixed performances depending on countries.

The Asia – Pacific region came back to a high level of growth, in line with targets. Second quarter sales rose by more than 20% in China, as a confirmation of return to normal levels, started in March following a weak January and February.

In the Rest of the World, Schneider Electric leveraged its forefront positions to achieve an excellent performance, fueled by high investments in a buoyant oil and mining market.

II. STRONG INCREASE IN OPERATING INCOME LED BY ORGANIC GROWTH
Operating income surged +17.3% to €676 million in the first half 2005. This growth is driven essentially by organic growth and comes on the heels of a 30% year-on-year increase in 2004 compared to 2003, making for a gain of more than 50% over the past two years.

Excluding the effects of changes in perimeter and exchange rates, operating income rose +18.4% in the first-half 2005 thanks to:
  • Strong business growth, combined with effective price management,
  • €143 million in gross industrial productivity gains representing 4.8% of costs of sales, up +0.5 point from first half 2004, offsetting therefore the rise in raw material costs,
  • Tight control over selling and administrative base costs.

    The currency effects reduced operating income by -€35 million, while acquisitions added +€29 million, with a higher margin than the Group average.

    The application of International Financial Reporting Standards (IFRS) had a limited aggregate impact of €6 million on operating income in first-half of 2005, compared with €5 million in first-half of 2004.
    The operating margin widened by +0.9 point to 12.5%.

    III. SIGNIFICANT INCREASE IN NET INCOME AND EARNINGS PER SHARE
    Taking into account higher interest expense stemming from the increase in net debt, net income rose +14.7% in first-half 2005, to €413 million.

    Earnings per share increased by a significant +17,6% to €1.90 in first-half 2005 compared to first-half2004, reflecting higher net income and a -2.5% decrease in the average number of shares outstanding following share buybacks.

    Operating cash flow climbed +8.4%, in line with sales, to €629 million and represented 11.6% of sales.

    IV. CONTINUED ACQUISITIONS STRATEGY
    Schneider Electric pursued its strategy of selective acquisitions to enlarge its accessible markets and enhance its growth potential:
  • Power Measurement Inc in energy management,
  • ABS EMEA in building automation,
  • US-based Juno Lighting in downlighting fixtures,
  • BEI Technologies in customized sensors.
    These acquisitions represent an investment of €1.3 billion based on enterprise value.

    V. DECISIONS FROM THE BOARD OF DIRECTORS
    The Board of Directors has approved the launch of a bond issue, to optimize the maturity length of the debt and reduce its cost.

    The Board of Directors has appointed Cathy Kopp as a non-voting Director. The appointment of Ms. Kopp as Director will be proposed to the shareholders at the next Annual Meeting.

    Ms. Kopp is Human Resources General Manager at Accor. She previously served as Vice President, Human Resources, Storage Systems Division at IBM Corp and Chairman and CEO of IBM France.

    VI. OUTLOOK FOR 2005
    Assuming current economic and currency conditions, Schneider Electric has revised upwards its targets for 2005:
  • Organic sales growth of 6%, versus a previous target of 5-6%.
  • An increase of 15% in operating income, versus a previous target of 10%.

    Third quarter sales will be released on October 20, 2005.

    Schneider Electric:
    Schneider Electric is the world's power and control specialist. Through its world-class brands, Merlin Gerin, Square D and Telemecanique, Schneider Electric manufactures and markets a comprehensive range of products and services for the residential, buildings, industry, and energy and infrastructure markets. Schneider Electric has 83,000 employees worldwide, operations in 130 countries and recorded sales of €8.8 billion in 2003 through 13,000 sales outlets.

    Visit Schneider Electric at www.schneider-electric.com.

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