Schneider Electric Reports Strong Growth in First-Half of 2004
Sales: +18%Operating Income: +30%Net Income Before Goodwill Amortization: +23%Rueil Malmaison July 29, 2004 The Board of Directors, chaired by Henri Lachmann, met on July 28, 2004 to examine the first half financial statements ended June 30, 2004.SHARP REBOUND IN BUSINESS IN NORTH AMERICA AND WESTERN EUROPE REMARKABLE PERFORMANCE IN EMERGING COUNTRIES Schneider Electrics sales for the first-half of 2004 amounted to 4,984 million, a record increase of +17.7% over first-half 2003 at current structure and exchange rates.Acquisitions MGE UPS Systems, TAC and Clipsal contributed a significant 556 million to first-half 2004 sales (+13.1%). Unfavorable currency effects remained strong at 171 million (-4.0%).At constant structure and exchange rates, half-year sales were up a strong +8.6% in first-half 2004, led by a recovery in business in mature countries and a remarkable growth in emerging countries.In the second-quarter 2004, sales amounted to 2,612 million, a +10.1% gain at constant structure and exchange rates, that partially reflected low prior-year comparatives. Growth is gathering momentum in Europe, thanks to an emerging recovery in demand and the impact of the growth initiatives, notably in the Ultra Terminal and Services businesses. Sales were up by around +5% in France, Spain and the United Kingdom. They rose more quickly in Italy as a result of market share gains. Growth remained strong in Eastern Europe, at nearly +20%.Sales are still trending upwards in North America. As business recovers, growth is being driven by initiatives designed to gain market share, in particular in large metro areas and on small electrical projects.Sales growth remained strong in the Asia-Pacific and Rest of the World divisions, with expansion exceeding +20% in almost every area. Schneider Electric amply outperformed its markets thanks to the effectiveness of its business model, the quality of its offering and the strength of its local operations.Sales by the Growth Platforms division, formed by the acquisitions of TAC in building automation and MGE UPS Systems in secured power, rose by around +12% like-for-like, demonstrating the strong potential of these businesses.STRONG GROWTH IN OPERATING INCOME LED BY A CLEAR IMPROVEMENT IN OPERATING MARGINOperating income surged +30% to 571 million in first-half 2004, despite still significant unfavorable currency effects which had a 51 million impact. Acquisitions added 64 million, with margins in line with the Groups.Excluding the effects of changes in perimeter and exchange rates, operating income grew a high +27%, as the benefits of a strong +9% organic growth were amplified by a clear 1.1-point improvement in operating margin. Gross margin widened to 42.7% in first-half 2004 from 41.9% in first-half 2003, gaining nearly 1 point in line with the target. Schneider Electric generated 78 million in net productivity gains during the first-half, thanks to the productivity plans implemented as part of the NEW2004 program. The target of achieving a 5% gain in purchasing productivity was met. The Lean Manufacturing plan has been deployed at 108 production units since launch. Positive hedging effect has so far limited the impact of higher raw materials prices.Support functions continued to be optimized during the first half. The adjustment plans of structures in France were finalized and will be fully effective in 2005. Marketing investments have been stepped up in growing countries.The currency effects reduced operating margin by -0.6 points. At constant exchange rates, half-year operating margin would have reached 12.1% or a 1.7-point improvement compared to first-half 2003.SIGNIFICANT INCREASE IN NET INCOME AND CASH FLOWAfter income tax higher than in the prior-year period due to certain non-recurring items, net income before goodwill amortization rose +23% to 330 million in first half 2004.Earnings per share before goodwill amortization increased a significant +23% to 1.47. After goodwill amortization, earnings per share was up +19% to 1.01.After having bought back 1.8 million shares in first-half 2004, the Group intends to continue buying back shares and cancel them.Schneider Electric continued to generate high operating cash flow: it amounted to 543 million, or 10.9% of sales, in first-half 2004.Thanks to disciplined control over capital employed, free cash flow increased +16% in first-half 2004, to 269 million. Despite the strong growth in business, a slight reduction in capital expenditure and a moderate increase in working capital held free cash flow stable as a percentage of sales, at 5.4%.OUTLOOK FOR 2004Schneider Electric has the ability to fully leverage its markets growth potential, thanks to:- The deployment of growth plans targeted by market segments and distribution channels in North America and Western Europe,- Sustained expansion and forefront positions in emerging countries,- The gradual broadening of its positions in the residential market,- The implementation of dedicated solutions in response to growing customer needs in the area of the environment and energy management,- The development of value-added services enabling customers to optimize the management and performance of their installations.As part of its aggressive growth strategy, combining innovation and differentiation, Schneider Electric continues to focus on organic growth, while assertively expanding in strategically-related high potential businesses through high quality acquisitions.In light of the current recovery in its markets and its strong growth capacity, Schneider Electric revises its full-year outlook upwards. Based on an exchange rate of $1.25/, the Group anticipates for 2004:- A growth in sales of more than 15%, - An increase in operating income of more than 25% i.e. a 1-point improvement in operating margin.Third quarter sales for 2004 will be released on October 21, 2004.Schneider Electric is the worlds 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.
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