Schneider Electric Releases Full Year 2005 Results, Announces Excellent Performance

February 16, 2006
Schneider Electric
News

Summary

The acquisitions made in 2005 (PMI, Elau, ABS EMEA, Juno Lighting and BEI Technologies) and the full-year impact of the acquisitions made in 2004 (Andover Controls and Kavlico) contributed a significant €433 million, or +4.2%. The currency effect became slightly positive, increasing sales by €74 million, or +0.7%.

Excellent performance in 2005

Sales up 13%

Operating income up 22%

Earnings per share up 22%

Strong organic growth in sales: up 7.9%

Significant improvement in operating margin: up 1.0 point and return on capital employed: up 0.8 point

Increase in proposed dividend at €2.25 per share: up 25%

Results in line with new² company program targets

On going active development in emerging countries and targeted new businessesRueil Malmaison, February 16, 2006 -Meeting on February 15, 2006, under the chairmanship of Henri Lachmann, the Board of Directors approved the financial statements for the year ended December 31, 2005.

Commenting on the results, Henri Lachmann, Chairman and Chief Executive Officer, noted: “This strong increase in sales for the second year in a row reflects the gradual change in Schneider Electric’s growth profile, with the increasing contribution from emerging countries and new businesses. The initial effects of the efficiency plans deployed through our new² company program also drove a further significant improvement in our operating and financial profitability. All in all, over the past two years, Schneider Electric has increased its profit by nearly 60%. We are particularly confident in Schneider Electric’s ability to generate sustainable and profitable growth given the deep commitment of all our employees and the high quality of our new management team.”I. STRONG GROWTH IN SALES Sales enjoyed strong growth in 2005, gaining a reported +12.8% to end the year at €11,679 million. The acquisitions made in 2005 (PMI, Elau, ABS EMEA, Juno Lighting and BEI Technologies) and the full-year impact of the acquisitions made in 2004 (Andover Controls and Kavlico) contributed a significant €433 million, or +4.2%. The currency effect became slightly positive, increasing sales by €74 million, or +0.7%.On a constant structure and exchange rate basis, sales rose a robust +7.9% led by the continuation of very favorable trends in emerging countries, a sustained growth in North America and stepped-up demand in Western Europe.Sales change by geographical region were as follows:

In the fourth quarter 2005, sales amounted to €3,263, an +8.4% gain, much higher than forecasted.II. STRONG GROWTH IN OPERATING INCOME Operating profit strongly increased by +22% to €1,565 million, primarily driven by the Group’s organic performance. On a constant structure and exchange rate basis, operating income improved by +17% (on sales organic growth of +7.9%), reflecting:

Strong business growth combined with effective price management.

Significant industrial productivity gains, offsetting therefore the rise in raw material costs.

Tight control over base costs.Thanks to stepped-up deployment of efficiency plans, notably production costs rebalancing and logistics optimization, gross industrial productivity rose +32% to €304 million, equivalent to 4.9% of cost of sales, which represents a +0.4 point gain from 2004.Acquisitions contributed €67 million, with a higher margin than the Group average. The currency effect had a very limited negative impact of €8 million as the euro/dollar exchange rate remained virtually unchanged from 2004.Operating margin significantly widened by +1.0 point to 13.4%. All region and businesses reported strong improvement in operating margins. III. STRONG GROWTH IN NET INCOME AND RETURN ON CAPITAL EMPLOYED Net income also rose strongly by +21% to €994 million, despite higher cost of debt. Gradual balance sheet optimization led to a net debt-to-equity ratio of 20% versus 7% at December 31, 2004.Earnings per share increased by +22% to €4.56, reflecting higher net income and a -1.2% decrease in the average number of shares. At the Annual Meeting on May 3, 2006, shareholders will be asked to approve the payment of a net dividend of €2.25 (up 25% from 2004), payable in cash on May 9, 2006.Operating cash flow climbed +21%, in line with net income, to €1,548 million, and represented 13.3% of sales.Return on capital employed came to 10.5%, a +0.8 point gain, thanks to controlled capital employed, especially working capital.IV. GROWTH STRATEGYSchneider Electric intends to actively pursue its strategy to increase growth potential and reduce cycle sensitivity of its business by:

Sustained investment in innovation.

Expansion in fast growing countries, notably emerging countries and the United States.

Strong development in new businesses, including Energy Management, Building and Industrial Automation, Ultra Terminal and Services.The Group devotes nearly 5% of sales to research and development. It is continuing to deploy resources in emerging countries, primarily Shanghai in China, Bangalore in India and Monterrey in Mexico, while ensuring a strong presence in high-tech countries like the United States, Germany and Japan.Emerging countries achieved average growth of 13% and good margins. They accounted for 30% of total sales and generated nearly 50% of organic growth in 2005. The Group is continuing to make substantial investments in these high-potential countries to optimize its market coverage and strengthen its leadership positions.The development of new businesses allows Schneider Electric to broaden its offer of products, solutions and services to meet customers’ new and growing needs. In energy management, notably, Schneider Electric can provide customers a unique range of offers to optimize their energy strategy and costs. It also provides automation functions in the Industry, Buildings, Residential and Energy & Infrastructure markets to improve performance, efficiency and comfort of installations.V. PROPOSED NEW GOVERNANCE STRUCTURE To implement the Chairman and Chief Executive Officer’s succession, shareholders will be asked to approve the transformation of the corporate governance structure at the Annual Meeting on May 3; 2006. The changes involve implementation of a Supervisory Board and a Management Board and appointment of all the current members of the Board of Directors to the Supervisory Board, with the exception of Daniel Bouton, who does not wish to continue serving for reasons of availability.The Supervisory Board will be asked to appoint Henri Lachmann as its Chairman and to appoint to the Management Board Jean-Pascal Tricoire, currently Chief Operating Officer, and Pierre Bouchut, Executive Vice-President Finance and Control - Legal Affairs. Jean-Pascal Tricoire will be the Chairman of the Management Board and Chief Executive Officer.The Board of Directors believes that this mode of governance, given the planned composition of the Supervisory Board and the Management Board, is today the most appropriate for Schneider Electric in order to ensure the smooth succession of its Chairman and Chief Executive Officer together with the pursuit of its development and growth strategy.VI. OUTLOOK Assuming current economic and currency conditions, Schneider Electric anticipates for 2006 an other increase of sales and operating income, in line with the growth and efficiency targets of its new² company program. Learn More

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