Schneider Electric plans growth
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PARIS, France (Reuters) -- French electrical equipment maker Schneider Electric posted a smaller-than-expected dip in operating profit on Friday as cost cuts limited the hit from a strong euro, and said acquisitions would power growth this year.
Schneider, which makes junction boxes, plugs and factory equipment, unveiled a surprise rise in net profit to 433 million euros ($550.4 million) from 422 million thanks to lower interest charges and a tax break on losses linked to its scuppered takeover of domestic rival Legrand in 2002.
Operating profit fell to 1.01 billion euros from 1.04 billion euros, on sales down 3.1 percent to 8.78 billion euros, which yielded a flat operating margin -- a key measure of profitability -- at 11.5 percent.
Schneider said a "rigorous and targeted'' acquisition strategy would boost underlying sales by 8-10 percent and lift its operating margin by more than one percentage point, based on an exchange rate of $1.25 to the euro.
Investors were expected the cheer the full-year numbers, which beat the forecasts of even the most optimistic analysts polled by Reuters, as cost cuts kicked in and business improved in the second half.
"These results are a nice surprise, notably the operating profit which fell less then expected,'' said one Paris-based analyst.
Schneider, which had been expected to post a slight dip in 2003 operating margin, had previously targeted a margin of 14 percent this year, but has since said this would be "ambitious but not unrealistic.''
Possible expansion
Schneider, which has at least 1.5 billion euros in cash to spare after its failed takeover of domestic peer Legrand, said possible areas for expansion could include building control and automation, secure power supply and energy management systems.
It said acquisitions made last year, which included Japan's Digital Electronics, Swedish building automation firm T.A.C. and MGE UPS Systems, would add 1.3 billion euros to its top line this year, with average profitability around 11 percent.
The company also hopes to swell turnover by expanding further from home in markets such as China, eastern Europe, India and Brazil.
With half of its sales but 60 percent of its costs in euros, Schneider has been hit by the currency's strength and has been cutting costs and shifting production out of the euro zone to cheaper high-growth markets to try and boost margins.
The firm also suffered from slack investment by companies particularly in the first half of 2003, but said business recovered toward the end of the year.
Schneider said it would propose paying a dividend of 1.10 euros, up 10 percent from the previous year, and said its board had approved a share buyback programme for 2004.
Twelve analysts polled by Reuters forecast 2003 net profit of 385.7 million euros and operating profit of 983.3 million.
Schneider stock closed at 54.35 euros on Thursday.
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