APC 2002 Annual Report Download - page 3

1
Chairman’s Message
In 2002, Schneider Electric turned in a good operating
performance in a difficult environment. We begin 2003
in a particularly strong and solid position.
Henri Lachmann
Chairman
and Chief Executive Officer
Business slowed significantly at the beginning of the year,
especially in North America where we generate 30%
of our sales, and then stabilized at a very low level in the
developed countries.
During 2002, Schneider Electric successfully maintained
a good operating performance thanks to the responsiveness
and hard work of all our team members. The gross margin
widened by 1.3 points to 41.5% from 40.2% in 2001.
Net cash provided by operating activities totaled
 968 million, or 10.7% of sales versus 9.8% the year befo-
re, demonstrating our strong ability to generate cash.
And free cash flow was up 10% to  592 million thanks
to tight control over capital spending and a reduction
in working capital requirement.
We have weathered the recession much better than most
of our competitors thanks to the continuous improvement
programs initiated in 1999 and accelerated through
our NEW2004 program. Today, Schneider Electric is one
of the most profitable companies in its industry.
The year was shaped by the introduction of NEW2004,
our ambitious and motivating company program focused
on growth and efficiency. The program’s headline goal
is an operating margin of 14% in 2004.
The Company is committed to achieving annual savings
of  325 million over a full year in 2004. We are already
halfway there with savings of  174 million recorded in 2002.
To achieve our target, we have taken measures to adapt
our organization and cost structures by closing units
in the United States, reducing medium voltage capacity
in Western Europe, outsourcing manufacturing in certain
cases and enhancing our most competitive sites, notably
in Mexico, Poland and high-growth regions like China.
At the same time, we have rightsized our workforce
and taken measures to improve quality and industrial
and supply chain productivity across the enterprise.
Backed by shareholders’ equity of nearly  8 billion
and net cash of  844 million at December 31, 2002,
we are in a position to take advantage of the best acquisition
opportunities. Our finances were strengthened by
the divestment of Legrand, which, although unfortunate,
was concluded under good conditions. The Company ended
the year with a particularly solid balance sheet.
We are also prepared to pragmatically pursue our share
buyback program to enhance our shareholders’ investment.
In light of the uncertainty clouding the global economy,
Schneider Electric has decided to focus on organic growth
in 2003. Our main strategic priorities will be to maintain
a strong pace of innovation, notably through technological
partnerships, enhance our lineup and enter new market
segments by capitalizing on our experience and skills.
At the same time, we will continue our policy of selective
acquisitions in the promising areas of ultraterminal
distribution, industrial and building automation, secure
power supply and high value-added services to optimize
our customers’ equipment and electrical networks.
Acquisitions of this type will help widen our potential available
market. This assertive strategy is designed to position
us as the leader in Power & Control through our three main
brands: Merlin Gerin, Telemecanique and Square D.
We intend to leverage our good financial situation to get
the most out of our vibrant teams, excellent geographic
coverage and strategically aligned portfolio of products
and services. In 2003, we will step up measures to improve
our gross margin, adapt our manufacturing resources,
reduce base costs and enhance profitability.
Today, we are midway through our NEW2004 program
dedicated to growth and efficiency. Our teams will continue
to advance in 2003 to fulfill our mission of giving the best of
the New Electric World to everyone, everywhere at any time.
Henri Lachmann
Chairman
and Chief Executive Officer