APC 2002 Annual Report Download - page 57

Business review
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- Africa/Near East achieved growth of 5.6%, with mixed results
throughout the zone. Sales rose strongly in Africa, led by
medium voltage (a sign of good contract business for
equipment), industrial control and automation and low
voltage.
- The Middle East, on the other hand, saw a sharp decline in
business due to the political crises that clouded the
economic outlook and shifting investment priorities.
- South Korea/Japan were on a similar trend, with sales down
more or less across the board.
- Full-year sales declined 1.5% in Southeast Asia but showed
signs of a recovery in the fourth quarter.
In the coming years, the Division’s growth potential should be
enhanced by its strong market positions, the impact of
alliances made in 2001 with PDL in New Zealand, STI in Japan
and Samwha in South Korea, and the December 2002
acquisition of Digital Electronics Corporation.
Operating income
Operating income declined 6.9% to  1,039.6 million from
1,116.3 million in 2001. The decrease was smaller than for
sales, reflecting good margin resistance in a difficult business
environment. The operating margin widened to 11.5% from
11.4% the year before.
Breakdown by Operating Division
The European Operating Division maintained a high
operating margin of 12.6%. The zone has a mixed profile,
with regions like France, Spain, Portugal and the UK
sustaining high margins and others, such as Italy and
Central and Eastern Europe, remaining at lower levels.
In North America, the operating margin increased slightly to
8.2% from 8.0% in 2001. The margin is significantly lower
than in Europe due to our weak performance in the US,
reflecting the sharp decline in sales since 2001.
Improvements in Canada and Mexico, no matter how large,
cannot reverse the trend given these two countries’ weight
within the zone.
The International Operating Division’s operating margin
edged up to 13.6% from 13.5% the year before. Excluding
Greater China, which outperformed the Group as a whole at
the operating level, the Division’s zones fell within the
average. South Korea/Japan was the only exception, with a
below-average result.
The operating margin remained high at 12.2% in electrical
distribution and rose to 9.6% from 8.7% in industrial control
and automation.
Financial expense
Net financial expense totaled  157.8 million versus  120.9
million in 2001. The change reflects:
A  15.8 million (11.4%) decline in net interest expense to
122.5 million stemming from lower interest rates, an
improvement in working capital requirement and the initial
impact of the divestment of Legrand SA.
Other components
Net currency effect (24.2)
Dividends received 36.9
Gains on the disposal
of marketable securities 3.1
Provisions, commissions
and discounts (51.1)
(35.3)
- The net currency effect reflects the euro/dollar exchange
rate’s unfavorable impact on cash flows, as well as
hyperinflation in Argentina and Turkey.
- Dividends received in 2002 include  30 million on
Legrand SA shares, as in 2001.
Exceptional items
Exceptional items represented a net charge of  509.2 million.
In 2001, this item included an exceptional  1.4 billion
provision on the Company’s interest in Legrand SA. Excluding
the impact of Schneider Electric’s divestment of Legrand SA in
2001 and 2002, exceptional items represented a net charge of
 111.5 million versus  163.9 million in 2001.
Main components:
Restructuring provisions in an amount of  107 million at
December 31, 2002.
This includes  72 million for US operations in connection
with plant closures and measures to optimize production
lines within the scope of Square D, as well as the
reorganization of the North American automation business
(production has been refocused on Europe and research