APC 2004 Annual Report Download - page 46

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Operations in India and Greater China recorded
exceptional growth rates of more than 20%. The
impact of measures to cool down the Chinese econo-
my was noticeable in the fourth quarter but only
marginally affected full-year economic growth. Sales
in South Korea and Japan rose by more than 15%.
The average growth rate in the other countries came
to 10%.
Sales in the Rest of the World rose 24% on a current
basis to 684 million and 21.0% on a constant struc-
ture and currency basis. The growth rate was uniform
in South America, Africa and the Middle East.
Breakdown by business
Electrical Distribution generated sales of 6,515
million, or 63% of the consolidated total. This repre-
sented an increase of 6.8% on a current basis and
7.6% at constant exchange rates and excluding
changes in the scope of consolidation (notably the
acquisition of Clipsal).
Automation & Control sales rose 1.7% on a current
basis to 2,725 million. At constant exchange rates,
growth came to 9.4%. Changes in scope did not have
a meaningful impact.
Growth Platform businesses generated sales of
1,125 million. These include recently acquired activ-
ities (building automation, secured power and sen-
sors and detectors for repetitive machines) that are
managed separately from Schneider Electric's core
businesses. The year's key acquisitions-MGE UPS
Systems, Andover Controls and Kavlico-represented
sales of 894 million.
Operating income
Data by region includes the contribution from the
Growth Platforms.
Operating income rose a reported 30.1% to 1,311
million from 1,007 million in 2003. On a constant
structure and currency basis, the increase came to
25%. Operating margin widened by 1.1 point to 12.6%
during the period.
Breakdown by region
Operating margin in Europe rose by 1.7 point during
the year to 13.5% at December 31, 2004, led by a
slight improvement in gross margin and disciplined
management of base costs. Acquisitions made a
highly positive contribution, with an aggregate operat-
ing margin higher than the regional average.
North America reported an operating margin of
11.9% at year-end, up 1.0 point from December 31,
2003. Excluding the currency effect and the cost of
the AFI circuit breaker recall, operating margin would
have been nearly 13%. The improvement reflected
the redeployment of production capacity to Mexico
and the impact of the base cost reduction programs
underway for the past two years.
Operating margin in the Asia-Pacific region improved
by 0.6 point to end the year at 11%. Regional perfor-
mance was considerably dampened by the adverse
currency effect; at 2003 exchange rates, operating
margin would have been 12.2%. Industrial productivi-
ty gains were offset by the highly unfavorable curren-
cy effect on euro-zone imports. Clipsal, the main
acquisition during the year, made a positive contribu-
tion to regional operating income.
The Rest of the World reported an operating margin
of 12.9%, versus 13.6% in 2003. On a comparable
structure and currency basis, operating margin would
have been 13.5% for the year.
Breakdown by business
Operating margin in the Electrical Distribution busi-
ness widened by 0.7 point to 13.0%. On a constant
structure and currency basis, the margin would have
been 13.4%.
The Automation & Control business increased its
operating margin by 2.6 points, to 12.2%, as the unfa-
vorable currency effect was offset by a significant
improvement in industrial productivity and a substan-
tial reduction in base costs. Excluding the currency
effect, operating margin would have been 13%.
The Growth Platforms had an aggregate operating
margin of 11.7%. Recent acquisitions made a positive
contribution to consolidated operating income, in line
with Company expectations.
Net financial expense
Net financial expense totaled 66 million versus 53
million in 2003. The 36 million increase in the cost
of net debt stemming from financing of the Clipsal,
MGE UPS, Andover Controls and Kavlico acquisitions
was partially offset by a 13 million improvement in
net exchange gains and losses and a 8 million net
change in valuation allowances for long and short-
term investments.
Cash generated by the sale of the Company's
Legrand shares in 2002 was used to finance major
acquisitions in 2003 and 2004, including Digital, TAC,
Clipsal, MGE UPS Systems, Andover Controls and
Kavlico.
As of December 31, 2004, the Group no longer had a
cash surplus.
Exceptional items
Exceptional items represented a net charge of 96
million compared with 164 million the year before.
In 2003, exceptional items included 135 million in
restructuring costs. In 2004, restructuring costs and
provisions totaled 88 million, of which 42 million
primarily related to rightsizing of the corporate func-
tions in France, 17 million for the Transformer busi-
ness in France and 11 million for US operations,
notably the transfer of production from the Lincoln
plant to Mexico.