APC 2012 Annual Report Download - page 7

2012 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC 5
INTERVIEW WITH EMMANUEL BABEAU
EXECUTIVE VICE PRESIDENT FINANCE, MEMBEROF THE MANAGEMENT BOARD
Financial results further improved in 2012 despite
mixed markets. Could you describe for us the main
elements of this performance?
In 2012 our sales increased 7% mainly thanks to the disciplined
integration of our acquisitions, including Telvent, Luminous and
Leader & Harvest. Organic growth was slightly down at -0.7%,
refl ecting a mixed global economic environment, with challenges
in Southern Europe and a pause in growth in China, while North
America and a number of new economies saw growth. Our
balanced geographic exposure again proved to be an important
asset.
Trends were also contrasted by business, as Industry suffered
from the general slowdown of manufacturing in Western Europe
and in China, while IT continued to benefi t from digitization trends
worldwide and the need for power grid reliability in a number of
countries.
In this environment, our rigorous execution contributed to earnings
progression. Pricing actions and cost effi ciency measures in
particular drove margin improvement. It allowed us to post an
adjusted EBITA* up 10% to a record EUR3.5 billion. Net profi t,
adjusted for goodwill impairment, was up 12%. Therefore, in line
with our payout policy, we were able to propose a record dividend
to our shareholders, at EUR1.87, up 10%.
Cash generation, a long-time strength of the Group,
also reached record levels in 2012. How was it
achieved and what are your capital allocation
priorities?
In such a challenging environment, we are proud to deliver a record
free cash fl ow exceeding EUR2 billion for the fi rst time. We achieved
this not only thanks to our focused operational execution, but also
to our demonstrated ability to manage capital expenditures and
working capital.
“Tailored Supply Chain” in particular - a key initiative under Connect
aimed at optimizing inventory by reducing unhealthy stocks -
contributed EUR210 million to cash fl ow in 2012, while signifi cantly
improving customer satisfaction.
As a result, we reduced our net fi nancial debt by EUR0.9 billion
to EUR4.4 billion. Our balance sheet is strong, with a net debt to
adjusted EBITDA ratio of 1.1x.
Looking ahead, we will continue to allocate capital to capture
growth opportunities while maintaining attractive returns for our
shareholders. Our fi rst priority is to pay dividend to shareholders,
based on our 50% payout policy. We will strive to maintain a solid
balance sheet structure with a strong investment grade rating.
Regarding external growth, we will consider opportunities when
they make sense from a strategic and valuation point of view.
2012 was the fi rst year for the Connect program, which
set a number of ambitions for 2014. Is the Group on
track with the program’s fi nancial targets?
Absolutely. Among the most important achievements of 2012, I
would like to highlight the 1 point margin improvement of solutions,
refl ecting our focus to reinforce the way we execute solutions. We
will continue to seek effi ciency to achieve the targeted 2 points
improvement by 2014.
In addition, cost effi ciency initiatives delivered savings in line with
our expectations, despite challenging business conditions, and
remained a key driver to our profi tability.
Lastly, I also want to mention the benefi ts of our new approach to
supply chain management, which helped us to generate a 1 point
reduction of the inventory to sales ratio. This structural improvement
in the way we work should continue to bring benefi ts in the future.
We are therefore on track to deliver all fi nancial targets of Connect.
What is your outlook for 2013?
We expect the economic environment to remain mixed in 2013
with continued challenges in Western Europe, opportunities for
acceleration in the new economies and a slow recovery in North
America. In this context, we target 2013 to be another positive year
for the Group with a low-single digit organic growth in sales and a
stable to slightly up adjusted EBITA margin for the year 2013.
* Adjusted EBITA: EBIT before amortization and impairment of purchase accounting intangibles and impairment of goodwill, and before
Restructuring charges and Other operating income & expenses.
>
Interview with
Emmanuel Babeau
EXECUTIVE VICE PRESIDENT FINANCE,
MEMBEROF THE MANAGEMENT BOARD