Annual Report 2002 Schneider Electric SA

Annual Report 2002 Schneider Electric SA
Schneider Electric SA
Annual
Report
2002
Building a New Electric World
Annual report 2002
Contents
Chairman’s Message
Key Figures
Board of Directors, Management
1
2
4
Business Presentation
7
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Background (industrial background, ownership background, current business) 7
Operations
8
Strengths
8
Strategy
8
Products, equipment and services
10
Markets
11
Product distribution and customer base
13
Production
14
General Presentation of Schneider Electric SA
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General information
Capital
Ownership structure
Employee profit-sharing and stock purchase plans
Stock buybacks
Stock market data
Investor relations
Corporate Governance
1- Board of Directors
2- Organizational and operating procedures of the Board of Directors
3- Board meetings in 2002
4- Committees of the Board of Directors (members, operating procedures and meetings)
5- Interests and compensation of corporate officers and executives
6- Agreements involving Directors
7- Auditors
8- Shareholders’ rights and obligations
Business Review
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Economic environment
Highlights of the year
Research and Development
Quantitative and Qualitative Disclosures about Market Risk
Claims, litigation and other risks
Insurance
Sustainable Development
Outlook for 2003
Consolidated financial statements
Company financial statements
Subsidiaries
Consolidated and Parent Company Financial Statements
1- Consolidated statement of income
2- Consolidated statement of cash flows
3- Consolidated balance sheet
4- Consolidated statement of changes in shareholders’ equity
5- Notes to the consolidated financial statements
6- Auditors’ report on the consolidated financial statements
7- Financial statements of Schneider Electric SA
8- Auditors’ report on the financial statements
9- Subsidiaries and affiliates
10- List of Securities at December 31, 2002
11- Five-year financial summary
Combined Annual and Extraordinary Shareholders’ Meeting of May 16, 2003
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Report of the Board of Directors to the Annual General Meeting
Auditors' special reports
Resolutions
Person responsible for the reference document
and persons responsible for the audit of the accounts
5- Cross references to COB regulations
15
15
15
18
18
21
22
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25
25
28
29
29
31
33
33
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36
36
36
40
40
45
46
47
54
55
59
59
60
60
61
62
64
65
107
108
121
122
124
125
126
126
129
132
139
140
Chairman’s Message
1
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
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 before, 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.
Chairman
and Chief Executive Officer
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
Key Figures
2
A solid business and operating performance
in a difficult environment
Consolidated sales
Gross profit
Operating income
(€ billion)
(€ million and as % of sales)
(€ million and as % of sales)
42.1%
43.1%
9.70
7.63
9.83
8.38
43.1%
4,083
9.06
3,612
3,950
12.6%
3,755
1999
2000
2001
2002
Sales declined 7.8% in 2002 due to difficult
business conditions and an unfavorable exchange
rate to the euro. At constant scope of consolidation
and exchange rates, sales decreased 5.2%.
1998
11.5%
11.4%
1,298
11.2%
3,284
1998
13.4%
41.4%
40.2%
1,057
1,116
1,040
2001
2002
853
1999
2000
2001
2002
As part of the NEW2004 program, Schneider
Electric is committed to improving its gross margin
by one point each year. Thanks to the initial effects
of the productivity plans launched at the beginning
of the year, we met this target in 2002.
1998
1999
2000
Schneider Electric achieved an operating
margin of 11.5% in 2002, demonstrating
our ability to deliver good operating results
despite the unfavorable environment.
Schneider Electric remains one of the most
profitable companies in its industry.
Forefront positions
worldwide
2002 sales
by core business
2002 sales
by geographic division
2002 workforce
by geographic division
(€ billion)
(Average full-time and temporary employees)
1.82
30%
4.64
70%
2.60
● Electrical distribution
● Industrial control and automation
17%
● Europe
● North America
● International
59%
24%
● Europe (44,078 employees)
● North America (17,625 employees)
● International (13,111 employees)
3
Resources for aggressive growth
A strong ability to generate free cash
Net cash provided
by operating activities
Net income (loss)
Free cash flow*
(€ million)
(€ million and as % of sales)
(€ million and as % of sales)
10.2%
9.7%
11.1%
929
991
6.5%
10.7%
9.8%
5.6%
968
966
4.0%
625
491
741
5.5%
422
409
424
333
(986)
1998
1999
2000
2001
2002
In 2002, Schneider Electric again demonstrated
its strong ability to generate cash despite lower
sales. Net cash provided by operating activities
was on a par with 2001 and represented 10.7%
of sales. This is a crucial advantage
for deploying our growth strategy.
1998
1999
2000
2001
2002
Net income remained solid in 2002
at € 422 million. This compares with a loss
of € 986 million in 2001 stemming from
an exceptional € 1,400 million provision
on our Legrand shares.
1998
538
592
2001
2002
2.5%
1999
243
2000
Free cash flow rose 10% in 2002 thanks
to good control over capital spending
and reduced working capital requirement.
Free cash flow represented 6.5% of sales.
* Before dividend payment.
Net cash
2002 operating margin
by core business
2002 operating margin
by geographic division
Debt to equity
(%)
47%
12.5%
8.7%
12.2%
13.5%
12.6%
13.6%
12.6%
27%
28%
9.6%
8.2%
8%
7%
2001
2002
● Electrical distribution
● Industrial control and automation
2001
● Europe
● North America
● International
(11%)
2002
1998
1999
2000
2001
2002
High cash flow combined with the proceeds
of the Legrand divestment has given
Schneider Electric a particularly solid balance
sheet, with net cash of € 844 million
at December 31, 2002.
4
Corporate Governance
Board of Directors
Henri Lachmann, 64
Willy R. Kissling, 58
Chairman and Chief Executive Officer
Independent non-executive Director*
Chairman and Chief Executive Officer
of Unaxis Corporation
Claude Bébéar, 67
Chairman of the Supervisory Board of Axa
Gérard de La Martinière, 59
Daniel Bouton, 52
Independent non-executive Director*
Chairman and Chief Executive Officer of Société Générale
Executive Vice-President, Finance,
Budget Control and Strategy of Groupe Axa
René Barbier de La Serre, 62
Thierry Breton, 48
Independent non-executive Director*
Chairman and Chief Executive Officer of France Telecom
Independent non-executive Director*
Corporate Director
James Ross, 64
Alain Burq, 49
Member of the Supervisory Board
of the “Schneider Actionnariat” corporate mutual fund
Independent non-executive Director*
Chairman of National Grid Transco
Piero Sierra, 68
Michel François-Poncet, 68
Vice-Chairman of the Board of BNP-Paribas
Hans Friderichs, 71
Independent non-executive Director*
Special Advisor for the administration
of Pirelli’s international companies
Independent non-executive Director*
Corporate Director
Board Secretary
James F. Hardymon, 68
Philippe Bougon
Independent non-executive Director*
Corporate Director
Remunerations and
Appointments Committee
Michel François-Poncet, Chairman
Claude Bébéar
James F. Hardymon
Henri Lachmann
René Barbier de La Serre
* Independent non-executive Director as defined in the Bouton
report on corporate governance.
Audit Committee
Gérard de La Martinière, Chairman
René Barbier de La Serre
James Ross
Piero Sierra
Auditors
Statutory Auditors
Barbier Frinault et Autres / Ernst & Young
PricewaterhouseCoopers Audit
Substitute Auditors
Jean de Gaulle
Dominique Paul
Schneider Electric Management
Corporate
Divisions
Developments - Industry
Strategy and Market Development
Bernard Delvallée
Claude Ricaud
Claude Breining
Joël Karecki
Purchasing
Science and Technology
Business Development
Strategy and Planning
Noël Girard
Laurent Vernerey
Pascal Charriau
Jean Kieffer
Electrical Distribution
Manufacturing and Logistics
Residential Buildings
Energy and Infrastructure
Steve Little
Daniel Victoir
Michel Crochon
Patrice Lagarde
Information Systems
Quality
Industry
Services
Alain Marbach
Philippe Crolet
Automation
Buildings
5
Executive Committee
Henri Lachmann
Antoine Giscard d’Estaing
Jean-François Pilliard
Eric Pilaud
Marcel Torrents
Chairman
and Chief Executive Officer
Executive Vice-President
Finance and Control Legal Affairs
Executive Vice-President
Human Resources
and Communication
Executive Vice-President
Strategy and Market
Development
Executive Vice-President
Developments – Industry
Chris Richardson
Jean-Pascal Tricoire
Christian Wiest
Executive Vice-President
North American Division
Executive Vice-President
International Division
Executive Vice-President
European Division
Functional
Divisions
Operating
Divisions
Dominique Bellot
Guy Dufraisse
Gaël de La Rochère
Jean-Pierre Chardon
Gérard Fauconnet
Germany
Africa
United Kingdom
France
Communication
Jacques Billiard
Hal Grant
Guy Lemarchand
Julio Rodriguez
Jean Netter
Middle East
Southeast Asia
Spain and Portugal
Schneider Electric Ventures
Christian Wiest
Amy Huntington
Russell Stocker
Pedro Salazar
Nordic Countries, Benelux,
Ireland and Switzerland
Schneider Global Business
Development
Specialist Business Units
(Bergher Lahr, Crouzet,
Ensys, Infra+, Num,
Selectron)
Greater China
Legal Affairs
Carlos Siria
Rune Johansson
René Orlandi
Pierre Tabary
Dominique Devinat
Italy
Pacific
NEW2004 program
Greater India
Central and Eastern
Europe/CIS
Jean-Pascal Tricoire
Flemming Tomdrup
Gilles Vermot-Desroches
South America
and Caribbean
Lexel
Sustainable Development
Guy de Place
Northeast Asia
7
Business Presentation
1 - Background
In December 2002, Schneider Electric acquired Japan’s Digital
Electronics Corporation, the world leader in human-machine
Industrial background
interface.
Schneider Electric is now specialized in the manufacture
Schneider Electric SA is a Société Anonyme (joint-stock
corporation) incorporated in France on December 2 and 4,
1871. However, the Company traces its history back to 1836,
when Adolphe and Joseph-Eugène Schneider acquired steel
foundries in Le Creusot, France that were experiencing
financial difficulties. In 1838, they formed Schneider & Cie.
and sale of products and equipment for electrical distribution,
industrial control and automation.
Ownership background
By 1981, the Company’s ownership structure consisted of a
long chain of holding companies, interlocked via numerous
From that point until the mid-twentieth century, the Company
steadily built a presence in heavy mechanical engineering
and transportation equipment, with interests in shipbuilding,
railroad equipment and bridge and tunnel building. By the end
of the nineteenth century, Schneider had also established
a position in electricity.
cross-shareholdings, that separated the parent company,
Gradually, however, the Company grew into a huge
conglomerate that lacked strategic direction. From 1981
to 1997, it refocused on electricity and pulled out of a number
of businesses, including steel, machine tools, shipbuilding,
railways, private telephone systems and engineering.
At the same time, it pursued a strategy of acquisitions
in electricity and automation, bringing in Telemecanique
in 1988 and Square D in 1991. The refocusing process
was completed in 1997 with the sale of Spie Batignolles.
the Company changed its name to Schneider Electric SA,
SPEP, from its operating subsidiaries. This system had been
set up over the preceding decade.
Over the next fourteen years, the ownership structure was
rationalized by merging the various holding companies to
create a single parent company, Schneider SA. In 1999,
which owns all outstanding shares of Schneider Electric
Industries SAS.
Schneider Electric SAS has foreign subsidiaries of its own.
Current business
Schneider Electric is the worldwide specialist in electrical
distribution, with a focus on medium, low and final low voltage,
and in industrial control and programmable logic controllers.
In 1999, the Company acquired Lexel A/S, Europe’s second
largest supplier of low voltage final distribution products and
systems, with operations primarily in Northern Europe.
It operates in 130 countries and has 74,814 employees.
In 2000, Schneider Electric acquired Crouzet Automatismes,
a French leader in electronic control and small automation
devices, and Positec, a European leader in motion control.
Telemecanique and Lexel brand names.
In 2001, Schneider Electric made a public offer to purchase
Legrand in exchange for shares as part of a proposed merger
project. When the offer closed in July 2001, the Company
held 98.1% of Legrand. In an initial decision dated October
10, 2001, the European Commission vetoed the merger,
and in a second decision dated January 30, 2002, it ordered
the two companies to separate as quickly as possible.
As a result, Schneider Electric sold its interest in Legrand
to the KKR-Wendel Investissement consortium even though
the Court of First Instance of the European Communities
overruled the Commission’s decisions on October 22, 2002.
The Company manufactures electrical switchgear and
equipment under the Merlin Gerin, Modicon, Square D,
The Company enjoys leading global positions in the large
majority of its businesses. The competition breaks down
into two categories:
• Large non-specialist manufacturers with diversified business
bases that offer little or no synergy. These include ABB,
General Electric, Mitsubishi Electric and Siemens.
• Smaller specialist manufacturers, such as Eaton, Hager and
Legrand in electrical distribution and Omron and Rockwell
Automation in industrial control and automation.
Schneider Electric is the largest player in this second category.
It is not dependent on any single patent, license or supply
contract.
Business Presentation
8
2 - Operations
Schneider Electric is one of the world’s leading manufacturers
of equipment for electrical distribution, industrial control and
automation, with operations in 130 countries, 192 production
sites, 150 service centers and some 13,000 sales outlets
through its distributors. In 2002, the Company generated total
sales of € 9,060 million with an average weighted workforce of
74,814 employees. As the world’s Power & Control specialist,
Schneider Electric is involved in all stages of the electrical
transmission and distribution process, offering products,
equipment and services to control, monitor, protect and
supervise machines and installations in industry, infrastructure,
and industrial, commercial and residential buildings. Operations
are divided into three geographic divisions: Europe, North
America and International. The financial statements and
quarterly sales reports are also presented by division, in
keeping with French generally accepted accounting principles.
Schneider Electric primarily operates under the Merlin Gerin,
Square D and Telemecanique brand names. These brands’
high global recognition and excellent reputations are a critical
strength for the Company. Square D is extremely well-known
in the United States, where it generates most of its sales, while
Telemecanique and Merlin Gerin are flagship brands in France
and the rest of Europe.
3 - Strengths
Significant specialization and market share. Schneider
Electric is the only company worldwide focused exclusively
on electrical distribution, industrial control and automation.
This specialist profile has allowed us to win market share
and penetrate new markets around the globe. The Company
ranks among the world leaders in low voltage switchgear
and equipment and holds forefront positions in medium
voltage and industrial automation.
Solid reputation. Merlin Gerin, Telemecanique and Square D,
with their strong reputations for quality and safety, are among
the most powerful brands in our industry. Because using
electricity always carries some risk, we have put together
a highly professional lineup that has won over a wide array
of loyal customers around the world. We have successfully
leveraged this reputation to attract new customers, sell
considerable volumes (including replacement products)
and develop a broad range of innovative products, equipment
and services for consumers worldwide.
Growth potential. Based on a vast study to assess the
power and control needs of end users in our core markets
(residential, buildings, industry, energy and infrastructure), we
estimate our potential market at around € 210 billion. We have
seen high demand for increasingly intelligent products that can
communicate with each other or be operated remotely via the
Internet.
Strong partnerships with distributors. We market a
significant percentage of our products through distributors to
reach a broad customer base. We have close partnerships
with large international distributors, as well as with local
distributors, wholesalers and non-specialized retailers.
Global presence. Schneider Electric has operations
worldwide to support its increasingly international business. We
benefit from a strong presence in most of our main markets. In
continental China, for example, we have expanded rapidly from
sales of € 91 million in 1995 to € 547 million in 2002. This
global coverage gives us three major competitive advantages,
by allowing us to 1) seize market opportunities as they arise
and maximize our sales, 2) reduce our exposure to economic
cycles in our local markets, and 3) serve multi-national
companies who require product platforms that can be
deployed anywhere in the world.
International lineup. Increasingly, we work to develop
and patent products that can be sold worldwide. Merlin Gerin
low voltage circuit breakers and Telemecanique contactors,
for example, are sold in virtually all our main markets and,
like other global products, enjoy a solid reputation for reliability
and technological excellence. In addition, we try to standardize
base components as much as possible. Product design and
esthetics are then adapted to suit local requirements. This
internationalization strategy allows us to reach a maximum
number of markets while optimizing production costs.
4 - Strategy
Electrical distribution, industrial control and automation will play
a growing role in the 21st century. A new era has dawned in
which electricity, automation and communication technologies
are converging. Smart buildings, with electrical devices that
can be remotely programmed and monitored and that can
communicate with each other and users via the Internet, are
9
gradually becoming commonplace. The same is true for
transparent factories and infrastructure, in which electrical
equipment can communicate and be operated remotely.
In response, we have made it our mission to supply customers
in our various markets with reliable, high quality products
to help them create value in their core businesses. We also
want to offer them comprehensive, personalized solutions
and services to met their needs in more complex areas
of power and control. Our ambition is to expand the use
of our products and carve out a position as the unrivaled
global leader in this growing market.
To make this vision reality, we have deployed our strategy
in several key directions:
Expand our product lineup. Demand is high for new
products and services in our main markets. According to our
estimates, electrical distribution, industrial control and
automation could represent a potential market of at least
€ 210 million. As a result, we are working to expand our
product lineup to better serve the building, industry, energy
and infrastructure markets. We have also identified an entire
range of new products and services to extend our current
offer. We are convinced that we can considerably increase
our sales and market share by developing products internally,
making strategic acquisitions and adding services
to our products.
Develop Transparent Ready™ products, equipment and
services. Leveraging innovative products to widen our market
share means developing the Transparent Ready™ concept,
which harnesses the power of the Internet
for electrical distribution, industrial control and automation.
In the Building market, Transparent Building™ applications are
revolutionizing building management by making it possible to
monitor buildings and all the functionalities of existing systems
via a local area network (LAN). Solutions have been designed
to cover all functions, from electricity, lighting and shade
management, access control and intruder alert, to air
conditioning, elevators, and fire detection and alarms.
In the Industry and Infrastructure markets, Transparent
Factory™ solutions use automation systems to enhance the
processing and communication capabilities of industrial system
components. Preventive maintenance can be carried out
remotely, making for less downtime and greater efficiency and
flexibility. In addition, virtually real-time harvesting of data
on energy consumption in one or several sites allows users
to manage their energy costs even more effectively.
Enhance our approach with Global Strategic Accounts.
Our focus on Global Strategic Accounts is a key part of our
strategy. Through our dedicated Schneider Global Business
Development (SGBD) unit, we supply our main international
customers with technological, logistic and contracting solutions
that can be deployed around the world. SGBD’s mission
is to help make us the benchmark for power and control
with a selected group of international customers. We currently
leverage our skills in a wide range of sectors, from
microelectronics to pharmaceuticals to automobiles, to
continuously enhance the productivity of 85 Global Strategic
Accounts. In this way, SGBD serves as a springboard
for getting the most out of the potential offered by the power
and control market around the world.
Forge partnerships and alliances. We have entered into
partnerships and alliances with companies outside our industry
to enhance our innovation capabilities, speed development of
new products and penetrate new markets. Our joint venture
with Thomson Multimedia, for example, is involved in
developing power line carrier technologies to transmit digital
data over electrical wires. We also have an agreement with
Toshiba that gives us access to the traditionally closed
Japanese market and makes us the world leader in speed
drives. We intend to pursue this strategy of joint ventures,
partnerships and alliances to extend our lineup and enter new
markets.
Focus on targeted acquisitions. Schneider Electric makes
selective acquisitions to penetrate new markets, expand its
lineup and develop synergies with its existing product portfolio.
The acquisition of Lexel, for example, strengthened our
position in the ultraterminal segment and opened the door
to the fast-growing Voice-Data-Image market. The acquisition
of Crouzet, a French leader in electronic control and small
automation devices, and of Germany’s Berger Lahr (formerly
Positec), a European leader in motion control, allowed
us to expand our automation lineup. Backed by these three
companies, we will support the development of our lineup
in our main markets with new targeted acquisitions.
In late 2002, we acquired a majority interest in Japan’s Digital
Electronics Corporation, the world leader in human-machine
interface products such as industrial PCs and graphic and
touch terminals. These products are a critical component in
Business Presentation
10
the networked, web-enabled architectures that we offer to all
our markets. With this acquisition, we have gained a foothold
in a new fast-growing market segment and improved our
access to OEMs, notably in Japan.
Combine a global vision and local deployment. As we
pursue a comprehensive strategy of achieving rapid growth
and developing our lineup, we also intend to strengthen our
local skills in sales, marketing and management. This way,
local teams can make the necessary decisions to select the
best partners and enter into important contracts in keeping
with the Company’s profitability targets, while ensuring
customer satisfaction and product and service safety. Although
products for the international market represent some 40% of
our sales, we will continue to differentiate the rest of our lineup
to meet local specifications and standards.
Projects require the deployment of a comprehensive,
customized set of products, systems and/or equipment.
We also offer and develop three types of services:
Traditional services that support our products (warranties,
after-sales service, training, on-line assistance and
maintenance). The scope of these services varies depending
on the market access channel.
More sophisticated services concerning the technical side
of our offer, such as retrofits, capacity extension, upgrading,
etc.
High value-added services to enhance the performance
of industrial installations and power grids.
Electrical distribution
Improve our competitiveness. One of the objectives
of our NEW2004 program is to enhance competitiveness
by shortening time to market, globalizing sourcing and
improving quality.
Our electrical products and equipment are generally classified
by voltage. The portfolio currently includes high, medium and
low voltage products and equipment.
Strengthen our products’ image. We are committed to
Low voltage: Electrical distribution products up to 1 kV for
industrial, commercial and residential buildings.
This sub-category includes wiring products and final low
voltage/ultraterminal equipment such as circuit breakers,
switches and sockets.
strengthening the image and brand awareness of our products
to differentiate ourselves even more clearly from our rivals.
5 - Products, equipment and services
Our lineup of products and equipment covers all stages of
electrical transmission and distribution, as well as industrial
control and automation.
The portfolio breaks down into five broad categories:
Catalog products, such as contactors and miniature circuit
breakers, that do not need to be adapted to specific
requirements.
Customized products, such as certain types of switchgear.
These products are assembled from core catalog
components to suit each customer’s needs.
Systems, such as busbar trunking used for electrical
transmission and distribution in ceilings and raised floors.
These systems are built from groups of products offering
similar functions.
Equipment, such as medium voltage substations and
switchboards, that combine a set of related products with
different functions in a single enclosure or casing.
Projects, such as designing and implementing an electrical
distribution network for a commercial or industrial building.
Medium voltage: Electrical switchgear and equipment from
1 kV to 52 kV. The products in this sub-category are generally
used to transform and manage high voltage electricity from the
distribution grid. The medium voltage power is then sent
directly to end users in industrial buildings and large
commercial installations or transformed into low voltage power
for small commercial buildings and homes.
High voltage: Electrical switchgear and equipment from 52 KV
to 800 kV. The equipment in this sub-category is generally
used by electric companies for power generation, transmission
and distribution. In January 2001, we transferred our highvoltage business to VA Tech Schneider High Voltage GmbH,
a joint venture in which we hold a 40% interest.
Industrial control and automation
This category includes industrial control products for controlling
and supplying power to industrial equipment and automation
solutions, notably programmable logic controllers, which are
generally used for end-to-end control of assembly lines.
11
Sales by product category
Category
% sales
2000
% sales
2001
% sales
2002
Electrical distribution
Low voltage
(inc. Ultraterminal)
48%
Medium voltage
18%
High voltage and other 5%
51%
19%
0%
51%
19%
0%
Industrial control
and Automation
30%
30%
29%
Schneider Electric is committed to constantly improving and
extending its lineup of products, equipment and services.
Recent developments include:
(1) The Ikeos “all in one” solution launched in 2001 for
controlling and monitoring commercial and residential
buildings. This solution combines nine key functions
(programmer, timer, counter, etc.) in a single, easy-toprogram product.
(2) The Clario Helios modular circuit breaker, also introduced in
2001. This product was specifically designed to meet the
needs of customers in southern Europe.
(3) The Masterpact NT and NW power circuit breakers and the
Merlin Gerin Evolis circuit breakers, launched in 1999 and
2000, respectively. Masterpact NT is the world’s smallest
1,600 A circuit breaker while the Masterpact NW is the
most powerful in the market, with an interrupting rating of
up to 200 kA without fuses. The Merlin Gerin Evolis MV
vacuum circuit breaker was developed to replace traditional
circuit breakers and to meet the needs of increasingly
environmentally-conscious users in Western countries
and emerging economies such as China.
(4) The new TeSys range of circuit breakers, contactors and
overload relays for motor starters, launched in 2000. TeSys’
patented technology cuts installation time in half,
since no tools or wires are required for connection.
(5) The Okken switchboard, introduced in 2000. Okken was
designed for power distribution up to 6,300 A and for
motor control and monitoring. Users can control distinct
portions of industrial processes without shutting down
the whole system. In addition, the distribution and motor
control feeders can be combined in the same column
and feeders can be added easily and safely without cutting
the power supply.
(6) Products and equipment that leverage web technologies to
optimize performance in electrical distribution, industrial
control and automation. With our new Transparent Ready™
solutions, operators can access all the information they
need about an installation using an ordinary browser,
anywhere, anytime. The solution enhances competitiveness
by creating closer and broader links between the different
people involved, as well as among major corporate
functions such as management, production, services and
cost accounting. By facilitating access to information,
Transparent Ready™ creates a real competitive advantage
for customers because they can make better decisions and
get the greatest return out of their electrical distribution,
industrial control and automation investments.
(7) New generation programmable logic controllers. Schneider
Electric has recently implemented a redeployment plan to
enhance our PLC lineup with new software, interface
products and variable speed drives. When the program
is completed, we will be able to help customers optimize
automation device operation by leveraging Internet
resources and connections to remotely control, manage,
maintain, operate and monitor automated production lines.
The systems will use open, rather than proprietary
standards. We also plan to gradually extend this function
to all smart products for automation systems. In 2002,
for example, we launched the Twido PLC for automating
simple installations and small repetitive machines.
(8) Services. The lineup is being rapidly expanded, particularly
in online services. We support our customers for the entire
life of installed products and equipment by providing high
value-added services such as on-line training and
assistance, remote diagnostics, technical support, and on
or off-site maintenance and management contracts.
We also help them evaluate and optimize their energy
consumption and offer networked and on-site management
services for spare parts, as well as inventory and quality
control management.
6 - Markets
In response to changing demand, we have decided to adjust
our approach to provide a more comprehensive service to
customers, who increasingly want to work with a single
worldclass supplier. This end-to-end approach that takes local
characteristics into account is designed to meet all of our
Business Presentation
12
customers’ related needs in four core markets: residential,
buildings, industry and energy and infrastructure.
Residential, commercial and industrial buildings are our
biggest market, representing some 51% of sales in 2001 and
2002. This market covers our entire lineup for electrical
distribution, management and optimization, as well as
networks for transmitting data in homes, apartment buildings,
offices, hotels, hospitals, shopping centers, sports and cultural
centers and industrial facilities. Renovation and retrofitting
account for around 50% of demand. In 2002, products and
equipment for commercial and industrial buildings represented
around 42% of total sales, versus 9% for residential buildings.
The Company offers building owners, contractors, systems
integrators, electricians, panelbuilders and distributors a broad
range of products and services covering all aspects of
electrical distribution, including low voltage equipment, medium
voltage distribution equipment, building management and
safety systems, control, monitoring and automation equipment,
and wiring and connection systems for Voice-Data-Image (VDI)
technology. Our customers work exclusively or primarily in
local markets.
Our most attractive growth opportunities lie in home renovation
in Europe and the United States and in large complexes in
Eastern Europe, Asia, Latin America and other developing
economies. Commercial buildings (notably heating, air
conditioning and lighting systems), building control and related
services are another growth avenue.
Industry, our second-largest market, accounted for around
32% of sales in 2001 and 2002. We offer companies in a large
number of sectors a wide range of products, equipment and
services to distribute and manage electricity, control and
monitor machines, automate industrial processes, and
supervise and manage industrial sites and their consumption.
Our main customers are large multinational manufacturers,
systems integrators, OEMs, small businesses, electricians,
panelbuilders and distributors.
Our principle growth levers are global accounts and OEMs,
notably in the food and beverage, pharmaceuticals,
automobile, semi-conductor and packaging industries.
These customers offer strong potential for new generations
of our products and services.Strengthening partnership ties
with our main customers is a priority objective in this market.
With this in mind, we have created application centers
to design and develop new products with OEMs and their
customers. In addition, we plan to set up skills centers
to provide high-value added support to help enhance the
performance of customers who use our products and
equipment. We are convinced that this collaborative
approach will become a major growth driver.
The energy and infrastructure market accounted for around
17% of sales in 2002 and 2001. Infrastructure covers all of
our products, equipment and services for communication, air,
rail, road and maritime transportation, water, gas and oil
transport and water and wastewater treatment. A number of
products, such as surveillance cameras, leverage web
technologies to identify failures wherever uninterrupted service
and safety are a priority. We also offer Transparent Ready™
solutions that allow products to communicate with each other
and be operated remotely, thereby improving infrastructure
performance, competitiveness and profitability. Our customers
are infrastructure operators, engineering firms, systems
integrators, panelbuilders, OEMs and contractors.
The energy market covers the generation, transmission and
distribution of electricity. Schneider Electric serves power
companies, contractors, systems integrators, OEMs
and panelbuilders with a lineup that integrates new web
technologies and network innovations designed to optimize
the quality and cost of each distributed kilowatt hour.
Growth in the energy market should be driven by deregulation
of the electricity and gas markets, the development of
renewables and rising demand for products and services that
improve electrical distribution performance and cost. In
addition, distributed generation, supported by new
technologies such as fuel cells and the weakening of
centralized grids (notably in North America), should continue to
enjoy very strong growth. To get the most out of this situation,
we offer comprehensive solutions by leveraging our leadership
in medium and low voltage, our automation lineup and our
partnership with VA Tech GmbH in high voltage transmission.
The global infrastructure market should continue to expand,
especially with rising demand for voice and data transmission
and Internet-related infrastructure. Growth will also be
supported by stepped-up privatization of public infrastructure
and the increasing use of new information and communication
technologies, which open up new markets such as systems
operation and maintenance, metering and remote payment.
13
7 - Product distribution and customer
base
Product distribution
Electrical equipment distributors rank among our major
customers. We are a key partner to distributors worldwide,
who account for around 60% of our total sales and offer a
network of 13,000 sales outlets.
This close relationship gives us a real competitive advantage,
as distributors provide a single point of access for customers
and can combine products into packages. In addition, they
use their own sales forces to negotiate individual transactions,
freeing up the Schneider Electric sales team to concentrate on
customers’ general needs.
In addition to local and independent distributors, who
represent some 70% of all locally managed flows, Schneider
Electric works with seven international distribution groups:
Rexel and Sonepar, two French companies that rank among
the world’s largest distributors; Netherlands-based Hagemeyer;
Graybar and Grainer in the United States; Ced-Edmundson in
the United Kingdom and Solar Nordic in the Netherlands. We
also sell products through large home improvement chains
such as Home Depot and Lowes in the US and Kingfisher in
the UK for the non-specialist building renovation market.
We use specialist distribution channels for our highly technical
products such as human machine interface and VDI
transmission equipment, PLCs and industrial software.
The remaining 40% of sales are handled by:
Panelbuilders, OEMs and systems integrators.
Contractors, ranging from large firms specialized in installing
equipment and systems to small specialized and general
electricians.
Specifiers, including design and engineering firms,
consultants and architects, and systems specialists.
Lastly, we also sell directly to end customers.
Customer base
Distributors
Around the world, Schneider Electric is a leading supplier to
distributors. Our main customers in this segment are
distributors of electrical equipment and industrial automation
devices. The diversity of the customer base is a major
strength. Orders placed with distributors by electricians,
contractors and panelbuilders significantly influence demand
for electrical distribution products. Specifiers, such as
architects and building designers, represent an indirect
customer group in that the functionalities in their
recommendations and specifications channel demand towards
our products. We also sell equipment, services and projects
directly to large customers, notably contractors, building
owners, electric utilities and major end users such as public
services and multinational firms.
Contractors
Contractors who install electrical distribution, industrial control
and automation products only switch to a new supplier when
they see an obvious advantage such as quality, ease of
installation or efficiency. To promote new products, we train
and support the people who install them. In all our host
countries, we have help desks that take orders and give
advice by telephone. We also talk regularly with local
associations and professional groups and have set up an
Internet portal to circulate information about new products.
In the front lines, our sales force and marketing teams around
the world keep customers abreast of product innovations
and upgrades and help them get the most utilization value out
of our products. Lastly, we make our new products
or upgrades as easy to install as possible.
Global Strategic Accounts
While distributors are critical to our business, we also sell
directly to a wide range of end users and international OEMs.
Our dedicated Schneider Global Business Development
(SGBD) unit was created to serve these customers. In 2002,
they represented around 7.4% of total sales.
Our top SGBD accounts are DaimlerChrysler, Renault, General
Motors, Procter & Gamble, Bristol-Myers Squibb, Nestlé, IBM,
Motorola, Caterpillar, Emerson, Areva, Faurecia, Chevron
Texaco, Telefonica, Texas Instruments and Thyssen Krupp.
The number of accounts has grown steadily, from 20 in 1999
to 85 in 2002, and we will continue to add new customers to
the list.
To ensure that each global account receives the same quality
of service around the world, we have set up an organization in
which our subsidiaries and regional agencies can cooperate to
standardize the design, production and installation of the
products, equipment, projects and services that our customers
need. In addition, each Executive Committee member
Business Presentation
14
oversees one or several global accounts as part of SGBD.
The sponsor meets with a senior executive from the customer
company at least once a year to guarantee that Schneider
Electric understands and responds to the account’s specific
needs. In most cases, the relationship is formalized in a
comprehensive Program Alliance that sets out agreements
concerning prices and/or services, development and product
modifications. SGBD allows us to meet our global accounts’
needs more effectively, support our worldwide presence and
optimize sales with these major customers.
8 - Production
Schneider Electric has 192 production sites worldwide. Of
these, 55 are global facilities that manufacture products,
equipment and components for our three operating divisions.
We have 29 global plants in France, 19 in other European
countries, two in North America and five in the rest of the
world. In each country, production units are located as close
as possible to the markets they serve. Decisions on where to
set up local and global plants are generally based on criteria
such as access to suppliers, production costs, availability of a
trained workforce and logistics.
Although most of our products are built from standardized
components so that they can be sold around the world, they
are also adapted to local standards and requirements. Most of
our products and switchgear also include key functions such
as smart capabilities that allow for the transfer of images or
data. Design and esthetics are sometimes adapted to local
needs, but we focus heavily on standardizing key components
to achieve scale economies in production. A switch’s contact
mechanism, for example, will be standard but the outer shell,
which affects appearance and ergonomics, will vary from
region to region. This global/local approach helps us optimize
profitability.
While we do tailor our products and equipment to local
standards, the majority of our lineup complies with worldrecognized International Electrotechnical Commission (IEC)
standards. In North America, our products generally meet
standards set by the National Electrical Manufacturers
Association (NEMA) or American National Standards Institute
(ANSI), which are more widely used in the United States. Since
our products comply with the dominant standards in our host
markets, we are able to meet most of our customers’ needs.
Raw materials
We use raw materials such as carbon steel, aluminum, carbon
and thermoplastics, as well as electronic components to
manufacture our products. Materials such as carbon steel are
sourced from major international suppliers like Nippon Steel,
Lati and Mitsubishi, while components are supplied by large or
medium sized companies like Hussey Copper and Nypro. In
2002, raw material and component purchases totaled
€ 2.8 billion. The prices of the raw materials we use
have been somewhat volatile.
15
General Presentation
of Schneider Electric SA
1 - General information
Schneider Electric SA is a Société Anonyme (joint-stock
corporation) governed by the French Commercial Code,
with issued capital of € 1,830,503,240. Its head office is
located at 43/45, boulevard Franklin-Roosevelt – 92500 RueilMalmaison, France. The Company is registered in Nanterre
under no. 542 048 574, business identifier code (APE) 741J.
Schneider Electric SA was founded in 1871. The Company,
which was called Spie Batignolles, changed its name to
Schneider SA when it merged with Schneider SA (formerly
SPEP) in 1995, and then to Schneider Electric SA in May
1999. Its term is up to July 1, 2031, and its summarized
corporate purpose is to operate, directly or indirectly, in France
and abroad, any and all businesses related to electricity,
industrial control and general contracting, as well as to carry
out any and all commercial, securities, real estate and financial
transactions (Article 2 of the bylaws). Schneider Electric’s fiscal
year runs from January 1 to December 31.
The bylaws, minutes of Annual Meetings, Auditors’ Reports
and other legal documents concerning the Company are
available for consultation at the Company’s head office
(Board of Directors’ Secretariat) located at 43/45 boulevard
Franklin-Roosevelt – 92500 Rueil-Malmaison, France.
2 - Capital
Capital stock and voting rights
The Company’s capital stock at December 31, 2002
amounted to € 1,926,503,240, represented by
240,812,905 shares with a par value of € 8.00,
all fully paid up.
A total of 250,425,558 voting rights were attached to the
240,260,029 shares outstanding at December 31, 2001,
as approved by the Annual Shareholders’ Meeting
of May 27, 2002 (information published in the “BALO”
legal gazette dated June 7, 2002).
General Presentation of Schneider Electric SA
16
Changes in capital stock
The following table shows changes in Schneider Electric SA’s
capital stock and additional paid-in capital over the past five
years, through the exercise of warrants and stock options, the
conversion of bonds, the issuance of shares to the Employee
Stock Purchase Plan, the May 5, 2000 cancellation of shares
and the tender in August 2001 of 98.1% of outstanding
Legrand shares to the public exchange offer initiated by
Schneider Electric SA.
Five-Year Summary of Changes in Capital
Number of shares
Issued or cancelled
Capital at Dec. 31, 1997
Conversion of bonds
Conversion of Square D bonds
Exercise of stock options
Capital at Dec. 31, 1998
Conversion of bonds
Conversion of Square D bonds
Exercise of stock options
Shares issued to the ESPP
(2)
(3)
euros
153,417,118
1,169,414,443
euros
161,423,578
1,291,388,624
euros
155,787,643
1,246,301,144
euros
240,260,029
1,922,080,232
euros
240,812,905
1,926,503,240
euros
84,241,055
3,026
228,305
(4)
Conversion of Square D bonds
Exercise of stock options
Capital at Dec. 31, 2002
1,159,893,842
(6,000,000)
152,275
211,790
Shares issued in exchange for Legrand shares
Conversion of Square D bonds
Exercise of stock options
Capital at Dec. 31, 2001
152,168,097
3,495,796
2,272,282
704,300
1,534,082
Cancellation of shares
Conversion of Square D bonds
Exercise of stock options
Capital at Dec. 31, 2000
New capital
759,848
247,273
241,900
(1)
Capital at Dec. 31, 1999*
Total shares
outstanding
179,511
373,365
(5)
* The Company’s capital stock was converted into euros on January 14, 2000. The FF 399.8 million difference arising on conversion was charged
against additional paid-in capital.
(1)
(2)
(3)
(4)
(5)
€
€
€
€
€
9.52 million
121.97 million
45.09 million
675.80 million
4.42 million
increase in capital stock,
increase in capital stock,
decrease in capital stock,
increase in capital stock,
increase in capital stock,
€
€
€
€
€
33.72 million
252.72 million
284.87 million
4,358.7 million
15.0 million
increase in additional paid-in capital.
increase in additional paid-in capital.
decrease in additional paid–in-capital.
increase in additional paid–in-capital.
increase in additional paid–in-capital.
17
Potential capital
Aside from stock options, no share equivalents were
outstanding at December 31, 2002. Stock options granted
under the stock option plans in force at February 5, 2003,
represent 7,848,465 shares, of which 3,518,025 correspond
to options to either subscribe new shares or purchase existing
shares. The Board of Directors will determine the nature of the
options (subscription or purchase) at a later date. Details of the
stock options plans are provided on pages 20 and 21.
Authorizations to issue shares
At the Combined Annual and Extraordinary Shareholders’
Meeting of June 11, 2001, the Board of Directors was
authorized to issue new shares under the provisions of article
L 225-III of the French Commercial Code.
At the Combined Annual and Extraordinary Shareholders’ Meeting
of May 6, 1999, the Board of Directors was authorized to grant
options to purchase new or existing shares in the Company.
At the Combined Annual and Extraordinary Shareholders’
Meeting of May 5, 2000, the Board of Directors was authorized
to issue new shares to Group employees who are members
of the Employee Stock Purchase Plan. The number of shares
issued may not exceed 5% of the Company’s capital stock
over a period of five years.
At the Annual Shareholders’ Meeting of May 16, 2003,
shareholders will be asked to renew, within a limit of
€ 750 million, authorizations to issue shares with or without
pre-emptive subscription rights. These authorizations are
due to expire on August 11, 2003. Shareholders will also be
asked to renew the authorization to issue new shares to Group
employees, within a limit of 5% of the Company’s capital stock.
The authorizations currently in force are as follows:
Maximum aggregate
par value of shares
that may be issued
I - Issues with
pre-emptive subscription rights
Shares, warrants and
other securities convertible,
exchangeable, redeemable or otherwise
exercisable for shares
€ 750 million (1)
II - Issues without
pre-emptive subscription rights
Shares, warrants and
other securities convertible,
exchangeable, redeemable
or otherwise exercisable for shares,
including shares issued
in connection with a tender
offer initiated by the Company
€ 1,443 million (1)
III - Employee
share issues
Share issues restricted
to employees (ESPP)
5% of the capital
Options to purchase
new shares
5% of the capital
Authorization
date
Authorization
expires
Amount
used
June 11, 2001
Aug. 11, 2003
–
June 11, 2001
Aug. 11, 2003
May 5, 2000
May 5, 2005
May 6, 1999
May 6, 2004
€ 674 millions
(2)
–
1.3%
(3)
(1) The ceilings for issues with and without pre-emptive subscription rights are not cumulative.
(2) On August 7, 2001, the Chairman of the Board of Directors set the amount of the capital increase to pay for the Legrand shares tendered to the public exchange
offer initiated by Schneider Electric SA.
(3) Stock option plans 19 and 20. The Board of Directors will determine the nature of Plan 19 (subscription or purchase) by April 4, 2004 at the latest.
General Presentation of Schneider Electric SA
18
3 - Ownership structure
Interest
%
Historical shareholders
Caisse des Dépôts
et Consignations
Employees
Treasury stock (2)
Intragroup cross
shareholdings
Public
(1)
Total
Dec. 31, 2002
Number
Voting
of shares
rights
%
Number of
voting
rights
Dec. 31, 2001
Interest
Voting
%
rights
%
Dec. 31, 2000
Interest
Voting
%
rights
%
5.73
13,821,870
10.23
25,087,156
7.20
12.65
10.55
18.46
3.99
3.11
0.89
9,609,467
7,500,924
2,150,352
5.21
5.85
–
12,784,467
14,353,006
–
3.92
3.00
0.89
5.06
5.68
–
6.28
4.51
1.38
5.88
7.57
–
6.73
79.55
16,195,736
191,534,556
–
78.71
–
192,851,256
3.94
81.05
–
76.61
5.00
72.28
–
68.09
100.00
240,812,905
100.00
245,075,885
100.00
100.00
100.00
100.00
(3)
(1) AGF, AXA, BNP Paribas, Société Générale.
(2) Primarily via Cofibel.
(3) Excluding treasury stock held by Legrand.
Ownership structure at December 31, 2002
Historical shareholders
5.73%
Caisse des Dépôts et Consignations
3.99%
Employees
3.11%
Treasury stock - Intragroup cross shareholdings
7.62%
Public France (of which 8%
Legrand founding families)
43.95%
Public (International)
35.60%
As of December 31, 2002, Schneider Electric had
approximately 149,000 shareholders (TPI estimate).
Disclosure thresholds
To the best of the Company’s knowledge, no shareholders
other than Caisse des Dépôts, listed above, hold, either
directly or indirectly, more than 5% of Schneider Electric’s
capital or voting rights.
Shareholders’ pact
Under the terms of the shareholders’ pact signed on
September 16, 1993 by Axa, AGF, Comipar, Compagnie
Financière de Paribas, Elf, Euris and Société Générale
(Société des Bourses Françaises notice no. 93-3184 dated
November 15, 1993), as amended on October 19, 1995
(Société des Bourses Françaises notice no. 95-3069 dated
October 27, 1995), the signatories of the pact gave each other
pre-emptive rights to acquire their respective shareholdings.
On October 16, 2001, the pact was tacitly renewed
for a further two-year period by three of the signatories, AGF,
Axa and BNP Paribas (Conseil des Marchés Financiers notice
no. 200C1432). The other signatories had either withdrawn
from the pact or sold their Schneider Electric SA shares.
The signatories withdrew from the pact in December 2002
(Conseil des Marchés Financiers notice no. 202C1644)
The Legrand founding families promised not to sell more than
one third of the Schneider Electric shares they received during
the public exchange offer for Legrand for a period of one year
from the date of delivery (August 9, 2001). This commitment
expired on August 9, 2002.
4 - Employee profit-sharing
and stock purchase plans
a. Profit-sharing plans
Profit-sharing and other profit-based incentive plans have been
in effect at Schneider Electric Industries SAS since 1994.
The amounts allocated over the past three years were as follows :
€ 39.9 million in 2000 (profit-based incentive plan);
€ 16.1 million in 2001 (profit-based incentive plan and profit sharing);
€ 2.2 million in 2002 (profit-based incentive plan and profit
sharing).
19
b. The “Schneider Electric” corporate mutual fund
Description
Schneider Electric has long been committed to developing
employee stock ownership. Employees who are members of
the Employee Stock Purchase Plan have an opportunity to
purchase new or existing Schneider Electric SA shares through
corporate mutual funds. The latest employee share issue took
place in 1999 and was open to employees in 46 countries.
The exercise price is equal to the average share price of the
twenty trading days prior to the date of grant by the Board of
Directors. No discount is applied. The options have an eight
year life. Options granted under plans 12 through 19 may be
exercised as from the fourth year, as long as the grantee holds
the shares subscribed or acquired in registered form until the
end of a five-year period following the date of grant. In certain
cases, however, the options may be exercised without
condition as from the third year. Options granted under plans
20 and 21 may be exercised without condition as from
the fourth year or, in certain cases, as from the third year.
Exceptionally, options granted under plan 22 may
be exercised as from the first year.
As of December 31, 2002, employees held a total of
7,500,924 Schneider Electric SA shares through the corporate
mutual funds, representing 3.11% of the capital and 5.85% of
the voting rights, taking into account double voting rights.
The Company intends to carry out a share issue for employees
who belong to the corporate savings plan in 2003. The issue
would correspond to 2% of the Company’s capital stock.
c. Stock option plans
Grant policy
Stock option plans are approved by the Board of Directors
following a review of the plans by the Remunerations and
Appointments Committee. No options were granted in 2002.
At its meeting of February 5, 2003, the Board of Directors
set up two option plans. The first, number 21, was decided
as part of the annual policy to grant stock options. It has
433 grantees. The second, number 22, is designed to reward
the 2002 winners of the NEW2004 Trophies. This awards
program is part of the NEW2004 company program.
The plan has 111 grantees, members of the six winning
teams. Each member was granted 1,000 options.
Options may only be exercised by Group employees.
In addition, the exercise of options granted under plans
10, 11, 13 through 18 and plans 20 and 21 is fully or partially
dependent on specific targets being met concerning income,
value creation, sales or operating margin, as described in the
following table.
Because these targets were only partially achieved,
1,320,219 options granted under plans 15, 16 and 17
were cancelled in 2001 and 710,600 options granted under
plan 18 were cancelled in 2002.
Options granted to and exercised by corporate officers
and the top grantees during the year
No options were granted in 2002.
Henri Lachmann, who was granted options under plans
15 through 20, did not exercise any options during the year.
General Presentation of Schneider Electric SA
20
Stock option plan details
Plan
no
Date of
Board
Meeting
Number
of initial
grantees
Number of
options
granted
Price
in euros
9
10
11
12
13
14
15
16
17
07.04.95
07.04.95
13.06.96
24.01.97
10.06.97
28.01.98
22.12.98
01.04.99
01.04.99
47
134
233
53
273
287
1
337
542
575,200
626,800
862,800
1,360,000
970,800
1,208,000
60,000
1,259,300
2,123,100
24.93
24.93
35.37
35.67
44.52
50.77
50.86
50.73
50.73
18
19
20
21
24.03.00
04.04.01
12.12.01
05.02.03
1,037
1,050
180
433
1,421,200
1,557,850
1,600,000
2,000,000
65.88
68.80
51.76
45.65
22
05.02.03
111
111,000
45.65
15,736,050
Exercise criteria
None
All options: ROE for 1993 -1995
All options: ROE for 1994-1996
None
All options: ROE for 1995-1997
All options: ROE for 1996-1998
50% of options: value creation for 1999-2001
50% of options: value creation for 1999-2001
All options: sales, base costs and operating
income for 2001
50% of options: value creation for 2000-2002
None
All options: 2004 sales and operating income
50% of options: operating margin
and operating income to capital employed
None (reserved for winners of
the NEW2004 Trophies)
%
Number
Number
of targets of options
of options
met cancelled outstanding at
(1)
Feb. 5, 2003
N/A
54.4
62.5
N/A
74.9
85.4
55.36
55.36
N/A
279,600
339,700
N/A
239,400
164,300
13,300
245,900
362,800
50,870
353,940
1,198,200
653,630
1,001,800
46,700
937,700
71.6 (2)
–
N/A
–
1,078,600
710,600
N/A
–
–
–
2,000,000
N/A
N/A
111,000
963,200
660,075 (3)
1,518,025 (3)
1,600,000
11,457,940
(1) Because targets were not met.
(2) In light of the plan’s rules, 50.81% of the options were cancelled as a result of the percentage of achievement.
(3) The difference between the number of options granted and the number of options outstanding stems from the cancellation of options granted to employees who
have left the Group.
21
Outstanding options
Plan
Date
no of Board
Meeting
9
10
11
12
13
14
15
16
17
18
19
20
21
22
07.04.95
07.04.95
13.06.96
24.01.97
10.06.97
28.01.98
22.12.98
01.04.99
01.04.99
24.03.00
04.04.01
12.12.01
05.02.03
05.02.03
Type
S
S
S
S
S
P
P
P
P
P
S ou P
S
S ou P
S
Number of
options
outstandin
at Dec.
31, 2001
(1)
Options
granted to
corporate
officers
476,200
174,380
411,945
1,251,000
685,600
1,014,200
46,700
1,013,400
1,044,500
1,421,200
1,557,850
1,600,000
2,000,000
111,000
–
–
–
–
–
–
46,700
85,600
107,400
63,000
205,500
100,000
150,000
–
(2)
Options
Starting
granted to
date
the top 10 of exercise
employee
period
grantees
(2)
–
–
–
–
–
–
0
118,200
124,000
87,900
163,600
333,000
345,000
100,000
07.04.00
07.04.00
13.06.01
24.01.00
10.06.00
28.01.01
22.12.01
01.04.02
01.04.02
24.03.03
04.04.05
12.12.04
04.02.07
05.06.03
Expiration
date
Price
(in euros)
Options
exercised
in 2002
06.04.03
06.04.03
12.06.04
23.01.04
09.06.04
27.01.05
21.12.05
31.03.07
31.03.07
23.03.08
03.04.09
11.12.09
04.02.11
04.02.11
24.93
24.93
35.37
35.67
44.52
50.77
50.86
50.73
50.73
65.88
68.80
51.76
45.65
45.65
113,400
123,510
56,185
52,800
27,470
3,500
–
–
–
–
–
–
–
–
Options Number of
cancelled
options
in 2002 outstanding
at Dec. 31,
2002
–
–
1,820
–
4,500
8,900
–
75,700
81,300
761,125
39,825
–
–
–
(1) S = Options to subscribe new shares.
P = Options to purchase existing shares.
(2) After cancellations because targets for plans 16-18 were only partially met and before any cancellations in relation to plans 20 and 21.
5 - Stock buybacks
The Annual Shareholders’ Meeting of June 11, 2001
authorized the Board of Directors to buy back shares on the
open market. Pursuant to this authorization, the Company
purchased 172,909 shares at an average unit price of
€ 51.42 in 2002 and sold 50,000 shares at an average
unit price of 57.29 euros.
The Annual Shareholders’ Meeting of May 27, 2002 authorized
the Board of Directors to buy back shares on the open
market. Pursuant to this authorization, the Company
purchased 6,637,487 shares at an average unit price of
€ 48.80 in 2002.
The related transaction costs amounted to € 245,859.
At December 31, 2002, the Company held 16,195,736 of
its own shares in treasury.
362,800
50,870
353,940
1,198,200
653,630
1,001,800
46,700
937,700
963,200
660,075
1,518,025
1,600,000
2,000,000
111,000
General Presentation of Schneider Electric SA
22
6 - Stock market data
The Schneider Electric SA share is listed on the Euronext First Market in Paris, where it is traded in lots of one under Euroclear
code 12197.
It is part of the market’s benchmark CAC 40 index of France’s largest stocks.
18-Month Trading Data
Year
Month
2001
2002
2003
Trading
volume
(in thousands
of shares)
Value
(in millions
of euros)
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
36,404
34,357
24,894
14,052
21,208
23,045
22,556
23,465
19,346
19,150
28,768
22,067
18,268
25,555
25,571
23,345
1,677.72
1,449.50
1,245.78
750.09
1,114.67
1,242.06
1,304.00
1,315.99
1,048.23
1,008.90
1,348.67
1,064.35
832.86
1,114.80
1,233.54
1,109.33
Total 2002
272,344
13,737.40
24,259
22,615
1,101.49
907.56
January
February
Price
(in euros)
High
Low
62.20
46.50
57.20
58.15
57.25
58.00
59.50
59.85
56.60
55.30
54.65
51.20
50.05
48.78
50.00
50.35
38.10
39.41
43.30
49.49
48.28
48.75
55.85
51.25
51.80
49.14
40.95
43.02
41.10
37.16
44.55
43.11
49.89
43.00
39.69
38.42
Five-year Summary of Share-Price Performance
Average daily trading volume
Euronext Paris
- Thousands of shares
- Millions of euros
High and low share prices (in euros)
- High
- Low
Year-end closing price (in euros)
Yield including tax credit (%)
2002
2001
2000
1999
1998
1997
1,068.17
53.87
1,206.92
72.82
528.64
38.50
590.42
35.31
517.23
30.09
472.89
22.67
59.85
37.16
45.09
3.33
79.20
38.10
54.00
2.41
85.80
57.35
77.70
3.09
78.00
44.40
77.95
2.58
80.65
39.10
51.68
3.34
59.15
35.67
49.82
2.98
23
The Schneider Electric SA share vs. the CAC 40 index
(Euronext data)
Schneider Electric
share
CAC 40
Index
7,000
6,000
90
5,000
75
60
77.95
45
49.82
77.70
4,000
54.00
51.68
45.09
30
44.77
3,000
15
2,000
0
Dec. 31, 1997
■ in euros
Dec. 31, 1998
Dec. 31, 1999
● Schneider Electric share
Dec. 30, 2000
Dec. 31, 2001
Dec. 31, 2002 March. 15, 2003
● CAC 40 index (base: Schneider Electric on December 31, 1997)
Monep
Options on Schneider Electric SA shares have been traded on
the Monep market since December 20, 1996.
Ordinary bonds
On April 14, 1999, Schneider Electric SA issued € 750 million
worth of 3.75% bonds due April 14, 2004. On May 28, 1999,
a further € 250 million 3.75% bond issue was carried out,
also due April 14, 2004. The second issue is treated as an
extension of the first.
Both are traded on the Euronext Paris and the Luxembourg
bond markets under Euroclear code 49231.
As part of the Euro Medium Term Notes program initiated
on December 21, 1999, Schneider Electric SA issued two
tranches of 6.1275% bonds due in October 2007, worth
an aggregate € 450 million. The first, worth € 400 million,
was issued on October 9, 2000 and the second,
worth € 50 million, was issued on October 10, 2000.
Together they comprise 450,000 bonds with a face value
of € 1,000 each, which are traded on the Euronext Paris
and the Luxembourg bond markets under Euroclear
code 48309.
General Presentation of Schneider Electric SA
24
7 - Investor relations
Shareholder documents
Investor Relations Officer
In addition to the annual report and a summary report,
the following documents are published for shareholders:
Antoine Giscard d’Estaing
43-45, boulevard Franklin-Roosevelt
92500 Rueil-Malmaison, France
Tel.: +33 (0)1 41 29 71 34
Contacts
Institutional investors, financial analysts and private
shareholders calling from outside France may request
information and documents from:
Alexandre Brunet
At tel.: +33 (0)1 41 29 70 71
or fax: +33 (0)1 41 29 71 42
Shareholders’ Relations Committee
The Committee is made up of ten individual shareholders
appointed by Schneider Electric for a two-year term.
Members may serve a maximum of two terms.
The Committee is designed to relay shareholders’ concerns
in the area of financial communication to the Company.
It gives an opinion and makes suggestions on financial
communication actions and resources for individual
shareholders. In 2002, the members met four times to
discuss the Letter to Shareholders, the Company’s financial
communication policy towards individual shareholders,
the presentation of the Company’s businesses, site tours
and the organization of the Annual Shareholders’ meeting.
The Company has followed up on a number of Committee
suggestions, such as reducing the number of shares required
to receive the Letter to Shareholders to 100, making changes
to the Letter’s layout and content, organizing plant tours
and preparing a summarized Annual Report.
A Shareholders’ Letter (three times a year).
General, economic and financial information concerning
the Company, available on the corporate website
(www.schneider-electric.com). Press releases are
also available at www.prline.com.
25
Corporate Governance
1 - Board of Directors
(at February 5, 2003)
Chairman and Chief Executive Officer
Henri Lachmann
First elected: 1996
Term ends: 2005
64 years old.
Other directorships and functions:
Chairman of Schneider Electric Industries SAS and Director of
a number of Schneider Electric subsidiaries. Director of Finaxa,
various Axa subsidiaries, Vivendi Universal and ANSA; Member
of the Supervisory Board of Axa and Norbert Dentressangle.
A graduate of Hautes Etudes Commerciales (HEC), Henri
Lachmann began his career in 1963 with Arthur Andersen.
In 1970, he joined Compagnie Industrielle et Financière de
Pompey. In 1971 he became Chief Executive Officer of
Financière Strafor (later Strafor Facom), where from 1981
to 1997 he served as Chairman and Chief Executive Officer.
He has served as a Director of Schneider Electric SA since
1996 and was appointed Chairman on February 25, 1999.
Mr. Lachmann owns 12,000 Schneider Electric SA shares.
Directors
Claude Bébéar
First elected: 1986
Term ends: 2005
67 years old, Chairman of the Supervisory Board of Axa
and Chairman of Finaxa.
Other directorships and functions:
Director of a number of Axa subsidiaries, including Axa
Financial; Director of BNP Paribas and Vivendi Universal.
A graduate of Ecole Polytechnique, Claude Bébéar joined the
mutual insurance company that would later become Axa in
1958. He was appointed Chairman and Chief Executive Officer
of the company in 1975. From late 1996, when Axa merged
with UAP, until 2000, when he was appointed Chairman of the
Supervisory Board, Mr. Bébéar served as Chairman of Axa’s
Management Board and Chairman of its Executive Committee.
He is Chairman of Schneider Electric SA’s Remunerations and
Appointments Committee.
Mr. Bébéar owns 250 Schneider Electric SA shares.
* Independent Director, as defined in the Bouton report on corporate governance.
Daniel Bouton*
First elected: 1995
Term ends: 2004
52 years old, Chairman and Chief Executive Officer of Société
Générale.
Other directorships and functions:
Director of TotalFinaElf SA and Arcelor; Member of the
Supervisory Board of Vivendi Environnement.
A graduate of Ecole Nationale d’Administration with the title of
Inspecteur Général des Finances, Daniel Bouton held several
positions in the French Finance Ministry, including Budget
Director, from 1988 to 1991. He joined Société Générale
in 1991, becoming Chief Executive Officer in 1993
and Chairman in 1997.
Mr. Bouton owns 250 Schneider Electric SA shares.
Thierry Breton*
First elected: 2000
Term ends: 2004
48 years old, Chairman and Chief Executive Officer of France
Telecom, Chairman of the Board of Orange, Chairman of the
Board of Thomson SA.
Other directorships and functions:
Director of Dexia (a Belgian company) and of Thomson SA;
Chairman of Thomson’s Strategic Committee;
Member of the Supervisory Board of Axa.
A graduate of Supelec, Thierry Breton served as Chairman of
Forma Systèmes from 1981 to 1986, Advisor to the French
Ministry of National Education, in charge of information
technology and new technologies from 1986 to 1988;
Managing Director of the Futuroscope Teleport business park
in Poitiers from 1986 to 1990; Executive Vice President of the
CGI Group from 1990 to 1993; Executive Chairman of the Bull
Group from 1993 to 1997; and Chairman of Thomson SA
and Thomson multimedia from 1997 until October 2002.
He is currently Chairman and Chief Executive Officer
of France Telecom.
Mr. Breton owns 370 Schneider Electric SA shares.
Corporate Governance
26
Alain Burq
First elected: 2000
Term ends: 2004
49 years old, Chairman of the Supervisory Board of the
“Schneider Actionnariat” corporate mutual fund.
A graduate of Ecole Supérieure de Commerce de Paris,
Alain Burq also has an MBA from the Wharton School of the
University of Pennsylvania. In 1982, he joined Schneider
Electric, where he has been in charge of special projects
for the Corporate Services department since 2001.
Mr. Burq owns 250 Schneider Electric SA shares.
Hans Friderichs, a German citizen, holds degrees in Law and
Political Science. Soon after graduating, he joined Germany’s
Free Democratic Party (FDP), serving as Deputy Chairman
from 1974 to 1977. Mr. Friderichs was a member of
parliament from 1965 to 1969, then secretary of state for the
Rhineland Palatinate Agriculture and Environment Ministry.
In 1972, he was appointed Federal Minister of the Economy.
He left the federal government in 1977 and joined the
Management Board of Dresdner Bank AG in 1978. In 1985,
he became a consultant and corporate director.
Mr. Friderichs owns 500 Schneider Electric SA shares.
Michel François-Poncet
First elected: 1986
Term ends: 2004
68 years old, Vice-Chairman of the Board of BNP Paribas.
Other directorships and functions:
Chairman of BNP Paribas (Switzerland); Vice-Chairman of
Pargesa Holding SA (Switzerland); Director of LVMH, Finaxa,
Erbé (Belgium), Power Corporation (Canada), BNP Paribas UK
Holdings Limited (UK) and Vittoria Assicurazioni (Italy);
Member of the Supervisory Board of Axa.
A graduate of Institut d’Etudes Politiques and the Harvard
Business School, Michel François-Poncet joined Banque
Paribas in 1961. He became Chairman of Compagnie
Financière de Paribas and Banque Paribas in 1986 and
Chairman of the Supervisory Board of Compagnie Financière
de Paribas and Banque Paribas in 1990. From 1998 to 2000,
he served as Chairman of the Compagnie Financière
de Paribas Supervisory Board. In 2000, he was appointed
Vice-Chairman of the Board of BNP Paribas.
Mr. François-Poncet owns 300 Schneider Electric SA shares.
James F. Hardymon*
First elected: 1998
Term ends: 2004
68 years old, Corporate Director.
Other directorships and functions:
Director of Air Products & Chemicals Inc., American Standard
Inc., Circuit City Stores Inc., Championship Auto Racing
Teams Inc. and Lexmark International Inc.; Member
of the Supervisory Boards of Investicorp International, Inc.
and Proudfoot Consulting Company.
James F. Hardymon, a United States citizen, has an
engineering degree from the University of Kentucky. He spent
most of career at Emerson Electric Co., where he held several
positions before becoming Director and Chief Executive
Officer. In 1989, Mr. Hardymon joined US-based Textron Inc.,
which has a worldclass reputation in aerospace and
automation technology. He served as Chairman and Chief
Executive Officer of Textron from January 1993 to January
1999.
Mr. Hardymon owns 1,247 Schneider Electric SA shares.
Hans Friderichs*
First elected: 1997
Term ends: 2005
71 years old, Corporate Director.
Other directorships and functions:
Chairman of the Supervisory Boards of Goldman Sachs
Investment Management GmbH, Leica Camera AG and
Swatch Deutschland GmbH; Vice-Chairman of the Supervisory
Board of Adidas-Salomon AG.
Willy R. Kissling*
First appointed: 2001
Term ends: 2004
58 years old, Chairman and Chief Executive Officer
of Unaxis Corporation.
Other directorships and functions:
Chairman of the Board of Unaxis Corporation; Vice Chairman
of Holcim Ltd. (cement), SIG Holding Ltd. (packaging machines
and systems), Forbo Holding AG (flooring, belting and
adhesives); and Director of the Swiss-American Chamber
of Commerce.
* Independent Director, as defined in the Bouton report on corporate
governance
27
Mr. Kissling, a Swiss citizen, holds diplomas from the
University of Bern and Harvard University. He began his career
at Amiantus Corporation and then joined Rigips, a plasterboard
manufacturer, in 1978. He was appointed to the Rigips
Executive Committee in 1981 and subsequently became
Chairman. From 1987 to 1996, Mr. Kissling served as
Chairman and Chief Executive Officer of Landis & Gyr
Corporation, a provider of services, systems and equipment
for building technology, electrical contracting and payphones.
From 1998 to May 2002, Mr. Kissling was Chairman of Unaxis
Corporation.
Mr. Kissling owns 250 Schneider Electric SA shares.
Gérard de La Martinière
First elected: 1998
Term ends: 2004
59 years old, Executive Vice-President, Finance, Budget
Control and Strategy of Axa.
Other directorships and functions:
Member of the Axa Management Board; Managing Director
of Finaxa; Chairman of Ateliers de Construction du Nord
de la France ANF; Director or Chairman of several Axa
subsidiaries; Director of Crédit Lyonnais.
A graduate of Ecole Polytechnique and Ecole Nationale
d’Administration, Gérard de La Martinière held several
positions in the French Finance Ministry before serving as
Secretary General of Commission des Opérations de Bourse
and General Manager of Société des Bourses Françaises.
In 1989, he joined Axa, where he was appointed Executive
Vice-President, Holding Companies and Corporate Functions
in 1993 and Executive Vice-President, Finance,
Budget Control and Strategy in 2000.
Mr. de La Martinière owns 606 Schneider Electric SA shares.
René Barbier de La Serre*
First appointed: 2002
Term ends: 2005
62 years old, Corporate director.
Other directorships and functions:
Director of Crédit Lyonnais and Sanofi-Synthélabo; Managing
Director of Harwanne Compagnie de participations industrielles
et financières SA (Geneva); Member of the Supervisory Board
of Pinault Printemps-Redoute, Compagnie Financière
* Independent Director, as defined in the Bouton report on corporate
governance
Saint-Honoré, Compagnie Financière Edmond de Rothschild
Banque and Euronext NV; Chairman of the Board of Directors
of Tawa UK Ltd. (London).
After graduating from Ecole Polytechnique and l’Institut
d’Etudes Politiques de Paris, Mr. Barbier de La Serre joined
Banque de l’Union Européenne in 1963, later becoming
Deputy Director. In 1973, he moved to Crédit Commercial de
France (CCF), where he was appointed Managing Director in
1987 and Vice Chairman and Chief Executive Officer in 1993.
He left CCF in 1999.
From 1988 to 1998, Mr. Barbier de La Serre was a member of
Conseil des Marchés Financiers (formerly Conseil des Bourses
de Valeurs), serving as Chairman from 1994 to 1998. In this
capacity, he was a member of the Collège de la Commission
des Opérations de Bourse.
Mr. Barbier de La Serre owns 1,000 Schneider Electric SA
shares.
James Ross*
First elected: 1997
Term ends: 2003
64 years old, Vice Chairman of National Grid Transco.
Other directorships and functions:
Director of McGraw-Hill Inc. and Datacard Inc.
James Ross, a British subject, is a graduate of Oxford
University. In 1959 he joined BP, where he held several
positions before becoming a Managing Director in 1991.
He served as Managing Director of Cable & Wireless Plc.
from 1992 to 1995.
Mr. Ross owns 300 Schneider Electric SA shares.
Piero Sierra*
First elected: 1997
Term ends: 2003
68 years old, Special Advisor for the administration of Pirelli
SpA’s international companies.
Piero Sierra, an Italian citizen with a degree in humanities from
the University of Lyon, joined Milan-based Pirelli SpA in 1962.
He held management positions in Italy and abroad before
becoming Director and Chief Executive Officer of Pirelli SpA
from 1991 to 1995.
Mr. Sierra owns 500 Schneider Electric SA shares.
Corporate Governance
28
2 - Organizational and operating
procedures of the Board of Directors
meetings a year and the attendance of the Executive VicePresident, Finance and any line executives concerned by the
major issues put before the Board.
The Board of Directors defines the Company’s business
strategy and ensures that it is properly implemented.
Its members are nominated by the Board and elected
by shareholders in Annual Meeting.
Article 4 defines the status of Directors and their
responsibilities. These include:
- Representing all shareholders and acting in the corporate
interest.
Based on a review by the Remunerations and Appointments
Committee, the Board considers that eight of its thirteen
members are independent directors, as defined in the Bouton
report on corporate governance. Foreign representation is also
significant as the Board includes five non-French Directors.
Employee shareholders are represented by a Director who
sits on the Supervisory Board of the “Schneider Actionnariat”
corporate mutual fund. The average age of the Board
members is 61.
- Submitting their resignation when they have not participated
in more than half the Board meetings.
On March 5, 2003, after analyzing the findings of its internal
review, the Board approved a set of operating rules and
procedures. These rules replace previous Board proceedings
that, in particular, limited the powers of the Chairman and
defined the role and organization of Board Committees.
- Complying with rules governing trading in Schneider Electric
shares.
The new rules comprise eight articles.
Schneider Electric has adopted a code of ethics for Directors
and employees designed to prevent insider trading. Under the
terms of this code, both Directors and employees are barred
from trading shares in companies for which they have
information that has not yet been made public. In addition,
they may not trade Schneider Electric SA shares during
the 30 days preceding publication of the annual and interim
financial statements, nor may they engage in any type
of speculative trading involving Schneider Electric SA shares.
This includes margin trading, trading in options and warrants
and purchasing and re-selling securities in a period of less
than four months.
Article 1 defines the Board’s role and powers. To enable
the Board to fulfill its duties, the Chairman must submit
to its prior authorization all proposals to acquire or sell assets
exceeding € 100 million as well as all transactions involving
a commitment by the Company above this amount.
In addition, the Board must carry out an annual review
of its membership, organization and operating procedures.
Article 2 defines the principles the Board shall apply
concerning the renewal of its membership. These include
assuring international representation by maintaining a
significant number of non-French Directors, maintaining
independence through a majority of independent Directors
as defined in the Bouton report, ensuring continuity through
the annual renewal of one quarter of the Directors
and enabling representation of employee shareholders
by a Director who is a member of the Supervisory Board
of a mutual fund invested in Company stock.
Article 3 defines procedures for organizing Board meetings.
In addition to the legal provisions for calling Board meetings,
participation of Directors, minutes, etc., this article reflects
Schneider Electric practices in calling for a minimum of six
- Respecting an obligation of confidentiality.
- Requesting any documents needed to fulfill their
responsibilities and meeting with Company executives as
required.
- Reporting conflicts of interest.
- Owning at least 250 shares of Company stock.
- Attending the Annual Shareholders’ Meeting.
Articles 5 to 7 apply to the Board Committees and are
described in the corresponding section below.
29
3 - Board meetings in 2002
Six meeting were scheduled in 2002 and seven were held.
These meetings were primarily devoted to strategic issues,
including the resolution of the Legrand project, as well as to
reviewing the financial statements and the Company’s
corporate governance. In particular, the Board examined
Schneider Electric’s vision concerning global trends in the use
of electricity, the strategy being proposed to leverage these
growth opportunities and the NEW2004 company program
designed to align corporate actions with this strategy.
In light of the European Commission’s decision blocking
the Schneider-Legrand merger and ordering that the two
companies be quickly separated, Legrand’s future was
discussed at each meeting. Experts were invited to address
these meetings, to assist the Board in making the right
decision in this matter.
Following the Audit Committee’s report, the Board closed the
accounts for 2001 and reviewed the 2002 interim financial
statements. The meeting that closed the 2001 accounts also
set the dividend to be submitted to shareholder approval at
€ 1.30 per share, noting that because it would be charged
against additional paid-in capital, the dividend would not give
rise to a tax credit. However, it would not taxable as income
nor subject to CSG-RDS compulsory social security levies.
In the area of corporate governance, a number of measures
were taken to harmonize Schneider Electric’s bylaws with
France’s new NRE business legislation, the results of which
were presented to the Annual Meeting on May 27. Separately,
and pursuant to the report by the Remunerations and
Appointments Committee, the Board of Directors decided not
to separate the functions of Chairman and Chief Executive
Officer. It also co-opted René Barbier de La Serre
and appointed him to the Audit Committee. It accepted
the resignation of Jean-René Fourtou from the Board
on August 27, in order to comply with provisions concerning
the holding of multiple directorships. It also revised the
membership of the Remunerations and Appointments
Committee by electing Michel François-Poncet
as Chairman and appointing two new members,
James F. Hardymon and René Barbier de La Serre,
both of whom are independent Directors.
The Board examined its membership, organization and operating
procedures in light of the recommendations of the Viénot and
Bouton reports. It decided to conduct an internal review and
comply with the COB recommendation concerning the disclosure
of related-party transactions by corporate officers.
Throughout the year, the Board monitored business
performance and progress in implementing the NEW2004
program. It ensured consistent compliance with market
disclosure requirements, notably through an analysis of market
consensus and the issuance of press releases.
Directors and corporate officers hold 0.007% of the
Company’s capital and 0.009% of the voting rights.
No related-party agreements have been entered into between the
Company and its Directors or officers. No loans or guarantees
have been granted to Directors or officers by the Company.
4 - Committees of the Board of Directors
(members, operating procedures
and meetings)
The Board of Directors has drafted internal rules governing the
operating procedures and missions of the Audit Committee
and the Remunerations and Appointments Committee.
Their members are appointed by the Board, based on
recommendations from the Remunerations and Appointments
Committee.
Audit Committee
a. Members
In 2002, the Audit Committee comprised
MM. Gérard de La Martinière, Chairman,
Barbier de La Serre,
Piero Sierra.
It currently comprises
MM. Gérard de La Martinière, Chairman,
René Barbier de La Serre,
James Ross,
Piero Sierra.
In line with recommendations in the Bouton report, at least
two-thirds of the Committee’s members are independent
directors (three out of four).
b. Responsibilities
The Audit Committee is responsible for preparing the decisions
of the Board of Directors, making recommendations to the
Board and issuing opinions on financial, accounting and risk
management issues.
Corporate Governance
30
As a result, it:
Prepares the Board’s review of the annual and interim
financial statements. In particular, it:
- Ensures that accounting methods used to prepare the
consolidated and parent company financial statements
are appropriate and applied consistently, that all significant
transactions are properly reflected in the consolidated
financial statements and that the rules governing the
scope of consolidation are correctly applied.
- Analyzes risks, off-balance sheet commitments
and the cash position.
Reviews draft versions of the annual and interim reports.
Makes recommendations, following consultation, concerning
the renewal or appointment of the Auditors.
Examines the scope of audit engagements and the results of
audits. It makes sure the Auditors have acted independently,
notably when reviewing fees paid by the Group to their firm
and network.
Reviews the internal audit organization and resources, as
well as the internal audit program and the general summary
of reports submitted by the internal auditors.
Examines proposed distributions and the amount of financial
authorizations submitted for approval to shareholder
approval at the Annual Meeting.
The Audit Committee examines all financial, accounting
and risk management issues submitted to it by the Board
of Directors or its Chairman.
In addition, every year, before the Committee has reviewed
the financial statements, the Audit Committee Chairman meets
with the Auditors alone, without any Company representatives
present.
The Audit Committee presents its findings
and recommendations to the Board.
c. Meetings in 2002
In 2002, the Audit Committee met three times under the
chairmanship of Gérard de La Martinière, with an attendance
rate of 100%. Each meeting was also attended by members
of the Finance Department and the Auditors. When reviewing
the proposed ruling on the 2001 financial statements,
the Committee was also addressed by the accounting firm
Salustro Reydel, responsible for exercising Schneider Electric’s
equity claims in Legrand.
The Audit Committee reviewed the annual and interim financial
statements and the internal audit process. The Committee also
examined and verified the appropriateness of the accounting
rules applied by Schneider Electric in respect to the scope of
consolidation and off-balance sheet commitments, in light of
lessons learned from the Enron case. It analyzed the treatment
of goodwill (valuation and accounting principles) and
the impact of pension and post-retirement healthcare
commitments, primarily in respect to US employees.
The Committee reviewed procurement principles and
procedures. It examined Company actions in the area of
sustainable development and their presentation in the annual
report. Lastly, it was informed of the measures taken by
the Auditors in response to the COB’s recommendation
concerning the rotation of audit partners.
The Committee presented its findings to the Board on
February 26, 2002, September 4, 2002 and February 5, 2003.
Remunerations and Appointments Committee
a. Members
From January 1 to October 23, 2002, the Remunerations and
Appointments Committee comprised:
MM. Claude Bébéar, Chairman,
Jean-René Fourtou,
Michel François-Poncet,
Henri Lachmann.
The Committee’s current members are:
MM. Michel François-Poncet, Chairman,
Claude Bébéar,
René Barbier de La Serre,
James Hardymon,
Henri Lachmann.
b. Responsibilities
The Committee is regularly informed of the Group’s
compensation policies, especially executive compensation.
It reviews stock option plans and employee stock ownership
plans decided by the Board. It also makes recommendations
to the Board concerning the nomination of Directors, the
appointment of members of Board Committees and the
compensation of the Chairman, which comprises a variable
component partially linked to the achievement of personal
and performance objectives. In the last case, it meets
without the Chairman.
31
It sets the criteria of independence for Directors and examines
their situation in respect to these criteria. It recommends the
amount of attendance fees for approval at the Annual Meeting
and their allocation among Directors. It is also responsible for
preparing a succession plan for the Chairman and examines
solutions to provide for the replacement of Executive
Committee members.
c. Meetings in 2002
The Remunerations and Appointments Committee met three
times in 2002, with an attendance rate of 100%. It informed
the Board of Directors of its findings on February 16 and
October 25, 2002. It made recommendations to the Board
concerning the Chairman’s compensation. It also proposed
that the Board co-op René Barbier de La Serre as Director
and appoint him to the Audit Committee, as well as revise
the Committee’s membership by adding two new members,
James Hardymon and René Barbier de La Serre, and by
appointing Michel François-Poncet to serve as Chairman.
5 - Interests and compensation
of corporate officers and executives
goodwill, as well as individual objectives based on quantitative
and qualitative criteria. The bonuses are paid following
approval of the financial statements for the year to which they
relate.
To involve senior executives more closely in the growth and
development of Schneider Electric’s business, their variable
bonuses represent a greater proportion of their total
compensation than is the practice among other manufacturing
companies. In addition, Executive Committee members also
benefit from stock option plans (see above, page 19).
Executive compensation in 2002
In 2002, total gross compensation paid to the members and
the Chairman of the Executive Committee amounted to € 6.1
million, of which € 2.3 million in variable bonuses. The total
includes the Executive Committee members’ fixed salaries
and benefits for 2002 and their variable bonuses for 2001,
paid in 2002. The amount of the variable component was
based on corporate financial criteria, as well as on each
member’s individual quantitative and qualitative objectives.
The corporate financial criteria were as follows:
2001 sales, with no bonus if sales did not exceed
€ 9.63 billion.
Compensation of corporate officers and members
of the Executive Committee
Net income before goodwill, with no bonus if net income
did not exceed € 803 million.
The Remunerations and Appointments Committee makes
recommendations to the Board of Directors concerning the
Chairman’s compensation. It also reviews compensation for
senior executives, particularly the members of the Executive
Committee.
Growth in the share price.
Since reorganizing in October 2001, General Management
has been represented by a nine-member Executive Committee
chaired by Henri Lachmann. Its members are paid a fixed
salary plus a variable bonus representing a certain percentage
of their fixed salary. Each component of this compensation
package is calculated to be competitive with the compensation
paid to executives in similar companies in other countries,
based on analyses and comparisons performed by
international compensation consulting firms.
The amount of the variable component depends on the degree
to which objectives set at the beginning of the year are met
and can therefore vary significantly. The objectives concern
targets based on consolidated sales and net income before
Compensation of the Chairman
Compensation paid by Group companies, including Director
attendance fees, to Henri Lachmann, is as follows:
- Fixed salary and benefits: :
€ 735,600
- Attendance fees:
€ 54,000
- Variable compensation:
€ 91,800
Corporate Governance
32
Compensation of board members: attendance fees
and other compensation
At the combined Annual and Extraordinary Shareholders’
Meeting of June 11, 2001, the maximum attendance fees
payable to Directors was set at € 640,000. The Board of
Directors decided that the fees would be allocated among
Directors as follows:
Each Director is awarded one half of the theoretical fee per
Director.
Each Director who is a member of one or more Committees
of the Board of Directors is awarded an additional one-half
of the theoretical fee.
The balance of the total attendance fees is then shared
among all the Directors based on the number of Board
Meetings attended during the year.
In application of these rules, attendance fees paid to members
of the Board for the year ended December 31, 2002 totaled
€ 552,000. By Director, this amount was paid as follows
(in thousands of euros):
Claude Bébéar: 43.9 - Daniel Bouton: 32.0 Thierry Breton: 38.8 - Alain Burq: (none) Jean René Fourtou: 30.4 - Michel François-Poncet: 50.6 Hans Friderichs: 32.0 - James F. Hardymon: 38.8 Willy R. Kissling: 38.8 - Gérard de La Martinière: 54.0 René Barbier de La Serre: 48.9 - James Ross: 35.4 Piero Sierra: 54.0
Alain Burq has an employment contract with Schneider Electric
Industries SAS, through which he receives compensation
comprising a fixed salary and a variable component (bonus
and profit-linked incentive plan). He has relinquished his share
of attendance fees.
33
6 - Agreements involving Directors
(See auditors’ special report). No agreements involving directors were entered into during 2002 or after the close of the year.
7 - Auditors
Appointed
Appointment
expires
Statutory auditors
Barbier Frinault et Autres / Ernst & Young
41, rue Ybry - 92576 Neuilly-sur-Seine Cedex
represented by Pierre Jouanne and Christian Chochon
1992
2004
PricewaterhouseCoopers Audit,
32, rue Guersant - 75017 Paris
Represented by Anne Monteil
1995
2004
Substitute auditors
Jean de Gaulle, 6, rue de Buzenval - 92210 Saint-Cloud
Dominique Paul, 11, rue Margueritte - 75017 Paris
1995
1995
2004
2004
Fees paid to the auditors in 2002
(€ thousands)
Audit
- Statutory accounting, certification,
review of individual and consolidated
financial statements
- Related missions
PricewaterhouseCoopers
Audit
2,545
Other services
- Legal, fiscal and labor issues
- Information technology
- Internal audit
- Other
Total
5,781
708
3,253
Barbier Frinault et Autres
Ernst & Young
2,243
94%
161
0
0
0
8,024
95%
437
0
0
0
161
6%
437
5%
3,414
100%
8,461
100%
Corporate Governance
34
8 - Shareholders’ rights and obligations
a) Annual Shareholders’ Meetings
(article 18 of the bylaws)
All shareholders are entitled to attend Annual Meetings,
regardless of the number of shares held. The notice of meeting
is sent directly by the Company to holders of registered
shares. Holders of bearer shares are sent the notice of
meeting by the bank or broker that holds their share account.
Holders of both registered and bearer shares are required to
provide evidence of their ownership of the shares at the time
of the Meeting. The following represent proof of ownership:
Registered shares: an entry in the Company’s share register,
made at least five days prior to the date of the Meeting.
Bearer shares: a certificate issued by the custodian stating
that the shares have been placed in a blocked account, to
be deposited at the address indicated in the notice of
meeting at least five days prior to the date of the Meeting.
The Board of Directors may shorten these deadlines up until
the date of the Meeting, which may be held at the Company’s
head office or at any other location indicated in the notice of
meeting.
b) Voting rights
1 - Double voting rights (article 19 of the bylaws)
Voting rights attached to shares are proportionate to the equity
in the capital represented by each share, assuming that they
all have the same par value. Each share carries one voting
right, unless there are any unavoidable legal restrictions
on the number of voting rights that may be held by
any single shareholder.
Notwithstanding the foregoing, double voting rights are
attributed to fully paid-up shares registered in the name of the
same holder for at least two years prior to the end of the
calendar year preceding the one in which the Annual Meeting
takes place, subject to compliance with the provisions of the
law. In the case of a bonus share issue paid up by capitalizing
reserves, earnings or additional paid-in capital, each bonus
share allotted in respect of shares carrying double voting rights
will also have double voting rights. The shares are stripped of
their double voting rights if they are converted into bearer
shares or transferred to another person, except in the case of
an inheritance or family gift, with the transfer from one
registered holder to another. Double voting rights may also be
stripped by a decision of the Extraordinary Shareholders’
Meeting, ratified by a special meeting of shareholders
benefiting from double voting rights. The minimum holding
period to qualify for double voting rights was reduced from
four to two years by decision of the combined Annual and
Extraordinary Shareholders’ Meeting of June 27, 1995.
2 - Ceiling on voting rights (article 19 of the bylaws)
At the Annual Meeting, no shareholder may exercise more than
10% of the total voting rights attached to the Company’s
shares. The 10% ceiling is calculated on the basis of the single
voting rights and proxies held by the shareholder concerned.
If the shareholder owns shares carrying double voting rights,
the limit may be raised to 15%, provided that the 10% ceiling
is exceeded solely by virtue of the double voting rights.
The above ceilings will no longer apply, without it being
necessary to put the matter to the vote at a further Annual
Meeting, if any individual or legal entity, acting alone or jointly
with one or other individuals or legal entities, acquires or
increases its stake to at least two-thirds of the Company’s
capital through a public tender offer for all the Company’s
shares. In this case, the Board of Directors will place on record
the lifting of the above ceilings and will amend the bylaws
accordingly.
The ceiling on voting rights was approved by the combined
the Annual and Extraordinary Shareholders’ meeting
of June 27, 1995.
c) Income appropriation (article 21 of the bylaws)
Net income for the year less any losses brought forward from
prior years is appropriated in the following order:
5% to the legal reserve (this appropriation is no longer
required once the legal reserve represents one tenth
of the capital, provided that further appropriations are made
in the case of a capital increase).
To discretionary reserves, if appropriate, and to retained
earnings.
To the payment of a dividend.
The Annual Meeting may decide to offer shareholders
the opportunity to receive the dividend in cash or in the form
of new shares of common stock. Dividends not claimed
within five years from the date of payment become time-barred
and are paid over to the State in accordance with the law.
35
d) Disclosure thresholds (article 7 of the bylaws)
In addition to the legal disclosure thresholds, the bylaws
stipulate that any individual or legal entity that owns or controls
(as these terms are defined in article L 233-9 of the
Commercial Code) directly or indirectly, shares or voting rights
representing at least 0.5% of the total number of shares
or voting rights outstanding, or a multiple thereof, is required
to disclose said interest to the Company by registered letter
with return receipt requested, within five trading days of
the disclosure threshold being crossed.
In the case of failure to comply with these disclosure
obligations, the shares in excess of the disclosure threshold
will be stripped of voting rights at the request of one or several
shareholders owning at least 2.5% of the Company’s capital,
subject to compliance with the relevant provisions of the law.
These disclosure thresholds were approved by the
combined Annual and Extraordinary Shareholders’ Meetings
of June 27, 1995 and May 5, 2000.
e) Identifiable holders of bearer shares
(article 7.3 of the bylaws)
As approved by the combined Annual and Extraordinary
Shareholders’ Meetings of June 30, 1988 and May 5, 2000,
the Company may at any time request that Euroclear identify
holders of bearer shares carrying voting rights either
immediately or in the future.
Business review
36
Business Review
1 - Economic environment
The global economy was on a downtrend for the second year
running. Consumer spending helped yield a positive rate
of growth globally (up 1.7% for global GDP in 2002),
but corporate capital spending fell again, particularly
in the developed countries.
A group of factors led companies to cut their spending
in 2002:
September 11, the ensuing geopolitical developments and
the threats of war in Iraq since May 2002 have undermined
manufacturers’ confidence and affected the outlook
for business, both of which are vital if corporate spending
is to recover.
Company tinkering with accounting rules and the collapses
of Enron (December 2001) and Worldcom (August 2002)
accentuated the fall in the stock market and repercussions
on spending.
The public building market (schools, public services and
hospitals) continued to grow.
The Industry market was also down in 2002, though less than
the previous year. This market was the first to experience the
consequences of the recession beginning in 2001 – a
decrease in capital spending in industry, the sector most
exposed to international trade, itself negatively affected by the
US recession.
As regards the infra-annual trend, the market declined
throughout 2001 and leveled off in all divisions as from the
second quarter of 2002, but without the expected upturn.
The residential building market was the only one of the
Schneider Electric markets to continue to grow on a worldwide
level in 2002.
Companies wished to restore their accounts to healthier
positions, hurt as they were by economic slowdown and
acquisitions made in previous years.
The fall in interest rates, the rise in assets value in the
construction industry, tax incentives, the fall in stock markets
(encouraging investment in real estate) – all promoted
residential building.
It has also emerged that companies in Europe overinvested
and overstocked in 2000. Although not on such a vast scale
as in the US, this excess spending resulted in capacity
build-up which will make current additional investment less
necessary.
2 - Highlights of the year
Among the major Schneider Electric markets, the building
market (spending in non-residential buildings) recorded the
most marked fall in 2002, representing the sharpest decrease
in many years, particularly in the US. The market
in Europe declined slightly. American and European cycles
were synchronized for the first time.
In both regions, the worsening situation hit the industrial
building segment first of all, followed by the offices
and commercial building segment. The causes were:
- the unfavorable economic situation;
- the uncertain outlook;
- the wish on the part of companies to restore accounts
to healthier positions;
- excess capacity built up over the last few years leading
to poor use of production capacity in industry;
- high rate of buildings unoccupied.
a) Legrand
Schneider Electric decided to sell its 98.1% stake in Legrand,
in execution of the July 26, 2002 contract of sale agreed with
the KKR-Wendel Investissement consortium.
This decision resulted, on the one hand from the position of
the European Commission, who ruled on November 29, 2002
that the corrective measures proposed by Schneider Electric
were not sufficient to approve the merger and, on the other
hand, the hostility to the project from Legrand management.
The year 2002 therefore saw the end of the merger project
with Legrand, in spite of the favorable ruling of the European
Communities Court of First Instance (October 22, 2002), which
overturned the European Commission veto.
The sale of this holding, for € 3.6 billion, bolstered the financial
strength of the Company and provided margins for financial
maneuver enabling a policy of selective acquisitions in highgrowth businesses.
37
b) The NEW2004 program
A unique multi-market Power & Control specialist
The year 2002 was, in particular, marked by the launching of
the new company program at Schneider Electric, picking up
where Schneider 2000+ – which spanned the years 1999 to
2001– left off. This program, known as NEW2004 – New
Electric World, covers the years 2002 to 2004. NEW2004 falls
within a continuous improvement process for the Company.
Dedicated to growth and efficiency, the program relies on a
clearly-defined Vision, Mission and Strategy.
Schneider Electric’s goal is therefore to implement a strategy
based on competitive advantages, by reinforcing what makes
it the unique multi-market leader in Power & Control.
The Vision
With the increasing convergence of electricity, automation and
communication technologies, a new era is dawning – one in
which the future will be more and more electric, powered by
growing demand for comfort, reliability, safety, productivity,
new types of generation, fresh applications, and increasingly
integrated and networked systems. Electricity – flexible, safe
and clean – is now more than ever the energy of the future.
This is the Company’s Vision of the new electric world, which
holds enormous potential for developing its core businesses –
electric distribution and industrial automation.
The Mission
“Give the best of the New Electric World to everyone,
everywhere, at any time.” Schneider Electric’s goal is to give
its customers more performance, more comfort and more
safety everywhere in the world through its employees,
partners, competencies and innovation in its products
and services.
The Strategy
Our strategy is based on leveraging competitive advantages,
growth and operational excellence satisfy customers’
performance expectations and meet the challenges of our
NEW2004 company program.
This Strategy is supported by a disciplined financial policy and
an innovative human resources policy.
To make this Vision come true and to attain NEW2004
objectives, the Company is aiming to push back the limits in all
aspects of its business: by capitalizing on its strengths and
its strategic fundamentals, by clearly identifying its worldwide
strategic priorities, by deploying consistent strategies
and policies across the organization, and by thus meeting
its customers’ performance challenges.
Unique in its access to market with:
- core products adapted to local standards;
- specially dedicated organizations for Key Accounts;
- a leading network of distributors and sales partners, offering
the services that customers need, worldwide;
- tools and services that improve sales partners’
competitiveness.
Unique in its products with:
- a constantly expanding lineup of intelligent, networked
products, for developing integrated and scalable solutions for
all customer applications, designed to facilitate the work of
its partnering installers, panel-builders and integrators.
Unique in its services with:
- high value services to support customers throughout the
lifetime of their installations, and to help them to optimize
them directly, through selected partners and via the Internet.
Unique in its brands with:
- a portfolio of recognized global and local brands.
Pushing back the limits
NEW2004 reflects Schneider Electric’s commitment to a
strategy focusing on growth by extending its approach to its
markets – Residential, Buildings, Industry, Energy &
Infrastructure. In order to tap into their outstanding potential,
Schneider Electric has decided to address four strategic focus
areas that combine internal growth, alliances and acquisitions:
draw more value out of its current offering, expand its
geographic reach, develop its lineup of products and services,
and enhance its activity portfolio.
The NEW2004 program is also based on strategy focusing on
operational excellence, aiming to continuously improve product
and process quality, while optimizing costs and efficiency.
The Company in this way deploys consistent policies
throughout the entire organization to increase efficiency and
fund its growth objectives. They are geared towards:
Business review
38
- Improving manufacturing and logistics quality and productivity
worldwide;
Creating a stimulating work environment
for employees
- Optimizing product development;
Finally, Schneider Electric’s NEW2004 is intended to favor the
development and sharing of employees’ skills, by encouraging
their mobility and adaptability in a worldwide network, inciting
good performance, respect of the environment and community
responsibility.
- Accelerating the Company’s e-transformation;
- Developing first-class partnerships in all areas to maximize
growth at less cost.
The six challenges of the NEW2004 program
Schneider Electric intends to create wealth for its four
stakeholders: customers, shareholders, employees and the
community. The NEW2004 has been developed around six
challenges:
c) Alliances, acquisitions and partnerships
In Japan
- Develop Corporate community responsibility.
Following a friendly takeover bid, the Company acquired
a 98.7% stake in Digital Electronics, the worldwide leader
in man-machine dialogue products: industrial PCs, graphics
terminals and touch terminals. Digital Electronics, with sales
of 196 million euros and 1,200 employees, holds leading
positions in Japan, Korea, the United States and Europe.
Man-machine interfaces integrate a growing number
of automated features and are key components in networked,
web-enabled architectures, such as the Transparent Ready™
range that the Company offers in all of its markets.
Indicators have been defined for each of the program’s
challenges and are tracked each quarter, resulting in additional
actions to ensure alignment with targets set for 2004.
Schneider Electric thus obtained a position in a new,
fast-growing market segment, while gaining greater access
to OEMs, particularly in Japan.
Financial targets
Greater presence in China and Malaysia
The Company has set ambitious financial targets for itself in its
new program.
The Company raised its holding in Schneider Swire Ltd., which
manufactures and markets low-voltage electrical distribution
equipment in Hong Kong and in mainland China, to 100%.
- Be more Customer-centric.
- Be committed to Quality.
- Be more Global.
- Increase our People’s commitment.
- Think Innovation.
- Achieve organic growth two points above the market every
year and add 2 billion euros in sales from acquisitions.
- Achieve a 43.5% gross margin on sales in 2004.
- Achieve a 14% operating margin in 2004.
Schneider Electric implements a disciplined financial policy,
aimed mainly to:
- Ensure growth in net earnings per share, by avoiding,
in particular, any diluting effect relating to acquisitions
over more than two years.
Its 2001 sales were € 15.7 million.
Schneider Electric also raised its interest to 100% (from 49%
previously) in Schneider Scott & English, founded in 1996 with
a local partner to distribute low-voltage electrical equipment
and automated devices in Malaysia. The goal is to reinforce
the subsidiary’s organization and sales resources to accelerate
development.
In Denmark and Russia
- Increase operating earnings faster than capital employed
and maintain low capital intensity to preserve its flexibility
and its ability to generate strong free cash flow (net cash
provided by operating activities, after change in working
capital and capital expenditure).
The Company took over Hano Elektroteknik A/S and Digimatic
Aps, two companies specializing in automation controls. They
now make up the technical support center for the Company’s
industrial automation applications in Denmark, and are
especially directed at services for OEMs.
- Maintain a balanced debt policy to minimize interest
expenses and maintain its high rating.
The Company acquired a 90% stake in Uralelektro Contactor,
specializing in the manufacture and marketing of 100-250A
39
contactors and motor-starters. In Russia, Uralelektro
Contractor, with 105 employees and a strong distribution
network, posted sales of close to € 4 million in 2002.
Partnerships in the Gulf countries
To strengthen its positions in major projects, Schneider Electric
concluded a partnership with Danway, a wholly-owned
subsidiary of Emirates Holdings. Emirates Holdings is a key
player in the electrical engineering industry in the Gulf region,
with strong positions in the water, energy, oil and gas markets.
The objective is to manufacture low- and medium-voltage
equipment locally to offer more local-content solutions and
to thus improve flexibility and responsiveness.
Schneider Electric Ventures
A Schneider Electric venture capital fund of € 50 million was
set up to finance technologically innovative startups. In April,
Schneider Electric Ventures invested in a Swedish company,
ConnectBlue, specializing in comprehensive, Bluetooth-based
wireless solutions.
Schneider Electric Ventures acquired a 13.1% interest in Open
Wide, alongside Thalès. Open Wide is a solutions architect and
integrator for the manufacturing world.
d) Sale
Schneider Electric sold its nuclear power business to an
American corporation, Data Systems and Solutions,
specializing in the supply of information systems for equipment
management in the aerospace and nuclear power markets.
The nuclear unit based in Grenoble, France, and with
200 employees, recorded sales of € 20 million in 2001.
Extension of the product lineup with new ranges
in 2002
Electrical Distribution
In 2002, the Company renewed its low-voltage Compact C
and Masterpact power circuit-breaker lineup. The new ranges
allow Schneider Electric to offer a comprehensive set of
solutions in low-voltage electrical distribution (products,
switchboards and services).
Schneider Electric also launched a new range of transformer
substations called Satia, which are more compact and offer
improved transformer protection features.
Automation
In 2002, the Company launched six new ranges of industrial
control and automation products. These intelligent and
networked products can be integrated into open and
collaborative architectures. These projects required
€ 120 million of investment. The products meet current
international standards (IEC, UL, CSA, etc.).
Business review
40
3 - Research and Development
Schneider Electric devoted € 472.7 million, or 5.2% of sales,
to research and development in 2002.
As part of its business activities, Schneider Electric uses
patents, brands and trade names belonging to the Company,
or in some cases, licensed by third parties, to manufacture
products, perform services and market its products and
services. In addition, the Company is constantly developing
new technologies, products and processes that it tries to
protect with patents. The Company filed 130 patents in 2002
and more than 121 in 2001. The patents filed during the past
two financial years can be broken down per major category
as follows: 50% electromechanical, 35% electronics and 15%
software.
Given the Company’s current types of products and services,
the Management believes that the business does not
significantly depend on any patent, set of patents or related
licenses.
The Management moreover considers the business not to
depend on a single brand nor on a single trade name. Even
though brands and trade names are closely linked to Company
products and services, and they play a major role in the
marketing of products and services concerned, the
Management finds the risks relating to the diverted or
unauthorized use of its brands and trade names not to be
significant. The Company’s main brands are Merlin Gerin,
Telemecanique and Square D.
Nevertheless, as the product portfolio is expanded through the
addition of new products with extended electronic, computing
and communication functionality, the business will have higher
dependence on intellectual property rights. Consequently, the
risks of counterfeits or of infringement of these rights are likely
to become greater. In addition, the Company holds patents of
a high commercial value, especially in these new technologies.
The Company therefore decided to draw value out of these
intellectual property rights.
4 - Quantitative and Qualitative
Disclosures about Market Risk
The Company’s cash and funds comprise cash provided by
operating activities, revenue from bond and commercial paper
issues, borrowings, and the proceeds from the sale of our
interest in Legrand SA. Thanks to this divestment, we ended
the year with a positive net cash position.
The main borrowings at December 31, 2002 included
three euro-denominated bond issues (€1 billion at 3.75%
due in 2004, € 450 million at 6.1275% due in 2007 and
a € 148.3 million perpetual bond issue indexed to the Euribor
+ 0.7%, due in 2006). We also have various syndicated and
non-syndicated loans totaling € 177.1 million, most of which
mature in 2005.
At year-end, outstanding commercial paper issued at fixed
rates and with very short maturities totaled € 395 million.
In addition, the Company can draw on confirmed lines
of credit from a number of banks. The unused balance
available at December 31, 2002 amounted to € 769 million,
of which € 221 million will expire in 2003.
Unit financing and cash management
The Company has implemented a centralized cash pooling and
currency risk management system via wholly-owned subsidiary
Boissière Finance. All operating subsidiaries have access to
this system. Boissière Finance also provides short-term
facilities to certain subsidiaries.
In certain cases, operating subsidiaries have sought and
obtained financing outside our general Group-based financing
system. In particular, Lexel has maintained borrowings that
were contracted before it became part of Schneider Electric.
The confirmed line of credit granted by a banking syndicate in
1997 to finance Lexel’s acquisition of Thorsman was
reimbursed in 2002. Our main North American subsidiary,
Square D Company, has a sale of receivables agreement
under which it sells fractional interests in a pool of eligible
short-term trade receivables, in an amount not to exceed
€ 284 million. Of this, € 21 million had been used at
December 31, 2002, leaving a balance of € 263 million.
41
The Company had a positive net cash position of €844 million
at December 31, 2002 compared with net indebtedness of
€2,292.5 million at year-end 2001. Net indebtedness
corresponds to long and short-term borrowings minus cash
and short-term investments. The reduction in net indebtedness
is primarily attributable to the proceeds from the sale of
Legrand SA.
As of Dec, 31
(€ millions)
2002
2001
2000
Net cash provided/(used) by:
Operating activities
Purchases of property, plant and equipment
and intangible assets, net of disposals
Financial investments, net
Investing activities
(Reduction)/increase in long-term debt and other borrowings
Augmentation de capital
Purchase of Company shares
Dividends paid
Financing activities
Net effect of exchange rate and other changes
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at end of year (1)
932.8
942.6
710.6
(340.5)
3,165.8
(404.5)
(363.4)
(467.7)
(596.1)
2,825.3
(767.9)
(1,063.8)
(463.3)
11.0
(329.1)
(315.9)
135.9
7.2
(73.9)
(315.2)
289.8
11.9
(159.5)
(285.1)
(1,097.3)
(246.0)
(142.9)
2.7
2,663.5
3,070.4
14.1
(57.2)
406.9
25.9
(470.2)
464.1
(1) Cash and cash equivalents consist of cash, bank accounts, short-term deposits, treasury shares to be used to cover stock options, and other liquid
marketable securities, net of bank overdrafts.
Business review
42
Operating activities
On a current basis, operating requirements are primarily
financed by cash provided by operating activities, although
certain capital-intensive operations may be financed by bond
or share issues at the Group level. Intra-Group loans are also
used to finance the purchase of plant and equipment, as well
as to finance the related investments.
Net cash provided by operating activities totaled €932.8
million at December 31, 2002, versus €942.6 million the year
before.
Net cash provided by operating activities before changes in
operating assets and liabilities amounted to €967.5 million
compared with €966.4 million in 2001, reflecting a stable
situation after items related to the divestment of Legrand SA.
The decrease in working capital came to €35 million versus
€24 million in 2001 as a result of slower business and the
resulting decline in inventories, accounts receivable and
accounts payable.
Investing activities
This item includes acquisitions and disposals of businesses,
acquisitions of additional interests and acquisitions
and disposals of tangible and intangible assets. Due to
the divestment of Legrand SA, investing activities provided
net cash of €2,825.3 million in 2002. In 2001, they used
€767.9 million.
Net cash provided by financial and other long-term
investments came to €3,165.8 million, reflecting the
divestment of Legrand SA. In 2001, financial and other longterm investments used net cash of €363.4 million.
Net cash used by investment in operating assets – acquisitions
and disposals of tangible and intangible assets – came to
€340.5 million versus €404.5 million in 2001. The decline is
attributable to the full or partial cancellation of certain projects
in response to slower business and to industrial reorganization
plans.
Financing activities
This item covers loan repayments, new borrowings on the
financial markets or from banks, the sale, purchase or issue of
Company shares and dividend payments. Net cash used by
financing activities increased by €851.3 million to €1,097.6
million from €246 million in 2001, due primarily to the
decrease in debt at year end made possible by the proceeds
from the divestment of Legrand SA and to the stepped-up
share purchase program.
Dividends paid in 2002 totaled €315.9 million, on a par with
2001.
Short, medium and long-term borrowings amounted to
€2,370 million at year-end 2002, compared with
€2,872 million at December 31, 2001. Around 3% of the total
was guaranteed in 2002 versus 4% in 2001.
Bonds, including perpetual bonds, represented
€1,598.3 million, or 67.4% of the total, in 2002 compared with
€1,638.4, or 57% of the total, in 2001. The maturity on these
items runs from April 2004 to October 2007.
Long-term bank loans accounted for 7.5% of total debt
at December 31, 2002, versus 9.5% a year earlier.
Total outstandings declined by €96 million to €177.1 million
from €273.1 million at year-end 2001, following the repayment
Lexel’s bank debt.
Commercial paper issues were the second largest source of
financing in 2002. Outstanding issues declined by €262 million
to €395 million from €657 million in 2001 as a result of partial
repayment using the proceeds from the divestment of Legrand
SA. Outstanding issues represented 16.7% of total debt in
2002 compared with 22.9% the year before.
Taking into account the impact of rate swaps, the effective
interest rate paid on the €745 million in variable rate debt was
4.15%, while that on the €1,625 million in fixed-rate debt was
4.75% at December 31, 2002. In calculating the effective
interest rate, fixed-rate commercial paper with very short
maturities is treated as a variable rate borrowing.
The effective interest rate is calculated on the basis of debt at
December 31 and is provided for information only. Due to the
difference between debt at December 31 and average debt for
the year, this rate is not representative of the year’s average
interest rates. In September 2001, short-term eurodenominated borrowings were swapped for dollardenominated borrowings in an amount of $300 million. This
reduced the effective interest rate at December 31, 2001.
43
Additional information on contractual obligations, commitments and raw material hedging contracts
Contractual obligations at December 31, 2002
(€ millions)
Long-term debt,
including current portion
Short-term debt
(1)
(1)
Total minimum payments required
under operating leases (2)
Irrevocable purchase commitments
Other long-term commitments
(1)
(2)
(3)
(4)
Total
Less than
1 year
1 to 2
years
3 to 4
years
Beyond
4 years
1,797
73.2
1,077.8
113.1
532.9
573
573
325.6
78.1
73.2
54.3
120.0
45.7
–
45.7
–
–
(3)
(4)
Long and short-term debt is presented as shown in Note 17 to the Consolidated Financial Statements.
Total minimum payments required under operating leases are presented in Note 5.3 to the Consolidated Financial Statements.
Not applicable. As a general rule, supply contracts do not include any firm commitments concerning minimum volumes or value.
Firm commitment to buy Infra+ shares representing the 61.50% of the capital not held by Schneider Electric.
Off balance sheet commitments at December 31, 2002
Total
(€ millions)
Contract counterguarantees
Letters of credit (2)
(1)
203,7
74,4
(1) Contract counterguarantees granted to customers totaled €203.7 million versus €225.7 million at December 31, 2001. A reserve for contingencies
is recorded when the risk of a claim is considered probable.
(2) Letters of credit represent a guarantee, governed by certain conditions, that a customer will fulfill its commitments towards a third party. Virtually all
letters of credit in issue expire in less than one year.
Raw material hedging contracts
Fair value at December 31, 2002
(€ millions)
Prices obtained from external sources
Fair value determined according to
other valuation techniques
(1)
Total
Less than
1 year
(7.9)
(7.9)
Néant
(1) Fair value of contracts in force at January 1 was (€24.2 million).
1 to 2
years
3 to 4
years
Beyond
4 years
Business review
44
Net effect of exchange rate and other changes
Substantially all subsidiaries are consolidated on the basis
of financial statements established in their local currencies,
with the exception of those operating in hyperinflationary
economies. The consolidated financial statements, however,
are presented in euros. Balance sheet items of non-euroland
subsidiaries are translated at official year-end exchange rates
while income statement amounts and cash flow items are
translated at weighted-average annual exchange rates.
In the cash flow statement, cash and cash equivalents at
the end of the year are originally translated at the official yearend exchange rate. A difference arises when they are retranslated using the average annual exchange rate. In 2002,
the net effect of exchange rate and other changes came
to €2.7 million, versus €14.1 million in 2001 and €25.9 million
in 2000.
Seasonal variations
Schneider Electric’s sales are affected by seasonal variations,
as the construction business is busier in the summer than in
the winter. Quite logically, this affects demand for electrical
products used in this market. The high season for construction
runs from June to October in North America and the rest of
Europe, but is concentrated in June and July in France.
Impact of inflation and price changes
Business is affected by inflation in certain markets,
but the majority of sales, expenses and income are generated
in countries that have enjoyed low inflation rates over the last
several years.
In hyperinflationary environments, the Company can generally
increase selling prices to offset the impact of higher costs
and thereby generate sufficient cash flow to preserve its
productive capacity.
Short-term interest rate exposure
Our risk policy for short-term rate exposure and cash is
to minimize the cost of borrowing, depending on market
conditions. The Company uses swaps to hedge its commercial
paper exposure.
Interest rate risk on long-term debt
At December 31, 2002, financial debt mainly comprised
fixed-rate borrowings and variable-rate borrowings swapped
for fixed-rate debt. Since most of our debt is essentially
fixed-rate, we are exposed to the risk of a decline in interest
rates.
Depending on the conditions of the financial market,
we determine whether to use derivative instruments to hedge
our interest rate exposure in order to minimize the cost of
borrowing. The choice of issuing fixed or variable rate debt
depends on (i) the overall exposure of the Group, and (ii)
overall market conditions, as we tend to issue fixed rate debt
when interest rates are low.
Foreign currency risk
We have international operations and thus we are exposed
to foreign exchange risk arising from various currency
combinations. The exposure to exchange rate fluctuations
concerns some twenty currencies, with the US dollar and the
British pound now the most significant sources of currency
risk.
Most of our operations around the world are carried out
by subsidiaries that trade primarily in their home country.
With the exception of some operating subsidiaries domiciled
in highly inflationary environments, the functional currency of
each of our companies is considered to be its local currency.
We are thus exposed to the currency risk associated with
translating our functional currency financial statements into our
reporting currency, the euro.
In addition, we have foreign exchange transaction exposures
related to our global operating activities in currencies other
than the functional currency in which our entities operate.
This exposure arises from intercompany transactions between
“global plants” or “international distribution centers” and local
subsidiaries, as well as from direct export sales and
purchases.
It is our policy to identify and manage transactional foreign
exchange exposure to reduce risk. Our subsidiaries are
responsible for identifying accounts receivable and accounts
payable denominated in currencies other than their local
currency and entering into intercompany hedge contracts with
the Corporate Treasury Center. The intercompany hedge
contracts have the effect of transferring the currency risk from
45
operating subsidiaries to the Corporate Treasury Center,
but do not create any additional market risk to our
consolidated results.
Under our policy, net material currency exposure is hedged.
Exposure is primarily hedged with forward exchange contracts
with a maturity of less than twelve months.
Commodity risk
We are exposed to commodity risk arising from changes in
the prices of purchased raw materials (copper, silver and
aluminum).
The purchasing departments of our operating entities are
responsible for assessing and reporting their forecasted
purchases to the Corporate Treasury Center twice a year.
The Corporate Treasury Center is responsible for hedging the
risk and periodically uses forward contracts, commodity swaps
and to a lesser extent options, to hedge commitments to
purchase raw materials.
Counterparty risk
Transactions involving foreign exchange hedging, interest rate
management or short-term investments are carried out using
selected counterparties. Our standards for determining
appropriate bank counterparties are based on an assessment
of the counterparty’s financial soundness as demonstrated
by shareholders’ equity, the availability of state guarantees,
a qualitative assessment of the counterparty’s importance
in our global relationships, and the counterparty’s short and
long-term rating.
An overall authorized credit limit is set for each counterparty,
and all the counterparty limits are reviewed periodically.
5 – Claims, litigation and other risks
In 2001, Schneider Electric made a public offer to purchase
Legrand in exchange for shares as part of a proposed merger
project. When the offer closed in July 2001, the Company held
98.1% of Legrand. In an initial decision dated October 10,
2001, the European Commission vetoed the merger, and in a
second decision dated January 30, 2002, it ordered the two
companies to separate as quickly as possible. As a result,
Schneider Electric sold its interest in Legrand to the KKRWendel Investissement consortium even though the Court
of First Instance of the European Communities overruled
the Commission’s decisions on October 22, 2002.
Following the Court of First Instance’s ruling, the Commission
re-examined the Schneider-Legrand merger project and
decided to launch an in-depth (phase 2) review on December
4, 2002. Schneider Electric contests the Commission’s refusal
to approve the merger project on the basis of corrective
measures proposed during the new phase 1 investigation
in November 2002 and has filed a petition to annul the
December 4, 2002 decision. In addition, Schneider Electric
is preparing proceedings against the European Commission
to obtain damages for the prejudice caused.
In 1996, the Group became aware that an electronic
component contained in its Masterpact circuit breakers used
principally in large industrial installations and in other facilities
with substantial electricity requirements occasionally
malfunctioned. In 1997, the Group determined that a third
party manufactured the electronic component. In 1998,
the Group initiated a broad-based product recall campaign.
Because of its complexity, the Group created a special
company, Spring, to manage the recall program. Since 1998,
the Group has incurred product recall costs of € 38.5 million
in addition to administrative costs associated with the
management of Spring of € 6.7 million. The Group has replaced
or repaired a substantial number of the defective components
and anticipates that it will incur an additional € 4.0 million
before terminating the recall program some time during 2003.
In April 2001, the Group became aware that an emergency
pushbutton installed on a wide range of machines, failed to
function in certain circumstances. The Group initiated a
comprehensive product recall program in cooperation with its
insurance companies. As of December 31, 2002, the Group
Business review
46
had located and repaired approximately 14% of the 2.2 million
installed pushbuttons. The Group reserved a total of € 18.3
million for the entire product recall program. At December 31,
2002, a reserve of € 4.4 million remained to cover
replacement costs until the end of 2004, when the program
will expire. Part of this cost, not to exceed € 3 million,
will be borne by the insurance companies.
VA Technologie AG, VA Tech T&D GmbH & COKEG
and VA Tech Schneider High Voltage GmbH have initiated
an arbitration procedure against Schneider Electric SA
and Schneider Electric Industries SAS in connection with
claims against the seller’s guarantee granted during the
creation of a high-voltage joint venture. Schneider Electric
considers that most of the claims covered by the arbitration
procedure are either time-barred or without any clearly
demonstrated legal basis.
Belgium has initiated proceedings against former Schneider
Electric executives in connection with the former EmpainSchneider Group’s management of its Belgian subsidiaries.
The proceedings began in 1993, when SPEP (the Group
holding company at the time) launched public offers for its
Belgian subsidiaries Cofibel and Cofimines. Certain minority
shareholders filed suit. Schneider Electric is paying the legal
expenses not covered by insurance of the former executives
involved.
In connection with the divestment of Spie Batignolles,
Schneider Electric SA booked contingency reserves to cover
the risks associated with certain major contracts and projects.
Most of the risks were extinguished during 1997. Reserves for
the remaining risks were booked to cover management’s
estimate of the risk involved.
To the best of the Company’s knowledge, no other
exceptional event has occurred and no claims or litigation
are pending or in progress that are likely to have a material
adverse impact on the Group’s business, assets and liabilities,
financial position or results.
6 – Insurance
Schneider Electric has a pro-active risk management strategy
designed to defend the interests of employees and customers
and to protect the environment, the Company’s assets and its
shareholders’ investment.
This strategy entails:
Identifying and quantifying risk using different reporting
systems.
Preventing risks. Schneider Electric has always sought to
prevent major accidents at its industrial sites and has
reviewed its systems and procedures to reduce risk even
further. The new Triple A approach applied since January 1,
2003 aims to enhance processes to control and monitor risk
by identifying vulnerable areas and implementing appropriate
solutions to preserve the long-term sustainability of the
Company’s manufacturing resources and business.
This approach builds on preventive measures already in
place such as regular inspections, danger and vulnerability
studies, safety management for people and equipment and
security plans. The Company also has ongoing programs to
prevent traffic accidents and reduce transportation risk.
Organizing and deploying crisis management resources,
notably for technical risks and natural disasters.
Ensuring the necessary insurance cover. The main risks
facing Group companies (civil liability, property damage
and operating losses, environmental accidents, automobile
accidents and transportation risk) are covered by global
contracts with insurance and reinsurance companies of
good standing, with the same type of terms and limits
applied to companies of similar size.
In addition, Schneider Electric has taken out specific cover in
response to certain local conditions, regulations or the
requirements of certain risks, projects and businesses.
47
7 - Sustainable Development
Sustainable development – at the core of our strategy
2002 marked Schneider Electric’s commitment to sustainable
development, including development of the “Principles of
Responsibility”, listing on the ASPI, Dow Jones Sustainability
World and Stoxx Europe indexes, creation of a dedicated
department, etc.
The most significant of these commitments was the integration
of sustainable development as one of the six challenges in the
New Electric World 2004 company program.
There were two main reasons for this strategic decision:
• Our vision to “Give the best of the New Electric World.”
We can’t give the “best” if we aren’t concerned about the
environment, the communities we serve and the need to
provide them with quality products that are safe and clean.
We can’t give everyone the best if we don’t get mobilized
to research and discover how electricity can contribute
to development.
The acquisition and growth of Conlog, a leader in prepayment chips, is an example.
in company management. This policy emphasized four priority
focus areas: reduce consumption of natural resources, control
electrical consumption, implement environmental management
and develop an eco-design initiative.
- 1998 : : the Schneider Electric Youth Opportunities
Foundation was created under the aegis of Fondation
de France with the mission of promoting young people’s
success by:
- providing assistance to associations that support
disadvantaged youth,
- sponsoring young business entrepreneurs, and
- supporting general interest causes.
b. A continuous improvement approach
Sustainable development is an incentive and an opportunity
to make and clarify all decisions, to audit general policy
implementations in each sphere, and to pay attention
to practices in order to enhance avenues for action.
Our sustainable development policy is based on a structured
approach that aims to:
1 - Respect regulatory obligations
• The second reason is the great motivational source that
shared values represent for company employees.
Among these values, responsibility is a key value.
This means making sure that Schneider Electric respects,
in each country where it has operations, the social and
environmental regulations enacted by the country.
Moving towards more responsible practices
2 - Select an environmentally and socially conscious
management
a. Roots
Quality and social responsibility are two values deeply rooted
in the history of the brands that make up Schneider Electric.
Examples include Telemecanique’s pioneering policy of
employee profit sharing and Merlin Gerin’s strong involvement
with youth.
The indicators discussed below provide a good example of
this initiative, which is in the process of being implemented.
3 - Have its core business activity contribute
to sustainable development
So that Schneider Electric is an active player in:
Major recent steps include:
- limiting energy consumption,
- 1994 : : the first management charter was developed.
Primarily intended for company managers, this document
set out the management rules used to guide decisions and
actions.
- choosing electrical distribution that is safe and increasingly
comfortable,
- 1995 : : the environmental policy was defined. The goal was
to get all employees, customers, suppliers and shareholders to
subscribe to this policy by integrating environmental protection
For Schneider Electric, operating in such a manner reflects the
Company’s willingness and deliberate choice to be anticipatory
in its approach.
- meeting the challenge to provide electricity to people that still
don’t have access to it today.
Business review
48
Our principles of responsibility
for a New Electric World
Through the company program NEW2004, the Company
clearly affirms its desire to reinforce its responsibility to the
community. It adopted principles of responsibility in 2002 to
guide each person in their decisions and actions regarding
other company stakeholders: employees, customers and
suppliers, shareholders, the community and the environment.
- 600 employees, representing all nationalities
and management levels, helped develop Our Principles
of Responsibility.
- Each manager is responsible for implementing them,
promoting them, giving them substance and enhancing
them locally.
- Each Company employee employee can make their own
contribution.
- Newly hired employees employees undertake contractually
to respect them.
- The Sustainable Development Committee is responsible
for advancing these principles to take into consideration the
actual situations in the field.
An initiative that is an integral part of the company
program
b. Dedicated resources
The sustainable development department was formed at the
beginning of 2002. It relies on the skills of existing teams
(human resources, finance, environment, products, markets,
purchasing, sales, Foundation, etc.). Its role consists in
assisting general management in defining and implementing
commitments, coordinating development work and initiating,
promoting and tracking Schneider Electric initiatives. It is also
responsible for relations with all stakeholders including, in
particular for 2002, raising awareness of and circulating the
process among employees worldwide, as well as relations
with involved parties (NGOs, rating agencies, students, etc.).
c. The social challenge: employability, equality and health
Our company’s broad-based concern for equality expressed
itself primarily through the promotion of two indicators
centered on human resource management and social
responsibility.
NEW2004 objective: Introduce a variable salary
component linked to both local and global company
results for 100% of employees.
Performance
as a %
a. Sustainable development challenges
in the company program
100%
Sustainable development is one of the challenges in the
company program: “Develop corporate community
responsibility.”
52,5%
17,8%
The approach is pragmatic, measuring progress against global
target indicators by late 2004 and sector-specific indicators,
some of the more illustrative of which are shown below:
• In 2002, we have:
- defined Our Principles of Responsibility and related
implementation commitments;
- created a campaign to highlight local community
organization commitments on behalf of youth integration
in order to increase, qualify and make these commitments
commonplace;
- initiated a supplier awareness-raising and commitment
approach through contracts. As part of this initiative,
the General Terms of Purchase document of Schneider
Electric Industries SAS was amended.
2001
2002
Objective
2004
NEW2004 objective: Survey 100% of employees
every two years.
Performance
as a %
100%
43,7%
33%
2001
2002
Objective
2004
49
Workforce and training data
Age*
A set of Human Resources performance indicators has been
used to consolidate data worldwide since 1999.
9.50%
7.10%
The following information was extracted from this data.
25.40%
27.20%
2002 headcount
74,814
Turnover/ins
Turnover/outs
30.80%
8,810
10,655
Men/Women Breakdown*
● Age –25
● Age 25/34
● Age 35/44
● Age 45/54
● Age +55
Seniority*
2.30%
29.60%
26.60%
36%
64%
● Men
● Women
14.90%
26.60%
● - 5 years
● 5/15 years
● 16/24 years
● 25/34 years
● +35 years
Professional Category*
27%
Training
46%
Number of training days
per person
27%
● Engineers and managers
● Non-exempt - technicians
● Workers
Number of people who
underwent training
2.8 days
71628
* calculations based on spot headcount
(contract, permanent and temporary) employees
as at December 31, 2002.
Business review
50
A few examples of our accomplishments in 2002
In France
Increase the number
of for-credit internships
completed each year
1,000 1,000
1,100
2001
1,123
2002
● Target
● Number of internships filled
d. The community challenge: integration into local
communities, social integration, education
NEW2004 objective: Ensure that 80% of sites have a
sustainable commitment program with the Schneider
Electric Foundation
Schneider Electric has about 400 sites worldwide with more
than 30 employees. The goal is to build a partnership with
local associations working in youth education, training and
social integration in more than 80% of these sites.
Each employee is encouraged to volunteer their time
or to participate financially.
Performance
as a %
80%
74%
50%
2001
Handicapped worker integration
The 2002 overall rate reached 6.6% vs. an objective of 6% in
spite of the low level of hiring. A downtrend in subcontracting
to French Work Assistance Centers (CATs) and protected
workshops was halted.
Aggressive work-study training policy for young people
2002 was an excellent year with 296 new contracts signed
(25% with qualifications below the high school diploma
–baccalaureate, and 6% handicapped youth), representing
480 work-study trainees working in the company in France.
In Turkey and Argentina
2002
2004
objective
Train tomorrow’s employees
In China, Argentina, Saudi Arabia, etc.
Many young people want to continue their studies, but lack
the means to do so. In a dozen or so countries, Schneider
Electric sites have decided to offer scholarships. In China,
for example, one hundred students are helped during their last
year of university. In Argentina, where the drastic crisis has
reduced budgets, equipment donations were used in 2002 to
outfit electricity labs in 13 vocational schools. In Saudi Arabia,
the subsidiary opened a training center in the Riyadh plant.
35 young technical university graduates started a one-year
program with the promise of a job for all those who
successfully complete the course.
In South Africa
Retain today’s talents
The objective of the Fidelity program is to retain talent when a
country is undergoing a crisis, through inter-country mobility.
In 2001 Turkey was experiencing difficulties. Consequently,
it “loaned” marketing experts for a few months to Russia,
which was experiencing fast-paced growth. In 2002 several
Argentinean managers were sent to Brazil.
The company is committed to combat employee illiteracy.
Some manufacturing plants offer English courses to workers.
In South Africa, where 30% of the people over 20 years of age
are illiterate, 26 of the subsidiary’s 70 workers have returned
to school in the company at the rate of two classes per week
to learn to read, write, count and communicate in English.
51
e. . The environmental challenge: safety, energy savings
and quality of life
Our environmental policy is based on anticipating regulations
and standards so we can offer our customers risk-free
products. For example, regarding heavy metal elimination,
in the 70s we launched studies to eliminate cadmium oxide
from contactors’ contact material. In France it was replaced
by tin oxide several years ago. Today, we are carrying out
multiple projects to find substitution solutions for lead,
chromium-6 and PBB / PBDE flame retardants.
Regarding end-of-life product processing, we anticipated
the requirements of the European Directive and launched
a new service in France that was operational at the beginning
of 2003.
NEW2004 objective: Ensure that 100% of our
manufacturing units and logistics sites comply with the
ISO 14001 standard
The objective is to control the impact of our activities on the
environment and to implement, in all our French and foreign
manufacturing units, an environmental management system
based on continuous improvement, certified by a third party
in accordance with the ISO 14001 international standard.
In addition, certain product development sites have also
obtained ISO 14001 certification.
Performance
As a %
100%
Industrial and environmental risks
It should be noted that the Company is neither a power
generating company nor a distributor. Our products are used
between generation and distribution to transmit, meter and
make electricity safe and reliable and qualify it. Consequently,
it is less complex and costly to control risks than in other
business sectors.
Therefore, the manufacturing activities primarily use assembly
and control techniques. The environmental analyses each site
carried out during the ISO 14000 certification process showed
that:
- atmospheric discharges are not significant; they are below
the regulatory thresholds,
60%
67%
2001
2002
2004
objective
NEW2004 objective: Ensure that 100% of our new global
products comply with Eco-design methodology
Eco-design is a continuous improvement process with the
objective of maximizing customer satisfaction with products
that impact the environment less throughout their life cycle.
- all wastes and effluents are processed in standard recycling
channels.
In addition to the progressive elimination of hazardous
substances, the main thrusts of our work are based on three
priorities:
No plant is classified “Seveso.”
- miniaturize to economize natural resources,
The environmental policy in force since 1995 clearly set out
how local and national regulations should be respected and
anticipated.
The environmental management initiative led to implementation
of BAT processes (Best Available Technologies) in all plants
worldwide.
- minimize power consumption of operating products, and
- facilitate processing end-of-life products, especially by
making it easy to dismantle components that require special
treatment like LCD screens and PCBs.
In the case of Masterpact, for example, eco-design has
resulted in a 20 to 50% reduction in raw materials depending
on the product line, reduced electricity consumption by 20%
during the use phase and facilitated end-of-life processing.
A win-win situation for everyone.
Business review
52
b. Sales Institute launch
Main accomplishments in 2002
a. A sustainable approach recognized by others
Created in 2002, the purpose of the Sales Institute is to
develop country organizations’ sales skills by encouraging the
exchange of best practices, developing training programs and
making new tools available on the Intranet. The first meeting in
Lisbon, Portugal, brought together some sixty Schneider
Electric sales managers worldwide on the theme: “How to give
our customers more value?”
Since 2001, Schneider Electric has been listed on the ASPI
Eurozone sustainability index. For the 2003 edition, the
Company was selected for two major sustainable development
indexes: the Dow Jones Sustainability World Index
(DJSI World), which includes 315 companies worldwide,
and the Dow Jones Sustainability Stoxx Index (DJSI Stoxx),
which includes 183 European companies.
c. Luli: committed employees
Schneider Electric
Extra-financial rating 2002
Launched in June 2002 by the Schneider Electric Foundation,
the international campaign known as “Luli” mobilized Company
employees in 60 countries. 63% of company sites participated.
The campaign’s objective was to help disadvantaged youth in
the education and training fields through local community
associations that are located near our facilities and selected
by the sites’ employees.
ASPI* Eurozone® index by Arese (today Vigeo)
300
250
200
150
100
50
For one week the Company’s employees mobilized
to offer their work and talents. Many of them extended their
commitment throughout the year, participating actively in the
associations. Nearly € 2.2 million were raised to support
145 projects. Luli will be continued, taking place again
in June 2003.
0
Human Resources
Environment
● Schneider Electric **
Customers & Suppliers
● Max sector
Shareholders
Community
● Min sector
Highly rated financial relations
Total Score
As a %
● Industry Average on a Global Basis
● Schneider Electric SA
● Best company on a Global Basis
0%
0%
50%
100%
Economic
Dimension
Environmental
Dimension
Social
dimension
As a %
As a %
As a %
50%
100%
0%
50%
100%
0%
50%
100%
53
Compressed air: ADEME rewards ALEO
d. Products that are more environmentally-friendly
throughout their life cycle
In 2002, ADEME (France’s Environment and Energy Control
Agency) rewarded Air Liquide for its “ALEO” innovation that
was developed in partnership with Schneider Electric. This
innovation involves optimizing compressed air energy use (up
to 10 to 20% savings of power consumption) by implementing
a variable speed drive on a multiple-compressor installation.
Schneider Electric is committed to participating in winning
partnerships with its customers.
Public lighting with Lubio: 30% energy savings
The Lubio line offers an “all in one service,” including:
managing turning lights on and off, regulating and varying
voltage and measuring network parameters like power
consumed or the number of hours operated. Lubio is modular,
functions on all lighting networks with all types of lamps, and
can deliver energy savings in excess of 30% while reducing
operating costs. Thanks to these characteristics, Lubio won
the largest public lighting renovation contract ever awarded in
France: the supply of 138 lighting devices to France’s Ain
departmental authorities.
Helping customers dispose of their end-of-life equipment
In France, Schneider Electric has launched an end-of-life
recycling service that customers can use to meet their legal
obligations at best cost. The service covers electrical
distribution and automation products. It includes inventorying
the equipment to scrap, packaging and shipping it to the
dismantling site, eliminating it, decontaminating and recycling
equipment and devices, destroying hazardous substances and
special components, administratively tracking all steps and
providing completed legal documents. This service has met
with widespread interest.
The SEPAM line goes green
The SEPAM series 20 and 40 line of Merlin Gerin brand
protection relays, which has been marketed for a few years,
benefited from a number of environmental enhancements:
- the volume of material consumed was divided by a factor
of 4, and
- end-of-life product recycling was improved (e.g.; the number
of mechanical links has been reduced, clips have replaced
various screws, recyclable and marked thermoplastics are
used and an end-of-life advisory notice has been created).
e. Sites’ environmental performance
The following indicators were established based on information provided by each manufacturing unit in the world.
The consolidated data is representative of more than 80% of the Company’s manufacturing operations in 2002.
Production
workforce
Quantity
of waste
In metric tons
Waste /
production
workforce
Share
of waste
recovered
Equivalent
energy
consumption
as a %
in metric tons
MWh
Energy
consumption/
production
workforce
Water
consumption
in m3
in m3/people
MWh
36,983
109,357
3.0
53%
538,111
Water
consumption/
production
workforce
14.6
1,805,608
49
Business review
54
f. Environment and development
Progress report
Waste recovery at the Sumaré plant
Publication of the first progress report on the Company’s
Sustainable Development policy in 2003 will be an opportunity
to communicate on Schneider Electric’s continuous
improvement commitments and initiatives.
The Sumaré plant in Brazil manufactures medium and low
voltage products. Certified ISO 14001, it entrusts an aid
association for families of mentally handicapped persons to
recycle all its paper, cardboard, plastic, glass and metal waste.
The association recovers the reusable value from this waste,
which is used to assist some 20 families.
Prepayment
Schneider Electric develops innovative products that facilitate
our water and energy distributor customers’ commitment to
provide low-income families access to water and electricity.
The operators can better control their distribution thanks to the
prepayment meters from Schneider Electric’s Conlog
subsidiary in South Africa. Without these meters, thousands of
homes in poor neighborhoods would not be connected to the
distribution grid.
On a broader scale, Schneider Electric invests in international
reconstruction projects financed by international organizations
(World Bank, Inter-American Development Bank, US AID,
European banks, etc.). The Company recently participated in
Kosovo and Albania with comprehensive rural electrification
and distribution projects, including renovation of existing
installations.
2003 objectives
Implement the principles of responsibility
The principles of responsibility will be substantially deployed
throughout the Company. Each new employee will commit to
respect these principles in their employment contract. For all
employees, the principles of responsibility will be specifically
addressed during their annual performance review.
Sustainable development week at Schneider Electric
The sustainable development week from June 2 to 8, 2003 will
be a great opportunity to increase some of our stakeholders’
awareness and increase our commitments. In particular, the
week will be an opportunity to engage employees around local
commitments to disadvantaged youth as well as around the
inaugural session of the world committee of stakeholders.
8 - Outlook for 2003
The global economy is characterized by an unprecedented
lack of visibility, making any real recovery unlikely before the
end of 2003. Even though corporate capital spending and
non-residential construction trends appear to have stabilized at
a low level in developed countries, no noticeable sign of
improvement has been identified during the first quarter of
2003.
In this context, Schneider Electric’s objective is to favor
organic growth and it plans to:
capitalize on its experience to develop high value added
solutions that meet growing customer expectations;
combine its skills in dedicated structures intended to
improve targeting of promising business segments;
continue to encourage innovation by maintaining high
investment in R&D as well as developing technical
partnerships.
These actions will be complemented by pursuing a selective
acquisition policy with the objective of increasing the
Company’s positions in consumer final low voltage, industrial
and building automation, safe power supply and
comprehensive manufacturing performance and power grid
management services. These acquisitions will help expand
Schneider Electric’s markets.
The Company intends to leverage its outstanding geographic
coverage, the quality of its products and the characteristics of
its business model to confront the uncertain market conditions
in 2003. Schneider Electric will intensify its actions to improve
gross margins, adapt its manufacturing operations and reduce
its base costs as a means of continuing to improve its
profitability. Its strong cash flow and solid balance sheet
constitute unquestionable strengths in the implementation of
this strategy.
55
9 - Consolidated Financial Statements
Consolidated statement of income
Consolidated sales totaled € 9,061 million at December 31,
2002, down 7.8% from the year before at current scope of
consolidation and exchange rates.
The decline came to 5.2% at constant scope of consolidation
and exchange rates. The currency effect had a negative
impact of €309 million, corresponding to 3.1% of sales, and
was attributable to the euro’s rise against the dollar and other
currencies, notably in the second half of the year. The
decrease in sales from low and medium voltage electrical
distribution and from industrial control and automation was in
line with the Company’s overall performance.
A breakdown by operating division gives a more detailed
picture of total sales. All changes described below are at
constant scope of consolidation and exchange rates, unless
otherwise specified.
In the European Operating Division, sales declined 6.1%
year-on-year to €4.64 billion, with mixed trends among the
member countries.
- Sales in Spain and Portugal continued to expand, by 1.8%,
thanks to strong growth in electrical distribution driven by the
vibrant building, energy and infrastructure markets. This was
partially offset by a decrease in industrial control and
automation sales.
- Sales growth also remained positive in Central and Eastern
Europe and the CIS at 0.8%. Business recovered in the
second half in Central Europe and Greece after a noticeable
decline in the first six months of the year. The CIS, Romania
and Bulgaria achieved high growth rates. Generally speaking,
both electrical distribution and industrial control were on a
good trend.
- The “Nobis” zone (Scandinavia/Benelux) recorded a 2.8%
decrease in sales due primarily to a downturn in the industrial
and commercial buildings market. Scandinavia weathered the
general slowdown better thanks to final low voltage (Lexel)
and the strength of this business’ main outlet, the residential
market.
- Sales in France declined 8.8% as demand weakened in all
markets except residential buildings. Business was also
impacted by reduced investments by national electricity utility
EDF in the electrical distribution and energy markets.
- In Italy, the UK and Germany, sales were down by around
9% to 15%. German sales in particular were also affected by
the closure of the Gülstein medium voltage plant and the
May & Stevens panelmaking business. In all three countries,
the decline in electrical distribution sales was particularly
noticeable in industrial and commercial buildings. The
manufacturing recession and reduced machine building
resulting from lower capital spending hurt sales in industrial
control and automation.
In the North American Operating Division, comprising the
US, Canada and Mexico, sales were down 9.8% to €2.60
billion. Sales decreased in the US and Mexico but were
stable on the whole in Canada.
The slowdown in capital spending drove a similar trend in low
voltage electrical distribution and industrial control and
automation, where sales contracted by 8% and 9%,
respectively. The medium voltage business recorded an even
larger decline, as power distributors held off on investments
and Schneider Electric implemented a more selective sales
policy.
Sales in the International Operating Division rose 4.5% to
€ 1.83 billion. The Division’s main zones all recorded growth
during the year.
- Greater China, comprising the People’s Republic, Hong Kong
and Taiwan, enjoyed sustained growth of 8.5% and
accounted for 30% of Division sales. Sales of industrial
control and automation and medium voltage equipment
increased considerably, lifted by the region’s ongoing drive to
develop capital investment and infrastructure. Low voltage
sales also increased, but at a more modest pace.
- Sales in the Pacific region jumped 14.3% as sustained
investment boosted demand for both industrial control and
automation and electrical distribution products.
- Latin American sales rose 0.4% from the year before despite
continuing economic difficulties in Argentina, Colombia and
Venezuela. Growth was strong in Brazil. As in other
developing economies, industrial control and automation and
medium voltage led the expansion, with sales up 12% in
both segments thanks to high investment.
Business review
56
- 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
Dividends received
Gains on the disposal
of marketable securities
Provisions, commissions
and discounts
(24.2)
36.9
3.1
(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
57
functions have been reallocated). Another € 30.5 million has
been set aside for European operations in connection with
site and production line rationalization in Telford (UK) and
Rieti (Italy) and the closure of the medium voltage site in
Gülstein (Germany). The balance covers local plans, notably
in Argentina.
Provisions for tax disputes. Taking into account the
resolution of current tax disputes before the courts and the
final tax deficiency notices after verification, Schneider
Electric reversed earlier provisions in an amount of
€ 12.9 million.
The disposal of nuclear unit SES to Data Systems and
Solutions, which generated a gross capital gain of € 15.6
million at December 31, 2002. Related expenses totaled
€ 3 million.
Specific transactions (€ 7.7 million for devaluation of the
Argentine peso) and additional provisions for contingencies
and various losses (€ 22.3 million).
Income tax
At December 31, 2002, Schneider Electric recorded a tax
benefit of € 295 million compared with a charge of € 206.9
million in 2001. The change reflects the tax impact of the
divestment of Legrand SA in 2002, as described below. The
current tax charge in France and abroad came to € 189.2
million at December 31, 2002 versus € 201.7 million the year
before. This amount includes a € 59 million gain arising from
group relief in France, corresponding to the utilization of tax
losses generated by the sale of Legrand SA.
Based on the historical performance of the companies in the
tax group, the € 1.79 billion total loss will give rise to future tax
benefits for the tax group estimated at € 350 million over the
five year-period starting in 2003. In addition, the Group has a
€ 103 million carryback credit and evergreen tax losses of € 2
million.
Analysis of income tax in 2002
Current taxes
Deferred taxes:
France
International
(189.2)
Total tax benefit
295.0
444.4
39.8
Amortization of goodwill, equity investments
and minority interests
Amortization of goodwill represented a charge of
€ 192.6 million, an increase of € 23.3 million or 13.8% from
the € 169.3 million recorded in 2001. Most of the change is
attributable to exceptional goodwill amortization, in an
amount of € 29.5 million, related to the acquisition of
Positec at end-2001. Aside from this, the reduction
stemming from the dollar’s decline against the euro and the
sale of Positec subsidiary Selectron offset additional
amortization in connection with 2002 acquisitions (minority
interests in Swire Ltd., Scott and English).
The Group’s share of losses of equity investments increased
by € 8.9 million to € 28.2 million from € 19.3 million in
2001. The main components were as follows:
Les composantes essentielles sont les suivantes (en millions
d’euros) :
2002
Share of income (loss) from:
VA Tech Schneider
MGE Finance SAS
Entivity
Other
2001
(9.4)
(5.2)
(10.2)
(12.7)
(8.9)
(1.9)
0.3
0.5
(28.2)
(19.3)
Minority interests rose 11.1% to € 24.9 million from
€ 22.4 million in 2001 and correspond to the share of
income attributable to minority partners in Feller AG, EPS
Ltd and a number of Chinese companies.
Net income attributable to Schneider Electric SA came to
€ 422 million. This compares with a loss of € 986.4 million
in 2001.
Balance sheet
Shareholders’ equity (excluding minority interests) totaled
€ 7.78 billion versus € 8.38 billion at December 31, 2001. The
decrease reflects income for the year of € 0.42 billion, versus
a loss of € 0.99 billion the year before; the issuance of €
0.02 billion worth of new shares in connection with the
exercise of options and conversion of Square D bonds; the
translation adjustment, in an amount of € 0.46 billion; the
dividend paid in 2001, in an amount of € 0.30 billion and
share buybacks, in an amount of € 0.29 billion.
Business review
58
Minority interests stood at € 0.08 billion, including minority
interests in 2002 net income.
The Group ended 2002 with a positive net cash position of
€ 0.84 billion compared with net indebtedness (borrowings
less cash) of € 2.30 billion at December 31, 2001.
Cash and cash equivalents came to € 3.21 billion versus
€ 0.58 billion at year-end 2001, due primarily to proceeds of
the divestment of Legrand SA (€ 3.4 billion net of the
€ 150 million vendor line of credit).
Short-term debt (commercial paper, bank overdrafts and
current maturities of long-term debt) declined by €0.45
billion as part of the proceeds from the Legrand SA
divestment were used to redeem commercial paper coming
due.
Net cash and cash equivalents (cash and short-term
investments less bank overdrafts) improved to €3.16 billion
from a negative €0.46 billion in 2001 due to the divestment
of the company’s Legrand SA shares.
Long-term debt declined by € 0.05 billion reflecting loans
that were repaid or that matured.
Working capital stood at €4.61 billion at year-end 2002 versus €0.65 billion the year before. The €3.96 billion increase can be
analyzed as follows:
Change
(_ billions)
Change in working capital
Change in property, plant and equipment, net of depreciation and disposals
Change in net goodwill and other intangible assets
Change in investments at cost and other investments
–
–
–
0.18
0.38
3.90
Total changes in fixed assets
–
4.46
–
+
0.05
0.15
Change in net assets
- issuance of shares
- payment of dividends
- change in retained earnings (including net income for the year)
Change in minority interests
+
–
–
0.02
0.30
0.32
N.S.
Total changes in long-term liabilities and equity
+
0.50
Net change in working capital
+
3.96
Change in long-term debt
Change in provisions for contingencies and pensions
59
10 - Company Financial Statements
11 - Subsidiaries
Schneider Electric SA posted total portfolio revenues of €545
million in 2002 compared with € 558.1 million the previous
year. Income from continuing operations before tax came to
€ 563.8 million versus € 589.8 million in 2001.
Schneider Electric Industries SAS
In 2002, the Company had an income tax benefit of € 158.1
million compared with € 29.2 million the previous year, taking
into account tax consolidation and the carryback credit. This
item reflects the effect of the loss realized on the divestment of
Schneider Electric’s interest in Legrand SA.
Net income stood at € 221.1 million versus a net loss of
€ 811.2 million in 2001.
Shareholders’ equity before appropriation of net income
declined to € 7,043.3 million at December 31, 2002 from
€ 7,082.8 million at the previous year-end. This reflects 2002
income, changes stemming from the recognition of the 2001
loss, income appropriation decided by the AGM and premiums
on shares issued on the exercise of options and conversion of
bonds.
Sales declined 5% to € 3.02 billion from € 3.19 billion in
2001. Operating income decreased by 17.7% to € 235.7
million from € 286.5 million and represented 7.8% of sales.
Net income came to € 398.9 million compared with € 485.2
million the year before.
Cofibel
Cofibel’s portfolio consists entirely of Schneider Electric SA
shares. Income from continuing operations before tax came to
€ 4.37 million compared with € 6.52 million in 2001. Income
after tax stood at € 3.70 million versus € 5.40 million the year
before.
Cofimines
In 2002, income from continuing operations before tax
amounted to € 1.93 million compared with € 1.84 million in
2001. After taking into account corporate income tax, net
income stood at € 1.34 million versus € 1.18 million in 2001.
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