We do more with el

Schneider Electric SA

Annual Report

We do more with electricity.

Schneider is powered by the reputations of its four internationalbrands—Merlin Gerin, Modicon, Square D and Telemecanique.To highlight their membership in the same corporate family, we havechanged our name to Schneider Electric. Our Company is totally focused on its two highly complementary core businesses,and this new name more clearly expresses our identity as a world leader in the electrical industry.

Schneiderhas changed its name to Schneider Electric...

We do more with electricity.

http://www.schneider-electric.com

Groupe Schneider

is now called

Schneider Electric.

The circuit breaker,

the contactor,

the programmable logic

controller,... These are

just a few of the

products we offer that

contribute to making

electrical distribution,

industrial control and

automation more

efficient.

They have also given

recognition to our global

brands in 130 countries.

That’s why we have

changed our name to

Schneider Electric

The trademark of the

electrical industry’s

most innovative leader

can now be summed up

in one single logo and

two words.

In 1998,

serving our customers

in 130 countries around the world,

Schneider Electric’s 61,000 team membersachieved sales of FF 50 billionin electrical distribution, industrial control and automation

and generated a 22% increase in net income to FF 2.7 billion.

(in euros)

Sales 7.6 billionNet income 0.4 billion

€

7 A word from the Honorary Chairman9 Interview with the Chairman

11 Board of Directors and Corporate Management13 Schneider 2000+

15 Schneider Electric in 199817 Schneider and its shareholders19 Financial highlights 1995-199821 Two core businesses23 The importance of innovation25 Local manufacturing

27 Meeting your needs, day after day29 Construction31 Industrial production33 Electric power35 Infrastructure

37 Schneider Electric worldwide39 Schneider in Europe41 Schneider in North America43 Schneider in Asia, Latin America,

Africa, Middle East and the Pacific

45 1998 Business review46 Business review54 Consolidated financial statements84 Auditor’s report

on the consolidated financial statements85 General legal and financial information

108 Resolutions

Schneider Electric worldwide

Meeting your needs, day after day

Schneider Electric in 1998

International presence,multicultural diversity,opportunities in global markets.

Innovation,steady growth,creation of value.

Performance,safety, comfort, and customer satisfaction.

7

During the eighteen years in which I had thehonor of serving as Chairman of your Board of Directors, we experienced some momentouschanges. Through these changes, Schneider has been transformed from a conglomerate of complex, diverse businesses into a well-focusedcorporation guided by a clear strategy.

I am proud to be leaving a Company in perfectshape. We can point to a record of enviable performance and global leadership in our two corebusinesses: electrical distribution--which we havesucceeded in extending to consumer final lowvoltage--and industrial control and automation.All peripheral operations unrelated to our corebusinesses have been divested and our refocusingis now complete.

Another key development has been Schneider 2000,a strategic Company-wide program that hasenabled us to foster competitive growth in ourunits across the world. We have done this byimproving our skills, aiming for total customersatisfaction, motivating our people and creatingteams with a sense of co-destiny, accelerating our sales growth, and steadily increasing ourproductivity. It is through such efforts that wecan enhance our performance and set our sightseven higher.

We have achieved our goal of making Schneiderwhat it is today, and I can leave with an easymind. I am supremely confident in ourCompany’s potential, in its people, and in its ability to adapt and innovate.

This fine organization, which includes so manyexcellent men and women around the world,will—I am sure—keep building a solid future foritself while pursuing its goal of exemplary success.

“We have achieved our goal of makingSchneider what it is today”

Didier Pineau-ValencienneHonorary Chairman

Interviewwith the Chairman

> Your appointment as Chairman and CEO of the Board coincides with Groupe Schneider’s name changeto Schneider Electric. Does this signal a change in strategic direction?

Quite the opposite. Our new name and logomark the completion of a vital process:Schneider’s strategic refocusing on electricity.This task was achieved under the leadership ofDidier Pineau-Valencienne with an admirableclarity of vision and skill. I wholeheartedlyendorse my predecessor’s strategy of expansionand profitable growth. Indeed, that strategy isproving its worth every day through our results,and I fully intend to pursue it. This doesn’tmean, of course, that we can’t do better.The changes I’m planning will not concern whatwe’re doing, but rather how we do it.I’m convinced that some progressive moves--and,where needed, a few breaks with the past--willstrengthen our strategy’s long-term viability,not weaken it.

> What are the broad outlines of these changes?

Our goal is to build on our existing achievementsin order to go much farther--and much faster.

Today, we are the leaders in our two comple-mentary core businesses: electrical distributionand industrial control and automation. We’vegreatly reduced their exposure to business cycleups and downs by achieving a balanced geographicand market spread and by maintaining comparable,consistent profitability ratios.

Now we need to change the way we work inorder to speed our growth, respond faster, cutcosts, and improve profitability. We have thefinancial resources to do this, as well as thehuman potential thanks to our outstandinglydiverse, skilled, and professional workforce.

“Our goals arefaster growth,greater responsiveness,and higher profitability”

9

> Are you aiming for internal growth or external growth?

We’re going for growth in our core businesses,wherever it fits our strategy and financial criteria.To my mind, accelerating our profitable developmentis the absolute priority. Matching market growth isnot enough--I intend to make sure that we growfaster than our markets.We have defined ambitiousyet realistic goals.Within our present scope ofconsolidation, our efforts will focus on broadeningour lineup, expanding our geographic marketshare, creating new products and services, andadding to our large corporate accounts worldwide.Meanwhile, we will seek to acquire healthy companies that will enhance our product offer and increase our market share in our two corebusinesses.

> Does growth require a reduction in costs?

Definitely. Here too, our goals are ambitious yetrealistic. We will do all we can to trim costs.Given our sound financial and business fundamentals, these efforts may come as a surprise,but I can assure you that they’re indispensable.The drive will concentrate on structural costs,and we will achieve savings in the broadest waypossible: all offices, all departments and all countries without exception will be concerned.By freeing our enterprise from a number of physical and organizational burdens, this com-munity-wide effort will give Schneider Electricthe resources it needs for long-term expansionand profitability.

> Scheider 2000 is now called Schneider 2000+: why the plus sign?

The initial purpose of Schneider 2000 was tohelp us move ahead, become more productive,and set our sights higher. I fully approve thesegoals, and that’s why I feel they should stay onour agenda beyond 2000. In other words,Schneider 2000+ will maintain Schneider 2000’sobjectives and take them even farther. Everyonein the Company needs to buy into these goals,which place special emphasis on profitable growth,cost cutting, and changing our habits. Thanks to all the people at Schneider Electric, we havethe confidence and determination to achievethese objectives, which will create value for ourshareholders, customers, and employees.

Henri LachmannChairman and CEO

Inte

rvie

w w

ith

the

Cha

irm

an

Board of Directors and Corporate Management

Honorary Chairman Didier Pineau-Valencienne

Board of DirectorsChairman and Chief Executive OfficerHenri Lachmann

Vice-Chairman and Chief Operating OfficerJean-Paul Jacamon

Directors

Claude BébéarPresident of the ManagementBoard of Axa

Daniel BoutonChairman and Chief ExecutiveOfficer of Société Générale

Jean-René FourtouChairman and Chief ExecutiveOfficer of Rhône-Poulenc

Michel François-PoncetChairman of the SupervisoryBoard of Paribas

Hans FriderichsCorporate Director

Jean GandoisChairman of Cockerill-Sambre SA

James F. HardymonCorporate Director

Henri HottinguerManaging Partner ofHottinguer & Cie Zurich

Robert JeanteurCorporate Director

Gérard de La MartinièreExecutive Vice-President, Holding Companies and Corporate Functions, of Groupe Axa

Didier Pineau-ValencienneVice-Chairmanof Credit Suisse First Boston

David de PuryChairman of De Pury PictetTurrettini & Co Ltd

James RossChairman of LittlewoodsOrganisation

Amaury-Daniel de SezeMember of the ManagementBoard of Paribas

Piero SierraCorporate Director (Pirelli SpA)

Board SecretaryPhilippe Bougon

Henri LachmannChairman and Chief Executive Officer

Jean-Paul JacamonVice-Chairman and Chief Operating Officer

Jean-Paul SaasExecutive Vice-President, Activities and Technologies

Jean-Claude PerrinExecutive Vice-President, Finance and Control

Jean-François PilliardExecutive Vice-President, HumanResources and Corporate Communication

Audit Committee David de PuryChairman

Michel François-PoncetGérard de La MartinièreDidier Pineau-ValenciennePiero Sierra

Remunerations and AppointmentsCommittee

Claude BébéarChairman

Jean-René FourtouMichel François-PoncetHenri LachmannDidier Pineau-Valencienne

Auditors

Statutory AuditorsBarbier Frinault & Autres/Arthur AndersenBefec-Price Waterhouse

Alternate AuditorsJean de GaulleDominique Paul

Executive Committee

11

Bo

ard

of

Dir

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rrs

and

Co

rpo

rate

Man

agem

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Executive CommitteeHenri LachmannChairman and Chief Executive Officer

Jean-Paul JacamonVice-Chairman and Chief Operating Officer

Jean-Louis AndreuExecutive Vice-President,International Division

Jean-Claude PerrinExecutive Vice-President, Finance and Control

Jean-François PilliardExecutive Vice-President,Human Resources andCorporate Communication

Pierre ReveniaudExecutive Vice-President,European Division

Chris RichardsonExecutive Vice-President,North American Division

Jean-Paul SaasExecutive Vice-President,Activities and Technologies

Marcel TorrentsExecutive Vice-President,French Division

Corporate FunctionsJean-Pierre DoumencGeneral Secretary

Gaël de La RochèreController

Bernard Lancian Business Development

Xavier de MontfalconStrategy

Jacques NicodSchneider 2000+

Guy de PlaceMarketing

Claude RicaudResearch and Development

Juan Pedro SalazarLegal Affairs

Massimo SpadaInformation Systems

Strategic BusinessSegmentsJean-Pierre ChardonFinal Low Voltage

Joël KareckiIndustrial Control

Jean KiefferMedium Voltage

Jean-Claude LeblondHigh Voltage

Raymond SansouciAutomation

Daniel VictoirLow Voltage Power

Geographic ZonesPierre-Yves Ansiau United Kingdom

Michel BartenieffSoutheast Asia

Jacques BilliardAfrica and CaribbeanMiddle East and IndiaSouth Korea - Japan

Jean-Marc ClaisseSouth America

Philippe CroletAfrica and Caribbean

Harry HellawellChina, Hong Kong, Taiwan

Rune JohanssonGermany

Denis LagrangeVice-President, EuropeanDivision

Guy LemarchandAustria – Benelux – Switzerland

Luc OurselItaly

Ramon RoyoIberian Peninsula

Russel StockerPacific

Paul TriboletNordic Countries

Christian WiestCentral and Eastern Europe –CIS

Jean-Louis AndreuExecutive Vice-President,International Division

Chris RichardsonExecutive Vice-President,North American Division

Pierre ReveniaudExecutive Vice-President,European Division

Marcel TorrentsExecutive Vice-President, French Division

Schneider 2000+Growth, competitiveness and new

Competitive growthThe Schneider 2000 improvement plan waslaunched in early 1996 with seven ambitiousobjectives: to create value for our customers,employees, and shareholders, and to be faster,more efficient, and more global in order toachieve the ultimate goal of competitive growth.

Today, Schneider is in the midst of profoundchange. Halfway into the project, we haveaccomplished a great deal, but much remainsto be done. We have explored new growthpaths and tried new experiments, notably in the area of services. In the years ahead, our ambition is to do even more, better and must faster. Fortunately, we have the peopleand resources to keep the momentum going.

Creating value for our customersSchneider Electric has built a solid reputation on product excellence, which is one key source ofcustomer satisfaction. But the speed of new productdevelopment, the quality of our service, and the commitment of our people are just as decisive.

In 1998, we set up help desks in the United States,France, the Netherlands, and the United Kingdom in order to handle customer complaints more effectively.We have focused on listening more carefully to customerneeds, leveraging experience and taking remedial and preventive action, as well as on continuously evaluating the value we effectively add to our customers’businesses—in particular through productivity gains and time savings.

To work faster, we routinely exchange information onbest practices within the Company. This has translatedinto shorter lead times; in the past three years, we have cut our average product development time inhalf. In addition, scorecards have been implementedto track major projects.To be more global, we systematically promote coop-eration among our Country Organizations to developsolutions that are better suited to local markets.Examples of collaborative projects that combined localskills include the Merlin Gerin Blokset electrical distributionpanelboard, developed by our teams in Brazil,Indonesia, Colombia and France, and the Merlin GerinTrophy circuit breakers, developed by Schneider inFrance and the United States.

Help desks play an important rolein resolving customer complaints quickly.

Seven objectives for Schneider 2000+.

for our customers,

our employees,and ourshareholders...

to grow

to be even more global,

more efficient,

and faster.

13 ways of working

Sch

neid

er 2

000+

Creating value for our shareholdersAll the progress plans we have implemented aim forcompetitive growth. This means growth that combinesdevelopment and profitability to secure Schneider’s future and generate attractive long-term returns for ourshareholders. Since 1995, our operating income has risen 56%.

To meet our goals, we will take measures to accelerateboth organic and acquisitions-led growth. We have alsoincreased our efforts to cut costs so as to free up thenecessary resources for growth and continue improvingprofitability.

Creating value for our people We foster personal initiative, empowerment, and greater responsiveness at all levels of our organization. Individual and collective improvement plans are encouraged within each unit and throughout the Company. Each year, the Schneider Dynamic Quality Awardsrecognize teams who have initiated projects that create value for customers, employees and shareholders.

Our Prosat job satisfaction survey allows us to keep a close eye on employee needs and expectations.Managers and their teams devise corrective measureswhen necessary. In addition, the Leadership projecthelps managers improve their own skills so that theycan lead and manage change.

An incentive plan that is consistent with shareholderinterests has been developed. We have enhanced our stock option program, based on return on capitalemployed; set up an annual bonus for our top executives,based on growth in earnings per share; and launcheda new corporate savings plan that represents 1 % of our issued capital. By linking remuneration to clearlyidentified targets, we will also create wealth for our employees.

In the past four years, the Merlin GerinMulti 9 circuit breaker plant in Tianjin,China has doubled productivity, cut inventory in half and achieved a negligible reject rate. The project teamreceived a Schneider Quality Award for itsremarkable results in December, 1998.

Improvement teams foster meaningful discussion and helpnurture cross-cultural understanding and communication.

From Schneider 2000 to Schneider 2000+To achieve our objective of competitive growth, we have to move into a higher gear and becomeeven more responsive. The Schneider 2000+ program will take our initiatives to increase growth and competitiveness and reduce costs beyond the year 2000. The program encourages all managersin all units and all Country Organizations to instill an approach of continuous improvement within theirteams. This approach will drive the changes thatneed to be made to enhance our performance so wecan create value for everyone.

Schneider Electricin 1998

Innovating in our core businesses--electrical distribution and industrialcontrol and automation--to ensure sustained growth and create valuefor our customers, shareholders,and employees.

15

> Tracking the major trends in our markets,responding quickly, securing the skills and resources for the future, cutting our costs to become even morecompetitive--these are our daily challenges.

> To respond faster, we are strengthening our globalpresence by setting up subsidiaries, upgrading our production facilities, forming joint-ventures, and acquiringcompanies that offer a good strategic fit. This is a carefullyplanned, long-term approach that enables us to seizeopportunities and build lasting solutions. Schneider Electrichas achieved a healthy balance in its global operationsand sales to industries with different cyclical patterns.Today, we derive 40% of our revenues from renovationand maintenance, two activities that are relatively immuneto business cycle fluctuations.

Photos from Schneider Electric’s international advertising campaign.

> Everything we do is focused on creating value--first,for our customers, by establishing collaborative relationships of trust through our technologies, services,and competitiveness; second, for our people, because ourperformance is closely tied to their skills and commitment;third, for our shareholders, because our competitive growthand profitability help ensure a sustainable return for their investment.

€

Schneider Electricand its shareholders

Schneider share/CAC 40 index

Market data, Schneider SA shares (Paris)

FF Outstanding Value at Value atDec.31,1998 March 15,1999

Shares (in French francs) 153 417 118 339.00 331.91

Shares (in euros) 153 417 118 51.68 50.60

Fully diluted shares outstanding: 165,365,908

The share

■ Ranks 26th among the CAC 40 stocks

■ Accounts for 1.3% of the index’s total value

■ Included in the Euro Stoxx 50 index

■ Market valueAt December 31, 1999: FF 52 billion (€ 7.9 billion)

■ Share price in euro

■ Schneider share

■ CAC 40 index(base: Schneider Electric share price on January 2, 1996)

2/1/96 31/12/96 31/12/97 31/12/98 15/03/99

70 ---

60 ---

50 ---

40 ---

30 ---

--- 800,000

--- 600,000

--- 400,000

--- 200,000

Share(in euros)

Trading Volume (number of shares)

25.69

36.57

49.82

51.6850.60

17

€ €

Sch

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lect

ric

and

its

sha

reho

lder

s

Rising profitability that benefits shareholders

A commitment to building closerrelations with shareholders

Net earnings per share(in French francs, after amortizationof goodwill)

Dividend per share (in French francs, excluding tax credit)

Minitel3615 CLIFF

Letter to shareholders: two issues a year

Schneider shareholders’ guide: 4th edition

Internetwww.schneider-electric.comFind out all about Schneider Electric’s news, financial performance, etc., and check the share price in real time.

Our press releasesare also available at:www.prline.com

Shareholder baseAt December 31, 1998

8.319.69

15.12

95 96 97 98 95 96 97 98

17.772.71 €

4.05.0

6.50

7.541.15 €

Changes in the shareholder baseA Sicovam study ended December 31, 1998 revealed a 45% increase in the numberof shareholders in and outside France. Individuals represent 91% of our more than141,000 shareholders and hold around 18 million shares or 12.8% of the capital.Some 9,000 French institutional investors hold 38% of our shares while 1,000 foreigninvestors hold more than 30%. Schneider employees (21,000 people, including3,000 outside France) hold 4.2% of the capital through various mutual funds.

* Axa 4.7%AGF 1.4 %Paribas 2.1 %

4.8 %Treasury stock -Intragroup cross

shareholdings

31.0 %Shareholders

outsideFrance

8.2 %Shareholders’

pact*

4.2 %Employees

19.0 %Mutual funds

20.0 %Other institutionalshareholders

12.8 %Individual shareholders

69.0 %France

10.3 %Europe excl.

France and UK

7.0 %UK

11.0 %USA

2.7 %Rest of world

€

€

Financial highlights 1995 to 1998

Net debtShareholders’ equity

42.4*44.2*

47.4

(FF billion)* Pro forma restated for Spie Batignolles

95 96 97 98

3.6*

5.0

5.6

48 %

29 %

12 %7 %

3.9*

50.0

€ 7.6 bn

95 96 97 98

€ 0.9 bn

95 96 97 98

A significant increase in operating income:

up 12.6% between 1997 and 1998up 56% between 1995 and 1998

Very low indebtedness:

FF 1.6 billion in 1998 FF 7.8 billion in 1995

Steady growth in sales:

up 5.5% between 1997 and 1998up 18% between 1995 and 1998

(Debt-to-equity ratio

)

(FF billion)* Pro forma restated for Spie Batignolles

19

€

€

Fin

anci

al h

ighl

ight

s (FF billion)* Pro forma restated for Spie Batignolles

1998 sales by Geographic Zone:

0.8*

1.4*

2.2

2.7

8.319.69

15.12

(FF)

17.77

95 96 97 98

€ 2.71 bn

€ 0.4 bn

95 96 97 98

Net earnings per share has more than doubled over the past three years:

up 17.5% between 1997 and 1998up 214% between 1995 and 1998

Substantial growth in net income:

up 21.9% between 1997 and 1998up 328% between 1995 and 1998

31 %Europe

19 %France

30 %North America

20 %Rest of world

the balanced geographic spread of our sales is a sourceof stability.

((

Work rank 1998 Sales

High Voltage

Medium Voltage

Low Voltage

Industrial Control

Automation

Schneider Electric is one of the few globalsuppliers with an offering that meets all international standards requirements, notablyIEC (Europe) and NEMA (North America).

2 core businessesElectrical distribution and industrial control and automation

n°4

n°1

n°3

Electrical distribution

Industrial control and automation

Supplying electricity with complete safety--from the powerplant to the home, from high voltage to consumer final low voltage.

Controlling, monitoring, protecting, and supervisingmachinery and networks in industrial processes, infrastructure, and buildings.

FF 21.3 billionin FF billion

€ 3.2 billionin € billion

FF 15.7 billion

€ 2.4 billion

FF 3.7 billion

€ 0.6 billion

FF 8.7 billion

€ 1.3 billionn°2

n°1

21

Products Sales by Geographic Division Sales(in FF billion)

2 co

re b

usin

esse

s

Medium Voltage: switchgear and equipment for HV/MV and MV/LV distribution,from 1 to 52 kV: circuit breakers, fuse switches, overhead switchgear, outdoorand indoor substations, and digitized protection and control/monitoring units andsystems. Transformers for power generation, transmission and distribution, from50 to 1,700 kVA and 1 to 800 kV. Assemblies and systems for transmission anddistribution applications.

Low Voltage Power: installation equipment and systems: power and motorcontrol switchboards. Low voltage switchgear: power circuit breakers, molded-case circuit breakers, switches, insulation detectors and residual current relays,computer equipment and software, installation management, and LV/LV transfor-mers. Prefabricated busbar trunking: lighting (25/40 A), low and medium powerand high power (16 - 5,000 A). Power factor correction and LV/HV harmonic filtercompensator systems.

Final Low Voltage: public distribution switchgear: connecting circuit breakers,pole-top circuit breakers. Modular switchgear and installation systems: enclo-sures, protection for circuits (circuit breakers) and people (circuit breakers withearth-leakage protection), control/monitoring equipment. Building safety andcontrol systems: fire detection. Building management systems and automationdevices for commercial and residential buildings. Distributed switchgear andconsumer final low voltage installation systems: switches, sockets, and waterproofinstallation systems.

Industrial Control: power protection and control: contactors, from 6 to 2,750 A,overload relays, motor circuit breakers. Speed drives: soft starters and variablespeed drives for AC and DC motors. Human-machine interface: pushbuttons,indicator lights, operating terminals, and safety accessories. Machine equipment:sensors, detectors, photoelectric cells, lifting and handling accessories, identi-fication systems. Machine enclosures and accessories: motor control centers,enclosures, assembly accessories and connection systems. Additional automationfunctions: electromechanical relays, instrument and control relays.

Automation: compact, modular and multi-functional PLC platforms; PLCs forcomplex automation architectures and specific functions; remote I/Os. Numericalcontrollers, axis and spindle motors and associated speed drives. Specializedprogramming, operating, piloting, and supervision software and applications.Field bus communication networks. Industrial programming and interface terminals.

95 96 97 98

15.6

17.819.9

21.3

95 96 97 98

13.113.9

15.115.7

High Voltage: switchgear and equipment, from 72 to 800 kV: conventional andmetal-clad substations, power transformers, circuit breakers, disconnectors, andcustom transformers for high voltage generation, transmission, and distribution.

95 96 97 98

9.810.7

11.2

12.4

■ International Division 73%■ European Division 15% ■ French Division 11%■ North American Division 1%

Note: The sales figures in the above table and on pages 29-43 include only sales from the electrical activities.

■ European Division 36%■ International Division 27% ■ French Division 21%■ North American Division 16%

■ North American Division 44%■ European Division 25% ■ French Division 16%■ International Division 15%

■ European Division 39%■ North American Division 27% ■ French Division 20%■ International Division 14%

Investing in innovationWith more than 3,000 engineers and techniciansat development centers in twenty countries,Schneider Electric has the skills to create a global lineup and adapt it to local markets.Almost 400 people in our research laboratoriesare working on anticipation programs to meettomorrow’s needs in cooperation with outsidelaboratories and partners, so that Schneiderretains control over the technologies thatdrive its product performance.

We devoted FF 2.6 billion to R&D in 1998,with a focus on new technologies and on easeof installation and use so that we can delivereven more value to users, integrators, and distributors. At Schneider Electric, weknow that R&D and innovation play a crucialrole in our competitiveness.

In 1998, we launched 13 new product rangesin electrical distribution and industrialcontrol and automation.

Anticipating technological breakthroughsNew polymers, superconducting materials andcontact materials all open the door to technologicalbreakthroughs. We conduct feasibility studies withoutside laboratories to pave the way for industrial useof new products and processes.

Industrial architectures and automation systems arebeing profoundly modified by high-performance electronics, the emergence of global communicationnetwork standards and widespread use of theInternet. These changes offer important opportunitiesfor us to enhance our products and services.

The value of innovation

Merlin Gerin Digipact,for managing electricity in commercial and residentialbuildings. Dedicated to electricaldistribution control, Digipactaddresses such user priorities asenergy consumption management,cost savings, and uninterruptedservice.Launch: June 1998.

The new Merlin Gerin NG 125range of circuit breakers andswitches for electrical distributioncombines safety, uninterruptedservice, ease of operation,and compact size.Launch: November 1998.

Telemecanique Tego Dial, the installation solution for human-machine interface. Tego Dial combines all the standard functionsin a personalized configuration for machine-integrated operatorterminals.Launch: February 1999.

Telemecanique Tego Power,the installation solution for motorstarters. With its CAD softwareand standard modular components,Tego Power makes implementationeasy and flexible.Launch: May 1999.

23

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Transparent factoryMore and more, customers want to simplify the linkbetween automation, manufacturing and business(ERP) systems. With the Transparent Factory program,the future architecture of industrial automation systems,Schneider Electric has anticipated this growingdemand by using open communication standards and software integration standards (such as Microsoft’sOLE). Schneider Electric was the first to put Internettechnology into its automation devices while maintaining their performance and reliability.

Integrating information technologies In our businesses, information technologies make it possible to offer new functions and new services.For example, the integration of powerful signal processing systems and communication interfaces in equipment allows operators to enhance the reliabilityand performance of their networks while reducingoperating costs.

Test laboratories Thanks to our longstanding policy of developing and investing in skills, Schneider boasts worldclasstesting laboratories. These facilities fine-tune and certify all our products. Their approval certificates are recognized by certification authorities, worldwide.

Momentum is the latest addition to theModicon/Telemecanique distributedinput/output range. Thanks to their modulardesign, these devices make it easy to builddistributed architecture automation systemsat low cost.Launch: September 1998.

Testing in the dielectric laboratoryin Grenoble, with currents exceeding one million volts.

Telemecanique Altivar 58,the latest in our range of speeddrives, to regulate motor driveand improve production rates.Launch: March 1998.

Schneider Electric’s servicesOur remote support and maintenance services offerextensive inspection, diagnostics, and remedialaction capabilities. Customers can directly access a Frequently Asked Questions (FAQs) database on our Internet site where they will often find the solution to their problem among the 15,000 casestudies available.

More environmentally friendly and efficient methodsWe have integrated environmental impact tools in ourCAD systems to foresee and reduce the environmentalimpact of our products throughout their life cycle. Thisis one of the areas in which we’re working to improveour design methods and product performance.

Local manufacturingA major asset for our customers

Local manufacturing is a policy our customers appreciate, and it is often a decisive factor in their buying decision. Schneider Electric is truly a localsupplier; with more than 150 plants on every continent, we produce 60% of our output outside France.

Europe More than 80 production facilities:

The pilot plan in Meliana (Spain) employs 300 people who manufacture earth-leakage protection switchesand sub-assemblies for eight other plants throughout the world. The extremely delicate assembly processrequires an exceptionally clean environment. In the past two years, a total quality improvement plan has yielded improvements in plant methods.

The new plant in Pisek (Czech Republic) supplies contactors, overload relays, and pushbuttons to the CIScountries and markets worldwide. It employs 400 people.

In France, the Dijon-Épirey plant manufactures Telemecanique motor circuit breakers for the global market.The facility--one of our 44 manufacturing units in France--employs 490 people and operates seven days a week.In Carros, 400 team members are involved in producing programmable logic controllers.

North AmericaThe Asheville, North Carolina plantproduces twenty-six ranges of Square D industrial controlcomponents such as contactors,starters, pushbuttons, and sensors. The plant, which employs600 people, is one of Schneider’s33 production units in NorthAmerica.

Latin America Schneider operates four plants inBrazil: Jurubatuba and Carmo doRio Verde, near São Paulo, forindustrial control and automation;Sumaré for medium and low voltageelectrical distribution; and Itajai forhigh voltage equipment.

In Argentina, our new 10,000square-meter complex in Mataderoshandles medium and low voltageequipment manufacturing, logistics,services, and production of Merlin Gerin Multi 9 units for all Mercosur countries.

Australia: Benalla

Czech Republic: Pisek

China: Beijing

Turkey: Izmir USA: Asheville

25

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Middle EastIn Izmir (Turkey), 260 people makeMerlin Gerin medium and low voltage equipment, includingMasterpact circuit breakers andBlokset, Prisma, Masterbloc andSM6 panelboards. From Izmir,Schneider Electric supplies notonly the Turkish market but neighboring countries as well.

AsiaWe have 15 manufacturing units on-line in Asia. In China, seven joint-venture plants in Beijing, Tianjin, Shanghai and Guangzhou are dedicatedto the production of industrial control components and equipment formedium and low voltage electrical distribution.

In Batam (Indonesia), Schneider has been producing Telemecaniqueindustrial control components in a joint venture with Toshiba since 1992.

The Cikarang plant, ISO-9001 certified since 1997, is dedicated to electrical distribution, miniature circuit breakers, and medium and lowvoltage distribution switchboards.

Australia At its production facilities inBenalla and Mount Waverly,Schneider manufactures low andmedium voltage distributionswitchboards, as well as mediumvoltage transformers.

Indonesia: Cikarang

France: Dijon-Épirey

Spain: Meliana

France: Carros

Our goal is to set up production facilities as close as possible to our users, sothat our systems and equipment are immediately available and fully compliantwith local standards and practices.

Schneider Electric is also deeply committed to environmental protection. By the end of 1999, more than two-thirds of our production facilities will be ISO 14001 certified. Most of our units already have ISO 9000 certification.

In the past three years, we have undertaken a major program to upgrade ourplants and enhance productivity, particularly in Europe.

Performance,safety,and ease of use-- a chain of skills to ensuretotal customer satisfaction.

Meeting your needs, day after day

27

> Schneider Electric is involved in two core businesses to serve four main markets: construction, industrial production, electric power (transmission and distribution),and infrastructure. Schneider Electric also means a majordistributor network that offers our products around the worldto customers, systems integrators, and product users.

> Schneider Electric has a tightly woven network of distributors with 7,400 outlets worldwide. More than 70%of our standard-price catalog products are sold throughprofessional distributors. At Schneider, a close relationshipwith the customer is a key part of our marketing strategy.For this reason, we always take the marketing aspect intoaccount when we develop new products. By integratingmore and more related services, we are strengthening ourclose relationship with distributors so that we can servetheir customers better.

To address each market’s specific features and meetcontractor and end-user expectations, a distributor needsto be extremely professional and have the necessary skillsto understand the catalog’s technical content. We selectour distributors on these criteria. In many countries wheredistribution is in the development stage, Schneider is deeplyinvolved in helping its distributors obtain the skills theyneed. We have devoted considerable energy to training inthis area. In addition, we share information (increasingly by

Did you know that Schneider Electric is involved in so many areas of your daily life ?

e-mail) to keep distributors continuously informed aboutproduct availability and technical data.

Everywhere we operate, we have set up solid partnershipsto provide customers with the service they expect.Together, Schneider Electric and its distributors offer theentire Schneider Electric catalog along with the correspon-ding technical support, and provide the most appropriatesolutions at the best cost.

> Systems integrators--who include panelbuilders,contractors, OEMs, and others--play a key role in Schneider Electric’s business strategy. These partnersare valued for their expertise in implementing products and related services, and in providing end-users with the solutions that best meet their needs. When customersevaluate the quality of a machine or system, they make a close connection between Schneider’s products and the systems integrator’s performance.

> We pay special attention to our major internationalcustomers. The Schneider Global Business Developmentnetwork addresses their needs, providing the skills tomanage megaprojects on a global scale. SGBD’s teamsassess the customer’s specific requirements and tap ourCompany wide resources to offer prompt, consistentlyeffective solutions.

The construction marketIndustrial, commercial and residential buildings

Providing a safe, comfortable environment, managing electrical distribution and saving energyThe construction market involves all aspects of power distribution,management, and optimization for residential buildings (including single-family homes and apartment buildings), commercial buildings (offices,hotels, hospitals, shopping centers, etc.), and industrial buildings.

This is largely a local market, governed by standards and practices that differsubstantially from one country to another. Our customers are buildingowners, prime contractors, systems integration engineers, panelbuilders,electrical contractors, and electrical equipment distributors.

We offer a complete lineup of Merlin Gerin and Square D low voltageequipment (circuit breakers, enclosures and cabinets, prefabricated busbartrunking), medium voltage distribution equipment, building management and safety systems, and Square D and Telemecanique components and equipment for control and automation systems.

Market sales

Strengths Outlook

Schneider Electric is world leader in the main areasof power distribution and control systems for buildings.Our leadership rests on a strong international presenceand a wide-reaching network of partners. That’s whywe can offer scaleable, user friendly, customizedsolutions for both sectors of this specific market.

For residential buildings, the goals are to make lifemore comfortable and pleasant for residents, enhancethe safety of people and property, optimize electricityconsumption, and automate heating, air conditioning,and lighting.

For commercial and industrial buildings, the focus is ondistributing electrical power, protecting people andequipment, increasing user comfort, guaranteeinguninterrupted service, reducing operating costs, andfacilitating future improvements.

Local standards and practices traditionally play a decisive role in the construction market. Schneider Electric products and solutions are readilyavailable through our worldwide distribution network, and are installed by local contractors. These partners’expectations have a considerable impact on our offering.

Schneider Electric’s construction market is closelylinked to the renovation sector, which can accountfor as much as 70% of the market in certain countries.This explains the relatively non-cyclical pattern of demand.

We hold strong positions in commercial and industrialbuilding applications, but there is room for gains inthe residential sector.

Schneider Electric is in the process of acquiring Lexel,Europe’s second largest manufacturer of products for consumer final low voltage. This move will bolsterour positions in the residential and commercial market. Demand here is being shaped by socio-economicand demographic trends--notably the spread of homeoffices, the increasing use of information highways,and the aging of the population. In the medium term, and especially in the industrialized countries, thesechanges will significantly modify the needs for housingand workspace. Automation will be engineered into a growing number of applications, while demand fortelecommunications and security systems will expand.

Construction marketsales as a % of total

FF 22.7billion

€ 3.5billion

46%

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It’s been a long, gray, rainy day. Time for a nice hotshower. Nothing like it to “recharge your batteries”. You reach out to grab the towel--and it’s toasting hot.Now you’re feeling great.

Question

Schneider Electric doesn’t make towels, radiators,or bathrooms. But do you realize that, without Schneider,you’d probably enjoy your shower a lot less?

11 ExplanationIf you cheered up so quickly, it’s because the towel’s temperature felt perfect on your skin. In fact, it’s not just thetowel that’s at an ideal temperature. Your apartment and yourentire building are too. Comfort and safety enhance the qualityof life for building residents. Schneider helps offer theseadvantages by supplying the construction industry with completely reliable equipment for power distribution andmanagement. We also provide products with multiple functionscapable, for example, of making smart decisions to externaltemperature or of detecting a water leak or even intrusion by trespassers.

22 Demonstration■ Your building--like so many shopping centers, hotels, hospitals, and other facilities--is fittedwith Schneider switchgear and equipment.

■ It may be equipped with an Isis building management system designed for apartment and officebuildings. This control system supervises installation operation, optimizes energy consumption,operates and automatically controls all the building equipment and processes incoming datafrom detection devices.

■ Your personal safety is also guaranteed by the new generation ID’clic circuit breakers withearth leakage protection, designed to protect people in the home.

33 Benefits for the building industry ■ The security of choosing products that are fully reliable, quick to install, and easy to reconfigure.

■ Satisfied, loyal customers.

■ Opportunities for business diversification, particularly into remote surveillance.

44 Benefit for youYou get enhanced quality of life and peace of mind at all times.

No more wet towels

Optimizing flexibility, safety and competitiveness in productionSchneider Electric serves a particularly broad range of customers in this market, covering all industries from food and beverages to steel, automobiles,and chemicals.We leverage the synergy of our Modicon, Square D,and Telemecanique brands to develop modular and scaleable automationsolutions.

For industrial and commercial facilities, Schneider also handles such utilityfunctions as cogeneration, water treatment, and environmental management.

Around the world, Schneider Electric works in partnership with leading multinational corporations, systems integrators, OEMs, electrical contractors,and distributors. Our shared goal is to devise flexible, competitive manufacturing processes.

The industrial production market

Market sales

Strengths Outlook

Our success in this market rests on three strengths:our vast catalog of products and services, our globalexpertise, and our highly skilled people.

These strengths enable us to offer consistent solutionsfor electrical systems and process automation thatare always fully tailored to the specific requirementsof each industry. This means that we can ensure totalcompliance with our customers’ targets for flexibility,profitability, performance, and uninterrupted service.

Each of our partners and customers can count onindividualized service, from automation architectureand engineering advice to network design, internationalsupport for OEMs, operator training, maintenancecontracts, software subscriptions, installation audits,equipment diagnostics, and more. Schneider Electricequipment and systems comply with internationalstandards such as IEC, NEMA, JIS, and UL. They arebuilt to withstand highly diverse and sometimesextreme industrial environments anywhere in the world.

The global industry market is enjoying sustainedgrowth in many sectors. The packaging industry, for example, is booming in regions with high living standards, and this growth is fueling demand for automated machinery.

More generally, manufacturers are setting up plantsever closer to their local markets. This phenomenonexplains the powerful globalization trend, which isgaining momentum. To address this rising demandfor local service, Schneider Electric offers truly competitive local solutions that provide customerswith the lowest total cost of ownership.

Industry marketsales as a % of total

28%

FF 13.8 billion

€ 2.1 billion

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The party’s in full swing. Your guests, glasses in hand,are crowding around the buffet.

QuestionDid you know that Schneider Electric contributed to the quality of the beverages you’re serving?

11 ExplanationThe fruit juices that your many guests are enjoying have comeoff a bottling line. The bottles have all followed the same path:they’ve been filled, capped, labeled, packed, and palletized.

Between each of these operations, they’ve traveled on conveyorbelts. At every step in the process, Schneider products havecontrolled the machines, regulated flows, and monitored packaging quality.

22 Demonstration■ Telemecanique Osiris sensors receive a wide range of data on the production line: speed, bottlecount, filling levels, colors, potential defects, and more.

■ These data are sent to a Modicon/Telemecanique Premium programmable logic controller, the“brains” of the entire operation. The PLC analyzes the information and issues orders to themachines via a fieldbus network, for example. A Telemecanique Magelis programming terminaltells the PLC which tasks need to be carried out and how they should be coordinated.

■ Pump control, machine start-up, and conveyor belt speed regulation are handled byTelemecanique Altivar 18 speed drives.

33 Benefits for the manufacturer■ Automation of the entire production line.

■ Complete, fully automated synchronization of machinery: no more bottlenecks, no morebreakage, and substantially less noise.

■ Optimized production rates--which means a more profitable facility.

44 Benefit for youYour drinks are perfect and your party’s a big success.

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The electric power marketGeneration, transmission, and distribution

Optimizing electric power generation and consumptionSchneider Electric’s main customers in this market are power utilities,which include not only generating companies, but practically all the electricitytransmission and distribution companies around the world.

We supply them with a complete range of transformer substations andcontrol systems for their grids, all the way from power stations (hydroelectric,fossil fuel, or nuclear) to where electricity is used by consumers in the residential, infrastructure, and industrial markets.

Thanks to Schneider Electric’s high performance catalog based on Merlin Gerin and Square D equipment, utilities can optimize the quality and cost of the electricity they supply to their customers.

We also offer fully customized services for utilities to help them enhance the reliability of their power grids and benefit from remote operation, trainingfor operating personnel, and installation audits and renovation.

Market sales

Strengths Outlook

We treat our customers as partners and work hard tostay close to their reality so we can understand theirneeds. This distinctive approach has been the decisivefactor in our international growth.

We have all the solutions customers need for generation, transmission and distribution of high,medium, and low voltage power.

The hallmark of the Schneider Electric offering is flexibility. It’s reflected in our technology, processengineering (from the supply of basic components to turnkey projects), services and customer support.

After decades of stability, the electric power marketis caught up in a whirlwind of change and is becomingincreasingly competitive at the global level. The situationis shaped by faster concentration, deregulation and privatization of producers and distributors. In addition, small power stations are springing upcloser to consumption areas.

Meanwhile, our customers are adjusting their strategiesand seeking ever more integrated and efficient solutions.Thanks to the rising use of telecommunications andnetwork management software, utilities can measuretheir customers’ needs in real time and optimizepower distribution. We are continuously adapting ourproducts and services to meet these new demandsin what has become a fast-moving market.

Alongside the well-established criteria of uninterruptedservice and safety, we are increasingly attentive to profitability and cost effectiveness, which are nowof crucial importance.

To strengthen our position among the world’s leadingsuppliers, we are stepping up our business drive in Asia, eastern Europe, and Latin America, which continue to offer major potential despite recenteconomic crises.

Electric Power marketsales as a % of total

17%

FF 8.4 billion

€ 1.3 billion

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It’s a dark night. On the brightly-lit avenue,buses and cars are roaring by. The light turns amber,then red. The cars stop immediately at the intersection.The way is clear--you can cross.

QuestionWithout Schneider Electric, there would still be electricity.But would your everyday life be as safe?

11 Explanation

When night falls on the city, you expect life to go on--andyou’re perfectly right. Schneider contributes substantially to your well being and safety. Not by producing electricity,but by supplying utilities with reliable systems and high-performance equipment. These products ensure the efficient control of traffic lights, street and parking lotlights, electrical road signs, spotlights on buildings, etc.--in other words, your city’s lights.

In addition to equipment used in generating, transmitting,and distributing electricity, Schneider Electric supplies gridsupervision systems. These guarantee uninterrupted powerdistribution, a source of safety for all.

22 Demonstration

■ Before reaching the terminal points on the grid, electricity is transmitted through powerdistribution substations and then through Merlin Gerin or Square D medium/low voltagetransformer substations designed to blend gracefully into the landscape.

■ From high voltage to low voltage, every stage of transformation and distribution is supervised by grid control systems that ensure consistently optimal operation.

■ Remote supervision of medium voltage grids is provided by a Merlin Gerin Milenium unit,which allows real-time monitoring and control of key grid facilities, as well as event andalarm processing.

33 Benefits for the electric power utilities

■ Optimized electric power distribution that ensures uninterrupted service around the clock,whatever the external situation and environment.

■ Automation of numerous functions to guarantee total safety through instant detection ofany anomalies.

■ The guarantee of optimized management of generation and distribution costs.

44 Benefit for you

You can cross an avenue at midnight without risking your life, because it is lit up as bright as day.

Crossing the street is not a gamble

The infrastructure marketSupplying electric power – automating facilities

Ensuring that facilities are safe, reliableand always runningInfrastructure projects include airports, road and rail transportation networks,port facilities, water treatment and distribution systems, and waste conversionfacilities.They all give Schneider Electric excellent opportunities to demonstratethe efficiency of its automation and power distribution solutions.

In these areas, we work with leading international engineering firms,contracting authorities, prime contractors, OEMs, systems integrators,electrical contractors, and specialized distributors. Thanks to the wide rangeof technical options available with our Merlin Gerin, Modicon, Square D and Telemecanique equipment, we can design the right solution to achievemaximum performance and on-site safety.

In this way, our commitment in the infrastructure market goes well beyondour project partners, as it directly concerns consumers and users in their everyday life and travel.

Market sales

Strengths Outlook

Our success in this market is unquestionably due tothe synergy of our products and services, as well asto our highly flexible approach. Thanks to our globalreach, we can help operators make their projects asuccess whether they’re involved in large internationalsites or small local jobs.

There are many types of infrastructure--for example,road networks, rail systems, airports, and harbors--where productivity and human safety requirementsmake it vital to prevent failures. We offer innovativesolutions for this purpose in electrical distribution,control, automation, and facility supervision. Our expertise guarantees our customers the strictestcompliance with international standards and localregulations as concerns passenger safety and infrastructure availability.

We also provide our partners with a complete rangeof customized services such as power grid designassistance, safety and availability studies, implementation monitoring, operator training, remote network administration, on-site technical support, and more.

The infrastructure market is inherently complex, dueto the large number of industries involved and thevariety of machines used. Today, the large internationalengineering firms that are our traditional partners findthemselves sharing the market with equipmentmakers and systems integrators.

This phenomenon, which is particularly widespread in emerging economies, represents an opportunity forSchneider Electric. Our expertise in projects requiringsolid partnerships is based on long experience andour comprehensive solutions include a broad rangeof services. The already extensive changes seen in this market in recent years will continue with theincreasing trend toward privatization of contractingorganizations—a trend that will make return on investment an even more pressing concern.

There are many sources of growth in both the industrialized and developing economies. The industrialized world has an ever greater need for communication infrastructure in addition to waterand waste conversion facilities. Meanwhile, in the developing world, the need for ports, airports,roads, and railroads remains immense.

Infrastructure marketsales as a % of total

9%

FF 4.5 billion

€ 0.7 billion

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You’ve dreamt so long about this exotic trip...Now the plane’s landed,and you’re off to claim your bags.Next stop: the beach!

QuestionWithout Schneider Electric, would you have had such a smooth trip?

11 Explanation

When you got to the airport, you left your car in the parking lotand made your way to check-in. The illuminated board told youthe boarding gate. A jetway took you to the plane and you hada pleasant flight. Now you’re waiting for your bags, which areabout to come around the carrousel. At each of these stages,Schneider automated control devices were working around theclock to make sure all systems were operating properly.

22 Demonstration■ The lights on the airfield, in the parking lot, and in the airport buildings get their power supplythrough miles of Telemecanique Canalis busbar trunking.

■ The control panels for the departures and arrivals boards are managed by programmable logiccontrollers. They display all the required information automatically and in real time.

■ The jetways and escalators are driven by Modicon/Telemecanique Momentum programmablelogic controllers and Telemecanique Altivar 58 speed drives.

■ The electric power distribution for runway lights is handled by Merlin Gerin or Square D distribution switchboards.

■ The fully automated baggage handling system is also controlled by Schneider Electric.

33 Benefits for the customer■ Optimized power distribution, ensuring uninterrupted service whatever the external conditions.

■ Automation of numerous machines, reducing the risk of error.

■ Instant detection of any anomaly, ensuring complete security for all vital functions.

44 Benefit for youTrouble-free baggage claim, which means a great vacation ahead!

Your luggage won’t take a vacation without you

Schneider Electricworldwide

A balanced international presence and multicultural diversity:two strengths for making the most of global marketopportunities.

37

> Schneider Electric has conquered its global leader-ship positions by maintaining strong momentum in all itsbusinesses. Our operations around the world have beensteadily expanding, notably in eastern Europe, China, andthe Middle East.

Throughout our international development, we have focusedon maintaining a balance between fast-growth markets and mature markets. We believe that this balance will guarantee steady and sustainable growth.

> Our goal is to combine the power of an internationalenterprise with the responsiveness of a small business. Tothis end, Schneider Electric is making the most of computernetworks, speeding the exchange of information and experience throughout the Company. Greater com-munication flows allow faster decision making in the CountryOrganizations. They also enhance and leverage our skillsnetworks, thereby optimizing costs.

In the field, these changes have driven a steady increase inthe number of hot lines and help desks. These services givecustomers direct access to all the resources they need forsolving whatever type of problem they may encounter.

> At Schneider, we are convinced that competitivenessresides in the performance of our people and the quality of our services. Our Human Resources strategyis designed to encourage a different way of working in a multicultural environment, to foster mobility and empowerment,to develop project-based organization, to share skills andinnovate, to speed the decision-making process and to allowemployees to share in the Company’s success.

Our international mobility program offers employees the opportunity for career development and growth. It alsolays the groundwork for the future by allowing us to respondbetter to continuous change, strengthen our teams’ sense ofco-destiny, share skills and foster a common corporate culture.We are adjusting our organization to be more innovative,to work faster and to be more effective. This means that weneed to change the way we do things and challenge ingrainedhabits. The Leadership project was created to support managers in leading change. The objectives are to empowerpeople to make decisions and express their ideas, encourageskills development and promote continuous improvement.Training plays a crucial role in keeping this change processmoving.

61,000 people share their experience in 130 countries.

Schneider Electricin Europe

Highlights

Area sales

Workforce

A market providing good growthSchneider Electric’s European Division covers all of western Europe,including France, as well as eastern Europe. It employs 35,000 people in more than 25 countries and comprises 84 production facilities and 2,700 sales outlets. Europe is a particularly demanding market; to keepsales growing, providers need to offer extremely high-performance solutions.

Sales in this mature market rose 6.2% in 1998, which is a good performance.This overall figure does, however, conceal some fairly wide regional disparities.The Italian, UK, and German markets were stable, whereas Spain and Portugal gained 19% and central Europe 32%.

Harmonizing IT

To accelerate communication and optimize costs, we havelaunched a large-scale program to harmonize all our internalinformation systems. In Spain, Italy, Hungary, the UnitedKingdom and Scandinavia this has meant the installation of a fully integrated system.

Upgrading production facilities

Our European plant renovation program will be completed in 2000. In the last quarter of 1999, the new unit in Stezzano(Italy) will replace the Bergamo plant, with twice the capacity.And, in a few months, we will have finished the total renovation of our circuit breaker manufacturing facility in Bulgaria. A new plant for medium voltage products has opened in Leeds (UK), and the Pisek facility in the Czech Republic is now operational.

More flexible logistics

Schneider Electric has re-engineered its entire Europeanlogistics organization in order to respond more swiftly to changing markets, reduce inventories, and cut operatingcosts. The objective is to be able to deliver in 48 hours to almost all European countries starting in 1999.

Acquisitions

Acquisitions provided us with many opportunities to enhanceour core product ranges in 1998. Examples include Schyller,an Italian manufacturer of industrial sockets in the 16-125 Arange. We are pursuing this strategy in 1999, as can be seenin the acquisition under way of Lexel, which will extend ourfinal low voltage product lineup.

FF 24.4 billion

€ 3.7 billion

Of which in France

FF 9.2 billion€ 3.7 billion

35,000employees

of which France 22,000

50%of which France

19%

Area sales as a % of total

39

Success stories

Human resources

UK:The Millenium DomeThe Millennium Dome in Greenwich, London, is being built tohouse the UK’s festivities for the year 2000. Schneider was chosento supply 11 kV switchgear, MV/LV transformer substations,Merlin Gerin LV distribution switchboards and a Square DPowerLogic power monitoring and control system.

France: KronenbourgWith its 12 filling lines and an output of six million hectoliters a year, Danone’s Kronenbourgfacility in Obernai is France’s largest brewery. The newest bottling line, "Groupe 63," was assembled in partnership with Schneider Electric. We supplied a number of automationproducts, including speed drives, programmable logic controllers, industrial control systems,and operator control panels, as well as related services. The manufacturing constraints were challenging: fast start-up, minimum failure rate, extreme flexibility. To meet these specifications, Schneider’s local teams worked in active partnership with Kronenbourg and the OEMs involved in the project.

Scandinavia: Øresund linkDenmark and Sweden will be linked across Øresund Soundby a 4-km tunnel combined with a 12-km bridge.This unprecedented infrastructure project, comprising a four-lane highway and a two-track railroad, is scheduled forcompletion by summer 2000. Schneider Electric supplied allthe medium voltage electrical distribution equipment, including29 Merlin Gerin Prisma G units, six Merlin Gerin Trihal transformers (315-500 kVA), France Transfo distributiontransformers, and distribution switchboards equipped withMerlin Gerin Compact NS circuit breakers. The prime contractor, Øresundskonsortiet, chose Schneider for productquality and reliability, operating staff training,and our compliance with specifications.

Sales teams on the move

Our sales engineers now have full remote access to a central database that allows them to update information on orders, deliveries, requests, etc. before making a field call.As a result, they can spend more time on customer premises.

French Division continues to give young people a start

Schneider Electric is actively engaged in training, most notably in France, where we welcomed 400 young people in 1998 for work-study programs lasting an average of two years. Since 1994,3,000 young people have received professional training within the Company.

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Schneider Electricin North America

18,000employees

30%

A commanding position in all our business segmentsThe North American Division encompasses all of Schneider Electric’s operations and facilities in the United States, Canada, and Mexico. Thesethree countries constitute the world’s largest free-trade zone, under NAFTA.The Division was set up in 1993, and its growth is driven by by Square D’sreputation in NEMA-compliant electrical distribution and industrial controlproducts. The Division’s catalog also includes products by Merlin Gerin,Telemecanique and Modicon, as well as two local brands--Federal PacificElectric and Federal Pioneer.

In North America, we have 18,000 employees, 33 production facilities,and a substantial sales network with 2,500 distributors across the continent.These strengths and the confidence they generate have won Schneider a strong position in residential construction, commercial and industrial buildings, automated process control, the OEM market, and with largeaccounts. Our ambitious but realistic strategy relies on four core values:trust, teamwork, intelligent risk taking, and working for results.It also encourages all local initiatives to extend our product lineup and expand our market share. Currently, 20 such projects are under review.

Highlights

1998: robust growthIn the US and Mexico, 1998 was a good year for Schneider,with sales rising 6.1% at constant scope of consolidationand exchange rates. Most of the growth was provided byelectrical distribution, particularly in the residentialconstruction market.

Mexico: a star performerIn Mexico, Schneider Electric posted outstanding gains in sales, income, and market share in 1997 and 1998.Customer confidence in products made in Mexico has alsorisen sharply. As a result, our Mexican plants now export a quarter of their output, mainly to the US.

Premier distributors In this market, 80% of Schneider products are sold through a network of distributors. Most of them are exclusive“Premier Distributors”; 8,000 of their employees have attended a training program organized by Schneider Electric.

Schneider’s distributionnetwork in Mexico extendsdeep into rural areas.

Area sales

Workforce

FF 15 billion

€ 2.3 billion

Area sales as a % of total

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Human resources

Listening to employees

In 1996 and 1998, all employees were surveyed in a People Poll to measure their job satisfaction and pride in belonging to Schneider Electric. Following the poll, 35 forums were held in which 1,300 employees met with corporate management to devise action plansfor the future.

Success stories

United States: IBMIn 1998, IBM signed a three-year agreement that establishes Schneider Electric as its firstchoice for all electrical solutions in the United States. This includes electrical distribution,industrial control, and automation equipment.

William B. Schaphorst, International Account Manager responsible for the IBM relationship,had this to say about the agreement: “Industry leaders such as IBM are looking for long-termbenefits from their suppliers. They look beyond short-term, transaction-based gains and arefocusing on what alliances can do to reduce their costs, improve their profitability, build customersatisfaction and strengthen their market leadership. We’re pleased that our companies togethernow can concentrate on product design and application, new standards and processes that lower overall costs and improve efficiencies.”

Mexico: Daimler Chrysler To increase output at its Toluca plant in Mexico State, Daimler Chrysler chose Schneider Electricfor the supply of electrical distribution equipment (substations, transformers, prefabricated busbar trunking, low voltage distribution panels), industrial control products (contactors, motorcontrollers, starters, sensors), and automation systems (programmable logic controllers, Magelisterminals, Fipway network). The contract involves a partnership with four OEMs and two distributors. All operating personnel will be trained on simulators.

Schneider was selected for its capacity to meet all the technical specifications and for its provenrecord as supplier to Chrysler’s facilities in the US, Mexico and Germany.

United States: SearsFor the many new standalone Sears stores that open in the U.S.A, Schneider Electric provides a complete packageof electrical equipment, delivered in one shipment with onepurchase order. Sears chose Schneider because it could offera standardized program which improved the design and projectmanagement of the stores while reducing overall costs and the amount of space required for electrical equipment.

Canada:Toronto Hydro and Hydro QuebecSchneider supplied the equipment for Toronto Hydro’s transformer substation in Agincourt and for the auxiliary unitsof Hydro Quebec’s Sainte Marguerite 3 hydroelectric plant.

The Agincourt plant supplies power to 200,000 users. Thefully-automated facility includes 23 Federal Pioneer cubiclesfitted with Merlin Gerin MV circuit breakers and 30 overloadrelays linked by optical fiber to a supervision center run by a Modicon/Telemecanique programmable logic controller.

The contract for the 882 MW Sainte Marguerite 3 plantcovers the supply, installation supervision, and start-up of allmedium and low voltage distribution equipments.

Schneider ElectricAsia, Latin America, Africa, Middle

8 000employees

Continued growthIn Asia, Latin America, Africa, the Middle East and the Pacific, SchneiderElectric’s International Division encounters extremely diverse business environments. Many countries in these regions qualify as emerging economies.Their combined needs are therefore enormous, as is their growth potential.But because the geopolitical situation in these areas can be uncertain,there is often a latent risk of crisis or recession.

The Division comprises 41 subsidiaries in seven regions, 22 liaison offices,33 plants, and 2,200 sales outlets. This broad presence enabled the Divisionto cushion the effects of the Asian crisis and achieve 9% growth.

Schneider Electric’s strategy is now aimed at greater decentralization.We want to work closer to our local customers, and we are doing this byincreasing the number of sales and production facilities, fielding more salesand support teams, and negotiating partnership agreements with the keyplayers in each region.

Highlights

Asian crisis

By maintaining strict control over investment commitments in Southeast Asia, Schneider Electric limited the impact of the Asian crisis on its business. In addition, the segmentsin which we hold leadership positions—such as low voltagedistribution—proved resilient. Our sales in Southeast Asiaand South Korea fell 39%.

In spite of the crisis, our financial results are on target.We owe this performance to our rapid structural and costadjustments in response to the business downswing.

Birth of Toshiba Schneider Electric Ltd.

At the beginning of 1999, Schneider and Toshiba strengthenedtheir already close partnership by setting up a joint ventureunder the name of Toshiba Schneider Electric Ltd.The unit will develop, manufacture, sell, and support low voltage products for the Japanese electrical distribution and industrial control markets.

Brisk growth in many regions

Robust growth was recorded in South America (35%),Africa (17%), the Near East (8%), and northern Asia (7%),thanks to the invoicing of a large number of contracts in the high voltage market.

20%

Area sales

Workforce

FF 10.0 billion

€ 1.5 billion

Area sales as a % of total

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Human resources

Transferring know-how

Most of our human resources initiatives focus on devolving responsibility and on tailoring careermanagement to local environments. After providing comprehensive training, we are graduallysubstituting local professionals for expatriates at all levels of our organization. The goal is to create skills centers in each country through ambitious hiring programs.

Success stories

Brazil:Companhia Siderùrgica Nacional Brazil’s largest steel plant wanted to replace its control system to launch its new steel sheet galvanization process.The call for bids included two requirements:fast implementation–20 days–and no break in production.With its brand new simulation software, Schneider rose to the challenge.

All three stages of the process were simulated on screen,the behavior of each actuator was carefully programmed,and “virtual” production commenced. By testing and validating every step before the old system was shut down,we ensured a trouble-free switchover to the new system–on time and under the specified conditions.

Turkey:Sabah, a daily from the Media Holding Company The Media Holding Company, listed on the Istanbul stock exchange, owns two nationalTV networks and more than 25 magazines and newspapers including Sabah, one of thecountry’s leading dailies with a print run of 650,000. Schneider Electric renovated the entire medium and low voltage electrical distribution system for part of the printingunit and for the newsroom and administrative offices. We won the bid thanks to ourpresence in Turkey, our quality/cost ratio, and our high level services and support.

Malaysia:the new Kuala Lumpur International Airport (Klia)

Airports Berhad, a company that operates five international airports and 14 domestic airports in Malaysia, has built a new, ultra-modern facility in Sepang, just outside Kuala Lumpur.The airport has been in operation since July 1998. The customer selected Schneider to supplythe low and medium voltage equipment for this important project, which required 450 projectteams and 25,000 people. The Schneider package included power circuit breakers, contactors,transformers and prefabricated busbar trunking. We were chosen for the high reliability of ourproducts, our airport contracting experience, and the efficiency of our local support teams.