half-year 2004 earnings july 29, 2004 building a new electric world

Half-Year 2004 Half-Year 2004 EarningsEarningsJuly 29, 2004July 29, 2004

Building a New Electric World

2

Automation & ControlControlling, monitoring and protecting machines and equipment 30% of sales - No. 2 worldwide

Electrical DistributionSupplying electricity reliably andin complete safety 70% of sales - No.1 worldwide

We are a world leader in Power & Control

Breakdown of estimated 2004 core business sales

Low Voltage

No.1 worldwide

IndustrialControl

No.1 worldwide

MediumVoltage

No.2

UltraTerminal

No.2

PLCs No.3

3

Optimizing safety, comfort, productivity, availability, operating costs and communication

Our solutions, products and services serve the needs of 4 markets

31% of sales

17% of sales41% of sales

11% of sales

Residential

Single and multi-family dwellings

Buildings

Offices,Retail outlets,Factories,Hotels,Hospitals, etc.

Industry

Food & Beverage,Automotive,Pharmaceuticals,Electronics, etc.

Energy& Infrastructure Water treatment,Telecommunications,Data centers,Airports, Tunnels, etc.

4

Our comprehensive, differentiated lineup offers a solution to every customer need

Low Voltage Medium Voltage

Industrial Control PLCs

Secured Power

Building Automation

Services

Ultra Terminal

5

International HQ: Barcelona 6% of sales 5,000 employees

North America HQ: Chicago 21% of sales 16,500 employees

Breakdown of estimated 2004 sales and number of employees

Growth platforms Building Automation (TAC),

Secured Power (MGE UPS) 9% of sales 5,000 employees

Asia-Pacific HQ: Hong Kong 16% of sales 14,000 employees

Europe HQ: Paris 48% of sales 42,500 employees

We have developed forefront positions in the global marketplace

€10 billion in sales 83,000 employees worldwide

6

A world leader in Power & Control

A premium portfolio of products and brands & high investment in Research and Development

A business model based on flexibility and the ability to form partnerships

A balanced worldwide presence and forefront positions in emerging markets

Skilled and committed teams & young management

Strong operating performance and very solid financials

Schneider Electric is fully leveraging the worldwide economic recovery and the high potential of its accessible markets

Our strengths are unique in the industry

Highlights

Strategy and Outlook

Review of Operations

First-Half 2004 Financial Results

8

Sharp rebound in North America and Western Europe +5%supported by our growth plans

Remarkable performance in emerging countries +21%

Strong organic growth +9%

Significant contribution from acquisitions (€556 million) TAC - Building Automation MGE UPS Systems - Secured Power Clipsal - Ultra Terminal, Asia-Pacific

Record growth in sales: +18%First-half 2004

highlights

Growth in half-year 2004 sales: +18%

9

High-quality acquisitions in high-potential businesses...

Targeted segments

Human-Machine Interface

Building automation & security

Ultra Terminal

Secured power

Sensors for repetitive machines

Companies acquired

Digital Electronics

TACAndover Controls

Clipsal

MGE UPS Systems

Kavlico

Growth

+22%

+10%+8%

+5%

+7%

+14%

First-half 2004 highlights

Andover Controls and Kavlico acquired in first-half 2004

First-half 2004 organic growth in orders

10

…enabling us to enlarge our accessible markets

We have enlarged our accessible markets by 50% thanks to our acquisitions

First-half 2004 highlights

0

40

80

120

Acc

essi

ble

mar

kets

(€b

n)

Automation specialties

Ultra TerminalAsia-Pacific

Secured power (UPS)

Building Automation & Security

June 2004Dec. 2001

11

Record sales growth +18%

Sustained improvement in gross margin In line with our NEW2004 target Driven by our productivity plans Still limited impact of higher raw materials prices

Less unfavorable but still significant currency effects (-0.6 pts)

Clear improvement in operating margin +1.1 pt

Growth in half-year 2004 operating income: +30%

Strong growth in operating income: +30%First-half 2004

highlights

12

1H 2004 YOY

€ m % of sales Change

Sales 4,984 +18%

Operating income 571 11.5% +30%

Net income before 330 6.6% +23%goodwill amortization

Operating cash flow 543 10.9% +19%

An excellent first-half 2004First-half 2004

highlights

At constant exchange rates, first-half 2004 operating margin would have reached 12.1%

Highlights




14

Review of operations

As part of our NEW2004 program

Strong growth in earnings thanks to our “Growth & Efficiency” plans

Focus on organic growth Ability to seize market opportunities Mobilization on targeted businesses

Ultra Terminal, Automation, Services High R&D investment

Assertive expansion in new growth platforms driven by high-quality acquisitions

Systematic deployment of productivity plans

15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22002 2003 2004

(Quarterly sales change compared to the same quarter last year)

A winning focus on organic growthReview of operations

-7%-7%

-8% -9%-8% -7%

-3%

+5%

+14%

+21%

-9%

-2%-1%

+0.3%+0.3%

+6%+7%

+10%

-7%

-3%

-12%

-7%

-2%

3%

8%

13%

18%

Current

Organic

16

Sustained sales growth in all our operating divisions

1H 2004 % Change(€ m) Organic Current

Europe 2,448 +5.2% +4.3%

North America 1,021 +6.4% -3.7%

Asia-Pacific 791 +20.4% +37.7%

Rest of the world 306 +19.8% +19.7%

Growth Platforms 418 n/a n/a

Total 4,984 +8.6% +17.7%


17


Recovery of our markets in North America and Western Europe

Growth potential in emerging countries

Need for environmental and energy management

Customer needs linked to their globalization and their outsourcing

Growth plans targeted by market segments and distribution channels

Sustained expansion and forefront positions

Dedicated energy efficiency and water treatment solutions

Added-value services: diagnosis, maintenance, performance of installations

An ability to seize market growth opportunities

18

Review of operations Our dedicated growth plans in North America

-5% -5%

-1%

8%5%

8%

Q12003

Q2 Q3 Q4 Q12004

Q2

Organic sales growth - North America

Powerpact HMCCB

Motorpact MV Motor controller

Major Metro Initiative Deploy in largest metropolitan areas dedicated sales resources &

customer support for offices, schools, infrastructures (water, metro)

Small Project Express Program Gain market share in small electrical & control projects with local stock,

quick quotations & expert advice

Critical Power Competence Center - data centers & targeted OEMs Meet growing needs with dedicated teams and systems based on

our PowerLogic & Transparent Ready offers

19

Industry development plan Numerous launches of innovative products Development of applications centers dedicated to OEMs: elevators,

hoisting, packaging, refuse handling

Residential growth plan Launch of dedicated ranges in Ultra Terminal Success of growth initiatives with orders up +10%

Review of operations Our dedicated growth plans in Western Europe

-3%-1%

-3%

1%

4%

7%

Q12003

Q2 Q3 Q4 Q12004

Q2

Organic sales growth - Europe

Prisma + Merlin Gerin switchboard

Launch of our dedicated Ultra Terminal, Building Security, VDI solutions

AVT31VVD

20

Remarkable growth in all emerging countries led by forefront positions


Greater China+32%

India+40%

South America+21%

Eastern Europe+24%

Japan/Korea+22%

Other Asia/Pacific+10%

Africa/Middle East+19%

% of total salesProduction unitsEmployees

27% 75

21,900

20% 59

15,000

2004 2001

+27%+46%

First-half 2004 organic growth in sales

21

Review of operations Sustainable development:

we are part of the solution

We help to significantly reduce our customers’ energy consumption

Remote energy monitoring: to control electrical installations -10%

Variable speed drives: to monitor high-energy use applications -30%

The Aleo (Air Liquide Energy Optimization) program: reduce compressor motor power consumption by adjusting operation to compressed air flows

Transparent Ready: to optimize Buildings energy management -20%

Public lighting management -40%

Merlin Gerin’s innovative Lubio solution adapts light intensity to local conditions and needs

We have dedicated solutions for water treatment

Savings

22

Review of operations Our power management solutions

A fast-growing worldwide market Energy costs are a major expense in running a business Power system uptime is becoming more critical for companies

Schneider Electric PowerLogic® systems are the global leader in power management & control solutions

Innovative, web-enabled systems and services to give insight into all facility operations

Proven return on investment with savings through reduced utility costs and optimized equipment utilization

Reference: Mercedes-Benz USA uses PowerLogic® systems Have the necessary information to diagnose power problems and

increase production time Selected Schneider Electric offering for its superior ability to perform

power quality and disturbance monitoring functions

PowerLogic : control the cost, quality and reliability of our electric power

23

Review of operations Our dedicated solutions for water treatment

A high growth worldwide in the coming years All countries have to improve water management Increasing environmental care leads to stronger regulations

As a preferred supplier to the world leaders, Schneider Electric offers guaranteed water quality and uninterrupted supply

Close relationships are established with world leaders Veolia and Suez, our key strategic accounts

We propose systems to monitor electricity consumption & services to optimize operations

Reference: Kranji Newater in Singapore Provides high purity water to Singapore inhabitants and industries

from effluent water (reverse osmosis technology) Selected Schneider Electric for its wide offering ensuring electricity

availability together with the control of pumps and processes

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Mobilization on targeted businesses:Ultra Terminal


We are leveraging the offering of our Clipsal and Lexel acquisitions

To offer our customers a complete set of products To grow geographically and penetrate new countries

We are leveraging Clipsal and Lexel distribution channels to push the rest of our offering

We are reaching a +14% growth in wiring devices and home control orders

We are increasing our positions in Residential, a more local, less cyclical market

25

Review of operations Mobilization on targeted businesses:

Services

A strong development in services: 7% of business today, with orders growing +12%

Our two strengths: our wide installed base & our legitimacy with customers

A dual track strategy

Leverage installed base support services

Through our electrical maintenance & operations contract fortwo plants in Mexico, General Motors benefits from cost savings, reduced scrap and improved process

Expand energy and industrial performance services

Through our solution based on the Ordinal MES software and the Telemecanique Unity platform, cattle food maker Unicopaincreases productivity, improves and secures production processes, while complying with traceability regulations

26

Review of operations Mobilization on targeted businesses:

Automation

Simply Smart

Focus our development in PLCs Target selected segments with an applications-driven offering Invest in programming environment: Unity platform launch Accelerate growth in small and distributed PLCs (Low End Control)

…while embedding more automation in distributed products Differentiate in Human Machine Interface, drives, sensors,

motor starters Leverage technological competitiveness in Japan

…and developing supervisory software solutions MES solutions: first customers with Ordinal software Digital solutions for automation and production engineering:

partnership with Dassault System in Dextus

27

Review of operations More than 5% of sales invested in

Research and Development Leverage on strong R&D centers close to very demanding markets: Japan, China, United States, France

Leverage the potential of emerging and competitive countries Grow our R&D centers in Bangalore (India), Shanghai (China)

and Monterrey (Mexico) Leverage technological know-how in Japan

Consolidate our French power protection and control R&D sitesin a single and worldwide center based in Grenoble

USA Japan

China

Nordic

France

MexicoIndia

Germany

28

Review of operations Systematic deployment of our productivity

plans as part of NEW2004

Purchasing Target of 5% productivity gain met in first-half 2004 Setting up of international sourcing teams in Shanghai, Bangalore

and Eastern Europe

Lean Manufacturing Deployment in 108 plants at the end of June 2004 Direct labor cost average savings in line with our targets

Globalizing and outsourcing of IT Outsourcing plan in Europe and installation of shared management

applications worldwide Partner selected, contract signing scheduled for year-end

Optimizing support functions Overhead reduction plans underway in France: full impact of

savings excepted in 2005 Launch of a plan to adjust headcount in corporate functions, R&D

and marketing: reduction in staff to be effective in 2005

29

Review of operations Extensive deployment of

Six Sigma program

197 BB

844 GB

0

200

400

600

800

1000

1200

1400

1600

Jan-02 Jun-02 Jan-03 Jun-03 Jan-04 Jun-04

BB

GB

Objectif BB

Objectif GB

Number of Black Belt & Green Belt trained or in training

Highlights




31

First-half 2004 financial results First-half 2004 financial highlights

Record growth in sales of +18% Strong organic growth: +9% Significant contribution from acquisitions: €556 million

Clear improvement in operating margin of +1.1pt Still significant unfavorable currency effects: -0.6 pts Strong industrial productivity gains: €78 million Stepped up marketing investments in growing countries Solid margins of recent acquisitions

Strong growth in earnings Operating income: +30% Net income before goodwill amortization: +23%

Free cash flow of more than 5% of sales thanks to disciplined control over capital employed

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(€ m)

4,984

4,236

Organic

Currencyeffects

Acquisitions/divestitures

Average €/$ rate: 1.23 (1.10 in 1H 2003)

1H 2003

1H 2004

Record sales growthFirst-half 2004 financial results

+363-171

+556

%Change +8.6% -4.0% +13.1% +17.7%

33

(€ m) 1H 2004 1H 2003 %Change

Sales 4,984 4,236 +18%

Gross margin 2,130 1,776as a % of sales 42.7% 41.9% +0.8 pt

Operating income 571 440 +30%as a % of sales 11.5% 10.4% +1.1 pt

Financial expense, net (28) (21)

Income from continuing operations 543 419 +30%as a % of sales 10.9% 9.9% +1.0 pt

First-half 2004 financial results Simplified income statement (part 1)

34

41.9%

42.7%

43.5%

1H 2003 1H 2004 2004

Actual Actual Target

Gross margin = sales less cost of sales (including manufacturing base costs)

Improvement in gross margin in linewith the target

(% of sales)

Excluding currency effects, gross margin of 43.0%

First-half 2004 financial results

35

1H 2004

1H 2003

Volume& price

Net industrial productivity

PerimeterCurrencyeffects

Base costs440

571

Strong growth in operating incomeFirst-half 2004 financial results

%Change +26.9% -11.6% +14.5% +29.8%

Change excluding currency and perimeter effects

+152

+78 -112

-51 +64

(€ m)

36

10.8%

12.2%

9.8%

12.2%

9.4% 8.9%

11.3% 11.6%10.4%

11.5%

Europe NorthAmerica

Asia-Pacific Rest of theworld

Total

(% of sales)

Operating margin by geographic division

1H 2003

1H 2004


10.4%excl. currency

effects

12.4%excl. currency

effects

37

(€ m) 1H 2004 1H 2003%Change

Income from continuing operations 543 419 +30%

Exceptional items (38) (31)

Income taxes (160) (106)

Other (minority interests, affiliates) (15) (13)

Net income before goodwill 330 269 +23%

Amortization of goodwill (104) (79)

Net income after goodwill 226 190 +19%

First-half 2004 financial results Simplified income statement (part 2)

38

Strong growth in earnings per share

(in €) 1H 2004 1H 2003 % Chg

EPS before goodwill amortization 1.47 1.20 +23%

EPS after goodwill amortization 1.01 0.85 +19%

Average number of shares (millions) 223.4 224.4


After having bought back 1.8 million shares in first-half 2004, the Group intends to continue buying back shares and cancel them

39

1H 2004 1H 2003

Net cash provided by operations 543 458

Capital expenditure - net (123) (129)

Change in working capital requirement (151) (98)

Free cash flow (before dividends) 269 231

(€ m)

First-half 2004 financial results Solid financials

June 30, 2004 Dec. 31, 2003

Shareholders’ equity 7,626 7,734

Net debt/(cash) 485 (399)

Debt rating (Standard & Poor's) A A

40

107

231

269

1H 2002 1H 2003 1H 2004

(€ m and % of sales)

Free cash flow (before dividends)

% of sales 2.3%

5.4%5.5%

ActualActualActual

Free cash flow: operating cash flow - net capital expenditure - change in working capital

First-half 2004 financial results High free cash flow

41

Free cash flow (from operations)

269

Remunerate shareholders (dividends 244 (i), share buybacks 96)

340

(Main elements of cash flow statement in € m)

Make acquisitions (including MGE UPS and Kavlico)

805

Change in net cash

883

(i) excluding the equalization tax to be paid in July 2004

First-half 2004 financial results Solid financial resources to foster growth

and remunerate our shareholders

Highlights




43

We have an aggressive growth strategy combining innovation and differentiation

Our strategy

Expand our geographic coverage

Broaden and differentiate

our lineup

Deepen our positions in the Residential market

and in Services

Innovate and develop new growth platforms

44

Our growth strategy

Broaden & differentiate our lineup Industry: reinforce our presence Buildings, Energy & Infrastructure: enhance our coverage through

micro segmentation

Residential: acquire positions as strong as in the Buildings market Geographic coverage in Ultra Terminal (e.g. Clipsal) Dedicated lineups (e.g. Duoline range)

Expand our geographic coverage by investing in fast-growing countries

China, Eastern Europe, India, Brazil

Develop new growth platforms Building automation & security Secured power Energy management Specific segments in automation

Our strategy

45

Our selection criteria for acquisitions

Sector’s attractiveness Long-term growth prospects and profitability Potential for related services

Strategic fit with our businesses Consistent business model and market access channels Ability to integrate and synergies with our operations

Target’s quality Well-established market position or specific technology Good level of profitability

Ability to create value: return on capital employed covers cost of capital within a maximum of three years

Our strategy

46

Outlook for 2004

We are significantly outperforming our end markets in emerging countries and our growth action plans amplify the rebound of our business in mature countries

Thanks to our excellent fundamentals, we are confident in our strong ability to grow and create value for our shareholders

In light of current market conditions and based on an exchange rate of $1.25/€, we revise upwards our outlook for 2004:

Sales growth > +15%

Increase in operating income > +25% i.e. +1 point in operating margin

Outlook for 2004

Building a New Electric World

half-year 2004 earnings july 29, 2004 building a new electric world

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