ABB LTD PARIS (Reuters) - French electrical gear maker Schneider Electric (>> SCHNEIDER ELECTRIC) confirmed its full-year targets on Wednesday after it posted roughly flat earnings and a 3.2 percent rise in first-half sales that missed expectations.
The world's biggest maker of low-and-medium voltage equipment and a bellwether of European industry, Schneider makes products that help carry electricity to buildings as well as automation systems for the car and water treatment industries.
Like rivals Siemens (>> Siemens AG) of Germany, ABB (>> ABB Ltd.) of Switzerland and France's Legrand (>> LEGRAND), Schneider has seen sales weighed down in Europe in recent years as austerity measures depressed construction markets and capital spending.
Schneider has been cutting costs and shifting more production to emerging markets as it complains that a strong euro is hurting profitability. The group makes three quarters of its sales in foreign currencies and 40 percent in emerging markets, where currencies have been most volatile.
Revenue in the second quarter fell 1.1 percent on an organic basis, hit by falling demand from utilities in Western Europe.
Together with delayed investment in Africa and southeast Asia and destocking in Russia, this counterbalanced a boost to earnings from the integration of Invensys, a British industrial automation specialist Schneider bought last year for 3.4 billion pounds.
However, Chief Financial Officer Emmanuel Babeau told Reuters the group's results showed encouraging signs of a recovery in early-cycle products, with sales of electrical equipment used in buildings and the industry rising organically.
FOCUS ON ORGANIC GROWTH
First half group sales reached 11.7 billion euros. Analysts polled by Reuters had expected 12.1 billion.
The depreciation against the euro of several currencies cut 5.5 percentage points - or 339 million euros (268 million pounds) - off sales growth in the first half, Schneider said.
It said it saw improvements in some currencies, mainly the U.S. dollar, Chinese yuan, Russian rouble and British pound and thus expected the currency impact to be lower in the second half, reducing revenue by 100 to 200 million euros.
Asia-Pacific, now Schneider's top source of revenue with 29 percent of sales in the quarter, remained a key driver with business up 3 percent. Trends in the United States remained favourable, and Spain and Germany showed slight growth while the French construction market remained weak.
Adjusted earnings before interest, tax and amortisation (EBITA) increased 0.1 percent to 1.5 billion euros in the first half, representing 12.9 percent of revenue compared with a restated 13.3 percent a year earlier.
Schneider stuck to its full-year targets for low single-digit organic sales growth and a slightly improved EBITA margin. It said it would continue to focus on organic growth and that it planned to buy back about 6 million shares in the second half.
Schneider signalled in February that it was shifting its focus to making its existing business more efficient after a decade-long acquisition spree that saw the group buy more than 100 companies and triple in size.
With the acquisition of Invensys, Schneider's net debt has doubled since December and now stands at 6.55 billion euros. Babeau said the group would consider opportunistic divestments of non-core assets but had not set detailed targets for its portfolio review.
Investors have welcomed the group's new focus on organic growth. Schneider shares are up 6 percent so far this year and trade at over 16 times forecast earnings, at a premium to peers whose average price-earnings (PE) ratio is closer to 15, according to Reuters data.
(Reporting by Natalie Huet; Editing by James Regan and Andrew Callus)
