Average organic growth rate reached 10% per year under the new² program for the period 2005 – 2008.
Acquisitions contributed EUR538 million, or 3.1% of sales growth, including APC for EUR191 million (1.5 months), Pelco for EUR293 million (9.5 months) and Xantrex for EUR36 million (3 months). The divestment of MGE Small systems business reduced sales by EUR155 million (10 months).
The currency effect was significantly negative at EUR623 million or -3.9%, primarily due to the US dollar’s and the British pound’s depreciation against the euro.
On a current structure and exchange rate basis, sales rose +5.8%.
In the fourth quarter of 2008, on a constant structure and exchange rate basis, sales were stable at -0.4%, reflecting the fast deteriorating business environment in the later part of the year, weakening end-market trends across geographies, deferral of new investment decision by end-users, and destocking at some of the distributors. Thanks to its ability to leverage its attractive portfolio of activities, growth was supported by solutions and services across all geographies towards year-end.
On a current structure and exchange rate basis, sales increased by 2.8%.
Growth by region for the fourth quarter
In Europe, sales were down 2.3% compared to the same period last year reflecting the worsening market environment. In Western Europe, while growth in France, Italy and Germany remained positive, Spain and UK slowed further as a result of the downturn in the residential market that started to extend to other markets and of destocking at distributors. Growth in Scandinavia turned sharply negative in the fourth quarter attributable mainly to their exposure to the residential and nonresidential building markets. In Western Europe, the product business as a whole slowed but was partially offset by the demand for solutions and services.
Eastern European markets registered a drop in growth in the magnitude of 10%, attributable primarily to the impact of the financial crisis on a number of the countries, triggering sharp downturn in the residential and industrial end markets.
In North America, organic growth was down 2.9% excluding customized sensors (-5.0% on a reported basis). In terms of end market trends, the residential market hit new lows. The commercial building and industrial markets turned negative in the fourth quarter. As in other regions, product business slowed but project and services, in particular in healthcare and infrastructure, continued to register double-digit growth thanks to Schneider Electric’s dedicated offerings and complete solutions approach. Customized sensors business unit continued to register negative growth in the fourth quarter (-32%) attributable primarily to the sharp drop in demand from automotive customers.
In Asia-Pacific, sales grew by +1.7%. The region is affected by the weaker trends in the industrial and building markets. The energy and infrastructure end market and the solutions business continued to show resilience. China registered high single-digit growth in the fourth quarter supported by low voltage, medium voltage and project backlog consumption. The Pacific zone delivered similar level of growth benefiting from the utilities and water and waste-water segments demand. Japan growth turned negative as a result of the sharp contraction in industrial activities, while South-East Asia was stable.
Growth in the Rest of the World remained strong at +20.7%. The region as a whole continued to perform well. Middle-East and Africa posted strong growth in the fourth quarter, but the first signs of slowdown in some residential markets were visible. Growth in South America remained at double-digit but is slowing as a result of the impact of the financial crisis on export-oriented industries.
Growth by business for the fourth quarter
Electrical Distribution (57% of 2008 sales) achieved 3.9% organic growth in the fourth quarter, driven more particularly by the offerings in power solutions and in medium voltage. Automation & Control (29% of 2008 sales) posted negative growth of -6.7%, impacted primarily by the downturn in the industrial end-market segment. Excluding customized sensors business unit, sales of Automation were down by -4.5%. After three quarters of strong growth, Critical Power & Cooling businesses (14% of 2008 sales) registered a negative growth of -4.0% in the fourth quarter attributable primarily to channel inventory reduction in its small systems product ranges, while some project delays reduced the growth of its large systems for enterprises and the related services.
Financial Information
EBITA Profitability AT 15.0% Reaches High End Of New² Target Range
EBITA had its fifth consecutive year of increase, with +8% in 2008 to EUR2,754 million. The following factors contributed to the increase:
Organic growth led to a volume effect of EUR244 million. Mix was less favorable with a -EUR145 million impact, reflecting stronger growth in less profitable product lines.
Pricing was strong across all regions, at EUR375 million or 2.2% of sales. This performance allowed offsetting not only the -EUR149 million inflation in raw material costs but also the EUR106 million coming from other production costs, mainly labor. In some countries, higher prices also came to offset the depreciation of the domestic currency to protect margins.
Industrial productivity continued at a high pace with gains of EUR331 million, representing 3.6% of the products’ cost of sales. Savings from purchasing increased, notably thanks to purchase globalization, while they remained at a high level for rebalancing and lean manufacturing.
The currency fluctuations also impacted EBITA, by a negative EUR159 million, including a transaction impact of EUR-70 million, as a result of the strong volatility of many currencies in the second half of the year, including the British pound, the Australian dollar and currencies of some new economies, partly offset by higher prices in some of those countries.
Lastly, EBITA includes EUR34 million from Pelco acquisition, the global leader in video security. Other acquisitions, net from divestments, contributed an additional EUR11 million.
EBITA margin increased by 0.2 point in 2008 to a record level of 15.0%, at the higher end of the new target range. This profitability improvement was led by the Asia-Pacific region, the margin of which gained 2.3 points, but also by Europe and the Rest of the World. North America margin edged down by 0.2 point. All businesses (Electrical Distribution, Automation & Control, Critical Power) improved their margins.
