2007 annual report Registration document Schneider Electric SA Contents Interview with the Chairmen 3 2007 - A customer-focused leadership team 6 4 2007 key figures 8 2007 in brief 11 Business review 1 - 2007 highlights 70 2 - Operating performance 71 1 3 - Change in financial situation 74 4 - Outlook for 2008 76 Description of the Company 5 - Sustainable development 77 and its businesses 1 - From steel to energy: 172 years of history 14 2 - An ambitious strategy 15 5 3 - The new2 company program 16 4 - Global leadership in five promising markets 17 Consolidated financial 5 - Forefront positions worldwide 19 statements at 6 - Our customers are our partners 22 December 31, 2007 7 - A global organization with local roots 23 8 - Human Resources 27 1 - Consolidated statement of income 102 9 - Risk factors 28 2 - Consolidated statement of cash flows 103 3 - Consolidated balance sheet 104 4 - Consolidated statement of changes 106 in equity and minority interests 2 5 - Notes to the consolidated financial 107 ftatements Corporate Governance 6 - Report of the Statutory Auditors 154 on the consolidated financial statements 1 - Supervisory Board 36 2 - Organizational and operating procedures 41 of the Supervisory Board 3 - Supervisory Board meetings in 2007 42 6 4 - Committees of the Supervisory Board 43 5 - Management Board members 44 Company financial 6 - Organizational and operating procedures 45 of the Management Board statements at 7 - Declarations concerning the situation 46 December 31, 2007 of the members of the Supervisory Board and Management Board 1 - Balance sheet 156 2 - Statement of income 158 8 - Internal control 46 3 - Notes to the financial statements 159 9 - Management interests and compensation 52 of Schneider Electric SA 10 - Regulated agreements 56 4 - Auditors' report on the financial statements 166 11 - Auditors 56 5 - List of securities at December 31, 2007 167 12 - Shareholders' rights and obligations 57 6 - Subsidiaries and affiliates 168 7 - Five-year financial summary 170 3 General presentation 7 of Schneider Electric SA Annual and Extraordinary 1 - General information 00 Shareholders' Meeting 2 - Capital 00 3 - Ownership structure 00 of April 21, 2008 4 - Employee profit-sharing, stock ownership, 00 1 - Management Board’s report to the Annual 172 stock option and stock grant plans and Extraordinary Shareholders’ Meeting 5 - Stock market data 00 2 - Auditors' special reports 177 6 - Investor relations 00 3 - Resolutions 180 Attestation 185 This document was registered with Autorité des Marchés Financiers (AMF) on March 17, 2008 in compliance with Article 212-13 of AMF’s general regulations. It may not be used in connection with any financial transactions unless it is accompanied by an Offering Circular approved by AMF. 1 2 Interview with Jean-Pascal Tricoire 2006 was a historic year for lineups right away. Our large system solutions, Schneider Electric. Did the Group set designed primarily for data centers, are the most new growth and earnings records effective and innovative in the world when it in 2007? comes to energy efficiency, flexibility and reliability. 2007 was a key year for two reasons. They represent an extremely powerful growth First, Schneider Electric achieved new operating driver for the Critical Power & Cooling Services performance records. Annual revenue rose 26% Business Unit formed from the combination on a current structure and exchange rate basis, of APC and MGE. The teams also deployed which means that the top line has doubled over operating efficiency plans that fuelled a remarkable the past four years. Organic growth reached an recovery in profitability, bringing the Business unprecedented 13.9%, greatly exceeding growth Unit’s EBITA margin close to the Group average. in our end markets. EBITA* also increased sharply, The targets achieved greatly exceeded our by 27%, and EBITA margin widened by 1.2 points expectations. Thanks to this acquisition, we have on a pro forma** basis to a record 14.8%. gained global leadership in the very promising Net profit grew by a strong 21% and free critical power and cooling services market, cash flow jumped 38% to €1.5 billion. Second, broadened our technological portfolio and we successfully integrated APC. considerably expanded our accessible market. How did the acquisition of APC gives you a major entry into American Power Conversion (APC), cooling and air conditioning. market leader in critical power and Temperature control in an intrinsic part of our cooling services, contribute to business. For many years now, we’ve offered the year’s performance? leading-edge temperature control systems for This is our largest successfully completed our target markets–industry, infrastructure, acquisition since Square D in 1991. It’s also the buildings and residential. Now we also have first time the Group turned around a newly solutions for technological applications. APC acquired company so quickly. We immediately has the advantage of offering the most innovative merged APC and MGE UPS Systems so that our system on the market in terms of energy customers could benefit from their synergistic efficiency and precision. * EBITA = EBIT before amortization of purchase accounting intangibles. ** Including APC data over 10.5 months in 2006. We confirm our 2008 targets for organic growth of between 6% and 8% and EBITA margin of 15%. “ Jean-Pascal Tricoire, Chairman of the Management Board and CEO ” 3 Is it profitable for a customer to invest in energy efficiency? It certainly is. With prices skyrocketing for oil, fossil fuels and energy in general, investing in energy efficiency is definitely a good move. What’s more, the outlay required is generally quite small, so customers get a quick, lasting and immediately visible return on investment. Did Schneider Electric benefit from We don’t have any choice here. The world has the repositioning of its business portfolio recognized that the issue of greenhouse gases in 2007? needs to be addressed urgently and that energy Without a doubt. Our new business portfolio is becoming scarce and expensive. More and structurally improves our growth profile. more regulations on electricity are being issued, Our exposure to end markets has changed and this is just the beginning. Our customers are substantially and is much more diversified. also seeing a huge surge in their energy bills. This means we can take advantage of growth Schneider Electric offers solutions that can opportunities and also withstand weakness in reduce energy costs and CO2 emissions by 30% certain segments. We operate in highly promising in all types of applications. Sales of these markets such as data centers, raw material solutions rose 15% in 2007 to €3.6 billion; energy extraction and infrastructure (water treatment and efficiency accounted for 20% of our orders. power supply). When one market slows down, We estimate this market’s underlying structural we can quickly refocus our resources on more growth at more than 10%. Schneider Electric has vibrant areas. a unique global position as an energy efficiency specialist. What did Schneider Electric do for sustainable development in 2007? Does Schneider Electric have other Our goal is to be the benchmark in sustainable growth drivers? development. Our products, processes and plants Yes, emerging markets. Operations in these must be the cleanest and most efficient in our countries accounted for 32% of our 2007 revenue, industry and comply with or anticipate the most or €5.5 billion. Our exposure here is much sturdier demanding global environmental regulations. than in the past. We have sales operations, To go even farther in meeting the environmental production, supply chain and R&D units and very challenge, we provide customers with leading-edge solid and competent teams in emerging markets. solutions and technologies for energy efficiency. Growth in these countries accelerates each year That’s the idea behind the HOMES program to as we consolidate our platform and teams. innovate in energy savings. Lastly, we promote Growth stood at 20% in 2007 and exceeded 13% a proactive and responsible attitude towards our on average over the past ten years. employees and the community. Our goal is to be the benchmark “in sustainable development. 4 ” We have already exceeded the targets of our This year, we decided to move our Foundation new2 company program for developing talent, forward by giving it more ambitious missions. diversity and occupational health. In addition, we These include ensuring universal access to strongly encourage our suppliers to join the United electricity, training young people and supporting Nations’ Global Compact. All of these actions have start-ups in our businesses and pursuing helped put Schneider Electric in the world’s main rebuilding projects after natural disasters. socially responsible investment indices. Message from Henri Lachmann Chairman of the Supervisory Board he corporate governance system Tdeployed by Schneider Electric in May 2006 demonstrated its worth in 2007. Separating oversight from the strategic and operating We complement each other and work together functions was the right choice. Schneider Electric effectively in a frank, harmonious environment. SA’s Supervisory Board would like to take this We are in an industry of the future. Demand for opportunity to renew its confidence in this electricity is growing year after year, energy governance system, in the new management efficiency has become a priority, and emerging team, the Management Board and its Chairman. markets contain the greatest growth potential. This young, energetic and diverse team has With our lineup of products and services and our regenerated our Company while maintaining operations in emerging markets, we are very well continuity. With its resolutely long-term view, positioned to take advantage of these this team delivered record growth in 2007 and opportunities. obtained excellent financial results. Our stock market performance does not accurately The Supervisory Board was exemplary in reflect our excellent results, healthy fundamentals carrying out its responsibilities and deserves our and new growth profile.