Schneider First-Half Profit Falls 5% on Taxes and Currencies

Schneider Electric SA (ALO), the French electrical gear maker in talks to buy the U.K.’s Invensys Plc. (ISYS), said first-half profit fell 5 percent as higher taxes and unfavorable exchange rates offset rebounding sales.

Net income fell to 831 million euros ($1.1 billion) from 876 million euros a year earlier, the company, based in Rueil-Malmaison near Paris, said in a statement today. Analysts estimated 837 million euros, on average.

“Growth in North America and China gains traction and new economies sustain their good momentum,” Chief Executive Officer Jean-Pascal Tricoire said in the statement. He reiterated his 2013 goals for sales and margins as expects “the first signs of sequential stabilization towards the end of the year in western Europe and continuous growth in North America, China and new economies in the second half.”

Tricoire has until Aug. 8 to say whether he’ll proceed with the acquisition of Invensys, which would give Schneider access to software and control systems used by chemicals makers, oil refineries, and mining companies. The purchase, which would be Schneider’s biggest since the $6.1 billion purchase of American Power Conversion Corp. in 2006, would supplement its factory automation offering as the company faces a slump in European construction.

Invensys Bid

Schneider is offering to pay 505 pence a share, comprising 319 pence in cash and 186 pence in new shares, London-based Invensys said July 11. Invensys has indicated it’s likely to accept an offer at the proposed value of about $5 billion. The talks are at an early stage, the French company said at the time.

Standard & Poor’s said on July 17 it may cut Schneider’s A-credit rating as the company takes on more debt to fund part of the acquisition. The transaction “would put some pressure” on Schneider’s credit metrics, Moody’s Investors Service said the same day.

Schneider reiterated a 2013 target for “low-single digit organic growth in sales and a stable to slightly up” margin based on adjusted earnings before interest, taxes and amortization.

Adjusted Ebita dropped 2 percent to 1.53 billion euros in the first half, representing 13.4 percent of Schneider’s revenue compared with 13.6 percent a year earlier. The depreciation of some emerging market currencies, the British pound and the Australian dollar against the euro shaved 38 million euros off Ebita, which was also hurt by a “one-off impact” from some unspecified projects.

Revamp

The French company is slashing costs by cutting jobs, regrouping sites, being more selective on services contracts, and redesigning products to adapt to a construction slump and government austerity measures in Europe.

The restructuring costs, which rose to 62 million euros in the first half from 43 million euros a year earlier, are expected to increase in the second half, Schneider said.

Its second-quarter revenue climbed 3.7 percent to 6.22 billion euros, helped by the purchase of the 50 stake in Russia’s Electroshield-TM Samara it didn’t already own. Excluding currency effects and acquisitions, sales climbed 2.6 percent.

Asia overtook western Europe in terms of revenue in the April-June period, becoming the group’s largest region on that measure, Schneider said. Revenues in new economies were up 7 percent organically in the quarter, outperforming mature countries by 7 percentage points, as sales continued to fall in southern Europe and were impacted in Germany by lower utility spending. Sales in North America rose 10 percent like-for-like.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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