UPDATE 2-Schneider cuts sales forecast on China, W.Europe

Thu Oct 25, 2012 6:16am EDT

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By James Regan and Gilles Guillaume

PARIS, Oct 25 (Reuters) - French engineer Schneider Electric cut its full-year sales forecast as western European markets worsen and a rebound in China is delayed until 2013.

Finance chief Emmanuel Babeau said while a decline in sales in China had stabilised in the third quarter, he was unable to forecast whether a recovery there would come in the first or second half of next year.

"We do not know when it will come. I'm certainly not pointing to clear evidence that the recovery for China is for the beginning of 2013," he told a conference call on Thursday.

Schneider, like other engineering and infrastructure companies, has been hit by stagnant growth in some regions and recession in others, with austerity-minded companies and governments slashing capital spending.

Swiss engineer ABB for instance posted a 4 percent drop in quarterly profit on Thursday, though it said rising demand for energy efficiency and urbanisation underpinned longer-term prospects.

Babeau added that there was a "more pronounced slowdown" than expected in western Europe, especially home market France.

Schneider now sees group organic sales flat to slightly negative this year, against a previous flat-to-slightly-positive forecast. Third-quarter sales were up 7.1 percent to 6.1 billion euros ($7.9 billion), but were down 1.9 percent on a like for like basis.

The company, whose products help utilities distribute electricity and which also makes automation systems for the car and water treatment industries, stuck to its full-year adjusted EBITA margin target of between 14 and 15 percent, however, helped by price rises and cost control.

STRATEGIC PLAN

Shares in Schneider were 0.8 percent higher at 48.915 euros by 0900 GMT. The stock has gained one-fifth this year.

Schneider is several months into a three-year strategic plan to drive growth from its service business - which provides infrastructure and IT support and accounts for more than a third of the total business. The plan also targets emerging markets, where it makes around two-fifths of sales.

Asia-Pacific caught up with western Europe in the third quarter, with both regions contributing around 28 percent of group sales. The sales trend in China was similar to the first half of the year, declining by a mid-single-digit percentage amount, Babeau said.

Schneider said demand in its power division suffered from "sluggish construction and industry markets" in China, while there was weaker demand from Chinese utilities for its infrastructure unit. Its information technology business is growing in China, however, Babeau said.

"We think that there are a number of elements that have started together to make a more favourable environment for next year (in China)," Babeau said.

He pointed to the once-a-decade leadership transition due to take place at China's Communist Party congress next month, as well as infrastructure plans and some early signs of improvement in the real estate market.

Economists broadly expect that China will keep pro-growth policies, though they will not be expanded.

Schneider's power division, which contributed 37 percent of third-quarter sales, was also hit by a weak business environment in France and southern Europe, as well as a slowing residential market in Australia. The infrastructure unit was hurt by reduced private investment in southern Europe and France. ($1 = 0.7711 euro) (Editing by Mark John and David Holmes)

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