October 25, 2013 / 7:00 AM / in 4 years

UPDATE 2-Schneider slashes 2013 revenue outlook, blames euro exchange rate

* Cuts 2013 sales and margin forecasts after forex hit

* To shift production to emerging markets

* Q3 sales down 3.2 pct at 5.9 bln euros

* Shares drop 3.7 pct, worst performers on Euro Stoxx 50

By Natalie Huet and Gilles Guillaume

PARIS, Oct 25 (Reuters) - France’s Schneider Electric cut its revenue forecast for this year on Friday, blaming unfavourable exchange rates, and said it would raise prices and shift production to emerging markets to preserve margins.

The electrical gear maker posted slower quarterly sales growth, citing weakness in Western Europe, and was the latest European-based multinational to complain of weak currencies slashing the value of overseas sales and hurting profitability.

It forecast “stable to limited” organic sales growth for the year and said the depreciation of foreign currencies - including the U.S. dollar, the Indian rupee, the yen and the Brazilian real - would slash revenue by 800-900 million euros.

The group had previously expected low single-digit percentage growth in revenue for the year ending in December and a currency hit of 600 million euros ($828 million).

Adverse currency moves would also cut 0.3 to 0.5 percentage points off its 2013 adjusted EBITA (earnings before interest, tax and amortisation) margin, which it had expected to be stable to slightly higher than 14.7 percent in 2012.

Shares in Schneider fell 3.7 percent after the dual warning, the worst performer on the Euro Stoxx 50 index of European blue-chips.

The French company, which earns 75 percent of its revenue in foreign currencies, joins a chorus of multinational companies in complaining that their earnings are being crimped by a weak dollar and a sharp depreciation in emerging market currencies.

They include French-based car maker Renault, building materials supplier Saint-Gobain and insurer AXA.

On Friday, Swedish home appliances company Electrolux also cited weak emerging currencies and tough conditions in Europe as it announced a fall in quarterly earnings and 2,000 job cuts, and said it would shift more production to emerging markets.

SOLID CHINA GROWTH

Schneider’s Chief Financial Officer Emmanuel Babeau told Reuters he expected emerging market currencies to remain weak throughout 2014 and that the company would move production to emerging markets to benefit from lower costs.

“It’s what we call rebalancing - further putting into fast-growing emerging countries more and more of our costs, our teams, our structures,” Babeau said, citing southeast Asia, South America and Russia.

Around 40 percent of Schneider’s more than 140,000 worldwide workforce as of last year is already based in emerging markets while a third are in Western Europe, which accounts for around 30 percent of the company’s revenue.

Schneider also said trading conditions in Europe were still tough: its sales dipped in France and Germany in the third quarter and posted double-digit declines in Spain and Italy.

Third-quarter group sales, at 5.9 billion euros, were down 3.2 percent from a year earlier. Organic revenue rose 0.7 percent, slowing from 2.6 percent growth in the second quarter.

Sales fell 6 percent in Western Europe, contrasting with solid growth in China and North America, where organic revenue rose 4 percent and 3 percent, respectively, driven by investment in construction. North America accounts for 25 percent of company revenue and the Asia-Pacific contributes 27 percent.

Schneider’s products help utilities distribute electricity, and it makes automation systems for the car and water treatment industries. Like rival engineering firms Siemens and ABB, it has seen sales hit by Europe’s austerity policies, which led companies and governments to slash capital spending.

Chief Executive Jean-Pascal Tricoire, in a conference call, said the company was not focusing on further acquisitions but on the integration of British engineer Invensys, which it recently bought for $5.2 billion to strengthen its portfolio against larger players such as ABB and Siemens.

The deal was approved by Invensys shareholders last month but is still subject to regulatory approval. Schneider said it was uncertain whether Invensys would be consolidated into its results this year or only in 2014.

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