SCH2017_DRF_EN_Livre.indb

4 Business review

Review of the consolidated financial statements

The Medium Voltage (Infrastructure) business generated revenues of EUR4,500 million, or 18% of the consolidated total. This represents a decrease of -8.5% on a reported basis, mainly due to the disposal of DTN, and a decrease of -2.2% on a like-for-like basis, impacted by selectivity initiatives on projects. Services revenues were stable but orders were up mid-single digit. North America decreased, while China posted a strong growth. Western Europe was flat, with growth in France. Rest of the World was impacted by Middle-East which suffered from a weak Oil & Gaz sector. Gross profit Gross profit increased from EUR9,358 million for the year ended December 31, 2016 to EUR9,498 million for the year ended December 31, 2017, or +1.5%, mainly due to an increase in 2.3 Research and development expenses, excluding capitalized development costs and development costs reported as cost of sales, decreased by 4.9% from EUR527 million for the year ended December 31, 2016 to EUR501 million for the year ended December 31, 2017. As a percentage of revenues, the net cost of research and development decreased at 2.0% of revenues for the year ended December 31, 2017 (2.2% for the year ended December 31, 2016). Total research and development expenses, including capitalized development costs and development costs reported as cost of sales (see note 4 to the consolidated financial statements) decreased by 2.2% from EUR1,209 million for the year ended December 31, 2016 to EUR1,183 million for the year ended December 31, 2017. As a percentage of revenues, total research and development expenses remained stable at 4.8% for the year ended December 31, 2017 (4.9% for the year ended December 31, 2016).

The Secure Power (IT) business generated revenues of EUR3,615 million, or 15% of the consolidated total. This represents an increase of +0.7% in a reported basis and an increase of +2.1% on a like-for-like basis. The Datacenter market, led by Secure Power channel, benefitted to the whole portfolio of the Group, with notably a double-digit growth on Low & Medium Voltage technologies. New Economies reported strong growth up to 7%, while Mature declined slightly. Services posted a good growth.

productivity and actions on prices. As a percentage of revenues, the gross margin remained stable at 38.4% in 2017 ( versus 38.3% in 2016).

2.4 Support function costs: research and development and selling, general and administrative expenses

In 2017, the net effect of capitalized development costs and amortization of capitalized development costs amounted to EUR62 million on operating income versus EUR97 million in 2016. Selling, general and administrative expenses increased by 0.2% from EUR5,333 million for the year ended December 31, 2016 to EUR5,346 million for the year ended December 31, 2017. As a percentage of revenues, selling, general and administrative expenses decreased from 21.8% in 2016 to 21.6% in 2017. Combined total support function costs, that is, research and development expenses together with selling, general and administrative costs, totaled EUR5,847 million for the year ended December 31, 2017 compared to EUR5,860 million for the year ended December 31, 2016, a decrease of 0.2%. The support function costs to sales ratio decreased from 24.0% for the year ended December 31, 2016 to 23.6% for the year ended December 31, 2017.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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