Schneider Electric SE

PAR:SU

Earnings Call Transcript 2019-Q1

[Operator]

Good day, and welcome to the quarter 1 financial release Schneider Electric conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Amit Bhalla, Head of Investor Relations. Please go ahead, sir.

[Amit Bhalla, Vice]

Well, thank you, operator. Good morning, everyone, and welcome. Early start than usual this time, but thanks for making it. So we're here for the Q1 revenue release. It was released an hour ago on our website. The presentation and release is available. To take us through today, we have Deputy CEO and CFO, Emmanuel Babeau. So we have about maybe 30 minutes of presentation and followed by Q&A. So with the usual disclaimer that you will see on Slide #2, I want to hand it over to Emmanuel.

[Emmanuel Babeau, Deputy CEO & CFO]

Thank you, Amit. Good morning, everyone. Really pleased to be with you. And I just have to repeat what Amit has been saying. Thank you. I know it's an early start for many of you, so thank you for being with us.I suggest that we start immediately on Page 5 of the presentation. And as a starter, I would like to remind that Schneider is a simple and focused company. We have 2 businesses, and each of them is driving a major transformation of the world economy. Of course, on one side, you have Energy Management driving energy transition. On the other side, you have Industrial Automation driving Industry 4.0. And each of them, of course, is accelerated by the digital disruption. And we start here making a difference with leading expertise in that field.All that is driving significant opportunity for our customer. And when we talk about our customer, I talk about our 4 domain of expertise -- 4 end markets: building, data center, infrastructure and industry. And here you have a display of some of the benefit for the customer in terms of energy efficiency, productivity, of course, reliability and safety and, last but not least, when it comes to delivering sustainability to the growth and to the development.I'm now moving on Page 6. And all that simple company focus with leadership, which is a clear value proposition for the customer that is translating into continued dynamism in our growth. And as you have seen, we are off to a good start in 2019, I would say, but I'm going to elaborate on that. All the ingredients that made our success in 2018 continued to deliver in Q1. So globally, EUR 6.3 billion of sales growing organically, plus 5.9%. And you see that the 2 businesses have been growing nicely: Energy Management, on one side, growing 7% organically; and Industrial Automation growing 4%, that is making a retreatment and taking as a scope effect here at the end of panel activity with low margin in the U.S. And of course, based on that good start, we are reaffirming our 2019 target.Moving to Page 7. One of the reasons for our success, I think, has been, of course, the successful strategy that we've been now implementing in a very consistent, I would say persistent manners over the last few years now and quarter-after-quarter are showing its strength and the result it does deliver. It starts, of course, with the fact that we have a well-balanced portfolio by geographies. You see here that Asia Pacific is #2 this quarter behind North America. And it's certainly interesting to see that Asia Pacific is growing fast. Nevertheless the best performer is North America this quarter. So this capacity to see the growth, wherever it is, is a big plus for our company today.The other dimension which maybe have not been well totally perceived is the fact that the company has been evolving and is now well balanced in terms of exposure to the various parts of the economic cycle. And we have a good balance between early cycle and mid/late cycle exposure. And clearly in Q1, we have seen the benefit of that. We talk about that when it comes, of course, to Industrial Automation, but I would say it's also the case when it comes to Energy Management.Moving to Page 8. The strategic priorities have been also very clear for a long period of time now, and we keep working on them and delivering. You know that the first thing is that we want to drive more product, and we want to maximize the growth on product. And they are still growing, I would say, nicely by 3% despite the fact that, of course, we are progressing through the economic cycle. So it means that we are able to globally, with innovation, with the quality of the portfolio, with the geographical exposure, to keep delivering growth on product even if the evolution of the cycle is less favorable for them. We want more services because they're coming with great margin, great return on capital employed, and Q1 has been absolutely excellent in that respect at plus 11%. We want more software, and I don't think I need to tell you why we think that we absolutely need to develop software, both for what they bring to the customer and, of course, because they represent a fantastic value creation. And once again, we are coming here with the quarter with double digit, and we are extremely pleased with the AVEVA performance.We want EcoStruxure, which is really a powerful drive of our digital and an integrated offer. We want EcoStruxure to grow faster than the average of the group, and we keep delivering on that.We also want better systems. So systems are not the priority, but we certainly want to grow them in a profitable and efficient manner. You see that they are growing by 10%. It does reflect the evolution, of course, of the economic cycle. And we go for more infrastructure, more data center, more process automation project, and that means more system. And it's good to see the capacity that we have to balance the growth through the cycle and to limit the volatility, thanks to this exposure to late and mid-cycle activities. So that's what the system growth is reflecting that. And, of course, all this priority, all the objectives being then translated into the overall growth for sales.Moving to Page 9. It's also our strategy about being focused and getting even more focus. And that start, of course, with the portfolio optimization that we have announced, EUR 1.5 billion to EUR 2 billion revenue that are today under strategic review. First, disposal occurred in Q1 with Pelco. You know the term of the transaction. You know the impact on the company. We've been disclosing that. We are here at the beginning of the process. And of course, I'm not able yet to share the time line and what's coming next, but you should expect us to come with more pruning of the portfolio in the coming months, in the coming quarters, because by pruning the portfolio, we are making the business stronger, simpler. And of course, there is a very strong merit on the focus on the quality of the execution, and on the strength of the execution.We are also making sure that we are strengthening our core by gathering more strengths or, I would say, building new teams. And the Carlyle partnership that we have announced for critical infrastructure and to make sure that together, we build superefficient, sustainable digital infrastructure with 2 nice projects, the JFK Airport and the Lone Star Ports Harbor Island. That's 2 projects that, of course, are just the beginning of what we think we could be together. But it shows that there is today a need for efficient critical infrastructure, that we are extremely well placed, I would say, really with a strong differentiation and, I guess, why Carlyle has decided to partner with us in that respect. And we see very nice potential of development in that direction and through this partnership.Moving to Page 10. We wanted to remind here the pillar of the growth and what the strategy is building upon. You know them, the 4 pillars, starting, of course, with innovation. We came up again with plenty of innovation, whether on contactors, on new PLCs. You have here a new digital protection relay. You have new UPSs. That is a big objective for us to continue to accelerate on innovation, to make sure that this innovation is reaching our customer fast and that the share of new product or innovation among the global shares keep increasing month after month. That's how we get differentiated, and that's how, of course, we manage to bring value and price for it.Second pillar, the digital. We have been nicely growing our assets under management by 39% year-on-year. We've been developing more Advisor apps on EcoStruxure. And for those who were in Hanover, you've seen the launch of our Exchange platform, which we think is going to be a nice collaborative platform and a great ecosystem for improvement, for sharing and, at the end of the day, for creating value ultimately for the customer and for all our partners and people willing to work with us for the benefit of the customer.Third pillar, we are segment-focused. We know that at the end of the day, expertise differentiation is coming with knowledge of given application and, I would say, intimate granular knowledge of the need of the various end markets and to talk the language of the customer. And we have a very nice progression of orders in a few of them which are, of course, critical like Oil & Gas and MMM. And we are even growing double digit, showing that we really manage to make a strong impact when we have this focus.Fourth pillar, extremely important, you know it, the cross-selling. We see day after day that our customer are asking for this capacity to bundle technology together within Energy Management. I can tell you we really no longer speak about family of product or type of technology, but we talk about how do you make my Energy Management efficient, sustainable. And above that, of course, you have the cross-selling between Energy Management and Industrial Automation, which is allowing us here again to make a big impact among consumer goods, Oil & Gas, mining or water wastewater. And I think we really see in our performance the strength of the cross-selling, and Q1 is another illustration of that.Good to talk in general term but also important to speak about some detail and precise case of success of putting together and cross-selling. I have to start with the building one, in the Tottenham Stadium. I mean yesterday evening, they were not playing in Tottenham. But not only with the new stadium, which is full of Schneider technology, are they more efficient in term of energy-saving, safer and globally improving dramatically the customer experience and the fan experience but apparently it's giving chance at home because I think they haven't lost since they are starting the new stadium and maybe away as well, but maybe I'm getting a little bit too far there.Data center. A nice project in China where we are putting together the whole power management, and that has been attached to a secure power as well. Infrastructure. Great project with the Marines where we are putting together both going for renewable, getting greener and the, I would say, reliability and efficiency. So we are covering the efficiency, the reliability but also becoming greener. And it's not -- the 2 are not antagonist, of course, and they get on together extremely well.Fourth thing is just the full monty. It's an ethanol plant in Brazil where we've been delivering a combo of all power management, media voltage, low voltage, secure power. We've been selling plenty of technology for Industrial Automation and plenty of software from AVEVA. And it really shows that -- I mean we are not dreaming about this kind of project. They are actually happening, and we see more and more of this project month after month.Well, we know that, and I'm not going here to take you by surprise, driving sustainability for our customer in the way we operate for the community we interact with and, therefore, globally for the planet is part of our DNA. We are reporting quarter-after-quarter our progress on the Schneider Sustainability Impact. You have here the performance at the end of Q1 versus where we were at the end of Q4. You have the final objective. And I have to highlight here that given the fact that we were progressing fast and really having a fast journey, we decided to raise the bar for some of the indicators. So we are making our target more demanding, more difficult to reach, but we are super happy to do that. But it's just showing that we are on this various parameter making good project. And of course, we have one branch, one division which is epitomizing this sustainability mission that we carry, which is ESS, Energy & Sustainability Service. And here we just wanted to put a nice project with the city of St. Joseph, where we've been working with them on, again, how to make their energy management greener, more efficient and certainly with a very high degree of reliability. And you have the testimony of our partner there. It's one story among many, many other.Moving to Page 13, I'm going to sleep very well. It's nice to see that this particular feature of Schneider, the mission that we have is recognized. You have the list of the price, or the recognition that we have received in Q1. But it's just good to see that this is making an impact, and this is seen by the outside world.All right. So now let's go to the numbers. But of course, the numbers are coming from what I've just been explaining. And let's start by the Page 15 and global view on sales evolution. So sales amounted globally at EUR 6.307 billion. It's up plus 8.7% versus the first quarter of 2018. Good to see that the ForEx is moving positive at plus 2%. Biggest driver here is U.S. dollar. Second then is the Chinese yuan. And then we have a number of currency that have been negative for us, whether in Middle East, in South America, the ruble has been -- the Russian ruble has still been negative for us in Q1. But in total, it's positive. We see now for the full year, based on the current parity, a positive impact on top line which has improved. Now it's between plus EUR 300 million and plus EUR 400 million. And on the FX, we were expecting something around stability. It could be slightly negative, I mean it's really moving marginally, but it could be around minus 10 basis points because of some of the new economic currency that has been depreciating. On the scope, plus 0.8%, this is mainly AVEVA, to be very clear. And that leave us with an organic growth of plus 5.9%.Moving to the detail of that. So I've already alluded to the 3 components of the growth, starting with the products, so plus 3%. Clearly, in the Buildings end market, we have seen continuation of a very good growth. Discrete industry has been moderating in term of growth but globally still growing [ up ] in line with our expectation, and that's what we were planning for. And really to deliver 3%, it shows the strength of the portfolio and I would say the impact that we manage to have on the various geographies.I commented about the system growth, the plus 10%. It's good to have this exposure to process industries, to data center, to infrastructure because they are a nice contributor to the growth now. As you know, we are working on the quality of the system and on the profitability of the system as well. It allows really to smooth the volatility and decrease massively the volatility through the cycle.Last but not least, service and software, 12% growth in Q1, really growing extremely fast both of them. And on services, I have to highlight the very nice growth on data center and among our industrial customer. I talk about ESS, and that is doing extremely well. And you have seen, of course, the performance of AVEVA for the Q1. And they've been closing the first year as a new AVEVA. And we are very pleased, of course, that we'll communicate the full year results in the course of May, but the top line growth has been extremely good. And it's a great satisfaction for the first year to see already such a dynamism.Let me get a little bit into Energy Management and Industrial Automation. I'm on Page 17. I'll start with Energy Management, of course, EUR 4.738 billion, it's up 9.6%. We really have continued to grow nicely on the residential and on small building. We are playing here on innovation. We are working on the channel. The cross-selling is very important here. We have a good progression on the Commercial & Industrial Building. And that's really the strength of this company, to be able to cover both residential and small tertiary but also the CIB. That's a big strength of the company, and that has been playing across geographies.Good cross-selling as well with Industrial Automation. That has been showing notably in Oil & Gas, MMM, EcoStruxure, is hitting the market with great success and continuation of a really great journey on data center with double digit. I must say the sequence that you have here on the right-bottom part of the slide is impressive. The growth over the last 9 quarters, it has been now several years in a row of good growth for Energy Management, and that is continuing in Q1.Moving by geographies. I'm sure you've been impressed by the growth in North America, plus 12%. So it is a combination of strength on building, both resi and nonresi. Data center doing very well, I talked about services growing well and ESS notably. So that's what is accounting for the 12% growth in North America. Asia Pacific, plus 8%; very solid performance in China. We have been certainly further enhanced, I would say, by some distributor restocking. That certainly has been, I would say, helping the number. But fundamentally, what is happening in China is what we said would be happening, that China is a growth market, that despite the fact that we are seeing some very, very high comps in Q1, going to continue in Q2, we see the Chinese market as a growth market. We see construction going well. We are here flagging the fact that we believe that after a fantastic period of growth, the growth could moderate in the coming quarter I would say to a large extent in line with our anticipation already several months ago. But we see also all the Energy Management things that we [ sell ] to infrastructure, to industry doing well. India has continued to deliver a good growth. And we've seen Southeast Asia and Australia also performing well, notably on data center and smart grid customer.Rest of the World growing 4%. Good to see South America back to growth. Africa, that keeps growing as well. For the more negative, Middle East has been down with a number of market like Saudi Arabia, the Gulf being more difficult. And CIS globally has been down. Good trajectory, I would say, for [ signaling ] to residential, commercial building, much more difficult when it comes to investments in Oil & Gas and, therefore, all the Energy Management that we sell to that end market. Western Europe, plus 3%; good growth seen in Italy and Spain; good growth seen in the U.K., but clearly, uncertainty is increasing, linked to the Brexit, and that is having some impact. And we see a wait-and-see attitude and the level of project on which we are working with the customer, the pipe, I mean all that is certainly impacted by the level of uncertainty. Germany has been a bit down, and France has been down notably because of a weak utility market.Going to Industrial Automation, so up plus 2.3%, but we believe that you really have to -- organically, we really have to treat the end of the panel builder, which was a low-margin business in the U.S., and that's the reason why we decided to stop it. We have been delivering a 4% organic growth, so without that impact. And there was a lot of questions I know around what's going to happen to the Discrete and the OEM business. We've been extremely clear on the fact that the OEM has been slowing down and sometimes significantly. That has been the case in China. But nevertheless, we are still slightly up despite the slowdown in some of these geographies. Comps were high in Q1. They're going to be even higher in Q2 because all these discrete business was on fire in Q2 last year. But nevertheless, it's good to see that discrete is holding up decently well. We have strong growth in Process & Hybrid that is continuing, and that's boosted by late-cycle demand that was expected, but you know that we would have the relay of these businesses through the cycle. And actually, Process Automation has been growing in all region, which is a good news. And I think the sign that the Invensys acquisition, which [ I referred ] of the environment at the beginning, is clearly delivering today, and we see that across the geographies.Now I have to, of course, finish that with the AVEVA detail, double-digit growth, as you have seen again, on the top line. And here you have the combination of the strength of the new portfolio independently and autonomously, I would say, the fact that putting the 2 portfolios together is having a nice impact and creates a lot of dynamism for AVEVA. And second, and it's very important as well, the fact that Schneider and AVEVA together are a unique differentiated value proposal for the customer, and we see very nice traction beyond that. The sequence of growth was impressive for Energy Management. It's even more impressive for Industrial Automation. And you've seen that we've been from mid-single-digit to double-digit growth for the last 9 quarters, so a very, very strong business year with Industrial Automation.Just by geography rapidly, starting with Western Europe. Western Europe is the only region where actually Industrial Automation has been growing faster than Energy Management. Good growth in France, in Germany, in Spain and in the U.K. And actually here good performance on OEM and Machine Solution really doing well. Of course, Process & Hybrid has been also a good performer, but interesting to see that Discrete has been holding up pretty well for us in Western Europe. Then Asia Pacific, up plus 3%; China is still up, again despite this OEM slowdown. And process industry doing well in Southeast Asia. India growing across technology, I would say. And Japan more difficult, here you see that automation has been clearly under pressure and declining.Rest of the World, growing plus 3% as well. Good growth in South America, in CIS, in Africa, in Central Europe. And therefore, really places of difficulties have been Middle East and Gulf and Turkey in particular.And last, North America growing plus 2% excluding panel. Even if we just look at the U.S., U.S. has been growing plus 5%; clearly good performance on process industries. Oil & Gas, food and beverage have been doing well. If you just look at Discrete and OEM, it has been stable. So again, still growing in North America despite this slowdown on Discrete.All right. So that leads me to the conclusion for the rest of 2019. I'm on Page 22. So what should we expect for the rest of the year after this Q1? And we are, if you want, confirming and sometimes refining the vision for the various markets. On China, I think we keep repeating that China is a growth market. We are facing, as we said high basis of comparison and the softening OEM markets. We flagged the fact that construction, infrastructure and many parts of the industry should continue to do well, and that's what we are expecting. And we are here highlighting the fact that construction could soften, could moderate in terms of growth in the coming quarters.North America has been very good in Q1, and we expect North America to continue to be good for the rest of the year. We see large country in Asia Pacific, such as India and all the big geography in East Asia, to continue to enjoy good momentum. In Western Europe, we expect to see continued moderate growth. And of course, Brexit is a big question and what could be the big impact. On the Rest of the World, we expect to see continuation of a contrasted picture. That's exactly what we've been experiencing in the first quarter.So we are, of course, reaffirming the target for the year. We do expect good growth in aggregate in 2019, and Q1 is, of course, just confirming this ambition and the target. We are globally targeting for 2019 an organic adjusted EBITA growth between plus 4% and plus 7%. And as you know, we're going to use the 2 levers to deliver that. The first one is the top line organic growth. We are targeting to be between plus 3% and plus 5%. And the other one is the organic improvement of the adjusted EBITA margin, and we target an improvement -- an organic improvement between plus 20 and plus 50 bps.That ends my presentation, and we are now moving to the Q&A. I will be very happy to answer your question.

[Operator]

[Operator Instructions]

[Amit Bhalla, Vice]

Yes, so just to reiterate, I think we do see several questions in queue. [Operator Instructions] With that, let's move to the first question, please.

[Operator]

Our first question comes from Andreas Willi of JPMorgan.

[Andreas P. Willi, Head of the European Capital Goods]

Emmanuel and Amit, my question is about data centers, which, based on your commentary, seems to have had strong growth in Q1 across many regions. Maybe you could tell us what the overall vertical is growing currently and what do you see on the order intake, whether this can continue in the coming quarters.

[Emmanuel Babeau, Deputy CEO & CFO]

Yes. Andreas, thank you. I mean indeed, data center has been growing nicely. I would say it's a continuation of the trend that we have seen, so it's not as if suddenly there was a big acceleration. That has been there. We've been flying the flag that we were having a nice success on that market. It has been growing across geographies. You are absolutely right. So North America was good, but clearly, many new economy have been good. Many countries in Europe have been good as well. So that's a good momentum that we are enjoying. We know that the cycle is also explaining that. I mean there is -- that's a business where you have acceleration on the growth, and then the growth can be softening. We are still seeing good momentum and good dynamism. I'm not able to say how it's going to evolve in the coming months, but we are certainly taking the view that for the year, data center growth should be a nice contributor to the growth. No doubt about that.

[Operator]

Our next question comes from Andre Kukhnin of Crédit Suisse.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

I'll ask about China. If you could maybe quantify the amount of restock help in Q1 in EM and what your expectations are for this geography for the year maybe for EM and for Industrial Automation, where I guess growth was surprisingly robust still in Q1, and you've got tough comps that you flagged.

[Emmanuel Babeau, Deputy CEO & CFO]

Yes. Andre, I can try. I mean always extremely difficult, of course, to give a growth outlook for the year on China. We started around 7%., again, with the number of element that has been helping. I'm back to my comment on the fact that the Chinese market is a growth market and should be a nice contributor to the growth, I'm not sure that it's going to reach Q1 for the overall year. And probably today, I would say the underlying trend is probably around mid-single-digit growth as a kind of underlying impact without the working day and all that. Knowing that Q2 is a mountain to climb again in China because Q2 is again enormous and notably for Industrial Automation, so that's the kind of underlying and could be a vision to be confirmed for the full year.

[Operator]

Our next question comes from Alasdair Leslie of Société Générale.

[Alasdair Leslie, Equity Analyst]

Just wondering on the Systems growth and your comment about kind of working to ensure profitable growth there and the -- also the implied mix impact on margins. Just wondering to what extent that the strong growth in data centers is influencing that growth and really whether this -- that has any impact on the traditional margin profile that we kind of think about for the Systems business.

[Emmanuel Babeau, Deputy CEO & CFO]

Sure. So, no, absolutely, I mean the System growth is partly, partly only and because you have also Process Automation, you have everything on infrastructure where we sell a lot of Energy Management technology, EcoStruxure, so these are a contributor to the System growth. So data center is a contributor. I would not say that the profile of margin is sufficiently different because they're not the only growth contributor. So you have also other elements, so I'm not sure if it sufficiently is different to change the profile of the margin. And we have globally, I would say, an objective to improve the margin on System. We've been doing that for the last 3 years. We want to continue and it's a big objective to make sure that we keep improving the margin and the return on capital employed on System. Now at the end of the day, it is clear that Systems growth is going to bring some negative mix impact. In front of that, of course, we are coming with a price increase. We are coming with productivity. We have services growing fast. We have software growing fast. We are working on our SFC even if -- and we're going to surprise you, but we are investing to keep our leadership on innovation and digital. But we take all this dimension, and I can't tell you that, of course, includes the impact of System when it comes to working on our margin improvement.

[Operator]

Our next question comes from Jonathan Mounsey of Exane BNP Paribas.

[Jonathan R. Mounsey, Analyst of Capital Goods]

So on the runoff of the [ Powell ] business in IA in the U.S., just thinking about the balance of the year, so what is the impact on the top line as we run this through the year? Obviously, it's quite significant in North America in Q1. Is that a kind of a drag that we should be modeling? Is it annualized just over the next 3 quarters?

[Emmanuel Babeau, Deputy CEO & CFO]

So we'll be happy to provide you, Jonathan, with, of course, the impact. That is -- I mean you have the drag on Q1. You had already an impact on Q4 last year, and I think we flagged the fact that for the full year, that was about 1 point -- 1 full point of growth for Industrial Automation at the group level, all right? So that therefore, if you start with a bit more than EUR 6 billion, it's around EUR 60 million impact for the year. So we'll be happy to provide you with an expected phasing of that.

[Amit Bhalla, Vice]

All right. Jonathan, we'll come back to you on that.

[Operator]

Our next question comes from James Moore of Redburn.

[James Moore, Partner of Capital Goods Research]

Please can I return to China? You mentioned helpfully the 7%. I wondered if you could do the same for IA and EM. I was thinking to a 9%. And you mentioned China construction could moderate in the coming quarters. Can I ask what prompted you to say that? Is it based on comparatives or something more specific like land sales or tender activity or something else?

[Emmanuel Babeau, Deputy CEO & CFO]

Yes. So I understand that question on China, so clearly, I'm happy to provide some detail between Energy Management and Industrial Automation if it was your question. Energy Management was growing high single digit when Industrial Automation was rather growing mid-single digit, okay? So that's the mix of that which is giving the -- around 7% growth. And on the moderation, that's what we can try to [ compare ] with the very high comp that we were having and some exceptional growth last year. And also when we look at the new start, when we look at the environment, that the feeling that we have, that the growth could moderate, we have to be very cautious but because, of course, decision could change that very rapidly on access to credit, for instance, or giving more new permit or whatever. But that's -- based on that, we have the feeling that this could soften -- the growth could soften in the coming quarters.

[James Moore, Partner of Capital Goods Research]

Just to be clear on that, you're talking more about comparatives than any great visibility of order deterioration or tender deterioration.

[Emmanuel Babeau, Deputy CEO & CFO]

Yes, absolutely. Absolutely.

[Operator]

Our next question comes from Gael de-Bray of Deutsche Bank.

[Gael de-Bray]

I had a question about Industrial Automation; and within Industrial Automation, about the Western Europe in particular, which outgrew other geographies this quarter. And I mean some of your competitors had previously flagged some delayed investment decisions in Europe, particularly in Germany, talking about machine builders becoming more cautious on the outlook. So I guess you've not been really impacted by this, this quarter, so the question or the questions I have is -- would be, I mean, what's driving the superior growth in Industrial Automation in Europe now. Why do you think you're getting share in Europe? And how easily could you actually replicate this European success elsewhere in other geographies?

[Emmanuel Babeau, Deputy CEO & CFO]

Thank you, Gael. Difficult for me to say that we are gaining share because, of course, not many competitors so far have been reporting, so not yet fully clear what has been happening. I -- well I think we certainly have been quite efficient in growing still with OEM, making sure that we've diversified the industries through our distribution channel. We were having success. Certainly Process Automation here as well is accelerating, and we see a number of investments. You have to bear in mind that we have very little exposure, I would say unfortunately, to automotive and that maybe some of the slowdown that has been seen in Europe is starting maybe with automotive, so that could explain why we don't have that negative, that drag on the performance. But I'm not sure I can comment more than that. I think it's really, again, innovation, the fact that we are spreading our exposure to the various technology, and again, maybe automotive could make a difference there versus others.

[Operator]

Our next question comes from Wasi Rizvi of RBC Capital Markets.

[Wasi Rizvi, Analyst]

Most of mine have been answered. I guess one thing that didn't come up during the call which I think you spoke about in Q4 was a working day's impact, and it seems like your -- been negligible in the first quarter. But I think you just specified it would be an issue for the whole of the first half, so I guess if you could talk about what you're expecting for Q2 and what you saw in Q1 as well.

[Emmanuel Babeau, Deputy CEO & CFO]

Yes. Sure. That's important. So actually, we had a negative working day impact on Q1 which was close to 1% negative. Actually, Q3 is even worse, and that is going to be significantly more than 1%. So Q2, it was the highest comp last year. We have big working days, so that's going to be a very demanding quarter in term of comps and one-off impact. And then we're going to recover in H2 in term of working days. So for the full year, that should be about neutral, but H1 is very negative, and H2 is going to be much more positive.

[Operator]

Our next question comes from Peter Reilly of Jefferies.

[Peter Reilly, Head of Capital Goods of Equity Research]

Could you please give us a bit more color on what's happening in data centers? You talked about growth in all regions. Are you seeing a trend to smaller, more local data centers for releasing licensee and complying with local regs? And if so, do you think that trend has a long way to run?

[Emmanuel Babeau, Deputy CEO & CFO]

Yes, Peter. Absolutely. I mean really on data center, that's the kind of positive chemistry that we've been experiencing for several quarters now. You have the combination of, on one side, regulation. Of course, fundamentally starting with the growth in capacity, that is absolutely needed because you keep having an exponential growth of the data that needs to be stored in data center. The regulation is, of course, helping because more and more you need to have data center in specific geographies, and you need to store your data in specific geographies. And it's not going to ease. And that is combining with the edge computing, which is for us a great news because that means that many people are going to go still for a small, medium-sized data center, where they will keep their, I would say, sensitive critical data and [indiscernible] they, of course, manage to exclude any kind of cyber risk by having a private cloud. And that is triggering a lot of investment as well. And therefore, the 2 cover the full ground of our technology, which are the small UPSs, the single-phased UPSs, but also, of course, the large data centers [ 3-phase ], which are involving, as we know, also a lot of power management dimension. So that is -- that's really the combination of the 2 that is explaining the dynamism at the level of data center. And if I look at the family of products that you are reporting, like I say, Secure Power have been growing very strongly in Q1.

[Operator]

Our next question comes from Daniela Costa of Goldman Sachs.

[Daniela C. R. de Carvalho e Costa]

I just have one follow-up. Wanted to ask you about sort of the guidance for the margin improvement. Last quarter, you had a comment about the margin improvement being more pronounced in the second half, and I think you've removed that from the release now. Can you help us understand, given what you mentioned on mix and then given the various comps and other things throughout the year, how do you expect margin progression to pan out in the year?

[Emmanuel Babeau, Deputy CEO & CFO]

Yes. I can try, Daniela. So sorry, we haven't been repeating that. That's a comment that we made at the beginning of the year. That was a possibility, that is still a possibility, I mean implying the fact that Q2 was big -- big comps and with one-off impact coming from the working days. That's a possibility that we are seeing a couple of months ago. Now the year has started. We are, of course, off to a strong start. That's good news. It could mean that what was the possibility won't materialize, but it's too early to say. So we said it, it's a possibility. We'll see where we are at the end of H1. It is clear that we are starting the year on a good note, and that's globally good news. But I -- there is nothing else I can add to that.

[Operator]

Our next question comes from Denise Molina of Morningstar.

[Denise Molina, Equity Analyst]

Just a quick question on the portfolio pruning. If you look at the announcements so far, I think it's somewhere around the upper end 8% of the revenue. And it sounded like you were saying that there could be more that goes under review, which makes sense given that you're seeing growth in software and maybe impacts in other legacy businesses. I'm wondering if you're done with the review or if we can expect more to come.

[Emmanuel Babeau, Deputy CEO & CFO]

No. My comment was really to say versus what we've been announcing with Pelco, you should expect more to come. So, absolutely within this EUR 1.5 billion to EUR 2 billion, I'm not able to tell you where we're going to end up. But it is clear that we have this absolute willingness to become even more focused. You have some huge positive local impact when you get simpler, more focused, the way you're operating in the remaining business is even more efficient. You focus your investment on what is really making a difference. You globally work in an easier, more agile environment. So we're going to be uncompromising with that, but I'm not coming with more than the EUR 1.5 billion to EUR 2 billion. That's absolutely the envelope on which we are working.

[Amit Bhalla, Vice]

All right. I think we've covered most -- all the institutions. We have about 5 minutes left. We can probably take another couple of repeat questions and -- within the time left, so let's go for the next one.

[Operator]

Our next question is a follow-up from Jonathan Mounsey of Exane BNP Paribas.

[Jonathan R. Mounsey, Analyst of Capital Goods]

Really was just to ask what's the Q1 impact from price rises. I know that we're kind of annualizing price rises from last year that we're catching up for raw material headwinds. I would assume therefore the price is materially positive in Q1. Can you give us the magnitude of that effect, please?

[Emmanuel Babeau, Deputy CEO & CFO]

So Jonathan, I won't comment on the number. What I can tell you for sure is that we said that we wanted to be more ambitious on price. We said that it was no longer about just matching the raw material inflation which we expect probably to be negative for the full year but not to the same magnitude as last year and far from it. And I think that last year in H2, we showed the capacity to accelerate on price increase and to deliver more impact on the top line and therefore, of course, on the margin. That is certainly the way we've been addressing Q1.

[Operator]

Our next follow-up is from Andreas Willi of JPMorgan.

[Andreas P. Willi, Head of the European Capital Goods]

I had a question on Process Automation. If you look at the Foxboro DCS business, now that we see some investments coming back in the market, are you participating in this mainly in your historic installed base or also with new customers?

[Emmanuel Babeau, Deputy CEO & CFO]

Thank you, Andreas. I think after a difficult cycle -- phase of the cycle, you're right, they are both green and brownfield. And what we have today with AVEVA, the capacity through EcoStruxure to have, of course, the analytical level with AVEVA and our Advisor is very well complemented by our DCS and by our safety system by Triconex. So it is our ambition to certainly try to go for greenfield including with new customer that maybe sometime [ in life ] AVEVA could introduce to us. We believe that we've been [ studying ], that was already 5 years ago, the acquisition of Invensys. We've been progressing. We are becoming more relevant. So we have globally been gaining share over the last 5 years on the DCS. But in a market which was relatively subdued, so that was certainly more difficult, our ambition today is to accelerate. And I have -- we have a number of signs that show that we are clearly developing among new customers in Oil & Gas, in mining, in -- for hybrid, in some of the hybrid end markets. I think the next 12 to 24 months are going to be important to watch to see the impact that we manage to do. My feeling is that in Q1, we have both in term of sales but also in term of order intake, a good sign. We'll have to wait what the others have been doing in the same period of time.

[Amit Bhalla, Vice]

I think we are coming to the hour. So I just want to remind everyone of 2 dates. So this year, we're doing the EPG, so you're most welcome to meet with us over there for the investors and a specific sell-side do there as well. And secondly, just the 26th of June, which is our Capital Markets Day in our headquarters in Paris, so it's probably -- for those of you who haven't, please, please mark the dates. So with that, thank you from my side. Emmanuel, any closing comments before we close the call?

[Emmanuel Babeau, Deputy CEO & CFO]

No. Thank you all. Glad to have a good start to the year, again very much in line with our expectation. We had various scenario when we build the full year. Certainly, they were not all that favorable for Q1, but it's good to start on the good note, and that was possibility to continue. And I think what is important for us is again coherence, consistency and persistence. The ingredients of the growth at the beginning of 2019 are the ones that we have been experiencing and that have been working in 2018. Thank you, and talk to you soon I'm sure.

[Amit Bhalla, Vice]

All right. Bye-bye.

[Emmanuel Babeau, Deputy CEO & CFO]

Bye.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you all for your participation. You may now disconnect.