Schneider Electric SE

PAR:SU

Earnings Call Transcript 2020-Q1

[Operator]

Thank you for standing by, and welcome to the Q1 2020 results for Schneider electrics, hosted by Amit Bhalla.I would now like to hand over to Amit Bhalla.Thank you. Please go ahead.

[Amit Bhalla, Vice]

Well, thank you, operator. Hello and welcome to all of you to Schneider Electric's quarter 1 2020 revenue results. I hope you and your families are keeping well and keeping safe in these times.I'm joined on the call today, remotely of course, by Jean-Pascal Tricoire, our Chairman and CEO; with Emmanuel Babeau, our outgoing Deputy CEO and CFO; and Hilary Maxson, who takes over from Emmanuel as our Group CFO.The press release and presentation is available on our website already this morning. Post this presentation, we will have a Q&A session. So without further ado, let's get started. I would like to pass the floor to Jean-Pascal.

[Jean-Pascal Tricoire]

Thank you, Amit.Well, I first hope that you are all safe and well. I'm talking to you from our Hong Kong office, where we have the privilege to operate almost normally, no lockdown, which has been really an advantage over the past 2 months. It's really a pleasure to be with you but for quite an extraordinary Q1 call for at least 2 reasons: first, specific conditions of leading Schneider through the COVID crisis beyond China, which we talked about during the early results; and on the second, to be here with you to thank Emmanuel Babeau for 11 years together building Schneider through good and tough times and welcome Hilary as the new CFO of the company. In my part this morning, I want to go back together with you to the fundamentals, while Emmanuel and Hilary will detail Q1 and what we're executing to face the rest of 2020. And I want to go back to the fundamentals to explain how we rely on them to navigate through the crisis and more important, though, how we rely on them to prepare the after crisis.So let me move to Slide 5 to remind you the mission of Schneider, which is to empower all to make the most of their energy and resources and ensure that life is on everywhere for everyone at every moment. And in this time of coronavirus crisis which forbids many people to travel, to go to their work; and confine them into homes, we see the importance of our mission. We support at Schneider mission-critical functions in a world which is today under stress. I remind everybody that we power a lot of the hospitals around the world, including the ICU rooms; that we support the grid for electrical distribution, the water networks, life at home where people are spending a lot of time at the moment. We are the biggest supplier of energy solution for data centers, which are overheated by confinement at the moment on home working. And of course, we supply the cold chain for food, beverage and pharmaceutical, so our role to the society has never been better exemplified than today. The other part which I see really developing as the demand for more information of our customer is the capacity to derisk operations through unmanned process and the use of digital technology, everything around remote control, remote monitoring, using digital for augmented reality and assisting operators on the ground from remote so that you don't have 2 operators together. All of the technologies of digital control are finding a vast application as we speak.And moving to Slide 8, a few examples of what we do in health care worldwide as we speak, and you see things that we've done for hospitals, to support hospital. I want to mention, by the way, that we've been classified in numerous countries as an industry which is critical to the country; and that we had to make sure our plans and our services would keep going through the crisis, which has been the support for us to keep our factories particularly going through the lockdowns. And we also support in other critical supports, again, data centers and IT-critical sectors, in IT particularly, in servicing some block facilities like airports or helping the health industry, pharmaceutical to go through the crisis and [ ramp up in front of the units ].So what we see today is that our core value propositions, which is merging energy and automation solution together for efficiency and sustainability, is reinforced today by higher need for resilience. And for those who were already following us in 2008, when we bought APC, remember that at that time I explained that our vision was to make energy safe on second value, reliable, efficient and sustainable. That reliability value in times where you need to rely on your energy infrastructure and your control infrastructure to make sure that mission-critical missions are keeping ongoing has been critically reinforced. And I would also underline that our model also is supporting our reaction to the specific condition: an integrated model, and I'll come back on that one, One Schneider, an open model relying on partners, which makes it much more flexible, much more agile and much more adaptable to the cycle, on the fast cycle and the fast variation of the market; and finally, the combination of multi local and empowered because all this sanitary crisis is global. It's hitting the country one by one at different moments; and the reaction of each country due to its culture, due to its political environment is very variable from one point to the other one. And it's extremely important to be consistent locally to react to it. And we, of course, benefit from our country organization.Moving on to Slide 11. Well, we -- I wanted to remind you how much we have worked since the last crisis since 2008 to make ourselves more resilient and more structurally protected against violent cycles as the one we are experiencing. The first evolution we've driven has been the evolution of our geographical exposure. We used, in 2008, very exposed to mature economy and especially to West Europe which tends to be far more rigid. Today, our exposure is much more balanced, actually perfectly balanced. And we do 41% of our business in emerging economies and 60% of our business in mature economies, but within those mature economies we do a lot of our business in North America, which is far more flexible than West Europe. That's true also from our people footprint, which has been much more balanced and is much more outside of Western Europe and outside also of our country of origin, 90% or 89% of our people outside of France. And that contributes to a much more reactive or a much faster reaction to the local conditions. Third point is working on the cyclicality of our portfolio. You know that, after 2008, our obsession has been to rebalance the portfolio towards more long-cycle parts of the market, like industrial and infrastructure. And this has been achieved over the past 11 years, then we've developed more sticky, more recurrent business around software and services, which have doubled in our portfolio over the past 11 years. We've kept working on the flexibility of our cost base, making sure that a large part of it would be variable. And that is what is we supply from our suppliers, our partner suppliers, but even within the 30%, the blue part which is the so-called fixed part, we've worked on making our compensation system more valuable and more adaptable to external conditions. And this has driven, over time, the cash flow conversion to a new level. And we have reached last year -- as you know, in 2019, we've passed the threshold of EUR 3 billion of cash flow generation.So we enter this crisis with strong fundamentals, a strong cash profile, a business model which is CapEx light and even lighter than before because we have more services. We have more software. We have more of our business in new economies which are necessitating or needing less CapEx. We have a low net debt, and we have, of course, a strong balance sheet.So moving on to Slide 12. One thing that we see immediately in this crisis is that what is digital is more resilient because it allows us to operate without a physical presence. And what we've done really in the past 11 years has been to build strong offers in digital. No need to remind [indiscernible] which was launched in 2008, version 1, and which has grown, developed and expanded in our portfolio; more digital and connected offers; software portfolio, with the creation of AVEVA particularly, but it's not the only thing we've done in this field; and lot of digital services which allow our customers to put their installation under monitoring for predictive maintenance, for resilience as well as targeting where they need to intervene and at what time; and finally, apps and analytics to enhance our products and our controlled systems. The second big transformation has been on the customer experience, the way customer interact with us, with much more e-commerce, with much more interaction based on digital, which of course is priceless at a time when people have still to connect but very often from their homes. We've developed best-in-class digital tools for efficiency, for collaboration and productivity. And finally, this has been kind of federated under the creation of Schneider Electric Exchange, which gathers together our end user customer, our partners, our integrators and people from the company to exchange solutions on the design of our system.Moving on to Slide 13, where we've seen our customer adoption of digital accelerating, asset management services, remote monitoring, predictive maintenance. And once again, in Q1, we had a growth in the assets under management year-over-year of more than 40%, which shows that people are connecting. And believe me that today many of them or the ones who have connected their installation have truly an edge on the one who are not connected.The second point is much more interaction with customers through digital tools under every format and really driven to our core and crown jewel application like health care; more services everywhere; everything linked to IT and data; commercial buildings and being able to operate them from remote and control them; OEMs, CPGs or machine manufacturing related to food, to pharmaceutical; and of course, a lot of tools that we exchange with the natural extension of Schneider, our contractors, our integrators and our specifiers. And as I was saying, a repository of all of those contacts on the marketplace of our ecosystem are on Schneider Electric Exchange.When we face, like we face today, times of fast disruption which are happening country by country, we leverage really the transformation that we've driven over the past 12 years. We've been one Schneider -- and I'm on Slide 15. We've been one Schneider for the past 12 years, which means we have one IT. We have one supply chain. We have globalized functions, who have been digitizing their internal processes for all those many years, which means when we have to impulse reaction in the company, processes and global processes allow us to do that. The second point, we've been in a multi-hub management empowering the countries for 9 years. And you know that at Schneider you have the strong country structure. And in this time where every country reacts in a completely different manner, what we've been able to activate is a mode of reaction which is largely empowering the country or completely empowering the country with tight coordination. No need to tell you that we are used to remote and video management, which was probably not as obvious 15 years ago. We have teams in the countries that take themselves -- that take by themselves the actions to react to the local situation. Digital communication has skyrocketed. We have 90,000 of our connected staff working from home concurrently without digital disruption. 80% of our customer care teams are operating remotely without impact on service level. All the management process are ready for managing the COVID-19 conditions. For us, managing from remote, managing time from home was absolutely natural.One of the biggest challenges that we had to face, and I'm moving on to Slide 16, has been, of course, the continuity of the supply chain, finding our way between the regulation of the country, the penetration of the virus and all the measures and recommendations, which were very valuable, from one country to the other one. And here we've really leveraged the fact that, as you well know, we've worked on a model which is highly multi local. So first point, our factories are serving their region, and therefore it's much more -- it's the production or the level of supply is much better coupled to the level of demand. The supply chains at Schneider are already quite short, and that allows us to manage each local situation in a much more agile and reactive manner. The second point that we have really leveraged is the fact that we have decentralized now for a long time all of our supply chain system and we produce fundamentally where we sell. And we know that some parts of the world are more rigid or more complicated to adapt. That's typically the case of West Europe and France, and both of them are now representing roughly their part of the sales in the allocation of the cost of goods sold. That mean the quantities on the volume we produce.We have today 95% factories and DCs operating. Again, many countries have qualified our supply chain as mission critical and made sure we could continue to operate. China is back to fully available and has full manpower capacity. And other regions are at different levels but which are largely compatible with the demand.When you look on when I sum up our priorities, at the moment, it's pretty simple: first priority, health, health of the people working with us. And we've made sure that each site of Schneider is equipped with the right protective equipment, with the right processes so that our people can operate in full safety. That's true for the people on our sites. That's true also for the people who do services for our customers on the sites where they are allowed to go. Second point, absolutely, is business continuity, making sure that we keep operating our factories. We keep operating our service teams. We keep answering to our customers. And we keep serving all the mission-critical applications I was referring to at the beginning of our interview because this is probably our biggest contribution to society at the moment.The third point, of course, is leveraging all of our reactivity to work on cash and to work on our costs. So all the elements that I mentioned before, our multi local, variable costs, the profile of our business, we are acting on them to adapt to each reality of volume of business region by region. I would say that a large part of the team was already there in 2009 and has the experience of a brutal crisis. I'll tell you that there has been no time for all of us to recover the reflexes that we had, had at that time to react to what we are facing.The fourth point is to make sure that we are ready for rebound, that we keep facing the customer and keep working on the offers that will be crucial for the rebound of each country after the crisis. And the fifth point is to work on the communities around us and keep contributing to those communities. Our overall arching target here is to be ready for the post crisis, ready because we're going to have -- pass the crisis with the right level of adaptation, strong level of adaptation; and ready because we are going to be in the position to serve the needs of our customers post crisis. We've structured -- and I'm in Slide 18. We've structured the crisis management team. It's mostly local, tightly coordinated globally. We are operating at rapid interval. We have dedicated teams. We have empowered the execution using our multi-hub organization. And we've put together a global control tower to make sure we optimize the level of supply with the level of demand.Now yes, we are dealing with a crisis, but we remain focused on our fundamentals for the future, and those fundamentals have not changed. And I'm in Slide 19. First, we absolutely remain committed to our equity ambition, committed to our growth engines, committed to the road that leads us to 17% margin, committed to our shareholders and the return to them and committed to keep increasing and improving the cash generation. Second priority is to keep working on the fundamentals of trust in regard to our customers and the society around us; the safety of people, quality of our products, cyber security and the ethics in everything we do. Third point, really keeping on working on the digital transformation of our industry, more software, more digital services, more digital experience in the way we deal with our customers. And my personal feeling is that, at the moment, we go through a gigantic fast-forward in the digitization of everything we do and everything we propose. And if there is something positive that this crisis could bring us, it is this acceleration towards more digital. Fourth point is innovation and keeping on investing in EcoStruxure; bringing in more connected products to the market; and keeping our commitment to R&D; and finally, at a time where people realize how much some of their installations were weak and not up to date, make sure that we propose services. Some of them are catalyzed by the capacity to put together remote services; many sustainability services, sustainability is not going away; and a lot of field services, particularly in all the installations which have been under stress.So that's a flashback and a reminder of all of our fundamentals and how we leverage them to pass this specific period and prepare for the future. And what we should all realize is that somewhere this crisis is accelerating some of the transformation we are preparing for. Now I'd like to move on a more precise view on Q1, and I'm going to hand over to Emmanuel and Hilary.Well, I really want to take this occasion, and I would have wished it would have been a fun conference, to really thank Emmanuel for the 11 years that we've done together, journeyed together building a very different Schneider, transforming Schneider and making it much more future fit and future proof. So I want to wish him good luck for the future but really again thank him for all those very important years we've built for the company. And I want to welcome onboard Hilary Maxson. So Hilary has been 3 years already with Schneider. She came to us through the Hong Kong office, but she comes with a strong experience in the field of energy; a large multinational experience between North America, U.S., South America, Africa and Asia; and a deep knowledge of Schneider being today or before the CFO of Energy Management, which is 70% of the business of Schneider.With that, Emmanuel, the mic is yours.

[Emmanuel Babeau, Deputy CEO & CFO]

Thank you, Jean-Pascal. And hi, everybody. Certainly first joining the wishes of good health for you and your family formulated by Jean-Pascal and the whole of Schneider.I'm here with Hilary, so we're going to comment in detail the Q1 sales number. I will enter into some detailed number, and then Hilary will tackle everything we're doing to make sure that we exit this crisis strong and that we prepare the company for what is coming next. But of course, I want to start thanking Jean-Pascal for his very kind words. Thank you, Jean-Pascal. That really, as you know, come straight to my heart, but I would like to thank all of you because indeed these 11 years have been absolutely amazing for me. I can tell you that will remain as an amazing professional moment, fabulous moment. And I think you really have your fair share for making these 11 years dense, intense, challenging but always full of learnings with many achievements and full of funs and the feeling of doing important things. So thank you because I really enjoy every moment spent with you, and you've been playing a key role in making, again, these 11 years very special to me.So I'm moving to the Page 21, entering into the detail of our sales for Q1. So our sales amounted to EUR 5.8 billion. It's on a like-for-like basis a decrease of minus 6.4%. As you can see, the 2 businesses behaved relatively the same during this Q1. Energy Management is down, minus 6.1% at EUR 4.4 billion; and Industrial Automation is down, minus 7.3% at EUR 1.4 billion. When we look at the driver, and of course, you know but I'm going to come back on that, the profile of the quarter, which is China, I would say, difficult almost since the beginning of the quarter, with some signs of improvement as we were ending the quarter; and on the contrary, in many other region that progressively entered into the crisis of the COVID-19 and showing decline towards the end of the quarter.I am now moving to the Page 22. Of course, during this crisis, we are facing a number of headwinds, but we see the continuation of a lot of customers that needs our technology to improve their efficiency, reliability, resilience. Jean-Pascal talked about that. And of course, the sustainability challenge is still there. So you have on that page many very interesting projects that we've won and delivered over the quarter. I'm not going to comment all of them. Of course, if you want to receive more reference on some of them, we are happy to provide them, but just a couple of them, I would like to underline. The first one is the Circular Quay tower in Australia. I'm sure many of you know this very iconic quay in Sydney. And here we've been providing for that building and, I would say, the state-of-the-art smart building technology that -- through our EcoStruxure architecture. That is including building adviser, edge control. And the building is full of connected products. And that is really delivering a unique customer and user experience. The other project on which I would like to elaborate is Danske Bank and which is a big bank in that market, as you know, with a very nice project through which we have provided the full reliable electrical distribution system. And obviously, reliability is critical for the bank. And they are actually hosting their trading department in that facility, so that was absolutely critical for them.I'm now moving to Page 23, providing a bit more detail on the sales, so EUR 5.830 billion for Q1. When you look at the various components of the analysis of change, it starts with the ForEx which is slightly positive, plus 0.7%, which is largely the dollar and the Chinese yuan moving favorably versus the euro, but we started to see a number of currency and especially in the emerging countries moving south versus the euro. And now based on the current ForEx parity, when we look at the full year, we expect for the top line for sales an impact that should be about neutral or slightly negative, but when we look at the margin, because of some very strong depreciation sometime that we see from emerging country currency versus the euro, we could have a negative impact on the adjusted EBITA margin that could be in the range of minus 30 to minus 40 basis points. The scope impact is negative, minus 1.9%. That is, of course, coming from all the disposal that we have been doing in 2019. You know them: Pelco, Converse, the U.S. Panels, Electroshield Samara; at the beginning of 2020. So we should continue through the year to have a negative scope impact. And then you have the organic evolution of sales. I mentioned it, minus 6.4%. And as you can see, we have a transactional business that is down in line with this decrease for the whole group at minus 6.2%. System is actually slowing even more with a double-digit decline. And we continue to grow, which is of course a good sign, in software and services at more than 3% organic growth.I am now moving to Page 24, and here you have the global vision by region of the performance in our Q1. And obviously it was expected that Asia Pacific that is massively going south, with an organic decrease of minus 19%. And that's clearly, first, driven by China, and China has been decreasing by more than 20% in Q1, with the profile that I was describing. So the whole quarter has been impacted, but it really started very early in the year. February was very difficult. And we started to see some early signs of beginning of an improvement, I would say, towards the end of the quarter, but other countries have been also negative in Asia Pacific, some of them gradually impacted by lockdown. And the intensity of the lockdown, of course, may vary from one country to the other, but India, Australia, Indonesia, Japan, they all have been negative in Q1. Then if you look at Western Europe, minus 3%. Actually, the quarter started relatively well, and at the end of February, we were positive in Europe. And of course, suddenly, as we all know, in March, many country imposed a lockdown, and we have seen the economy slowing down significantly. And that means that we finished the quarter with, of course, the big country impacted early in the curve, like Italy and Spain, being negative. France, who had started well the year, turned negative into March. The U.K. is with a more reduced decrease but still negative. There is one country, Germany, which has been with a lighter lockdown, I will say, which remained positive for the quarter.Rest of the world, negative, minus 2%, but contrasted, I would say. We have a positive evolution in Russia and in South America. And we know that some of these country are less impacted or are taking, so far, different measures on the COVID-19. When -- Middle East and Africa have been negative in Q1; and Middle East, of course, impacted by the sanitary crisis but also by a very weak price for the oil. And then North America, which managed to be a positive over the quarter with a plus 1% organic growth, notably driven by the U.S. Canada was stable. And Mexico was also positive, with clearly here impact of the COVID-19 that came much later in the quarter and therefore with a lower level of impact. No doubt that Q2 will be more impacted by the crisis.All right, let's go now into the detail of our 2 businesses.Energy Management and sales of 383 -- EUR 4,383 million. It's minus 7.5%. You have, of course, here the ForEx, the scope. Organically, it's down minus 6.1%. And when you look at the detail of the performance of Energy Management, then of course, China, that has been massively down, I would say, as expected. We, as Jean-Pascal said, put a very specific focus on critical segments that continue to behave well given the specific needs that continue to exist in this crisis like hospital, the food chain, life science project. Data centers are down but on very high comparable. And we see that data center remain absolutely essential in this crisis, with the digital economy certainly supporting the world today, and we see a very interesting underlying trend on the pipeline. EcoStruxure also has seen some traction coming from the need for remote monitoring. Building end market weakened. Construction have been slowing down or stopped in many [ site ] because of the COVID-19. And services performed well and notably in specific segments like consumer good and transportation.I'm on Page 26. If you look rapidly by region. So as I explained, Asia Pacific down, minus 20%. That's, first of all, China, but many other markets were impacted in the region by the lockdown, so that explains that Energy Management has been negative in many other country that are mentioned there. When we look at the rest of the world, it's down 4%; as I said, good growth in South America, but we've seen a very severe decrease in other region, notably in Middle East. And even Central Europe and the CIS region were down. Western Europe, a moderate decrease, I would say, again with the phasing I described and a good start to the quarter in Jan and Feb and then March turning negative. And really I have to report decrease everywhere but in Germany, where a number of specific projects and, as I said, a lower intensity of the lockdown allowed for growth in Q1. And then looking at the growth in North America: We are north of 1% organic growth. It's certainly a weakening that we have seen in the building, whether resi or nonresi, but of course accentuated towards the end of the quarter. We've seen an activity that remain dynamic in data center. We may have been helped by some distributor stocking. Very difficult to value what it can be but, as we were seeing news coming from Europe, some people building inventory in case there will be some disruption on the supply chain. And Mexico was also facing some easier comparable but also posted growth in Q1.Moving to Page 27, on Industrial Automation, sales of EUR 1.447 billion. It's down 7.7%. Here again you have a ForEx positive, scope a bit negative and an organic growth of minus 7.3%. Well, obviously, we will all remember that some of the Industrial Automation end markets were already impacted by the economic cycle and, of course, notably the discrete automation. We were hoping for some sign of rebound at the beginning 2020. Well, unfortunately, on top of the economic cycle, we've had to face the COVID-19 crisis. So that mean that now both discrete and Process & Hybrid technologies are down in term of sales, but we can say that Process & Hybrid are relatively better probably given the mid-late cyclical nature and also because of the nice software component for Process & Hybrid. We can say that certain segments clearly proved more resilient, in line with all the comments that we made, but when you look at the water, wastewater and consumer goods, utility, transportation, everywhere where there is criticality, that was more resilient. And software and digital services continued to grow and to grow very nicely and very often.Moving to Page 27 (sic) [ 28 ], again rapidly to give the impact, starting by Asia Pacific, minus 16%. So it's a bit better than for Energy Management, but it's really here, the growth that we have seen in software in many country, that is reducing a little bit the decrease, but it has been an intense decrease notably in China. Europe, very negative. I mean Europe was already suffering notably because of OEM and the discrete automation business. Well, you can imagine that countries such as Italy, U.K., Spain have been quite significantly impacted by the COVID-19 crisis, on top of a situation which was always not the one of a super strong growth. North America is negative when it comes to Industrial Automation. In the U.S. we can certainly flag the fact that the oil and gas and the mining situation is weighing down the performance very clearly. And let's highlight the fact that Canada was growing in Q1 for Industrial Automation.And one region is growing. So rest of the world, plus 3.1%, with several countries facing good growth, like Russia, like many country in South America. And even in Middle East we did see growth in a number of areas. So apart from Africa, the rest of the world have been behaving relatively well during this Q1.Enough for looking at the detail of our Q1 sales number. And now I'm going to hand over to Hilary, who is going to enter into all the actions that we are carrying to weather the storm, make sure that we, I will say, pass the difficulty with the greatest success and with the best outcome and that we exit the crisis strong.Hilary, to you.

[Hilary Maxson;SVP and CFO Energy Management]

Thanks, Emmanuel. And I'll also start by sharing my wishes for the well-being of everyone on the call with us today as well as their families. I look forward to meeting many of you in the future, whether virtually or in person, as I get going in the role.And I'm on now Slide 29, where I'll start with liquidity. As we've spoken about already quite a bit, we're in a strong balance sheet position. And we're a strong, cash-generating company. We finished 2019 with free cash flow of more than EUR 3 billion. In Q1 and in response to the crisis, we've bolstered our liquidity with 2 bond issuances totaling EUR 1.3 billion, including a EUR 500 million tranche in April that was significantly oversubscribed. We've also enhanced our available credit lines. I'm therefore confident we're in great shape to manage through this crisis from a liquidity standpoint with around EUR 9 billion in liquidity today.Moving to the next slide. A key focus for us currently is cost management. In particular, we want to ensure we're reacting quickly and with agility to the different impacts from the crisis across the world while at the same time making sure that we're prepared for our recovery. We've implemented some strict cost management measures already primarily tactical in nature, and we're leveraging our multi-local organizations to be prepared for multiple scenarios in the future. We also have already talked about our operational efficiency plan. We announced it earlier in 2019, and we'll look to accelerate those plans as possible.Moving to the next slide, I'll finish by highlighting that our capital allocation priorities remain unchanged during the course of the crisis. As you know, our share buyback program remains suspended until we reestablish our 2020 guidance, and our 2019 dividend proposal will be voted on at our AGM this afternoon.As you know, we also have 2 larger M&A transactions underway. For L&T, we have a delay in the closing due to the nationwide lockdown in India, which is certainly understandable. For RIB, the date for tendering shares as per the offer was yesterday. If the offer is successful, we hope to complete the deal in second quarter. We also announced today a bolt-on acquisition of the German-based company ProLeiT. This acquisition will enhance our offering in the consumer packaged goods segment, specifically focused on food and beverage, chemical and pharmaceutical industries. We'll integrate their process control offer into our EcoStruxure Plant. And we remain committed to our portfolio optimization plan of disposals of assets with revenues in the range of EUR 1.5 billion to EUR 2 billion. However, pursuant to the EUR 600 million that we've already addressed last year, we don't have anything significant to report in Q1.So with that, I will move to Slide 33 and hand over back to Jean-Pascal.

[Jean-Pascal Tricoire]

Thanks, Hilary. Well, now looking ahead. We entered the crisis with strong fundamentals. We have a well-defined strategy and a clear organization, strong balance sheet, strong cash generation. We have reinforced our growth engines, which are going to be very relevant in the post crisis. China, which is a strong market for us, is on a solid path to recovery. We are all prepared for a very difficult Q2 and therefore H1; and the name of the game here will be our speed and capacity of adaptation, our agility to adapt to the situation. We are absolutely committed to our journey to 17% adjusted EBITA and our return to shareholders. And we are suspending the guidance, the time for us to reassess once all the lockdowns have kind of opened and the situation is a bit clearer.Moving on to Slide 34. We have prepared for the post-crisis world. Our offers serve efficiency in very core segments, hospitals, homes, grids, city infrastructure, water networks, food and pharmaceutical; and will allow customers not only to upgrade their installation but also to save on costs. Digital will be big. People will want more digital. Resilience has become huge on the agenda about critical infrastructure, the need for micro grids that we have started to develop pre crisis. There will be industrial relocation in all geographies that will serve our automation and industrial business and certainly more regionalization, which goes well with our multi-hub model.And finally, we see that the journey to sustainability -- or the objective of sustainability is remaining strong. With companies, as very often, sustainability is also associated to the [ health challenge ] as one of the fundamental needs for the future as we invest. And certainly, many of the stimulus packages that are put together by the countries will serve the need to fight climate change as well as to increase or elevate or improve the health system. So that serves a future that will be all sustainable, digital and electric.At the same time, we don't forget our responsibility to society. We've created a dedicated fund, the Tomorrow Rising Fund, dedicated to face COVID-19 crisis, with the objective to help the society to react and to prepare for the future with -- to respond and to prepare for the future with more resilience. We've participated to a number of initiatives, the production of ventilators, production of protective equipments. So the whole of the company is mobilized to go through a crisis but more to prepare for the future.With that, and you realize we wanted to give you the full perspective of how we prepare to face this very specific period, we are now ready to take your questions. Thank you.

[Amit Bhalla, Vice]

Well, thank you for that, Jean-Pascal.So we are close to the hour mark, but I think it's we are going to extend in order to make sure we take the questions within the remaining time frame. [Operator Instructions] So let's get started. Operator, can you please pass the first question?Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Andreas Willi from JPMorgan.

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

Welcome to Hilary to the kind of investor community. And in terms of the cost measures that you're taking, maybe you could help us a little bit to understand what to expect as we then also go into Q2 in terms of your ability to reduce salaries to participate in government programs. I think we have seen that you in France will not participate. And what should we expect here in terms of cost reduction potential on the compensation side during the lockdown relative to the potential sales decline?

[Amit Bhalla, Vice]

Thank you, Andreas. I'm going -- I'm just going to navigate the questions. So I think I'll pass this one to Hilary and Jean-Pascal to answer, please.

[Jean-Pascal Tricoire]

Hilary, you want to go first?

[Hilary Maxson;SVP and CFO Energy Management]

Sure. Thanks, Jean-Pascal. So I think I spoke a little bit on the call on some of the actions that we're taking. The first thing I would say is that the -- while the crisis is worldwide, obviously the impacts are not the same in -- from a geography-to-geography standpoint. And the different actions that the governments are taking both in terms of containing the health crisis and also, like you pointed to, in managing from an economic standpoint are very different, whether their own tactical actions or their actions from a stimulus standpoint. So what I would say we're doing is we're looking -- and we already had put a press release out earlier on strict cost containment actions for 2020. A lot of those are tactical in nature. And we are looking geography by geography at the opportunities that we have there whether put into place by the government today for this crisis or whether that are already there as an opportunity to manage, so everything from a lot of benefits that most companies will get from travel reduction, for example, that perhaps could continue at our company on a going-forward basis but also less time and less pay for less work and these types of opportunities. So geography by geography, we're looking at the best way to handle that. We're also, like I said, looking at our operational efficiency program that we already had underway, starting in 2019, and some opportunities to accelerate and potentially enhance that if it makes sense.

[Jean-Pascal Tricoire]

Yes. To complement: The great edge we have here is that we are very structured by country. So country by country, we can adopt the most adapted measures. So it can be partial and employment scheme. It can be furloughs, restructuring in some places, so -- but that goes very fast on geography by geography because one has to understand that's a global crisis, but it goes -- it's very local in terms of time it's hitting the economy and more so very local in the way society and politics and economy reacts country by country. So you have really to understand well the context to react properly to the situation. At the same time, I said 12 years of one Schneider. That has been really beneficial because we benefit from that integrated model where we can take also global measures, and you spoke about it. Salary cut starts from me, on my fixed, on my variable, but followed immediately by the ex com, followed immediately by all the executives of the company in different fashions around the world according to the way to do it in those countries, but that has generated an immediate movement in the company. We've canceled [ the reserved ] also this year, which is probably the first time in 15 years but just to make sure that we would have a little bit more reserve even to go through that. Then over the past years, we had installed more variable in the compensation of everybody in the company, and that will play also as we go forward. And as much as we leverage our integrated model to be fast, digitized and transparent on what is happening in the company, we also leverage our nonintegrated value chain with suppliers and partners because it's lighter and allows you, we -- allows us, sorry, to adapt faster to the cost reductions. So what I see today, very difficult to have visibility. It depends on every country. We have visibility, more visibility in China, of course, but in the other places it's difficult to have visibility. But it's -- our objective is to be adapting to the situation, to present situation with maximum flexibility and at the same time make sure we prepare for the future or at least don't cut [ in the muscles ] that will be very important for the future.

[Amit Bhalla, Vice]

All right, thank you for that.

[Operator]

Your next question comes from the line of Martin Wilkie from [indiscernible].

[Martin Wilkie, Director]

It's Martin from Citi. Just a question on cash conversion. I mean you pointed out in the presentation some of the things that you've been able to do. Obviously, if we look back to the financial crisis, which was our -- I guess, our frame of reference as to how you can liquidate inventory, manage cash flow, et cetera, in a downturn, is it different this time around? I mean, are you able to liquidate inventory and release cash from working capital given presumably in some countries the sales are down by very significant double digits? Just to get some sort of sense as to how you think about that cash conversion in countries where the sales could have come maybe not to a halt but certainly be down presumably over 50% in some cases.

[Amit Bhalla, Vice]

Sure. Thanks, Martin. I think we'll pass it to probably Emmanuel for the last crisis. And then Hilary, if you want to complement on that.

[Emmanuel Babeau, Deputy CEO & CFO]

[indiscernible] very happy to take it, Amit. So the profile of Schneider hasn't changed in term of the capacity to generate cash if top line is going down. And we see it quite clearly in 2009, when it was a record cash flow generation despite minus 16% for the top line. And I do expect that, if the top line is going down significantly, there will be a reduction of inventory ultimately, and there will be also reduction in the receivables. So it's going to -- the working capital evolution is ultimately going to help the cash generation. Now one of the difference versus 2009, for the time being, is that the type of crisis that we are facing today is generating disruption on the supply chain. And that was not really the case in 2009. So the first consequence of that can be that the inventory reduction can take more time. And it can even go, at the beginning, the other way around because of shortages, because of uncertainty on supply. And then Jean-Pascal insisted on the importance of really being able to ensure continuity of supply and services to our customers. So we have to ensure that we have the inventory and the availability to do that. So I would say, maybe in the next phase, we'll have some impacts due to the specificity of the crisis that will not fully align, I will say, the evolution of inventory with the top line, but ultimately once we have absorbed that, we are in the same position as in 2009, and reduced sales will mean a positive contribution coming from the working capital.

[Amit Bhalla, Vice]

All right. Thanks for the question, Martin.

[Jean-Pascal Tricoire]

Okay. Our -- just to complement also. Our mix of activity is more favorable, right, mix of geographies. We have -- we are more agile and lighter in CapEx. And services and software should be also more generative of cash.

[Operator]

And your next question comes from the line of Alexander Virgo.

[Alexander Stuart Virgo, Director]

It was a question really around the prognosis for Energy Management in the context of what you are seeing around customer conversations, customer dynamics in construction markets in particular. And I'm -- I guess I'm thinking more about if we're not seeing projects being signed or we're seeing project decisions being deferred now. What sort of implications does that have over the next sort of 12 to 18 months and the implications for the shape of recovery?

[Amit Bhalla, Vice]

Thanks for your question. I think, yes, Jean-Pascal, do you want to take that one?

[Jean-Pascal Tricoire]

Yes. On Energy Management, well, first, let's not forget that this is going all across the markets of Schneider. It's not only building. It's data centers. It's industry and it's infrastructure. That's really crossing all other. So there is a turmoil at the moment. It may be sometimes on orders, but more so, so far, it's been on disruption of work sites. So places where, because of the lockdown, you don't access to the work sites. So they can stop the flow for some time, but then your work site is still there and you have to go back there at one stage. What we see in Energy Management is that, first, some business will certainly have a much stronger demand as we go forward: of course, health care because everything has been put under stress, and I think many countries have realized that their health care infrastructure is not at the level. Second point is going to be IT, digital, data centers, which have been put under stress, overheated, overused more and more every day. So that needs more capability in the future, but what I see -- and that's a discussion we had several times in the past. You know that we've developed multiple offers to connect power distribution, which is nowadays much less connected that -- that than any industrial automation system, while we see many customers coming on, starting well. They are [ confident ]. They have more time to speak about the architecture on the future. They really want to speak about the capacity to connect those installations for at least 2 reasons. The first one is resilience, being able to do predictive maintenance, while today there are many installations completely blind; and second, to make sure that they can repair in an unmanned manner some of their installations because, at the moment, operators don't want to go on certain number of sites. So I see from that point of view a massive accelerator of -- or massive transformer of the demand, catalyzer of the transformation for the future, for the digitization of power distribution, on which we have invested a lot but it's still only a fraction of what we sell which is connected. I think that will change quite a lot in the future. Now if you look at the present turmoil on the market, there are countries where construction kept going, and that actually has been a majority of the countries where we operate. And some of the countries where construction had been stopped together with a lockdown, it's -- and anyway, I'm expecting in the month of April or the beginning of Q2 to be very, very disturbed by all the contradicting rules that are happening in many of the geographies. But take China, which is our blueprint for recovery. Well, people are going back on the construction sites, and activity is restarting on actually quite -- in a quite solid manner.

[Amit Bhalla, Vice]

All right, thanks.

[Operator]

And your next question comes from the line of Gael de-Bray.

[Gael de-Bray]

Can I have 2 quick questions, please? The first one is about the current level of activity. A couple of some of the -- a couple of other industrial companies indicated that they experienced a drop in sales of about 25% in the final weeks of March. I was wondering if that's consistent with what you saw as well. And the second question I have is perhaps a question for Emmanuel and Hilary. During the global financial crisis in 2009, I mean, the group delivered, I think, up to EUR 500 million of gross savings from support function expenses. And I think, at that time, basically the group achieved in 1 year what was supposed to be delivered over 3 years, so if needed this time around, do you think this kind of achievement could be repeated? Do you think the organization is today as flexible as it was back then and that you have the same cost-cutting potential?

[Amit Bhalla, Vice]

Well, thanks, Gael. Gael, I think we'll take the second question first, so Hilary and Emmanuel. And then we'll come back with your first question if we still have time, yes. So Hilary and Emmanuel, do you want to take the question on the costs?

[Emmanuel Babeau, Deputy CEO & CFO]

Yes, yes, yes. I'm taking -- Gael, back to 2009, you're right, there was a very strong and very efficient reaction from the group. I would certainly believe that, well, the group has changed, but the flexibility, the capacity to react has not changed. And I think Hilary said it very clearly. We have on the agenda a mix of acceleration of the structural measure that we have shared with you before the crisis started. There will be some opportunistic and tactical saving as well. So the combination of the two is, I will say, giving us the possibility to be as reactive as in 2009. And therefore, I don't think that we are in a different position than where we were 10, 11 years ago. Jean-Pascal, do you want to take the one on sales, or do you want me to react to it?

[Jean-Pascal Tricoire]

Yes, yes, yes. Well, if you want to keep going, then I...

[Emmanuel Babeau, Deputy CEO & CFO]

No, [ I need to take that as well ]. So the minus, I think you said, 25%. I mean there are certainly markets where we've seen this kind of evolution in the second part of March as some very strict lockdown were implemented and the -- and restricting sometimes the capacity to work. We know that a lot of construction site have been closed. It's very difficult to answer because, I mean, that's first and foremost in Europe that we have seen this kind of decrease and even not in a consistent manner because, of course, the lockdown measures are quite different from one country to the other. So there are certainly markets that were experiencing this kind of evolution and -- but it doesn't mean that all markets were on this kind of trend, obviously.

[Jean-Pascal Tricoire]

Yes. And if I may add on 2009. I think the big difference is that in 2009 we faced the crisis at the time when we decided to be one Schneider. So we were, on one side, fighting the crisis; on the other side, changing upside-down the organization, which we are benefiting now. And we'll have to do that again. I would have not done it at the same time, frankly. Here we are entering the crisis -- or we are in the crisis with one strategy, one organization, an experienced team and a different profile of business which is more balanced geographically, more balanced in terms of business, more balanced in terms of cycle. And I find the team very responsive on all of this.

[Amit Bhalla, Vice]

Thanks. [Operator Instructions]

[Operator]

And your next question comes from the line of Simon Toennessen from Jefferies.

[Simon Toennessen, Equity Analyst]

Yes. My question is on the software and services business. Obviously, you saw some growth still in Q1, but could you maybe elaborate a bit how you think about software and services as the year progresses? I'm sure you run scenarios for this business. And maybe add to that: If we look back and see how software has managed during the oil and gas crisis several years ago, do you think the software business has evolved when it comes to, for example, the level of subscriptions you have to weather this downturn better than you've seen, for example, in 2015 and '16?

[Amit Bhalla, Vice]

Yes, thanks, Simon.

[Jean-Pascal Tricoire]

Yes. I'm going to take that one. On I -- that question that you should ask to AVEVA, which is a part of our software, but overall our software has evolved, diversified its end market [ and increased support as a service on beta ] subscription. That's no doubt. Now there will be in this crisis, which again is hitting country by country -- it's not phased exactly in the same manner everywhere. There's going to be different phases. What we see on the service part and especially the field services, that at the beginning of the crisis, in a lockdown, the teams cannot move any more to customers, so it creates a little bit of an interruption and disruption. But they are often the first one to be called back because there is nobody on sites and they want somebody to come. Our people are equipped with protection equipment. And actually we see some possibilities coming up because the sites are empty, and it's a good time to do the retrofit or the review of the installations. And second point, I said it several times during our session, but I think it's a massive fast-forward in digitization. When you think about it, I mean, people were hesitating on the adoption, but the thing that works in a crisis like this is digital. Will it be in the contact with customer, in using configurates, selectors in ordering your product? In remotely controlling what is not happening on the field, everything which is digital is much more resilient than what is not. So -- and people realize it. So I'm expecting more digitization as we exit at every level of EcoStruxure, more connected products, more controls and more software.

[Amit Bhalla, Vice]

I think we'll probably go another few minutes, maybe 5 to 7 minutes.

[Operator]

And your next question comes from the line of Denise Molina.

[Denise Molina, Equity Analyst]

I'll be brief. So the -- I guess we're thinking about the recovery when you get to the other side. And Jean-Pascal, we really appreciate your comments on the digitization, but I just want to dig into that a little bit deeper because, if you think about demand destruction coming out of this, I mean, we have some end markets where you could feasibly see demand destruction from the energy and hospitality end markets, which may not be your core end markets. But on capacity increases and increased investment in digitization, which has a long-term growth driver for you, if you think about your end market mix right now, utility customers obviously are slow to allocate capital, to increase investment quickly over time, to change habits. So if you think about your exposure to that end market relative to some of the other end markets that might be quicker to adopt digitization, do you think your mix right now is where it should be? Or it's -- or is the investment in ProLeiT in food and bev and other end markets a way for you to get exposure to end markets that might be quicker to adapt to this digitization? So I guess the question is really whether or not this trend towards automation can take place at a rapid rate or whether or not it's kind of a slow burn.

[Jean-Pascal Tricoire]

Okay. And digitization is a very large [ world ]. And what you will have to identify, what is the engine or what is motivation behind it, but first and above all, the notion of resilience is coming back up at the very high level at the moment because you can't send people on site. And at the same time, you've got, in some cases residential, for instance, data centers, much more load to manage. So that's one. And frankly, while -- when we bought APC, I was saying it, it was really to make -- to go from energy safe to energy reliable. That had kind of been tuned down in the worries and the concern of the customers. It's back with a revenge. That's number one. Second thing, it's everything I described extensively about unmanned and doing without people because you need to keep going even it -- when it's dangerous or perceives as dangerous to go out. My perception is that we still get a lot of requests about sustainability as countries are putting stimulus package out there. Many are coming by saying, "Well, let's do it," so that it goes in direction of climate change because they've not forgotten that, a part of the constituency, the green, the young, they want something more sustainable. They want investment in more sustainable technologies. Seeing digitization also because there will be probably for resilience, we think, more localization of the supply chains. And if you do that in high-cost countries, there is no other way than to do it based on automation and software and digital because you don't find labor. It's too expensive. And to run your factories in a competitive manner, we need to go to the next level of digitization. And of course, CPG is one of the segments. And by the way, we just invested in ProLeiT, which is a software company dedicated to food and beverage. That completes nicely what we do but not only. I mean we spoke about it, health care, data centers, critical infra, water. I think everybody will be looking at the water network and trying to understand if that [ vehicle is virus or not ]. The grid. I mean speak about utilities have realized that in some countries the power in industry was coming down 40%; that the one in residential was going up by 20%, 30%, 40%. It's very difficult to manage that if you don't have a smart grid. It's very complicated. And when everybody is confined, if you have a power breakdown, it can be a riot, okay? It becomes really a political problem. So all of this means that I see in plenty of places that will be impacted by this shift in the priorities of customers, and many are coming into our direction.

[Amit Bhalla, Vice]

All right, Thanks.

[Operator]

The next question comes from the line of William Mackie from Kepler Cheuvreux.

[Amit Bhalla, Vice]

Okay, we can't hear Will. Let's take an alternate question then if we have one.

[Operator]

Next question is from the line of Wasi Rizvi from RBC Capital.

[Wasi Rizvi, Analyst]

I'll keep it to one then. You mentioned some distributor stocking in the U.S. Looking forward, do you have a feel for inventory levels at customers and the potential that they destock as they prepare for a period of lower growth? Or do you think they're pretty lean and it will be more closely matched to demand?

[Jean-Pascal Tricoire]

Look, I -- it's very variable country by country, but you had a lot of pumping in -- we had some variation sizes due to perceived shortages in parts of the world. I don't think it's excessive, but anyway, let's be prepared for a second quarter from that point of view due to the lockdowns in the countries which are locked down, a second quarter that will be very difficult. That's all, but the most important is to take a little bit of a longer view and to prepare for what we see today in China which is a strong restart.

[Amit Bhalla, Vice]

All right.

[Operator]

[ And your final ] question is from the line of William Mackie [ from Kepler Cheuvreux ].

[William Mackie, Head of Capital Goods Research]

I hope you can hear now. The question relates to the post-crisis positioning of the group. Clearly, your company is in an excellent position with its multi-local footprint and supply chain, but I wonder. When you look into the future and you talk about the globalization and the reduction of supply chains, to what extent do you feel that you have the right global balance on your footprint? Or do you think that there will be further adjustments perhaps altering your supply chains from China towards India or diversifying across Southeast Asia, for example? To what extent do you think you need to alter in the next 3, 5 years the way that your footprint is made to align with perhaps a less-global world?

[Jean-Pascal Tricoire]

Yes. I -- yes, I don't know if we -- certainly the world will be more local. I don't -- it will keep being global. I -- people will keep -- I don't know if we will travel as much, but there will still be a growing -- thanks to digital, a growing flow of information and exchanges around the world. But you know that our [ party ] has been always to believe that it will be very local and that local and speed wins. So from that point of view, our supply chain is much more adapted than many to the situation we are facing at the moment, which is due to an impossibility to transit, travel in many places. And we had also chosen in the past to have relatively smaller factories than the average of our industry to be closer to our customers, and that helps also because that gives you more resilience in case one of the sectors is locked down. So I would say globally we are in a much better shape than what I would assess of some other companies. Now we are also learning [ to -- despite it ]. And there will be some adjustments to be made, but they will be region to region. We don't have big, big transfers and big -- too many -- well, maybe a few but transfers to be done in the future. But what we were accepting as the optimization as a choice of organization which is multi local or not to have mega factories proves in a case like this to be rather favorable.

[Amit Bhalla, Vice]

All right, thank you for that. I think we'll probably stop it there. My apologies for the 10-minute delay in the start due to some technical issues of connection, but we'll ensure...

[Jean-Pascal Tricoire]

Yes. Amit, may I reinforce that? Amit -- thank you. Or thank you all for staying with us during a long conference, and big apologies for keeping you waiting. That's not our style. It won't happen again.

[Amit Bhalla, Vice]

Yes. So the IR team is available. We'll set up slots. And at the same time, we look forward to connecting with all of you in the coming days and weeks. With that, we will conclude the call this morning. Thank you.

[Emmanuel Babeau, Deputy CEO & CFO]

Thank you. Bye-bye, guys. Bye.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.