Schneider Electric SE

PAR:SU

Earnings Call Transcript 2022-Q4

[Operator]

Welcome to Schneider Electric's 2022 Full Year Results with Jean-Pascal Tricoire, Chairman and CEO; Hilary Maxson Chief Financial Officer; and Amit Bhalla, Head of Investor Relations. Thank you for standing by. At this time, participants are in a listen-only mode until the dedicated question-and-answer session of today's conference. [Operator Instructions]

I will hand you over to Amit Bhalla.

[Amit Bhalla, Head of IR]

Good morning, everyone. Welcome to our Full Year 2022 Financial Results. We join you this morning from Paris, joined with our Chairman and CEO, Jean-Pascal Tricoire; our CFO, Hilary Maxson. All of the presentation and release is available on our website as well.

Without further ado, I'm going to pass it to Jean-Pascal to talk about our 2022 results and our new governance structure.

[Jean-Pascal Tricoire, Chairman & CEO]

Thank you, Amit. Delighted to be with you. We've got -- and to be with Hilary to comment on 2022, speak about 2023, I'll make a few important announcements regarding the governance of the company.

I'm going to go straight into looking at 2022, which has been a very intense year. If you look at the central part of that slide, we've been facing no surprise, because of what we do. We've been facing a very strong demand on most of -- all of our markets. It's been putting pressure on the supply chain, especially as Schneider is extremely digital nowadays.

And we've been able to deliver a strong year, whatever those pressures. We've also made around EUR1 billion of structural cost savings that we completed in the period of 2020 to 2022 and we come out with our all-time high results in revenue, in operating results, on the net income, but I'll comment more later in this presentation.

The second big element of 2022, it has been a very intense year of strategic transformation. Of course, the integration of AVEVA into Schneider putting all of our agnostic software, neutral software under the roof of Schneider and allowing us in the future to build a complete company in software, which is actually a EUR2.6 billion company in software. And we've also in 2022 completed our disposal program reaching EUR1.7 billion of revenue that will exit Schneider that has been less central and less strategic to the future of our Schneider.

And of course, 2022 has been also a very intense year disturbed -- not disturbed, but really collided by the Ukraine war and gave us -- we really paid a lot of attention and we took care of our people in Ukraine and also divested our Russian operation, which was closed in October to our Russian employees. So a very busy year, strong delivery, but dealing with external factors like the Ukraine war and driving forcefully the continuation of our strategic transformation

So here are the figures. For the first time in our history, EUR34 billion of revenue, 18% of current growth, 12.2% of organic growth. Both Energy Management and Industrial Automation growing with strong dynamics. Industrial Automation, a bit below, mostly impacted by supply chain being more electronics more impacted by the issues of disruption.

Both profitabilities of business are growing and that drives us to an adjusted EBITA margin of 17.6%, an improvement of 40 bps and that means that our adjusted EBITA growth is growing by 14.4% in organic at the top end of the revised target range. Hilary will speak about that in detail, but what is really comforting is that Q4 was stronger with 16% of growth in organic, which shows the easing on the unlocking of the supply chain happening

Now, these are the headlines EUR34 billion, highest ever in sales, adjusted EBITA EUR6 billion for the first time, adjusted net income EUR4 billion for the first time. Free cash flow was EUR3.3 billion, growing by 19%, and which means that we are going to propose at the AGM a dividend of EUR3.15, an increase of 9%.

And if you take a little bit of distance and look at those figures in 2022: we are going to have added EUR5 billion of revenue, that's 18% growth; we are going to have added EUR1 billion of profit, up to EUR6 billion; we are going to have added EUR550 million of adjusted net income; we're going to have added EUR500 million to our free cash flow from EUR2.8 billion to EUR3.3 billion. And this dividend at EUR3.15 will sign on 13 continuous year of progressive dividend to the shareholders of Schneider. This includes, of course, the employees of Schneider who are shareholders.

Well, this is an year also where the specificities of Schneider were once again recognized around our meaningful mission, around sustainability, electrification, digitization, but our complete commitment to be in the most inclusive workplace in the industry and also our unique structure, our multi-hub structure empowering all our regions to innovate, create, manufacture and react fast to the characteristics of the market.

So that's about 2022, and don't be worried, there will be plenty of details by Hilary later in the presentation. Now, I come to the very important announcement that we did today, which is putting in place a new governance for Schneider. We had, if you remember, announced two years ago at the renewal of my mandate, the dissociation during the time of my mandate, and this is, we announced today and it's going to be effective at the AGM in May 2023, and the Board and myself, unanimously have chosen Peter Herweck to succeed me.

Peter is coming as a natural candidate to do that. He's got 30 years of experience in our industry, of deep experience in our industry in both facets energy management and industrial automation. He was trained at University as an electrician, then worked in Mitsubishi, on Siemens, part in energy management and in automation on digitization.

And he knows very well Schneider because he joined us seven years ago and he has been exposed to the experience of the CEO in AVEVA where he drove a triple transition at the same time, the transition of business model to subscription, technology transition to one platform, and especially, one data hub platform, and finally, is the integration of the largest acquisition that AVEVA has done in software, which is the integration of OSI.

So strong experience in our industry, very strong technology background, both in energy management, in digital and in software. A very global career. Peter lived in Japan, for a long streak in China, in the US, and of course, being German in Germany, and spending in the past two years, many years in France, and truly committed to the fundamentals of our culture in terms of inclusion, diversity and a commitment to a multi-hub and multi-original hub. I'm personally delighted about the choice of Peter as he comes with a strong experience and the strong direct exposure to the world of software.

And I'll tell you after, yes, 36 years in the company and 20 years at the leadership as a leader of Schneider, as COO and CEO, I'm really excited to go into that new phase in a new role supporting, helping the team to develop its strategy. I'm going to be more helping on the strategy and technology and more as a coach. I'm really I'm excited to support the whole team and especially Peter as we go forward.

Few elements to be more precise. So we announced this today. It's going to be, as I said, effective after the AGM. The process of selection has been four years process. It started by using external consultants where a role of internal candidates were reviewed, actually diverse role of candidates were reviewed. We looked, also the Board looked, also outside of Schneider. But the Board came to the conclusion that the candidates of Schneider were the strongest among all that, which allowed us, in 2021, to announce the dissociation that we're ready.

Of course, 2020, 2021 and 2022 were pretty disturbed years, as you can all remember, as we can all remember. But I think now is the right time because Schneider is in very strong place and a very strong market with the acquisition of the minority shareholders of AVEVA, we have a clean house in software and that closes the cycle, and I'm really again enthused to go into the next cycle with Peter and the team and to serve in a different manner.

So usually when we go into the yearly result presentation, I normally make a presentation, a strategic presentation of what happened in the past year. But today, with an exception, you're going to have a much bigger package because we're going to extend that one year to the past 20 years and look at how the transformation of Schneider that happened over the past 20 years explains what happened in 2022 and the perspective that we have in 2023.

And before I go into that rewind and explanation, I want really to thank you, you on the phone for the long partnership and your patient listening to my explanation for the demanding dialog or I can confess that many of the strategic orientations that I gave to Schneider were actually originated in many of your demanding questions or insightful discussions that we had about our industry. And I think we're all passionate about the industry and that really was very helpful for me devising, creating and building the strategy of Schneider for the past 20 years.

But let's go into that transformation. We've positioned Schneider really in the past 20 years to be really benefiting of all the major megatrends in our industry. COVID-19 and the need for reshoring expressed by many governments, incentive to reshoring are boosting to a new level the need for digitization. And the combination of the energy crisis and the climate crisis are pushing all of our customers toward an agenda for sustainability, and therefore, for electrification, which is the only way to decarbonize.

So when we meet customers today, we always speak about the two main agenda which is sustainability and digitization, and facing in some parts of the world energy crisis. And what we've done at Schneider in the past 20 years is be prepared for this inflection point.

So now let's look at the transformation of Schneider what we've become. We've multiplied over the past 20 years our revenue by four, our net income by nine, our R&D spend by 3.6, which gives us much more firepower to innovate and pioneer the major inflection of our industry. And as a result, and thank you for believing into that transformation, our market cap has reached a new level and has been multiplied by seven. And in direction of our shareholders, we've been serving you a progressive dividend as sharing of the progress of the development for the past 13 consecutive years.

What I'm going to detail us towards are the main markers of Schneider, a technology company leading in the technique (ph) of sustainability, digitization and electrification, a true global player with a true local footprint multi-local footprint and an impact company because we are one of the few companies in the world who has complete aligned strategy with sustainability.

So what we've done has been actually to transform completely (ph) the portfolio, multiplied by 15, our digital sales to a level of EUR15 billion, multiply our electric -- our leadership in electrification by a factor of four to EUR26 billion and reach today, as we speak, in 2022, EUR25 billion in, what we call, sustainability impact revenues, that means revenues that we do with our customers that help them on their trajectory to net zero.

And on our journey to digitization, I want also to point out that we have built on, I said that in my introduction, a EUR2.6 billion agnostic software portfolio AVEVA, ETAP, RIB, IGE + XAO, Planon, also our strategic participation into Planon, which creates actually a reference platform in the connected industry. So with that, we have now a clean house in the field of software that we can accelerate and keep developing as we go forward.

So the whole transformation has been to acquire more in digital and at the same time to dispose of the companies that were not as central and strategic in our portfolio, and we -- at the end of 2022, we finalized our divestment program with the objective to -- for our customers to connect everything in their facilities, their buildings, their industries, their data centers, their infrastructure, thanks to our IoT platform EcoStruxure, get all the data gathered repositioned, federated, contextualized in our data hub, our PI data hub to enable the whole ecosystem of our people or the people working on installations, the developers of software, the users of factories, buildings, the suppliers like utilities and all the software developers to apply analytics, intelligence and enable optimization on installation. Our project is one software with one data, one customer experience on one digital twin for our customers.

At the same time for the past 20 years, we've kept reinforcing our world leadership in products. We are in our industry by far the company that works the most with integrators, with distributors, with people who put our technology together to a local solution. But at the same time, we've built a longer cycle, business with longer cycle by developing our system business and we have grew our ability to deal with mission-critical applications in all segments, industry, infrastructure, data centers, greenhouse building in the world and that has reduced our cyclical exposure by balancing our exposure towards industry and infrastructure.

And at the same time, we also created new growth driver around services, software and sustainability, and you see that now those business that you have supported us in building are representing a very significant part of our business and really rebalancing the equation of Schneider in a very nice manner in terms of growth capability, of course, but also in terms of resilience.

We have not forgotten that we are a technology company and we are very proud of the products, which is for us a world-leading franchise. We work every day with thousands of partners around the world who put together those technologies to build complete solutions. And we've, in Energy Management to Industrial Automation, into the integration into EcoStruxure, build revolutions in our industries, which have pioneered and led the change, the transformation of what the whole industry is doing.

I want to mention, for instance, which we're launching today which I said, which is a full range in medium-voltage without SF6 or EcoStruxure Automation Expert which is a completely open platform for automation, these are just examples of what we keep doing and why we keep ramping up the amount on the investment we put in R&D.

Another big marker of us has been the will to create a global company. And over the past 20 years, multiplied -- it goes (ph) by two our business in Europe, by five our business in North America and by more than eight the business we do in Asia-Pac and international. And all of this is based on our unique multi-hub structure whereby our leadership is spread out into the geographies where we have the biggest business, the biggest potential and the largest pool of talents, and where we empower regions on their capacity to innovate, to react, to be fast and to respond to their customers as a local player benefiting from the backup of a global company.

The great thing is that our shareholders have supported this globalization of this internationalization, and as a European company, we are today more exposed than most European companies to North American shareholding, which is our largest business in the world, the US business is our largest country, and a Greater Asia Pacific exposure than all direct peers because there again, Asia-Pac and North America are roughly at the same level in terms of business exposure. But I'm very attached to keeping on going with that dialog in North America and Asia-Pac and bring their shareholding to the level that these regions represent in terms of business for Schneider.

I want also to mention one thing I'm extremely proud is that we are one of the stocks most widely held within ESG fund. We are actually the third one, all industries included, and we are the number one security held within ESG fund among the industrial sector. And that drives me to my next chapter. We are a company that has completely aligned sustainability and strategy. We develop technologies for sustainability and we are diverse in sustainability.

We come to our customers with practical solution based on digitization for efficiency and based, of course, on electrification for decarbonization. And we drive that dimension to all our stakeholders, our suppliers and communities around us and the value proposition to our shareholders, where we have engaged to increase even our sustainability impact revenue as we go forward.

We've taken a very ambitious target in this field. We got them certified by SBTI, which not too many companies have done. And I know that is the object of debate, but we measure on benchmark by external agencies that rank companies in their performance on ESG, and where we are today, there are only two other companies in the world that gets that level of ranking and level of recognition. So it's not an easy thing and we come by internal objective and external objective to measure our progress in all the dimensions of ESG.

And finally, probably the thing which makes us the most distinctive is our culture and our operating model. And Peter is clearly very supportive of that of that difference coming from a different environment originally, and he has seen which kind of difference he can make. And we're going to be both really pushing on developing this which is probably the biggest or the strongest asset of Schneider today and as we go into the future in a world where empowerment of people is probably the most important.

So looking back also, you've supported this project, you've supported this transformation, Schneider has grown from the 19th rank in the CAC 40 in 2003 to the 7th rank in the CAC 40, and we entered the EuroStoxx, and we are now number 16 in the EuroStoxx. And I want once again to thank you, to thank our investors to thank all the analysts who have followed us for the robust dialog, demanding dialog for the patience in the time where when we are building strategically the company and there were some plateau in our performance because all of this needs a lot of effort.

I want to thank you for having supported this journey across the transformation and around value creation. And patience has paid, but I remember every year of the way, remember every of the discussions we've had, but again, many thanks for the time when you supported us in those times of transition.

I want also to mention that this value that we brought to shareholder, we brought it to our employees also who own close to 4% of the shares and that benefited of that collective performance that's realized and that has been recognized by the stock exchange.

So just to close, to say that we have positioned Schneider to be the natural partner in sustainability of customers with practical solutions, clear leadership in electrification and one of the leadership position in the field of digital with an incredible portfolio. You know the five integrations that I've spoken to you many times in enabling the integration in the digital twin for customers of their company.

We see a lot of potential in mature countries around the energy transition, Electricity 4.0, Industry 4.0, everything will get connected, everything will get retrofitted and we see a lot of stimulus packages like IRA, not only that, but in other parts of the world stimulating this investment on the market. And at the same time, new economies will remain the barycenter of urbanization, industrialization and digitization.

We see as a very important mission for us to bring clean electricity to 2 billion people who don't have access to reliable electricity. And we see also that in the next cycle, the resource-driven economies will benefit of a lot of resources to modernize every part of their infrastructure.

And our strong place in Asia is a great asset for Schneider, as today, in 2023, 75% of GDP growth will happen in major Asian emerging market economies and it's still only 25% of the revenue for Schneider. So still a large runway for progress as we look forward.

Concluding, nothing has changed. We came to the CMD recently to tell you this is a play, we are focused on electric and digital, we are developing new growth engines around service, software and sustainability. And we are very attached to the key part of our DNA, the integrated and focused business model of Schneider, the partnership, we are the most partner oriented company, the multi-hub and ESG embedded everywhere in the company. Thanks for the journey. I'm even more excited about the next steps of the journey that I will accompany from May in a different sort of role.

But with that, I would like to go into the details of 2023 and hand over to Hilary. Hilary, the floor is yours.

[Hilary Maxson, CFO]

Thanks, Jean-Pascal, and I look forward to continuing to work both with yourself and, of course, with Peter in your new roles. Turing back now to 2022, specifically, I'll start with some key financial highlights for the year. As Jean-Pascal said, we finished with record revenues of EUR34 billion, up 12.2% organic, record adjusted EBITA of EUR6 billion and record net income of EUR3 billion.

And on that net income, that's despite around EUR300 million charges from exiting our Russia business. We also drove resilient gross margin in a very complex year characterized by strong demand, strong inflation and supply constraints, and we continued progression in our adjusted EBITA by 40 basis points organic and drove some improvement in our cash conversion ratio. And all of this translates into good progression on our ROCE.

Turing to some details on our full year revenues. We finished the year at EUR34 billion, up 12.2% organic year-over-year. Around 2.5 points of that was due to volume driven by a strong pickup in volumes in Q4 with the rest due to the agile pricing actions we continued throughout the year. And sales and volumes for the full year were adversely impacted by around 0.5 point from Russia.

Sales were relatively stronger in Energy Management where we have lower exposure to supply constraints, up 12.9% organic for the year with Industrial Automation up close to double-digit organic for the year at plus 9.5%. Both businesses finished with strong backlog, and I'll speak to that in a moment.

Scope remains relatively material and FX impacted the full year positively driving reported revenues up 18% for the year, mainly due to appreciation of the US dollar and Chinese yuan against the euro. And as you can see in the footnote to this slide, based on current rates, which are fairly volatile in a couple of places, we'd expect that positive impact from FX to reverse in 2023 with revenues adversely impacted by around EUR600 million to EUR700 million and around minus 40 basis points impact on adjusted EBITA.

We report on our backlog on an annual basis, and you can see here the progression in that backlog over the past few years with a big uptick in 2022 due to supply constraints. We finished the year with record backlog of EUR16.5 billion or around six months of sales versus an average in the past of less than four months.

And as we've spoken about throughout the year, we continue to believe this backlog is healthy. We don't see any uptick in cancellations and it reflects the continued strong underlying demand across our portfolio, and of, course, this backlog will contribute to our growth in sales in 2023 as supply constraints continue to ease.

Moving to the full year details of our strategic growth pillars, more products grew strongly at plus 13% organic driven by underlying demand as well as price and backlog execution across many of our product lines, supported by a significant pickup in volume in Q4. In software and digital services, our agnostic energy management software business and our digital services grew double-digit for the year while AVEVA continued to drive positive sales despite our acceleration to subscription there.

AVEVA finished the year with plus 12.3% ARR growth, the key metric we are following to track the transition in that business and we'll provide more detail on AVEVA's results when they finish their fiscal year at our Q1 2023. Field services were up high single-digit for the year, impacted by supply chain constraints, particularly as we chose to prioritize supply to our partners, but with a, as anticipated, strong acceleration in the second half and strong double-digit demand at year-end.

Our sustainability business also finished strongly with more than 20% organic growth for the full year. And I'll note here an exciting update in our Energize program, a unique collaborative effort managed by Schneider of more than 15 leading pharmaceutical companies with the goal to proactively engage with their suppliers to address Scope 3 across the industry.

In November, Energize announced the formation of buyers' cohorts in both the US and Europe who go to market together for renewable energy to begin to address the emissions from more than 2 terawatt hours of electricity demand, and this is a great example of the significant changes companies are driving in sustainability worldwide to meet their decarbonization objectives.

2022 was also the first year of our Capital Markets Day story where we introduced another step change in our path towards building a hybrid digital company with a shift in our digital flywheel of connectable products, edge control and software and services from around 50% in 2021 to around 60% by 2025. And in 2022, we made good progress towards that goal ending the year with 53% of our revenues now in the digital flywheel driven by plus 20% organic growth in connectable products and plus 13% growth in edge control both growing above the overall Group.

Software and services remained at 18% of Group revenues where we have effectively three dynamics: first, AVEVA, where we're transitioning to subscription and focused on double-digit ARR, but it won't translate into revenue growth at those same levels in the near term; second, our field services business, which is accelerating towards double-digit growth now; and third, our energy management software businesses and digital services where we already have sales growing above that of the Group.

Our recurring revenue, another key transition goal from our Capital Markets Day, now stands at 36% of software and services revenue driven by our focus on driving further recurring revenues, including our transition to subscription at AVEVA and our focus on driving recurring revenues in services both through momentum in our digital services and recurring contracts in our field services. So overall, a very strong year in our transition journey.

Turning now to our own sustainability performance. We achieved a score of 4.9 in our Schneider Sustainability Impact Index in 2022, outperforming our target of 4.7 and putting us well on track towards our goal of 10 by 2025. Key drivers of our performance for the full year were: first, our SSI number two where we target to help our customers save and avoid 800 million tons of CO2 emissions by 2025, and there we've hit 440 million at the end of 2022 with an acceleration to almost a 100 million tons for the year; our SSI number five, where we achieved 45% of our packaging transformation goal to eliminate single use plastic and shift to recycled cardboard; and our SSI number nine, where we've now provided access to green electricity to around 40 million people cumulatively since 2008 and well on track towards our target of 50 million people.

Turning now to the fourth quarter top line, we were up a strong 16% organic to EUR9.3 billion in revenues with around 5 points of that due to a strong uptick in volumes and the rest driven by continued agile pricing to offset inflation. In Scope, you can see the impacts from the exit of our Russian businesses, and similar to the full year, we have a positive uptick due to FX, primarily driven by the strong U.S. dollar.

Specifically on Energy Management, we were up plus 18% organic for the quarter, with particularly strong sales in North America, up 28% organic with both U.S. and Mexico up around 30% and Canada up double-digit. This was partially driven by backlog execution, particularly in residential building where we've experienced supply constraints and by strong demand across product lines. Field Services also accelerated strongly.

Western Europe was up 15% organic with strong growth across all of the major economies, again partly driven by an easing of supply constraints, but also supported by continued demand across product lines, but with continued softer demand for residential buildings and distributed IT.

Asia Pacific was up 10% with China up low single-digit despite the impacts there from COVID in the Q4 and supported by demand across most end markets with the exception of residential building and backlog execution. The rest of Asia Pacific was up double-digit with particularly strong growth in India, driven by the good dynamics there across the portfolio. Rest of World was up 14% with both Middle East and South America, up over 20% organic with strong demand in almost all geographies across product lines.

Turning to Industrial Automation, sales were up a 11% driven by some unlocking of constraints in electronic components and demand. North America was up 9%, but with double-digit growth in the U.S. in both discrete and process hybrid offerings offset by industrial software where we have the acceleration towards subscription, particularly at AVEVA PI or what was OSI. Canada had very strong growth in all offers whereas Mexico was impacted by a strong baseline in process automation in 2021.

Western Europe was up 18% for the quarter supported by backlog execution and a continued strong demand environment in both discrete and process and hybrid, and process automation is now positive in all key geographies in Western Europe, excluding the UK. Asia Pacific was up 7% for the quarter despite China being down low single-digit impacted by COVID and a strong base of comparison there from last year.

The rest of Asia Pacific was up over 20% driven by growth in discrete and process hybrid automation, offset by industrial software. And Rest of World was up a 11% with growth still relatively stronger in discrete, but with continued acceleration in process and hybrid, and again, offset by negative growth in industrial software with the transition to subscription.

Turning now to our P&L, we finished the year with record adjusted EBITA of EUR6 billion, an organic growth of 14.4% driven by our top line growth as well as an expansion in our EBITA margin of plus 40 basis points organic to finish the year at 17.6%, also a record and with a strong acceleration in H2 as supply constraints eased. This strong finish in a complicated year was driven by resiliency in our gross margin as well as a decrease in our SFC to sales ratio.

And you can see here, despite that positive progression in our cost profile, we still stepped up our R&D to sales ratio by 30 basis points organic focusing on innovation for our future and to drive our digital flywheel. To give a bit more detail starting with gross margin, we finished the year with gross margin of 40.6% in a highly inflationary year or minus 50 basis points organic. You can see the impacts from inflation in a number of the bars of the chart with EUR470 million impacts from raw material appearing in our net price calculation and an additional EUR605 million headwinds from freight electronics and other inflation impacting our productivity.

We more than offset this inflation of around EUR1.1 billion as well as some additional inflation in production labor with pricing on products of EUR1.8 billion. However, given the tight supply chain environment, our industrial productivity was quite a bit below average at around EUR148 million, but with a good pickup in H2. And we'd expect this productivity to continue to normalize through 2023 as supply constraints ease. Mix was also lower than in prior years due to the pickup in the long cycle business as well as AVEVA's transition to subscription with positive progression in our systems margins more than offsetting this.

The second key driver of our adjusted EBITA performance is our operating leverage, where we successfully closed out our structural savings program, and I'll speak a bit more to that in the next slide, as well as focused on strategic investments, particularly in R&D, as well as our own digital transformation and in commercial investments to support our growth.

So we had announced an accelerated restructuring in 2020 with a target of EUR1 billion in structural savings over three years. We finalized that program successfully in 2022 having driven just over EUR1 million in savings with restructuring costs of around EUR870 million, quite a bit below our original estimate of EUR1.15 billion to EUR1.25 billion.

For 2023, we won't stop focusing on our effectiveness, and particularly, on digitization and simplification, but we don't currently have plans for another major restructuring program. Instead, we will focus on return on investment from the strategic investments we're making to ensure Schneider is future ready. And as a result, we'd expect our restructuring costs to decrease towards our target of around EUR100 million per year, starting in 2023.

Turning now to net income. Including Scope and FX, our adjusted EBITA is up 21%. Below the line, our other income and expense was adversely impacted by EUR287 million charges related to our Russia exit, aligned with prior communications and a EUR75 million write-off associated with the disposal of Transformer plants. Restructuring costs were EUR227 million for the year, similar to 2021 and I already mentioned the decrease we expect there going forward. Amortization of purchase price accounting intangibles was around flat year-over-year and we'd expect these costs to remain at similar levels in 2023.

In financial costs, we had a small step up in 2022 due to an increase in interest rates, and we'd expect this to increase by another around EUR200 million -- or up to EUR200 million in 2023 with around 70% of that due to new debt to fund the buyout of AVEVA minorities. Our effective tax rate was 25.7%, including the impacts from the Russia charges.

Excluding Russia, the ETR is 24.6% within our expected range with the year-over-year increase, primarily driven by geographical mix of business. And this all results in a net income of EUR3.5 billion, up 9%. Our adjusted net income, which excludes OI (ph) was up 16% and adjusted EPS is at EUR7.11 per share, both at record levels driven by our strong results.

Our operating results translated strongly into our cash flow from operations driving it to EUR5.4 billion, an increase of 21%. We did have a small uptick in CapEx in euros and as a percentage of sales as we invested for resilience and in capitalized R&D, and we'd expect some uptick there to continue. Working capital remains adversely impacted by the supply chain constraints, but with a strong improvement in the second half.

Our days inventory outstanding decreased by two days, but remained elevated aligned with our focus on serving customers. Continued management of our days sales and days payables also supported the improvement in second half cash flows.

And free cash flow finished at EUR3.3 billion, a cash conversion ratio of 96%. And I'll mention here we've fully accounted for the AVEVA transaction in this year's accounts with a purchase commitment impacting our equity offset by an increase in net debt. And despite the step up in balance sheet net debt and we are funding the AVEVA acquisition, primarily through new debt, so this is an okay proxy, our balance sheet remains strong with net debt to adjusted EBITDA of 1.6 times.

This is historically a bit high for Schneider, however, based on our strong free cash flow generation, we'd anticipate this to normalize over time similar to how it did post OSI transaction. Driven by our results from operations, we continue to have a step up in our ROCE. And just to note here, we've now simplified our ROCE calculation to be calculable directly from our reported accounts with no adjustments. We finished the year with ROCE at 12.2%, an increase of 40 basis points.

In terms of portfolio evolution, I'm also happy to announce we successfully completed our portfolio disposal program with businesses with EUR1.7 million of revenues sold. And while we won't announce a specific new target for disposals, we will continue to perform ongoing portfolio reviews on a biannual basis to identify businesses that aren't aligned with our strategy.

And of course, we successfully completed the acquisition of our outstanding minority interest at AVEVA in January. In terms of our overall capital allocation, our priorities remain unchanged, with a focus on shareholder returns over the short, medium and long-term. And as a part of this, we've proposed a progressive dividend for the 13th year in a row of EUR3.15 per share.

And with that, I'll turn back to Jean-Pascal to give an update on our 2023 full year expectations.

[Jean-Pascal Tricoire, Chairman & CEO]

Thank you, Hilary. So when we look at 2023, we see a continuation of strong and dynamic market demand, which is supported by the accelerating trends of electrification and digitization, accelerated by stimulus packages, accelerated by, as I said before, the concomitance of climate crisis and energy crisis.

We -- coming from high levels, the demand in consumer-linked segments will continue to decelerate from the highs of the COVID time where people were all based at home, particularly mature market, but it's not a big part of our business, let's say, 15% to 20%. The government incentives across the world are centered around energy transition, around decarbonization and improved energy efficiency and will support further growth. We have a high backlog that will support also the perspective.

The supply constraints have started to ease in Q4 as we saw the jump of our organic growth to 16%. Improving supply environment should also support stronger underlying industrial productivity. I would say, a normalization of the way we run the supply chain, we are going to be back in 2023 to a normal way of managing supply chains. And we expect some deceleration of inflationary pressure after an exceptional year of 2022 with some pockets of inflation expected to remain.

So with that, we give a guidance of an adjusted EBITA growth of 12% to 16% organic. That will be architected around revenue growth of 9% to 11% organic for obvious reasons due to the traction we have for the offers, the software, the services we deliver and an adjusted EBITA margin up by 50 bps to 80 bps. So another year of 2023 dedicated to profitable growth and completely in line -- actually above the line of our choose (ph) the cycle target that we described in our CMD.

With that, that finishes our presentation. I think I will hand over to Amit for the Q&A.

[Amit Bhalla, Head of IR]

All right. Thank you, Jean-Pascal. Thank you, Hilary. We move to the Q&A. We will attempt to take question from each analyst if possible. So as always be precise, try to be in one question per person and we'll come back time permitting.

So, operator, let's move to the first question.

[Operator]

The first question comes from Ben Uglow of Morgan Stanley.

[Ben Uglow, Morgan Stanley]

Good morning, everyone, and thank you for taking the question. So, this feels like the end of an era. And before I begin my question, thank you very much Jean-Pascal for maintaining a very consistent and open dialog with the entire investor community. So my question is kind of about the new governance structure. Can you give us a sense in terms of your own responsibility, what actually changes day to day?

What are you doing differently? Is there any change in your locations? And in terms of your responsibility, what do you expect to do more or less of? And then if I think back to the Chairman and CEO relationship, when you took over with Mr. Lachmann, can you -- that was a successful partnership for a number of years. Can you give us any sense of your timeline on this new structure, is this essentially going to be a co-role for some period of time? Thank you.

[Jean-Pascal Tricoire, Chairman & CEO]

Yes. Thank you, Ben. I start by reciprocal, thanks for the dialogs, interaction and I hope we stay in touch, right, because we've been through many things of this industry life over the past years. On governance, I think one of the very strong element of Schneider recent history of the past 40 years is to have had three different Chairman in 40 years, and this continuity has allowed to deliver performance and to be demanding on the short-term, but at the same time, to develop a long view of the destination of the company and the strong support to the transformation of the company.

I've been personally through the two forms of governance dissociated, associated. But when it was associated, it was always with a strong lead independent director namely Leo Apotheker, Fred Kindle, they've been -- we've had a very productive relationship beyond the era of Henri Lachmann, who was a dissociated Chairman or he was Chairman of the Supervisory Board as we are in a different form of offering. The way I see it is that my role will change a lot right?

I see Peter will be in charge from May. That means he is CEO. He has to propose the strategy and he has to delineate the strategy. He will manage the team, he will respond of the results. He is in-charge, like I've been in-charge of Schneider actually since I was appointed as the CEO. My role will be to assist and advice on key elements like strategy, technology and something I'm very attached to is human capital and the quality of leadership, and I immediately (ph) think I have an eye on that and I can bring things because I have a deep knowledge of this industry and have a deep knowledge of Schneider.

The other part of my role, but that's going to be as a support will be to help on the context and the representation of Schneider, but that will be when needed. But I will keep a very special role in Asia where I have had a front line role over the past many years, actually almost 30 years. And from that point of view, I'll stay based in Asia, as Peter will be based in Europe, as main base.

And then I'm going to be taking care of the Board, and a strong element of Schneider is diversity and the competency of the Board, and look at our Board, it's probably one of the most diverse, and I would say, brings a lot of expertise in software and digital as we look into the future on new energy and sustainability. We are announcing a new arrival at the Board today, Julia Kyoka (ph) who comes with strong expertise in sustainability on the energy world, and she is one of the, as an example, of a Board which is extremely diverse if you compare to the other Boards in our industry or the other Boards in France, and I'm going to be in charge of animating (ph) this.

So those are the main points, and I'm going to engage selectively on when needed and coordinate with shareholders when there is a specific case or specific subject to review. But you know, I've spent 36 years in the company, 20 years leading the company, building a great team right, and you know many of them and my -- I want them to succeed, I want Peter to succeed and my role is to really support that success. I'm sitting here with Hilary. I will keep the journey with Peter. I'm so proud of what we've done together driving through three difficulty years and looking forward to the many years in front of us.

[Amit Bhalla, Head of IR]

All right. Thank you, Ben. Next question please.

[Operator]

The next question is from Philip Buller of Berenberg.

[Philip Buller, Berenberg]

Hi. Thanks for taking the question, and also best wishes Jean-Pascal in the role of Chairman, of course. And it's probably a bit unfair to ask you to comment on the Capital Markets Day as Chairman, especially it's going to be [indiscernible]. But strategically, and from the Chairman seat, is there any pivots or change needed strategically as we think about passing the baton to Peter? It feels like capturing the market growth is well in hand. So I'm wondering if strategically, if that's the key focus, or perhaps M&A may be a more important leg of the story going forward. Thanks.

[Jean-Pascal Tricoire, Chairman & CEO]

Look, thank you for the question. But I think what I explained is that it took us 20 years to pivot the company into where it should be in terms of positioning. Very strong traction on electrification. The world will be electric. You are speaking about multiplied by two or three in terms of electricity in the mix of energy. In the next coming 30 years, it's a twin friction point on the Internet of Things, Big Data, and the AI has just started. So priority is to execute on the base.

The reason why we operate this transition now is that we are exiting three years of poly crisis and high intensity crisis, and I feel we have now gone through them actually with a lot of agility, resilience, and we have a very strong position. With the acquisition of the minority share of AVEVA, I would say, we've put the house in order. We've got, on the one roof, all of our software that will keep autonomous, but we can really grow synergies on development to a much higher pace as we go forward.

I wanted this to be done before I would transition. And as I said, we are just on the right topics in the energy and digital world at a time where all of our customers have those double agenda, the top of their priority, digitization and sustainability. So priority is really to growth, organic growth and to develop and to scale out what we have assembled.

[Amit Bhalla, Head of IR]

All right. Thank you, Phil. And as we mentioned, the CMD is later in the year in Q4. Next question please.

[Operator]

The next question is from Andre Kukhnin of Credit Suisse.

[Andre Kukhnin, Credit Suisse]

Good morning. Thank you very much for taking my question. And of course, many thanks from my side as well to Jean-Pascal for this fascinating journey over the last few years. And welcome to Peter. I have a few more kind of topics to cover on the CEO change, but I think I'll change gears and maybe ask about AVEVA and come back to the purpose of that full integration, and what you now see the business can do for the rest of Schneider Electric portfolio from the Energy Management side?

And maybe is this kind of a sign of the management change and Peter's background being more industrial automation and software focused, is this a signal of your kind of anticipation of maybe the buildings and construction world finally moving ahead into the digital and software era?

[Jean-Pascal Tricoire, Chairman & CEO]

Yes, that's a very good point. So first let's speak about AVEVA. We said it already, so I won't be too long on that one. But we are very attached to the autonomous model and the agnostic model of AVEVA as well as the other neutral software companies that we've assembled the ETAP, IGE, RIB and so on. Everything that goes beyond the data layer or at the data layer has to be inclusive of all the controls and all the way on the market and this is why we want a specific governance at AVEVA.

And actually today, Peter will be replaced as the head of AVEVA by the Chief Revenue Officer announcing it, Caspar Herzberg, and Peter will be the Chairman of AVEVA that he knows very well to ensure the same sort of continuity on the triple transition I was mentioning. The objective for us to bring everything under one roof is to accelerate on the transition, transition to subscription, transition to one platform, and that doesn't mean that we want to integrate everything.

We have to keep the specialization of the franchise, but our customers want one customer experience, one data hub and of course, one digital twin where we are the only company to be able to bring all of the life cycle of installations, the shred (ph) of process electricals and energy and building into one repository. So we won't change the essence, the autonomy, the agnosticity of our software companies. They will keep their specialization, but will drive faster subscription and convergence of those three elements, experience data on digital twin. That's it.

Then, Peter brings an over exposure, I would say or higher exposure to the field of digitization and software, and we see that what happened a long time ago in industries with Industry 4.0, this actually will happen and will drive that in electricity for net zero, making sure that all of our energy systems at a time where energy efficiency and energy resiliency is front and center for everybody at our customer, making sure that everything is connected, that data is reported, aggregated together with the process data and that we offer tons of analytics on AI to analyze and optimize what's happening from the smart grid into smart homes, smart buildings, smart manufacturing, smart data centers and smart cities.

So that knowledge and that capability has to spread everything into -- with our customers and we see terrific potential, take where I'm at the moment in France, France is all focused on decreasing its energy intensity. Only 6% of the building are equipped with intelligence. So -- and that's not uncommon even in countries like France. So we've got a lot of runway there and Peter comes with an exceptional experience in that.

[Amit Bhalla, Head of IR]

All right. Thank you, Andre. I notice we are at the hour, but we will keep the call running so that we can take a few more questions from the other analysts. Next question please.

[Operator]

The next question is from Gael De Bray of Deutsche Bank.

[Gael De Bray, Deutsche Bank]

Thanks very much. Good morning, everybody. Look, Jean-Pascal, Energy Management is -- has been your historical franchise for so long now and has clearly been the main growth driver for the Group in the past few years. So I was wondering if the appointment of Peter as new CEO could actually lead to a greater focus or strategic, and firstly, it's on automation in the future.

Also on the M&A side, I mean, we've seen some of your competitors moving into specific fields, including EDA, low-carb (ph) test and measurement, metrology, supply chain management services, for example, so in very multiple different directions. So I'm curious to understand if and -- well what is in your M&A pipeline in terms of new visionary, potentially game changing technology additions? Thank you very much.

[Jean-Pascal Tricoire, Chairman & CEO]

Gael, thank you for your question. First, to correct the perception, Peter has been exposed as much to energy management as to automation, and especially, when he was in China, he was directly in-charge of energy management, not for Schneider, the time I actually remember it. So I can tell you, he knows the sector very well.

And from the strategy, I described from very early on, probably 20 years ago or 15 years ago, I don't see a silo or a separation between automation and digitization on energy. We see everything in energy being connected and everything that we are coming out, even small objects, will be connected because it's the only way to optimize energy, it's the only way to make energy safer, it's the only way to make energy resilient. And the great thing is that we have a huge presence in the key objects that control energy, the breakers, the contactors, the drives and so on, and we are super passionate in making sure that everything gets connected from the design, to the build, to the operation and maintenance.

So everything, when it's in industrial infrastructure, it's a cockpit of that convergence of energy and process is Industrial Automation. When we are in the other application, data centers, buildings or even homes, the cockpit or the core of the nexus of that is our energy control centers, and we've got everything, and we've got everything integrated from a long time. And even the condition, all the way we design our organization, we don't have vertical divisions for energy or automation. We integrate at the level of our customers, everything into our customer on sales organization.

On M&A, I might repeat myself, but we have some portfolio. We have what we need and we have just finished a very strong investment to accelerate AVEVA, a very high investment and we see the future in scaling out what we have assembled. And our portfolio is reoptimized for what we have to do. We put here and there some adding, so as you saw more recently, we had been more with early cycle start-ups that we helped developing, but they are small with respect to what Schneider is. What we want to do is to scale the huge -- the fantastic portfolio we've put together.

[Amit Bhalla, Head of IR]

All right. Thank you, Gael. Next question, please.

[Operator]

The next question is from Jonathan Mounsey of BNP Paribas.

[Jonathan Mounsey, BNP Paribas Exane]

Thanks very much for extending the call and letting us in. And again, thanks to Jean-Pascal for all the years and communicating so effectively, the strategy and also achieving (ph) on it, the company is really in really healthy (ph) as you hand over to Peter. In terms of questions, just really wondering in terms of the guidance, obviously, impressive on the top line. I wonder, maybe Hilary if you could give us a bit more color about what that means for free cash flow conversion in 2023?

I guess, when you grow that quickly often -- actually, we saw one of your rivals, well, I'd mention, it's Siemens had a very poor cash flow in calendar Q4 on the back of very strong growth. Is your growth likely to impact your free cash flow this year? Are we likely to see some sort of drag from working capital to deliver that kind of top line growth, or do you to foresee a very solid performance in 2023?

[Hilary Maxson, CFO]

Sure, thanks. So, obviously, we don't give free cash flow guidance, and I don't think we will start today. But we have a couple of dynamics in the free cash flow. I had spoken, at the EUR3.3 billion that we had in 2022, we're still below the around 100% cash conversion that we think we should be at even in a growth environment. So in 2023, we'd foresee a couple of things first. Still some regularization on the inventory side.

Like I had mentioned, we're still not -- even including the addition in safety stock we'd like to have on a going forward basis, we're probably not where we'd like to be. So that's an opportunity for us from a working capital standpoint, while at the same time of course, we would expect, not in days, but in absolute euros that we're going to make some investment in order to support the demand going forward.

The one point -- so overall I would say, no reason to believe that it won't be a strong free cash flow year in 2023. We'll continue to target the around a 100% cash conversion that we talked about in the Capital Markets Day over time. The one point I would make there, is that in CapEx, I did note, we expect to have a little bit of an uptick and we've talked about that as we focus on resiliency and we focus on capacity associated with the demand. But net-net, I don't think any reason that we would feel uncomfortable with the cash conversion that we usually target in 2023.

[Amit Bhalla, Head of IR]

All right. Thank you, Jon. Next question.

[Operator]

The next question is from James Moore of Redburn.

[James Moore, Redburn]

Yes. Good morning, everyone. Thank you for the time. Jean-Pascal, it's been so many years, you taught me a lot. Thank you very much and you've been a visionary, real leadership on so many topics, data centers a decades before others, energy efficiency, sustainability. But as you know, I've always been pushing you on the margin and the ROCE, so I don't want to stop now. So on the margin, one on this year and one on the longer-term.

On the scope, Hilary, you mentioned EUR750 million for disposals and a 30 bp negative impact. I think that implies EUR230 million, EUR240 million of EBIT for that disposal or 31% margin. It seems strange to me. Can you say what the margin is of the revenues going? And Jean-Pascal, on the longer-term picture, beyond the current target frameworks, where do you think the margins and returns of the business can get to in the longer term steady state?

[Hilary Maxson, CFO]

So I'll go first on the minus 30 basis points. So, if you recall, so at least around half of that, if you recall is we exited our Russia business in 2022, not part of our planned divestment program, obviously, and that was a company that performed at actually around the same or even a bit better than the overall margin of the Group. So, as expected, in my mind that we'll have the Scope impacts there.

And the rest is associated more with some earlier stage acquisitions that we've talked about in order to make the company future ready. So net-net, we have that minus 30 basis points, but, of course, in terms of organic progression, that's something that we're looking at both our organic progression as well as the overall adjusted EBITA that we forecasted for the year.

[Jean-Pascal Tricoire, Chairman & CEO]

In terms of margin, I think 2022 is a very special year where we faced a surge in cost, which was exceptional. I'd say, in two years we've been facing EUR2 billion of costs, it's never happened to that magnitude. But we've given in the CMD our perspective -- not our perspective, our commitment to improve the margin every year as we keep growing more accretive part of our portfolio.

So refocusing the company, sometimes we are divesting very profitable part of the company, but that makes us better, because in the future, we're going to be more focused and we get the cash of it -- of that. Of course, it was not the case in Russia, which is a very different case, which was -- which is a war, but that's the choices that we are operating. But otherwise, we want to develop software, which is going to be accretive. We have the biggest franchise in products where we keep investing in R&D and connecting things which is creating value.

You've seen the increase of connected products in the digital flywheel that Hilary has shown. It's quite impressive in one year. That means both the unlocking of supply chain on electronics and it means also that customers are ready to buy that, and pay for it. And once it's connected, it's creating a recurring flow of business, and you've seen also the jump from 30% to 36% of recurring revenue in software and services, which are also very promising for the future and what we can create on the top of that.

So that's what I would say. We stay committed to our objective of every year increase of our profitability, which is both due to what we do in operations, cutting costs and getting better and delivering more productivity, and at the same time changing the mix of our business and the mix of our business model towards more services, more subscription to get more profitability. And what we see in 2023 is that while we are not yet there, we should be coming back to a more normal regime for our supply chain, and our supply chain, when it's running in the right environment, is delivering a very solid productivity.

[Amit Bhalla, Head of IR]

All right. Next question please.

[Operator]

The next question is from Daniela Costa of Goldman Sachs.

[Unidentified Participant]

Hi everyone. This is actually Esan (ph) on Daniela's line. Just a quick question on pricing. So I just wonder in your guidance for organic sales growth, how much price impact is there and also for the margin guidance as well? Thank you.

[Hilary Maxson, CFO]

So we have -- in terms of pricing, we have good carryover into 2023. We wouldn't expect those similar year of pricing like 2022, because like we mentioned we expect a deceleration in inflation. So we expect a number of points of price carryover that would reflect in the top line guidance. But we also expect an easing in the supply constraints as well as continued good demand environment. So in all pieces of that top line guidance we've given, we would expect a bigger majority in terms of volume contribution versus price, again, with a healthy carryover of price in 2023.

And in terms of margin, at the moment we're in an inflationary environment, so as you could see on the gross margin line, quite a bit of the pricing that we're doing is more associated with inflation, so that's not really impacting our bottom line per se. In 2023, while we expect some deceleration in inflation, we have some acceleration in other places. So again, net-net, I think the pricing that we're doing there is primarily inflationary.

[Amit Bhalla, Head of IR]

All right. Probably take another one or two questions, if there's still large. So operator, do we have another question?

[Operator]

Yes, sir. The next question is from William Mackie of Kepler Cheuvreux.

[William Mackie, Kepler Cheuvreux]

Yes, good morning. Thank you for the time. And I can only echo the many comments of what an amazing journey over 20 years Jean-Pascal. My question comes to the -- yes, Asia, during your introductory comments, you again highlighted 75% of GDP growth from Asia and 25% of Schneider's footprint, and you said, lots of scope for expansion. Could you perhaps elaborate given your extreme knowledge of the region, where you see Schneider's growth potential and path in the next stage of the journey? And perhaps more specifically into 2023, how you might anticipate China to recover from the challenges of '22? Thank you very much.

[Jean-Pascal Tricoire, Chairman & CEO]

Yes, thank you. Look on Asia. I don't want just to state the obvious, but 60% of the world population, 50% of the world GDP, bigger cities and urbanization progress at the moment. And the real sensibility to pollution and climate change, because it becomes really, really visible and tangible in the life of the people. We've developed an incredible presence in Asia, China is our second-largest business. But I'm very proud of what we did over the past 20 years in India who is now our third largest business. So -- and we do a lot and we develop a lot in Southeast Asia.

So you had a question about China. China has been really impacted by the zero COVID policy and a number of factors in 2022. China is still positive in 2022 and recovered forcefully from the lockdown. I have to share that our workers in China has spent six weeks in the factory to keep it working whatever the difficulties to give you an example of the commitment of the teams. What -- I see it's still difficult to read, but what I would forecast in China is that China will be a strong contributor in 2023 to the performance.

I forecast a slow Q1, which was already impacted in January by Chinese New Year, and as it was the first time in three years that people could travel that Chinese New Year a bit longer than usual. Actually a very positive sign is that in Chinese New Year, it's always a test of the commitment of people to economies that people are back from their own town after Chinese New Year sometimes. In other times then you will have a rate of return that was valuable. Here, they all come back, they want to participate to the restart.

I think the consumer -- Chinese consumer is eager to consume and that will trigger a lot of trickling in the economy to go out, and probably more domestically at the beginning than internationally, but international will follow. And I think the new government of Lee Chong (ph) who comes from economically thriving provinces, speak about Zhejiang, Fujian and Shanghai will be keen on stimulating the economy for a stronger development of EV (ph). So we see a recovery in China as we go forward with reservation on the first quarter because we are still in the sort of aftermath of Chinese New Year, zero COVID and so on.

Very optimistic about India. Actually on my way to India after this call because we have a very strong presence here, and which country is better for Schneider is in India where you have huge need for electrification and development, and at the same time, probably the most apt country in the world at scale on digitization, so bringing those two equations together and we have plenty of partners and very strong franchise and a very -- well, deep penetration of Indian cities, Indian places, we are very local in India. 60%, at least to 70% of what we sell in India is developed in India and has Indian characteristics. It tells you about the level of localization was effective in India.

And I'm also very bullish about everything, which is happening in Southeast Asia where we have a very strong -- where we have very countries and very strong presence in all aspects, right, industrial, commercial. And Southeast Asia had been really impacted by COVID policies. Now, they are emerging out and I see quite a lot of potential here. And I'm not forgetting here, North Asia with Japan where we have big partnerships and strong R&D presence in the country, and Taiwan where are we -- as a region, which participate, also which has been developing a lot around semiconductors and we participate towards that development.

So I see lot of potential that stays in Asia, and Asia has really understood that combination of digitization and electrification, and they have submitted to the pressure of imported energy at higher prices, so there is a strong push there to evolve and to transition the model.

[Amit Bhalla, Head of IR]

All right. Thanks, Will. One -- I'll probably squeeze in one last question, if there is, please.

[Operator]

The last question is from Eric Lemarie of CIC.

[Eric Lemarie, CIC]

Yes, good morning. Thanks very much for taking my question. Just one question on China. With all of these geopolitical news we get nowadays, what can you do at Schneider to deal with an embargo in China? Can you relocate some production, adapt your supply chain here? What would be your option there? And actually what is the percentage of cost of goods sold at Schneider to be supplied from China?

[Jean-Pascal Tricoire, Chairman & CEO]

Look, we have structured very early on in China, for China. So really what we produce, what we manufacture in China is dedicated to the China market. We -- more and more of our products in China are done in China for China, our digital space in China is mostly China for China. China is a continent and it's such a large economy, and to point, it's the same as what we do in the U.S. that the overwhelming majority of what we do in China is designed in China, manufactured in China, supplied in China, and we've very early on not counted on China for our global supplies. So that's what we've put into place.

Now, my personal opinion is that, if there is an embargo in China, then it's a completely different world, and Schneider is at a mess. I think all the other supply chains would be a compromise, but I don't think it would be very reasonable. So let's say, cool and calm. But in the case of Schneider because of the size, the scale and the growing difference in innovation, in digital spaces and everything, we've structured from very early on China for China. And take the past three years, China borders were sort of closed by COVID and our teams managed China beautifully and they managed it from themselves, with themselves, with our own forces and will keep doing like this.

[Amit Bhalla, Head of IR]

Well, all right. I think I just want to thank everyone for their patience for this longer than normal call. You'll see on the slide that we have a bunch of events and meetings lined up. This is -- this basically takes us toward the first half of the year. We're going to embark on the roadshow soon after in the coming weeks, so look forward to seeing many of you. And please reach out to us if you have any further questions.

[Jean-Pascal Tricoire, Chairman & CEO]

Amit, if I may, I really -- there were plenty of nice words and I thank you for those nice words, and as many nice words for you all for the discussion with you all analysts, investors. Again, many thanks for the patience for my accentuation of English, for my direct speaking, but it's always been a pleasure, and you've been a source of inspiration.

In the next coming two weeks, I'm going to be meeting some of you during the road show. On his side, Peter would be taking the next two months really to relaunch Schneider and transition properly AVEVA, but you're going to have plenty of him from May, and I'm going to make sure and I'm going to be supporting with all my forces, a very successful transition with him and with the team. But look forward to seeing you and stay in touch. Thank you.

[Amit Bhalla, Head of IR]

Thank you, all.