Welcome to Schneider Electric's 2021 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, all participants are in a listen-only mode until the dedicated question-and-answer session of today's conference. At any time, you may press star one to pull for a question. If you need to withdraw your question, press star two. I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now hand you over to Amit Bhalla. You may begin.
Well, hello, everyone. Very warm welcome to our full year results. We join you today from our innovation hub here in Paris. Of course, with Jean-Pascal Tricoire and Hilary Maxson, our Chairman, CEO, and CFO. Let's get started. I wanna just make a mention about the disclaimer, as usual, that you see on the slide. The slides are on our website, and we will keep enough time for Q&A. With that, I'm gonna pass it over to Jean-Pascal.
Thank you, Amit. I'm really delighted to be today in person, in COVID times, in Paris, in the Innovation Summit, to speak with you. By the way, you are all welcome to visit us and to visit this Innovation Summit when you happen to be here in Paris. I'm gonna scroll through the headlines of the year and remind you first that we are a focused and very focused company. We are focused on being the digital partner of our customers for sustainability and efficiency at a time where sustainability and digitization are on the top agenda of all of our customers. If I would summarize the results we're gonna present today, they are the proof that those transitions in both digitization and electrification are truly happening as we speak, and they are in full swing and in full acceleration.
Let's go first through the headlines of the year 2021. Here, I'm gonna describe five historical high in the history of Schneider. EUR 29 billion of sales for the first time, 12.7% organic growth for the full year, and actually limited by supply. We could have done better if we would have had supply at the level of our demand. Second historical high, and it's really important, first time we are at EUR 5 billion of adjusted EBITA on reaching the threshold of 17%, actually overshooting the threshold of 17% at 17.3%, one year earlier than we had forecasted in our plan.
Next high is the first time we passed EUR 3 billion in terms of net income, and it's probably the best signature of the quality of the year, +51% on the net income. Adjusted EPS, again, historical high, 6.13, +30%, on an operating cash flow at EUR 4.5 billion, an increase of 22%. We're gonna explain after that the free cash flow is in a decrease, and it's a very conscious choice of building the strategic stock to face the demand we have in our backlog and we have in front of us. Five historical highs as a signature of this year. I would add to that, as a second signature, the adding of very important companies and capabilities to our portfolio, OSI, RIB, ETAP, IGE.
In the past quarter, two early-stage companies that complement our energy management portfolio. Third one is, of course, signature of the year is our new ambition on our performance and recognition in sustainability. 2021, the most sustainable company recognized by Corporate Knights in Davos. This year, we make it to number four, which is great to be belonging to that top group of companies dedicated to sustainability. As you know, the relaunch of a new cycle around our Schneider Sustainability Impact that will carry us through the next five years.
Then a very good year, a very strong focus to the return to shareholders with the TSR at more than 50% on the proposal at the AGM of a dividend at EUR 2.9, which would sign the 12th year in a row of a progressive dividend at Schneider to thank you for your continuous support through our transformation and through our progress. Let's come back to the foundation of Schneider. What we do at Schneider is extremely focused, and it's that combination of Energy Management and Industrial Automation to support both the energy transition and particularly decarbonization and the move to Industry 4.0, the digitization of everything around us. What you see is that software is more and more central to that transformation.
This is based on a unique operating model that we spent time to explain to you the fact that we are one integrated company to offer one integrated solution bundle to our customers. That we are organized in multi-hub close to our customers, close to our people, and able to react rapidly and in a very practical manner to the request of the market. That everything we do is incorporating ESG, and we have the ambition to be an impact company, which we defined during the CMD. Finally, the fact that we are the company leveraging the most partners, whether it be on the supply side or the integration side, around us. This, what you will see about 2021, is in perfect consistency with what we explained to you two months ago.
We're explaining that our growth drivers with foundational market accelerating, actually doubling, their average growth, with new growth drivers supported by our model. The strategy to go to more recurring revenues, especially in software and services, which support long-term financial ambition and especially the aspiration to be a company of 2025. Now, let's go a little bit more granular about what 2021 has yielded. EUR 29 billion +13%, both of our businesses, Energy Management and Industrial Automation, are growing double-digit. Both are improving their profitability at very high level. The total improvement of the profitability of Schneider Electric is at 140 bps to reach 17.3%, and we passed above 17% one year earlier than we had projected to you a few years ago.
A very strong year of acceleration on both growth, on making sure that this growth translate into profitability. Hilary will go into a wealth of details on the year-over-year performance. From the beginning of the COVID, I told you that the base of comparison we'll be using at Schneider will be the last sort of stable year that we had known, which is 2019. Even if you compare to 2019 after two very shaken years, it's still a very strong result. 7% in sales, close to 20% improvement in adjusted EBITA, or increase in adjusted EBITA in organic growth, and a net income increasing by 33%. Very solid in both growth and improvement of financial performance.
All of these comes with a systematic and persistent implementation of our strategy that we've shared with you for now, the past four years, really making sure that we sell more products, 11% organic growth if you compare 2021 to 2019. Here, we will go into the details of the year-over-year. With particularly very strong performance in OEMs, in industrial sector, in data centers, and in residential. We have had price actions throughout the whole year in front of a cost increase that we had never known at this level before. This performance in products, in growth, could have been much higher here because it has been impacted by supply chain pressures. At the same time, the second strong growth that we have is the software that we provide at Schneider.
Energy management software that we've been building over the past three years is having a strong double-digit performance. AVEVA is impacted by a very high base, especially in our Q4, which is their Q3. Digital services, which are linked to the assets that we connect to the cloud and to analytics, are really growing faster than the rest. Services growing only 5%, and that would be with respect to what we explained to you, the percentage point meant that it can be very easily explained by one thing, is that we were restricted in access to sites by lockdowns in many places and sometimes by shortages on spare parts.
We have no doubt that the setup we have, that the people we've put in place, the thousands of people we have in place on the market, will be able really to catch up and to redeploy, as the market are opening after, on, when countries learn to live with COVID. Finally, a very good and very strong year for what we do in consulting on digital for sustainability with a strong double-digit growth. I'm gonna scroll quite fast on these elements, but first, when you take our core central historical market, a flurry of innovation this year, I just want to mention what we do in smart grid. I want to reiterate the big disruption on innovation that AirSeT is in medium voltage. A totally gas-free switchgear based on air and really completely compatible with the previous generation
want to mention EcoStruxure Automation Expert, which is the third generation of software-defined automation. On everything we do in the field of smart home and smart building and especially the Energy Center. All of this supported by services and partnership with our partners. A few examples of wins with our customers. KB Home using the Energy Center. The Energy Center is sort of your energy orchestrator for your home, taking care of your renewable source, storage source, and the utility supply. What we do with the Finnish University in the field of open automation on the pilot that we have in France with Enedis in SF6-free medium voltage. We don't speak a lot about it, but remind you that we keep registering new patents, and we have a lot of patents supporting our technological advance in both automation and energy management.
If we speak about products, the biggest headwind we ever had to fight against, and we are still battling with over this year, has been the supply chain constraints. We have, of course, leveraged all the specificities of our model, the fact that our supply chain is globalized under one responsible person, one VP reporting to me, the fact that we have structured a global organization by region to be very local, to react faster. We've worked on centralizing and globalizing the purchasing to make sure that we are very transparent and strong discussions with our suppliers. We have leveraged a multi-hub. We are, of course, leveraging automation and digitization of EcoStruxure to be better. We have put in place specific action control towers by region to organize the best optimization between the demand and supply, real-time coordination.
We are entering really in much stronger and deeper and strategic relationship with our suppliers. We are redesigning some product lines. While this year has been very difficult at times from that point of view, our net satisfaction score, which is improving, shows that this constant and persistent dialogue with our customers has somewhere paid. Face it, we started the year with an estimation of the market growing mid-single digit, and we finish in a very high growth, and that has had the consequences on our supply chain that we've seen. That's about more products. Now more software. We explained to you during the Capital Markets Day all the work of convergence we are doing all over the life cycle of the installations and around the three threads that we are putting together. Industry, power building.
We see already customers adopting that convergence and adopting several parts of our portfolio. All of this links into the world of OT EcoStruxure. Once again, assets under management grow by 50%, so more customers trust us to manage the performance of the asset. More customers are coming to our marketplace, where people can trade software, tips, application, and establish relationship, Schneider Electric Exchange. We see a continuous acceleration of e-commerce. Large part of it we manage with our distributors, but making the relationship with our customers more transparent and more digital. There is anyway in digitization, we see an acceleration. Those supply chain issues that are happening everywhere mean that all of our customers are accelerating their digitization journey.
We leverage the experience that we accumulate in our 200 factories, where we deploy the best of our technologies, to put them at the disposition of our industrial customers. You have here a few examples of customers with whom we work to provide the whole benefits of digitization, which is not only productivity, which is a more traditional way of looking at things, but safety of the operators, sustainability, traceability, quality, really on lean ways of management are really the collateral benefits of the digitization journey. Going on to some very practical example with Mars, where we work in this case together, hand in hand, with AVEVA to supply a complete solution. Example with electrical contractor leveraging our EcoStruxure Power together with IGE+XAO portfolio to digitize the whole journey. Cement in China.
Cement in India, sorry. More example in China, where we bring that digital capability to our customers. The example in India shows that we have also established bridges, productive bridges, with L&T to supply our complete solution. We spoke about software. Now let's speak about services. Services, we've been expanding our offering. Frankly, the biggest issue we've had over the past two years has been the openness of customers to their sites because of lockdowns which have happened in a recurrent manner. Again, we've been strengthening our offer, we've been reinforcing our setup, and we've been digitizing a lot what we do in services. This digitization of services in our reporting appears in service, in software.
Those two, services and software, in many cases can't be differentiated because digital is a way for our customers to stay connected to their installation. On the third layer, if you remember, software service is sustainability, where we are advising more and more companies in understanding what they consume, what they emit, in strategizing how to consume less with energy efficiency and process efficiency, on how to consume better, that means source more decarbonized energy. To take a company in a sector that is probably closer to yours, we sign a very meaningful agreement with Equinix to work on the decarbonization of their portfolio. At the same time in the industrial sector, a recent agreement with Plastic Omnium to work on carbon neutrality on their whole industrial setup.
We are today, as we keep progressing to our objective of 800 million metric tons of CO2 saved for our customers, at 350 million tons since 2018. This commitment to sustainability that we have in business, remember, core business growing faster, software, services and sustainability, is also applying to Schneider. At the beginning of 2021, we launched a new set of targets in sustainability, and the first year shows a strong start. Again, that set of 11 objectives, of which one objective is very local. I want to mention particularly what we started with our suppliers, with our 1,000 top suppliers, to help them cutting their emission by 50%. We've confirmed our ambition targets, ambitious targets for Schneider in the field of sustainability, received a number of external recognition.
For us, it's really important to have that external eye to confirm if we are doing right or if we are going at the right speed, and we'll keep making sure that ESG is part of everything we do at Schneider. I want also really at this end of 2021 and beginning of 2022, reiterate that all of this is possible thanks to the incredible and formidable engagement of our people in sometimes difficult conditions. Even with everything we've been facing, no trips, sometimes separation from families due to quarantines and so on, and difficult conditions of operation due to disruption of supply chains and everything, the engagement of people has gone up again by seven points this year.
At Schneider, we believe that what gathers us is the fact that we work for a meaningful mission, that we are very inclusive place of work, and that we empower people through our multi-hub and hybrid model based on trust, so that everybody can make an impact. I will finish here by saying that while we do all of this, we are convinced that performance cannot be dissociated from sustainability. We stay very committed to delivering the performance to our shareholders. This year TSR at 50%, three-year TSR over 200%. We're gonna propose to the AGM a dividend of EUR 2.9, signing the 12th year in a row of a progressive dividend. That's for the headline of the year. Now I'd like to hand over to you, Hilary.
Yes, thanks, Jean-Pascal, and good morning, everyone. I'll start by going back to some key financial highlights for the full year. 2021, another signature year for us, finishing, as Jean-Pascal said, with record revenues of EUR 29 billion, up 12.7% organic, and record adjusted EBITDA margin of 17.3%, up 140 basis points organic. We achieved and surpassed our goal of around 17% adjusted EBITDA margins one year ahead of plan, partly driven by continued strong gross margin trends despite inflationary pressures. Our net income also particularly strong at EUR 3.2 billion, up 51%, driven, of course, by our strong operational performance and also our increased focus on managing costs that hit below adjusted EBITDA.
Free cash flow is below last year, primarily as expected, and tied to an increase in working capital, and particularly inventory, due to some choices we made for resiliency given supply chain constraints and to better serve our customers. This all translates into a step-up in our core ROCE to 13.5%. I'll go into the details on all of these points in the next slides. Turning first to revenues, no doubt this is a year characterized by strong growth dynamics, with growth across all of our regions and positive scope impacts of 3.5 points from our acquisitions, all leading to record revenues of EUR 29 billion. I'll particularly highlight our most recent acquisitions, so L&T and OSI are both tracking well and above business plan.
We were impacted by supply chain shortages in the second half in particular, and we'd estimate these adversely impacted our revenues by around two to three points for the full year. We also had a strong performance in product pricing for the year, particularly in second half, impacting total annual sales by around 2.5 points. Net-net volume growth was quite strong, bolstered by dynamic underlying demand trends. Impacts from FX impacted revenues negatively for the year, and based on current rates, we would expect this to turn positive in 2022 due to strengthening of the dollar and Chinese yuan, with estimated impacts of between EUR +500 million and EUR +600 million top line and +10 basis points to adjusted EBITA margin. Now, rates are obviously quite volatile at this moment, so as usual, we'll update you on expected impacts throughout the year.
I'll also mention here that in addition to record sales, we finished the year with record backlog of EUR 11.8 billion, up EUR 2.8 billion, driven by continued strong demand and some supply chain constraints. Now throughout the year, we've compared ourselves both versus 2020 as well as 2019, like Jean-Pascal showed earlier, and we continued to maintain good momentum, finishing at +7% revenues versus 2019 for the full year. In products, we finished +16% versus 2020, with around 3.5 points of that due to price and 11% versus 2019. In systems, we finished +9% versus 2020, and we're now almost flat to 2019. Software and services, which now represents around 18% of our total revenues, we finished at +7% versus 2020 and 2019. Turning now to revenue growth by geography.
We finished the year with double-digit organic growth in all of our regions versus 2020 and with positive growth versus 2019. North America finished at +13% despite supply chain constraints impacting both businesses and with U.S., Mexico, and Canada all showing double-digit growth. Western Europe finished at +10% with particularly strong performance in France, Italy, and Spain. Asia Pacific finished at +14% with double-digit growth in China and India, and rest of world finished at +16% with double-digit performance in all key geographies. Our top 15 countries or clusters have all turned to positive growth now versus 2019, with the exception of Australia, where we're gaining good momentum and are now close to flat. In our Capital Markets Day, we spoke about our key incremental growth drivers and introduced our updated strategic pillars of more products, more software, more services, and more sustainability.
Jean-Pascal showed these earlier versus 2019. In 2020, more products continues to progress strongly. I mentioned +16%, driven by strong customer demand and continued dynamic trends in shorter-term, shorter cycle segments like OEM and residential, further supported by our pipeline of new product launches. Software, including digital services, is up 8% versus 2020 and up 12% versus 2019. Energy management software, including our EcoStruxure Advisors, grew strong double digit in 2021, partially offset by AVEVA due to an exceptionally high base of comparison there in Q4 2020. AVEVA's sales pipeline for the remainder of its financial year, so finishing March 31st, 2022, remains on track. Services were up 6% for the year, impacted by shortages and coronavirus, particularly in the fourth quarter.
We continue to see strong double-digit growth in our sustainability business, with particularly strong growth in sustainability consulting, where we engage with our customers at the highest level of the company. Turning now specifically to the fourth quarter top line, we were up 7% organic to EUR 7.9 billion in revenue. We did see an increased impact of shortages in the Q4. We'd estimate around five-point impact on sales, as well as a pickup in price to almost four points of total sales. We therefore had a continued positive contribution from volume, and that's across both businesses, versus a strong baseline in 2020, and we entered 2022 with strong pricing carryover. Specifically on Energy Management, we were up 7% for the quarter, again, despite supply chain constraints and against a baseline of positive Q4 growth in 2020.
North America was up 6% for the quarter, with mid-single-digit growth in the U.S., driven by continued strong demand in residential and data center as well as commercial buildings. Western Europe was up 5% for the quarter, with double-digit growth in Germany and Spain, also with strong demand dynamics in residential, data center, and commercial buildings. Asia Pacific was up 7%, with China up mid-single digit and against a strong base of comparison and with good growth there across all its end markets. The rest of Asia Pacific was up high single digit, with recoveries from some more extended lockdowns in our key geographies there gaining momentum. Rest of world was up 13% with double-digit growth in most key geographies, particularly Central Europe, Middle East, and South America.
Turning to Industrial Automation, sales were up 6% for the quarter, despite supply chain constraints and with a high base of comparison for software in the fourth quarter of 2020. North America was up 19% with strong double-digit growth in the U.S. and Mexico, partially offset by Canada. Demand in Discrete Automation remains strong there, driven by OEM and our channel business. Process and Hybrid demand is recovering and translated into strong sales in Mexico. Western Europe was down 7% for the quarter, impacted by the strong base of comparison for software. Adjusting for this, Western Europe would have been up mid-single-digit, with France, Italy, and Spain all contributing, and with Germany around flat, all driven by strong demand in OEM and our channel business, partially offset by Process and Hybrid.
Asia Pacific was up 10% for the quarter, with China up double-digit, driven by continued strength in OEM. The rest of Asia Pacific was at mid-single-digit, impacted by a strong base of comparison for software and with strong growth in discrete markets. Rest of the world was up 12% with strong growth in discrete and a return to growth in process and hybrid. Turning now to the P&L, we saw organic growth in our adjusted EBITA of +23% to EUR 5 billion and an expansion in our adjusted EBITA margins of 140 basis points organic to finish the year at 17.3%. This is a record level of margin for us and was driven by both businesses despite inflationary pressures and shortages.
Of course, our just detailed growth in revenues was a driver here, as well as good performance in gross margin despite inflation and in our operating leverage, where our SFC to sales ratio improved by one point to 23.7%. I'll go into some more detail in the next slides. Starting here with gross margin, we finished the year with gross margin of 41%, driven in part by positive scope with the addition of OSI and with organic impact of only minus 10 basis points despite inflationary pressures. The first factor driving our organic performance is price. We drove very strong price performance on products during the year and with an acceleration in the second half, finishing at EUR 612 million and resulting in net positive price versus RMI of EUR 41 million.
Productivity also continued positive despite a significant increase in freight and electronic components of EUR 161 million for the year. As we've mentioned a number of times, we're focused on these cost headwinds and are engaging dynamic pricing strategies to ensure we're net price neutral to positive, including increased costs due to RMI freight and electronics over the cycle. Productivity before the impacts of inflation and freight and electronics finished at EUR 325 million. Mix elevated our gross margin by 40 basis points, driven by continued focus on pricing in our systems business, particularly in this inflationary environment. The second key driver of our adjusted EBITDA performance is our operating leverage, where we continue to focus on our structural cost savings program.
As expected, we see a turnaround in our tactical savings of EUR 220 million in 2021, part of the around EUR 300 million in tactical savings we drove in 2020. We do expect to keep a portion of this tactical savings going forward through working differently and more digitally. More than offsetting that reversal in tactical savings is EUR 411 million contribution from our structural savings program, and we're well on track to deliver cumulative savings of around EUR 1 billion between 2020 and 2022. We also continue to make targeted investments to support our future growth. Aligned with the comments we made during our Capital Markets Day, the vast majority of the EUR 390 million investments we show here was invested in R&D and in sales.
Turning now to net income, including scope and FX, our adjusted EBITA is up +27%. Below the line, our other income and expense was positively impacted by around EUR 200 million in gains related to our disposals program, while M&A integration costs remained around flat. Restructuring costs were EUR 225 million for the year, and we're reducing our previously communicated forecast for restructuring costs tied to our structural savings program by around EUR 300 million to put it now in a range of EUR 850 million-EUR 950 million. Amortization of purchase price accounting intangibles stepped up as expected due to acquisitions closed in 2020 and 2021. Including all of our announced acquisitions, we'd expect this to remain at similar levels in 2022.
In financial costs, our cost of net debt decreased slightly due to lower interest rates. We also had some lower FX gains and losses due to some systems implementations to support our treasury team. Our effective tax rate remained flat at around 23%, and we continue to assess the impacts of the upcoming U.S. tax reforms, as well as recent BEPS announcements on our effective tax rate in coming years. This all results in net income of EUR 3.2 billion, up 51%. Our adjusted net income is up 30%, and adjusted EPS is at 6.13 EUR 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 a record level of EUR 4.5 billion.
As expected, our trade working capital did increase to support demand, with days outstanding in our payables and receivables remaining about flat year-over-year. Our days inventory outstanding increased by around 15 days, due primarily to strategic stocking in components so we could manage upstream tensions and lead time extensions and in finished goods to best support customer demand in this supply-constrained environment. We would expect some reversal of this increase in days outstanding in 2022, although we'll continue to focus on resiliency and serving our customers. Free cash flow then finished at EUR 2.8 billion at around 87% cash conversion. As I said during our Capital Markets Day, we do expect cash conversion to continue at around 100% across the cycle.
Driven by our results from operations, we have a step-up in our ROCE by 1.5 points, including acquisitions closed in 2020, and I think this reflects well the strength of our strategic choices. We've also included our ROCE here, including all acquisitions in 2021, and you see the step-up there to close to 12%. Regarding capital allocation, our priorities remain unchanged to what we covered during the Capital Markets Day. Two comments I'll make is we continue our progressive dividend with a proposed dividend of EUR 2.90, up 12% from 2020, and we still expect to finalize our share buyback program of EUR 1.5 billion-EUR 2 billion in 2022. We've proposed a buyback cap of EUR 250 million, sorry, EUR 250 to support that process.
While we didn't mention anything specifically on this call about new disposals, we do remain on track to close our EUR 1.5 billion-EUR 2 billion disposal program by end of this year. I'll finish with a quick update on our debt ratios, now at 1.2 times net debt to adjusted EBITDA, and which are quickly returning to more normal levels after the closing of the OSIsoft acquisition through AVEVA earlier this year. With that, I'll turn back to Jean-Pascal to give an update on our 2022 full year expectations.
Thank you, Hilary. A long list of introductions for a year which, like 2020, 2021, is integrating a lot of dimensions. We expect in 2022 to grow, as we said, both in revenues and profitability, in line with the framework we've defined in the Capital Markets Day. What we see in 2022, we see a continuation of strong and dynamic market demand, which is really powered by the structural needs in the field of digitization, electrification, and sustainability. We see a further recovery in late cycle segments, and that's really coming in this year, where we are now. All the regions on all of our four end markets are expected to contribute to growth.
We of course exited 2021 with a higher level of backlog, higher than we've ever known. But there are uncertainties still linked to the health crisis and the mobility restrictions between regions. We are gonna be constrained by supply chain pressures, which will continue to impact in the coming months. We are gonna see also increased pressure on input costs, which is a collateral of the supply chain pressures and the very high demand. That will include raw materials, labor, freight, and the sourcing of electronic components. Despite this environment and these pressures, we aspire, seeing the dynamics we've created and the discipline we've installed in the company, to be net price positive for the full year this time, including not only RMI, but also freight and electronics.
Putting all of this together, we guide on an adjusted EBITA growth between 9%-13% organic, being the compound of a revenue growth of 7%-9%, very consistent with what we announced actually on the upper end of what we announced in the CMD. On an adjusted EBITA margin up of 30 bps-60 bps organic, while all put together, on in a more precise manner, that drives to an estimation or guidance between 17.6-17.9 for adjusted EBITA 2022. You realize that 2021 was a bit of an abnormal year in terms of profile between H1 and H2, and we expect in 2022 the progress on this performance to be more weighted to H2, like in a normal year at Schneider.
That's the view we have on the ambition we have for the year. Again, we benefit. We are positioned on strong demand markets. We've learned tons over the past two years on the way to run the company in a complex environment, and we are aligning our ambition for 2022 on what we explained to you in the CMD. With that, Amit, I think that concludes the presentation, and the floor is back to you.
All right. Thank you, Hilary. Thank you, Jean-Pascal. We will make sure that we try to get at least one question in from each of the analysts, so even if we run over the hour. Just in respect for the others, keep it to one question, please. With that, we're gonna start with the Q&A, and I pass it to the operator to give the instructions.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one. If you need to withdraw your question, press star two. Again, that is star one to ask a question. It may take a few moments for the questions to come through. Our first question is from Andreas Willi from J.P. Morgan. Your line is open. Please go ahead.
Thank you very much. Good morning, Hilary, Jean-Pascal, and Amit. My first question is on China. Maybe you could comment a little bit what you see there in the construction market, both in terms of trends you saw in Q4 on the demand side and what you budget or expect for 2022, in potential drag there from the real estate situation. The follow-up on that, on China, automation seems to have accelerated in China in Q4. You could maybe talk a little bit about that. Is it improving supply chain, underlying improvement in the market? Thank you very much.
Andreas, in a nutshell, China has been a strong contributor to our performance on growth in 2020, in 2021, and we expect China to be a strong contributor to our performance in 2022 also. To remind you, we've seen some slowdown in the residential market at the end of the year, but you have to integrate that we are in China less exposed overall to the building market than we are for the total of the company, and especially to the residential market. Our exposure is really much more on infrastructure, industry, on mission-critical buildings and installations.
That positioning where you have a strong demand for top-end technologies and products as well as digitization is really making us confident in a very dynamic market that we can position for profitable growth particularly as we go into 2022. As we focus more specifically on industry, we've seen actually an acceleration or a good growth at the end of the year. A lot of that is with the OEM market. A lot of that is also, and you had some examples before on the digitization of processes where we work hand-in-hand with our customers to help them on their digitization journey. Unfortunately, this could have been higher because there are still some constraints on our supply chain, which are significant on electronics.
As we go forward in the year, we stay oriented to growth as a strong support to our guidance coming from China.
All right. Thank you, Andreas. We'll take the next question, please.
Next, we'll go to the line of Jonathan Mounsey from Exane BNP Paribas. It's open. Please go ahead.
Thanks for fitting me in. A couple if I may. On Western European Industrial Automation, I think of the eight business lines you report, it's the only area that missed consensus in Q1. I think the two-year stack on organic growth is still negative for that business line. What's weak within that area, and what's holding it back? Can it play catch-up in 2022? On the net working capital impact to free cash flow conversion in H2, and indeed throughout 2021, is that drag now set to ease in 2022? Can we expect better free cash flow conversion rates in 2022 than we saw in 2021?
Well, on automation, briefly, most of the explanation is from the high base of comparison that we have in software with AVEVA on very specific contracts. Otherwise, we keep progress and constraints on the supply chain, frankly. For the rest, the dynamic of our Industrial Automation is progressing very satisfactorily, and we see traction for our solutions in all aspects, products, machine solutions, and plant automation. For the cash flow, Hilary?
Maybe just to add that we're mid-single digit for Western Europe without that high base of comparison. Again, a couple of contracts from the software business there. I think that's really the explanation on the consensus directly. No real impact expected. No blip there that would mean anything for 2022. In the net working capital, we talked at the end of 2020 that, of course, in 2021, we expected a return to growth. With a return to growth, you would see some reversal in working capital, right? We got the benefit in 2020 from the benefit from the reduction in sales, and we have the reversal here.
It's why, importantly, I like to look at the days outstanding, to see what the impacts would be from a cash conversion standpoint. As I said, receivables, payables on track exactly with the increase in demand around flat in terms of days outstanding. We made a real choice on inventory, from a strategic standpoint, both to serve customers better in the supply-constrained environment, also to make sure that we have the right components on hand in the supply chain constrained environment when supplies loosen up for some of the other stuff. Both of those strategic, I said it was plus 15 days.
We would expect some reversal of that in 2022, and therefore we'd expect anyways I think we're well on track for being at around 100% cash conversion over the cycle, around 100% on average across even, you know, shorter time periods.
All right. Thanks, Jon. Just a reminder, keep it to one question if possible, and we'll get you back in the queue if time permits, right? Let's go to the next one, please.
Next, we'll go to the line of Philip Buller from Berenberg. Your line is open. Please go ahead.
Thank you. Good morning. Thanks for taking my question, which is on the organic growth guide for the year ahead. You talk about an expectation of being net price positive again for the year. So I'm wondering how much of the 7%-9% organic growth would you attribute to volume? Is it all price, or is there some volume in here? In terms of the price side of that equation, obviously there's been some pretty unprecedented passing through of pricing already. And if we just look at the backlog expansion, I guess it would imply the theory of pricing elasticity is broken. But is there any feedback from your sales people on the ground that there may be some volume destruction coming through due to these price increases, or is it still quite easy to pass through price? Thanks.
No, there is a strong contribution of volume. Hilary, do you want to comment on that?
Specifically what we've assumed in the ranges is more contribution from volume than price. Maybe towards the low end, it's closer to 50/50, but really overall, more volume than price. That's the specifics in the range. I don't know if you wanna comment on... At the moment, what I would say, and you can see it in the strong demand we talked about and the backlog, you're right that in the same way that we see price being passed through to us, right, in a supply-constrained environment, we see our customers really interested in getting what we have to sell, whether for their sustainability plans, efficiency plans. At the moment, I would say we don't get a lot of pushback in terms of price.
I think you can see in our results that, in fact, we feel that we're in a strong pricing position, in these inflationary times.
Look, Phil, I think everybody at the moment on the market knows. As a customer or as a supplier that there are big tensions on the supply. We have over last year reacted progressively and proactively to the cost increase. That builds a carryover for next year. As we look at next year, we have a view also of our cost increase and therefore we can be proactive in applying what we need to apply. We stay attached to growing our volume and especially serving the strong demand out there for what we have to provide in digitization and electrification.
All right. Thank you, Phil. Next question, please.
Next, we'll go to the line of James Moore from Redburn. Your line is open. Please go ahead.
Yes. Hi, everyone. Thanks for the opportunity. I wondered if I could ask about your scopes this year. I think you've given your guidance on what has already been announced, which is helpful, and you mentioned the minus 10 basis points acquisition dilution to margin, but you also say that the EUR 1 billion-EUR 2 billion is on track. Could you help us with what the expected dilution might be if you include all the deals that are in the pipeline, such as Eurotherm, Senne became, Industrial UPS? Are those assets margins similar to the group or materially above or below
Before Hilary takes that question, I can't confirm any of the names that you have mentioned. Now, Hilary.
Yeah. We confirmed obviously on the disposal side, and we gave you a mix of scope impacts for this year. In terms of the remainder of the disposals program, plus or minus, I think in there you can assume around flat. We certainly have some assets that are more on the dilutive side. Then we have some assets that are, it's more of a strategic disposal, which we've talked about before, where they're simply not aligned from a strategic standpoint, and more of a distraction. I'd consider the disposal program at this point, really portfolio health cleanup and not a major impact from a scope standpoint.
Yeah. Of course, you know, we will update as there's more progress made on the disposal program as we've committed to. Next question, please.
Next, we'll go to the line of Alasdair Leslie from Société Générale. Please go ahead.
Oh, hi. Thank you and good morning. The backlog is gonna play, I guess a more important role this year. I was just wondering whether you can give us a little bit more color there, the degrees which you've kind of been able to vet for more speculative orders, I suppose. Maybe you can talk about the quality of the margins in the backlog in terms of that price cost equation. Then obviously, what kind of portion of that backlog could be delivered this year? I guess there's obviously a higher mix of shorter cycle business in there versus traditionally. Thank you.
Look, I don't know if we can be that differentiated in commenting on the backlog. We had a little bit more systems coming up with a recovery of longer cycle business. And also, not December, but Q4 is a place where we deliver or a time where we deliver more systems along with shortage in the supply chain. This is a time where you need exactly all the components at the same time, which explains a better or bigger miss on our side on the sales due to shortages, because this is a place where you need really to have all the pieces of jigsaw to deliver everything. Otherwise, the backlog is pretty much a fair reflection of the mix of our business.
No big comment here, except that it gives us a depth on the capability to face the year, which is very high.
All right. Next question, please.
Next, we'll go to the line of Andre Kukhnin from Credit Suisse. Please go ahead.
Good morning. Thank you very much for taking my question. I'll stick to one. Could you please talk about inventory levels that you're seeing in the channels and your channel partners, and maybe at customer levels as well, if ideally by region and businesses as well? Thank you.
Frankly, Andre Kukhnin, I will not detail by region. My feel is that it's not very high and not already mentioned. I mean, everybody is facing a very strong demand. You could see some results expressed by our distributors to take only one example of our customers. I think supply chains are pretty much real time and quite tight. One thing I've really seen in the past two years, COVID and strong rebound, is that the level of transparency in the dialogue with both our suppliers and our customers has gone to a completely new level, which makes me optimistic for the performance, the total performance of our industry, because there are plenty of things that we can do better in the future with more open book.
The answer to your question is I think the demand is really strong and sustained.
All right. Thank you, Andre. Next question.
Next question will go to Gaël de Bray from Deutsche Bank. Please go ahead. Your line is open.
Yeah. Thanks very much. Good morning, everybody. You indicated that you expected the price cost spread to be positive this year on a euro basis, but could you clarify if you expect it to be a margin headwind or not? And secondly, could you also help us understand what could be the impact of the push out of demand from last year to this year that's currently embedded in the guidance? Thank you.
I think you're talking about inflation probably coming into the equation. You can see the overall guidance that we gave. You know, within that we put together all of those inflationary aspects that we see. We certainly see. You know, you can see the raw material inflation, the electronics, the freight inflation that we saw in 2021. We don't expect any major turnaround of that, for example, in 2022. Maybe some pluses and minuses across the category, but we do expect we'll still be in an inflationary environment. We embedded that in the guidance that we gave. In terms of the push-out of the demand, I think maybe another question a bit around the backlog.
You know, we feel comfortable, and we've done some mapping of that backlog into the guidance. We started pricing early in 2021. Even we started pricing, and I think we started talking about it at the end of the mid-2020, actually. We feel comfortable with what we have in the backlog and how it will translate into 2022. In fact, we have, you know, as you might imagine, some buildup also in transactional backlog with quite a bit of price in it.
All right. Thank you, Gaël. We try to fit in a few more questions in the time schedule, so let's go to the next one.
Next, we'll go to the line of Daniela Costa from Goldman Sachs. Your line is open. Please go ahead.
Thank you very much for taking my question. I'll stick to one, and I wanted to ask about capital allocation and M&A, but more in the context of like, I'm sure the pandemic and the post-pandemic have driven maybe sort of some of your smaller competitors or other people with not as good scale and positioning as you to see their positioning change. How do you think about like inorganic growth going forward, if you could give us a bit of a highlight for the next cycle? Thank you.
Hi, Daniela, and thank you for your question. As we said in our Capital Markets Day, frankly, the priority is to organic growth. We've got strong market. We've got good and complete offer, which is founded on what we do in both automation and electrical, our three core layers of added value. The priority is really to bolt on, especially in the field of new digital services or new digital capabilities on the top of that. Really the focus is on organic execution of what we have.
Some very small operations that we did in Q4, and they are exactly the example of what I was mentioning, which is more services, especially in the field of Energy Management, where, you know, we started a bit later to build our software capability.
All right. I think maybe we might have time for one last question. operator, is there another question in the line?
There is. Our last question comes from Denise Molina from Morningstar. Your line is open. Please go ahead.
Hey, thanks, everyone. My question is on price elasticity. I was just wondering if you could highlight any differences regionally between in the regions being able to put through price increases, and if you could touch on China specifically, that would be great. Thank you.
I didn't get your first sentence. Did you say price elasticity, or was it? All right.
Yes.
Okay. Look, I won't comment in detail region by region because frankly, the situation is pretty much similar. At the same time, it is similar because you have Forex impacts. You have, we are stronger in some markets, in some geographies, and so on. Globally, I will just repeat what we said before. Strong demand. People want to get access to technology because they have buildings to do, they have machines to build, they have plants to equip, they have infrastructure to realize, they have decarbonization to accomplish. We want to be net price, net positive in price. In China, as always, we manage the whole balance of volume, productivity, pricing on cost in a very local manner because this market is extremely fast-moving with these, very specific rules.
China has been always very good in managing that balance in their own fashion.
All right. Thanks, Denise.
On pricing, frankly, it's very simple for me. It's margin. What is important for us is to keep sticking to that parallel increase in growth profile of Schneider and in profitability and cash generation of our business. This all goes together and needs to work on all the parameters of our model.
All right. I think maybe we can squeeze one last question and if there is another one in the queue, I suppose.
The last question in queue comes from Martin Wilkie from Citi. Your line is open. Please go ahead.
Thank you. It's Martin from Citi. Thanks for squeezing me in. Just a final question on the phasing. You've talked about a second half weighting. Some of your competitors that reported so far have talked about the first quarter being sequentially flat with still supply chain bottlenecks and so forth, you know, preventing further growth. I mean, is that how you see the year in terms of first half, second half? Or just some color on the phasing would be very helpful. Thank you.
Hillary please?
In terms of the H1, H2, you know, Jean-Pascal mentioned we sort of go back to normal, and not for normal reasons in some ways, but we would go back to a little bit more normal of a profile for us, where certainly in the first half, you know, in the Q4, we saw shortage impacts. We also have price. We don't expect, for example, in the first half that we go to something like flat volumes. I think we still expect volume and price in the first half. But the weight of the RMI impacts, for example, are still coming through for us in the H1. We still see inflationary pressures in the H1.
In terms of margin and top line, we see it more heavily weighted towards the second half for 2022.
Martin, I find you very demanding. In December, we met, and we gave you a guidance over the next three to five years. Today, we give you a guidance about the next year, and now you're asking us a guidance for the first quarter. That's really demanding.
No, I think, look, we're coming to the end of the hour. I just wanna thank all of you for your time. You know, if we have a slide, the next slide that you see on the screen, which gives the details of the conferences we're gonna be on. We're gonna be on roadshow very soon.
Yeah.
The entire IR team is available to take your questions. With that,
We look forward to seeing you through the year on discussing this, well, this interesting transition that the world is experiencing. See you very soon, and thank you for your support.
Thank you, everyone.
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