Thank you for standing by, and welcome to the Q1 twenty twenty Results for Schneider Electric. Hosted by Amit Bala. I would now like to hand over to Amit Bala. Thank you. Please go ahead.
Well, thank you, operator. Hello, and welcome to all of you to Schneider Electric's quarter 120 20 revenue results. I hope you and your families are keeping well and keeping safe in these times. I'm joined on the call today remotely, of course, by Jean Pascalfracurra, our Chairman and CEO, but with Emmanuel Babo, our outgoing Deputy CEO and CFO, and Hillary Maxim, who takes over from Emmanuel as our group CFO. The press release and presentation is available on our website already this morning post this presentation, we will have a Q and A session.
So without further ado, let's get started.
I'd like to pass the floor, please don't pass that out.
Thank you, Amit. While I first hope that you are all safe and well, I'm talking to you from our own Congosys, where we have the privilege to operate almost normally. No lockdowns, which has been really an advantage. Over the past 2 months. It's really a pleasure to be with you, but for quite extraordinary Q1 call.
For at least two reasons, first, the specific conditions of leading Schneider through the COVID crisis, beyond China, which we talked about during the early results. And on the second, to be here with you to thank A Manuel and Manuel Babu for 11 years together building Schneider to good and tough times and welcome, Hilary, as the new CFO of the company. In my part, this morning, I want to go back together with you to the fundamentals. While Emmanuel and Hilary will detect Q1 on what we're executing to face the rest of 2020. And I want to go back to the fundamentals to explain how we rely on them to navigate through the crisis and more important so how we rely on them to prepare the after crisis.
So let me move to Slide 5, to remind you the mission of Schneider, which is to empower all to make the most of their energy and resources and ensure that life is on everywhere for everyone at every moment. And in this time of coronavirus crisis, which 4 bids many people to travel, to go to their work, and confine them into homes, we see the importance of our mission. We support at Schneider, mission critical functions in a world, which is today on the stress. I remind everybody that we power a lot of the hospitals around the world, including the ICU rooms, that we support the grid for electrical solution, the water networks, life at home, where people are spending a lot of time at the moment. We are the biggest supply of energy solution for data centers, which are operated by confinement at the moment, on tech home working, And of course, we supply the coal chain for food, beverage, and pharmaceutical.
So our role to the society has never been better exemplified than today. The other part, which I see really developing as a as a demand for more information of our customer is the capacity to de risk operations through unmanned process on the use of digital technology, everything around remote control, remote monitoring, using digital for augmented reality on assist in operators on the ground, from remote so that you don't have 2 operators together. All of the technologies of digital control are finding a vast application as we speak. And moving to Slide 8, a few examples of what we do in health care worldwide as we speak on UC things that we've done for hospitals to support hospital. I want to mention, by the way, that we've been classified in numerous countries as an industry, which is critical to the country, and that we have to make sure our plans and our services would keep going through the crisis, which has been a support for us to keep our factories, particularly, going through the lockdowns.
And we also support in other critical supports, again, data centers in IT, critical sectors, sorry, in IT particularly, in servicing some block facilities like airport, or helping the Health Industry Pharmaceutical, to go through the crisis and ramp up in front of the new needs. So what we see today is that our core value propositions, solution together for efficiency on sustainability is reinforced today by I own it for resiliency. For those who are already following us in 2008 when we Both APC, remember that at that time, I explained that our vision was to make energy safe on second value reliable efficient and sustainable, that reliability value in times where you need to rely on your energy infrastructure and your control infrastructure to make sure that mission critical missions are keeping ongoing has been critically reinforced. And I would also, underline that our model also is supporting our reaction to the specific condition. An integrated model, and I'll come back on that one, one Schneider, an open model relying on partners, which makes it much more much more agile and much more adaptable to the cycle on the fast cycle or the fast variation of the market.
And finally, the combination of multilocal and empowered because all this sanitary crisis is global, it eating the country 1 by 1 at different moments on the reaction of each country due to its culture due to its political environment. Is very valuable from one point to the other one. And it's extremely important to be consistent locally to react to it. And we, of course, benefit from our country organization. Moving on to Slide 11, Well, we I wanted to remind you how much we have worked since the last crisis since 2008 to make ourselves more resilient, more resilient and more structurally protected against violent cycles as the one we are experiencing.
The first evolution we've driven has been the evolution of our geographical portion. We used in 2008, very exposed to mature economy and especially to West Europe, which tends to be far more rigid. Today, our exposure is much more balanced, actually perfectly balanced. And we do 41% of our business in emerging economies and 60% of our business in mature economies. But within those mature economies, We do a lot of That's true also from our people footprint, which has been much more balanced on this much more outside of Western Europe.
On the outside also of our country of origin, 90% or 89% of our people outside of France. And that contributes to a much more reactive, or a much faster reaction to the local conditions. 3rd point is working on the cyclicality of our portfolio. You know, that after 2008, our obsession has been to rebalance the portfolio towards more long cycle parts of the market, like industrial infrastructure. And this has been achieved over the past 11 years.
Then we've developed more sticky, more recurrent business around software and services, which have doubled in our portfolio over the past 11 years. We've kept working on the flexibility of our cost base, making sure that a large part of it would be valuable, and that is what is we supply from our suppliers, our partner suppliers, but even within the 30% the blue part, which is a so called fixed part, we've worked on making our compensation system more valuable and more adaptable external condition. And this has driven over time the cash flow conversion to a new level and we have reached last year, as you know, in 2019, we've passed the threshold of EUR 3,000,000,000 of cash flow generation. So we enter this crisis with strong fundamentals, a strong cash profile, a business model, which is CapEx light and even lighter than before because we have more services, we have more software, we have more of our business new economies, which are, necessity or needing less CapEx. We have a low net debt and we have, of course, a strong balance sheet.
So moving on to Slide 12, One thing that we see immediately, in this crisis is that what is digital is more resilient. Because it allows us to operate without a physical presence. And what we've done really in the past 11 years has been to build strong offers in digital. No need to was launched in 2008 version 1, on which has grown, developed and expanded in our portfolio. More digital and connected offers, software portfolio with the creation of AVEVA particularly, but it's not the only thing we've done in this sale.
Lot of digital services, which allow our customers to put their installation on the monitoring, for predictive maintenance, for resilience, as well as targeting where they need to intervene on at what time and finally, apps and analytics to enhance our products on our control systems. The second big transformation has been on the customer experience, the way customer interact with us. With much more e commerce, with much more interaction based on digital, which, of course, is priceless at a time when people have still to connect, but very often from their homes. We've developed best in class digital tools for efficiency for collaboration and productivity. And finally, this has been kind of federated under the creation of Nida Electric Exchange, which gathers together our end user customer, our partners, our integrators and people from the company to exchange solutions on the design of our system.
Moving on to Slide 13, where we in our customer adoption of digital accelerating, asset management services, remote monitoring, predictive maintenance, on once again in Q1, we had a growth in the assets under management year over year of more than 40%. Which shows that people are connecting. And believe me that today, many of them are the one who have connected their installation have truly an edge on the one who are not connected. The second point is much more interaction with customers through DG tool tools under every format and really driven to our core on crown jewel application like health care, more services everywhere, everything linked to IT and data. Commercial buildings on being able to operate them from remote and control them.
OEM CPGs or machine manufacturing related to food, to pharmaceutical, and of course, a lot of tools that we exchange with the natural extension of Schneider, our contractors, our integrators, and our specifiers. And as I was saying, a repository of all of those contacts on the marketplace of our ecosystem around Schneider Electric Exchange. When we face like we face 2 day times of fast disruption, which are happening country by country, we leverage really the transformation that we've driven over the past 12 years. We've been 1 Schneider, and I'm on-site 15. We've been 1 Schneider for the past 12 years, which means we have 180.
We have 1 supply chain we have globalized functions who have been digitizing their internal processes for all those many years. Which means when we have to impose traction in the company, processes on global processes allow us to do that. So second point, we've been in a multi hub management empowering the countries for 9 years. And you know that at Schneider, you have a strong country structure. And in this time, where every country reacts in a complete different manner.
What we've been able to activate is a mode of reaction, which is largely empowering the country or completely empowering the country with a Thai coordination. No need to tell you that we are used to remote on video management. Which was probably not as obvious 15 years ago. We have teams in the countries that take themselves, that take by themselves the actions to react to the local situation. Digital communication has skyrocketed, We have 90,000 of our connected staff working from home concurrently without digital disruption.
80% of our customer care teams are operating remotely without impact on service level. And all the management process already for managing the COVID 19 conditions. For us, managing from remote, managing at times from home was absolutely natural. One of the biggest challenges that we had to face, and I'm moving on to Slide 16, has been, of course, the continuity of the supply chain, finding our way between the regulation of the country, the penetration of the virus on all the measures on recommendations, which we are very valuable from one country the other one. On here, we've really leveraged the fact that as you well know, we've worked on the model, which is highly multi roll call.
So first point, our factories are serving their region, and therefore, it's much more, it's the production or the level of supplies is much better coupled to the level of demand. The supply chains at Schneider are already quite short and that allows us to manage each local situation in a much more agile and reactive manner. The second point that we have really leverage is the fact that we have decentralized now for a long time, all of our supply chain system and we produce fundamentally where we sell. And we know that some parts of the world are more rigid or more complicated to adapt. That's typically the case of West Europe and France.
And both of them are now representing roughly their part of the sales in the allocation of the cost of goods sold that mean the quantities on the volume we produce. We have today 95% factories, and this is operating. Again, many countries have qualified our supply chain as mission critical and made sure we could continue to operate. China is back to fully available and has full manpower capacity. And other regions are different levels, but which are largely compatible with the demand.
When you look on when I sum up our priorities, at the moment, it's pretty simple. 1st priority health. Health of the people working with us, and we've made sure that each site of Schneider is equipped with the right protective equipment, with the right processes so that our people can operate in full safety. That's true for the people on our side. That's true also for the people who do services for our customers, on the sites where they're allowed to go.
2nd point, Absertes business continuity. Making sure that we keep operating our factories, we keep operating our service teams, we keep answering to our customers, and we keep serving all the mission critical applications I was referring to at the beginning of our interview because this is probably our biggest contribution to society at the moment. The third point of course is leveraging all of our reactivity to work on cash and to work on our costs. So all the elements that I mentioned before are multi local, viable costs, the profile of our business, we are acting on them to adapt to each reality of volume of business region by region I would say that the large part of the team was already there in 2009, and as the experience of a brutal crisis, I'll tell you that there has been no time for all of us to recover the reflexes that we had added that time to react to what we are facing. The 4th point is to make sure that we are ready for rebound, that we keep facing the customer and keep working on the offers that will be crucial for the rebound of each country after the crisis.
And the 5th point is to work on the communities around us and keep contributing to those communities. Our overall arching target here is to be ready for the post crisis, ready because we're going to have fast the crisis with the right level of adaptation. So strong development of adaptation. I'm ready because we're going to be in the position to serve the needs of our customers' bus crisis. We've structured and I'm in Slide 18.
We've structured the crisis management team. It's mostly local. Slightly coordinated globally. We're operating at rapid interval. We have dedicated teams.
We have empowered execution using our multi hub organization. And we've put together a global controlled tower to make sure we optimize the level of supply with the level of demand. Now, yes, we are dealing with a crisis. But we remain focused on our fundamentals for the future and those fundamentals have not changed I'm in Slide 19. First, we absolutely remain committed to our equity ambition committed to our growth engines, committed to the road that leads us to 17% margin committed to our shareholders on the return to them.
And committed to keep increasing on improving to keep working on the fundamentals of trust in regard to our customers on the society around us, the safety of people quality of our products, cyber security and the ethics in everything we do. 3rd point really keeping on working on the digital transformation of our industry. More software, more digital services, more digital experience, in the way we deal with our customers. On my personal feeding is that at the moment, we go through a gigantic fast forward in the budget digitization of everything we do and everything we propose. And is there something positive that this crisis could bring us, it is this acceleration towards more digital.
Four point is innovation on keeping on investing in EcoStruxure, bringing more connected products to the market, on keeping our commitment to R&D. And finally, at the time where people realize how much some of their installations we are weak are not up to date, make sure that we propose services. Some of them are capitalized by the capacity put together remote services. Many sustainability services, sustainability is not going away on the lot of field services, particularly in all the installations, which have been under stress. So that's a flat back on the reminder of all of our fundamentals on how we leverage them to pass this specific period on prepare for the future.
On what we should all realize that somewhere this crisis is accelerating some of the transformation we are preparing for. Now I'd like to move on a more precise view on Q1, and I'm going to hand over to Emmanuel on Hillary. Well, I really want to take this occasion, and I would have wished, it would have been a phone conference to really thank Emmanuel for the 11 years that we've done together, journey together, building a very different Schneider, transforming Schneider on making it much more future fit on future proof. So I want to wish him good luck for the future, but really again thanking for all those very important years we've built for the company. And I want to welcome on board Hillary Maxim, so Hillary has been 3 years already reached Schneider.
She came to us through the Hong Kong office, but she comes with a strong experience in the field of energy a large multinational experience between North America, U. S, South America, Africa, and Asia, and a deep knowledge of Schneider being today or before the CFO of Energy Management, which is 70% of the business of Schneider. With that, M and A, Mike is yours.
Thank you, Jean Pascal. Hi, everybody. Certainly first joining the wishes of good health for you and your family formulated by Jean Pascal and the role of of Schneider. Umier, with Hilary, so we're going to comment in detail the Q1 sales number. I will enter into some detailed number.
And then Elivi will tackle everything we're doing to make sure that we exit this crisis strong. And that we prepare the company for what is coming next. But of course, I want to start thanking Jean Pascal for his very kind words. Thank you, Jean Pascal, that really, as you know, come straight to my heart. But I would like to thank all of you because indeed these 11 years have been absolutely amazing for me.
I can tell you that we remain as an amazing professional moment, fabulous moment. And I think you really have your fair share for making this 11 years, dense, intense, challenging, but always full of learnings with many achievements and full of funds and the feeling of of doing important things. So thank you, because I really enjoy every moment spent with you and you've been playing a key role in making, again, these 11 years, very special to me. So I'm moving to the page 21 entering into the detail of our sales for Q1. So our sales amounted 1,000,000,000.
It's, on a like for like basis, a decrease of minus 6.4%. As you can see, the 2 businesses behaved relatively the same during this Q1. Energy Management is down minus 1% at 1,000,000,000. And Industrial Automation is down minus 7.3percent@1.4 1,000,000,000. When we look at the driver, of course, you know, but I'm going to come back on that the profile of the quarter, which is China, I would say, difficult, almost in the beginning of the quarter with some signs of improvement as we were ending the quarter.
And on the contrary, many other regions that progressively entered into the crisis of the COVID 19 and showing decline towards the end of the quarter. I am now moving to the page 22. Of course, during this crisis, we are facing a number of headwinds that we see the continuation of a lot of customers that needs our technology to improve their efficiency, reliability, resilience. Jean Pascal talked about that. And of course, the sustainability challenge is still there.
So you have on the page many very interesting projects that we've won and delivered over the quarter. I'm not going to comment all of them, of course, if you want to receive more reference on some of them, we are happy to provide them. But just a couple of them, I would like to, to underline The first one is a Circular K tower in Australia. I'm sure many of you know this very iconic K in Sydney. And here, we've been providing for that building.
I would say the state of the art smart building technology that through our EcoStruxure architecture. That is including building advisor, Edge Control, and it's and the building is a full of connected product. And that is really delivering a unique customer and user experience. The other project on which I would like to elaborate is Danske Bank, which is a big bank in that market. As you know, with a very nice project through which we have provided the full reliable electrical distribution system.
And obviously, reliability is critical for the bank and they are actually hosting their trading department in that facility. So that was absolutely, critical for them. I'm now moving to the page 23, providing a bit more detail on the sales. 5,000,008,301,000,000 for Q1, when you look at the various components of the analysis of change, it starts with the ForEx, which is slightly positive plus 0.7%, which is largely the dollar and the Chinese one moving favorably versus the euro, but we started to see a number of currency and especially in the emerging countries moving south versus euro. And now based on the current for Xperity, when we look at the full year, we expect for the top line for sales and impact that should be about neutral or slightly negative.
But when we look at the margin, because of some very strong depreciation, some time, that we see from emerging country currency versus euro, we could have a negative impact on the adjusted EBITA margin that could be in the range of minus 30 to minus 40 basis points. The scope impact is a negative minus 1.9%. That is, of course, coming from all the disposal that we have been doing in 2019. You know them, PELCO convert the U. S.
Panel electroshi Tamara at the beginning of 2020. So we should continue through the year to have a negative scope impact. And then you have the organic evolution of sales. I mentioned it minus 6.4%. And as you can see, we have a transactional business that is down in line with this decrease for the whole group at minus 6.2%.
System is actually slowing even more with the double digit decline. And we continue to grow, which is of course, a good sign in software and services at more than 3% organic growth. I am now moving to Page 24. And here you have the global vision by region of the performance in our Q1. And obviously, it was expected that Asia Pacific that is massively going south with an organic decrease of minus 19%.
And that's clearly, 1st, driven by China. And China has been, decreasing by more than 20% in Q1 with the profile that I was describing. So the whole quarter has been impacted, but it really started very early in the year. February was very difficult. And we started to see some early signs of a beginning of an improvement, I would say, towards the end of the quarter.
But other countries have been also negative in Asia Pacific. Some of them gradually impacted by your lockdown and the intensity of the lockdown, of course, may vary from one country to the other, but India, Australia, Indonesia, Japan, they all have been negative in Q1. Then if you look at Western Europe, minus 3% Actually, the quarter started relatively well. And at the end of February, we were positive in Europe. And of course, suddenly, as we all know in March, many countries imposed a lockdown and we have seen the economy slowing down significantly.
And that means that we finished the quarter with, of course, the big country impact early in the curve like Italy and Spain, big negative. France, we had started well the year, turned negative into March. The UK is with a more reduced decrease, but still negative. And there is one country Germany, which has been with a lighter lockdown, I would say, which remained positive for the quarter. Rest of the world, negative minus 2%, but contrasted, I would say, We have a positive evolution country are less impacted or are taking so far different measures on the COVID 19.
When Middle East and Africa have been negative in Q1 and Middle East, of course, impacted by the sanitary crisis, but also by a very weak price for, for the oil. And then North America, which managed to be acquisition over the quarter with a plus 1 percent organic growth, notably driven by the U. S. Canada was stable and Mexico was also positive with clearly ear impact of the COVID-nineteen that came much later in the quarter. And therefore, with a lower level of impact, no doubt that Q2 will be more impacted by the crisis.
All right. Let's go now into the detail of our 2 businesses: Energy Management, sales of 1000000 and 1000000. It's minus 7 point 5%. You have, of course, here the ForEx, the scope, organically it's down minus 6.1%. And when you look at the detail of the performance of Energy Management, that, of course, China that has been massively down, I would say, as expected, We, as Jean Pascal said, put a very specific focus on critical segment that continue to behave well given the specific need that projects exist in this crisis, like hospital, the food chain, lab science project.
Data centers, up down, but on very high comparable. And we see that data center remain absolutely essential in this crisis. With a digital economy, certainly supporting the world today. And we see a very interesting underlying trend on the pipeline. EcoStruxure also has seen some traction coming from the need for remote monitoring.
Building and market weekend, construction have been slowing down or stopped in many side because of the COVID 19. And services performed well and notably in specific segments like consumer goods and transportation. I'm on Page 26, if you look rapidly by region. So as I explained Asia Pacific down minus 20%. That's, 1st of all, China But many of the markets were impacted in the region by the lockdown.
So the that explains that energy management has been negative in many other countries that are mentioned there. When we look at rest of the world, it's down 4%. As I said, good growth in South America, but we've seen a very severe decrease in other region. Notably in Middle East. And even in Central Europe and the CIS region were down.
Western Europe, a moderate decrease, I would say, again, with the phasing I described, and a good start to the quarter in Jan and Feb and then March turning negative. And really, I have to report decrease everywhere back in Germany were a number of specific projects. And as I said, a lower intensity on the lockdown allowed for growth in Q1. And then looking at the growth in North America, we are north of 1% organic growth It's certainly a weakening that we have seen in, in the building, whether resi or non resi, but of course, accentuated towards the end of the quarter. We've seen an activity that remain, dynamic in data center.
We may have been held by some distributor stocking very difficult to value what it can be, but as they were seeing news coming from Europe, some people being inventory in case there would be some disruption on the supply chain. And Mexico was also facing some easier comparable, but also posted growth in Q1. Moving to Page 27 on Industrial Automation, sales of 1,000,000,000. It's down 7.7%. Here again, you have a ForEx positive scope, a bit negative.
And an organic growth of minus 7.3 percent. Well, obviously, we would all remember that some of the Industrial Automation end markets were already impacted by the economic cycle and, of course, notably the discrete automation. We were hoping for some sign of rebound at the beginning of 2020. Well, unfortunately, on top of the economic cycle, we've had to face the COVID 19 crisis. So that means that now both decrease and process and hybrid, technologies are down in terms of sales.
But we can say that process and hybrid are relatively better, probably given the mid late cyclical nature and also because of the nice software component for process and hybrid. We can say that certain segments clearly prove more resilience in line with all the comments that we made. But when you look at the water with water, consumer goods utility, transportation, everywhere where there is verticality, that was more resilient. And software and digital services continued to grow, and to grow very nicely very often. Moving to Page 27, again, rapidly to give the impact starting by Asia Pacific, minus 16%.
So it's a bit better than for energy management. But it's really here the growth that we have seen in software in many countries that is reducing a little bit the decrease, but it has been an intense and notably in China. Europe, very negative. I mean, Europe was already suffering, notably because of OEM and the Discrete Automation Business. Well, you can imagine that countries such as Italy, UK, Spain have been quite significantly impacted by the COVID 19 crisis on top of a situation, which was already in that not the one of a super strong growth.
North America is negative when it comes to industrial automation. In the U. S, we can say any flag, the fact that the oil and gas and the mining situation is weighing down the performance very clearly. And let's highlight the fact that Canada was growing, in Q1 for Industrial Automation. And 1 region is growing.
So rest of the world put 3.1% with several countries facing good growth like Russia, like many countries in South America, And even in Middle East, we did see growth in a number of area. So apart from Africa, the rest of the world has been behaving relatively well during this Q1. Enough for looking at the detail of our Q1 sales number. And now I'm going to hand over to Larry who is going to enter into all the action that we are carrying to weather the storm, make sure that we I would say, pass the difficulty with the greatest success and with the best outcome and that we exit the crisis strong. Eli, to you.
Thanks, Emmanuel. And I'll also start by sharing my wishes for the well-being of everyone on the call us today as well as their families. I look forward to meeting many of you in the future, whether virtually or in person, as I get going in the role And I'm on now Slide 29, where I'll start with liquidity. As we've spoken about already quite a bit, we're in a strong balance sheet position and we're a strong cash generating company. We finished 2019 with free cash flow of more than 1,000,000,000.
In Q1, and in response to the crisis, we've bolstered our liquidity with 2 bond issuances, totaling 1,000,000,000 including a 500,000,000 tranche in April that was significantly oversubscribed. We've also enhanced our available credit lines. I'm therefore confident we're in great shape to manage through this crisis from a liquidity standpoint with around $9,000,000,000 in liquidity today.
Moving to
the next slide. A key focus for us currently is cost management. In particular, we want you in we're paired for our recovery. We've implemented some strict cost management measures already, primarily actical in nature, and we're leveraging our multi local organizations to be prepared for multiple scenarios in the future. We also have already talked about our operational efficiency plan.
We announced it earlier in 2019, and we'll look to accelerate those plans as possible. Moving to the next
the
establish our 2020 guidance, and our 2019 dividend proposal will be voted on at our AGM this afternoon. As you know, we also have 2 larger M and A transactions underway. For LMT, we have a delay in the closing due to the nationwide block down in India, which is certainly understandable. For RIB, the date for tendering shares as for the offer was yes today, if the offer is successful, we hope to complete the deal in second quarter. We also announced today a bolt on acquisition, of the German based company prolite.
This acquisition will enhance our offering in the Consumer Package Goods segment specifically focused on food and beverage, chemical and pharmaceutical industries will integrate their process control offer into our EcoStruxure plant. And we remain committed in the range of $1,500,000,000 to $2,000,000,000. However, pursuant to the $600,000,000 that we've already addressed last year, we don't have anything significant to report in Q1. So with that, I will move to Slide 33 and hand over back to Jean Pascal.
Thanks, Hillary. Well, now looking ahead, we enter the crisis with strong fundamentals. We have a well defined strategy on the a key organization, strong balance sheet, strong cash generation. We have reinforced our growth engines which are going to be very relevant in the post crisis. China, which is a strong market for us, is on the solid path to recovery.
We are all prepared for very difficult Q2 and therefore, H1. And the name of the game here will be our feed on capacity of adaptation, our agility to adapt the situation. We are absolutely committed to our journey to 17% adjusted EBITA on our return to shareholders. And we are suspending the guidance, the time for us to reassess once all the lockdowns have have kind of opened and the situation is a bit clearer. Moving on to Slide 34, we have prepared for the post crisis world our offers serve efficiency in very core segments, hospitals, homes, grid, sitting, infrastructure, what the networks, food and pharmaceutical, and will allow customers not only to upgrade their installation, but also to save on cost.
Digital will be big. People will want more digital resilience has become huge on the agenda about critical infrastructures, the need for micro grids that had started to develop precrisis. There will be industrial relocation in all geographies that will serve our automation and industrial business on certainly more regionalization, which goes well with our multi hub model. And finally, we see that the journey to sustainability or the objective of sustainability is remaining strong with companies as very often sustainability is also associated to the health challenge as one of the fundamental needs for the future as we invest. Uncertainty, many of the stimulus packages that are put together by the countries will serve the need to fight climate change as well as to increase or elevate or improve the health system.
So that serves a future that will be all sustainable, digital and on electric. At the same time, We don't forget our responsibility to society. We've created a dedicated fund, the tomorrow rising fund dedicated to face COVID-nineteen crisis, with the objective to help the society to react, to prepare for our future with, to respond on to prepare for our future with more resilience. We've participated to a number of initiatives, the production of ventilators, production of protective equipments. So all of the companies mobilize to go through a crisis, but more to prepare for the future.
With that, how do you realize we wanted to give you the full perspective of how we, prepare to face this very specific period. We are now ready to take your questions. Thank you.
Well, thank you for that, Jean Pascal. So, we are close to the hour mark, but I think it's we were going to extend in order to make sure we take the questions within the remaining timeframe. I'm sure there are a lot of questions, but, with request that we will keep it to one question and analyst. Let's get started. The operator, can you please pass the first sense.
Your first question comes from the line of Andreas from JP Morgan. Please ask your question.
Good morning, everybody, and welcome to Hillary to to the, kind of investor community. In terms of the cost measures that, you're taking Maybe you could help us a little bit to understand what to expect as we then also go into Q2 in terms of your ability to reduce salaries to participate in government programs. I think we've seen that you in France will not participate. What should we expect here in terms of cost reduction potential on the compensation side during the lockdown relative to the potential sales decline?
Thank you, Andreas. I'm going to just I'm just going to navigate the question. So I think I'll pass this one to Hillary and Jean Pascal to answer, please.
Didari, you want to go first?
Sure. Thanks, Jean Pascal. So I think I put a little bit on the call on some of the actions that we're taking. The first thing I would say is that, the well the, crisis is worldwide. Obviously, the impact are not the same in from a geography to geography standpoint.
And the different actions that the governments are taking both in terms of attaining the health crisis and also like you pointed to in managing from an economic standpoint, are very different, whether they're own tactical actions or they're their actions from a stimulus standpoint. So what I would say we're doing is we're looking and we already had put a press release out earlier on strict to cost containment actions for 2020, fee at the opportunities that we have opportunity to manage. So everything from a lot of benefits that most companies will get from travel reduction, for example, that perhaps could continue at our company on a going forward basis, but also less time and less pay for less work and these types of opportunities. So geography by geography, we're looking at the best way to handle that. We're also, like I said, looking at our operational efficiency program that we already had underway, starting in 2019 and some opportunities to accelerate and potentially enhance that if it makes sense.
Yes. To compliment, the great, the great edge we have here is that we are very structured by countries. Country by country, we can adopt the most adaptive measures. So it can be partial and employment scheme. It can be furloughs.
Restructuring in, in some places. So but that goes very fast. Geography by geography, because one has to understand that's a global crisis, but it goes it's very local in terms of time it's eating the economy and more so very local in the way society on politics, on economy reacts country by country. So you have really to understand well the context to react properly to, to the situation. At the same time, I say 12 years of, one Schneider that has been really been traditional because we benefit from that integrated model where we can take also global measures and you spoke about it salary cut starts from me on my fixed on my, on my, my variable, but followed immediately by ZXCOM followed immediately by all the executives of the company in different fashions around the world according to the way to do it in those countries, but that has generated an immediate movement in the company.
We've canceled the Wizz up also this year. Is probably a first time in 15 years, but, just to make sure that we would have a little bit more reserve event, to go through that. Then over the past years, we had installed more valuable in the compensation of everybody in the company and that will play also as we go forward. And as much as we leverage our integrated model to be fast digitized and transparent on what is happening in the company, we also leverage our non integrated value chain with suppliers and partners because it's lighter and allows you we allows us, sorry, to add that faster, to the cost reduction. So what I see today, very difficult to have visibility right, depends on every country.
We have visibility, more visibility in China, of course, but in the other places, it's difficult to have visibility. But it's our objective is to be adapting to the situation, to present situation with the maximum flexibility and at the same time, make sure we prepare for the future of his own cut in the muscles that will be very important for the future.
Right. Thanks. Thank you for that. Thanks Andreas. Next question, please.
Hello?
Operator, can you move to the next question?
Of your next question comes from the line of Martin Wilkie from
Just a question on cash conversion. I mean, you pointed out in the presentation some of the things that you've been able to do obviously, if we look back to the financial crisis, which was, I guess, our frame of reference as to how you can liquidity inventory manage cash flow, etcetera, in a downturn. Is it different this time around? Are you able to, liquidate inventory and release cash from working capital, given presumably some countries, the sales are down by very significant double digits, just to get some sort of sense of how you think about that conversion in countries where the sales could have come maybe not to a halt, but certainly be down prudently over 50% in some cases?
Sure. Thanks Martin. I think we'll pass it to probably Emmanuel for the last crisis. And then, Hilary, if you want to compliment on
very much to take it. I mean, so, the profile of Schneider hasn't changed in terms of, the capacity to generate cash if top line is going down. We've seen it quite quite clearly in 2009 when it was recalled cash flow generation despite minus 16% for the top line. And I do expect that, if the top line is going down significantly, there will be a reduction of inventory, ultimately, and there will be also reduction in the receivables. So it's going to be working capital evolution.
Is ultimately going to help the cash generation. Now one of the difference versus 2009 for the time being is that the type of crisis that we are facing today is generating disruption on the supply chain. And that was not really the case in 2009, So the first consequence of that can be that the inventory reduction can take more time and it can even go at the beginning of the other way around because of shortages, because of uncertainty on supply. And then that's getting seated on the importance of really being able to ensure continuity of supply and services to our customers. So we have to ensure that we have the inventory and the availability to do that.
So I would say maybe in the next phase, we'll have some impact due to the specificity of the crisis that will not fully align, I would say, the evolution of inventory with the top line. But ultimately, once we have absorbed that, we are in the same position as in 2009. And reduced sales will mean a positive contribution coming from the working capital.
All right. Thanks. Thanks for the
question, Martin. Just to complement also, our mix of activities, more favorable, right? The mix of geographies we have we are merging on lighter in CapEx on services and software should should be also more generative of cash.
And your next question comes from the line of Alexander Zobrigo. Please ask your question.
Thanks very much. Good morning, everyone. Trust you all well, and thanks for taking my question. It was a question really around the prognosis for, energy management in the context of what you are seeing around customer conversations, customer dynamics, in construction markets in particular? And I guess I'm thinking more about, if we're not seeing projects being signed or we're seeing project decisions being deferred now.
What sort of implications does that have over the next sort of 12 to 18 months and the implications for the shape of recovery? Thank you.
Thanks. Thanks for the question. I think, yeah, Jennifer Scali wanted to take that one
Yes. On energy management, well, first, let's not forget that this is going all across the markets of Schneider. It's not on the building. Data centers, it's, it's industry and it's, it's infrastructure that really are crossing all over. So there is a turmoil at the moment.
It may be sometimes on orders, but more so far has been on disruption of worksites. So, places where because of the lockdown, you don't access to the worksite. So they can stop the flow for some time. But net new worksite is still there and you have to go back there when, at one stage. What we see in energy management is at first, some business, we'll certainly have a much stronger demand as we go forward.
Of course, health care because everything has been put on the stress, and I see many countries have realized that their aliskia infrastructure is not at the level. 2nd point is going to be IT digital data centers, which has been put on the stress, overheated, overused on more and more every day. So that needs more capability in the future. But what I see on that discussion, we had several times in the past, you know, that we've developed multiple offers to connect power distribution, which is nowadays much less connected than any industrial automation them. Well, we see many customers coming on starting where they are confined.
They have more time to speak about architecture on the future. They really want to speak about the capacity to connect those installations for at least two reasons. The first one is resilience, being able to do predictive maintenance while today, there are many installations completed line. And second, to make sure that they can repair, in an unmanned manner some of their insorations because at the moment, operators don't want to go on certain number of sites. So I see from that point of view, a massive accelerator of or massive transformer of the demand, catalyzer of the transformation for the future for the digitization of power distribution on which we have invested a lot, but it's still only a fraction of what we sell, which is connected, I think that will change quite a lot in the future.
Now, if if you look at the prison turmoil on the market, there are countries where construction kept going, on that actually has been a majority of the countries where we operate. On some of the countries where construction had been stopped together with, with the lockdown, it's on any way, I'm expecting the months of April or the beginning of Q2 to be very, very disturbed by all the contract contradicting rules that are happening in many of the geographies. But tech China, which is our blueprint for recovery, while people are going back on the construction sites, activities, is restarting and actually quite in a quite solid manner.
All right. Thanks. Operator, we'll go to the next question.
And your next question comes from the line of Gail De Bray.
Can I have 2 quick questions, please? The first one is about the current level of activity. A couple of, a couple of other industrial companies, indicated that the experience drop in sales of about 25% in the final weeks of March. So I was wondering if that's, consistent with what you saw, as well. And the second question I have is, perhaps a question for Emmanuel and Hillary, during the global financial crisis in 2009, I mean, the group delivered, I think, up to 500,000,000 euros of gross savings from still cost function expenses.
And I think at that time, basically, the group achieved in 1 year what was the to be delivered over 3 years. So it's needed, this time around. Do you think this kind of achievement should be repeated you think the organization is today as flexible as it was back then and that you have the same cost cutting potential?
Well, thanks, Gail. Gail, I think we'll take the second question first. So Hillary and Emmanuel, and then we come back with your first question if we still have time here. So Hillary and Emmanuel, do you want to take the question on the call?
Yes, I'm speaking. Hi, Gail. To 2009, you're right, there was a very strong and very efficient reaction from the group. I would certainly believe that, what the group has change, but the flexibility, the capacity to react has not changed. And, I think Hilary said it very clearly, we have, on the agenda, a mix of acceleration of the structural measure that we have shared with you before the crisis started.
There will be some opportunistic and tactical saving as well. So the combination of the 2 is, I would say, giving us a possibility to be as reactive as in 2009. And therefore, I don't think that we are in a in a different position than where we were, 10, 11 years ago. Jean Pascal, do you want to take the one on sales, or do you want me to react?
Yes, well, if you want to keep going, then I
I need to take
that one. So the minus, I think you said 25 I mean, there are certainly markets where we've seen this kind of evolution, in the 2nd part of March as some very strict lockdown where implemented and restricting, sometimes the capacity to work. We know that a lot of construction site have been closed. It's very difficult to answer because, I mean, that's 1st and foremost in Europe that we have seen this kind of of decrease and even not in a consistent manner because, of course, the lockdown measures are quite different from one country to the other. So There are certainly markets that we're experiencing this kind of evolution, but it doesn't mean that all markets were on this kind of trend, obviously.
Yes. And if I may add on 2009, I think the big difference is that in 2009, we faced the crisis at the time when we decided to be 1 Schneider. So we're on one side fighting the crisis. On the other side, changing upside down the organization which we are benefiting now. I would have to do that again.
I would have not done it at the same time, frankly. Here, we are, entering the crisis or we are in the crisis with one strategy, one organization, experience team, and on the different, profile of business, which is more balanced geographically, more balanced in terms of business, more balanced in terms of cycle, and I find the team very responsive, on all of this.
Thanks. Thanks, Robin. Let's move to the next question and we'll stick with one question, please.
Your next question comes from the line of Simon Towington from Jefferies.
Yes. Good morning, everyone. My question is on the software and services business. Obviously, you saw some growth still in Q1, but could you maybe elaborate a bit how you think about software and services as the year progresses. I'm sure you run scenarios for this business.
And maybe after that, if we look back and see how software has managed during the oil and gas crisis several years ago, do you think the software business has evolved when it comes to, for example, the level of subscriptions you have to whether this downturn better than you've seen, for example, in 2015 2016.
Okay. Yes. I'm going to take that one. On my, there are questions that you should ask to Aviso, which is a part of our software, but overall, our software has evolved diversify the 10 market and increase the port as a service on beta subscription. That's no doubt.
Now there will be in this, this crisis, which, again, is eating country by country. It's not phased exactly in the same manner everywhere. There's going to be a different phases. What we see on the service part especially the field services, is that at the beginning of the crisis in the lockdown, the teams cannot move any more to summer. So it creates a little bit of an interruption and disruption, but they're often the first one to be called back because there is nobody on-site.
And they want somebody to come out. People are equipped with protection equipment. And actually, we see some possibilities coming up because the sites are empty, and it's a good time to do the retrofit or the review of the installations. And second point, I said it several times during our session, but I think it's a massive fast forward in digitization. When you think about it, I mean, people were hesitating on the adoption, but the thing that works in, crisis studies is digit tool?
Will it be in the contact with customer, in, in using configurators, selectors, in ordering your product? In, remotely controlling what is not happening on the field. Everything which is digital is much more resilient. Than what it's not. So and people realize it.
So I'm expecting digitization as we did at every level of EcoStruxure more connected products, more controls, on more software.
Okay. Thank you. Thanks, Simon. I think we'll probably go another few minutes, maybe 5 to 7 minutes. So let's go to the next question, please.
And your next question comes from the line of Denise Molina.
Thanks so much for taking the question. I'll be brief. So I guess we're thinking about the recovery when you get to the other side. And John Pescall, we really appreciate your comments on the digitization, but I just wanted to dig into that a little bit deeper because if you think about demand destruction coming out of this and you have some end markets where you could feasibly see demand destruction from the energy and in house fidelity end markets, which may not be your core end markets, but on capacity increases and increased investment in digitization, which has the long term growth driver for you. If you think about your end market mix right now, utility customers obviously are slow to allocate capital, to increase investment quickly over time to change habits So, if you think about your exposure to that end market relative to some of the other end markets that might be quicker to adapt digitization, you think your mix right now, is where it should be or where is the investment in Proley, in food and beverage?
Other end markets a way for you to get, exposure to end markets that might be quicker to that digitization. So I guess the question is really whether or not this trend towards automation can take place at a rapid rate or whether or not it's kind of a slow burn?
Okay. Digitization is a very large world on what you would have to identify what is the engine or what is motivation, behind it. But, First, and above all, the notion of resilience is coming back up at a very high level at the moment because you can't send people on-site, at the same time, you've got, in some cases, residential, for instance, that has centers much more load to manage. So that's one. And frankly, while when we bought APCO, I was saying it, it was really to make to go from energy safe to energy reliable.
That had kind of been tuned down in the worries on the concern of of the customers, it's back with a revenge. That's number 1. Second thing, it's everything I described, the extensive TV about unmanned and doing without people because you need to keep going even when it's dangerous or perceived as dangerous to go out. My perception is that we still get a lot of, requests about sustainability as countries are putting stimulus back age out there. Many are coming by saying, well, let's do it so that it goes in direction of climate change because they've not forgotten that the part of the constituency, the green, the young, they want something much sustainable.
They want investment in more sustainable technologies, seeing digitization also because there will be probably for residents We think more localization of the supply chains. And if you do that in IQOS countries, there is no other ways on do it based on automation and software on digital because you don't find the labor. It's too expensive and, on to run your factories. In a competitive manner, we need to go to the next level of, of digitization. And of course, CPG is one of, of the segments.
And by the way, we invested in Prolite, which is a software company dedicated to, to food and beverage, that complete nicely what we do, but not only, I mean, we spoke about it, health care, data centers, critical infra, water, think everybody will be looking at the water network. I'm trying to understand if that vehicle is virus or not. The grid, I mean, speak about utilities, have realized that in some countries. 30, 40%. It's very difficult to manage that if you don't have a smart grid.
It's very complicated. And when everybody's fine. If you have a power breakdown, it can be a riot, okay, becomes really a political problem. So all of this means that I see plenty of places that will be, that will be impacted by this shift in the priorities of, of customers and many are coming into our direction.
Right, thanks. We'll take the next question. Okay. We can't hear well. Let's take let's take an alternate question then if we have one.
Hi, good morning. Good to hear you all well, and thanks for taking my question. I'll keep it to one then. You mentioned some distributor stocking in the U. S.
Looking forward, do you have a feel for inventory levels at customers and the potential that they destock as they prepare for a period
of lower growth, or do
you think they're pretty lean and it will be more closely matched to demand.
Look, It's very variable country by country, but you had a lot of pumping, in, we had some variation sizes due to perceived shortages in part of the world. I don't think it's excessive. But anyway, let's be prepared for a 2nd quarter from that point of view due to the lockdowns in the countries which are locked down, the 2nd quarter, that would be very difficult. That's all. But the most important is to take a little bit of a longer view on, on to prepare for what we see today in China, which is a strong restart.
All right. Operator, I think, let's just see, is there a final question that we might take or maybe take one last question.
I hope you can hear now. The question relates to the post crisis positioning of the group I mean, clearly, your company is in an excellent position with its multi local footprint and supply chain. But I wonder when you look into the future and you talk about the globalization and the reduction of supply chains, To what extent do you feel that you have the right global balance on your footprint? Or do you think that there will be further adjustments perhaps altering your supply chains from China towards India or diversifying across Southeast Asia. For example, what extent do you think you need to alter in the next 3, 5 years the way that your footprint is made to align with perhaps a less global world?
Thank you.
Yes. I, yeah, I don't know if we are, certainly the world would be more local. I don't know. It will keep being global. I people will keep, I don't know if we will travel as much but there will still be a growing thanks to digital, a growing flow of information on exchanges around the world.
But You know that our party has been always to believe that it would be very local or that local and speed wins. So from that point of view, our supply chain is much more that than many, to the situation we are facing at the moment, which is due to an impossibility to transit, travel in many places. And we had also chosen in the past to have relatively smaller factories than the average of our industry to be closer to our customers. And that helps also because that gives you more resilient. In case one of the sectors is, is locked down.
So I would say globally we are in a much better shape than what I would assess of, of some other companies. Now we are also learning to be surprised on the be some adjustments to be made, but there will be region to region. We don't have big, big transfers on being too many, maybe a few, but transfers to be done in the future. Accepting as a deoptimization as a choice of organization, which is multi local or not to have media factories, proves in a case like this to be rather favorable.
All right. Thank you for that. I think we'll probably stop it there. My apologies for the 10 minute delay in the start due to some technical issues of connection. But I mean, I mean,
I mean, thank you, thank you all for staying with during a long conference on big apologies for keeping you waiting. That's not our style, won't happen again. Yes.
So, the IR teams available, we'll set up slots. And at the same time, we look forward to connecting with with all of you in the coming days weeks. With that, we will conclude the call this morning. Thank you.
Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect.