Thank you for standing by. Welcome to the Q1 2020 results for Schneider Electric, hosted by Amit Bhalla. I would now like to hand over to Amit Bhalla. Thank you. Please go ahead.
Well, thank you, operator. Hello, welcome to all of you to Schneider Electric's Q1 2020 revenue results. I hope you and your families are keeping well and keeping safe in these times. I'm joined on the call today, remotely of course, by Jean-Pascal Tricoire, our Chairman CEO, with Emmanuel Babeau, our outgoing Deputy CEO and CFO, and Hilary Maxson, who takes over from Emmanuel as our Group CFO. The press release and presentation is available on our website already this morning. Post this presentation, we will have a Q&A session. Without further ado, let's get started. I would like to pass the floor to Jean-Pascal.
Thank you, Amit. Well, I first hope that you are all safe and well. I'm talking to you from our Hong Kong office, where we have the privilege to operate almost normally, no lockdown, which has been really an advantage over the past two months. It's really a pleasure to be with you, but for quite an 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 yearly results. The second, to be here with you to thank Emmanuel Babeau for 11 years together building Schneider through good and tough times, and welcome Hilary as the new CFO of the company.
In my part this morning, I want to go back together with you to the fundamentals, while Emmanuel and Hilary will detail Q1 on what we are executing to face the rest of 2020. 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. Let me move to slide five, to remind you the mission of Schneider Electric, 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. In this time of coronavirus crisis, which forbids many people to travel, to go to their work, and confine them into homes, we see the importance of our mission.
We support at Schneider mission-critical functions in a world which is today under stress. I remind everybody that we power a lot of the hospitals around the world, including the ICU rooms, that we support the grid for electrical distribution, the water networks, life at home, where people are spending a lot of time at the moment. We are the biggest supplier of energy solution for Data Centers, which are overheated by confinement at the moment and take home working. Of course, we supply the cold chain for food, beverage, and pharmaceutical. Our role to the society has never been better exemplified than today. The other part which I see really developing as the demand for more information of our customer is the capacity to de-risk operations through unmanned process and the use of digital technology.
Everything around remote control, remote monitoring, using digital for augmented reality and assisting operators on the ground from remote so that you don't have two operators together. All of the technologies of digital control are finding a vast application as we speak. On moving to slide eight, a few examples of what we do in healthcare worldwide as we speak. You see things that we've done for hospitals to support hospital. I want to mention, by the way, that we've been classified in numerous countries as an industry which is critical to the country, and that we had to make sure our plans and our services would keep going through the crisis, which has been a support for us to keep our factories particularly, going through the lockdowns.
We also support in other critical supports, again, Data Centers and IT, critical sector, in IT particularly, in servicing some block facilities like airports or helping the health industry pharmaceutical, to go through the crisis and ramp up in front of the new needs. What we see today is that our core value propositions, which is merging energy and automation solution together for efficiency and sustainability, is reinforced today by a higher need for resilience. For those who were already following us in 2008 when we bought APC, remember that at that time, I explained that our vision was to make energy safe, and second value, reliable, efficient and sustainable. That reliability value in times where you need to rely on your energy infrastructure, on your control infrastructure to make sure that mission-critical missions are keeping on going has been critically reinforced.
I would also underline that our model also is supporting our reaction to the specific condition. An integrated model, and I come back on that one, One Schneider, an open model relying on partners, which makes it much more flexible, much more agile, and much more adaptable to the cycle, on the fast cycle, on the fast variation of the market. Finally, the combination of multi-local and empowered, because all this sanitary crisis is global. It's hitting the country one by one at different moments, and the reaction of each country, due to its culture, due to its political environment, is very variable from one point to the other one. It's extremely important to be consistent locally to react to it. We, of course, benefit from our country organization. Moving on to slide 11.
Well, 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 exposure. We used, in 2008, very exposed to mature economy, and especially to Western Europe, which tends to be far more rigid. Today, our exposure is much more balanced, actually perfectly balanced. We do 41% of our business in emerging economies and 60% of our business in mature economies. Within those mature economies, we do a lot of our business in North America, which is far more flexible than Western Europe. That's true also from our people footprint, which has been much more balanced and is much more outside of Western Europe, and outside also of our country of origin.
90% or 89% of our people are outside of France. That contributes to a much more reactive or much faster reaction to the local conditions. Third point is working on the cyclicality of our portfolio. You know that after 2008, our obsession has been to rebalance the portfolio towards more long cycle parts of the market, like industry and infrastructure. This has been achieved over the past 11 years. We've developed more sticky, more recurrent business around software and services, which have doubled in our portfolio over the past 11 years. We've kept working on the flexibility of our cost base, making sure that a large part of it would be variable, and that is what we supply from our suppliers, our partner suppliers.
Even within the 30%, the blue part, which is the so-called fixed part, we've worked on making our compensation system more variable and more adaptable to external condition. This has driven, over time, the cash flow conversion to a new level, and we have reached last year, as you know, in 2019, we've passed the threshold of EUR 3 billion of cash flow generation. We enter this crisis with strong fundamentals, a strong cash profile, a business model which is CapEx light and even lighter than before because we have more services, we have more software, we have more of our business in new economies, which are necessitating or needing less CapEx. We have a low net debt, and we have, of course, a strong balance sheet. 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. What we've done really in the past 11 years has been to build strong offers in digital. No need to remind EcoStruxure, which was launched in 2008, version one, and which has grown, developed, and expanded in our portfolio. More digital and connected offers. Software portfolio with the creation of AVEVA particularly, but it's not the only thing we've done in this field. 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 and at what time. Finally, apps and analytics to enhance our products and 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. Finally, this has been kind of Federated under the creation of Schneider Electric Exchange, which gathers together our end user customer, our partners, our integrators, and people from the company to exchange solutions on the design of our system. Moving on to slide 13, where we've seen our customer adoption of digital accelerating, asset management services, remote monitoring, predictive maintenance. 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.
Believe me that today, many of them, or the ones who have connected their installation, have truly an edge on the one who are not connected. The second point is much more interaction with customers through digital tools under every format, and really driven to our core and crown jewel application like healthcare, more services everywhere, everything linked to IT and data. Commercial buildings and being able to operate them from remote and control them. OEM, CPG, so 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. As I was saying, a repository of all of those contacts on the marketplace of our ecosystem around Schneider Electric Exchange.
When we face today times of fast disruption, which are happening country by country, we leverage really the transformation that we've driven over the past 12 years. We've been One Schneider. I'm on slide 15. We've been One Schneider for the past 12 years, which means we have one IT, we have one supply chain, we have globalized functions who have been digitizing their internal processes for all those many years, which means when we have to impulse reaction in the company, processes and global processes allow us to do that. The second point, we've been in the multi-hub management, empowering the countries for nine years. You know that at Schneider, you have a strong country structure.
In this time where every country reacts in a completely different manner, what we've been able to activate is a mode of reaction which is largely empowering the country or completely empowering the country with a tight coordination. No need to tell you that we are used to remote and video management, which was probably not as obvious 15 years ago. We have teams in the countries that take 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 are ready for managing the COVID-19 conditions. For us, managing from remote, managing at time from home was absolutely natural.
One of the biggest challenges that we had to face, and I'm moving on to slide 16, has been, of course, the continuity of the supply chain, finding our way between the regulation of the country, the penetration of the virus, and all the measures and recommendations which were very valuable from one country to the other one. Here, we've really leveraged the fact that, as you well know, we've worked on a model which is highly multi-local. First point, our factories are serving their region, and therefore, the production or the level of supply is much better coupled to the level of demand. The supply chains at Schneider are already quite short, and that allows us to manage each local situation in a much more agile and reactive manner.
The second point that we have really leveraged is the fact that we have decentralized now for a long time, all of our supply chain system, and we produce fundamentally where we sell. We know that some parts of the world are more rigid or more complicated to adapt, and 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 means the quantities and 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 and when I sum up our priorities, at the moment, it's pretty simple. First priority, health. Health of the people working with us, and we've made sure that each site of Schneider is equipped with the right protective equipment, with the right processes, so that our people can operate in full safety. That's true for the people on our site. That's true also for the people who do services for our customers on the sites where they are allowed to go. Second point, absolutely, is business continuity, making sure that we keep operating our factories, we keep operating our service teams, we keep answering to our customers, and we keep serving all the mission-critical applications I was referring to at the beginning of our interview, because this is probably our biggest contribution to society at the moment.
The third point, of course, is leveraging all of our reactivity to work on cash and to work on our costs. All the elements that I mentioned before, multi-local, variable costs, the profile of our business, we are acting on them to adapt to each reality of volume of business region by region. I would say that a large part of the team was already there in 2009 and has the experience of a brutal crisis. I tell you that there's been no time for all of us to recover the reflexes that we had had at that time to react to what we are facing. The fourth point is to make sure that we are ready for rebound, that we keep facing the customer and keep working on the offers that will be crucial for the rebound of each country after the crisis.
The fifth point is to work on the communities around us and keep contributing to those communities. Our overall-arching target here is to be ready for the post-crisis. Ready because we're going to pass the crisis with the right level of adaptation, strong level of adaptation, and ready because we're going to be in the position to serve the needs of our customers post-crisis. We've structured, and I'm in slide 18, we've structured the crisis management team. It's mostly local, tightly coordinated globally. We are operating at rapid interval. We have dedicated teams. We have empowered the execution using our multi-hub organization, and we've put together a global control tower to make sure we optimize the level of supply with the level of demand. Yes, we are dealing with a crisis, but we remain focused on our fundamentals for the future. 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 the cash generation. Second priority is to keep working on the fundamentals of trust in regard to our customers and the society around us, the safety of people, quality of our products, cybersecurity, and the ethics in everything we do. Third point, really keeping on working on the digital transformation of our industry, more software, more digital services, more digital experience in the way we deal with our customers. My personal feeling is that at the moment, we go through a gigantic fast-forward in the digitization of everything we do and everything we propose.
If there is something positive that this crisis could bring us, it is this acceleration towards more digital. Fourth point is innovation and keeping on investing in infrastructure, bringing more connected products to the market, and keeping our commitment to R&D. Finally, at the time where people realize how much some of their installations were weak or not up to date, make sure that we propose services. Some of them are catalyzed by the capacity to put together remote services, many sustainability services. Sustainability is not going away. A lot of field services, particularly in all the installations which have been under stress. That's a flashback and a reminder of all of our fundamentals and how we leverage them to pass this specific period and prepare for the future.
What we should all realize that somewhere this crisis is accelerating some of the transformation we are preparing for. I'd like to move on a more precise view on Q1, and I'm going to hand over to Emmanuel and Hilary. 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, journeyed together, building a very different Schneider, transforming Schneider and making it much more future fit and future-proof. I want to wish him good luck for the future, but really, again, thank him for all those very important years we've built for the company. I want to welcome on board Hilary Maxson. Hilary has been three years already with Schneider.
She came to us through the Hong Kong office, but she comes with a strong experience in the field of energy, a large multinational experience between North America, U.S., South America, Africa, and Asia, and a deep knowledge of Schneider, being today or before, the CFO of Energy Management, which is 70% of the business of Schneider. With that, Emmanuel, the mic is yours.
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 whole of Schneider. I'm here with Hilary, we're going to comment in detail the Q1 sales number. I will enter into some detailed number, and then Hilary will tackle everything we're doing to make sure that we exit this crisis strong, and that we prepare the company for what is coming next. 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. I would like to thank all of you because indeed, these 11 years have been absolutely amazing for me.
I can tell you that will remain as an amazing professional moment, fabulous moment, and I think you really have your fair share for making these 11 years dense, intense, challenging, but always full of learnings, with many achievements, and full of fun and the feeling of doing important things. 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. I'm moving to page 21, entering into the detail of our sales for Q1. Our sales amounted to EUR 5.8 billion. It's, on a like-for-like basis, a decrease of -6.4%. As you can see, the two businesses behaved relatively the same during this Q1. Energy Management is down -6.1% at EUR 4.4 billion, and Industrial Automation is down -7.3% at EUR 1.4 billion.
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 since the beginning of the quarter, with some signs of improvement as we were ending the quarter. On the contrary, many other region that progressively entered into the crisis of the COVID-19 and showing decline towards the end of the quarter. I am now moving to page 22. Of course, during this crisis, we are facing a number of headwind, but we see the continuation of a lot of customers that need our technology to improve their efficiency, reliability, resilience. Jean-Pascal talked about that, and of course, the sustainability challenge is still there. You have on that page, many very interesting projects that we've won and delivered over the quarter.
I'm not going to comment all of them. Of course, if you want to receive more reference on some of them, we are happy to provide them. Just a couple of them, I would like to underline. The first one is the Circular Quay Tower in Australia. I'm sure many of you know this very iconic quay in Sydney. 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 the building is 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 Denmark, as you know.
With a very nice project, through which we have provided the full reliable electrical distribution system, obviously, reliability is critical for the bank, they are actually hosting their trading department in that facility. That was absolutely critical for them. I am now moving to page 23, providing a bit more detail on the sales. EUR 5.830 billion for Q1. When you look at the various component of the analysis of change, it starts with the Forex, which is slightly positive, +0.7%, which is largely the U.S. dollar and the Chinese yuan moving favorably versus the euro. We started to see a number of currency, and especially in the emerging countries, moving south versus euro. Now, based on the current Forex parity, when we look at the full year, we expect for the top line for sales, an impact that should be about neutral or slightly negative.
When we look at the margin, because of some very strong depreciation sometime 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 -30 to -40 basis points. The scope impact is a negative, -1.9%. That is, of course, coming from all the disposal that we have been doing in 2019. You know them, Pelco, Converse, the US Panel, Electroshield Samara at the beginning of 2020. We should continue through the year to have a negative scope impact. You have the organic evolution of sales. I mentioned it, -6.4%. As you can see, we have transactional business that is on in line with this decrease for the whole group at -6.2%.
System is actually slowing even more with a double-digit decline, 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, here you have the global vision by region of the performance in our Q1. Obviously, it was expected that Asia Pacific that is massively going south with an organic decrease of - 19%. That's clearly first driven by China. China has been decreasing by more than 20% in Q1 with the profile that I was describing. The whole quarter has been impacted, it really started very early in the year. February was very difficult, we started to see some early sign of a beginning of an improvement, I would say, towards the end of the quarter.
Other countries have been also negative in Asia-Pacific. Some of them gradually impacted by a 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. 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. Of course, suddenly, as we all know in March, many country imposed a lockdown, and we have seen the economy slowing down significantly. That means that we finish the quarter with, of course, the big country impacted early in the curve, like Italy and Spain, being negative. France, who had started well the year, turned negative into March. The U.K. is with a more reduced decrease, but still negative.
There is one country, Germany, which has been with a lighter lockdown, I would say, which remained positive for the quarter. Rest of the world, negative, -2%, but contrasted, I would say. We have a positive evolution in Russia and in South America. We know that some of these country are less impacted or are taking so far different measures on the COVID-19. When Middle East and Africa have been negative in Q1, and Middle East, of course, impacted by the sanitary crisis, but also by a very weak price for the oil. North America, which managed to be positive over the quarter with a +1% organic growth, notably driven by the U.S. Canada was stable, and Mexico was also positive with clearly here impact of the COVID-19 that came much later in the quarter, and therefore with a lower level of impact.
No doubt that Q2 will be more impacted by the crisis. Let's go now into the detail of our two businesses. Energy Management, sales of EUR 4,283 million. It's -7.5%. You have, of course, here the Forex, the scope. Organically, it's down -6.1%. 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 continues to exist in this crisis, like hospital, the food chain, lab science project. Data Centers are down, but on very high comparable. We see that Data Center remain absolutely essential in this crisis, with the digital economy certainly supporting the world today.
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 weakened, construction have been slowing down or stopped in many sites because of the COVID-19. Services performed well, and notably in specific segment like consumer goods and transportation. I'm on page 26. If you look rapidly by region, so as I explained, Asia Pacific, down -20%. That's first of all China. Many other markets were impacted in the region by the lockdown. That explains that Energy Management has been negative in many other countries that are mentioned there. When we look at the rest of the world, it's down 4%.
As I said, good growth in South America, but we've seen a very severe decrease in other regions, notably in Middle East, and even Central Europe and the CIS region were down. Western Europe, a moderate decrease, I would say, again, with the phasing I described, and a good start to the quarter in January and February, and then March turning negative. Really, I have to report decrease everywhere. In Germany, where a number of specific projects, and as I said, a lower intensity on the lockdown allowed for growth in Q1. Looking at the growth in North America, we are north of 1% organic growth. It's certainly a weakening that we have seen in the building, whether resi or 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, as they were seeing news coming from Europe, some people building inventory in case there would be some disruption on the supply chain. Mexico was also facing some easier comparable, also posted a growth in Q1. Moving to page 27 on Industrial Automation. Sales of EUR 1,447 million, it's down 7.7%. Here again, you have a Forex positive scope, a bit negative, an organic growth of -7.3%. Well, obviously, we'll all remember that some of the Industrial Automation end markets were already impacted by the economic cycle, 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.
That means that now both discrete and process and hybrid technologies are down in terms of sales. 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 resilient in line with all the comments that we made. When you look at the water, consumer goods, utility, transportation, everywhere where there is criticality, that was more resilient. Software and digital services continue to grow and to grow very nicely very often. Moving to page 27, again, rapidly to give the impact, starting by Asia Pacific, -16%, so it's a bit better than for Energy Management. It's really here the growth that we have seen in software in many countries that is reducing a little bit the decrease.
It has been an intense decrease, notably in China. Europe, very negative. Europe was already suffering, notably because of OEM and the Discrete Automation business. You can imagine that countries such as Italy, U.K., Spain have been quite significantly impacted by the COVID-19 crisis on top of a situation which was already not the one of a super strong growth. North America is negative when it comes to Industrial Automation. In the U.S., we can certainly flag the fact that the oil and gas and the mining situation is weighing down the performance very clearly. Let's highlight the fact that Canada was growing in Q1 for Industrial Automation. One region is growing, so rest of the world, +3.1%, with several countries facing good growth like Russia, like many countries in South America.
Even in Middle East, we did see growth in a number of areas. Apart from Africa, the rest of the world have been behaving relatively well during this Q1. Enough for looking at the detail of our Q1 sales number. Now I'm going to hand over to Hilary, 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. Hilary, to you.
Thanks, Emmanuel. I'll also start by sharing my wishes for the well-being of everyone on the call with us today, as well as their families. I look forward to meeting many of you in the future, whether virtually or in person as I get going in the role. I'm on now slide 29, where I'll start with liquidity. As we've spoken about already quite a bit, we're in a strong balance sheet position, and we're a strong cash-generating company. We finished 2019 with free cash flow of more than EUR 3 billion. In Q1, in response to the crisis, we've bolstered our liquidity with two bond issuances totaling EUR 1.3 billion, including a EUR 500 million tranche in April that was significantly oversubscribed. We've also enhanced our available credit lines.
On net, we're confident we're in great shape to manage through this crisis from a liquidity standpoint, with around EUR 9 billion in liquidity today. Moving to the next slide. A key focus for us currently is cost management. We want to ensure we're reacting quickly and with agility to the different impacts from the crisis across the world, while at the same time making sure that we're prepared for our recovery. We've implemented some strict cost management measures already, primarily tactical in nature, and we're leveraging our multi-local organizations to be prepared for multiple scenarios in the future. We also have already talked about our operational efficiency plan. We announced it earlier in 2019. We'll look to accelerate those plans as possible. Moving to the next slide, I'll finish by highlighting that our capital allocation priorities remain unchanged during the course of the crisis.
As you know, our share buyback program remains suspended until we reestablish our 2020 guidance, and our 2019 dividend proposal will be voted on at our AGM this afternoon. As you know, we also have two larger M&A transactions underway. For L&T, we have a delay in the closing due to the nationwide lockdown in India, which is certainly understandable. For RIB, the date for tendering shares as per the offer was yesterday. If the offer is successful, we hope to complete the deal in Q2 . We also announced today a bolt-on acquisition of the German-based company, ProLeiT. This acquisition will enhance our offering in the consumer packaged goods segment, specifically focused on food and beverage, chemical, and pharmaceutical industries. We'll integrate their process control offer into our EcoStruxure Plant.
We remain committed to our portfolio optimization plan of disposals of assets with revenues in the range of EUR 1.5 billion-EUR 2 billion. However, pursuant to the EUR 600 million that we've already addressed last year, we don't have anything significant to report in Q1. With that, I will move to slide 33 and hand over back to Jean-Pascal.
Thanks, Hilary. Well, now looking ahead, we enter the crisis with strong fundamentals. We have a well-defined strategy on the 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 a solid path to recovery. We are all prepared for a very difficult Q2, and therefore H1. The name of the game here will be our speed and capacity of adaptation, our agility to adapt the situation. We are absolutely committed to our journey to 17% adjusted EBITDA on our return to shareholders. We are suspending the guidance, the time for us to reassess once all the lockdowns have kind of opened and the situation is a bit clearer. Moving on to slide 34. We have prepared for the post-crisis world.
Our offers serve efficiency in very core segments, hospitals, homes, grids, city infrastructure, water networks, food and pharmaceutical, and will allow customers not only to upgrade their installation but also to save on cost. Digital will be big. People will want more digital. Resilience has become huge on the agenda about critical infrastructure, the need for microgrids that we had started to develop pre-crisis. There will be industrial relocation in all geographies that will serve our automation and industrial business, and certainly more regionalization, which goes well with our multi-hub model. 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.
Certainly, many of the stimulus packages that are put together by the countries will serve the need to fight climate change as well as to increase or elevate or improve the health system. That serves a future that will be all sustainable, digital, and electric. At the same time, we don't forget our responsibility to society. We've created a dedicated fund, the Tomorrow Rising Fund, dedicated to face COVID-19 crisis, with the objective to help the society to respond and to prepare for a future with more resilience. We've participated to a number of initiatives, the production of ventilators, production of protective equipments. The whole of the company is mobilized to go through a crisis, but more to prepare for the future.
With that, 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.
Thank you for that, Jean-Pascal. We are close to the hour mark, I think we are going to extend, in order to make sure we take the questions within the remaining time frame. I'm sure there are a lot of questions, we'd request that we will keep it to one question per analyst. Let's get started. Operator, can you please ask the first question? Thank you.
If you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. To cancel your request, please press the hash key. Once again, to ask a question, please press star and one and wait for your name to be announced. Your first question comes from the line of Andreas Willi from JP Morgan. Please ask your question.
Welcome to Hilary to the 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 have 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 very much.
Thank you, Andreas. I'm just going to navigate the question. I think I'll pass this one to Hilary and Jean-Pascal to answer, please.
Hilary, you want to go first?
Sure. Thanks, Jean-Pascal. I think I spoke a little bit on the call on some of the actions that we're taking. The first thing I would say is that while the crisis is worldwide, obviously the impacts are not the same from a geography to geography standpoint, and the different actions that the governments are taking, both in terms of containing the health crisis and also, as you pointed to, in managing from an economic standpoint, are very different, whether their own tactical actions or their actions from a stimulus standpoint. What I would say we're doing is we're looking, and we already had put a press release out earlier on strict, cost containment actions for 2020.
A lot of those are tactical in nature. We are looking geography by geography at the opportunities that we have there, whether put into place by the government today for this crisis or whether that are already there as an opportunity to manage. 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. Also less time and less pay, for less work and these types of opportunities. 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.
Yeah. To complement, the great edge we have here is that we are very structured by country. Country by country, we can adopt the most adapted measures. It can be partial and employment scheme, it can be furloughs, restructuring in some places. That goes very fast on geography by geography, because one has to understand that's a global crisis, but it's very local in terms of time, it's hitting the economy and also very local in the way society on politics, on economy reacts country by country. You have really to understand well the context, to react properly to the situation. At the same time, I say 12 years of One Schneider, that has been really beneficial because we benefit from that integrated model where we can take also global measures, and you spoke about it.
Salary cut starts from me on my fixed, on my variable, followed immediately by the ExCom, 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. That has generated an immediate movement in the company. We've canceled the WESOP also this year, which is probably the first time in 15 years. Just to make sure that we would have a little bit more reserve even to go through that. Over the past years, we had installed more variable in the compensation of everybody in the company, and that will play also as we go forward.
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 us to adapt faster to the cost reduction. What I see today, very difficult to have visibility. It depends on every country. We have more visibility in China, of course, but in the other places, it's difficult to have visibility. Our objective is to be adapting to the situation, to the present situation, with the maximum flexibility, and at the same time, make sure we prepare for the future. Please don't cut in the muscles that will be very important for the future.
Right.
That's it, Andreas.
Thank you for that. Thanks, Andreas. Next question, please.
Yes. This is from [inaudible] .
Hello?
Yes, we can hear you. Operator, can you move to the next question?
Of course. Your next question comes from the line of Martin Wilkie from.
Thank you. Good morning. It's Martin from Citi. Just a question on cash conversion. 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 liquidate inventory, manage cash flow, et cetera, 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 as to how you think about that cash conversion in countries where the sales could have come, maybe not to a halt, but certainly be down presumably over 50% in some cases.
Sure. Thanks, Martin. I think we'll pass it to probably Emmanuel for the last crisis. Then Hilary, if you want to complement on that.
Very happy to take it. The profile of Schneider hasn't changed in term of the capacity to generate cash if top line is going down. We've seen it quite clearly in 2009 when it was a record cash flow generation despite -16% for the top line. 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 a reduction in the receivables. The working capital evolution is ultimately going to help the cash generation. One of the differences 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.
The first consequence of that can be that the inventory reduction can take more time, and it can even go at the beginning the other way around because of shortages, because of uncertainty on supply. Jean-Pascal insisted on the importance of really being able to ensure continuity of supply and services to our customers. We have to ensure that we have the inventory and the availability to do that. 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. 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 for the question, Martin.
Just to complement also, our mix of activity is more favorable, right. Mix of geographies. We are more agile and lighter in CapEx. On services, on software, should be also more generative of cash.
Okay. Thank you.
Operator, we move to the next question, please.
Your next question comes from the line of Alexander Virgo. Please ask your question.
Thanks very much. Good morning, everyone. I trust you're 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. 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 implication does that have over the next 12-18 months and the implications for the shape of recovery? Thank you.
Thanks for the question. I think, Jean-Pascal, you want to take that one?
Yeah. On Energy Management, first, let's not forget that this is going all across the markets of Schneider. It's not only building, it's Data Centers, it's industry, and it's infrastructure. That really are crossing all or other. There is a turmoil of the moment. It may be sometimes on orders, but more so far it's been on disruption of work sites. Places where, because of the lockdown, you don't access to the work site, so they can stop the flow for some time. Your work site is still there, and you have to go back there at 1 stage. What we see in Energy Management is at first, some business will certainly have a much stronger demand as we go forward.
Healthcare, because everything has been put under stress, and I think many countries have realized that their healthcare infrastructure is not at the level. Second point is going to be IT, digital Data Centers, which has been put under stress, overheated, overused more and more every day. That needs more capability in the future. What I see, and that's a discussion we had several times in the past, you know that we've developed multiple offers to connect power distribution, which is nowadays much less connected than any Industrial Automation system. We see many customers coming on certain 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 completely blind. Second, to make sure that they can repair, in an unmanned manner, some of their installations, because at the moment, operators don't want to go on certain number of sites. 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. If you look at the present turmoil on the market, there are countries where construction kept going. On that, actually has been a majority of the countries where we operate.
Some of the countries where construction had been stopped together with the lockdown. Anyway, I'm expecting the months of April or the beginning of Q2 to be very disturbed by all the contradicting rules that are happening in many of the geographies. Take China, which is our blueprint for recovery. People are going back on the construction sites, activity is restarting in a quite solid manner.
All right. Thanks. Operator, we'll go to the next question.
Okay. Your next question comes from the line of Gaël de-Bray.
Thanks. Good morning, everybody. Can I have two quick questions, please? The first one is about the current level of activity. A couple of other industrial companies indicated that they experienced a drop in sales of about 25% in the final weeks of March. I was wondering if that's consistent with what you saw as well. The second question I have is perhaps a question for Emmanuel and Hilary. During the global financial crisis in 2009, the group delivered, I think up to EUR 500 million of raw savings on support function expenses. I think at that time, basically, the group achieved in one year what was supposed to be delivered over 3 years. If needed, this time around, do you think this kind of achievement could be repeated?
Do you think the organization is today as flexible as it was back then, and that you have the same cost-cutting potential?
Thanks, Gaël. I think we'll take the second question first. Hilary and Emmanuel, and then we come back with your first question if we still have time, yeah. Hilary and Emmanuel, you want to take the question on the call?
Yeah. I'm speaking. Hi, Gaël. Back to 2009, you're right, there was a very strong and very efficient reaction from the group. I would certainly believe that, well, the group has changed, but the flexibility, the capacity to react has not changed. 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. The combination of the two is, I would say, giving us the possibility to be as reactive as in 2009. Therefore, I don't think that we are in a different position than where we were 10, 11 years ago. Jean-Pascal, do you want to take the one on sales, or do you want me to react please?
Yeah. Well, if you want to keep going.
No, I'm happy to take that one. The minus, I think you said 25. There are certainly markets where we've seen this kind of evolution, in the second part of March. As some very strict lockdown were implemented and restricting sometimes the capacity to work. We know that a lot of construction sites have been closed. It's very difficult to answer because that's first and foremost in Europe that we have seen this kind of decrease and even not in a consistent manner because, of course, the lockdown measures are quite different from one country to the other. 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.
Yeah. If I may add on 2009, I think the big difference is that in 2009, we faced a crisis at the time when we decided to be One Schneider. 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, an experienced 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. I find the team very responsive on all of this.
Okay. Thanks.
Thanks very much.
Let's move to the next question, and we'll stick with one question please.
Your next question comes from the line of Simon Toennessen from Jefferies.
Yes, good morning, everyone. My question is on the software and services business. Obviously, you saw some growth still in Q1. 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. Maybe add to that, if we look back and see how software has managed during the oil and gas crisis several years ago, do you think the software business has evolved when it comes to, for example, the level of subscriptions you have to weather this downturn better than you've seen, for example, in 2015 and 2016?
Yeah. I'm going to take that one. On the other question that you should ask to AVEVA, which is a part of our software, but overall our software has evolved, diversified it in market, and increased the part as a service on base as subscription. That's no doubt. There will be in this crisis, which again is hitting country by country. It's not faced exactly in the same manner everywhere. There's going to be different phases. What we see on the service part, and especially the field services, is that at the beginning of the crisis in the lockdown, the teams cannot move any more to the customer, so it creates a little bit of an interruption and disruption. They're often the first one to be called back because there is nobody on site, and they want somebody to come. Our people are equipped with protection equipment.
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. On 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, people were hesitating on the adoption, but the thing that works in crisis like this is digital. Will it be in the contact with customer, 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 is not. People realize it. I'm expecting more digitization as we did at every level of infrastructure, more connected products, more controls and more software.
Okay. Thank you.
Thanks, Simon. I think we'll probably go another few minutes, maybe five to seven minutes. Let's go to the next question, please.
Your next question comes from the line of Denise Molina.
Thanks so much for taking the question. I'll be brief. I guess we're thinking about the recovery, when you get to the other side and, Jean-Pascal, we really appreciate your comments on the digitization. I just wanted to dig into that a little bit deeper because if you think about demand destruction coming out of this, you have some end markets where you could feasibly see demand destruction from the energy and hospitality end markets, which may not be your core end markets. 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.
If you think about your exposure to that end market relative to some of the other end markets that might be quicker to adapt to digitization, do you think your mix right now is where it should be? Is the investment in food and bev and other end markets a way for you to get exposure to end markets that might be quicker to adapt to digitization? 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.
Digitization is a very large world on what you will have to identify what is motivation behind it. 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, and at the same time you've got, in some cases, residential, for instance, Data Centers much more load to manage. That's one. Frankly, when we bought APC, I was saying it was really to go from energy safe to energy reliable. That had kind of been tuned down in the worries and the concern of the customers. It's back with a revenge. That's number one. Second thing, it's everything I described extensively about unmanned and doing without people because you need to keep going even 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 package out there. Many are coming by saying, "Well, let's do it so that it goes in direction of climate change," because they've not forgotten that the part of the constituency, the green, the young, they want something much sustainable. They want investment in more sustainable technologies. Seeing digitalization also because there will be probably for resilience, we think more localization of the supply chains. If you do that in high-cost countries, there is no other way than to do it based on automation, on software, on digital, because you don't find the labor, it's too expensive. To run your factories in a competitive manner, we need to go to the next level of digitization. Of course, CPG is one of the segments.
By the way, we just invested in ProLeiT, which is a software company dedicated to food and beverage, that completes nicely what we do. Not only, we spoke about it, healthcare, Data Centers, critical infra, water. I think everybody will be looking at the water network and trying to understand if that vehicles virus or not. The grid. Speak about utilities. They have realized that in some countries, the power in industry was coming down 40%, that the one in residential was going up by 20%, 30%, 40%. It's very difficult to manage that if you don't have a smart grid. It's very complicated. When everybody's confined, if you have a power breakdown, it can be a riot, okay? It becomes really a political problem.
All of this means that I see plenty of places that will be impacted by this shift in the priorities of customers, and many are coming into our direction.
Right. Thanks. We'll take the next question.
The next question comes from the line of William Mackie from Kepler Cheuvreux .
We can't hear Will. Let's take an alternate question then, if we have one.
Next question comes from the line of Wafic Rizk from RBC Capital Markets.
Hi, good morning. Good to hear you're 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 of 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 parts of the world. I don't think it's excessive, but anyway, let's be prepared for a Q2 from that point of view, due to the lockdowns in the countries which are locked down. The Q2 , that will be very difficult. That's all. The most important is to take a little bit of a longer view and to prepare for what we see today in China, which is a strong restart.
All right. Operator, I think that's it. Is there a final question that we might take? Maybe we take one last question.
Yes. Your final question comes from William Mackie of Kepler Cheuvreux.
I hope you can hear now. The question relates to the post-crisis positioning of the group. Clearly, your company is in an excellent position with its multi-local footprint and supply chain. I wonder, when you look into the future and you talk about de-globalization and the reduction of supply chain, to what extent do you feel that you have the right global balance on your footprint? Do you think that there will be further adjustments, perhaps altering your supply chains from China towards India or diversifying across Southeast Asia, for example? To what extent do you think you need to alter in the next three, five years, the way that your footprint is made, to align with perhaps a less global world? Thank you.
Certainly, the world would be more local. It will keep being global. I don't know if we'll travel as much, there will still be a growing thanks to digital, a growing flow of information on exchanges around the world. You know that our policy has been always to believe that it would be very local and that local on speed wins. From that point of view, our supply chain is much more adapted than many to the situation we are facing at the moment, which is due to an impossibility to transit, travel in many places. We had also chosen in the past to have relatively smaller factories than the average of our industry to be closer to our customers. That helps also because that gives you more resilience in case one of the sectors is locked down.
I would say globally, we are in a much better shape than what I would assess of some other companies. We are also learning through this crisis. There will be some adjustments to be made, but they will be region to region. We don't have big transfers and too many, maybe a few, but transfers to be done in the future. What we were accepting as a de-optimization, as a choice of organization, which is multi-local or not to have mega factories, proves in a case like this to be rather favorable.
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.
Yeah, may I reinforce that?
Yes.
Amit, thank you. Thank you all for staying with us during a long conference, and big apologies for keeping you waiting. That's not our style. It won't happen again.
Yeah. The IR team's available. We'll set up slots and, at the same time, we look forward to connecting with all of you in the coming days and weeks. With that, we will conclude the call this morning. Thank you.
Thank you. Bye-bye.
Guys, bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.