Good day, welcome to the Schneider Electric Q1 2018 Revenues Conference Call, presented by Emmanuel Babeau, Deputy CEO and CFO, and Amit Bhalla, SVP, Head of Investor Relations. Today's conference is being recorded. At this time, I would like to turn the conference over to Amit Bhalla. Please go ahead.
Well, thank you, operator. Good morning to everybody, welcome. Thank you for joining us today for our Q1 revenues results. The press release and the presentation is available on our website. As the operator mentioned, we have Emmanuel, our Deputy CEO and CFO, to share the results with us. We will have a Q&A at the end of the presentation. Just a quick reminder for page two, which is the disclaimer, and let you read that. Having said that, I pass it on to Emmanuel.
Thank you, Amit. Good morning, everyone. Very pleased to be with you. Warm welcome for this call, where we're going to discuss about our sales performance for the first quarter of 2018. I suggest that we go immediately on page five of the presentation, allow me a kind of preliminary comment. Of course, we're coming up with strong results, no doubt that the positive environment has been helping our performance. I would say that beyond this good environment, the good results that we've been delivering in term of sales growth for this first quarter is really, for me, reflecting two things. The first one is the strength of the portfolio and our positioning, I would mention among our strengths, our capacity to innovate, and that is leading to differentiation. I think we are evidencing over this Q1, the strength of the cross-selling as well.
Of course, the good positioning that we have in term of global exposure to geographies and notably, of course, strong exposure to new economy, that has been having a very nice ride during this first quarter. Second element, of course, the success of our strategy to lead the digital transformation of our business. We see traction coming from customer and potential materializing when it comes to this digital offering and what it brings to the customer in term of added value. That has been translating into our two core activity, Energy Management and Industrial Automation, growing very nicely. You see that Energy Management is growing close to 6% organically. A great performance on which, of course, I'm going to elaborate. Industrial Automation is even growing faster at +9%. Moving to page six, starting to dig a little bit on the number.
Clearly, this first quarter of 2018 is a further acceleration versus the last quarter of 2017, when we had been growing +4.6% organically. We are reaching for this first quarter of 2018, +6.2% organic growth. Working the adjusted, it's even higher. We are at reach +7.7% organic growth. When you look at Energy Management growing +5.2% organically, the +6% is including the Delixi performance, which as you know is consolidated below the line. Energy Management at +5.2% organic, that's really strong performance across end market. We want to mention, of course, residential, but commercial, industrial building, industry as an end market, infrastructure or data center, they all have been growing very nicely during this first quarter. Industrial Automation has been growing, as I said, +9.2% organically.
It's a great performance in discrete automation and all the discrete offering of Schneider has been performing very well. A particular success on machine automation, on which I'll come back later on in this presentation. That, of course, is reflected in growth across all region. I will provide more color on that, but the performance of Asia Pacific is, of course, particularly impressive with a strong double-digit during this first quarter. The performance in North America has been extremely good, rest of the world as well. Western Europe has been slowed down by the medium voltage decrease, which was expected. I will come back on that. Many areas have been growing very nicely and notably low voltage and Industrial Automation in this first quarter. I was mentioning this competitive, we think, advantage that we have through our exposure to new economy.
They've been growing globally double-digit in this first quarter. Now, what has been making our success? I said it, we have a clear strategic roadmap, we have clear priorities, and we are delivering on that roadmap. You see that product has been growing organically +8%. Wiring devices, final distribution are a particular good performer, but I could have mentioned all the product in discrete automation such as drive contactors, HMI, all these things have been performing extremely well. More software and services, very pleased, of course, to have closed the AVEVA transaction. March 1st, AVEVA is one new company in which we own 60%. If I look at the legacy business of Schneider in software, it has been growing positively during this first quarter with a mid-single-digit organic growth.
AVEVA has been commenting on strong performance on their side, and they are coming up with a double-digit growth without currency effect. More services as well, +6%, so accelerating again on services. You know the ambition that we have. Our services are important to us. It's, of course, a sticky, sustainable, good margin business. It's a new way to build further the relationship with our customers. We have a particular focus on services, and it has been contributing to the growth as well. Last but not least, of course, EcoStruxure, which I would say is encompassing our whole digital push and ambition. We've been accelerating clearly on delivering EcoStruxure solution to our customer during this first quarter. The EcoStruxure growth has been outpacing the average of the group, which, as you know, is the objective that we have.
If we move to page seven, I want to elaborate on some of these priorities. The first one is, of course, the cross-selling. We clearly see this capacity to bundle different technology, put them together, of course, within Energy Management to give the complete set of Energy Management, but also putting together Energy Management and Industrial Automation as a real differentiation and strong added-value proposal for our customer. We see a growing demand for this capacity to combine various technology, and we think that this Q1 performance illustrates the success of this cross-selling ambition. A few example here, I'm not sure I want to elaborate on all of that, but it just show that you have, I would say, across region, across sector, customers who are seeing strong benefit in putting together the full Energy Management, of course, medium voltage, low voltage, and Secure Power.
Also, you have here the example of the oil and gas company in Argentina or the desalination plant in Northern Africa, putting together in a very powerful manner the automation of processes, factories, plant, and the Energy Management to deliver the last mile in term of efficiency and productivity. Second priority, of course, grow EcoStruxure. We want to lead this digital technology revolution. We want to enable our customer to take the full benefit of this energy transition and Industries of the Future, which clearly digital is a catalyst of.
During this Q1, we've seen this ambition rewarded with a lot of growth in EcoStruxure globally and with a lot of example here, again, I don't want to comment all of them, but a lot of EcoStruxure architecture that we've been selling to the customer, whether to optimize a building, whether to optimize a data center efficiency, a plant or a big infrastructure like it is the case with the Chinese example on the right-hand part of this chart. Really traction, gaining momentum, and together with cross-selling, we have two big driver for growth there. Just very rapidly on page nine, just to say that a lot has been going on in the past months in the company. Many of you have been joining us in one or several of the event that we've been organizing.
We had this visit of the Wuhan plant, which I saw many of you found full of learnings. We have, of course, the Innovation Summit in Paris together with the marathon. A few other big events that happened in the company, and more to come, just bear with us. We certainly intend to keep very close contact relationship to explain everything which is going on, all the initiative that we have on our priorities. A lot to come in the coming months as well in that regard. Moving to page 10. You know that we put a lot of emphasis, we really grant a lot of priority to sustainability. I'm sure you all have in mind the Planet & Society barometer that we've been using over the past few years. We are starting for a new Planet & Society barometer for the period 2018-2020.
It is slightly amended. It is rebranded into a Schneider Sustainability Impact, but the concept remains the same. There will be 21 criteria that will be measurable and that will certainly be able to assess the effort, the progress that we make in key direction for sustainability. Here you have five pillars. I would say that climate and circular economy are about what we bring to our customer for sustainability and what we do to be more sustainable in the way we operate. Health and equity, which is how we progress on the health safety, on ensuring equality at Schneider. That's really how we deal with our people. Ethic is about making sure that we are permanently with the highest standard of ethics and with a few objective in that respect.
Development is about our impact on underprivileged people, less-served community, I would say in two dimension, access to energy, and also training people and, I would say, boosting community, creating jobs and economic activity to help them. That's really a start of a new journey for this barometer, we'll keep you informed on the quarterly basis of the progress that we are making. In the meantime, our effort and the work we are doing continue to be rewarded. You have on the right-hand part of the chart. A few example of the recognition that we received recently. We've been, again, part of the, for the eighth consecutive year, of the Ethisphere World's Most Ethical Companies list. We are the third company globally for the Carbon Clean 200 list for clean energy.
We are around 45th in the global level and most sustainable corporation list. We have been included among the 104 company in the Bloomberg Gender-Equality Index. You know that we have a very important year ambition on driving diversity and gender equality. If you move to page 11, the sustainable model is really in line, on the right-hand part, is really in line with what I've just been saying, we've been receiving other recognition. On our people, I said it about gender equality and being part of the most ethical company. On the center, it's a tribute to the quality of our technology. We've been recognized from Gartner on the quality of our supply chain. We are recognized by Fortune among the Most Admired Companies in the world.
Triconex has been awarded a premium as the best safety system, we've been designated by the marine business as the most efficient ship solution with EcoStruxure. All that showing recognition from communities and stakeholder on what we are doing. Moving to page 13. We've been playing in a positive environment, that's helping. I believe that the great strength of Schneider is the capacity that we have, given our geographical exposure, given the depth and the breadth of our portfolio to really seize all opportunities of growth in this environment. I think that what has been materializing over this first quarter. If I look at the various end market and the trend that we have seen, starting with the residential and non-residential building, we've seen clearly positive demand on commercial and industrial building, I would say across geographies.
We're clearly in the time of people chasing efficiency, clearly arising. Good demand in residential market. Here, again, I would say across the region. For critical building, the quest for reliability, efficiency, sustainability is there, and certainly has been the driver for our performance. Moving now to industry and infrastructure. We have seen overall a good demand and a good level of investment. No surprise to you, I'm sure. We've seen a very strong OEM demand during this first quarter. We've seen overall good trends in discrete and hybrid industries, and notably some very strong pocket of growth in Asia. When it comes to process industry, the recovery is still slow.
I would say today we don't see much relaunch of big greenfield project, but it's much more people focusing on productivity, efficiency, clearly with a software play because you have a great return on investment when you increase your efficiencies through a digital capacity. That's very much what we've seen in this Q1, rather than new big project starting. What I've been saying, I would say apply to oil and gas, where we see certainly some sign of recovery on investment. Again, it's more on how can I reduce my cost of production rather than launching big new things. Moving to data center and networks. A lot going on and strong investment in data center clearly carry on. We've seen that across region, U.S., of course, but not only. I would say it's across the type of data center.
You will have the web giant, the cloud and service provider, co-location, micro data center. We see a lot of investment happening, of course, accompanying the Internet of Things growth. We also have seen good business in our IT channel for our small UPSes. The business is accelerating there. Also favorable evolution of the non-IT market. Last, the utilities. They keep being, of course, no news to you, challenged by the decentralized grid. They are investing on digital. The name of the game for them is clearly in Europe, to make sure that they have a better return on their asset and that goes through a better and more efficient grid with digital investment. I would say that where we see still significant investment in the grid and by the utility in the Asia Pacific region.
Microgrid, this new energy landscape, clearly the activity is ramping up in new economy and in North America, but we are probably just at the beginning of the potential of this microgrid. Moving to page 14. I was talking about the environment, but you don't have this 6.2% and 7.7% working the adjusted performance just on the environment. Beyond that, clearly, we believe that the strength of our model, as I said, the success of our strategy, our positioning is delivering. We've put two things on that slide. On the left-hand part, you have a few end markets where we believe that in some geographies, clearly, we've been gaining market share. That's the case for wiring devices and final distribution in several markets. On machine solutions, that's probably the case across the board. Water and wastewater, very good progression.
Clearly here, we have a solution differentiated, and we are gaining ground. Data center, one of the best, if not the best performer for us again in Q1. Very strong growth. We have a unique capacity in that data center space, and commercial industrial building in several geographies. What is driving this outperformance are what I describe as the capacity to be innovating and even in things which are putting some creativity as well, and we've taken this nice example here of the AvatarOn line that we have launched for wiring devices in China, and which is really delivering an amazing growth. Of course, differentiation is key. I was mentioning the great success that we have in water and water treatment. We believe it's coming from our differentiated offer. In the OEM, we are globally very successful in China. It's definitely working extremely well.
It's about being scalable, flexible, and answering the needs of the Chinese OEM in a very specific manner. Digital deployment. I've been already commenting a lot on our EcoStruxure architecture, or our Advisor technology. People are clearly today understanding more and more the potential that is coming from starting from what are the data I want to have to operate my building, my data center, my plant, and then you build a full architecture starting from what do I want this building, as an example, to be able to deliver, to do, to have in term of functionality, and then you build the full architecture, and EcoStruxure is absolutely, I would say, meaningful in that respect. Last but not least, the cross-selling, I think I've been talking a lot about it.
I just want to mention that, again, this very strong performance that we have in data center, we think is clearly helped by this capacity to put together our expertise first in data center and how you build an efficient data center, and then all the power management, the building management system, in order to deliver a complete solution in a short period of time versus any of our competitors. Let's dig into a few numbers on page 15. Sales amounted at EUR 5.8 billion for the first quarter. It's down versus the first quarter of 2017, -0.7%, so it's nearly flat. Of course, the big impact here is the Forex, which is generating -8.4% of evolution. I would say it was totally expected. It's in line with what we thought a bit more than two months ago.
We are confirming, based on the current rates, the guidance for the FX impact for the year. For the top line, it is estimated to be between -EUR 1 billion and -EUR 1.1 billion. For the margin, we confirm that the negative impact would be around -20 basis points on the adjusted EBITA. The Forex impact is going to be much more skewed toward the first part of the year, and we expect close to 80% of this negative Forex impact, based on the current rate, of course, to materialize in H1. Hence, the very big impact, more than EUR 450 million negative impact that you have coming from Forex in Q1. Q2 is going to be, again, very big on Forex, and then H2 is going to be much more benign in term of negative impact.
You have the scope impact, with of course still the impact of a few disposals and mainly the DTN and a few acquisitions that start to kick in, notably ASCO and AVEVA for one month. I'm now going to comment both, first Energy Management and then Industrial Automation, and I want to start with Energy Management. Sales for Energy Management all together at EUR 4,325,000,000, it's down 2.2%. Very important, of course, Forex impact, -8.5%. The scope +1.1% is the ASCO acquisition and the DTN disposal in front of that, mainly. Of course, the organic of +5.2%. Let's start with medium voltage. The only business decreasing over this first quarter, -2.7%. That was totally expected.
We knew that during this Q1, we would be invoicing the low backlog that we had been taking in the previous months and even quarters, notably in Western Europe. We knew that this would impact Western Europe. We've seen also in India and Russia, a challenging performance during this Q1. A lot of things have been going in the right direction and make us believe that we are clearly in the right direction. First, the order intake has been very good in this Q1. We are now six months in a row with a strong order intake. We believe, therefore, that we're going to be back to growth for the top line in Q2.
When it comes to strategic initiatives and priorities, because of course, the recovery on medium voltage is not just about being back to growth, which is the first element, but it's not sufficient. It's also to be growing on our priority, the priority are more product, more services, more digital, and this priority have already been growing during this first quarter. We are absolutely well embarked in this journey of improving and further increasing the top line and the profit on medium voltage. Of course, regarding the power system, we keep implementing the new organization. Nothing new under the sun in that respect, I would say. We see that the full organization will be implemented and operational at the end of H1. It keeps the objective, we are also strategically looking at the performance across geographies to see how this new organization is performing by geography.
Moving to page 17, looking now at the low voltage business. This has been growing organically +9.1%, including the Delixi performance, which has been absolutely stunning during this first quarter. The business is growing at +10.3%. It's a double-digit growth for low voltage, it's really strong performance, strong growth across all regions and across all offers. Asia Pac stands out, of course, here, a particularly remarkable performance. North America has been doing extremely well. Residential, commercial building, data center segment, these are all areas of strong growth in North America. We have a double-hit growth in rest of the world as well. Western Europe, which altogether is flat, I'll come back on that, Western Europe has been growing, working adjusted mid-single digit for low voltage. Clearly, we see a good growth in resi and non-resi market for Western Europe.
Well, the performance, no surprise, is coming from this unrivaled position that we own, of course, in low voltage. It is about the depth of the portfolio that we have, our capacity to innovate, the strength of the cross-selling with the rest of the Schneider technology ecosystem. Here again, is accelerating the growth, and we are even more relevant when it comes to efficiency of a building. We keep working on connectivity of our ecosystem, and we sign a nice partnership with Danfoss and Somfy during the quarter. When we look at the performance by, I would say, technology, final distribution and wiring devices have been growing very fast. It is really across the family of product that we have been growing at double-digit or close to double-digit. We also closed one important deal for us on the 1st of February. The IGE+XAO transaction has been completed.
Now let us finish the Energy Management review with the Secure Power business and a nice acceleration in Q1, which is a very good news. Again, I would say the good news are coming from all the end market of technology. Good growth in data center. I have been referring to it. It is, of course, the low and medium voltage, but it is not only the low and medium voltage. We see also the three-phase UPS racks cooling business accelerating. It is a good performance for our small UPSs in the IT channel, and it is also the Secure Power that we are selling to non-IT application like building or the industry businesses that has been growing. A good start to the year and a good news to see the Secure Power business accelerating. Moving now on page 19 and commenting Industrial Automation with nice organic growth of +9.2%.
Sales growing by 4.1% at EUR 1,475 million, despite a negative ForEx impact of 8%. The scope positive +2.9%, and of course, that is mainly the AVEVA transaction here, where we are treating in scope for one month, not only the AVEVA business, but our legacy business as well for one month. You have the accumulation of the two. Great performance, clearly in discrete and hybrid. We have been very dynamic for all our family of product in discrete automation. If you look at PLC, drives, contactor, HMI, motion control, everything has been growing with a lot of dynamism. A particular certainly mention for very strong OEM demand. I think it is both as for all the explanation I am giving, favorable end market, but we think that we are gaining market share with a differentiated offer and with a great answer from our customer.
I made my comment on process automation with mixed results, where clearly we have a region where we see some growth, and that has been the case in North America and Asia Pac. More difficult in Europe, where the oil and gas market remains difficult. Good news to start the software on a very good note for the Q1, and I think it totally support and justify our strategy to develop, grow on software, and it accompany, of course, our digital ambition globally. I am done now with the review of the businesses. Looking at the region rapidly, I would say starting with Asia Pac, growing 14%, you see that, of course, China has been delivering a strong performance. We talk about strong double-digit growth in China during this Q1.
You see that India, Australia, Indonesia, Vietnam, all these countries have been growing very nicely and contribute to the performance of this first quarter. Good news coming as well from North America, very good performance in the U.S. Canada has been growing. Mexico was down, we think that Mexico should recover for the rest of the year. Good to see, clearly, the U.S. accelerating and confirming the good performance of the last quarter of 2017. Rest of the world, +5%. It's really growth, I would say, across the region. You see that South America, Middle East, Africa, all growing. Good to see both South America and Middle East back to growth. One only negative, Russia, which is probably an area where we can have some question on the coming months, given impact of potential new sanctions and uncertainty on what it could mean there.
I want to finish with Western Europe. It's flat. It's actually growing +2%, working the adjustment. As I said, in fact, Western Europe has been growing nicely outside the medium voltage, low backlog invoicing. You have some country, like Spain, Italy, who have been globally growing very nicely. France, Germany, have been growing nicely outside medium voltage. We just confirmed that certainly our biggest question mark or uncertainty for the year is the United Kingdom and the impact of the Brexit, the uncertainty that it triggers, and therefore the wait-and-see attitude that we see in some of the market in the United Kingdom. All right. Let's move now to the conclusion and the outlook for 2018. As you see, we continue to, in a very consistent and successful manner, I would say, implement our strategy in a positive environment.
Products, services, digital offering, the cross-selling, all that is delivering. I want to add to that, of course, our global presence, which is clearly a plus in this environment. The strong performance in Q1 bodes well for the organic top-line growth for the year. In this context, we reaffirm the target to deliver a strong organic growth of adjusted EBITA in 2018 around, as we said, the high end of the +4% to +7% bracket, which is the 4%-7%, the bracket that we communicated as the average yearly objective for 2017, 2019. To deliver this strong performance, we, of course, have the ambition to maximize the organic top-line growth in this good environment with this nascent digital market where we want to build clear leadership. Of course, we will make the necessary investment to capture this growth in this fast-growing market.
For 2018, we will target an organic top-line growth to the higher half of the +3% to +5% range. Remember, initially, we were saying +3% to +5%. Now we are just, I would say it's a precision. We are, based on this Q1 now, targeting the higher half of the +3% plus to +5% range. We target an organic adjusted EBITA margin extension toward the upper end of the +20 basis points to +50 basis points range, targeted at a yearly average improvement for 2017, 2019. You have a page that I let you read on additional notes and that help you factor a number of impact on scope, tax, or Forex. With that, I'm done with my presentation, and I'm ready to answer questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypads. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We will pause for just a moment to allow everyone to signal for questions. We are taking our first question from Ben Uglow from Morgan Stanley. Please go ahead. Your line is open.
Morning, everyone. Thank you for taking the questions. Two questions, briefly. First of all Emmanuel, last year you gave us some fairly precise numbers about the Industrial Automation business in China. From memory, I think that we were close to 20% growth. You clearly had another fabulous quarter there. Can you just calibrate the growth? Double digit can mean a lot of things. How good are we relative to last year? Also, can you just talk about the progression in the Industrial Automation business during the quarter? Were we seeing an acceleration into March, or how do you see that one business in particular? That's the first question. Second question. The growth in low voltage is absolutely fabulous.
Can you just talk about, I know you don't like to talk about margins normally on the call, pricing and whether you've had to be a little bit tactical around pricing to achieve that growth?
Thank you, Ben. I want to make sure that I'm understanding your question well. When you talk about progression, question of progression through the quarter, is it in China or globally?
Yeah, no, sorry, China. I was really just wanting a sense of how the Industrial Automation business developed in China over the three-month period, and obviously we've got the uncertainty of New Year, et cetera. Just what you're seeing.
Yeah. The progression as you rightly say, it has been very impressive in China during this first quarter, and we are once again close to 20% growth in industry in China for the first quarter. Frankly, it has been strong performance across the quarter, and with the Chinese New Year, I'm not able to say whether there was an acceleration or a deceleration. I would say strong performance across the quarter, but nothing specific to mention in that respect. Regarding your second question, I don't want to be dragged into commenting margin on this call because that's not the purpose. I just want to reiterate the fact that our objective is for the full year with price increase to compensate the raw material inflation. We are confirming that the raw mat inflation for the year should be around EUR 200 million.
That's exactly the same kind of guidance that we gave a couple of months ago. When we say that, when we talk about compensation between price increase and raw mat, it's outside China, where we flag the fact that the situation was a bit different. That remains our objective. It doesn't mean that over a quarter or over a period of six months, we manage to compensate. Sometimes, depending on how fast the raw mat impact can accelerate, we have had years where we did not manage to compensate over a calendar year. Over time, we always manage to more than compensate, and that remains our objective.
That's super helpful. Thanks for that. Sorry, go on.
Thank you, Ben. I see that we have actually several questions. May I just request, keep it to one question per person, and then we come back to you, time permitting. We take the next question, please.
The next question comes from Andreas Willi, from JP Morgan. Please go ahead.
Yeah. Good morning, everybody. Thanks for the time. My question is on Europe, obviously the 1% organic growth, if you adjust it for trading days, medium voltage, it doesn't look maybe as weak as the headline, but maybe you could comment a little bit what you have seen in Europe during the quarter, given that there is some concerns around the macro momentum in Europe with PMIs maybe having slowed more than expected in Q1 and some of the hard economic data has actually been quite weak in Q1. Are you seeing, in terms of lead indicators, orders, the trends in March, are you seeing a slowdown in Europe?
Good morning, Andreas. No, we don't. Again, I'm not saying that Western Europe is growing as fast as the rest of the geographies because that's not the case, obviously. But if you look at both low voltage and Industrial Automation working, they adjusted because of 1.5% working the impact globally for the group, in fact mean that in Europe you have more than 2% because that Easter impact, which is more for European countries. We've been growing mid-single digit both for low voltage and Industrial Automation, and we've seen clearly dynamism in the construction market, Industrial Automation in most countries, I would say, with a few exceptions. Certainly, Spain is a very strong performer, but Italy's been doing very well. France has been doing quite okay, I would say, on both low voltage and Industrial Automation. Germany as well.
You don't understand where the performance on Europe, if you don't factor in the fact that we have been decreasing by a strong double digit in medium voltage, and that's why we don't have a better perceived performance. I think that on Western Europe, back to my earlier comment, our biggest question, concern, worry is on U.K. and what could happen in the coming quarters based on this wait and see attitude I was describing. I would say that Europe on the basis of what we see today, should keep the dynamism. Not saying that it's going to grow as fast as some other region, of course.
Thank you very much.
Thank you.
The next question comes from Andre Kukhnin from Credit Suisse. Please go ahead.
Yes, good morning. Thanks so much for taking my question. It's really about guidance. On top line, you've moved to the kind of higher half of the 3%-5% range, you've just delivered 6.2%, despite the 1.5 percentage points day effect. The question is really whether there is anything in that performance that you don't deem to be entirely sustainable. Is there anything sort of later in the year that we should think about and cap at 5? Is this just kind of early days in the year and which warrants some caution, some conservatism?
Good morning, Andre. I don't know what, of course, the future will bring. I think that given the good start of the year, we can certainly have more ambition and say that the higher half of the bracket is at reach. I don't think that we have today the visibility, the data to say that we have to revise above the 5%. We said that China started the year on a very strong note. I would say that China is going to stay strong through the year, but it doesn't mean that it's going to deliver strong double digits through the full 2018. This could see some slowdown in the coming quarters. We'll be facing some higher comps toward the end of the year.
Given where we are, even if we are taking into account this good Q1 performance, we think that this is a reasonable, I would say, adjustment or precision on the guidance at that stage.
Got it. Thank you.
We are now moving to Gaël de Bray from Deutsche Bank. Please go ahead.
Yeah, thanks. Good morning, everybody. I'd like to better understand how you feel now about the margin outlook for the full year compared to a few months ago. On the one hand, I think you've been pretty clear when you said that you wanted to maximize organic growth and that you would do the necessary investments. On the other hand, how do you see the mix playing now? With much faster growth in low voltage and automation than in the low margin medium voltage business, I guess this should be quite positive for margins, right? Just a bit of comment on that. That would be great.
Good morning, Gaël. I don't want to spend much time commenting on the margin, again, that's not the purpose of that call. You said it. We clearly want to make sure that we seize, we grab the maximum potential of growth. We think that today we have a lot of wind in the sails and that we can outperform on many markets. We want to make sure that we do that. That requires investment that, of course, we can afford with this kind of top-line growth, investments are having an impact on the bottom line on the short term. That's clear. That's what we are doing. We've been very consistent on saying that. We're going to deliver both top-line growth organic and organic margin improvement for the year. That's clearly the ambition.
We said that we are putting a particular focus on the top-line growth, we highlighted this need for investment. On your question on the mix, I'm not going to deny the obvious. Yes, of course, low voltage and industry automation growing is not bad for the mix. That's quite clear.
Okay, thanks very much. Can I have a quick second one? In medium voltage, what kind of challenges did you see in India and Russia exactly? Is it pricing related, or is it project execution related?
Well, it's slow market first, clearly for Russia. Market, which is clearly weak today in terms of investment in oil and gas, notably, but in terms of big project as a whole. On India, I would say, yeah, it's probably the competitive pressure for non-differentiated offer, I would say.
Okay. Thank you very much.
We are now moving to Alasdair Leslie from Societe Generale. Please go ahead.
Hi, good morning. You called out stronger order intake in medium voltage over six months. I was just wondering if it's possible to give some more color on the order trends for Secure Power and maybe also the process side within Industrial Automation, just to get a sense of how growth might ramp up through 2018. Just particular to Secure Power, there was a tough comp there in Q1. Trying to reconcile the positive comments that you made on investment levels and kind of activity around the industry and in data centers, and what that means specifically for growth expectations for Secure Power. Thank you.
As you know, we don't comment order intake very often. They are not that differentiated versus the top line. When it's very relevant and for medium voltage, you have a bit more lag between orders and sales, and we thought that to give you visibility, it was important just to give a color on the fact that we are back to growth on order intake and that should materialize in the top line in the coming quarters. I would say the order intake evolution in all businesses are supporting, confirming the analysis I've been sharing with you. I have nothing else really to report. The order intake is in line and support the comment I've been making on the trends and on the geographies evolution. Thank you.
We are now moving to Simon Toennessen from Berenberg. Please go ahead.
Thank you. Good morning. Good morning, Amit. Can I just ask sort of high level, from your perspective, where would you summarize where we are sort of currently in the industrial cycle? You clearly seem to be taking share in several areas, as you mentioned, few devices, et cetera. If we take out comps, which are becoming a bit tougher in low voltage and IA in the next quarter, are we still in sort of the acceleration phase, or do you expect this to stabilize sort of at this level now? I know you usually don't disclose orders, and you've just set that on medium voltage, but in low voltage and Industrial Automation, you've seen a very strong acceleration in the first quarter. Also where market expectations were for your first quarter.
Can you just give a bit of color at least maybe where sort of order intake towards the end of the quarter was, and whether it matched kind of the growth that you've seen in the first quarter, in particular the short cycle business?
I can try. I think that when you look at the early indicators and the PMI, probably the acceleration is now behind us. We are in what I would qualify in a dynamic environment. Probably the acceleration that we've seen in H2 2017 is now behind us. We are in this positive momentum that we are describing. I'm not sure I can bring more color than that. Again, orders are just supporting the comment that we are making on the trend and on the ambition. I would not say that today they bring more information than what we've been sharing with you through our sales in Q1. That's how I would summarize things.
Thanks, Simon.
Thank you.
Next question, please.
The next question comes from James Moore from Redburn. Please go ahead.
Yeah, morning, everyone. Hi, Emmanuel. Maybe I could ask my question on EcoStruxure. You've given us a lot in the last year qualitatively about it, but you've kind of chose not to say too much quantitatively. I wondered if you could put a rough revenue size on it as a percentage of sales and size how fast those sales are growing. Could you say which of the four businesses are seeing the fastest EcoStruxure growth and penetration story?
Yeah. We said that we have today 45% of our offer that can be considered as part or possibly part of an EcoStruxure architecture. But of course, some of that is sold independently today and not in an EcoStruxure architecture, but is, I would say, made in term of capacity to communicate the IoT ready, I would say, thing. That's the number we gave. Now when we're going to report about the EcoStruxure number, it's going to be about the edge control and the digital software, digital services capacity. Because that's which is the most digital content of what we identified as this EcoStruxure portfolio. On that part that we are seeing that we've been growing faster than the average of the group during this first quarter.
Yeah, I heard that. The group's growing at a nice number. I just wonder whether the spread is 100 basis points or 1,000 basis points or more.
Okay. Sorry not to be able to bring more. I'm sure as we are It's a WIP, so it's work in progress, clearly. I'm sure that in the future we're going to come with a more regular reporting and with numbers. That is something that we are today building and setting up. Bear with us, and we'll come in the coming months with probably the level of clarity or granularity that you are looking for.
Thanks, Emmanuel. I'm sorry, just to clarify, earlier on the whole of China organic, did you say it's just under 20 for the group or just industry? Could you say what the group was?
That was for industry.
For the group?
That's also close to 20%.
Thank you very much.
Thank you.
All right. Next question, please.
We are now taking Martin Wilkie from Citi. Please go ahead.
Thank you. Good morning. It's Martin from Citi. Just coming back to Russia, I think at one point Russia was about 7% of your sales. I'm assuming it's quite a bit lower than that now, but could you please remind us how big Russia is of your group sales? Just in terms of, you did mention sanctions in your commentary. I just want to understand, have you already seen some incremental hesitation on projects late in the quarter because of the possibility of sanctions? Just to understand how we should think about Russia as the year progresses. Thanks.
Yes, Martin, good morning. Russia is globally 3%-4% of our sales. My comment was, given the sanction or outlook for more sanction, I think there is also a wait-and-see attitude on financing. Can this project be launched? That's creating this kind of environment of uncertainty and doubt. That's what is slowing down the market globally for medium voltage. We are still growing in several dimension in Russia, don't get me wrong. Clearly we are growing nicely in low voltage, for instance, but clearly medium voltage is a difficult part.
Of that 3%-4%, is that largely inside medium voltage? I know you do have some other stuff in low voltage in data centers, but the lion's share of that is medium voltage. Is that the way to look at it?
No. Medium voltage is about the size of low voltage. These are the two big dimensions. We also have a big Secure Power business in Russia. It's not as if it was representing the vast majority of the business in Russia. Not at all.
Okay. That's very helpful. Thank you.
Thank you.
Next question comes from William Mackie from Kepler Cheuvreux. Please go ahead.
Yes. Hello. Good morning, everyone. Thanks for the time. My question is focused on sell-in versus sell-out in the low voltage business. In this environment where you're experiencing inflationary pressures on the materials and on labor, you are actively looking at dynamically raising prices to offset that, often we have seen in previous cycles the response being that the distributors will stock up, so to speak, ahead or anticipating your changes in list prices. Can you comment if you have seen any significant differences in what you believe to be the market growth trends across the key regions, the U.S., China, and the main markets in Western Europe, and the growth that you've experienced as the sellout of your factories to your distribution partners? Thank you.
Yeah. Hi, Will. Good morning. I would say probably China, we are flagging it in the detail of the analysis we are providing this morning. We think that in China, probably we've seen some of catch up on restocking, if you want. Where probably the sell-in was above the sellout. Let's be clear, not in a very material fashion. It doesn't change the fact that China is growing fast and doing very well. That very often, this kind of situation, it's just being magnified by people stocking a little bit ahead maybe of price increase, and maybe because they see a dynamic market, and they don't want to run into a shortfall of availability. It always plays the same way.
When things are clearly accelerating, you generally have the sell-in, which is above the sellout, and it goes the other way around when things are decelerating because the distributors don't want to be left with a too high level of inventory. That's the kind of trend that we are seeing. I think we've been flagging China as a place where that probably has been bringing a couple of extra % of growth. I don't think it has materially or dramatically changed the positive trend, to be clear.
All right. Thank you.
Let's move to the next question.
Thank you.
I think we're coming to the hour. There are probably another two or three. We try to accommodate them. Next question, please.
The next question comes from James Stent from Barclays.
Thank you. Good morning, all. In terms of the very significant opportunities from the energy transition, how do you feel you're now set up in medium voltage? Could you maybe discuss the strategic plans in that division?
Hi, James. Good morning. I think we clearly are saying this morning that we keep implementing this power system organization that will be up and running fully at the end of H1. We are, of course, monitoring the impact. I've been reporting the fact that we are happy to see good progress on product, on services, and on all the digital grid dimension, which is, as you very well know, a top priority for us. We also are clearly monitoring by geographies how this new power system business is doing. We'll come at the end of H1 with some first element of visions and clear report on where we stand. At that stage, we're working on it. We, of course, want to be back to a positive top-line growth, which was not yet the case in Q1.
Otherwise, between order intake and the priority, which are growing well, that I was describing, I would say a lot positive is going on the energy technology today.
You believe there's anything missing in the portfolio here?
On the portfolio missing? No, I would not say that we miss something on medium voltage. That's not the way we are approaching the matter today.
Thank you.
Thank you.
Next question, please.
We are now taking Daniela Costa for Goldman Sachs. Please go ahead.
Hey, thank you for taking my question. Just one final question left. Can you talk a little bit about sort of outlook for M&A, if you think sort of I know the last question you asked about medium voltage, but in the broader portfolio, if there are areas that you would be keen to still build out, and sort of what's your capital allocation strategy priorities from here? Thank you.
Good morning, Daniela. I'm not sure it fits very well in a call commenting the Q1 sales, but I'm happy to just repeat what we've been saying for a good moment now, which is we don't need to do M&A. We have a portfolio which is strong and set for a nice organic growth, given what we own in terms of technology, given our geographical exposure. Having said that, we of course look at possible opportunity to strengthen the business in our core priorities. We've done that with ASCO. We've done that with AVEVA, no surprise to you. Certainly, low voltage and software could be a big priority. We have nothing else, I would say, or nothing new to add to that capital allocation strategy. That's really the one we've been playing with now for almost four years.
Absolutely. Just you've mentioned low voltage and software. You didn't mention Secure Power.
No, I'm not discarding that because of course. I would certainly say that's not necessarily what would come first. Of course, if there was something strategically making sense at the right price, creating value, we could consider it.
All right. Thank you very much.
Thank you.
Yeah. Next question.
We're now taking Jonathan Mounsey from Exane. Please go ahead.
Hi. Thanks for fitting me in. Much appreciated. I guess since the last time you were on conference call, you've now consolidated AVEVA. I just wondered maybe some first thoughts, particularly in regards to the potential synergies and whether we have any sort of updated views on that since now it's within the Schneider Group. Then linked to that and slightly linked to the last question, although you're sort of happy with the portfolio, I've always given to understand that the new AVEVA separately listed asset would be a potential platform to acquire other software businesses, and I guess it'll take some time to integrate the Invensys businesses. Now that you own that combined asset, have you any view on how long it's going to take to bed those down and be ready, maybe fit to do some deals via the AVEVA vehicle?
Any sort of color on that would be great. Thanks.
Good morning, Jonathan. All very good question, you should ask them to the AVEVA team. What I can tell you and confirm is that AVEVA has started well the year or finished well the year for them because they have their year end at the end of March in terms of sales. I've been reporting on the various trends, which are positive or super positive. For the rest, you had question on the synergies, on outlook for external growth, I leave that for them to comment, and at that stage, I won't elaborate on that.
All right. I think we are over the hour. Maybe we'll take one last short question.
Thank you for the interest, by the way.
Operator, maybe one more question.
Thank you. Markus Mittermaier from UBS.
Yes. Hi, good morning, everyone. Quick question on the Secure Power business. What you've said is that data center was one of the fastest-growing end markets for the quarter, double-digit growth. What I'm struggling with is, if I interpret slide 28 in the appendix correctly, two-thirds of the data center business is Secure Power. That would suggest, given the 2.7% growth in Secure Power, that either low voltage and medium voltage and data center was significantly above group average or Secure Power and non-IT was significantly below the 2.7%. Can you just help us out? Is it low voltage into data center that's really good, or is Secure Power outside of IT weak?
Markus, it's a mix. First of all, you have a decrease on the Luminous business in India, which is a negative. Second, you have indeed the trajectory on the business in the IT channel, which is growing, but not necessarily at the same pace as the data center and market. Last but not least, yes, we have had a very strong performance in low and medium voltage in data center. That's a complete answer to your question.
Okay, great. Thank you.
Markus, just to add, I think if you're referring to the slide in the appendix, that's actually an extract from the full year results slide. That's more indicative. It's not specific to Q1.
Right. Yeah, I know. Absolutely. I guess that these numbers don't change that dramatically quarter-on-quarter, right? Those mixed numbers.
No, they don't.
All right. I think we probably stop there. Thank you everyone.
Thank you
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Thank you all. Thank you. Talk to you soon. Bye-bye.
We conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.