Welcome to Schneider Electric's Half Year Results with Jean Pascal Cricoire, Chairman and CEO Hillary Maxon, Chief Financial Officer and Amit Bhalla, Head of Investor Relations. Thank you for standing by. Press the hash or pound key on your phone. I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time.
I will now hand over to Amit Bhalla.
Well, thank you, operator. Hello, and welcome to everybody. Appreciate your time this morning. We're recording today from We're recording live, in fact, from Paris and all in the same location joined by Jean Pascal and Hilary. We'll go through the presentations and make sure to leave Enough time for Q and A.
Just a word on the disclaimer on Slide 2, as always, but I'm going to hand over the floor to Jean Pascal.
Thank you, Amit. Hi to all of you. I hope you all stay well in those times of busy times of a lot of publication, but more so for combined still in COVID world, combined with a strong economic global recovery. I have to say I'm extremely happy to be together finally with Hilary and Amit in the same room To report on H1 results. We are going to go I'm going to go through the business highlights now, then Hilary will go into The preliminary upgrade we had done in Q1.
So now let's look at the main headline figures of this H1 2021. The way to define it is that it's a string of historical eyes is the history of the company. First, very strong growth at 19% on the total of H1. Q2 in itself at +24%, signing very strong recovery from H1 and Q2 of last year. Both of our business, Energy Management on Industry Automation are participating to that strong growth.
But most important, both of them show a very strong profitability improvement, up more than 3%, 330 bps for Energy Management, 320 bps For Industry Automation and all in all, with a good containment of our central cost means and And adjusted EBITA margin for H1 at 17.1%, an increase of 3 50 bps respect to last year. Let's pause one sec on this 17.1%. You remember that we had committed As a company to increase our margin from 15% to 17% by the end of 2022, We reached this threshold 18 months in advance at the end of H1 2021. So it's an important milestone In our plan of progress on our plan of transformation, which is signaling also the important transformation of the portfolio of Schneider. Two figures, which are not appearing here, which is the increase of our net profit above 60%.
And Hilary will speak about that. I think the ultimate quality signature of this first half is a cash generation, Which, while we are in a very strong growth time, is improving at above €1,000,000,000 by 20% respect to H1 Last year, again, all of these are historical highs. Now we know that the base of comparison of 2020 has been deeply impacted by the COVID with a lot of volatility around the world. So what we've chosen at Schneider is always to compare to the last stable year, which was 2019. And And if we take a reference back to 2019, the growth the organic growth respect to H1 2019 is still impressive at plus 6%.
And what is really impressive that we grow in all four regions of the company and Pretty much similar growth in Energy Management and in Automation, plus 7%, plus 5%. 2nd marker is the continued transformation of our portfolio towards higher margin kind of businesses. And we signed over 2 years an improvement of the gross margin of 120 bps. Adjusted EBITA In improvement from 2019 to 2021 on the first half of 24%, But what I find impressive is the increase of profitability by more than 2%, plus 2 20 bps. This time mostly carried by Energy Management, plus 250 bps and Industry Automation also comes with A very strong plus 120 bps through that turbulent crisis or turbulent times of the COVID crisis.
And finally, net income, an increase of 57% respect to H1 twenty nineteen. EPS up 56% and adjusted EPS up 21%. So all of this signed a very strong performance all across economic parameters of this first half. Now I want to go with you through 6 major points which explain this performance. The first one It's the fact that Schneider is a very focused and very integrated company, and we offer or we bring to our customers digital solutions for sustainability and efficiency.
Combining energy management and automation solutions, Energy solutions based on low carbon electrification for sustainability, digitization being the ultimate tool or the most efficient tool to efficiency. All of this combined into 1 integrated architecture, EcoStruxure. Over the past 15 years, we've rebalanced Our portfolio to be extremely well balanced in terms of end segments, 50% in building and data centers, 50% in Industry and Infrastructure and extremely well balanced in terms of geographies with very global presence. And this focus, integration and balance has helped us On one side, for resilience in 2020. On the other side, to capture every growth opportunity in 2021.
Second reason is a fundamental choice that we made a number of years ago to believe that, of course, the world would be global, But the world also would be more and more local. On creating that unique model of operation of ours, which we call multi hub of Multilocal. On H1 2021 has been really important from that point of view because the COVID has Entailed on the top of trade divergences or digital divergences. It has entered sanitary divisions. So we've reinforced this local and regional aspect of ours.
And especially, we are now creating The 4th global hub of Schneider in India by merging together Larsen, Tuborg and Schneider Electric India and create A very considerable force inclusive of R and D, supply chain, supplier ecosystem and export capabilities in India. Worth noticing also is the development of a software R and D centers in China, assuming that the digital landscape in China is Not the same as in the rest of the world, and we want to develop local software for this local and fast developing environment in China. This R and D center will be based in is based in Beijing. The third reason for our performance is supply chain. And it's been difficult in H1.
And And it's been difficult, I would say, across the past 18 months, dealing with all the unforecastable conditions created by COVID And then dealing with a very strong recovery in H1, which I explained 19% growth. So our team on the supply chain have been Really working hard together with all of our suppliers. You remember that 70% of our added value is done with partner suppliers to make sure that we would do the best we could do to support the growth and the ambition on the recovery of our customers. We've been honored to be once again and for the 2nd year recognized by Gartner as the 4th most performing supply chain in the world. But let's face it, it's been a lot of complicated situations that we've been dealing with in front of Eiderman in front of shortages in plastics, in microelectronics.
We see the plastic situation really resolving now, but the situation in Semiconductors remain anyway tense. But we prioritize on our customers in a very constrained supply chain environment. There again, the model of operation that we have, which is to have a global supply chain structured around regions And really trying to have regional setup that serve regional customers has been helpful at his realized less on transportation, which were one of the bottlenecks of H1 and where it is much more reactive and much easier to work between local players. 4th reason, which is probably the most important. We see that the 18 past months has been a fundamental point of inflection for the fundamentals of our strategy, Which is to be the digital partner of our customers for sustainability, funding Our technological solution of the convergence of digitization and electrification.
This address in building, data centers, Structural Industries, a very focused set of end segments. And clearly, the past 18 months have been fantastic acceleration and tailwinds to those fundamentals. Sustainability, we've seen Really a great number of companies taking carbon pledges to go and to participate to the effort to reduce Temperature increased below 1.5 degrees on number of coalitions, and we are the natural partners Of those companies, they are in the journey to carbon neutrality or net 0. The COVID has been a massive acceleration of All of us to use digitization and this applies, of course, to our technology, whether it be collaborative design platforms like OIB or Aviva3d to remote operation in the field of any kind of operations. And we've seen really that the world has realized that electrification was the only pass to decarbonation, the most fashionable or visible part of it being the transition to electric vehicle, But electric vehicle being still a small stake, respect to what we see as a potential in homes and buildings, Particularly managing air control, temperature control, especially heating in a number of countries.
And all of those fundamental trends are getting even more accelerated by the diverse stimulus packages which are taking place around the world, acknowledging that those stimulus packages, in many cases, have barely started to impact the market. The 5th point is really the discipline and continued implementation of our strategy. And this is a strategy we've been now sharing with you for the past 5 years, and it's expressed in very simple terms, more products, More software and services and more sustainability. And if you look at Q2 and H1, While plus 30% in products in Q2, plus 24% in H1, so products, we keep relying more and more about With on our local partners to develop more product sales, we develop solutions and then we make them available to our network of partners. More software and more services, which over 2 years since 2019 have been growing 1.5 times the average of the group.
And Sustainability has scored a very strong double digit growth over Q2 this year. Let's start with more products. And we've launched in the past 18 months flurry of new products. And those products have 2 characteristics. All of them are natively connectable.
And I would single out a few examples like our new family Smaller tier circuit breakers that you can really connect natively to our cloud or to anybody's cloud. I would single out Prisma's detective, Which is also as a panel, low voltage panel, natively connected. And in terms of sustainability, all of those products are bringing sustainability. And the best example of that is a revolution that we bring into medium voltage By getting rid of SF6 in an industry which has historically been using only that gas to deal with electrical issues. We estimate that in our present order intake, 1 third of the orders are coming from products that we have launched in less than in the recent 3 years.
70% of the offers that we have today qualify as green offers In the sense that they bring energy efficiency, they participate to the grid robustness, they participate to circularity, and they have themselves green characteristics of recyclability or usage of materials. Numerous recognition for the design of our products, which, as you know, has been a continuous effort over the past 10 years. And And that drives us to the 2nd pillar of the execution of our strategy, which is More software and more services. And we've been sharing with you that we see a continued flywheel between Software, digital and services, whereby service allow us to connect more products, more products create more Capabilities for our customers to make predictive or preventive maintenance, which triggers more services. So today, we keep saying the proportion of what we do in software and services increasing to 18%.
On over 2 years, we see that part of our business growing by 1.5 times the average of the group. Those two business, field services and software, are extremely important for us because they bring us into the life cycle of our customers. We go beyond the CapEx Into the OpEx of our customers and keep building and nurturing 20 fourseven on along the life cycle relationship. Another strong signature of what we do here is a number of assets that we've connected in H1, an increase of roughly 50%, and we have now €5,000,000 of assets more than €5,000,000 of assets which are connected. We've been very active, as you know, in the past 18 months to keep building Our digital portfolio, acquisition of Prolight, RIB, of etap, Of OSIsoft, of course, strategic participation in PlanOn, in Applied.
And in H1 itself, we closed OSIsoft and Itap, and we are now in the position to build bridges on connections between Aviv and Schneider portfolio and the portfolio of those two companies. At the same time, organically, we build more capabilities in our sales force and we build more digital competencies in the whole of Schneider. In the last CMD of AVEVA, Peter Herweck, the new CEO of AVEVA, explained The whole integration of the portfolio, it's a good image of what we are doing everywhere at Schneider in the integration of our software to propose a unique chain of a digital twin all over the life cycle of installation from design into building, into commissioning, into operation and Maintenance. The core of our IoT architecture is EcoStruxure On the most evolved part of it is EcoStruxure Automation Expert, which is the first software defined automation systems, delayering Automation Systems on creating a direct relationship or direct connection between the software layer on smart and connected Objects on the field on hardware, which brings 40% engineering time reduction, 20% reduction of downtime on 10% production efficiency improvement. So we are building with our digital software portfolio and And with that, delivering of equal structure and architecture, which makes life of our customers much more efficient are much more easy to design and operate their installations.
Services now, which benefit a lot from digitization. As you know, we still have a huge potential to develop services as we go forward. And the COVID time has revealed that It was not only about efficiency, but customers were really more aware of the need for safety, the need for resiliency and of course, the need for sustainability. So still a lot of runway for this business of services. And now logically, we move to the 3rd pillar of our strategic deployment, which is more sustainability.
A reminder of which we are quite proud is to have been singled out by Corporate Knights at the beginning of the year as a world's most sustainable company, but it's Not the only recognition that recognizes a pioneering role of Schneider in having a different view of the energy world, A view where the first priority is efficiency and decarbonization. We launched At the beginning of the year, our new Schneider sustainability impact, you know that every 3 years, we've launched a new scope, new ambition in this sector, We are raising again the bar on measuring. We are on track with respect to our plan after 2 quarters of this period of 3 years. We are also accelerating on the ramping up what we do for our customers In their journey to carbon neutrality, in their journey to net 0, we have committed to, In average, say for our customers 100,000,000 metric tons of CO2 over the next years. We have also reached A milestone that since we started this activity in 2014, we have advised customers for 10,000 Megawatts of Renewable Energy Power as their adviser for purchase agreement, Which is equivalent to 300,000,000 tons of carbon.
You have a few example here of customers in this slide that we are helping in diverse Fashion 1st on their journey to efficiency using digital and electrification and second, sourcing or producing their own energy Based on microgrid and solar renewable and helping many of them to source the best source of energy, the cheapest on the greeners to make sure that like we do at Schneider, they are aiming to go to renewable energy as a main source of their electricity. We have taken our own pledge, carbon neutrality by 2025, net 0 on our On operation by 2,030 and including the Scope 3, that means mostly our suppliers, being carbon neutral and net 0 by 2,040 and 2,050. I want just to emphasize one point here because the other elements were already public, but The fact that we have been associating our strategic suppliers to this approach because our suppliers represent 90% of our carbon footprint in what we call the 0 carbon project to help them Reduce by 50% their emission in the next 5 years. Commitment on our side to go for 100% renewable electricity, we are now at 80%, double our energy productivity and make sure that everybody at Schneider is trained to the stakes of sustainability.
Based on all of this, we've been really accompanying our customers on their journey to more sustainability and efficiency. Would it be with Green data centers like for DIA Aorton, helping industrial companies to decarbonize their installations or like in Finland with Tticon realizing a flagship carbon neutral building mixing together building control, energy control, microgrid, solar, storage, of course, combined into one consistent architecture. And I would like to share with you the 6 points of why we deliver such results, a point of which I'm extremely proud and very thankful is the engagement of our people. Our people, whatever the succession of crisis, they are to face lockdowns, which are still going on as we speak. COVID is still raging in some geographies of the world.
I want to think about Indonesia, about large part of Southeast Asia at the moment. While the engagement of our people has been Increasing our people have been present in the factories, have been present in the service teams. Our people feel mobilized by Our value proposition, having a meaningful mission, working in an inclusive environment, being made responsible at the local level and what they have to do and working in a balanced and inclusive environment where we lead by example from the top where both our board and our executive committee are also trending to gender parity. So those are the six reasons, which among others, but mostly are justifying of that performance. So now to go more in the details, I would like to hand over to you, Hillary.
Thanks, Jean Pascal, and good morning, everyone. Great to be here with you all. And finally, with Jean Pascal, Amit and I together in one location, actually a first for me on one of these calls. I'll start with a few highlights from the first half. On our Q1 call earlier this year, I told you that the key theme was growth, Driven both by strong market dynamics and also our strategic choices and positioning that have put us in such a great position to capture opportunities.
Now at the first half, you can see that theme certainly continues and is also paired with record performance in margins and cash flows. We finished the half with revenues at €13,800,000,000 a record, and organic growth of 18.7 percent. Adjusted EBITDA is at €2,400,000,000 up 3.50 basis points organic, Leading to adjusted EBITDA margin of 17.1 percent, both records for the half. Adjusted net income was at $1,600,000,000 for the half, up 63% from 2020 and also strongly above H1 2019 levels. And we drove strong free cash flows of €1,100,000,000 We introduced this slide on our last call to share with you some detail on the dynamics in our key segments based on our own order trends.
At the time, we'd compared the evolution versus the trailing 3 quarters. As you can see now, order trends remain very strong and are improving versus Q1 as well as versus 2019. Key highlights in the second quarter being continued strong positive growth in data center, OEM and residential, Plus a pickup in growth in Q2, again this is in orders, in consumer packaged goods, mining, utilities and oil and gas. In oil and gas, we continue to see positive progression in orders, although we're not yet positive versus 2019. And.
And as you can see from the chart, we are now positive versus 2019 in all others. Turning now to revenues. We continue to see strong momentum across the first half with organic growth of 18.7% versus last year and plus 6% versus 2019. This drives us to record revenues for the first half of close to 14,000,000,000 Supported by all regions. We also continue to see strongly positive scope impacts further boosted by the closing of OSIsoft at the end of March.
FX impacts continued negative around minus €470,000,000 for the first half, Mainly due to the strengthening of the euro against the U. S. Dollar. Based on current rates, we'd now expect full year FX impacts to be to the top line of around $400,000,000 to minus $500,000,000 with impacts to adjusted EBITDA remaining around flat. I now turn to revenue by geography.
And you'll notice we focus a lot of our discussions in this presentation on comparison with 2019, in addition to comparison versus 2020, which was obviously significantly impacted due to the pandemic. As Jean Pascal said, as a management team, we've been focusing both on year over year results, but also versus 2019 to better track business and Momentum. So here versus 2019, you can see we're tracking well across all geographies and we've now Swung to positive revenue growth in all regions. I'll highlight here that out of our top 15 countries or clusters, We've now turned to positive growth versus H1 of 2019 with the exceptions just of India, which grappled with a Sirius rising coronavirus cases in Q2 and Australia. South America, China, Mexico and Canada All performed particularly strongly versus 2019.
Product sales continued quite strong, up 24% for the first half versus 2020 and plus 10% versus 2019. Part of the plus 24% organic growth, around 3 points is due to pricing, with the rest driven by market demand and shorter cycle segments like residential, OEM and small and medium buildings. Globally, distributor stocking was at around normal levels Sales with a more pronounced recovery in orders in our longer cycle segments, as I discussed in the segment slide earlier. Systems sales were up plus 13% for the first half versus 2020. And we're now at minus 4% versus 2019.
In the Q1, this was around minus 5. We see strong demand across most of Energy Management Systems driving positive sales with Process segment still tracking negatively. Turning now to Software and Services, which is a key strategic focus for us. You'll recall our portfolio of software and services showed great resilience and contributed to our financial performance in 2020. Accordingly, we have a relatively strong baseline for 2021.
Despite that, software and services was up plus 10% organic and is now up 9% versus 2019. Field services grew around 10% in the first half with good contributions from both businesses. Software and digital services also grew around 10% supported by strong performance from EcoStruxure and our sustainability advisors. Aviva continued to be impacted by the timing of some renewals, but with a good level of underlying demand. And I'll mention that OSIsoft Is performing very well in its 1st months after close, shown as a part of scope in our reporting.
Turning now to by business. Revenues in Energy Management continued with strong growth in the half, finishing at €10,500,000,000 a record and close to 20% organic growth. And we drove adjusted EBITDA margin of +3.30 basis points. Price was a strong contributor to sales with less impact on adjusted EBITDA as cost increases in RMI, Electronics and Freight Accelerated in the second half of Q2 as expected. In addition to price, revenues were boosted by continued positive trends In residential construction and renovation, non residential building, particularly technical buildings like hospitals and warehouses and data centers.
Electro Intensive Industry segments like OEM, Mining and Consumer Packaged Goods also showed growth. Specifically focusing on Q2, revenues in Energy Management grew by 25.7 percent organic, due in part to the low baseline in 2020, but are also up plus 6% versus Q2 of 2019. This growth is driven by all geographies with only India, parts of East Asia and Middle East still negative to 2019 with Middle East close to flat. North America grew 30% or 32% organic with U. S, Mexico and Canada all strongly positive, supply chain constraints in the face of high demand and we now expect supply chain pressures to continue there into the second half.
Western Europe grew 26 percent organic, again driven by broad based demand, particularly in residential and data center, with France, Italy and Spain all growing at greater than 40%. Asia Pacific grew 17% off of a stronger baseline in 2020 Despite this, India continues negative versus 2019, in part due to the health situation there during Q2, which is now getting better. East Asia primarily swung to growth in Q2, but lags other geographies due to continued impacts from COVID and where we do see a market increase in COVID cases in the past 2 weeks. And in Australia, we continued to see sequential growth and are now positive versus 2019. Rest of World grew 33% organic with Africa and South America strongly positive.
Industrial Automation continued strongly positive, finishing the half at €3,300,000,000 in revenues, also a record, and with organic growth north of 15%. There's a big step up in contribution from scope versus the Q1 with the closing of OSIsoft and the strong results we saw there. Adjusted EBITDA finished at 18.2%, up 320 basis points organic. Price was a contributor to sales along with continued positive dynamics in discrete markets driven by OEM. Process and hybrid sales continued more challenged, although we start to see the expected pickup in sales in Europe and South America Based on the turnaround in orders we've seen there over the past few quarters.
And as I mentioned earlier, demand continues to sequentially improve in consumer packaged Goods, Mining and Oil and Gas. And Aviva, which is reported within industrial automation, was impacted by a high base of comparison and timing of renewables. Shortages in electronic components had some impact to industrial automation sales, particularly in the second quarter, and we now expect shortages in electronics to continue into the second half. Electronic component shortages have a relatively higher impact and. Q2 revenues in Industrial Automation grew 18% organic, Due partly to a lower baseline in 2020, but are also up plus 6% versus Q2 of 2019 with All regions positive to 2019 except Western Europe.
In North America, sales grew 40% organic with strong growth in all three countries in discrete automation, driven strongly by OEM and packaging. Process and hybrid were positively impacted by AVEVA sales with all other offers turning flat in the Q2. In Western Europe, revenues grew by 24% organic, driven by discrete markets, led by France and Italy, But also with some recovery to positive growth in sales in Process and Hybrid led by U. K. And Germany.
Asia Pacific grew 3% against a stronger baseline in 2020 and with some supply constraints impacting China. Despite this, China continued with mid single digit growth versus Q2 2020 and greater than plus 20% growth versus 2019. India grew quite strongly, although still hasn't flipped to positive growth versus 2019, exacerbated by the health situation there in Q2. Australia was significantly down for the quarter due to the timing of a software renewal. And rest of world was up 22% with positive results across the region, particularly driven by South America, Africa, Eastern Europe and Russia and primarily in Discrete Automation.
Turning now to the P and L. We saw organic growth in our adjusted EBITDA of +52 percent to EUR 2,400,000,000 also a record, driven by our just detailed growth in revenues as well as continued expansions in gross margin and operating leverage. And I'll go into more detail on those in the next slides. Our adjusted EBITDA margin was 17.1 percent for the first half, plus 3.50 basis points organic. A key contributor to our strong adjusted EBITDA performance is continued positive progression in gross margin, which improved by 100 basis points in H1.
The first factor driving this performance is price. You can see that despite RMI turning strongly negative in the first half, We continue with positive net price of plus €65,000,000 And I'll note the price number here is only for our products business. So another part of the offset to RMI for our Systems business appears in this graph as part of mix. Driven primarily by continued relatively stronger growth in our products business and price actions in our systems business. Productivity remained strong at €194,000,000 even after taking into account increasing costs in electronics and freight, Which for H1 were around $57,000,000 These elevated costs are expected to continue and we do expect lower contribution from productivity in H2.
However, excluding increase in costs from electronics and freight, we do expect to remain on track for around €1,000,000,000 in gross productivity from 2020 to 2022. And as I've mentioned a number of times, we are focused on these cost headwinds and we're engaging pricing strategies The second key driver of our adjusted EBITDA performance is our operating leverage, where we continue to focus on our Structural Cost Savings Program. As expected, we see a turnaround in tactical savings of €144,000,000 in the H1, part of the around $300,000,000 in tactical savings we drove in full year 2020. We do expect to capture some of that tactical savings EUR 211,000,000 contribution from our structural savings program, including simplification and digitization of our processes and rationalization of our real estate footprint. And we're on track to deliver cumulative savings of around €1,000,000,000 between 2020 and 2022.
Investments also remain a focus, and we expect to continue to make targeted investments, particularly in R and D and Services to support our future readiness. Turning now to net income. Including scope and FX, our adjusted EBITDA is up plus 50%. Below the line, our other income and expense was positively impacted by a gain on sale from the disposal of our cable support business in H1 and marginally lower M and A integration costs. Restructuring costs are at €121,000,000 for the H1 with some timing impacts.
We would expect some step up in restructuring costs in the H2, and we previously provided our expectations on the range for our structuring costs through to 2022. Amortization to purchase price accounting intangibles stepped up as expected acquiring those businesses. In financial costs, our cost of net debt decreased slightly due to lower interest rates and financial costs also decreased due to one time items in last year's H1. Our effective tax rate remained flat to H1 2020 at 24 percent, and Excluding other income and expense in restructuring, is up 63% for the half and adjusted EPS is at €2.92 per share, Cash flow is also at record levels for the half, coming in at €1,100,000,000 driven by strong operating cash flow. As expected, impacts from trade working capital increased year over year to support the increase in demand.
However, net working capital as a percentage of sales decreased due to our continued focus on management of our receivables, payables and inventory. Turning now to capital allocation. Regarding capital allocation, our priorities remain unchanged. Top priorities are maintaining our strong investment grade credit ratings and a continued focus on return to shareholders, starting with dividends. And I'll comment on our portfolio optimization specifically in the next slide.
Lastly, aligned with our top priorities, after the H1 strong free cash and based on our expectations of cash flows going forward, we've decided to reopen our share buyback program and expect to repurchase the remaining €1,200,000,000 to €1,700,000,000 in shares between now and the end of 2022. In terms of portfolio, we continue to close on key strategic transactions previously announced, Including OSIsoft through AVEVA and ETAP, part of Energy Management Software. We remain focused on the successful integration of these acquisitions With good early news from OSI, as I mentioned earlier. Disposals remain an important part of our strategy with another small transaction of a business in the U. K.
Signed yesterday. This now puts us at around €800,000,000 of our €1,500,000,000 to €2,000,000,000 target That's in sales by the end of 2022. And I'll finish with a quick note on our debt ratios. As expected, our net debt to adjusted EBITDA ratio increased to 1.4 times due to the closing of OSI for around €3,700,000,000 in cash. We expect net debt to adjusted EBITDA to decrease in the H2 based on operating results.
With that, I'll turn back to Jean Pascal to give an update on our 2021 full year expectations.
Thank you, Hilary. So as we look at the rest of the year and on project ourselves till the end of the year. What we see on what we see for H2 2021 Still very strong dynamic market demand, which we see also in the order books that we have. Further demand recovery in late cycle segments, which is coming as a nice relay to what was early cycle in the past months, We see that all regions on all four end markets will contribute to growth. Of course, we integrate in our guidance The ongoing uncertainties linked to the rising delta variant, which is in fact The infection is still important in many countries.
We see and we integrate the potential impact of supply chain pressures, and we integrate the important increase of input costs, which we realize most of it will happen in H2 and will impact, of course, our P and L. With that, for the second time, after our upgrade of Q1, We upgrade our guidance. Well, assuming there is no further deterioration linked to COVID, But the upgrade is as follows, 2021 adjusted EBITDA to grow between 19% to 24% organic. And Remind you that it is significant from the last upgrade, which was a growth between 14% 20% organic. And we see that as a combination Of growth that would be in between 11% to 13% organic.
Remember, The previous range was 8% to 11% and an adjusted EBITDA margin of 100 bps, up 100 bps to 150 bps organic, while the previous range was 90 bps to 130 bps. So the vision that the year remains in a complicated environment, extremely dynamic with a good momentum Based, as I said before, on the fundamental of our strategy, on the uniqueness of our model of execution and based on the very, very strong and well, disciplined execution of our strategic priorities around products, software, services and sustainability. And finally, based also on the facts During the past 18 months, we've learned to work differently, leveraging to the fullest our multi model On leveraging also to its fullest a digital way of operation. With that, Amit, I hand over to you for the Q and A.
Thank you, Jean Pascal and Hilary. I think just before we get into the Q and A, I just want to remind everyone of the calendar which you see on the screens With a specific focus for the 30th November. So we are going to be hosting a Capital Markets Day. You'd recall that the last one we had was in 2019. So please mark that in your calendars.
So with that, let's get into Q and A. Just in the interest of Equality for everyone. Let's keep it to one question. We'll try to take as many questions as we can and come back if time permits. So with that, operator, let's get the first question, please.
CEO. Thank you. And your first question comes from Andreas Willey from JPMorgan. Please ask your question.
Good morning, Jean Pascal, Hilary and Amit. My question is about EV charging. We see a big push by governments To accelerate electric cars, but also some specific stimulus programs coming for the build out of charging infrastructure. Could you elaborate a bit on your position here, both in terms of direct sales of chargers, but maybe more importantly, the wider impact on Low voltage, medium voltage demand that you could see in terms of the integration into the grid, into buildings of chargers and And what your strategy is here in terms of benefiting from these trends? Do you need to be bigger in chargers?
We have seen Legrand acquiring Company today ABB is listing its charging business as a platform for more M and A? Thank you very much.
Thank you, Andreas. That's a great question. Frankly, we've been operating in the field of EV chargers for now more than 10 years, And it's a natural part of our system as we retrofit buildings, homes or build new ones Our campuses, industrial campus, university campus, city campuses. So We go to the full value around EV charging. And actually, while we have EV chargers that we sell to our customers, The biggest part of what we do there is to retrofit or adapt the local Low voltage distribution that needs to be upgraded or needs to be automated and connected to coordinate The whole sequence of charging of EV chargers.
So it's part of the growth that you see here. It's true that we don't single it Completely out because it's really part of everything we do. But we when we deal with an EV Charge in installation, more than half of it, actually twothree of it is not linked to the charges that once again we have in our catalog we have in our products and we sell, but it's integrated to the upgrading of the low voltage installation, which is linked to it. Our analysis is that most of the charge is happening at the places which are the most natural for Schneider, which are Residential buildings, when people go back to their apartment and in the parking of those residential buildings. At home, Where we have a very strong position in many countries for the electrical system or at work Where people use a time when the artwork on their car is parked to recharge it, which is a place where there again the presence of Schneider in Novoiltage He's the highest in the world.
So we keep deploying that strategy and we bring more software For EV charging operators to link their charging station to a more complete system of automation, would it be of a building How would it be of a utility system?
All right. Thanks, Andreas, for that. We go to the next question.
Yes, thank you. The next question comes from the line of Jonathan Munzen from Exane BNP Paribas. Please ask your question.
Thanks very much for filling me in. It's really regarding margin. So excellent margin in the first half, seventeen I think that really that's the target, isn't it? I think we were looking for a 200 basis point increase. We've already achieved at least for 1 half.
But given your guidance seems to imply you're very likely to achieve 17% for the year. When might we hear about The next leg. I know you've said in the past that this isn't the end of the journey. Would it be the CMD in 2022 or could we get New margin targets before the end of this year?
Look, I always say that this was a milestone In our journey, but it's not the end of the journey because the fundamental reason of that margin expansion is A different profile for Schneider, geared to activities which are carrying higher margin On a better cash generation. So what we see here is the accelerated strategic transformation of Schneider taking place. This transformation is not stopping here. On the top of it, as I was explaining before, During COVID, we've also modified profoundly the way we work, which gave us a better efficiency and better productivity, and we have to make sure we don't and we are also working on it, on securing a part of those learnings into the DNA of the habits of the company. So So we're going to we've given you a guidance for the end of the year, which is around the 17% as you noticed.
And And then we have to come back to you in one of our new meetings and we have a CMD in November To give you more visibility about the next steps of our strategic ambition on the figures which are going Together with it. But retain one thing, we have firmly decided to keep going with our strategic transformation, incorporating into all of this All the consequences of our strategy. On one side, a portfolio which is more margin generative, more growth generative, more cash generative And at the same time, this necessary investment in initiative as said by Hillary. And And all of this, resulting into new ambitions in terms of business profile, in terms of growth and in terms of margin.
All right. Thanks, John. Question, please.
And your next question comes from the line of Andre Kukhnane from Credit Suisse. Please ask your question.
Good morning and thank you very much for taking my question. Could we talk about the growth profile of Schneider beyond the bounce back post COVID beyond the 2021? I think you mentioned before that There is a clear possibility for you to land at the top end of your 3% to 6% range for potentially a number of years from 2022 onwards. How plausible is this from your perspective right now? And what would it take?
I hope we are not interrupted. That seemed quite an abrupt end of the question. But Andre, Look, that's also a question that we should go deeper during the CMD this year. We see that our markets again, I was speaking about structural inflection points in the fundamental of our market, digitization, sustainability, And you see that everywhere. I think Schneider is extremely well positioned to capture this.
We have also A stable organization, a stable strategy for the past many years, a team which is really In order of execution, to capture this, and we've added to the fundamental growth of our company new growth engines like Digitization, of course, sustainability advisory, electrification, automation and services, Which are pushing the profile of our growth. So if I sum up or if I summarize what I'm saying here Is that the fundamental of our markets are structurally accelerating. And at the same time, we are aligning more engines for growth as we go forward. So let's come back in a more structured manner on your question During the next CMD. But as you see, we are not only managing the present on the volatility of the present situation, But we are in a very focused on structured manner, structuring ourselves to generate more Profitable growth as we go forward.
All right. Thanks, Andre. Next question?
Next question comes from the line of Alastair Leslie from Societe Generale. Please ask your question.
Yes, thank you. Good morning. A couple of my questions around the Actually, the growth in margins have been answered. So maybe just a question on the assets under management. I think this is maybe the 10th straight quarter You've grown assets under management by, I think, 40% or more.
I trust that's largely organic. You're now at more than €5,000,000 Can
Can you continue to kind
of maintain that momentum? And how much of a lead indicator is this? Maybe you can help us understand what that means for kind of future pull through for services, software, higher and Value Solutions. Thank you.
Sure. So you're right that we've seen quite a growth in our assets under managed. And really these are assets that we're managing through our advisors and through other things that we have for our customers. And And we've talked about this being a leading indicator really tied to that digital flywheel, and we showed it actually earlier in the slides today. I think we've showed it over a number of Starting with connected products, and actually tied to that Jean Pascal talked even more about We're in our new product launches having more and more native connectivity with our products, more abilities Starting with connected products, leading across into edge, into software, into services.
So we think that around $5,000,000 now is really in my mind the start of the journey still and we're still at the start of the journey of IoT, but Really a good leading indicator that we follow and that we continue to follow with more and more KPIs actually from a digital standpoint That we're starting to follow to really understand how we are in the journey. So to me, it's a great leading indicator Really at the start of that journey and more to come, I think, and you'll see more of that over the next quarters. And we'll talk a bit more in digital in the CMD as well.
What Ira is saying, this has been really a fast growing part of our relationship with the customers. And with that, We go from a relationship which is transactional one shot to living with the customer all across the life cycle. On what we see is a natural evolution from connecting an asset to allowing the customer to monitor the asset, which starts to create some recurring revenues and then supplying digital advisory on those same assets. So The values the main values that we bring here is, of course, asset condition monitoring, predictive maintenance, Everything linked to energy efficiency and resource and carbon monitoring, of course, on everything around resiliency of the installations and understanding the quality of what is happening in the installation. And we really See now customers who are ready to connect those assets against SaaS services, Where we manage the cloud for them and make sure that they get access to diagnosis, analytics, AI linked to the installation.
A very exciting part of what we do and an essential part of the flywheel on the relationship that we want to have in the future with our customers.
All right. Thanks, Alastair. Let's keep moving. Next question, please.
Comes from the line of Gael Debre from Deutsche Bank. CEO. Please ask your question. Thank
you very much. Good morning, everybody. I have two questions, please. The first one is Following one of your competitors' conference call this morning, I wondered if you have any reaction To Legrand's strategic decision not to raise prices as much as they could as they want to fuel future growth and prioritize market share gains. I mean, how does that compare to your own pricing approach?
And And related to that, what do you see in terms of market share dynamics in Europe in particular? So that's Question number 1 or 2. Maybe question number 3 is around the software growth performance. I'm curious to hear about your own perception of the industrial software performance so far over the past Couple of quarters. And if you don't find it somewhat disappointing in the current context with The pandemic related push towards anything digital.
Look, I can't comment on competitors' declaration, and And I think we are operating while being focused very much on energy management and automation. We are operating on a broader set of applications. What we want, and you know with prices, to make sure that the net pricing is positive. We can't guarantee it into a calendar year, but We want to make sure that net pricing inclusive of all cost inputs on electronic transportation and material is positive. And we have a track record there of executing flawlessly and in transparency with our customers.
So That's on pricing. And I think H1 is a great signature of what we are doing because the wave of cost It's been important and we've been able to compensate that and generate still a good level of growth. What strikes me also is that in terms of market share, When I look at point of reference, which is a last stable one, which is in 2019, we seem to be taking market share. If I take a longer view over the previous years. There again, I think we are taking market share.
It's not all a question of price. Actually, I think in our sector, it's Less on this a question of price, it's a question of the efficiency on the value you bring to our customers In a world which is asking for much more value and especially for full connectivity for the integration of all the elements of the electrical system Into the global equation. You are not selling 1 piece here, 1 piece there. We are speaking before electrical chargers. They have to make sure they propose charging to the electric vehicle when the microgrid is generating green and Cheap Energy.
And this is possible when you can bring the end to end value of an electrical system and this is what we are Doing at Schneider with EcoStruxure on the combination of the 6 domains of EcoStruxure. So that's number 1. And And I believe it's not it's really value that we bring to our customers. The guarantee also that you bring to the customers that a system, which by nature is becoming more more connected, more digital will work and they will have one company to speak with from the grid To the multiple applications of electricity. The second one, on more fundamentally, want to be responsible on cash on profitability of what we do to make sure that we can keep investing for the future.
On software, not disappointed at all With what we are putting together, there are several elements which are impacting oil and gas deep For some time, but we seem to be facing now a more positive part of the cycle, to take one example. Large part of the portfolio, which is going to transition to subscription, which is great for the future, but which impacts the growth rate. But again, frankly, no apologies for the growth rate that we have delivered over the past 2 years because it's much more than the average of the group. If you just focus On software, it's actually the double of the average of the group. And we have plenty of signals and plenty of Discussions with logos with companies, which are showing that the adoption is certainly growing.
But all of this takes For a company, it's a big decision to embark on such and such platform, so it needs a detailed discussion. But Really positive about what I see of the combination of our diverse software elements. And as a Proof of that, the start of OSIsoft in the Q1 at Schneider is really great and really strong.
All right. Thank you, Gail. Can I just request we keep it to one question per analyst so that Some of the other analysts don't get left out? Next question please.
Next question comes from the line of Shane McKenna from Barclays. Please ask a question.
Good morning, Jean Pascal, Hilary and Amit. With the strong first half performance of free cash flow and given the normal second half seasonality and despite what you've said about inventory build for growth As we look into H2, can we expect another year of free cash flow above €3,000,000,000 And sort of following on from that, As we look to November for the CMD with respect to growth and margins, how do we feel about the relationship of that free cash flow guidance of €3,000,000,000 through the cycle with that margin guidance? Thanks.
Yes. So as usual, We won't give any guidance for the full year for the free cash flow, although I'll give you a couple of elements to think on in a minute. I'll just remind, like you said, we have that medium term guidance of around $3,000,000,000 in free cash flows, Which we're quite comfortable with. And as we've mentioned, that's not the end of the journey for free cash flow. We would expect that, that would Track tied to our operating results, and we'll speak more to that in the CMD.
In terms of this year, just a couple of elements I would say. You can see from our guidance we expect sequential growth in the second half, and we still continue to finish the full year with overall margin expansion. So you can make you can surmise some cash from operations from there. No major changes in CapEx expected. In terms of trade working capital, you can assume it continues to evolve Tied with demand, including we continue to look to have the right level of end inventory For facing the demand that we have in the second half and potentially beyond.
All right. Thank you, Shane. Next question?
Next question comes from the line of Guillermo Penalolo from UBS. Please ask your question.
Thanks for taking my question and good morning everyone. I wanted to ask about the increase in raw materials to be expected in the and I think you reported EUR173,000,000 in the first half. I was wondering if you have basically a rough figure for the second half how much of that is already covered by price increases? How much work can be done? And how much will fall into 2022?
Thank you.
Hilary?
Sure. So we've said and I won't give the exact numbers, but we have said that the bulk of the RMI will hit in the second half. That's due to timing of purchases, due to hedges. So You'll see a bigger number for RMI in the second half than we saw in the first half. In terms of pricing, we've been speaking over The last couple of quarters that increase in RMI started I think as early as July of last year, so more than a year ago.
So we've really been paying close attention to those cost increases, taking the appropriate actions on the ground. You can see in the first half, we remain in Ahead of that curve in terms of price, we'll continue to take appropriate pricing actions on the ground. Like Jean Pascal said, we're not so concerned about the calendar year and how that looks in terms of price, but we're looking at both RMI as well as Electronics and Freight and making sure that we're net price neutral in short term positive over the cycle to cover that. So hopefully that gives you enough elements.
All right. Thanks, Guillermo. Next question?
Next question comes from the line of Eric Lemarie from please ask your
question. Yes. Good morning. Thanks for taking my question. Actually, Jean Pascal mentioned that earlier in this Presentation that software and services, thanks to software and services, Schneider is now more and more Exposed to the OpEx of its customers rather than to the CapEx of its customers.
Do you have today A split between your revenues exposed to the CapEx and the percentage revenues exposed to the OpEx of your customers?
Yes. We take as a proxy, and it's really a proxy, the OpEx part As a sum of software and services. And I'm saying it's a proxy because a large part of what we do on the other side, which can be Non connected products or connectable products or controls are, in fact, linked also to Brownfield Works. Actually, a large part, if not the largest part of what we do is about expansion of existing installations. This is why Having a very strong focus on a large part of the existing installation is so important because for the customer, it's easier to expand With the same kind of technology on the same kind of products.
But if you look what we define going really being part of the OpEx Part of our customers, it's all about services of which most of them are recurring. Would it be formally by Tracked or informally because when you start servicing an installation, you come back all the time on the same installation. And the second one is everything regarding software and as we explained before, connected assets. Because once you are connected in real time and give sense to that connectivity through Advisory digital advisory, I mean, then you are really part of the continuous improvement of the customer, maintenance process of the customer, and you are becoming a true adviser of our customer. And there, I would dare to say we're just scratching the surface.
We can do much more. As I we said many, many times, we are just covering only a fraction of the installed base we have out there In the field, we are bringing more and more plug and play, simple frictionless systems to connect What has already been installed and I see in the future that connection of capacity to connect very fast In a cheap manner, every installation plugging into cloud based, easy to read, easy to use advisers on software is a great strength or a great asset of us for the future. That goes when we speak to our customers with an integrated view, you can't connect just one product of the installation. That all development that we did over the past 15 years to develop a presence around segments with architects who can speak the language of the customer and This is what you well know, the 4th integration the 4 integrations of Schneider That we have been developing over the past 15 years.
All right. I think we're coming towards the end, but I
Your next question comes from the line of Simon Thomason from Jefferies.
Can you elaborate a bit more on your key process verticals in addition The color you already provided in the press release, maybe a bit more color on order tender activity into the second half. And maybe as a kind of follow-up on that, over the coming quarters, would you expect the process growth in your business at some point to outgrow discrete? And maybe if you could also say, at what time do you expect kind of key process verticals like oil and gas to reach pre pandemic levels? Thank you.
So the line is not too good. You are speaking about process business, right? Automation?
Just more color on the key process verticals and Whether you expect process to outstrip or outgrow discrete at some point and when oil and gas or key verticals will reach pre pandemic levels in your view?
The grid segment, if this is a question, the utility grid is doing very, very well because the world is electrifying, but that new electrification, which is which is based on the connection to many installations, many volatile installations on many volatile source of Generation, needs lots of digitization and lots of upgrading. So we have put together an offer In this field, which is second to none from ADMS, OMS, GIS, OSI, which is doing a large part of its business Ingrid, on all those things, we are going beyond the meter where Schneider has a very strong presence. So All of this is going well. On everything which is related to more extractive industries, mining is already back up under the push For more resources on that opening new capabilities for or new possibilities for process. And we see that oil and gas He's in a gradual but firm recovery as there has been on the investment in the field for some time, and we see that projects are coming back up.
Sorry, I don't know if I answer your question, but we are more positive as we look forward to the whole offer we put for we have put together for continuous industries. All
right. Maybe as a
Come back to you. I just want to have time enough for the last question. There's one more question I suppose we can take. Operator?
The next question comes from the line of Martin Wilkie from Citi. Please ask your question.
Thank you. Good morning. It's Martin from Citi. Thank you for squeezing me in. The question was really one about mix.
You've obviously had Strength in residential, data center, some of these markets and even discrete automation. And as some of the other markets pick up the baton, whether it's process automation, Non res, should we expect the mix effect to change meaningfully or is the balance of the businesses and end market similar from a margin perspective as we look out over the next 6 or 12 months?
Look, I I think the beauty of what we have put together is to have one set of technologies which applies to a transversal set of segments that we have organized to serve. So that mix between segments and business is changing all the time, but we have the right balance that Ensured in 2020 resiliency and in 2021, a strong rebound at a very Solid and actually very high level of profitability on cash generation. So there might be some distortion as we go forward, But still the balance of our segments, the balance of our geographies, the balance of our business models between what we do in products Together with our partners, we grow faster than the average, what we do in software, what we do in services, The way we manage our systems, which has been you know that it had been for some years a difficult point at Schneider. I think we've to a level of maturity and mastery in this field, which has dramatically changed. So we are improving The way we target and we cookie cut projects and execute them with more reliability Means that we are able to manage components of the mix.
All right. I think with that, we'll probably have to call it to close, but we are available to have calls and look forward to meetings as well over the next and
The dialogue that we had today, we are well, very excited by the momentum of our business and by the inflection that we see in the world, which is going in the direction of what we've invested for, for many years. And we look forward To speak to you soon and especially to meet you at the CMD. In the meantime, stay well. And for those who have this privilege, take a good break because we see that