Schneider Electric S.E. (SU) Earnings Call Transcript & Summary

Welcome to Schneider Electric's 2022 Full Year Results with Jean-Pascal Tricoire, Chairman and CEO; Hilary Maxson, Chief Financial Officer; and Amit Bhalla, Head of Investor Relations. Thank you for standing by. [Operator Instructions] 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 hand you over to Amit Bhalla.

Good morning, everyone. Welcome to our full year 2022 financial results. We joined you this morning from Paris joined with our Chairman and CEO, Jean-Pascal Tricoire; our CFO, Hilary Maxson. All of the presentation and release is available on our website as well. Without further ado, I'm going to pass it to Jean-Pascal to talk about our 2022 results and our new governance structure.

Thank you, Amit. Delighted to be with you. We've got on to be with Hilary to comment on 2022, speak about 2023. I'll make a few important announcements regarding the governance of the company. I'm going to go straight into looking at 2022, which has been a very intense year. If you look at the central part of that slide, we've been facing no surprise because of what we do. We've been facing a very strong demand on most of all of our markets. It's been putting pressure on the supply chain, especially as Schneider is extremely digital nowadays. And we've been able to deliver a strong year, whatever those pressures. We've also made our EUR 1 billion of structural cost savings that we completed in the period of 2020 to 2022. And we come out with our all-time high results in revenue, in operating results and the net income, but I'll comment more later in this presentation. The second big element of 2022 has been a very intense year of strategic transformation. Of course, the integration of AVEVA into Schneider put in all of our agnostic software, neutral software under roof of Schneider and allowing us in the future to build a complete company in software, which actually a EUR 2.6 billion company in software. And we've also in 2022 completed our disposal program, reaching EUR 1.7 billion of revenue that will exit Schneider as being less central and less strategic to the future of our Schneider. And of course, 2022 has been also a very intense year, disturbed -- not disturbed, but really collided by the Ukraine war and gave us -- we really paid a lot of attention, and we took care of our people in Ukraine and also divested our Russian operation, which was closed in October, to our Russian employees. So a very busy year, strong delivery, but dealing with external factors like the Ukraine war on driving forcefully the continuation of our strategic transformation. So here are the figures. For the first time in our history, EUR 34 billion of revenue, 18% of current growth, 12.2% of organic growth. Both energy management and industrial automation growing with strong dynamics. Industrial Automation, a bit below, mostly impacted by supply chain being more electronics, more impacted by the issues of disruption. Both profitabilities of business growing, and that drives us to an adjusted EBITA margin of 17.6%, an improvement of 40 bps and that means that our adjusted EBITA growth is growing by 14.4% in organic at the top end of the revised target range. Hilary will speak about that in detail. But what is really comforting is that Q4 was stronger with 16% of growth in organic, which shows the easing on the unlocking of the supply chain happening. Now these are the headlines. EUR 34 billion highest ever in sales, Adjusted EBITA EUR 6 billion for the first time. Adjusted net income, EUR 4 billion for the first time. Free cash flow of EUR 3.3 billion, growing by 19%, and which means that we are going to propose at the AGM a dividend of EUR 3.15, an increase of 9%. And if you take a little bit of distance and look at those figures. In 2022, we are going to have added EUR 5 billion of revenue, that's 18% growth. We are going to have added EUR 1 billion of profit, up to EUR 6 billion. We're going to have added EUR 550 million of adjusted net income. We're going to have added EUR 500 million to our free cash flow from EUR 2.8 billion to EUR 3.3 billion. And this dividend at EUR 3.15 will sign 13 continuous year of progressive dividend to the shareholders of Schneider. This includes, of course, the employees of Schneider, who are shareholders. Well, this is a year also where the specificities of Schneider were once again recognized around our meaningful mission, around sustainability, electrification, digitization, about our complete commitment to being the most inclusive workplace in the industry and also our unique structure, our multi-hub structure, empowering all our regions to innovate, create, manufacture and react fast to the characteristics of the market. So that's about 2022. And don't be worried, there will be plenty of details by Hilary later in the presentation. Now I come to the very important announcement that we do today, which is putting in place a new governance for Schneider. We had, if you remember, announced 2 years ago at the renewal of my mandate, dissociation, during the time of my mandate. And this is -- we announce it today, and it's going to be effective at the AGM in May 2023. And the Board and myself unanimously have chosen Peter Herweck to succeed me. Peter is coming as a natural candidate to do that. He's got 30 years of experience in our industry -- of deep experience in our industry in both facets, energy management and industrial automation. He was trained at university as an electrician, then worked in Mitsubishi and Siemens, part in energy management and in automation and digitization. And he knows very well Schneider because he joined us 7 years ago, and he's been exposed to the experience of the CEO in AVEVA where he drove a triple transition at the same time, the transition of business model to subscription a technology transition to 1 platform and especially 1 data platform. And finally, the integration of the largest acquisition that AVEVA has done in software, which is the integration of OSI. So strong experience in our industry, very strong technology background, both in energy management, in digital and in software, a very global carrier. Peter lived in Japan, for a long sit in China, in the U.S. and of course, being German, in Germany on spending in the past years, many years in France and truly committed to the fundamentals of our culture in terms of inclusion, diversity and a commitment to a multi-hub and multiregional hub. I'm personally delighted about the choice of Peter as it comes with a strong experience and strong direct exposure to the world of software. And I tell you, after -- yes, 36 years in the company and 20 years at the leadership as a leader of Schneider, as COO and CEO, I'm really excited to go into that new phase in a new role, supporting, helping the team to develop its strategy. I'm going to be more helping on the strategy on technology and more as a coach. And really, I'm excited to support the whole team and especially Peter as we go forward. A few elements, to be more precise. So we announced this today. It's going to be, as I said, effective after the AGM. The process of selection has been a 4-year process. It started by using external consultants, where a whole row of internal candidates were reviewed. Actually, diverse role of candidates were reviewed. We looked also -- the Board looked also outside of Schneider. The Board came to the conclusion that the candidates of Schneider were the strongest among all of that, which allowed us in 2021 to announce the dissociation that we're ready. Of course, 2020, '21, '22, were pretty disturbed years, as you can all remember, but I think now is the right time because Schneider is in a very strong place on a very strong market with the acquisition of the minority shareholders of AVEVA, we have a clean house in software. And that closes the cycle, and I'm really again enthused to go into the next cycle with Peter and the team and to serve in a different manner. So -- usually, when we go into the yearly result presentation, I normally make a presentation -- a strategic presentation of what happened in the past year. But today, with an exception, you're going to have a much bigger package because we're going to extend that 1 year to the past 20 years and look at how the transformation of Schneider that happened over the past 20 years explains what happened in 2022 and the perspective that we have in 2023. And before I go into that rewind on the explanation, I want really to thank you, you on the phone, for the long partnership and your patient listening to my explanation for the demanding dialogue. And I can confess that many of the strategic orientations that I gave to Schneider were actually originated in many of your demanding questions or insightful discussions that we had about our industry. And I think we're all passionate about the industry, and that really was very helpful for me, devising, creating and building the strategy of Schneider for the past 20 years. But let's go into that transformation. We've positioned Schneider really in the past 20 years to be really benefiting of all the major megatrends in our industry. COVID-19, on the need for reshoring expressed by many governments, the incentive to reshoring are boosting to a new level, the need for digitization. And the combination of the energy crisis and the climate crisis are pushing all of our customers to have an agenda for sustainability and therefore, for electrification, which is the only way to decarbonize. So when we meet customers today, we always speak about their 2 main agenda, which is sustainability and digitization, and facing in some parts of the world, the energy crisis. And what we've done at Schneider in the past 20 years is be prepared for this inflection point. So now let's look at the transformation of Schneider, what we've become. We've multiplied, over the past 20 years, our revenue by 4, our net income by 9, our R&D spend by 3.6, which gives us much more firepower to innovate and pioneer the major inflection of our industry. And as a result, and thank you for believing into that transformation, our market cap has reached a new level and has been multiplied by 7. And in direction of our shareholders, we've been serving a progressive dividend as a sharing of that progress, of that development for the past 13 consecutive years. And what I'm going to detail afterwards are the main markets of Schneider, a technology company leading in the triptych of sustainability, digitization and electrification, a true global player with a true local footprint, multi-local footprint on an impact company because we are one of the few companies in the world who have completely aligned strategy with sustainability. So what we've done has been actually to transform completing the portfolio, multiplied by 15 our digital sales to a level of EUR 15 billion, multiply our electric -- our leadership in electrification by a factor of 4 to EUR 26 billion. And which today, as we speak in 2022, EUR 25 billion in what we call sustainability impact revenues. That means revenues that we do with our customers that help them on their trajectory to net 0. On our journey to digitization, I want also to point out that we have built, and I said that in my introduction, a EUR 2.6 billion agnostic software portfolio, AVEVA, ETAP, RIB, IGE+XAO, Planon and so our strategic participation into Planon, which creates actually a reference platform in the connected industry. So with that, we have now a clean house in the field of software that we can accelerate and keep developing as we go forward. So the whole transformation has been to acquire more in digital and at the same time, to dispose off the companies that were not as central and strategic in our portfolio. And we -- at the end of 2022, we finalized our divestment program with the objective to -- for our customers to connect everything in their facilities, they are building their industries, their data centers, their infrastructure, thanks to our IoT platform, EcoStruxure, get all the data gathered, repositioned, federated, contextualized in our data hub, our PI data hub, to enable the all ecosystem of our people or the people working on installations, the developers of software, the users, factories, buildings, the suppliers like utilities and all the software developers to apply analytics, intelligence and enable optimization on installation. Our project is 1 software with 1 data, 1 customer experience and 1 digital twin for our customers. At the same time, for the past 20 years, we've kept reinforcing our world leadership in products. We are in our industry by far the companies that work the most with integrators, with distributors, with people who put our technology together to offer local solutions. But at the same time, we've built a longer cycle business with longer cycle by developing our system business and with that grew our ability to deal with mission-critical applications in all segments, industry, infrastructure, data centers, a greenhouse building in the world and that has reduced our cyclical exposure by balancing our exposure towards industrial infrastructure. And at the same time, we also created new growth driver around services, software and sustainability. And you see that now those business that you have supported us in building are representing a very significant part of our business and really rebalancing the equation of Schneider in a very nice manner in terms of growth capability, of course, but also in terms of resilience. We've not forgotten that we are a technology company. And we are very proud of the products, which is, for us, a world-leading franchise. We work every day with thousands of partners around the world who put together those technologies to build complete solutions and within energy management to industrial automation into the integration into EcoStruxure build revolutions in our industries, which have pioneered and led the change, the transformation of what the whole industry is doing. I want to mention, for instance, what we are launching today with asset, which is a full range in Medium Voltage without SF6 or EcoStruxure Automation Expert, which is a completely open platform for automation. These are just examples of what we keep doing and why we keep ramping up the amount on the investment we put in R&D. Another big marker of us has been the will to create a global company over the past 20 years multiplied by close to 2 our business in Europe, by 5 our business in North America and by more than 8 the business we do in Asia Pac and in international. And all of this is based on our unique multi-hub structure, whereby our leadership is spread out into the geographies where we have the biggest business, the biggest potential and the largest pool of talent, on where we empower regions on their capacity to innovate, to react, to be fast and to respond to our customers as a local player benefiting from the backup of a global company. The great thing is that our shareholders have supported this globalization of this internationalization and as a European company, we are today more exposed than most European companies to North American shareholding, which is our largest business in the world. The U.S. business is our largest country on a greater Asia Pacific exposure than all direct peers because there, again, Asia Pac and North America are roughly at the same level in terms of business exposure. But I'm very attached to keeping on going with that dialogue in North America and Asia Pac and bring the shareholding to the level that these regions represent in terms of business for Schneider. Want also to mention 1 thing I'm extremely proud of, is that we are one of the stocks most widely held within ESG farm. We are actually the 3rd one, all industries included. And we are the #1 security always in ESG fund among the industrial sector. And that drives me to my next chapter. We are a company that has completely aligned sustainability and strategy. We develop technologies for sustainability and we are doers in sustainability. We come to our customers with practical solution based on digitization, for efficiency and based, of course, on electrification for decarbonization. And we drive that dimension to all our stakeholders, our suppliers, the communities around us and the value proposition to our shareholders where we have engaged to increase even our sustainability impact revenue as we go forward. We've taken a very ambitious target in this field. We got them certified by SBTi, which not too many companies have done. And I know that is the object of debate but we measure on benchmark by external agencies that rank companies in their performance on ESG and where we are today, there are only 2 other companies in the world that get that level of ranking and level of recognition. So it's not an easy thing. And we combine internal objective and external objective to measure our progress in all the dimensions of ESG. And finally, probably the thing which makes us the most distinctive is our culture and our operating model. And Peter is clearly very supportive of that, of that difference coming from a different environment originally, and we've seen which kind of difference it can make. We're going to be both really pushing and developing this, which is probably the biggest or the strongest asset of Schneider today and as we go into the future, in a world where empowerment of people is probably the most important. So looking back also, you've supported this project. You've supported this transformation. Schneider's run from the 19th rank in the CAC 40 to 2003 to the 7th rank in the CAC 40. And we entered the Euro Stock, and we are now #16 in the Euro stock. And I want once again to thank you, to thank our investors, to thank all the analysts who have followed us for the robust dialogue, demanding dialogue for the patients in the time where when we are building strategically the company and there was some plateau in our performance because all of this needs a lot of effort, I want to thank you for having supported this journey across the transformation and around value creation. And patients have paid, but I remember every year of the way and remember every of the discussions we've had. But again, many thanks for the time when you supported us in those times of transition. I want also to mention that this value that we brought to shareholder, we brought it to our employees also who own close to 4% of the shares and have benefited of that collective performance that realized and that has been recognized by the stock exchange. So just to close, to say that we have positioned Schneider to be the natural partner in sustainability of customers with practical solutions, clear leadership in electrification and one of the leadership position in the field of digital with an incredible portfolio, the 5 integrations that I've spoken to you many times, in enabling the integration in a digital twin for our customers of their company. We see a lot of potential in mature countries around the energy transition, electricity 4.0, Industry 4.0. Everything will get connected. Everything will get retrofitted. And we see a lot of similar packages like the IRA, not only that, but in other parts of the world, stimulating this investment on the market. And at the same time, new economies will remain the barry center of urbanization, industrialization and digitization. We see as a very important mission for us to bring clean electricity to 2 billion people who don't have access to reliable electricity. And we see also that in the next cycle, the resource-driven economies will benefit of a lot of resources to modernize every part of their infrastructure. And our strong place in Asia is a great asset for Schneider as today in 2023, 75% of the GDP growth will happen in major Asian emerging market economies, and it's still only 25% of the revenue for Schneider. So still a large runway for progress as we look forward. Concluding, nothing has changed. We came to CMD recently to tell you this is a play. We are focused on electric and digital. We are developing new growth engines around service, software and sustainability. And we are very attached to the key part of our DNA, the integrated and focused business model of Schneider. The partnership, we are the most partner-oriented company, the multi-hub on ESG embedded everywhere in the company. Thanks for the journey. I'm even more excited about the next steps of the journey that I will accompany from me in a different sort of role. But with that, I would like to go into the details of 2023 and hand over to Hilary. Hilary, the floor is yours.

Thanks, Jean-Pascal, and I look forward to continuing to work both with yourself and of course, with Peter in your new roles. Turning back now to 2022 specifically, I'll start with some key financial highlights for the year. As Jean-Pascal said, we finished with record revenues of EUR 34 billion, up 12.2% organic, record adjusted EBITA of EUR 6 billion and record net income of EUR 3 billion. And on that net income, that's despite around EUR 300 million charges from exiting our Russia business. We also drove resilient gross margin in a very complex year, characterized by strong demand, strong inflation and supply constraints. And we continued progression in our adjusted EBITA by 40 basis points organic and drove some improvement in our cash conversion ratio. And all of this translates into good progression on our ROCE. Turning to some details on our full year revenues. We finished the year at EUR 34 billion, up 12.2% organic year-over-year. Around 2.5 points of that was due to volume, driven by a strong pickup in volumes in Q4 with the rest due to the agile pricing actions we continued throughout the year. And sales and volumes for the full year were adversely impacted by around 0.5 point from Russia. Sales were relatively stronger in Energy Management, where we have lower exposure to supply constraints, up 12.9% organic for the year, with Industrial Automation up close to double-digit organic for the year at plus 9.5%. Both businesses finished with strong backlog, and I'll speak to that in a moment. Scope remains relatively immaterial, and FX impacted the full year positively, driving reported revenues up 18% for the year, mainly due to appreciation of the U.S. dollar and Chinese yuan against the euro. And as you can see in the footnote to this slide, based on current rates, which are fairly volatile in a couple of places, we'd expect that positive impact from FX to reverse in 2023 with revenues adversely impacted by around EUR 600 million to EUR 700 million and around minus 40 basis points impact on adjusted EBITA. We report on our backlog on an annual basis. And you can see here the progression in that backlog over the past few years with a big uptick in 2022 due to supply constraints. We finished the year with record backlog of EUR 16.5 billion or around 6 months of sales versus an average in the past of less than 4 months. And as we've spoken about throughout the year, we continue to believe this backlog is healthy. We don't see any uptick in cancellations, and it reflects the continued strong underlying demand across our portfolio. And of course, this backlog will contribute to our growth in sales in 2023 as supply constraints continue to ease. Moving to the full year details of our strategic growth pillars. More Products grew strongly at plus 13% organic, driven by underlying demand as well as price and backlog execution across many of our product lines, supported by a significant pickup in volume in Q4. In software and digital services, our agnostic Energy Management software business and our Digital Services grew double digit for the year, while AVEVA continued to drive positive sales despite our acceleration to subscription there. AVEVA finished the year with plus 12.3% ARR growth, the key metric we're following to track the transition in that business. And we'll provide more detail on AVEVA's results when they finish their fiscal year at our Q1 2023. Field Services were up high single digit for the year, impacted by supply chain constraints particularly as we chose to prioritize supply to our partners, but with an as anticipated strong acceleration in the second half and strong double-digit demand at year-end. Our sustainability business also finished strongly with more than 20% organic growth for the full year. And I'll note here an exciting update in our Energize program, a unique collaborative effort managed by Schneider of more than leading pharmaceutical companies with the goal to proactively engage with their suppliers to address Scope 3 across the industry. In November, Energize announced the formation of buyers' cohorts in both the U.S. and Europe, who'll go to market together for renewable energy to begin to address the emissions for more than 2 terawatt hours of electricity demand. And this is a great example of the significant changes companies are driving in sustainability worldwide to meet their decarbonization objectives. 2022 was also the first year of our Capital Markets Day story, where we introduced another step change in our path towards building a hybrid digital company with a shift in our digital flywheel of connectable products, edge control and software and services from around 50% in 2021 to around 60% by 2025. And in 2022, we made good progress towards that goal, landing the year with 53% of our revenues now in the digital flywheel, driven by plus 20% organic growth in Connectable products and plus 13% growth in edge control, both growing above the overall group. Software and services remained at 18% of group revenues, where we have effectively 3 dynamics. First, AVEVA, where we're transitioning to subscription and focused on double-digit ARR but that won't translate into revenue growth at those same levels in the near term. Second, our Field Services business, which is accelerating towards double-digit growth now. And third, our Energy Management software businesses and digital services where we already have sales growing above that of the group. Our recurring revenue, another key transition goal from our Capital Markets Day, now stands at 36% of software and services revenue, driven by our focus on driving further recurring revenues including our transition to subscription at AVEVA and our focus on driving recurring revenues and services both through momentum in our digital services and recurring contracts in our field services. So overall, a very strong year in our transition journey. Turning now to our own sustainability performance. We achieved a score of 4.9 in our Schneider Sustainability Impact Index in 2022, outperforming our target of 4.7 and putting us well on track towards our goal of 10 by 2025. Key drivers of our performance for the full year were first our SSI #2, where we target to help our customers save and avoid 800 million tonnes of CO2 emissions by 2025. And there, we've hit 440 million at the end of 2022 with an acceleration to almost 100 million tonnes for the year. Our SSI #5, where we achieved 45% of our packaging transformation goal to eliminate single-use plastic and shift to recycled cardboard. And our SSI #9, where we've now provided access to green electricity to around 40 million people cumulatively since 2008 and well on track towards our target of 50 million people. Turning now to the fourth quarter top line. We were up a strong 16% organic to EUR 9.3 billion in revenues with around 5 points of that due to a strong uptick in volumes and the rest driven by continued agile pricing to offset inflation. In scope, you can see the impact from the exit of our Russian businesses. And similar to the full year, we have a positive uptick due to FX, primarily driven by the strong U.S. dollar. Specifically on Energy Management, we were up plus 18% organic for the quarter, with particularly strong sales in North America, up 28% organic, with both U.S. and Mexico up around 30% and Canada up double digit. This was partially driven by backlog execution, particularly in residential building, where we've experienced supply constraints and by strong demand across product lines. Field Services also accelerated strongly. Western Europe was up 15% organic, with strong growth across all of the major economies, again, partly driven by an easing of supply constraints but also supported by continued demand across product lines, but with continued softer demand for residential buildings and distributed IT. Asia Pacific was up 10%, with China up low single digit despite the impacts there from COVID in the Q4 and supported by demand across most end markets with the exception of residential building and backlog execution. The rest of Asia Pacific was up double digit with particularly strong growth in India, driven by the good dynamics there across the portfolio. Rest of World was up 14%, with both Middle East and South America up over 20% organic with strong demand in almost all geographies across product lines. Turning to Industrial Automation. Sales were up 11%, driven by some unlocking of constraints in electronic components and demand. North America was up 9%, but with double-digit growth in the U.S. in both discrete and process hybrid offerings, offset by industrial software, where we have the acceleration towards subscription, particularly at AVEVA PI or what was OSI. Canada had very strong growth in all offers, whereas Mexico was impacted by a strong baseline in process automation in 2021. Western Europe was up 18% for the quarter, supported by backlog execution and a continued strong demand environment in both discrete and process and hybrid. And process automation is now positive in all key geographies in Western Europe, excluding the U.K. Asia Pacific was up 7% for the quarter despite China being down low single digit, impacted by COVID and a strong base of comparison there from last year. The rest of Asia Pacific was up over 20%, driven by growth in discrete and process hybrid automation, offset by industrial software, and Rest of World was up 11%, with growth still relatively stronger in discrete, but with continued acceleration in process and hybrid, and again, offset by negative growth in industrial software with the transition to subscription. Turning now to our P&L. We finished the year with record adjusted EBITA of EUR 6 billion and organic growth of 14.4%, driven by our top line growth as well as an expansion in our EBITA margin of plus 40 basis points organic to finish the year at 17.6%, also a record and with a strong acceleration in H2 as supply constraints eased. This strong finish in a complicated year was driven by resiliency in our gross margin as well as a decrease in our SFC to sales ratio. And you can see here, despite that positive progression in our cost profile, we still stepped up our R&D sales ratio by 30 basis points organic, focusing on innovation for our future and to drive our digital flywheel. To give a bit more detail, starting with gross margin, we finished the year with gross margin of 40.6% in a highly inflationary year or minus 50 basis points organic. You can see the impacts from inflation in a number of the bars of the chart with EUR 470 million impacts from raw material appearing in our net price calculation and an additional EUR 605 million headwinds from freight electronics and other inflation impacting our productivity. We more than offset this inflation of around EUR 1.1 billion as well as some additional inflation in production labor with pricing on products of EUR 1.8 billion. However, given the tight supply chain environment, our industrial productivity was quite a bit below average at around EUR 148 million, but with a good pickup in H2. And we'd expect this productivity to continue to normalize through 2023 as supply constraints ease. Mix was also lower than in prior years due to the pickup in the long cycle business as well as AVEVA's transition to subscription with positive progression in our systems margins more than offsetting this. The second key driver of our adjusted EBITA performance is our operating leverage, where we successfully closed out our structural savings program, and I'll speak a bit more to that in the next slide as well as focused on strategic investments, particularly in R&D as well as our own digital transformation and in commercial investments to support our growth. So we'd announced an accelerated restructuring in 2020 with a target of EUR 1 billion in structural savings over 3 years. We finalized that program successfully in 2022, having driven just over EUR 1 billion in savings with restructuring costs of around EUR 870 million, quite a bit below our original estimate of EUR 1.15 billion to EUR 1.25 billion. For 2023, we won't stop focusing on our effectiveness and particularly on digitization and simplification, but we don't currently have plans for another major restructuring program. Instead, we'll focus on return on investment from the strategic investments we're making to ensure Schneider is future-ready. And as a result, we'd expect our restructuring cost to decrease towards our target of around EUR 100 million per year starting in 2023. Turning now to net income. Including scope and FX, our adjusted EBITA is up 21%. Below the line, our other income and expense was adversely impacted by EUR 287 million charges related to our Russia exit aligned with communications and a EUR 75 million write-off associated with the disposal of transformer plants. Restructuring costs were EUR 227 million for the year, similar to 2021. And I already mentioned the decrease we expect there going forward. Amortization of purchase price accounting intangibles was around flat year-over-year, and we'd expect these costs to remain at similar levels in 2023. In financial costs, we had a small step-up in 2022 due to an increase in interest rates. And we'd expect this to increase by another around EUR 200 million in -- or up to EUR 200 million in 2023 with around 70% of that due to new debt to fund the buyout of AVEVA minorities. Our effective tax rate was 25.7%, including the impacts from the Russia charges. Excluding Russia, the ETR is 24.6%, within our expected range with the year-over-year increase primarily driven by geographical mix of business. And this all results in a net income of EUR 3.5 billion, up 9%. Our adjusted net income, which excludes OIE, was up 16%. And adjusted EPS is at EUR 7.11 per share, both at record levels, driven by our strong results. Our operating results translated strongly into our cash flow from operations, driving it to EUR 5.4 billion, an increase of 21%. We did have a small uptick in CapEx in euros and as a percentage of sales as we invested for resilience and in capitalized R&D. And we'd expect some uptick there to continue. Working capital remains adversely impacted by the supply chain constraints, but with a strong improvement in the second half. Our days inventory outstanding decreased by 2 days, but remained elevated aligned with our focus on serving customers. Continued management of our days sales and days payables also supported the improvement in second half cash flows. And free cash flow finished at EUR 3.3 billion, a cash conversion ratio of 96%. And I'll mention here, we've fully accounted for the AVEVA transaction in this year's accounts with a purchase commitment impacting our equity offset by an increase in net debt. And despite the step-up in balance sheet net debt, and we are funding the AVEVA acquisition primarily through new debt, so this is an okay proxy, our balance sheet remains strong with net debt to adjusted EBITDA of 1.6x. This is historically a bit high for Schneider. However, based on our strong free cash flow generation, we do anticipate this to normalize over time, similar to how it did post OSI transaction. Driven by our results from operations, we continue to have a step-up in our ROCE. And just to note here, we've now simplified our ROCE calculation to be calculable directly from our reported accounts with no adjustments. We finished the year with ROCE at 12.2%, an increase of 40 basis points. In terms of portfolio evolution, I'm also happy to announce completed our portfolio disposal program with businesses with EUR 1.7 billion of revenue sold. And while we won't announce a specific new target for disposals, we'll continue to perform ongoing portfolio reviews on a biannual basis to identify businesses that aren't aligned with our strategy. And of course, we successfully completed the acquisition of our outstanding minority interest in AVEVA in January. In terms of our overall capital allocation, our priorities remain unchanged, with a focus on shareholder returns over the short, medium and long term. And as a part of this, we've proposed a progressive dividend for the 13th year in a row of EUR 3.15 per share. And with that, I'll turn back to Jean-Pascal to give an update on our 2023 full year expectations.

Thank you, Hilary. So when we look at 2023, we see a continuation of strong and dynamic market demand, which is supported by the accelerating trends of electrification and digitization, accelerated by stimulus packages, accelerated by, as I said before, the concomitance of climate crisis and energy crisis. We come in from high levels. The demand in consumer linked segments will continue to decelerate from the highs of the COVID time, where people were all days at home, particularly in mature market, but it's not a big part of our business, let's say, 15% to 20%. The government incentives across the world are centered around energy transition, around decarbonization and improved energy efficiency and will support further growth. We have backlog that will support also the perspective. The supply constraints have started to ease in Q4 as we saw in the jump of our organic growth to 16%. Improving supply environment should also support stronger underlying industrial productivity, I would say a normalization of the way we run the supply chain. We're going to be back in 2023 through a normal way of managing supply chains. And we expect some deceleration of inflationary pressure after an exceptional year of 2022 with some pockets of inflation expected to remain. So with that, we give a guidance of an adjusted EBITA growth of 12% to 16% organic. That will be architected around a revenue growth of 9% to 11% organic, for obvious reasons, due to the traction we have for the offers, the software, the services we deliver, and an adjusted EBITDA margin up by 50 to 80 bps. So another year of 2023 dedicated to profitable growth and completely in line, actually above the line of our through-the-cycle target that we described in our CMD. With that, that finishes our presentation. I think I will hand over to Amit for the Q&A.

All right. Thank you, Jean-Pascal. Thank you, Hilary. We move to the Q&A. We'll attempt to take a question from each analyst, if possible. So as always, be precise, try to be 1 question per person, and we come back, time permitting. So operator, let's move to the first question.

The first question is from Ben Uglow of Morgan Stanley.

So this feels like the end of an era. And before I begin my question, thank you very much, Jean-Pascal, for maintaining a very consistent and open dialogue with the entire investor community. So my question is kind of about the new governance structure. Can you give us a sense in terms of your own responsibility, what actually changes day-to-day? What are you doing differently? Is there any change in your locations? And in terms of your responsibility, what do you expect to do more or less of? And then if I think back to the Chairman and CEO relationship, when you took over with Mr. Lachmann, can -- that was a sort of successful partnership for a number of years. Can you give us any sense of your time line on this new structure. Is this essentially going to be a co-role for some period of time?

Thank you, Ben. I'll start by reciprocal thanks for the dialogues, interaction. And I hope we stay in touch, right? Because we've been through so many things of this industry life over the past years. On governance, I think one of the very strong element of Schneider recent history of the past 40 years is to have had 3 different Chairmen in 40 years. And this continuity has allowed to deliver performance and to be demanding on the short term, but at the same time to develop a long view of the destination of the company and the strong support to the transformation of the company. I have been personally through the 2 forms of governance: dissociated, associated. But when it was associated, it was always with a strong lead independent director, namely Léo Apotheker, Fred Kindle. And they've been -- we've had a very productive relationship beyond the era of Henri Lachmann, who was dissociated Chairman or he was Chairman of the Supervisory Board, as we are in a different form of things. The way I see it is that my role will change a lot, right? I see Peter will be in charge from May. That means he is CEO, he has to propose a strategy and he has to delineate the strategy. He will manage a team. He will respond to the results. He is in charge, like I have been in charge of Schneider, actually since I was appointed as a CEO. My role will be to assist and advise on key elements like strategy, technology, on something I'm very attached to is human capital and the quality of leadership. And I modestly think I have an eye on that. And I can bring things because I have a deep knowledge of this industry and have a deep knowledge of Schneider. The other part of my role, but that's going to be as a support, will be to help on the context, on the representation of Schneider. But that will be when needed. But I'll keep a very special role in Asia, where I've had a front line role over the past many years, actually, almost 30 years. And from that point of view, I'll stay based in Asia, as Peter will be based in Europe as main base. And then I'm going to be taking care of the Board. And a strong element of Schneider is the diversity on the competency of the Board. And look at our Board, it's probably one of the most diverse and I would say, brings a lot of expertise in software and digital as we look into the future on new energy and sustainability. We are announcing a new arrival at the Board today, [ Julia Kiaka ], who comes with strong expertise in sustainability on the energy world. She is one of the other example of a Board, which is extremely diverse if you compare to the other boards in our industry or the other boards in France. And I'm going to be in charge of animating this. So those are the main points. And I'm going to engage selectively when needed on coordinated with shareholders when there is a specific case or a specific subject to review. But I've spent 36 years in the company, 20 years leading the company, building a great team, right? And you know many of them. I want them to succeed. I want Peter to succeed, and my role is to really support that success. And I'm sitting here with Hilary, who will keep the journey with Peter. I feel so proud of what we've done together, driving through 3 difficult years and looking forward to the many years in front of us.

Thank you, Ben. Next question, please.

Next question is from Phil Buller of Berenberg.

Also best wishes Jean-Pascal in the role of Chairman, of course. It's probably a bit unfair to ask you to front run the Capital Markets Day as Chairman, especially if it will be Peter's first. But strategically, and from the Chairman seat, is there any pivot or change needed strategically as we think about passing the baton to Peter? It feels like capturing the market growth is well in hand. So I'm wondering, strategically, if that's the key focus or if perhaps M&A may be a more important leg of the story going forward.?

Look, thank you for the question. But I think what I explained is that it took us 20 years to pivot the company into where it should be in terms of positioning, very strong traction on electrification. The world will be electric. You are speaking about multiply by 2 or 3 in terms of electricity in the mix of energy in the next coming 30 years, it's a true inflection point. On the Internet of Things, Big Data and the AI has just started. So priority is to execute on the base. The reason why we operate this transition now is that we are exiting 3 years of poly crisis and high-intensity crisis. And I feel we have now gone through them actually with a lot of agility, resilience, and we have a very strong position. With the acquisition of the minority share of AVEVA, I would say we've put the house in order. We've got under one roof all of our software that will keep autonomous, but we can really grow synergies on development to a much higher pace as we go forward. I wanted this to be done before I would transition. And as I said, we are just on the right topics in the energy and digital world at the time where all of our customers have those double agenda, the top of their priority, digitization and sustainability. So priority is really to grow organic growth and to develop and to scale out what we have assembled.

All right. Thank you, Phil. And as we mentioned, the CMD is later in the year in Q4. Next question, please?

The next question is from Andre Kukhnin of Crédit Suisse.

And of course, many thanks from myself as well to Jean-Pascal for this fascinating journey over the last few years, and welcome to Peter. I have a few more kind of topics to cover on the CEO change, but I think I'll change gears and maybe ask about AVEVA and come back to the purpose of that full integration and what you now see the business can do for the rest of Schneider Electric portfolio from the energy management side? And maybe is this kind of the sign for the management change and Peter's background being more industrial automation and software-focused. Is this a signal of your kind of anticipation of maybe the buildings and construction world finally moving ahead into the digital and software era?

Yes, that's a very good point. So first, let's speak about AVEVA. We've said it already. So I won't be too long on that one, but we are very attached to the autonomous model and the agnostic model of AVEVA as well as the other neutral software companies that we've assembled the ETAP, IGE, RIB and so on. Everything that goes beyond the data layer or add the data layer has to be inclusive of all the controls and all the way on the market, and this is why we want a specific governance at AVEVA. And actually today, Peter will be replaced at the end of AVEVA by the Chief Revenue Officer, I'm announcing it Caspar Herzberg. And Peter will be the Chairman of AVEVA that he knows very well to ensure the same sort of continuity on the triple transition I was mentioning. The objective for us to bring everything under one roof is to accelerate on the transitions, transition to subscription, transition to one platform. And that doesn't mean that we want to integrate everything. We have to keep the specialization of the franchise. But our customers want one customer experience, one data hub and of course, one digital twin, where we are the only company to be able to bring all over the life cycle of installations the thread of process, electric calls on energy and building into one repository. So we won't change the essence, the autonomy, the agnosticity of our software companies. They will keep their specialization, but will drive faster subscription and convergence of those 3 elements, experience data on digital twin. That's it. Then Peter brings another exposure, I would say, or higher exposure to the field of digitization and software. And we see that what happened a long time ago in industries through Industry 4.0 is actually will happen and will drive that in Electricity 4.0, making sure that all of our energy systems at the time where energy efficiency and energy resiliency is front and center for everybody at our customer, making sure that everything is connected, that data is reported, aggregated together with the process data and that we offer tons of analytics on AI to analyze and optimize what's happening, from the smart grid into smart homes, smart buildings, smart manufacturing, smart data centers and smart cities. So that knowledge and that capability has to spread everything into -- with our customers, and we see a terrific potential. Take where I'm at the moment in France. France is all focused on decreasing its energy intensity. Only 6% of the buildings are equipped with intelligence. And that's not uncommon, even in countries like France. So we've got a lot of runway there, and Peter comes with an exceptional experience in that.

All right. Thank you, Andre. I noticed we're at the hour, but we will keep the call running, so that we can take a few more questions from the other analysts. So next question, please.

The next question is from Gael de-Bray, Deutsche Bank.

Look, Jean-Pascal, Energy Management has been your historical franchise for so long now and has clearly been the main growth driver for the group in the past few years. So I was wondering if the appointment of Peter as new CEO could actually lead to a greater focus or strategic emphasis on automation in the future? Also on the M&A side, I mean, we've seen some of your competitors moving into specific fields, including EDA, LOCA, test and measurement, metrology, supply chain management services, for example, so in very multiple different directions. So I'm curious to understand if -- and well, what is in your M&A pipeline in terms of new visionary, potentially game-changing technology additions?

Gael, thank you for your question. First, to correct the perception. Peter has been exposed as much to energy management as to automation. And especially when he was in China, he was directly in charge of Energy Management, not for Schneider, the time I still remember it. So I can tell you, he knows the sector very well. And from the strategy I described from very early on, probably 20 years ago or 15 years ago, I don't see a silo or a separation between automation and digitization and energy. We see everything in energy being connected. And everything that we are coming out, even small objects will be connected because it's the only way to optimize energy. It's the only way to make energy safer. It's the only way to make energy resilient. And the great thing is that we have a huge presence in the key objects that control energy, the breakers, the contactors, the drives and so on. And we are super passionate, making sure that everything gets connected from the design to the build to the operation and maintenance. So everything, when it's in industrial and infrastructure, it's a cockpit of that convergence of energy and processes, industrial automation. When we are in the other applications, data centers, buildings and even homes, the cockpit or the core of the nexus of that is our energy control centers. And we've got everything integrated from long term. And even in condition, the way we design our organization, we don't have vertical divisions for energy and automation. We integrate at the level of our customers, everything into our customer and sales organization. On M&A, I might repeat myself. But we have the portfolio. We have what we need. And we have just finished a very strong investment to accelerate AVEVA, very high investment, and we see the future in scaling out what we have assembled. And our portfolio is really optimized for what we have to do. We put here and there some addings. As you saw more recently, we had been more with early cycle start-ups that we help developing, but they are small with respect to what Schneider is. What we want to do is to scale the huge -- the fantastic portfolio we've put together.

All right. Thank you, Gael. Next question, please.

The next question is from Jonathan Mounsey of BNP Paribas.

Thanks very much for extending the call and seeing us and again, thanks to Jean-Pascal for all the years and communicating so effectively the strategy and also executing on it. The company is really in good health, as you hand over to Peter. In terms of questions, just really wondering in terms of the guidance, obviously, impressive on the top line. I wonder if maybe Hilary could give us a bit more color about what that means for free cash flow conversion in 2023. I guess when you grow that quickly often -- actually, we saw one of your rivals, well, I mentioned it Siemens, having a very poor cash flow in calendar Q4 on the back of very strong growth. Is your growth likely to impact your free cash flow this year? Are we likely to see some sort of drag from working capital to deliver that kind of top line growth? Or do you see a very solid performance in 2023?

Sure. Thanks. So obviously, we don't give free cash flow guidance, and I don't think we'll start today. But we have a couple of dynamics in the free cash flow. I'd spoken at the EUR 3.3 billion that we had in 2022. We're still below the around 100% cash conversion that we think we should be at even in a growth environment. So in 2023, we'd foresee a couple of things first. Still some regularization on the inventory side, like I'd mentioned, we're still not even including the addition and safety stock we'd like to have on a going-forward basis. We're probably not where we'd like to be. So that's an opportunity for us from a working capital standpoint-- while at the same time, of course, we would expect, not in days, but in absolute euros, that we're going to make some investment in order to support the demand going forward. The one point -- so overall, I would say, no reason to believe that it won't be a strong free cash flow year in 2023. We'll continue to target the around 100% cash conversion that we talked about in the Capital Markets Day over time. The one point I would make there is that in CapEx, I did note we expect to have a little bit of an uptick, and we've talked about that as we focus on resiliency and we focus on capacity associated with the demand. But net-net, I don't think any reason that we would feel uncomfortable with the cash conversion that we usually target in 2023.

All right. Thank you, John. Next question.

The next question is from James Moore of Redburn.

Jean-Pascal, it's been so many years. You taught me a lot. And you've been a visionary real leadership on so many topics, data centers a decade before others, energy efficiency, sustainability. But as you know, I've always been pushing you on the margin and the ROCE side, that I want to stop now. And so on the margin, one on this year and one on the longer term. On the scope, Hilary, you mentioned EUR 750 million for disposals and a 30 bp negative impact. I think that implies EUR 230 million, EUR 240 million of EBIT for that disposal or 31% margin, which seems strange to me. Can you say what the margin is of the revenues going? And Jean-Pascal, on the longer-term picture beyond the current target frameworks, where do you think the margins and returns of the business can get to in the longer-term steady state?

So I'll go first on the minus 30 basis points. So if you recall, so at least around half of that, if you recall, is -- we exited our Russia business in 2022, not part of our planned divestment program, obviously. And that was a company that performed at actually around the same or even a bit better than the overall margin of the group. So as expected in my mind that we'll have the scope impacts there. And the rest is associated more with some earlier-stage acquisitions that we've talked about in order to make the company future ready. So net-net, we have that 30 basis points. But of course, in terms of organic progression, that's something that we're looking at, both our organic progression as well as the overall adjusted EBITA that we forecast for the year.

Now in terms of margin, I think 2022 is a very special year where we faced a surge in cost, which was exceptional. I see in 2 years, we've been facing EUR 2 billion of costs. It's never happened to that magnitude. But we've given in the CMD our perspective, not our perspective, our commitment to improve the margin every year as we keep growing more accretive part of our portfolio. So refocusing the company, sometimes we are divesting a very profitable part of the company, but that makes us better because in the future, we're going to be more focused and we get the cash of it -- of that. Of course, it was not the case in Russia, which is a very different case, which is a war. But that's the choices that we are operating. But otherwise, we want to develop software, which is going to be accretive. We have the biggest franchise in products where we keep investing in R&D on connecting things, which is creating value. You've seen the increase of connected products in the digital flywheel that Hilary has shown. It's quite impressive in 1 year. That means both the unlocking of the supply chain and electronics. So that means also that customers are ready to buy that and pay for it. And once it's connected, it's creating a recurring flow of business, and you've seen also the jump from 30% to 36% of recurring revenue in software and services, which are also very promising for the future and what we can create on the top of that. So that's what I would say. We stay committed to our objective of every year increase of our profitability, which is both due to what we do in operations, cutting costs and getting better on delivering more productivity. And at the same time, changing the mix of our business and the mix of our business model towards more services, more subscription to get more profitability and what we see in 2023 is that while we are not yet there, we should be coming back to a more normal regime for our supply chain and our supply chain when it's running in the right environment is delivering a very solid productivity.

All right. Next question, please.

The next question is from Daniela Costa of Goldman Sachs.

This is actually Ethan on Daniela's line. Just a quick question on pricing. So I just wonder in your guidance for organic sales growth, how much price implied there and also for the margin guidance as well?

So we have -- in terms of pricing, we have good carryover into 2023. We wouldn't expect a similar year of pricing like 2022 because like we mentioned, we expect a deceleration in inflation. So we expect a number of points of price carryover that would reflect in the top line guidance, but we also expect an easing in the supply constraints as well as continued good demand environment. So in all pieces of that top line guidance we've given, we would expect a bigger majority in terms of volume contribution versus price, again, with a healthy carryover of price in 2023. And in terms of margin, at the moment, we're in an inflationary environment. So as you could see on the gross margin line, quite a bit of the pricing that we're doing is more associated with inflation, so that's not really impacting our bottom line per se. In 2023, well, we expect some deceleration in inflation. We have some acceleration in other places. So again, net-net, I think the pricing that we're doing there is primarily inflationary.

All right. Probably take another 1 or 2 questions if there still are. So operator, do we have another question?

The next question is from William Mackie of Kepler Cheuvreux.

And I can only echo the many comments of what an amazing journey over 20 years, Jean-Pascal. My question comes to the, yes, Asia. During your introductory comments, you again highlighted 75% of GDP growth from Asia and 25% of Schneider's footprint. And you said lots of scope for expansion. Could you perhaps elaborate given your extreme knowledge of the region where you see Schneider's growth potential and path in the next stage of the journey and perhaps more specifically into 2023, how you might anticipate China to recover from the challenges of '22?

Yes. Thank you. Look, on Asia, I don't want just to state the obvious, but 60% of the world population, 50% of the world GDP, biggest cities on urbanization progress at the moment. On the real sensibility to pollution and on the climate change because it becomes really, really visible, untangible in the life of the people. We've developed an incredible presence in Asia. China is our second largest business. But I'm very proud of what we did over the past 20 years in India with now our third largest business. So -- and we do a lot, and we develop a lot in Southeast Asia. So you had a question about China. China has been really impacted by the zero COVID policy on a number of factors in 2022. Our China is still positive in 2022 and recovered forcefully from the lockdown. I have to share that our workers in Chase spent 6 weeks in the factory to keep it working, whatever the difficulties, to give you an example of the commitment of the teams. What I see it's still difficult to read, but what I would forecast in China is that China will be a strong contributor in 2023 to the performance. I forecast a slow Q1, which was already impacted in January by Chinese New Year as it was the first time in 3 years that people could travel. That Chinese New Year, a bit longer than usual. Actually, a very positive sign is that in Chinese New Year is always a test of the commitment of people to economies, that people are back from their hometown after Chinese New Year, sometimes in other times that we would have a rate of return that was variable here. They all come back. They want to participate to the restart. See, the consumer, Chinese consumer is eager to consume, and that will trigger a lot of trickling in the economy to go out and probably more domestically at the beginning than internationally, but international will follow. And I think the new government of [ Li Qiang ], who comes from economically thriving provinces, speak about [indiscernible], will be keen on stimulating the economy for a stronger development of all these. So we see a recovery in China as we go forward with reservation on the first quarter because we are still in the sort of aftermath of Chinese New Year, zero COVID and so on. Very optimistic about India, actually on my way to India after this call. Because we have a very strong presence here on which country is better for Schneider's than India, where you have huge needs for electrification, on development and at the same time, probably the most apt country in the world at scale on digitization. So bringing those 2 equations together, and we have plenty of partners and very strong franchise on the very, well, deep penetration of Indian cities, Indian places. We are very local in India. 60% at least to 70% of what we said in India is developed in India and has Indian characteristics. It tells you about the level of localization we've affected in India. And I'm also very bullish about everything which is happening in Southeast Asia, where we have a very strong -- where we have very strong countries and very strong presence in all aspects, right, industrial, commercial. And Southeast Asia has been really impacted by COVID policies. And now they are emerging out and I see quite a lot of potential here. And I'm not forgetting here, North Asia with Japan, where we have big partnerships and strong R&D present in the country. On Taiwan, where we, as a region, which participates also, which has been developing a lot around semiconductors, and we participate to that development. So I see a lot of potential that sales in Asia, and Asia has really understood that combination of digitization and electrification, and they are submitted to the pressure of imported energy at high prices. So there is a strong push there to evolve and to transition the model.

All right. Thanks. Well, one -- I'll probably squeeze in 1 last question, if there is, please.

The last question is from Eric Lemarié of CIC.

Yes. Just 1 question on China with all of this geopolitical news we got nowadays. What can you to do at Schneider to deal with an embargo in China? Can you relocate some production, adapt your supply chain here? What would be your option there? And actually, what is the percent of cost of goods sold at Schneider today supplied from China?

Look, we have structured very early on China for China. So really, what we produce, what we manufacture in China is dedicated to the China market. We -- more and more of our products in China than China for China. Our digital space in China is mostly China for China. Consider China is a continent, and it's such a large economy and to a point, it's the same as what we do in the U.S., that the overwhelming majority of what we do in China is designed in China, manufactured in China, supplied in China. And we've very early on not counted on China for our global suppliers. So that's what we've put into place. Now my personal opinion is that if there is an embargo in China, then it's a completely different world. And Schneider is autonomous. I think all the other supply chains will be compromised. The one thing, it would be very reasonable. So let's say, cool on the corn. But in the case of Schneider, because of the size, the scale and the growing difference in innovation, in digital spaces and everything, we structured from very early on China for China and tech the past 3 years. China borders were sort of closed by COVID. And our teams manage China beautifully, and they manage it from themselves, with themselves, with their own forces, and we'll keep doing like this.

Well, all right. I think I just want to thank everyone for their patience this longer than normal call. You'll see on the slide that we have a bunch of events and meetings lined up. This basically takes us for the first half of the year. We're going to embark on the roadshow soon after in the coming weeks. So look forward to seeing many of you, and please reach out to us if you have any further questions.

And Amit, if I may, I really -- there were plenty of nice words, and I thank you for those nice words. I have as many nice words for you all for the discussion with you all analysts, investors. Again, many thanks for the patience, for my accentuation of English, for my direct speaking. But it's always been a pleasure. And you've been a source of inspiration. In the next coming 2 weeks, I'm going to be meeting some of you during the road show. On his side, Peter will be taking the next 2 months really to relearn Schneider and transition properly AVEVA, but you're going to have plenty of him from May. And I'm going to make sure, and I'm going to be supporting with all my forces a very successful transition with him and with the team. But look forward to seeing you, and stay in touch. Thank you.

Thank you all.