Earnings Transcript for SBGSF - Q4 Fiscal Year 2024

Operator: Welcome to Schneider Electric's 2024 full year results with Olivier Blum, Chief Executive Officer; Hilary Maxson, Chief Financial Officer; and Amit Bhalla, Head of Investor Relations. Thank you for standing by. At this time, participants are in a listen-only mode until the dedicated question and answer session of today's conference. [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 now hand you over to Amit Bhalla.

Amit Bhalla: Good morning everyone. Very happy that you could be with us today and thank you for your interest in Schneider Electric. I'm joined with Olivier and Hilary, our CEO and CFO. We will have the business highlights section followed by the financial highlights and we'll keep time for Q&A. So I obviously want to remind everybody about the disclaimer as always on our slides and immediately hand it over to Olivier.

Olivier Blum: Thank you very much, Amit. Good morning to all of you. It's great to be with you today to share our 2024 results. Of course very honored myself after a couple of months as a new CEO of the company to report first of all that Schneider Electric has been named the most sustainable company in the world by Corporate Knights early 2025 and this is a second time in the past five years. So as you know, we always claim that we want to be an impact company, but being an impact company for us starts to be a company that perform. And it's very important for us that we keep that in mind. If you want to impact, the right to impact, it should be coming from your performance and we are very happy today to report that we have seen an accelerated growth -- execution of our growth in Q4 and as you can see, a 12.5% growth in Q4 itself which has been supported of course by Energy Management that continue to be the driving force from a growth standpoint, but also as you can see on that slide, after several quarters of negative growth in [inaudible] 0

Hilary Maxson: Thanks Olivier and good morning, everyone. Happy to be here with you all today. I'll start with our key financial highlights for the year, some of which Olivier has already mentioned before diving into details on the quarter and the P&L. As Olivier said, we finished the year with record revenues of 38 billion, up 8% organic. We also continued to progress our gross margins to 42.6% at the end of the year, up 80 basis points organic, which drove our adjusted EBITDA to a margin of 18.6%. Our net income was impacted by a non-cash impairment we took in the first half with our adjusted net income better reflecting our strong operating results at plus 15%. Our free cash flow is greater than 4 billion for a second straight year and our cash conversion ratio is approaching 100%, both with and without that non-cash impairment. These strong operating results all translate into a big step up in our ROCE, now approaching the 15% plus, we mentioned at our Capital Markets day, and I'll speak in more detail to each of these in the next slides. Starting with revenues, in Energy Management, we continue to see strong demand and strong growth across our end markets, particularly in data center, but not only translate into strong sales. In Industrial Automation, as you know, we were impacted throughout the year by weakness in discrete automation. However, we start to see positive momentum in the H2 and Q4. Overall we were up 8% organic in sales, reflecting the strong positioning of our portfolio and the benefit we have from diversification across geographies and our business models. Negative scope impacts are associated with our sensors business which we sold in Q4. 2023. NFX translation also adversely impacted our revenues by around 400 million Euros, mainly due to the weakening of the Chinese Yuan and a number of more volatile currencies against the Euro. And as you can see in the footnotes to this slide, based on current rates, we'd expect FX impacts to turn positive this year, contributing plus 600 million to 700 million to our top line and plus 10 basis points of adjusted EBITDA. On this next slide we show our backlog progression for 2024. We report on our backlog once a year, although we did give you some comments on its evolution throughout the year. As you can see, we have a strong uptick in our backlog of around 12% versus 2023 putting it at 21.4 billion Euros. This is driven by continued strong order growth in systems and services, partially offset in Q4 by the pickup in volumes in our North America business driven by regularization of our supply chain there and we expect to be fully normalized in our supply chain in North America in terms of customer deliveries over the next months, although as Olivier mentioned, we continue to invest in our capacity there to support strong demand. Looking at our revenues in the context of our digital flywheel, our digital and digital enabling revenues are now at 57% of our total group revenue with continued double-digit growth in connectable products and field services offset by negative growth in edge control due to the weakness in discrete automation markets. In software, our revenues are still being adversely impacted by the transition to subscription. As Olivier said, you can better see past the accounting impacts of that transition by following the annual recurring revenues at AVEVA and how these translate into an uptick in our percentage of recurring revenue in agnostic software. We finished the year with plus 15% ARR at AVEVA and, as you can see here, we're now at 77% recurring revenues in agnostic software, well on track towards our target of 80% by 2027. Turning now to our fourth quarter revenues, we were up 12% organic to $10.7 billion with Energy Management remaining strong double digit and Industrial Automation returning to growth. North America and rest of world continue to be our strongest contributors with a good pickup in growth also in Asia Pacific and Western Europe, and scope and FX impacts aren't material to the quarter. Turning to our diverse mix of business models, in Q4, growth in products continued to improve with mid-single digit growth in Energy Management offset by Industrial Automation down mid-single digit due to the weakness in discrete markets but where we continue to see signs of improvement with growth in various product offerings like contactors and signaling. Our systems business where we sell directly to the end user continued with particularly high demand and strong execution translating into sales of plus 27% driven by investments in data center and infrastructure, partially offset by some delayed projects in process and hybrid. Software and services was back to double-digit growth at plus 11% supported by good growth in revenues at AVEVA and strong growth in our digital service offerings for EcoStruxure and sustainability as well as double-digit growth in field services. Specifically in Energy Management, we were up 15% organic for the quarter. North America was up a very strong 25% driven by our systems business, particularly data centers and with double-digit growth in products. We did see some weakness in residential particularly in the US likely tied to continued high interest rates there. Sales were also supported by a step up in supply chain volumes in North America due to continued improvements in our supply chain execution and our capacity additions. Western Europe was up 7% organic with double-digit growth in Italy and Spain and high single digit growth in France and the UK, driven primarily by demand in data centers and infrastructure. Asia Pacific was up 8% with China continuing down low-single digit and where we see continued weakness in the construction markets partially offset by an acceleration in demand for data center. The rest of Asia Pacific was up double-digit with particularly strong growth in India where we see strong growth across our end markets as well as double-digit growth across various other markets driven by data center. Rest of world was up 18% including some FX-related pricing. Excluding that, South America was up double digit due to strong demand across end markets while Middle East and Africa grew high single digit including strong residential. Turning to Industrial Automation, sales turned positive in the Q4, up 1%, driven by growth in software and a return to growth in certain product offers although discrete remained down overall and process automation was flat. North America was flat with growth in software offset by continued weakness in discrete market as stock levels at our channel partners continued to normalize. Western Europe was up 1% for the quarter with high-single digit growth in software, offset by weakness in discrete particularly in Germany. Despite continued weakness in sales, we do see some signs of demand recovery in discrete markets in Europe, particularly in Italy, France and Spain. Asia Pacific was down 8% for the quarter with weakness across discrete process automation and software. China was down low double digit with the rest of Asia Pacific primarily down as well, more notably in software and process automation. Discrete markets were stronger in India and flattish in Northern Asia. Rest of the world was up 20% with double-digit contributions from software, process automation and discrete. Middle East and Africa and South America led the growth. Turning now to our full year P&L, we finished the year with adjusted EBITDA of 7 billion and organic growth of 14%. This was driven by our top line growth as well as an expansion in our adjusted EBITDA margin of plus 90 basis points organic to finish the year at 18.6% supported by strong progression in our gross margin. Our R&D to sales ratio, including our capitalized R&D, increased by 30 basis points from last year to 5.9%. Despite this step up, our SFC to sales ratio improved by 10 basis points organic for the year. Our adjusted EBITDA margin in Energy Management was up 110 basis points supported by the strong demand and strong systems pricing, whereas adjusted EBITDA margin in Industrial Automation was down as expected 150 basis points impacted by the lower volumes we saw throughout the year in discrete automation. Getting into a bit more detail on our adjusted EBITDA progression, we finished the year with gross margin of 42.6% or plus 80 basis points organic. This was driven primarily by industrial productivity. Despite the as expected impacts from the actions we're taking to support our North America supply chain and strong pricing in our systems business, pricing on products went back to more normal levels as anticipated. In 2025, we would continue to expect some gross margin progression but at a more muted level as we continue to take advantage of the strong demand trend in our systems business and to expand our capacity. In terms of our OpEx or what we call support function costs, we continue to drive some structural savings to help offset inflation and we continue to make investments to support our strategic priorities of innovation, of capturing the growth opportunities in our markets and our internal digital transformation including ERP upgrades. Turning now to our net income, including scope and FX, our adjusted EBITDA is up 10%. Below the line, our other income and expense was negatively impacted by a provision of 104 million tied to the fine communicated by the French Competition Authority that we disclosed in our Q3 reporting. We also lodged an appeal against this decision in December 2024. Restructuring costs were $141 million for the year and financial costs were lower year over year due to increased interest income and lower FX costs. Our effective tax rate was 23.1% and we anticipate our ETR will be in the range of 23% to 25% for tax 2025. This all results in a net income of 4.3 billion Euros, up 7% and adjusted net income of 4.7 billion, up 15%. These strong operating results translated into strong cash flow from operations of 6.3 billion, up 14%. Our cash conversion ratio for the year came in at 99%, including the impairment we took earlier this year, or 94% without that charge aligned with our expectations of approaching 100% for the year. Our free cash flow was impacted by a strong uptick in trade working capital tied with purchases of inventory to support our focus on supply chain execution and our program of capacity additions. Free cash flow for the year again surpassed 4 billion, finishing at 4.2 billion. And in 2025 we'd expect the cash conversion ratio to again be approaching 100%, including a step up in our tangible CapEx we showed a bit earlier on one of our slides. Our debt ratios remain very strong, supported by our free cash flow generation. And based on the strong results we've been discussing throughout this call, we did see a significant step up in our ROCE to just shy of 15%, close to our target of 15% plus, as disclosed in our capital markets day. Lastly, we're proposing another progressive dividend for the 15th year of EUR390 per share and this is subject to shareholder approval at our AGM in May. With that, let me pass the call back to Olivier to discuss our expectations for 2025.

Hilary Maxson: Thank you very much Hilary for this clear explanation of 2024. Indeed, let's move now to speak about 2025. But before we speak about number, I'd like to give you a bit of color on what are the key trends we see for 2025. First of all, I said it in my introduction, but we continue to see a strong and dynamic market demand which is giving really a favorable opportunity for Schneider due to our positioning. And we see that as I said initially in all markets. So all markets will contribute and of course data center being an important one, but not the only one. Second point which is very, very important, we have a unique portfolio from product to system and services. System will continue to contribute strongly to that growth in 2025 led by the Energy Management business in particular in all end segment. We see, as we said with ** [inaudible] 0

A - Amit Bhalla: Thank you very much Olivier and Hilary. We do have around 25 minutes. I'm sure there are lots of questions and I want to make sure I try to get to every analyst. So just stick to one question, as always, and with that let's get started. Operator, first question, please.

Operator: The first question is from Simon Toennessen of Jefferies. Please go ahead.

Simon Toennessen: Hi, all right, thank you very much, Olivier and Hilary. Yeah, good morning everybody and thanks for taking the question. My first question is just on sort of order trends you're seeing. I presume you're not surprised that since DeepSeek, there's a lot of questions around this and I know you historically haven't given orders, but have you seen any changes in customer behavior at all? Or is it basically just confirming the trends that you've seen generally throughout Q4 or the majority of 2024 as you enter 2025? And maybe just as an add-on to that, obviously Motivair is a recent acquisition from you, lots of chat, obviously what seek implies in the end. But I think the concern, I guess lies around less power intensity potentially and maybe air cooling for longer, less liquid cooling, just a bit of a comment on that, I guess, and then your views and since Motivair. Thank you,

Olivier Blum: Thank you and thank you for the question and it's a very important one. Look, first of all, if you, if you step back a little bit on DeepSeek, on our side, our first sake, it's a good news because if you remember when we were -- all of us one or two years ago, AI was still fairly new, we knew that will be important, that will create a lot of infrastructure. But for us, DeepSeek confirmed the fact that the consumption for AI will get bigger and bigger. And I can tell you we see it at our customer side, we see it even at Schneider Electric for our own company, for what we can do for our customer, we will consume more and more of AI. So AI will be everywhere. DeepSeek will help to make the technology more accessible. Now, to answer specifically your question, we are working every day with our customer and there is no change in the trend. The pipeline that we have in front of us remain the same. It's a very robust pipeline and that gives us the confidence that we can benefit really from that opportunity in 2025 and beyond. Going to the last part of your question, and I'm going to keep it very, very short, but if you look at the impact of AI from a technology standpoint, starting from the chips and as you probably know, we have a partnership with NVIDIA. It's increasing drastically the need to have data center which will have more power, more cooling and you need to optimize that anyway. So if DeepSeek is helping by design to have more optimized data center, because less energy and a bit less attention on the good side, it's pretty good, but I can tell you we are closing in the coming days the acquisition of Motivair. The pipeline that we have for Motivair, the demand that we have is just tremendous. So we are quite confident that this acceleration for AI is at the end of the day good news for Schneider Electric in the coming years.

Amit Bhalla: All right, thanks, Simon. Next question, please.

Operator: The next question is from Jonathan Mounsey, BNP Paribas. Please go ahead.

Jonathan Mounsey: Yes, thank you for letting me ask a question. So many, I will try to stick to one. The net debt ratio, it's just one now and given the guidance for the P&L and the excellent free cash flow conversion rate you're expecting for 2025, just wondering, in the absence of M&A, that leverage is going to get very low by the end of 2025. Have you got any thoughts on where the ratio should be, how you might maintain it, maybe more buybacks, why haven't we had those today, or perhaps is the M&A pipeline such that you expect to re-lever via more spend?

Olivier Blum: I'll let you take this one, Hilary.

Hilary Maxson: Sure. So indeed we do have a particularly low net debt ratio at the end of this year. You can see actually a couple of things there. First, well, from a capital allocation standpoint, I think we've been quite clear, we focus on maintaining our investment grade credit ratings, strong investment grade credit ratings, the progressive dividend. And then in terms of M&A, we've mentioned we maintain our agility and opportunistic view that we've had over the past many years. I would say. So this year we have a couple of particular things. Of course we continue with the progressive dividend, but we also have quite a bit of debt maturities this year, 3.5 billion. So there's a particular reason that we did a little bit of additional -- that we put a little bit of additional debt in the market in 2024. So I think in general we feel comfortable with where we are there. We mentioned at the Capital Markets Day a couple of things. We'll continue share buybacks to neutralize our employee share plans and that continues to be our plan. And then of course, if we started to build a lot of cash on our balance sheet again this year, we have particular level of cash for particular reason. We're not averse to some sort of special distribution to our shareholders in some particular form.

Amit Bhalla : All right, thank you, John. Next question.

Jonathan Mounsey: Thank you.

Operator: The next question is from Alasdair Leslie, Bernstein. Please go ahead.

Alasdair Leslie: Thank you. Good morning. Quick question just on Energy Management, clearly very strong growth again in North America suggests another step change. Just kind of curious how much of that further acceleration was down to new capacity coming online. I suppose more importantly, how much more is still to come in terms of the ramp up and higher loading of those new facilities. And if I could just attach on to that, how much do you still bake in terms of kind of maybe a negative impact on margins from productivity in H1 from these measures, or is that headwind now largely behind you? Thank you.

Olivier Blum: Thank you for the question. I'll start and let you complete, of course, Hilary. Definitely, as you said, North America has been a strong growth driver for Schneider Electric. But I want to remind that the capacity we are building is not only for North America, it's also for India and Middle East where we have seen tremendous opportunity already in 2024, but moving forward. And you see that -- by the way, when you look at our results by region, you will see that the rest of the world continues to contribute significantly to our growth. So we are benefiting definitely from the additional capacity that we have created in the US but also in the rest of the world. And as I said in my introduction, we'll keep on definitely investing to be ready for the next cycle. I'll let you maybe complete on some element of capacity if you want, Hilary.

Hilary Maxson: Sure. So we -- in North America, just to give you a sense here, and it's not just new capacity, we've talked about two things, the supply chain execution and new capacity. In the Q4 we had a particular step up impacting the group probably within the range of just a couple of points there. So we're quite pleased with the execution that we have there and how much more is to come. We already, I think, gave you the 2 billion over the incremental CapEx over the course of the Capital Markets Day. So happy to discuss further offline but that should give you a good sense. In terms of gross margin for 2025, I mentioned it would be a bit more muted. We do expect more normalized industrial productivity, not the big step up we might anticipate from new capacity but sort of in a normal range, I would say, for 2025. The impact there leading to the more muted gross margin that I discussed is more around pricing. We would expect more normal pricing or continued normal pricing in products but also more normal pricing in systems after we've had the big step up over the last couple of years.

Amit Bhalla: Thanks Alasdair. Next question please.

Alasdair Leslie: Thank you.

Operator: The next question is from James Moore, Redburn Atlantic. Please go ahead.

James Moore: Good morning, everybody. I hope you can hear me. I wanted to ask a question about data centers. I think you mentioned that we've gone from 21% to 24% and last year you very helpfully said distributed, it was 7% and hyperscaler, 5.5%, behind that 21%. Could you give those splits behind the numbers for 24%? And I'm really trying to get down to hyperscaler. You say most of the growth is cloud. Would that be fair to say that cloud has gone from 5.5% to say 9% of group, which I calculate would mean that hyperscaler is growing 70%, 75% in orders in 2024. I really love some confirmation if that's the kind of magnitude of order growth in hyperscaler. And how do you see that number growing in the coming three to five years?

Olivier Blum: Well, look, it's an important question. Definitely we see growth coming from the hyperscaler but not only it's very important, we see that growth everywhere in the world and coming also from the rest of the market. We don't communicate any specific number moving forward. Maybe you want to react, Hilary, to give a bit more granularity on the split.

Hilary Maxson: Yeah, sure. So happy to give you a little bit more information on that split. So in terms of pure data center and then the distributed IT side, like we said, the whole thing is 24%, around 20% of that at pure data center, around 4% is distributed IT now, so you can see a bit that differential in growth rates that we've discussed. Of that 20%, a bit less than half of that will be with hyperscalers. Now it's a bit difficult frankly to calculate all that back to our orders rates. There's lots of things going on, but suffice to say I think we feel that there's healthy growth in that segment and for all the reasons we discussed here, we would expect there to be healthy growth to come. As we've said before, not exponential but healthy growth as really this new infrastructure backbone is built out and continues to be built out in the, in the future.

Amit Bhalla: Thanks James. Next question please.

Operator: The next question is from Andre Kukhnin with UBS. Please go ahead.

Andre Kukhnin: Good morning. Thank you very much for taking my question. I just wanted to take the opportunity to dig into medium voltage systems a bit more. Could you just remind us of the exposure to that segment if we put the whole data center piece aside and think about just medium voltage for kind of utilities and industrial and other building applications? And could you talk about the kind of the normalization of lead times and the pricing committee made earlier? Effectively, do we need to worry about the sort of pricing of those rush orders that we've heard some of your peers and some of the industry experts talk about? Did you take an advantage of that during 2024 and is that what's normalizing or is it more of a normal trend? And is there like an SF6-free kicker to expect in 2025? If I can pack all of that into one question. Thank you.

Olivier Blum: Thank you. It's a lot in one question. To start with on the medium voltage, it's indeed an important part of our portfolio. It's a business that contributes highly to data center, but not only everywhere in the world and of course with the demand for more electrification. It's a part of our portfolio which has grown pretty well in the past cycle. We don't communicate any specific number on how much it represents in the total. But talking about where we are in the future, you are well aware, and it was part of my presentation, that we have completely renewed our range in medium voltage with the AirSeT range and it's definitely already a strong contributor to our growth and our performance in 2024, which gives us really the opportunity to gain the market share in different parts of the world. So that's really a very important part of our portfolio which is helping us again in data center, but outside as well. And definitely AirSeT is coming at the right time because it's a full revamp of all our product and you know that in some part of the world the ban will be put in place and Schneider Electric is really ready to make the difference and to capture most of the opportunity. So, I'll stop there maybe and if you want to complete on some point, Hilary.

Hilary Maxson: No, no, I think you said it all.

Olivier Blum: Thank you.

Amit Bhalla: Thanks, Andre. Next question.

Operator: The next question is from William Mackie from Kepler, please go ahead.

William Mackie: Yeah, good morning to you all. Thanks for the time. My question relates to some of your comments earlier about commercial agility and the actions that you might take as sort of geopolitics and particularly tariffs evolve. I want to go to North America specifically where you've said you have 83% in region, four region, but I'm guessing that includes Mexico, which is a large manufacturing base for you into North America. So maybe generally to talk about how you might adjust specifically with relation to tariffs and particularly how the Mexico-USA relationship could develop.

Olivier Blum: Yep, sure. I'll start what is very important when I was talking about commercial agility and of course we are very much focused today on the case of US, but that's not something new, that's something that happened in the past cycle in all geographies. So we try to stay very, very, very close and put in place a plan that we can implement as soon as possible. What we said, which is important, that commercial agility give us the confidence based on the information that we have in front of us today, that we will be able still to deliver our profitability guidance in 2025. Now, as you know, we look at the news every day and we are following us, we are following also so any kind of reciprocity which could happen for other part of the world. But I think we are confident with the team that we have the different plan in place that we can activate immediately. Now going a bit deeper, Hilary, maybe on the North America side and Mexico, I don't know if you want to bring a bit more color here.

Hilary Maxson: Sure. So we did give you the 83% North America for North America and also I think we mentioned that 17% -- out of that 17% that's remaining outside of North America, nothing particularly material to call out, it's across various countries. You're right that within the 83% North America for North America, of course, Mexico is also included. To give you a little bit of a sense of the magnitude there and to be fair, the tariffs are ever evolving, right. Each and every day almost we see something new in the news, not exactly solidified yet. But if some of the aspects of the current trade agreements between Canada, the US and Mexico were to stand, so for example the special tax zones, we would have an exposure in terms of imports from Mexico to the US only in the few hundred millions, so any impact to us in terms of tariffs we would expect to be immaterial. If that's not the case, if those special tax zones aren't to hold, that magnitude will be sometimes higher than that few hundred million that I said that's where we're really preparing the commercial actions that we would put into place to protect our profitability. So we watch each and every day like you do, I'm sure to see this ever evolving scope and where it might land and therefore what we would need to do as a company.

Amit Bhalla: Yeah, and we'll keep you updated as there's more detail in the coming months as well. Next question please.

Operator: The next question is from Gael de-Bray, Deutsche Bank. Please go ahead.

Gael de-Bray: Hello, thanks. Thanks very much and good morning everyone. If we start to see a next generation towards insurance and perhaps less training, taking DeepSeek into consideration, so what does that mean exactly for you in terms of the content, in terms of the type of product or maybe the margin differential between what you have with large scale AI training data centers and what you would have for the rest, maybe more on the enterprise and at the hedge level.

Olivier Blum: Thank you. It's a very important question and I was mentioning before that for instance we have announced last year this partnership with NVIDIA. What is super important for us is to stay upstream in the value chain, to stay very, very close from the latest technology to understand what is impact. What we see today is definitely it increase the power capacity in the racks, it increase the need for liquid cooling. It is true with training, it is true with inference and our job, at the end of this day, with those customers really to co-design and to make sure they make their data center more efficient. So it translates at the end of the day in more data center, in bigger capacity and also power capacity for data center and cooling and which is a reason I mentioned before why we have done the acquisition of Motivair. So from a top line standpoint it's definitely a strong driver for Schneider Electric. From a margin standpoint, it does not have any particular impact. It's still would say fairly neutral. It remains at the end of the day a competitive market of course, but for us, Schneider Electric, as I said, the more we are upstream in the value chain, co-designing, co-architecting the data center, in particular with hyperscaler, that give us the confidence that it's a long-term relationship. And you know that in many cases, by the way, we sign contract for two, three years across the cycle. So, no major shift in terms of margin, but a strong opportunity in terms of top line.

Amit Bhalla: Thank you, Gael. Next question.

Operator: The next question is from Philip Buller, Berenberg. Please go ahead.

Philip Buller: Hi. Thanks for the question. My one is really a follow up to Jonathan's earlier question, but for Olivier, if I may. Given the balance sheet optionality and given how good everything is organically, I guess the question is what is the next leg in terms of strategic priorities for you over the medium term? I'm wondering if there are going to be some inorganic avenues that you could be pursuing via M&A and where would you like to focus those efforts, be that technology, end market or geography please. Thanks.

Olivier Blum: Sure, sure. So look on M&A, Hilary said the plan that we have presented by 2027 is without M&A. We'll stay very attentive. We'll stay also opportunistic every time it makes sense to achieve our strategy. Coming back to the strategy and what I described, but I'll repeat it, two important elements. We continue to transform our portfolio from hardware to more digital, more services. It's great in terms of revenues from EcoStruxure to Connect, we have everything in place. Now it's really about going to the next level and delivering that values to our customers. Again, we talked a lot about data center today, but I repeat, not only in data center. When you look at the opportunity we have between Energy Management, ie together with one software and AVEVA, it gives us a tremendous opportunity in industry to continue to grow, to differentiate from design, operation and maintenance. So that's very important. That's the first one which is important. Continue to increase the digital part of our portfolio and that's why we always communicate to you about the Digital Flywheel improvement, which is basically the illustration of that strategic dimension. The second one which is very, very important is to continue to have a very, very balanced exposure by geography. And of course across cycle, those geography might be different. We have historical strong position in different part of the world. In this specific cycle, our focus is really to keep growing and make the most of the opportunity in US, I said it already, but also continue to build on what we have done in India, which is a very important country for Schneider Electric and when we see the market still quite dynamic. And last but not the least preparing and accelerating probably the next part of the cycle with Middle East and Africa, which is still, I would say, a fairly new opportunity from a size standpoint. But when we see the opportunity there, there is really something for Schneider Electric because in those regions you need more homes, you need more buildings, you need more industry, you need more everything. And when you look, by the way, at the growth of the rest of the world, it gives you an illustration of the dynamic on that market. So that's a second pillar. Continue to develop strong geographical footprint and benefiting from those new geographies, which will continue to for Schneider to have a very differentiated positioning and strategy.

Amit Bhalla: Thank you, Phil. Next question please.

Operator: The next question is from Max Yates of Morgan Stanley. Please go ahead.

Max Yates: Thank you. Good morning everyone. Could I just ask about your data center business? So it looks like you did around 9.7 billion of orders in data centers. Could you give us a feel for how much of your sales are data centers today? And would we be right in thinking maybe the percentage of orders last year at 21% is a good reflection of where sales are today? And then as an extension of that, when we look at your growth through the year in that data center business, was there any major deviations, was there any single quarter where the data center growth rates were much larger than others and that obviously influenced the overall growth rate for the group. Thank you.

Olivier Blum: Yeah, I'll start and I'll let Hilary complete. You know what is very important to have in mind in data center, data center is, as we said, made of very large projects with hyperscaler. So it's extremely difficult on a monthly basis or quarterly basis even to look at the detailed trend because you can have one specific quarter where you will have a large order from a hyperscaler and that will -- so we have really to be careful on how we look at this trend on orders in data quarter-by-quarter. I think what is super important is to look at the 12 months basis and for us internally, we are looking pretty much of our pipeline and what we have in front of us. I'll stop you, but I don't know if you want to bring more color on the specific number, Hillary.

Hilary Maxson: Yeah, I mean it won't be a perfect translation to look at the 21%, but it's not a bad indication of the trend. Of course, since we have -- this is our fastest growing segment. We have orders that are -- and there's an execution time in terms of data center. We have a lag therefore on the sales side in terms of the percentage that would be there. So that's not a bad way to look at it. I would just point to the fact that we've talked about the fact that we have orders that go into 2026 and so there's some execution that will be in there, but not a bad place to look.

Amit Bhalla: All right, thanks, Max. I'm mindful that we are at the hour, but I want to probably give another few minutes just to make sure we cover any other analysts who might not have had the questions. So, operator, in case there's more questions, let's go to the next one.

Operator: The next question is from Alexander Virgo, Bank of America. Please go ahead.

Alexander Virgo: Yeah, thanks very much. Morning everybody. Appreciate you squeezing me in. Maybe I could just come back on Andre's question on pricing. If the 400 basis points of gross margin in the bridge is predominantly driven by systems, gross margin pricing, that sounds like it's sort of 15% or so or more given the rush pricing that Andre mentioned. So I wonder if you could just comment on that with respect to 2025. Is that what we're talking about in terms of moderation? Thank you.

Olivier Blum: Well, I'll start quickly and then let you, Hilary, finish. What is very important and I think we've demonstrated that in the past cycle, we are always very attentive at the evolution of our gross margin and the mix in particular. So we have demonstrated in the past cycle with an evolution of our mix that we are still able to sustain our gross margin and translated in strong profitability at the end. So we'll continue definitely to do that in all part of the world. As I said, we have a multi-local strategy, which give us the opportunity to have a decent pricing power in different parts of the world. But I'll let you elaborate a little bit more on the specific question on gross margin, Hilary.

Hilary Maxson: Yeah, sure. I mean if you look at the gross margin evolution and we show it each half, you can see actually that, that systems pricing has been there for some time. So I'm not aware that we saw anything in particular, I would say, in the second half versus the first half in terms of systems pricing. There's a lot of demand in systems generally in data center, but not only. And therefore we've done what we believe is the right pricing strategy not just this year but even for a couple of years now in systems. So I think probably nothing to call that out there, aside from like I mentioned and exactly what you said, we've done some strong pricing there over the past couple of years, we would expect some normalization of that in 2025.

Amit Bhalla: Right, thank you. I think we'll take one final question, if there is, before we stop.

Operator: Yes, the final question is from Benedict Uglow, Oxcap. Please go ahead.

Benedict Uglow: Good morning, Olivier, Hilary and Amit. Thank you very much for taking the question. Yeah, I guess it was more color on the situation in China. Hilary, I remember back in October, November, you were indicating that you'd seen a sort of pick up in the smaller discrete automation products and it sounds as if that's continued. But when we look at the overall China number, it still looks pretty muted. So, could you give us an update on what's going on the ground? Why we're not seeing a more broad based recovery on the Industrial Automation side? And then one, if there's time, once you've done that, can you just give us an overall sense, how would you describe in very broad terms the kind of recovery that we're seeing in China? Is it broad based? It seems very different from end market to end market. Thank you.

Olivier Blum: Thank you for this question. It's definitely a very important market for Schneider Electric. Look, I can share a couple of thoughts. I was in China recently. I can tell you if you speak with customers or if you speak with, by the way, other companies in the industry, we don't expect any major shift in 2025. The market will stay more or less at the same level that it was last year, which is fairly moderate. Even if there is a certain number of measures that have been taken by the government, it will really take time to be implemented and to translate in a much higher demand. As far as Schneider Electric is concerned, in China, we have a fairly good balance of exposure between the different end market and historical very strong position in building which will continue to be moderate. A slight recovery, as we said, in industry and important particular the OEM sector, but we cannot expect something super big in 2025 and like the rest of the world, definitely a peak in demand in data center in China for China, which is also an important part. So I would say if I summarize, we don't expect -- and we are not the only one by the way, talking to any kind of company operating in China, we don't expect a very strong recovery in 2025 itself, maybe beyond 2025 a little bit better but that will stay fairly stable at the level where it was last year. For us, it's important that we continue to get prepared, we continue to innovate, we continue to do a lot of R&D in China for China in different parts of our portfolio to continue to stay very, very, very competitive. And when the market will pick up, I think, we'll have the opportunity to make the most of the rebound, but to keep it short, fairly stable compared to what we have seen in 2024.

Amit Bhalla: All right, thank you. Thanks for your patience for running a bit over. I think we'll stop over here. Of course we are going to get onto the roadshow quickly and meet several of you on the road as well as the IR team is available to engage. Thank you very much and have a good rest of the day.

Olivier Blum: Thank you.