LIMOGES, France — Legrand today released its 2019 first-half results.
Benoît Coquart, Legrand’s Chief Executive Officer, commented:
“Solid performances in first-half 2019
Sales rose +8.0% in the first half of 2019, driven by organic growth of +2.2%, the increased scope of consolidation for +3.5%, and a favorable exchange-rate effect for +2.2%.
Adjusted operating profit grew +6.0% and adjusted operating margin before acquisitions (at 2018 scope of consolidation) stood at 20.9% of sales, equal to the first half of 2018. After taking acquisitions into account, adjusted operating margin for the first six months of the year came to 20.5% of sales.
Over the same period, net profit attributable to the Group rose +6.5% and normalized free cash flow was up +10.0%.
These solid performances recorded in the first half illustrate once again the quality of Legrand’s business model and the Group’s ability to create value over the long term.
Ongoing initiatives for development and operational optimization
Innovation momentum remained sustained with the launch of connected ranges for user interfaces, home systems, and emergency lighting, as well as innovative solutions for energy distribution and digital infrastructure.
Legrand is also pursuing its strategy of external growth with the acquisition in April 2019 of Universal Electric Corporation, the undisputed US leader in busways for datacenters. More generally, the Group has successfully initiated the docking of recently acquired companies, which have reported very encouraging performances.
Moreover, after achieving the 2020 targets set for its Eliot program as early as 2018 – and building on its acquisition of Netatmo – Legrand has accelerated the development of its digital offering, and announced ambitious new targets on June 12, 2019:
- double-digit average annual organic growth in sales of connected products from 2018 to 2022; and
- over one billion euros in sales generated by connected products in 2022, excluding acquisitions and exchange-rate effects.
Legrand is also pursuing initiatives aimed at strengthening its operational performance, in particular through the gradual roll-out of its ‘Legrand Way’ program to new sites, and through targeted optimization of its industrial footprint.”
2019 Targets Confirmed
Based on its 2019 first-half achievements, Legrand confirms its 2019 target for organic growth in sales of between 0% and +4%, and its 2019 target for adjusted operating margin before acquisitions (at 2018 scope of consolidation) of between 19.9% and 20.7% of sales. Legrand will also pursue its strategy of value-creating acquisitions.
Financial performance as of June 30, 2019
Consolidated sales
Sales were up +8.0% in the first half of 2019 compared with the first half of 2018, and stood at €3,226.8 million.
Driven by good showings in both mature countries (+2.3%) and new economies (+1.9%), organic growth in sales came to +2.2% in the first half of 2019.
More specifically, organic growth in the second quarter alone stood at +1.5%, driven by a sustained rise in sales in mature countries (+2.6%) that was partially offset by a one-off drop in new economies’ sales (-1.2%). This decline was due primarily to a particularly demanding basis of comparison in Turkey and in India as well as to a sharp retreat in business in the Middle East.
The impact on sales of the broader scope of consolidation was +3.5%. Based on acquisitions completed in 2018 and 2019 and their likely dates of consolidation, this effect should reach around +5% in 2019.
The exchange-rate effect was favorable at +2.2% over the period. Applying average exchange rates in June 2019 to the second half and taking into account the exchange-rate effect for the first half of 2019, the full-year 2019 impact on sales of changes in currency rates should be around +1.5%.
Europe (41.9% of Group sales): Organic growth in sales in Europe was +2.3% in the first half of 2019.
In mature countries of Europe, sales grew +2.4% over the period, driven by good showings in Italy, linked in particular to the success of connected offerings, as well as in Germany, Belgium, and Southern Europe. In France, sales were stable in the first half, as an increase in sales in the second quarter—driven in particular by the launch of new offerings in user interfaces with the Mosaic range and in connected emergency lighting—compensated for the retreat in sales in the first quarter.
Fueled by sustained growth in sales in Eastern Europe, sales in Europe’s new economies rose +2.0% at constant scope of consolidation and exchange rates compared with the first half of 2018. In the second quarter alone, sales in Europe’s new economies retreated due to a steep decline in sales in Turkey that stemmed, as announced, from a particularly high basis of comparison.
North and Central America (37.0% of Group sales): Sales rose +2.3% from the first half of 2018 at constant scope of consolidation and exchange rates.
In the United States, sales were up +3.0% in the first half of 2019, driven in particular by good showings in cable management systems, user interfaces, and lighting management solutions.
At the same time, sales retreated from the first half of 2018 in Mexico and Canada.
Rest of the world (21.1% of Group sales): sales rose +1.6% at constant scope of consolidation and exchange rates in the first half of 2019.
Sales were up +1.9% in Asia-Pacific from the first half of 2018, driven by good showings in China as well as in India, where sales nonetheless declined in the second quarter alone, due to a very demanding basis of comparison.
In Latin America, the +3.3% rise in sales was driven by an increase in revenues in Brazil and Peru, partially offset by a decrease in sales in Colombia.
Sales retreated -1.6% in Africa and the Middle East. In Africa, many countries recorded sustained growth in sales, including Algeria and Egypt. In a sluggish economic environment, business dropped sharply in the Middle East.
Adjusted operating profit and margin
In the first half of 2019, adjusted operating profit reached €662.6 million, rising +6.0%. Adjusted operating margin before acquisitions (at 2018 scope of consolidation) came to 20.9% of sales, stable when compared with the adjusted operating margin recorded in the first half of 2018. The decline in gross margin, due mainly to the rise in raw material and component prices, was thus compensated by good control of administrative and commercial costs.
The rise in US customs duties was furthermore fully offset by ongoing pricing and adaptation initiatives.
After acquisitions, adjusted operating margin stood at 20.5%.
Net profit attributable to the Group
In the first half, net profit attributable to the Group increased +6.5%. This €25.3 million rise from the first half of 2018 mainly reflects:
- an increase in operating profit (+€30.2 million);
- an unfavorable change in net financial expense (including the implementation of the IFRS 16 standard) and foreign-exchange results (-€6.7 million); and
- a decline of nearly 2 points – to around 28% – in the corporate tax rate due to one-off items (+€3.3 million).
Cash generation
Cash flow from operations increased +8.1% to represent 18.2% of sales in the first half of 2019.
Normalized free cash flow rose +10.0% in the first half of 2019 to total €514.5 million or 15.9% of sales.
Working capital requirement came to 11.2% of sales1 at June 30, 2019, up 0.9 points from June 30, 2018, mainly stemming from the consolidation of recent acquisitions.
Free cash flow for the first six months of 2019 was solid at 11.6% of Group sales.
Ongoing initiatives for development and operational optimization
Launch of many new product offerings
Legrand continued to innovate actively and rolled out a host of new products in the first half, including:
- user interface solutions such as Mosaic in France, Radiant Graphite in the United States, Lyncus in India, and Rivia in Vietnam, along with the Valena Next connected range in Europe;
- the Classe 100X connected video door entry system in Italy;
- new lighting systems including a connected emergency lighting unit in France and new architectural and mission-critical lighting fixtures in the United States;
- products for digital infrastructures including LCS3 program’s fiber cassettes and Power over ethernet switches as well as Milestone’s Parallax Stratos 1.0 projection screen;
- The Trimod MCS range of UPS solutions; and
- Reach Digital connected residential alarms designed for assisted living.
Legrand’s solutions are known for their reliability, quality and innovative design, and won many awards in the first half of the year, among them:
- an Innovation Award for the Living Now connected user interface range that embeds Alexa, at the Las Vegas CES 2019;
- three IF Design Awards for Living Now (user interfaces), Practibox (energy distribution) and Keor Mod (UPS systems) ranges; and
- a Deutscher Rechenzentrumspreis in Germany, recognizing Legrand’s integration of innovative functions – which provide in particular greater energy efficiency in datacenters – in its PDUs.
External growth
Legrand also pursued its strategy of growth through acquisitions. In April 2019, the Group purchased Universal Electric Corporation, the undisputed US leader in busways for datacenters, whose offering—sold mainly under the Starline brand—has long been known for its quality and ease of installation.
This move strengthened Legrand’s positions in the promising datacenters market in the United States, where it already holds front-runner positions in fields including PDUs, pre-terminated solutions, and cable management systems.
Legrand also successfully initiated first stages in docking its most recent acquisitions, whose first-half performances are very encouraging.
Based on acquisitions completed in 2018 and 2019 and their likely dates of consolidation, the full-year 2019 impact of changes in scope of consolidation should come to around +5% in sales and -0.4 points of adjusted operating margin.
Accelerating deployment of digital offering
On the occasion of an Investor Day held in Paris on June 12, Legrand reviewed the success of its IoT strategy, which allowed to achieve its 2020 targets for the Eliot program as early as 2018. On this basis, and building on Netatmo’s expertise and know-how, the Group is now stepping up deployment of connectivity throughout its product offering and has set ambitious2 new targets for Eliot:
- double-digit average annual organic growth in sales of connected products from 2018 to 20223 ; and
- over one billion euros in sales generated by connected products in 2022, excluding acquisitions and exchange-rate effects.
Legrand also intends to continue its development in digital infrastructure, a business fueled in particular by growth in the number of connected products and that accounted for 20% of 2018 sales.
More specifically, Legrand will continue to strengthen its positions in datacenters, a segment that already accounted for nearly 10%4 of Group’s sales in 2018.
Ongoing strengthening of performance
Legrand is also pursuing its strategy aimed at ongoing improvement in its performance, including:
- active roll-out of its Legrand Way5 program to new sites, while extending it to R&D and product marketing at Group level, and
- targeted optimization of its industrial footprint, in countries including Spain, Turkey, Russia, China and Saudi Arabia.
More generally, these initiatives are part of an approach to operational excellence that is designed to strengthen the Group’s profitable and sustainable business model.
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