Earnings Release • Nov 8, 2018
Earnings Release
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Limoges, November 8, 2018
Net sales: +11.3% (+17.2% excluding exchange-rate effect)
Adjusted operating profit: +11.4%
Net profit attributable to the Group: +21.1%
Normalized free cash flow: +24.5%
Success of new product launches
To date, four external growth operations announced
Legrand is aiming for:
organic growth in sales of close to +4%, and
adjusted operating margin before acquisitions2 of between 20.0% and 20.5%
Over the first nine months of 2018, sales rose +11.3% in total. This good performance was driven by an increase in the scope of consolidation (+11.8%) and by a solid organic rise in sales (+4.8%) which benefited from Group growth initiatives that were partially offset by a decrease in sales in France in the third quarter due to a marked and one-off destocking in distribution.
Excluding the unfavorable exchange-rate effect (-5.1%), sales rose +17.2% in the first nine months of the year.
Compared with the first nine months of 2017, adjusted operating profit increased +11.4% and adjusted operating margin stood at 20.5%, up 0.1 points. Excluding acquisitions2 , adjusted operating margin for the first nine months was stable compared with 2017 at 20.4%, as performance in the third quarter alone was unfavorably affected by specific items.
At the same time, net profit attributable to the Group and normalized free cash flow grew sharply, increasing +21.1% and +24.5%, respectively, from the same period of 2017.
The innovation momentum continues, with many digital initiatives and the successful launch of many new products since the beginning of the year. These included connected offerings of the Eliot program, solutions dedicated to the buoyant digital infrastructures market, as well as several user interface ranges.
Moreover, the Group has pursued its strategy of targeted acquisitions and has already announced since the beginning of the year four external growth operations in the fields of digital infrastructures, UPS, and electrical equipment for DIY3 activities. These acquisitions thus enable Legrand to continue to strengthen its positions on upbeat segments of its accessible market."
2 At 2017 scope of consolidation.
3 DIY = Do-It-Yourself.
1 Targets announced by Legrand on February 8, 2018: "organic growth in sales of between +1% and +4%" and "adjusted operating margin before acquisitions (at 2017 scope of consolidation) of between 20.0% and 20.5% of sales". For a complete presentation of Legrand's 2018 targets, readers are invited to consult the press release announcing full-year 2017 results.
Based on its performance in the first nine months of 2018 and excluding any economic slowdown by the end of the year, Legrand is confirming and specifying its 2018 targets. Legrand is aiming for:
Legrand will also pursue its strategy of value-creating acquisitions.
1 Targets announced by Legrand on February 8, 2018: "organic growth in sales of between +1% and +4%" and "adjusted operating margin before acquisitions (at 2017 scope of consolidation) of between 20.0% and 20.5% of sales". For a complete presentation of Legrand's 2018 targets, readers are invited to consult the press release announcing full-year 2017 results.
| Consolidated data (€ millions)(1) |
9 months 2017 |
9 months 2018 |
Change | |
|---|---|---|---|---|
| Sales | 3,988.3 | 4,437.4 | +11.3% | |
| Adjusted operating profit | 814.9 | 907.9 | +11.4% | |
| As % of sales | 20.4% | 20.5% | ||
| 20.4% before acquisitions(2) |
||||
| Operating profit | 776.3 | 854.3 | +10.0% | |
| As % of sales | 19.5% | 19.3% | ||
| Net profit attributable to the Group | 474.3 | 574.5 | +21.1% | |
| As % of sales | 11.9% | 12.9% | ||
| Normalized free cash flow | 541.5 | 673.9 | +24.5% | |
| As % of sales | 13.6% | 15.2% | ||
| Free cash flow | 415.0 | 441.6 | +6.4% | |
| As % of sales | 10.4% | 10.0% | ||
| Net financial debt at September 30 | 2,284.1 | 2,260.1 | -1.1% |
(1) See appendices to this press release for definitions and indicator reconciliation tables.
(2) At 2017 scope of consolidation.
Sales in the first nine months of 2018 stood at €4,437.4 million, up a total +11.3%.
Organic growth in sales was +4.8%, including +3.9% in mature countries and +7.1% in new economies.
The impact of the broader scope of consolidation came to +11.8% and should come to around +7.5% for full-year 2018, based on acquisitions announced and their likely dates of consolidation.
The exchange-rate effect was -5.1% in the first nine months of 2018. Based on average exchange rates for October 2018 applied to the last three months of 2018, the full-year exchange-rate effect would come to around -4%.
| 9 months 2018 / 9 months 2017 | rd quarter 2018 / 3 rd quarter 2017 3 |
|
|---|---|---|
| France | +0.1% | -4.3% |
| Italy | +5.7% | +4.0% |
| Rest of Europe | +10.4% | +8.6% |
| North and Central America | +4.1% | +4.7% |
| Rest of the world | +4.7% | +4.3% |
| Total | +4.8% | +3.9% |
Changes in sales at constant scope of consolidation and exchange rates are analyzed below by geographical region:
Organic growth in sales was +0.1% in the first nine months of 2018: after a +2.0% rise in the first half of 2018, the change in sales was -4.3% in the third quarter alone due to a marked and one-off destocking in distribution. Downstream sales (sell-out) were flat overall in the third quarter compared with the previous year.
In a market that remained lackluster, Legrand has recorded good showings in energy distribution and digital infrastructures since the beginning of the year, and benefited from a very good response to its new user interface ranges Céliane with Netatmo and dooxie, partially offset by unfavorable change in sales in cable management, installation components and bulkhead lights.
In the first nine months of the year, sales were up +5.7% at constant scope of consolidation and exchange rates.
Legrand's very good performance since the beginning of the year has been driven in particular by the success of its Eliot program's connected offerings (including the Classe 300X connected door entry system and the Smarther intelligent thermostat), and benefited more specifically in the second quarter from the favorable one-off stocking effect of new Living Now user interface range.
Organic growth in sales was +10.4% in the first nine months of 2018.
Driven by commercial initiatives, the Group recorded double-digit organic growth over the first nine months of the year in the region's new economies, with good showings in Romania, Hungary and Turkey in particular.
Sales grew at a sustained pace in a number of mature countries, including Spain, Germany, the Netherlands and Greece.
Revenue was slightly up in the United Kingdom.
Sales were up +4.1% at constant scope of consolidation and exchange rates compared with the first nine months of 2017.
In the United States, organic growth in sales was +4.9% in the first nine months of 2018 and +5.9% in the third quarter alone. These good showings were driven by successes in wire-mesh cable management, intelligent PDUs, and lighting controls, as well as by Milestone's good performance.
Because of a demanding basis for comparison, Legrand's business retreated in Mexico over the first nine months of the year.
Organic growth was up +4.7% from the first nine months of 2017.
Sales grew strongly in India, China and South Korea, as well as in many African countries such as Algeria, Egypt and Côte d'Ivoire. Legrand also turned in good showings in Australia and Malaysia.
In Latin America, sales were very slightly up in Brazil, but retreated in Colombia and Chile. Revenue also declined in Saudi Arabia.
Adjusted operating profit rose +11.4% to stand at €907.9 million.
Adjusted operating margin came to 20.5% in the first nine months of 2018, up 0.1 points from the same period of 2017. The good performance of the acquisitions, in particular Milestone and Server Technology, has an accretive effect on Group adjusted operating margin.
Excluding acquisitions (at 2017 scope of consolidation), adjusted operating margin reached 20.4% of sales, in line with the first nine months of 2017.
More specifically, adjusted operating margin before acquisitions (at 2017 scope of consolidation) was 18.8% for the third quarter of 2018 alone, 1.6 points less than in the third quarter of 2017. This change was predominantly due:
Net profit attributable to the Group stood at €574.5 million in the first nine months of 2018, up +21.1% from the first nine months of 2017. This €100 million rise came primarily from (i) a €78 million strong improvement in operating profit; (ii) a favorable change in net financial expense and foreign-exchange results in an amount of €19 million; and (iii) stable corporate income tax whose rate stood at 29.0% (i.e. a four-point decline from the first nine months of 2017, reflecting the announced2 impact of the reduction in corporate profit tax in the United States for around three points and the favorable consequences of specific one-off factors for around one point).
Cash flow from operations increased +20.4% to stand at €789.8 million, i.e. 17.8% of sales in the first nine months of the year.
Normalized free cash flow recorded a steep +24.5% rise to reach €673.9 million over the first nine months of 2018.
Working capital requirement remained under control at around 10% of sales at September 30, 2018.
Free cash flow stood at €441.6 million.
Legrand has continued to successfully enrich its offering with new products that deliver greater value in use, including the connected solutions developed under its Eliot program. In the first nine months of the year, the Group launched:
1 For full details, readers are invited to refer to comments on page 4 concerning business developments in France in the first nine months of 2018.
2 For more information on tax reductions in the United States announced in 2017, and their expected impacts on Legrand's accounts, readers are invited to refer to pages 14 and 15 of the press release announcing full-year 2017 results, published February 8, 2018.
More specifically, in Audio-Video infrastructures and power systems, Legrand's innovations garnered several awards, winning 11 times in eight Best of Show categories at the 2018 Infocomm tradeshow in Las Vegas.
Legrand remains active in external growth announcing four small to mid-size bolt-on1 operations since the beginning of the year, which enabled the Group to strengthen its positions in upbeat segments of its accessible market.
Legrand thus announced:
1 Acquisitions that complement Legrand's activities.
2 Subject to standard conditions precedent, this calls for Legrand to acquire 100% of R. Finances SAS, the majority shareholder of Debflex S.A., listed on Euronext Access Paris (ISIN FR0010776658). Assuming the acquisition is successfully concluded, Legrand intends to acquire Debflex's remaining equity in a second phase.
3 DIY = Do-It-Yourself.
Consolidated financial statements for the first nine months of 2018 were adopted by the Board at its meeting on November 7, 2018. These consolidated financial statements, a presentation of results for the first nine months of 2018, and the related teleconference (live and replay) are available at www.legrand.com.
KEY FINANCIAL DATES:
Legrand is the global specialist in electrical and digital building infrastructures. Its comprehensive offering of solutions for commercial, industrial and residential markets makes it a benchmark for customers worldwide. Drawing on an approach that involves all teams and stakeholders, Legrand is pursuing its strategy of profitable and sustainable growth driven by acquisitions and innovation, with a steady flow of new offerings—including Eliot* connected products with enhanced value in use. Legrand reported sales of more than €5.5 billion in 2017. The company is listed on Euronext Paris and is notably a component stock of the CAC 40 index. (code ISIN FR0010307819)
*Eliot is a program launched in 2015 by Legrand to speed up deployment of the Internet of Things in its offering. A result of the group's innovation strategy, Eliot aims to develop connected and interoperable solutions that deliver lasting benefits to private individual users and professionals.
www.legrand.com/en/group/eliot-legrands-connected-objects-program
Investor relations Legrand François Poisson Tel: +33 (0)1 49 72 53 53
Press relations Publicis Consultants Vilizara Lazarova Tel: +33 (0)1 44 82 46 34 Mob: +33 (0)6 26 72 57 14 [email protected]
1 All communication suspended in the run-up to publication of results.
Adjusted operating profit is defined as operating profit adjusted for amortization and depreciation of revaluation of assets at the time of acquisitions and for other P&L impacts relating to acquisitions and, where applicable, for impairment of goodwill.
Cash flow from operations is defined as net cash from operating activities excluding changes in working capital requirement.
Corporate Social Responsibility.
EBITDA is defined as operating profit plus depreciation and impairment of tangible assets, amortization and impairment of intangible assets (including capitalized development costs), reversal of inventory step-up and impairment of goodwill.
Free cash flow is defined as the sum of net cash from operating activities and net proceeds from sales of fixed and financial assets, less capital expenditure and capitalized development costs.
Net financial debt is defined as the sum of short-term borrowings and long-term borrowings, less cash and cash equivalents and marketable securities.
Normalized free cash flow is defined as the sum of net cash from operating activities—based on a normalized working capital requirement representing 10% of the last 12 months' sales and whose change at constant scope of consolidation and exchange rates is adjusted for the period considered—and net proceeds of sales from fixed and financial assets, less capital expenditure and capitalized development costs.
Organic growth is defined as the change in sales at constant structure (scope of consolidation) and exchange rates.
Payout is defined as the ratio between the proposed dividend per share for a given year, divided by the net profit attributable to the Group per share of the same year, calculated on the basis of the average number of ordinary shares at December 31 of that year, excluding shares held in treasury.
Power Distribution Units.
Uninterruptible Power Supply.
Working capital requirement is defined as the sum of trade receivables, inventories, other current assets, income tax receivables and short-term deferred tax assets, less the sum of trade payables, other current liabilities, income tax payables, short-term provisions and short-term deferred tax liabilities.
| In € millions | 9M 2017 | 9M 2018 |
|---|---|---|
| Trade receivables | 692.2 | 712.0 |
| Inventories | 751.0 | 855.7 |
| Other current assets | 196.9 | 186.3 |
| Income tax receivables | 27.8 | 75.5 |
| Short-term deferred taxes assets/(liabilities) | 96.3 | 94.6 |
| Trade payables | (571.9) | (621.6) |
| Other current liabilities | (590.0) | (567.9) |
| Income tax payables | (63.6) | (66.3) |
| Short-term provisions | (69.3) | (79.3) |
| Working capital required | 469.4 | 589.0 |
| In € millions | 9M 2017 | 9M 2018 |
|---|---|---|
| Short-term borrowings | 916.9 | 162.9 |
| Long-term borrowings | 2,070.6 | 2,882.7 |
| Cash and cash equivalents | (703.4) | (785.5) |
| Net financial debt | 2,284.1 | 2,260.1 |
| In € millions | 9M 2017 | 9M 2018 |
|---|---|---|
| Profit for the period | 475.8 | 575.0 |
| Share of profits (losses) of equity-accounted entities | 2.1 | 0.3 |
| Income tax expense | 235.0 | 235.0 |
| Exchange (gains) / losses | 6.3 | (7.0) |
| Financial income | (10.9) | (8.7) |
| Financial expense | 68.0 | 59.7 |
| Operating profit | 776.3 | 854.3 |
| Amortization & depreciation of revaluation of assets at the time of acquisitions and other P&L impacts relating to acquisitions |
38.6 | 53.6 |
| Impairment of goodwill | 0.0 | 0.0 |
| Adjusted operating profit | 814.9 | 907.9 |
| In € millions | 9M 2017 | 9M 2018 |
|---|---|---|
| Profit for the period | 475.8 | 575.0 |
| Share of profits (losses) of equity-accounted entities | 2.1 | 0.3 |
| Income tax expense | 235.0 | 235.0 |
| Exchange (gains) / losses | 6.3 | (7.0) |
| Financial income | (10.9) | (8.7) |
| Financial expense | 68.0 | 59.7 |
| Operating profit | 776,3 | 854.3 |
| Depreciation and impairment of tangible assets | 71.2 | 74.1 |
| Amortization and impairment of intangible assets (including capitalized development costs) and reversal of Milestone inventory step-up |
58.7 | 77.8 |
| Impairment of goodwill | 906.2 | 0.0 |
| EBITDA | 475.8 | 1,006.2 |
| In € millions | 9M 2017 | 9M 2018 |
|---|---|---|
| Profit for the period | 475.8 | 575.0 |
| Adjustments for non-cash movements in assets and liabilities: | ||
| Depreciation, amortization and impairment | 131.1 | 153.8 |
| Changes in other non-current assets and liabilities and long-term deferred taxes |
39.5 | 54.5 |
| Unrealized exchange (gains)/losses | 9.2 | 3.0 |
| (Gains)/losses on sales of assets, net | (1.4) | 2.8 |
| Other adjustments | 1.9 | 0.7 |
| Cash flow from operations | 656.1 | 789.8 |
| Decrease (Increase) in working capital requirement | (138.0) | (252.4) |
| Net cash provided from operating activities | 518.1 | 537.4 |
| Capital expenditure (including capitalized development costs) | (105.9) | (100.5) |
| Net proceeds from sales of fixed and financial assets | 2.8 | 4.7 |
| Free cash flow | 415.0 | 441.6 |
| Increase (Decrease) in working capital requirement | 138.0 | 252.4 |
| (Increase) Decrease in normalized working capital requirement | (11.5) | (20.1) |
| Normalized free cash flow | 541.5 | 673.9 |
| 2017 | Q1 | H1 | 9M | Full year | ||
|---|---|---|---|---|---|---|
| Full consolidation method | ||||||
| OCL | Balance sheet only | 5 months | 8 months | 11 months | ||
| AFCO Systems Group |
Balance sheet only | 5 months | 8 months | |||
| Finelite | Balance sheet only | 4 months | 7 months | |||
| Milestone | Balance sheet only | 5 months | ||||
| Server technology | Balance sheet only | |||||
| Equity method | ||||||
| Borri | Balance sheet only | Balance sheet only | 8 months |
| 2018 | Q1 | H1 | 9M | Full year | |
|---|---|---|---|---|---|
| Full consolidation method | |||||
| OCL | 3 months | 6 months | 9 months | 12 months | |
| AFCO Systems Group |
3 months | 6 months | 9 months | 12 months | |
| Finelite | 3 months | 6 months | 9 months | 12 months | |
| Milestone | 3 months | 6 months | 9 months | 12 months | |
| Server Technology | 3 months | 6 months | 9 months | 12 months | |
| Modulan | Balance sheet only | Balance sheet only | 6 months | 9 months | |
| Gemnet | Balance sheet only | Balance sheet only | 7 months | ||
| Shenzhen Clever Electronic |
Balance sheet only | To be determined | |||
| Debflex | To be determined | ||||
| Equity method | |||||
| Borri | 3 months | 6 months | 9 months | 12 months |
This press release may contain forward-looking statements which are not historical data. Although Legrand considers these statements to be based on reasonable assumptions at the time of publication of this release, they are subject to various risks and uncertainties that could cause actual results to differ from those expressed or implied herein.
Details on risks are provided in the Legrand Registration Document filed with the Autorité des marchés financiers (Financial Markets Authority, AMF), which is available on-line on the websites of both AMF (www.amf-france.org) and Legrand (www.legrand.com).
No forward-looking statement contained in this press release is or should be construed as a promise or a guarantee of actual results, which are liable to differ significantly. Therefore, such statements should be used with caution, taking into account their inherent uncertainty.
Subject to applicable regulations, Legrand does not undertake to update these statements to reflect events or circumstances occurring after the date of publication of this release.
This press release does not constitute an offer to sell, or a solicitation of an offer to buy Legrand shares in any jurisdiction.
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