Earnings Release • Feb 11, 2021
Earnings Release
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PRESS RELEASE
Limoges, February 11, 2021
Change in sales: -7.9% Adjusted operating margin: 19.0% Free cash flow: 16.9% of sales Achievement rate of CSR roadmap: 128%
Total of 4 new companies acquired in 2020 Ongoing active roll-out of product offerings of recently acquired companies
Diversified positions in promising segments Product offering well-suited to meet emerging new needs Scope for lasting high-quality growth through acquisitions Acceleration of digitization A pace-setting ESG policy
"Facing an unprecedented and highly unpredictable environment, 2020 was a demonstration of Legrand's clear strategy, solid business model, and highly responsive teams.
As the crisis began, our Group moved quickly to address the essentials: protecting employees and partners while continuing to serve our customers, whose businesses are essential to a working economy.
We then sought to limit the pandemic's impact on our own performance: the full-year decline in sales was held to -7.9% in 2020, while we strengthened competitive positions in our main markets. Adjusted operating profit and net profit remained at excellent levels, respectively at 19% of sales (20% excluding exceptional items) and at 11% of sales. Free cash flow stood at over €1 billion for the second year running and amounted to 17% of sales.
Legrand also focused on pursuing and ramping up its Environmental, Societal and Governance (ESG) strategy. We achieved 128% of our CSR roadmap targets1 for the year, with very strong performances in a number of areas: CO2 emissions were down -17% from 2019 at constant scope of consolidation, in line with the carbon-neutral targets for 2022, 2030 and 2050 announced in July2 .
Throughout the year, Legrand worked hard to strengthen its fundamentals in preparation for a recovery. We stepped up our sales and marketing initiatives, and continued to focus on developing new products – in particular connected solutions – with R&D expenditure equal to over 5% of sales. We bolstered our market positions with four targeted acquisitions, including three announced today; we accelerated digitization of our structures and processes; and we pursued talent development and diversity promotion programs.
These unique fundamentals, combined with a market structurally driven by favorable underlying trends in energy efficiency, safety, new ways of living and working, connected buildings, comfort, health and assisted living, mean that we are confident in the future. They also lead us to stand by our goal of profitable, sustainable and responsible growth serving our corporate purpose: improving lives by transforming the spaces where people live, work and meet."
Legrand's Board of Directors will ask the General Meeting of shareholders, to be held on May 26, 2021, to approve the payment of a dividend of €1.42 per share in respect of 2020 (compared with €1.34 in respect of 2019).
This would place the payout ratio at 56%, in line with the Group's practice of offering an average rate of around 50%.
The ex-dividend date is May 28, 2021 with payment3 on June 1, 2021.
In 2021, Legrand will pursue its strategy of profitable, sustainable and responsible growth.
Based on current macroeconomic projections, which are still very uncertain, and assuming a gradual improvement in the world health situation, Legrand has set the following targets for 2021:
organic growth in sales of between +1% et +6%;
total impact of the broader scope of consolidation on sales of at least +3%;
1 2020 achievement rate of Legrand's 2019-2021 CSR roadmap.
2 For more information, readers are invited to consult the press release dated July 2, 2020.
3 This distribution will be made in full out of the distributable income.
In 2020, amid an unprecedented and particularly unpredictable health and economic crisis, Legrand leveraged the unique strengths of its proactive, solid and balanced business model.
From the beginning of the crisis, the Group has focused on taking a responsible approach to all of its stakeholders by:
Legrand also stepped up one-off and structural initiatives to strengthen the pillars that underpin its mediumand long-term growth, including:
1 For more information, readers are invited to consult the press release dated July 2, 2020.
| Consolidated data (€ millions)(1) |
2019 | 2020 | Change | |
|---|---|---|---|---|
| Sales | 6,622.3 | 6,099.5 | -7.9% | |
| Adjusted operating profit | 1,326.1 | 1,156.0 | -12.8% | |
| As % of sales | 20.0% | 19.0% | ||
| 19.1% before acquisitions(2) |
||||
| Operating profit | 1,237.4 | 1,065.4 | -13.9% | |
| As % of sales | 18.7% | 17.5% | ||
| Net profit attributable to the Group | 834.8 | 681.2 | -18.4% | |
| As % of sales | 12.6% | 11.2% | ||
| Normalized free cash flow | 1,009.8 | 1,034.2 | +2.4% | |
| As % of sales | 15.2% | 17.0% | ||
| Free cash flow | 1,044.3 | 1,029.1 | -1.5% | |
| As % of sales | 15.8% | 16.9% | ||
| Net financial debt at December 31 | 2,480.7 | 2,602.8 | +4.9% |
(1) See appendices to this press release for definitions and indicators reconciliation tables.
(2) At 2019 scope of consolidation.
Full-year 2020 sales totaled €6,099.5 million, down -7.9% from 2019.
The change in sales at constant scope of consolidation and exchange rates was -8.7%, with declines in both mature countries (-8.5%) and new economies (-9.4%).
The impact of the broader scope of consolidation came to +3.6% in 2020. Based on acquisitions completed in 2020 and their likely dates of consolidation, this would reach +2.5% in 2021.
The exchange-rate effect on sales was negative at -2.6% in 2020. Based on average exchange rates in January 2021, the full-year exchange-rate effect on sales for 2021 should be around -3.5%.
| 2020 / 2019 | th quarter 2020 / 4th quarter 2019 4 |
|
|---|---|---|
| Europe | -7.9% | -0.7% |
| North and Central America | -8.7% | -10.6% |
| Rest of the world | -10.3% | -2.8% |
| Total | -8.7% | -5.1% |
These changes at constant scope of consolidation and exchange rates are analyzed below by geographical region:
Europe's mature countries (33.3% of Group sales) registered a -9.7% decline in sales from 2019. This trend was mainly driven by the worsening health and economic environment, particularly marked in the second quarter (-31.8%) and steady destocking by distributors.
In the fourth quarter alone, sales were almost stable (+0.4%), recording in particular good showings in France and in Germany over the quarter.
Despite the health crisis, full-year 2020 sales in Europe's new economies showed a solid organic rise of +1.9% that included double-digit growth in Turkey and a very limited retreat in Eastern Europe. Sales for the fourth quarter alone were down -6.4% due to the particularly demanding basis for comparison in the fourth quarter of 2019.
The United States (37.8% of Group sales) saw a -7.8% organic decline in sales in 2020. Good trends in busways and PDUs for datacenters, as well as in offerings for residential spaces (user interfaces and AV infrastructure solutions), were not enough to offset lower business levels in other segments. Sales were down -10.7% in the fourth quarter, reflecting the persistently adverse health situation and the good relative performance recorded in the final quarter of 2019.
Sales also retreated sharply in Canada and Mexico over the year.
In Asia-Pacific (13.1% of Group sales), sales were down -7.1% from 2019, hit in particular by a marked fall in India as the health crisis took a heavy toll over most of the year. The area's overall sales were steady excluding India, and they were also stable in China and in Australia. In the fourth quarter, sales rose +1.7%, buoyed by good showings in China and a return to growth in India.
In South America (3.4% of Group sales), sales were down -14.3% organically over the year, with similar trends observed in main countries.
Sales rose +1.4% in the fourth quarter alone, driven by a rebound in Brazil.
In Africa and the Middle East (3.5% of Group sales), sales fell -16.6% in 2020, and were down -20.7% in the fourth quarter alone, including a very sharp drop in the Middle East.
Adjusted operating profit for 2020 was €1,156.0 million, down -12.8%, setting adjusted operating margin at 19.0%.
Before acquisitions (at 2019 scope of consolidation), adjusted operating margin for the year came to 19.1%, which represents a limited -0.9-point decline. Excluding the increase in exceptional costs and gains (restructuring and asset disposals), the adjusted operating margin for 2020 was down by only -0.3 points.
Despite a marked retreat in sales volumes, the very good resilience observed in 2020 reflects the effectiveness of measures introduced very early to offset the impact of the health crisis. These included:
Totaling €681.2 million, net profit attributable to the Group was down -18.4% from 2019. This retreat stems mainly from:
Cash flow from operations stood at €1,108.7 million in 2020, equal to 18.2% of full-year sales, for a very limited -0.2-point decline.
Normalized free cash flow was up +2.4% at 17.0% of sales.
Working capital requirement came to 6.8% of sales, improving by a significant 1.3 points from 2019. This benefited in particular from the positive impact of foreign exchange rates. Free cash flow stood at 16.9% of sales.
The ratio of net debt to EBITDA was 1.9, with cash and cash equivalents of €2.8 bn, reflecting a solid balance sheet.
In 2020, Legrand reported an overall achievement rate of 128% of its CSR roadmap, with solid achievements in each of the three focal areas – Environment, People and Business Ecosystem. Notable achievements included:
1 Excluding net gains on building disposals recorded over the period.
2 At 2018 scope of consolidation for CSR reporting.
The Group also accelerated its commitments to carbon neutrality2 , aligning with the Paris Agreement's most ambitious targets, and continues to deploy a governance policy that reflects best practices3 in its market.
Legrand continues to strengthen its positions through external growth and today announced three new acquisitions of companies specializing in solutions for connectivity and energy efficiency.
Building on an existing footprint in digital infrastructures, thanks in particular to 16 acquisitions in the field since 2008, Legrand is continuing to expand its offer by acquiring Champion One and Compose, both wellknown players in solutions and services for fiber-optic networks, used mainly by datacenters and internet service providers. More specifically:
In addition, after more than three years of collaboration through a joint venture4 , Legrand has also announced the purchase of all of Borri, specialized in UPS systems. Based in Italy, Borri has annual sales of approximately €60 million and a workforce of around 200. Its products include highly energy-efficient UPS solutions for industrial and commercial verticals as well as datacenters.
With Focal Point, an American specialist in architectural lighting solutions that joined Legrand in February 20205 , the Group thus finalized four bolt-on6 acquisitions during the year.
Legrand has continued to focus on efficiently docking its recent acquisitions and maximizing synergies with its operations.
In 2020, the Group accelerated the roll-out of new arrivals' product lines outside their home countries, including systems used by datacenters (PDUs made by Raritan, Server Technology and Shenzhen Clever Electronic; and Starline busways), and connected solutions sold under the Netatmo brand.
1 Management positions defined as Hay Grade 14 and up.
2 For more information, readers are invited to consult the press release dated July 2, 2020.
3 For more information, readers are invited to consult the minutes of the General Meeting of Shareholders held May 27, 2020.
4 Until now, Legrand held 49% of equity, with Borri consolidated on the equity method. Readers are referred to the press release dated May 10, 2017.
5 For more information, readers are invited to consult the press release dated February 27, 2020.
6 Acquisitions that complement Legrand's activities.
With over 300,000 product references in a wide-ranging catalog and solid leading positions accounting for some two-thirds of all sales, Legrand is a key player and pace-setter in its markets.
The Group's product offerings, underpinned by long-term trends, are aimed more particularly at:
In 2020, Legrand resolutely pursued its innovation strategy, devoting over 5% of sales to research and development, and maintaining for example its software teams, who account for over 15% of R&D staff.
It also continued to expand its Eliot program of connected products, where sales held nearly steady (-1% at constant scope of consolidation and exchange rates in 2020) and accounted for 13.1% of 2020 total revenue. This reflected:
1 Netatmo and "With Netatmo" solutions.
In addition to these connected solutions, Legrand also continued in 2020 to add to its product catalog by launching a raft of new products underpinned by long-term trends that include:
Legrand operates in a vast accessible market worth over €100 billion. Half of this market is managed by nearly 3,000 small and medium-sized companies.
This fragmentation offers solid scope for external growth, and the Group tracks a portfolio of around 300 leading local players on a constant basis. Contacts with these potential targets remained very active despite the crisis.
Thanks to the maintained strength of its balance sheet, Legrand has untapped room for maneuver to finance its strategy of growth by acquisition.
In its ongoing drive for efficiency, Legrand stepped up the pace of its structure's digital transformation in 2020, by:
1 Commissariat à l'Energie Atomique et aux énergies renouvelables, a French structure specialized in cutting-edge research.
2 Energy harvesting: Energy generated through mechanical impulses.
3 ETIM: Electro-Technical Information Model.
4 BIM: Building Information Modeling.
For over 17 years, Legrand has deployed a demanding and acknowledged approach to ESG; non-financial performance has long been a component of executive and key managers' compensation.
Today the Group remains committed to:
Today Legrand is thus a component stock of benchmark ESG indexes including the Euronext ESG 80, the Dow Jones Sustainability Index, the CDP, the FTSE4Good, Sustainalytics, MSCI, Ecovadis, the ISS Oekom Corporate rating and Vigeo Eiris.
In 2020, Legrand was awarded Proxinvest's "Innovation ESG 2020" Grand Prix du Jury, and the GEEI-Diversity label in recognition of its promotion of equality at the workplace.
Backed by a proven growth model and offers driven by long-term market trends, Legrand is developing its mid-term model further.
Over a full economic cycle and excluding a major economic slowdown, the Group aims for:
At the same time, Legrand will continue to deploy a bold and exemplary ESG approach, driven by demanding roadmaps, with a particular focus on the fight against global warming and the promotion of diversity.
-----------------
1 POC: Proof Of Concept.
2 For more information, readers are invited to consult the press release dated July 2, 2020.
3 Including restructuring costs.
The Board adopted consolidated financial statements1for 2020 at its meeting on February 9, 2021. These consolidated financial statements1 , a presentation of 2020 annual results and the related teleconference (live and replay) are available at www.legrandgroup.com.
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. The Group harnesses technological and societal trends with lasting impacts on buildings with the purpose of improving life by transforming the spaces where people live, work and meet with electrical, digital infrastructures and connected solutions that are simple, innovative and sustainable. 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 €6.1 billion in 2020. The company is listed on Euronext Paris and is notably a component stock of the CAC 40 and Euronext ESG 80 indexes. (code ISIN FR0010307819). https://www.legrandgroup.com
*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.
https://www.legrandgroup.com/en/group/eliot-legrands-connected-objectsprogram
Investor relations Legrand Ronan Marc Tel: +33 (0)1 49 72 53 53
Press relations Publicis Consultants Laurence Bault Mob: +33 (0)7 85 90 63 36
1 The 2020 consolidated financial statements have been audited and the Statutory Auditors' report is in the process of being published. 2 Period of time when all communication is suspended in the run-up to publication of results.
Adjusted operating profit: 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.
Busways: electric power distribution systems based on metal busbars.
Cash flow from operations: Cash flow from operations is defined as net cash from operating activities excluding changes in working capital requirement.
CSR: Corporate Social Responsibility.
EBITDA: EBITDA is defined as operating profit plus depreciation and impairment of tangible and right of use assets, amortization and impairment of intangible assets (including capitalized development costs), reversal of inventory step-up and impairment of goodwill.
ESG: Environmental, Societal and Governance.
Free cash flow: 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.
KVM: Keyboard, Video and Mouse.
Net financial debt: 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: 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: Organic growth is defined as the change in sales at constant structure (scope of consolidation) and exchange rates.
Payout: 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.
PDU: Power Distribution Units.
UPS: Uninterruptible Power Supply.
Working capital requirement: 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 | 2019 | 2020 |
|---|---|---|
| Trade receivables | 756.8 | 644.5 |
| Inventories | 852.6 | 837.3 |
| Other current assets | 217.5 | 204.8 |
| Income tax receivables | 60.2 | 70.1 |
| Short-term deferred taxes assets/(liabilities) | 88.2 | 92.8 |
| Trade payables | (654.2) | (612.9) |
| Other current liabilities | (653.0) | (661.8) |
| Income tax payables | (28.3) | (30.3) |
| Short-term provisions | (104.1) | (127.9) |
| Working capital required | 535.7 | 416.6 |
| In € millions | 2019 | 2020 |
|---|---|---|
| Short-term borrowings | 616.2 | 1,320.7 |
| Long-term borrowings | 3,575.4 | 4,073.8 |
| Cash and cash equivalents | (1,710.9) | (2,791.7) |
| Net financial debt | 2,480.7 | 2,602.8 |
| In € millions | 2019 | 2020 |
|---|---|---|
| Profit for the period | 836.1 | 682.0 |
| Share of profits (losses) of equity-accounted entities | 1.8 | 0.7 |
| Income tax expense | 318.3 | 279.2 |
| Exchange (gains) / losses | 2.0 | 10.3 |
| Financial income | (11.9) | (6.1) |
| Financial expense | 91.1 | 99.3 |
| Operating profit | 1,237.4 | 1,065.4 |
| Amortization & depreciation of revaluation of assets at the time of acquisitions and other P&L impacts relating to acquisitions |
88.7 | 90.6 |
| Impairment of goodwill | 0.0 | 0.0 |
| Adjusted operating profit | 1,326.1 | 1,156.0 |
| In € millions | 2019 | 2020 |
|---|---|---|
| Profit for the period | 836.1 | 682.0 |
| Share of profits (losses) of equity-accounted entities | 1.8 | 0.7 |
| Income tax expense | 318.3 | 279.2 |
| Exchange (gains) / losses | 2.0 | 10.3 |
| Financial income | (11.9) | (6.1) |
| Financial expense | 91.1 | 99.3 |
| Operating profit | 1,237.4 | 1,065.4 |
| Depreciation and impairment of tangible assets (including right-of-use assets) |
183.3 | 187.4 |
| Amortization and impairment of intangible assets (including capitalized development costs) |
123.3 | 146.9 |
| Impairment of goodwill | 0.0 | 0.0 |
| EBITDA | 1,544.0 | 1,399.7 |
| In € millions | 2019 | 2020 |
|---|---|---|
| Profit for the period | 836.1 | 682.0 |
| Adjustments for non-cash movements in assets and liabilities: | ||
| Depreciation, amortization and impairment | 309.4 | 337.7 |
| Changes in other non-current assets and liabilities and long-term deferred taxes |
64.6 | 119.2 |
| Unrealized exchange (gains)/losses | 5.1 | (1.5) |
| (Gains)/losses on sales of assets, net | 5.0 | (11.6) |
| Other adjustments | 1.5 | (17.1) |
| Cash flow from operations | 1,221.7 | 1,108.7 |
| Decrease (Increase) in working capital requirement | 17.7 | 53.2 |
| Net cash provided from operating activities | 1,239.4 | 1,161.9 |
| Capital expenditure (including capitalized development costs) | (202.2) | (155.1) |
| Net proceeds from sales of fixed and financial assets | 7.1 | 22.3 |
| Free cash flow | 1,044.3 | 1,029.1 |
| Increase (Decrease) in working capital requirement | (17.7) | (53.2) |
| (Increase) Decrease in normalized working capital requirement | (16.8) | 58.3 |
| Normalized free cash flow | 1,009.8 | 1,034.2 |
| 2019 | Q1 | H1 | 9M | Full year | |
|---|---|---|---|---|---|
| Full consolidation method | |||||
| Debflex | Balance sheet only | 6 months | 9 months | 12 months | |
| Netatmo | Balance sheet only | 6 months | 9 months | 12 months | |
| Trical | Balance sheet only | 6 months | 9 months | 12 months | |
| Universal Electric Corporation |
Balance sheet only | 6 months | 9 months | ||
| Connectrac | Balance sheet only | ||||
| Jobo Smartech | Balance sheet only |
| 2020 | Q1 | H1 | 9M | Full year | ||
|---|---|---|---|---|---|---|
| Full consolidation method | ||||||
| Debflex | 3 months | 6 months | 9 months | 12 months | ||
| Netatmo | 3 months | 6 months | 9 months | 12 months | ||
| Trical | 3 months | 6 months | 9 months | 12 months | ||
| Universal Electric Corporation |
3 months | 6 months | 9 months | 12 months | ||
| Connectrac | 3 months | 6 months | 9 months | 12 months | ||
| Jobo Smartech | Balance sheet only | 6 months | 9 months | 12 months | ||
| Focal Point | Balance sheet only | Balance sheet only | 7 months | 10 months | ||
| Borri1 | Balance sheet only | |||||
| Champion One | Balance sheet only | |||||
| Compose | Balance sheet only |
1 Borri, an Italian UPS specialist, which until now has been consolidated on the equity method.
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 Universal 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.legrandgroup.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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