Legrand Sa Unsp/Adr

Good morning, ladies and gentlemen, and welcome to today's Le Grand 2023 First Quarter Results Conference Call. All participants are in listen-only mode. There will be a question and answer session later. For your information, this conference is being recorded. At this time, I would like to hand the conference call over to CEO Mr. Benoit Cochart and CFO Mr. Frank Lemery. Please go ahead.

Thank you very much. Good morning, everybody. Benoit speaking. So Franck, Lemry, Roland-Marc, and myself are happy to welcome you to the Legrand Q1 2023 results conference call and webcast. Please note that this call is recorded. So as you know, we have published today our press release, our financial statements, and a slideshow to which we will refer. Those documents are available on the Legrand website. After a few opening remarks, we will comment the results into more details. Let me start with the key takeaways of this release on page 4 of the deck. First, Legrand reported a strong growth in sales for the quarter, up 9%. Second, the group delivered on the quarter a very robust growth in results and cash generation. So moving to page 6, I will start with an overview of sales. In Q1, we achieved a solid performance. Sales rose plus 9% to reach 2.15 billion euros, demonstrating again the group's resilience power in an uncertain, ever-changing environment. Sales grew organically by plus 7.4% in the first quarter. On top of organic growth, the scope effect was of plus 0.9%, including plus 1.3% linked to acquisitions and minus 0.4% linked to the net impact of the disengagement from Russia. Based on acquisitions announced and the likely date of consolidation, the full year impact should be around plus 1.5% in 2023, excluding the impact of disengagement from Russia. Last, the FX effect is almost flat on the quarter at plus 0.6% to sales for the year. Based on the average exchange rate in the month of April 2023, the full year impact on 2023 sales should be close to minus 3%. You will read on page 7 the key takeaways per geographies. Each of the three regions of the group achieved a solid developed growth despite weaknesses on the residential markets, which we believe will settle in the coming quarters or by 2024. We saw a very robust growth in our factory-expanding segments, i.e., energy efficiency offering, data centers, and connected products. These were the main comments I wanted to make on sales. I will now hand over to Franck for more color on our robust financial performance.

Thank you, Renoir, and good morning to all of you. I will start on page 9, commenting the operating margin. Before acquisitions and excluding Russia, we recorded a very high adjusted operating margin of 22.6% for Q1, representing a remarkable plus 2.3 points increase versus Q1 2022. The impact of acquisition and of Russia were, for each of them, minus 0.2 points. Therefore, the adjusted operating margin all-in for the quarter stood at 22.2%. The high profitability of the first quarter is driven by the gross margin. It is reflecting our firm control of expenses and sales prices in a persistently inflationary environment. Going now to page 10 with a focus on the strong value creation delivered on the first quarter, I will highlight two main points. First, with a net income of €330.5 million, representing 15.4% of our sales, earnings per share were up plus 28%. It benefited from the favorable trend of operating profit and financial results, as well as a lower income tax rate. The cash generated during the quarter is remarkable, with cash flow from operations up plus 19.8% at $434.6 million. Despite the continued strengthened coverage of inventory, free cash flow stood at 15.4% of sales and normalized free cash flow was up plus 22% at 18.1% of sales. The best-in-class level of profitability and cash generation highlight, first, the relevance of our model, and second, our resilience power. Moving now to page 11, regarding the balance sheet structure, we have a sound balance sheet, with net debt to EBITDA ratio standing at 1.2 at the end of Q1. Net debt at the end of the quarter amounts to 2.3 billion euros, with a gross net debt maturity at 4.4 years, of which more than 90% is at fixed rate. Moreover, we have the 2.5 billion euros available cash. In the current backdrop of interest rise, these financial items are key for the success of our acquisition policy and for value creation. This concludes the key highlights of Legrand Q1 2023 financial performance. And I'm now handing over back the mic to Benoît. Thank you, Franck. We can move now to page 13 regarding our full year targets.

Considering our Q1 results, we can say that we are overall slightly in advance, both in terms of top and bottom line, maybe a bit late in terms of M&A compared to our guidance. You know that it is not a practice to modify a full year target during the Q1 release. Therefore, they remain unchanged. As a reminder, for 2023, we target sales growth at constant action rates of between plus 2% and plus 6%, excluding Russia. An adjusted operating margin before acquisitions in Russia impacts around 20% of sales and at least 100% CSR achievement rate. Now, some final words on our incoming combined general meeting of shareholders from page 15 to 17. First, on the proposed evolution of the board of directors on page 15, with nomination as independent directors of Valérie Short, a Canadian national, and Claire Scherer, an American and British national, they would both bring their extensive and recognized expertise to the board in terms of strategy and CSR, as well as financial markets and industry. As a result, our board composition will continue to be amongst the industry's best practices, with 83% of independent members, 42% of women and seven nationalities represented. Second element on page 17, as announced in our FY results released in February, the proposed dividend for 2022 is €1.9 per share, up plus 15.2% versus last year. The resulting payout ratio of nearly 50% is in line with the group's medium-term targets. This is for the key topics of this release. I suggest we switch now to Q&A. Thank you.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question from the queue, it's star 2. But again, please press star 1 to ask a question over the phone. We will take the first question from Daniela Costa from Goldman Sachs.

Thank you very much. Good morning, everyone. I actually just have one question, but basically I wanted to ask you if you could elaborate, given the strong numbers you just had, but the unchanged outlook. I know for volumes you always say you don't have a backlog, but from a margin standpoint, just looking at what is now implied for the rest of the year, can you elaborate why Perhaps you sort of have a weaker rest of the year. Is there pricing? Is it mixed? How shall we think about sort of the remaining part of the euro margin and why you don't raise guidance?

Yeah, sure. So, hello, Daniela. So, well, first comment, as I said during my introduction, it's not the wrong practice to change the guidance after Q1 numbers. I have to say that the numbers we delivered in Q1 are slightly better than expected internally, both in terms of top line and bottom line. And we are a bit ahead of our forecast when it comes to both top line and bottom line. Now, again, you have a lot of uncertainties in the nine months to come, both in terms actually of end market evolution as well as on the key components of the performance. If we look at the various building blocks of the performance over the next... Well, in terms of pricing, there's no reason to believe that we won't be able to deliver the usual pricing at Legrand, let's say between plus 2% and plus 4% pricing for the full year. The uncertainty comes from the price of raw material and components, which was slightly up in Q1 by almost 2%. and you shouldn't necessarily expect it to go down for the remaining nine months of the year because, again, I remind you that, as usual, that we buy more components than raw mass, and the price of components include the cost of energy, the cost of wages, and so on and so forth. So it's highly likely that the price of raw mass and components will continue to go up for the next nine months or so, then of course we would manage the SG&A depending on the volume evolution. The key uncertainty and the key question mark is about the end market in which we operate. As you know, we have 40% of our sales which are made in the residential market, and we have seen some softness as expected on the ready markets both in the U.S. and in Europe, and it creates some sort of uncertainty about the months to come. Now, again, we are slightly ahead of our internal forecast, and as you rightly said, the Q1 numbers are pretty straight numbers.

Sorry. Yes, it helps. Can I just clarify, when you say you're 2% to 4% pricing, is that incremental prices you will put up this year, or is that just a carryover, just to understand what's happening to prices right now? Are they still going up?

It's a full year price impact, which we can foresee today, given what we see about the evolution of Romas and components. It was plus 8% in Q1, Now, as we told you when we released our numbers in February, the pricing effect would be higher in Q1 than for the remaining part of the year because of the carryover impact. So we believe today that the net pricing should be somewhere between plus 2% to plus 4% for the full year. And it will be mostly carryover. Now, as usual, If we feel we need to do a bit more pricing, we will. We don't feel today that we will need to do a lot more pricing, given, again, what we see about the price of format and components.

All right. Thank you very much.

The next question comes from Andre Cookton from Credit Suisse.

Good morning. Thank you very much for taking my questions. Can I just start with following up on pricing? Firstly, you said 2 to 4 for full year, and then you said net. Am I right to think this is the kind of total price impact for the year of 2 to 4, not net of inflation?

Yes. It's, of course, not net of inflation. It's price impact, pricing on ourselves. Year-on-year, so it was close to plus 8% in Q1. It should be between 2% to 4% for the full year, indeed. When I say net, it's all-in, including rebates, discounts, everything. But, of course, it's not net of price of format and components. The sort of surplus you could get or the difference between the selling price and the purchasing price will, of course, depend on the evolution of price of format and components, which which, again, we don't know for the full year 2023.

Thank you, and sorry to be pedantic on this. And just on the last one on price, that plus 8 in Q1 is a little higher versus what we expected. I think we discussed around 6 before. Is that the result of deliberate actions during the quarter, or is it just things like compensating for currency devaluations in places like Turkey and some other countries like Egypt?

I don't remember that we have ever guided for a quarterly pricing, so I think the plus six you are quoting is probably your own estimate and not our guidance. Well, this is mainly the result of the carryover of 2022 pricing. here and there we did a bit more pricing punctually and targeted additional pricing whatever needed on some specific geography and specific product families. It is not unexpected for us. When we released our results in February, if I recall properly, we already guided for a price increase between 2% to 4% for the full year. And this is, again, what we are getting for in May. So our pricing, whether for Q1 or for the full year, is in line with our forecast. And it's a very reasonable pricing, which is important. I have read the release of a number of our listed peers. and a lot of companies have put the price increase stronger or higher than the goal, so I don't believe we are doing too much pricing. We remain very reasonable in terms of pricing, and this is what we have done for the past couple of years, and this is what we intend to continue to do.

Great, thank you. Yeah, and it wasn't implied that you're overdoing it. I think you've been one of the most disciplined on that side. Yeah. If I just may ask a last question, on profitability level and your kind of really broader stance, not just kind of Q1 specific, now that you are shooting clearly above the 20%, that has always been your kind of right level of profitability. And that's the case across the whole kind of peers spectrum as well. Does that change your... mindset your stance on what the kind of right level of profitability is uh for the ground given that everybody is overshooting on this or indeed you will now think about kind of reinvesting that excess or notably excess profitability um in in into growth um well i'm not sure i understand your comment about our uh our peers um so before you said 20 is the right level of margin for you and now you're 22 and that 20 level was set against the peer group that was clearly below now that peer group has stepped up because everybody's beaten on margins through q1 um so i just wondered if that high level of profitability that you got to yourself in q1 and given that you relatively have not overextended yourself Does that change your stance on whether it has to be 20 or can it now be maybe 21?

Okay, so it's indeed a broader comment than if you ask. So number one, I'm challenging a bit the fact that our peers would have caught up in terms of profitability. If you compare Apple to Apple, our margin gap with our peers, or manufacturing peers, is between 5 to 7 points. Again, apple to apple. Bear in mind that our EBIT margin is all-in, including exceptionals, impairment, and one-off, and whatever. So we have a gap of 5 points with a 20% margin. Number one. Number two, of course, I cannot commend the margin of our competitors in Q1 because some of them are not communicating the margins, some are. Number three, meter, which is the most important. We remain convinced that the 20% EBIT margin, which you could quote being a 22% or 23% EBITR margin, is indeed the high level of profitability. And maintaining this level... is not such an easy exercise when you have to finance every year between 20 to 50 pips of division coming from acquisitions and where you have to carefully manage your pricing in order to remain competitive and to keep investing heavily into innovation, sales and so on. So it's not because we are indeed delivering this very solid 22 plus margin on a given quarter that our mid-term guidance of delivering 20% will be changed. So it is still our guidance for the year, having in mind again that that that we are a bit ahead of our forecast in Q1, and number two, it remains a missed target for the years to come.

Great. Thank you very much for your time.

The next question comes from William Mackey from Kepler Chevro.

Oh, good morning. Thank you very much for the time. My question would be initially around your fast-growing segments, data centers, energy efficiency products and connected products. You mentioned in your earlier statements they were performing well in the first quarter. Could you give us a sense of the level of volume growth and revenue growth that you've experienced within the fast-growing segments? Thank you.

Well, the volume growth, well, we are not, you know, releasing quarterly numbers with such a level of granularity, but I can tell you that the volume growth for fast-growing segments, it's definitely growth. So it's growing very nicely. Now, you would argue that the non-fast-growing segments are then going down in volume, which is indeed true. Now, you have to bear in mind that, again, we are exposed to residential, 40% of ourselves, which is something we are not ashamed of, because we believe that the residential market has a long-term potential which is significant. If you look at Europe, for example, the number of flats and houses is well below the level needed In many countries, France, Germany, and so on, we believe that residential is a nice space to be in, but indeed, in 2023, it's part of the market, which is softer than the rest. So we have, on one hand, on approximately one third of our sales, volume going up double digits in fast-growing segments, and on the other hand, on two thirds of our sales, on the more traditional core infrastructure products, volume going down, mostly because of residential. This is the pattern we can see in Q1.

Thank you, Benoit. The second question relates to the Americas. When I review the trend in organic growth, it seems to have stepped down from the fourth quarter of about 13% to 4%. What did you interpret when you looked at the results? What's driving that step down? Was there a change mostly in the residential business or is there a shift in a lot of your non-residential business exposed to commercial property, which we saw, I think, in 2020?

Well, So if you look at the three pieces of our North American business, residential, which is about 20% of our sales in North America, is going down double digits, like for like. So it's a strong decrease, which is very much correlated to the softness of the residential market in the U.S., which somehow should start to recover in the quarters to come. When you look at the official industry statistics, you know, specialists are not pessimistic for the retention market in the U.S. in 2024-2025, but indeed the beginning of the year is a bit tough, so down double digits. Then we have data centers, 25% of ourselves in the U.S., which are up double digits, and it is a continuation of... a very positive trend we have seen for a couple of years now, for at least five years in a row. And then you have non-residential, which is about 55% of our sales, which is slightly up, like-for-like. And this is an area where we should grow faster, indeed, non-residential in the U.S. Well, we are not really benefiting from the high area plan because we are not under the product families which are impacted by the plan. We are somehow suffering from our exposure, which is mostly commercial offices, not warehousing, of course, not facilities and so on, and mostly exposed to big cities. So we have market positioning problems. in the non-residential market in the U.S., which is not the one growing the fastest. So it explains why we have only a slight growth in this non-residential market. But you have a clear difference in trend, says down double digits in residential, slightly up in non-residential, and up double digits in data centers.

Thank you for the color. The final is just a follow-up on the pricing question. Maybe I'm pushing you too hard. You've given us a clear guide on two to four percentage points for the full year and were kind enough to share the eight percentage points for Q1. How should we think about Q2 when we combine your carryover effects on pricing plus perhaps some additional price measures you may or may not have achieved in the quarter?

Well, I would not guide on the quarterly pricing. Of course, we have internal forecasts, but even if I wanted to do so, it would be extremely complicated for me to get precisely on Q2. What I can tell you is trust the Legrand model. We will do some pricing in 2023. We will do the pricing we need in order to compensate the increase in price of raw material components. We will do the adequate level so that we do not lose our competitiveness and we'll keep managing that very carefully. But again, I don't want to enter into a game whereby I will guide on what I believe. Since most of the Q1 impact is coming from carryover, you can assume that Q2 numbers, Q2 pricing should be better than H2, but it's a pure mechanical impact. Now, how much will it be precisely, I can hardly guide on that.

Okay, thank you for your patience. I'll hand it back to you.

We'll now take the next question from Gail Debray from Deutsche Bank.

Good morning. Thanks for taking my questions. This week, Benoit, one of your competitors mentioned that they've been seeing a much higher number of large project announcements over the past couple of years. I mean, they said around three times the normal run rate supported by re-industrialization and infrastructure plans. And apparently, these projects are more complex, obviously bigger, but they also have a higher electrical content than let's say a typical office building. At the same time, we see massive investments from utilities to support the energy transition and the electrification of the economy. So it seems there is a trend towards bigger investments, bigger projects, and they are skewed towards infrastructure, utilities, and things like EV manufacturing. So not necessarily areas where you're active. So, I mean, my question is long-term, how do you think about the group's positioning? Do you intend to play a bigger role in the manufacturing infrastructure or utility side of the electrical market at some point?

Well, the short answer to this question is no, we don't. Because it is not our space, utilities, medium voltage, manufacturing and automation and so on and so forth. It would be for Legrand a diversification and we intend to remain a pure player of the building industry. Now, you know, the building industry is not such a bad space to be. Well, you would argue that 7% organic growth could have been 12%, 13%, or 14%. Indeed, I would have preferred to deliver 12%, 13%, or 14% organic growth, but it's not such a bad organic growth. We are, whenever we grow, able to generate very significant cash flow and profitability, significantly higher returns. than the companies that are active in the space you are mentioning. The residential market will recover at some point, and it will be a strong boost on our top line. We have all the means to participate to fast-growing segments than going into utilities. Green building is an interesting space to be in. Data centers is a fantastic space to be in. Connected products will provide a boost to our supply. So we don't need to enter into new verticals in which we have no legitimacy in order to experience good growth and good profitability.

Okay. No, that's very clear. Thank you very much. Can I have a second one on margins? Clearly you stand out this quarter. I think you delivered your highest first quarter ever on the margin side with an incremental of about 35% despite the lack of volume growth. So how shall we be thinking about the rest of the year? Are there any specific items that could potentially reverse as we move into the coming nine months, or would you expect incremental margins to remain as strong as what we've seen so far in Q1?

Well, again, I think I already answered this question. Pricing, between 2% to 4%. Row mass and components price should go up slightly. We will reinvest or invest into SG&A in order to boost the growth, R&D, commercial expenses, and so on. We will, of course, finance wage inflation. We will keep investing into restructuring. You may have seen that we spent, I think, 13 million euros in Q1 in restructuring expenses. We are usually spending between 20 to 30 million euros on a yearly basis. You can already take for granted that we will be in the higher end of this range or even we will exceed this range because we keep working hard on optimizing our footprint. And that's it. And the mix of all that should... should lead us to our guidance. Now, of course, if we can achieve more than 20%, that's what we did last year, that's what we did back in 2021, we'd be happy to do so.

Very clear. Thanks very much.

The next question comes from Aurelio Calderon from Morgan Stanley.

Hi, good morning. Thanks for taking my questions. The first one is around the U.S. non-residential business. I think you've talked in the past about volumes not being extended and actually volumes probably being below pre-COVID levels. So I just wanted to confirm that's true and how you think about that shape of growth going forward. Because on the one hand, you say that you're exposed to offices and some verticals are probably done remotely. don't grow as fast as some of the others. But on the other hand, I think volumes for you compared to PAs are way lower. So any thoughts around that would be helpful.

So volumes indeed are lower than in 2019 in North America, slightly lower than in 2019, not by a big margin. Indeed, we believe that the non-residential market in the U.S., the one in which we operate, has not yet really recovered. There was a sort of 6 to 12 months short recovery somewhere between 21 and 22, but we still expect this market to recover. We don't believe that it's a mid-term issue. We have seen a number of signs showing that the market remains healthy and with a number of potentials. You have the energy transition which is going to help at some point. You may know that in the US we are pretty much exposed to lighting controls and a number of products and systems that help making the buildings more efficient. When it comes to audio-video and structured cabling, I believe that there will be, at some point, an upgrade needed in many commercial buildings to come up with a more solid and more efficient audio-video installation or structured cabling installation. So there are a number of factors that could that will positively impact the non-residential market in the U.S. Now, the uncertainty is, of course, short-term. What will the short-term markets do in the quarters to come? It's a big question mark. But mid-term, again, the non-residential space in the U.S. is an interesting space to be, which will not benefit from the same, let's say... public funding than utilities or medium voltage, but it remains an interesting space to be somehow stable, resilient to crisis, profitable, cash-generative, where market positions are not changing very fast. So it's not such a bad space to be in.

That's very helpful. Thank you. And my second question is around the faster kind of expanding segments. And I think you commented volumes were up double digit and on that one third of your portfolio. Is that being a part of the margin driver in one key or put it another way, is there a meaningful margin difference between those product categories and let's say more traditional product categories? Because I would have thought that in the more mature product categories you would have had a higher margin than in the faster expanding ones.

No, there's no meaningful difference in margin between fast expanding and current fast structure. We have 30% plus EBIT margin on both categories and we have 10% minus EBIT margin on both categories. The main driver for profitability remains the market share. So the difference in growth between fast expanding and core traditional is not the driver behind our margin, our nice margin in Q1. is really coming back from the fact that we've been able to maintain a solid pricing. Again, close to 8% price increase versus about plus 2% of price in raw materials and components. It gives a clear plus to the margin, as well as our ability to keep under control our expenses, production expenses and energy. in an environment where wages are a bit under pressure. So those are the two ingredients behind the good margin. Solid pricing as well as a good management of expenses. It has nothing to do with the mix between the fast expanding and traditional.

That's great. Thank you very much. And if you can squeeze one very last question. I think some of your comments on inventories, or if I look at your inventories, they are not necessarily coming down in a big way, despite that you're able to bring a very good free cash flow margin. So how should we think about that inventory normalization in the quarters to come, or shall we not expect a big unwind this year?

I will maybe ask Franck to take this question. Yes, of course. Thank you, Benoit. You're right saying that it hasn't went down sharply on Q1. Keep in mind that normally during H1, this is some seasonality effect. We are preparing the summer in Europe. So normally, inventory should grow during Q1 and Q2. Having said that, inventory to sell is close to 16%. It was 18% at the end of 18.4%. in Q1 2022. So, to put it simply, we are on track to recover the historical level of the group within, let's say, two years. But the gate of Q1 is not the most impressive one.

That's great. Thank you very much.

We'll take the next question from Alexander Virgil from Bank of America.

Yeah, morning, Benoit and Franck. Thank you for giving me a question. I wondered if you could talk a little bit about the different dynamics in Europe. We focused a lot on the U.S. this morning, and I think the disparity between what some of your peers have reported in the U.S. and what you've reported has been trawled across. I wondered if you could do the same for us in Europe, because you're actually seeing acceleration in Europe from where you were in Q4. And I just wondered if you could talk us through some of the dynamics on, again, same kind of verticals, if you could, resi, non-resi, and country developments, please. Thank you very much.

Sure. Well, I always ask you to be somehow cautious when comparing performance between companies and so on and so forth, because, again, it depends a lot on our exposure respective to our licit bills. You know, in the electrical world, you have companies which grew 20% in Q1 organically, and you have companies which were down 10%, minus 10%. So you have a lot of disparity between companies, and it's not a matter of market share. It's really a matter of exposure... The more exposed to residential you are, the more demanding the end markets are. The more exposed to utilities, automation, and so on you are, the more supportive the market. So you should really bear that in mind when comparing the performance between companies. Now, when it comes to your question, in Europe, well, the way we look at our performance is usually country by country. not really bi-vertical. Now, if we try to do it bi-vertical, I would say that residential is slightly up, which is a big difference to the U.S., and both data centers and non-residential are up double digits. So, slightly up residential, up double digits for data centers and non-residential. and the mix for that is this nice double-digit growth in Europe. I don't believe there is a strong deceleration in the U.S. in Q1 compared to Q4. I don't believe neither that there is a strong acceleration in Europe in Q1 compared to Q4. I would really say that analyzing a quarterly performance in a market where you have a lot of distributors, a lot of you know, contractors, different number of days, and so on and so forth. It's a bit complicated. But this is the trend. Strike growth in residential, double-digit growth in non-residential and data centers. Last comment, maybe, which is both for Europe and for the U.S., actually. We have seen a bit of this talking in Q1. It was the case in France. It was the case in the U.S. It was the case in Italy. It was the case in a number of countries. Well, quite somehow difficult to quantify, but it happens. And the feeling we have is that all the distributors do not have a lot of margin for maneuver to do strong destocking because they don't have a very high level. They're not carrying a very high level of inventory. But in Q1, indeed, it had somehow a negative impact on our supply.

That's very clear. Thank you, Benoit.

Thank you. Ladies and gentlemen, please limit yourself to one question. We'll now take the next question from Lars Bronson from Barclays. Please go ahead.

Oh, hi. Yeah, good morning. I was going to follow up on Alex's question. You're a bit surprised to see residential slightly up. Perhaps beyond Q1, you can talk a little bit about the sustainability of these trends. I was particularly surprised to see double-digit growth in Germany. But more broadly, looking forward in Europe, how do you assess these market trends? Italy is a big market for you. Seems to me that starts to moderate some as some of the government stimulus measures on the renovation market perhaps starts to fade. That would be the first question. Just secondly, bigger picture on your residential segments. If I were to break down your 40%, it's roundabout, I think, 10% is points DIY, 10% as you say, renovation by distributors. and then 20 percentage points residential new build. I guess it's the latter that should see perhaps a bit more headwind during the course of this year. But maybe you could talk about some of the dynamics you see within these sort of segments and how you see them fare in 2023. Thanks.

Okay, so starting with your first question, actually there's quite a difference between the geography in Europe and the residential market. Indeed, this slide might sound a bit surprising. Well, it's in value, not in volume. In volume, it's down. But you have a clear difference between markets such as, for example, Italy, where the residential market is going up, somehow also supported and helped by some specific incentives on energy-efficient solutions. The German market is quite okay. The French market is a bit more under pressure. So there's a big difference between the markets. You would also say that, you know, Turkey, for example, or Eastern Europe, the residential markets are quite okay. So it really depends on the market. When it comes to the various components of the residential market, you have three blocks, if I may say. The new houses... which is probably going down. And when you look at the statistics about housing starts, housing permits in many geographical areas in Europe, those are going down and went down last year. So this part of the market is clearly quite soft. Second part of the market, the consumer-oriented products, so products sold into DIY or small retail shops, And this part of the market is also quite, quite soft. And you probably have a number of consumers that are doing a sort of trade-off between buying a couple of circuit breakers or switches to renovate a room and spending their money elsewhere. given the pretty high level of inflation. On top of that, on this specific end-consumer market, you have some destocking from the consumer channel. And then you have the third market, which is a small renovation made by professionals, small contractors, going to your place, changing your panel board, renovating one room. This piece of the market is somehow resisting more than the two others. Now, it's difficult to be more precise than that because the products sold to those different segments are most of the time quite the same. Now, second comment, this was by sort of a sub-vertical in the residential segment. If you look at the products, you also have a clear difference in the residential between fast-expanding segments and products linked to electrification, which are growing nicely, and the other products, more traditional, which are softer. I can take one example. The circuit breakers in Europe is growing very fast because circuit breakers, whenever you install an EV charging station, you need to upgrade your electrical panel bulb. So EV charging station is growing fast, electrical panel board is going fast. Now you have more traditional electrical products, like boxes, for example, tubes, or even wiring devices, where the market demand is softer because of what I've mentioned, i.e., consumers spending their money elsewhere than in DIY and because of the new housing stuff being quite soft. I don't know if it helps. Again, I'm sorry not to be more precise than that, but we have so many SKUs that are going to the same end market that it's difficult for us to have more precise statistics.

Thank you.

We'll now take the next question from Eric Lemery from CIC Market Solutions.

Yes. Good morning. Thanks for taking my question. I've got two actually, if I may. On the faster expanding segment regarding the connected products, are you still constrained by the supply chain tension on electronic components? I know it's been the case in the past, but is it better now? And maybe if I can squeeze a second one, on the non-resolution market in the US, do you see any positive sign from the return from home dynamic or Do you see that trend evolving in the right way or do you see anything at all? Thank you.

Well, in the supply chain front, it remains challenging to get the electronic components we want, especially the microcontrollers and a number of other products with long lead times, tenths and tenths of weeks, and purges that are made under allocation. So, you know, sourcing the electronic components we need remains challenging, and from the feedback we have from electronic manufacturers, it will remain challenging until the end of the year, 2023. We have no visibility beyond the end of 2023. As far as the other components or road maps are concerned, we are not facing any significant issues anymore, so we are able to get the plastics, the metals, the packaging and the other components we need. But it remains a challenge for electronic components or some specific targeted electronic components. As far as the return from home is concerned, well, when you look at the numbers in the big metros, let's say you take the top 15 or 20 metros in the U.S., the numbers are not changing much, and they remain significantly below most of the European countries. So in Europe, people have gone back to the office, you know, quite a long way. In a number of industries in the U.S., the situation remains quite different in the tech industry, banking industry, and a number of other industries. So we are not much seeing that now. This being said, again, we remain optimistic mid-term, not only because this return to the office will happen, but also because A number of those buildings will be refurbished in order to become hybrid buildings because you have, again, the energy-efficient expenses to make buildings more energy-efficient who need to happen and so on and so forth. But short-term, it has not happened yet in a big way.

Thank you. We'll now take the next question from Johnson Day from HSBC.

Hi, good morning. Thanks for taking my question. I was just wondering if I could follow up a little bit on Europe and maybe if you could just give us a sense of volume versus price in some of the areas of Europe. And then also maybe talk to what you're seeing in terms of wage inflation as well, please.

Okay, so we're not giving pricing by geographical areas for obvious competitive results. Now, what I can tell you is that there's not such a big price difference between the regions. So each of the three regions... We have, or at least between North and America and Europe, have a level of pricing which is not very, very different. So we are doing pricing in Europe as elsewhere. As far as the wage inflations are concerned, it's slightly above 5% for Q1. at the group level. So this is more or less what we expected to have. We haven't had any bad surprise. I think that the level of wage inflation is somehow significant, but it's also connected to the high level of inflation we have in many countries. But as you can see, it remains pretty much under control. And for the full year 2023, it should be somewhere between 5% and 6%. So it will remain well under control.

Right, thank you.

The next question comes from James Moore from Redburn.

Yes, thank you. Good morning, everyone. Benoit, Franck. I wondered if I could focus on the US. And I think I'm right in that you said you didn't see any material deterioration in volumes. Q1Q in the US. And I just wonder, when you look at the latest months following the capital flight of regional banks, are you seeing any commercial real estate stopping of projects or deterioration of volumes? And I agree with the importance of understanding mixed difference. That's a point I fully agree with. I think you said that your non-res business splits in the past in order of importance office retail education health hospitality and you're small and warehousing you don't really have oil and utilities industrial but could you give us a rough sense given the importance of office retail at the moment how much those categories really are within your u.s non-residential business well starting with the last question again we

I can tell you that the vast majority of our non-residential exposure is for office building. We have, of course, a bit of retail exposure. We are selling to education, to hospitality, to health, but the vast majority, I cannot give you a precise number, but the vast majority of ourselves are made to office building in the U.S. When it comes to the trend, between Q4 2022 and Q1 2023. Again, I don't believe that extrapolating a trend based on the numbers matters that much because you can have, you know, at the end of last year, you had a bit of catch-up of the backlog we had because we were unable to ship all the products that were ordered by our distributors because we had difficulties to get the products, especially those manufactured in China. So the performance in the US at the end of the year, in Q4, was probably somehow a bit artificially boosted by this catch-up. We are not seeing... We're not expecting a strong deceleration in the U.S. because of the rise of interest rates or whatever. So I would really be cautious in reading the Q1 numbers. I don't believe that they really mean that we have a strongly decelerating U.S. market. The residential again remains very soft and under pressure as far as the non-residential market is concerned. Slight growth in sales, slight drop in volume. I wouldn't call that deceleration. The fact is that it hasn't yet recovered and we hope it will in the process to come.

Benoit, that's very helpful. If I was just to think about 75% of your U.S. non-residential business being office, when you say the vast majority, is it that sort of magnitude?

I don't know. 75% is indeed the vast majority. I would love to give you a more precise number, but I don't know. That's my concern. When you sell a switch, to a distributor you don't always and most of the time you don't know actually where the switch is sold to so I don't know but could be 70 could be 75, could be 80 it's more than 50 that's what I can tell you That's very helpful, thank you The next question comes from Jonathan Mouncy from BNP Paribas Exxon

Good morning. Thanks for letting me ask a question. I think when you were touching on Europe, just go back to that, I think at one point you did say that volume was up, sorry, volume was down, but value was up. Was I correct in that? That would imply then that pricing in Europe was quite a bit above the 8% that we saw at the group level.

Am I interpreting that correctly? No, I didn't comment on pricing in Europe. I said that

You said value was up and volume was down though, so implicitly, given the organic growth you reported in Europe.

This was for the residential market in Europe. For the residential market, the value is up, the volume is slightly down. And second comment I made, I said that the level of pricing in Europe is somehow consistent with the level of pricing we have in the U.S. But I didn't give a precise volume slash pricing split neither for Europe nor elsewhere because it's not something we give by geographical area.

Can I ask then, actually the question I was going to ask then in that case, around India, you mentioned it's growing strongly. How much of that is an easy come? How much is structural? Could you give us a feeling, how important is India for Legrand now? I know it's becoming increasingly important for a number of companies. Is it approaching a top five market yet, or is it still somewhere behind that?

Well, so the Indian market is up significantly. very significantly, both in value and in volume. We are very optimistic about the growth for the rest of the year. We believe that 2023 is going to be a very, very solid growth. We expect to have, of course, double-digit growth there. And we think that this trend should continue in years to come. This is one of the markets which we believe has the most mid-term potential. It represents about 5% of group sales. And this 5% will keep going. This is one of the most favorably oriented markets in 2023.

Thank you.

We will now take... By the way, of course, there's no easy comp. The softness of the Indian market was in Q2 2020 and Q2 2021 because of the COVID-19 crisis and the health situation there. But the year 2022 is not an easy, beautiful comparison in India. It's a normal year. No, it's really the Indian market is growing super fast. Residential, non-residential data centers. Actually, we have a double digit growth in each of those three verticals. And on top of that, we are gaining market share in India on our core product families, light switches, circuit breakers, single-phase UPSs. So, no, the gross is not coming from any technical factors such as this comparison, but really the sound market situation as well as our own performance.

Thank you. We will now take the next question from Delphine Breaux from OdoBHF.

Yes, thank you. Good morning. Thanks for taking my question. I will limit myself to one with a very quick follow-up, if I may. Can you comment on your lighting business in the U.S., how demand evolved in Q1, and what do you see going forward? And the second one, can you confirm the full dilution expected from acquisition and the dilution from Russia You said in the full year results, you said between minus 20 and minus 30 bps for acquisition and between 0 and minus 20 bps for Russia. Is it confirmed?

Thank you. Yeah. I will leave the second question to Franck. As far as the first question is concerned, well, our lighting business in the U.S. is entirely non-residential. We're not setting any lighting in residential nor in data centers. So for the past three or four years, it has had the same pattern as the other non-residential business in the U.S. So as I said, it remains slightly below 2019 in terms of volumes. And we believe that... At some point, this market will catch up. But no meaningful difference between the lighting business and the other non-residential businesses, such as the wire mold cable management, the audio-video, the light switches, and so on, and so forth. Mid-term, I confirm that it is a very interesting place to be. tied to the energy efficiency challenge that we are facing in non-residential markets, closely connected with our lighting control offering. You know that we are setting bundles between lighting features and lighting controls. So it's an interesting space to be, but in the past three or four years it hasn't been very, very supportive, as the rest of non-residential private doping in the U.S.

And as far as your second question is concerned, Adelphine, yes, we confirm what we said on the full year basis. Current number is minus 20B each for Russia and for acquisition, so minus 40 in total. And we confirm the full year assumption.

Thank you. That will conclude today's question and answer session. I will now hand the call back over to Mr. Coquard for closing remarks.

Well, thanks a lot for your time and for your questions. And as usual, we remain at your disposal for further clarification on the numbers. Thanks a lot.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.