Legrand Sa Unsp/Adr

Good morning, ladies and gentlemen, and welcome to today's LaGrange 2023 nine-month results conference call. All participants are in a listening mode. Later, there will be a question and answer session. For your information, this conference is being recorded. At this time, I would like to hand the call over to CEO Benoit Cocard and CFO Frank Lemary. Please go ahead, Seth.

Thank you. Hello, everybody. Thank you for connecting to this call. So as usual, Franck, Renaud, and myself are happy to welcome you to the nine-month conference call and webcast. Please note that this call is recorded. We have published today, as you know, a press release, financial statements, and a slideshow to which we will refer. Those documents are available on the Legrand website. After a few opening remarks, we'll comment the results into more details. I begin on page four of the deck with the three key takeaways of this release. First, Legrand recorded very solid results in a contracting building market. Second, we actively pursue our growth strategy through dynamic external growth in buy-in segments. Third, we have specified our full year targets. So moving to page six to seven, I will start with an overview of sales. In the first nine months of 2023, excluding Russia and FX, our sales grew by plus 5.8%, driven by an organic rise of plus 3.7% and a scope of acquisitions of plus 2.1%. In a contracting building market, these figures point to our resilience. It is driven by faster expanding segments, energy efficiency, data centers, and connected products, pricing, robust commercial performance, and active M&A. Regarding the two other elements on sales, the negative scope effect from Russia was minus 0.7%, and is expected to be minus 1.0% on the full year. The exchange rate effect was a negative minus 2.4%, that should be close to minus 3% for the full year based on average rates of October. On page 7, you will find the key takeaways per geographies on a like-for-like basis. In the first nine months of 2023, the group achieved overall a solid level of growth despite the global building market in retreat. Europe grew a very solid plus 7.1%. With a third quarter alone delivering plus 7.6%, this remarkable performance is driven by a strong growth in each faster expanding segment. In the U.S., we recorded a decline of minus 1.6%. In an environment that saw building markets lose ground overall, we resist thanks to strong double-digit growth in sales to data centers. Finally, the rest of the world area, sales marked an organic rise of plus 6.2% over nine months, driven by very sustained growth in India, Africa, and in the Middle East. These were the main comments I wanted to make on top line, on sales. I will now hand over to Franck for more color on Robert's financial performance.

Thank you, Benoit. Good morning to all of you. I will start on page nine, commenting the adjusted operating margin. Before acquisitions and excluding Russia, we recorded a high adjusted operating margin of 21.9% over nine months, representing a remarkable plus 1.7 points increase versus last year. The high profitability level of the period demonstrates, once again, Legrand's strong resilience in an unfavorable market environment. The impact of acquisition and of Russia was of minus 0.3 points, meaning that the adjusted operating margin all-in over nine months stood at 21.6%. Going now to page 10 and highlighting two main points. First, with a net income of €937 million, representing 14.9% of our sales, Earning per shares were up plus 15.9%, showing very strong value creation. It benefited from the favorable trend of operating profit, favorable trend of financial results, as well as a lower income tax rate. Second, the cash generated during the nine-month period is remarkable. with cash flow from operations up plus 9.6% at 1.3 billion euros. And despite a still strengthened coverage of inventory, free cash flow stood at 19.2% of sales. These strong financial indicators demonstrate continued best-in-class profitability and cash flow generation. Moving now to page 11, we have a sound balance sheet testified by two indicators. First, the net debt to EBITDA ratio stood at 1.1. More than 90% of our debt is at fixed rate, and the maturity is 4.4 years. And second, we have 3.2 billion of available cash. This concludes the key financial topics I wanted to share with you, and I'm now handing over back to Benoit. Thank you, Franck.

On both pages 13 and 14, we focus on our dynamic external growth in buy-in segments. As you know, we announced earlier this year the acquisitions of Clampair in Brazil, Ancelium in the U.S., and Technica in Chile. Today, we announced the acquisition of ZPE Systems, a leading American specialist in serial console servers. with annual sales of more than 80 million US dollars. Those products enable remote access and management of network IT equipments in data centers. This acquisition allows Legrand to enter a promising new segment, which is highly complementary to its existing offerings for data centers. By the way, with Technica, it means that we announced two acquisitions in data centers in 2023. i.e. 17 deals in data centers since 2010, of which six in the U.S., a very promising vertical that represented 14% of our sales in 2022. We can now move on slide 16 regarding 2023 full-year targets. So taking into account achievements reported in the first nine months of the year and the world's current short-term economic outlook, Le Grand has now set the following full-year target for 2023. Sales growth at constant exchange rates and excluding Russia impacts of around plus 5%, including an organic growth of between plus 2.5% and plus 3.5%. An adjusted operating margin ranging from 20.5% to 21.0% of sales before acquisitions and excluding Russia and related impacts. and at least 100% CSR achievement rate. This is for the key topics of this release. I suggest we now switch to Q&A. Thank you.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Kindly be reminded, this is limited to one question plus one follow-up. Thank you. Well, I'll take our first question from Daniela Costa at Goldman Sachs. Your line is open. Please go ahead.

Thank you very much. I'll take the opportunity to ask one question and one quick follow-up. In terms of the question, just keen to understand sort of like a bit better what were the portions that you saw changing the most since July that led you to do the change in guidance and I guess If you comment on it sounds like Europe did better overall, at least versus market expectations compared to the U.S., which maybe is a bit counter to what people thought, Europe being more resi-exposed than U.S., more data center-exposed. So that's my first question. And the follow-up is just if you could give pricing. Thank you.

Hello, Daniela. I like your concept of asking one question. At the end, it's about three in a row, but no problem. So let me go through various topics. So since July, we haven't really seen any change in the macro environment, neither in the US nor in Europe. We don't believe there has been any deterioration nor any improvement. you know, the key trends that you know remain approximately the same, i.e., depressed residential market, even though some statistics seem to show that it's bottoming, difficult office market in the U.S., a bit more resilient non-resi market in Europe, and overall pretty buoyant trends in data centers. So those trends have been pretty much the same in Q3 and in H1. Now, the change in... The reason why we are now shooting for the lower end of the top line guidance is more related to our own efforts. In July, I told you that we wanted to reinvest some significant amount of SG&A in order to fuel growth and to achieve better volume growth. So at the end, we achieved in Q3 better volume growth than in H1. In H1, or better, volume trend than in H1. In H1, our volumes went down 2.5%. In Q3, our volumes are down 1.3%. With two situations, it has been clearly working well in Europe. And Europe turned from a volume negative situation in H1 to a volume positive situation in Q3. with remarkable performance, many things going very well, growth in a number of FedTech pending segments, the success of a number of growth initiatives, but the situation hasn't improved in the U.S. And the volume trend in the U.S., it's about the same in Q3 than in H1, i.e. mid-single-digit negative. So we haven't been able really to boost the volume growth in Q3 in the U.S., the reason being that the markets are, as I said, pretty depressed, especially the office market and the residential market. And in a difficult market, it's a bit more difficult to convince your customers to launch a number of extra actions to support you. So it hasn't really improved in the U.S., and as a consequence, we are now more targeting the low-end of the top line guidance than the high end. Well, you have also noticed, I guess, that we have upgraded our guidance for profitability, which was 20% in February, 20.5 in July, and we are now shooting for 20.5 to 21%. As far as the pricing is concerned, well, I gave you already most of the elements. If you look at the past nine months, our selling price has been up plus 5.9% and our purchase price has been pretty flat, which implies for Q3 a pricing of about plus 3% and slightly declining purchase price. Any other question?

We'll now move on to our next question from Alistair Leslie at Associated General World. Your line is open. Please go ahead.

Oh, yeah. Hi. Thank you, and good morning. Obviously, very good growth in Europe. I mean, I was just wondering if it's possible to isolate the positive impact, I suppose, from the growth initiatives, particularly maybe with regard to the new product launches in the quarter, maybe relative to what you see as kind of blended market growth and And then can you comment on how sustainable you believe that outperformance might be? Do you think the kind of momentum can continue into Q4 and well into 2024? I suppose if I could ask a follow-up question. In North and Central America, interestingly, you mentioned a fall in offers targeting resi and non-resi applications rather than a fall in sales. Maybe I'm reading too much into the wording there, but I was just wondering whether that implied a kind of rationalization of offerings there. or some sort of more selective approach that might have negatively impacted sales as well.

Thank you. So for Europe, if you look at Q3, there's been nothing, there's no, as usual, there's a number of one-offs, either negative or positive, but at the end, we don't believe that technical factors, as we may call them, have come into play. If you put together... restocking, destocking, number of opening days, launches in Q3-23, launches in Q3-22. We don't believe that the total of all those factors have had any place. So the real performance, I mean, the performance of Q3 in Europe is real, solid, and really coming from the two elements which I've said. So great success of faster expanding segment, and especially green-related or electrification-related products, you know, thermostat, high-efficiency transformers, high-efficiency bus bars, and so on and so forth. And second factor, a number of initiatives that have been hitting the market pretty successfully. How sustainable is it into Q4 and 2024? Well, of course, we'll try to do as well as we can for Q4. For 2024, It's a bit early to make any comments. We are just starting the budget season. We'll be a bit more educated and smarter in a few weeks. So we give you our insights about the market trends as well as our own performance when we release our numbers in February. As far as your second question, or your third question was on North America, non-residential, right?

It was just the use of the wording. You talked about a fall in offers rather than a fall in sales. Maybe it's just semantics and wording, but I was just wondering whether there was any kind of sort of... No, there's no specific concern in North America.

Well, you know our exposure, 20% resi, 55% non-resi, 25% data centers. And out of the 55% non-resi, it's mostly, probably, because we don't always know where our products are sold, but it's mostly office building with a big exposure to big metros. So we've been suffering for a couple of quarters in the U.S. because of this specific exposure. And nothing much to be mentioned for Q3. It was the case for Q3 as it was already the case for H1. The situation is not worsening. Now, as part of this non-resistant exposure, not only of course we have office building, but we have also commercial retail and a number of other articles. But the drop in volume sales over the first nine months of the year in the U.S., I wanted to emphasize that. It has nothing to do with any loss of market share. Unfortunately, we are not on the growing segments in the U.S. How long will it last, I don't know, but I believe that the non-residential business in the U.S. is still a nice place to be, maybe not for 2023, but midterm remains a nice place to be, and given the strength of the position we have there, there's no reason why at some point the market shouldn't recover and And does the market positions on lighting controls, on audio-video, on cable management, on connectivity, on local area network, shouldn't go back to volume rows?

Very clear. Thank you, Ben.

Thank you. We'll now move on to our next question from Alexander Virgo at Bank of America. Your line is open. Please go ahead.

Yeah, thanks very much. Good morning, gentlemen. I wondered if I could dig a little bit more into the trends that you're seeing, particularly where you talk about the deterioration in resi and non-resi and wondered if you could just give us a little bit more detail on the country dynamics, particularly given the strength in Europe. I mean, I think it was surprisingly strong despite the fact that underlying markets feel like they're getting weaker. So curious to hear about the country dynamics, particularly given the backdrop in Germany, Italy and France as well now, I guess, in terms of permitting and transaction volumes. And then if I could follow up with Just a question on operating leverage in the Americas segment. Is that a function of mix or pricing dynamics? Yeah, thank you.

Okay, so maybe I wasn't clear enough. I don't see any deterioration, neither in Europe nor elsewhere. We have to be clear about that on the macro front. And again, I see a rather improvement in le grand volumes in Europe, but no deterioration of the market conditions. When it comes specifically to European countries, Northern Europe in residential has been indeed pretty depressed. You can name Germany. You can name France, which is not in such a nice shape as far as the residential market is concerned, with housing stocks and permits going down and home improvement expenses being down too. It's the same for Scandinavia. So we have indeed quite a lot of countries in Europe which can be significant countries for Legrand. Take France, for example, where the residential market, both new and renovation, has been down for a couple of quarters. Now, good performance, again, of Q3 has nothing to do with technical factors. Against those poor statistics in housing start, housing permits, or home improvement expenses, you have, in a number of countries, a positive trend on electrification products, for example. You have a number of support or incentives probably hitting the market and helping green-related products, products such as thermostats, for example. You have social trends helping. For example, in Europe, we did a pretty good performance in our Le Grand Care business unit, so all the products related to supporting people to stay at home longer when they get old. Data Center, even though it's a small business in Europe, significantly less than 10% of our European exposure has been going nicely. To make a long story short, no deterioration of the market. The market remains very depressed in the residential piece, especially in Northern Europe, but not only. And number three, we are able to grow even though the markets have not been very supportive because we have what we call internally a couple of dragsters growing pretty nicely as well as a number of commercial initiatives. Well, when it comes to the North American margin over the first nine months of the year, So you have noticed that our adjusted operating income margin or adjusted operating margin is up 80 bps in North America, which means plus 90 bps excluding acquisitions. It's not much about the mix. It's more about the good and solid pricing as well as very good production cost management. So the gross margin is going up nicely because of those two factors. We are reinvesting a bit into SG&A, so the level of SG&A has a negative impact on the profitability by more than two points because, again, we are trying to invest for growth, and then we have also negative impact from operating expenses. But most of the North American margin improvement is coming from the gross margin, pricing and production cost management.

Thank you very much.

Thank you. And we'll now move on to our next question from Gail Debray at Deutsche Bank. Your line is open. Please go ahead.

Thanks very much. Good morning, everyone. Firstly, I'd like to understand a bit better the strategy from here. I mean, do you still have the ambition to chase growth Or do you now think this is no longer the right moment to invest more in the business, given the ongoing deterioration in the underlying building markets? And then secondly, can you provide a bit more color on the big sequential deterioration seen in organic growth in the rest of the world markets, you know, between Q2 and Q3? Thanks very much.

Hello, Gaëlle. Well, I will start with the second question. Well, the deterioration is not as big as you could think because you have to take into account the fact that the pricing is also lower in Q3 than in H1. This is true for all zones. You have in mind that we maybe will later recommend the pricing for Q4, but We said that the pricing, which is mostly a carryover from 22 and H1 to 23, will progressively go down a bit. It will, of course, remain positive, but be down a bit in Q3 and in Q4. Now, this being said, volume-wise, yes, indeed, Q3 performance is not as solid as H1. Still positive, not as solid. We believe that it's more a matter of one-offs. supply chain issues in Africa, for example, or specific topics here and there. But we don't see long-lasting deterioration in the rest of the world. India remains extremely buoyant, growing nicely, and the Q3 performance is very good. China is about flat. which is a good performance given our exposure. I remind you that we do more than half of ourselves in China in the residential business, and the large majority of the residential business is new-built, not renovation. So we are really in the space which is not an easy one in China, but taking that into account, it's pretty flattish. Africa is still doing well. A little bit less in Q3 than in H1, but again, we believe that it is more well-off than anything structural. And Latin America remains a difficult place to be, especially Brazil. So, indeed, looking at the numbers, Q3... is not growing as much as in H1. Part of that is coming from a bit less pricing, and part of that is coming from some negative one-offs impacting Q3. We have not seen overall in this zone deterioration either. As far as the strategy for the year is concerned, it's an interesting question. We are not giving up. Both in Europe and in North America, we have identified a number of programs which we believe will be nice programs to implement. Indeed, they are easier to implement in Europe than in North America for market-related topics, but we're not giving up. And we'll continue to try to capture growth opportunities in Q4. Now, you have seen our guidance. Our organic guidance, which is from plus 2.5 to plus 3.5 for the full year, implies a year to go, which is basically from minus 1 to plus 3, and a midpoint at plus 1. So Q4, if you take the midpoint of our guidance, should be about plus 1. If you break it down into volume and price, we told you in July that our pricing for the full year should be between plus 4% and plus 5%. I can confirm now that it will be closer to the upper end of these brackets, so it will be close to plus 5%, which implies close to plus 2% for Q4. And as a result, this plus one like for like year to go should be read slightly less than plus two in pricing and approximately minus one in volume. So that's what we are shooting for. So what does it imply? It implies that we're going to continue to invest into growth, and that's one of the reasons why Our year-to-go in margin should be between, let's say, 16.5 and 18.5. But we don't expect this strategy to translate into a huge growth in Q4. So no change in strategy. But again, you have to take into account the fact that we operate in difficult building markets. And as a result, those initiatives do not translate into growth. 4, 5, 6% growth, unfortunately.

Thank you very much.

Thank you. And we'll now take our next question from James Moore at Redmond Atlantic. Your line is open. Please go ahead.

Hi, everyone. Good morning. Thanks for the chance to ask some questions. Could I just follow up on wage inflation and whether it's 5 or 6? And could you add a decimal point to the raw material and components inflation versus the 0.4 in the first half. But my question really surrounds SG&A and your ambition to increase sell-ex and marketing spend. It looks like it went up 3% year on year, but the share of sales up 130 basis points in the third quarter, which is more than the 90 basis points in the first half. And I would really like some help with how you see that moving in the fourth quarter. And I think you talked previously about pre-anticipating some launch costs from next year, onboarding some more agents and moving spend to some faster growth areas. And I wonder how much you're really bringing forward cost from next year that could effectively drop out next year, or whether we should also anticipate further increases in SG&A to sales ratio next year. Thanks.

So as far as... Let's take your question piece by piece. As far as wage inflation, like for like, it's close to plus 6%. So no major change compared to H1, and we believe that it should remain more or less close to this level for the full year, close to plus 6%. So it used to be... let's say, plus five the previous years. It's now plus six, so it's a little bit more than we used to have in the past, but it's not a major change, and it's something which is completely manageable from a cost standpoint. As far as the price of ROMATs and components and the pricing is concerned, I gave already the numbers for the first nine months and for Q3. As far as Q4 is concerned, I told you that in terms of selling price, we should be close to plus two. As far as purchase prices are concerned, it's as usual a question mark, but you remember that in Q4 2022, there was a sequential improvement or decrease in purchase price. So for Q4 2023, there should be a slight growth in purchase price. So this is one of the reasons why the margin should be at this level. Close to plus two in terms of pricing and growth in terms of purchase price. Hence, less benefit from the difference between selling price and purchase price. As far as 2024 is concerned, well, it's a big question mark. We'll try to answer this question in February when we'll release our numbers and give our full year guidance. So it's far too early. And, you know, we are not the best company to give you hints about what the ROMATs and components will do in terms of pricing because we don't have a long-term contract. We are buying materials mostly based on the actual price. So we'll try to give you more guidance for... in February, but with the limitation of our business model, if I may say. As far as SG&As are concerned, let's be clear about the numbers. Like for like, we have our SG&As which have been growing about plus 7% over the first nine months of the year. with like-for-like sales growing plus 3.7%. So indeed, we have tried to invest into SG&A. And interestingly, in Q3, discretionary SG&A, sales network, sales advertising, stuff like that, as planned, have very significantly increased, more than double digit. This strategy has been launched. We'll continue. Well, to make things clear, no significant expenses will be put from 2024 to 2023. It's more about implementing special schemes with our partners, doing roadshows to give more power to new product launches, doing social media campaigns, trying to, you know, I point you in there, a few commercial people in areas where we think there could be additional potential. So it's more about actions, structural actions or one-off actions to boost sales rather than anything like pulling expenses from 24 to 23. Now, as far as the SG&A trends for 24, Same questions as your colleagues, same answer than to your colleagues. We'll give you more guidance on 2024 in February. The only thing I can tell you on 2024, because, again, it's not today's exercise, is that whatever happens, the building blocks of Le Grand Performance will remain. So we will chase as much growth as we can, especially by focusing and investing on fast-expanding segments. I can confirm that over the first nine months of the year, connected products, green and data centers, did significantly more growth than the more traditional products, which are highly related to the building industry. We will continue this strategy, and those three segments will grow faster in 2024 than the rest of the product offering. We will do pricing. Probably not a lot of pricing, we'll see, depending on the raw mass and components, but I can confirm that the prices won't go down in 2024 for Legrand and will continue to increase as they've been increasing for the past 30 years or so. We will continue, of course, to manage carefully our costs. You have, for example, noticed that over the first nine months of the year, we have restructuring expenses of 40 million euros. Usually, on a yearly basis, we have restructuring expenses comprised between 20 and 30 million euros. So it means that we have done more restructuring in nine months than we usually do over 12 months. This is done in order to continue to improve our cost base in years to come. We will continue to do acquisitions. 2023, in this respect, has been in the lower end of our mid-term guidance. Indeed, we will achieve close to 2% perimeter impact. And I remind you that we are shooting for 3% to 4%. We are not giving up. We have many opportunities, many discussions going on, many letters of intent under negotiation. So we will shoot to achieve our mid-term guidance in terms of climate impact next year. And we have a strong balance sheet to do it. We have a leverage which is 1.1. So, you know, all those building blocks, even though I cannot, of course, give you far too early to give you any indication about our 2024 guidance, all those building blocks of the Legrand performance, I can really confirm they will remain, and they will, of course, come into play, as you may expect.

Thank you. Thanks for your answers.

Thank you. And we'll now move on to our next question from Aurelio Calderon at Morgan Stanley. Your line is open. Please go ahead.

Hi. Good morning. Thanks for taking my questions. So the first one is probably touching on your point on M&A. You've also talked about rebalancing the portfolio in the U.S. within the non-receive verticals. Is that going to be through M&A? I know that you have exposure to some verticals like, for example, circuit breakers or some product lines like circuit breakers, but do you think that you can change that kind of non-resilient exposure organically, or do you need M&A and new product lines to do that? And the follow-up question would be, you mentioned that you haven't seen a real change in trends in Europe or in the U.S. You also mentioned destocking or restocking not having a major impact. Could you quantify if you've seen, could you probably touch on that destocking effect, if it's changed, I mean, it's not changed sequentially, but how much of an impact it was in 1.8 or in 3Q? Thank you.

Hello. So, indeed, we... Mid-term, we are shooting to reduce a bit of exposure to the non-residential, especially to the office building. But again, I wanted to insist on the fact that it's not such a bad space to be. It's not supportive. It has not been supportive for quite a few quarters, but at some point, if we come back, and I'm sure that it will be back to growth and it could even be back to significant growth. So I wouldn't like you to think that it's a very, very bad space to be in. Actually, we are not contemplating, for example, to dispose of our assets on these non-residential segments because we believe that those are very good assets, strong leaderships, nice margins, good cash flow, and we should benefit from the growth when it should come back. As far as the rebalancing is concerned, it's a mix, it's both a story of organic growth and of acquisitions. Organic growth, well, take, for example, lighting fixtures, where we are very much exposed to the big metros, where our various brands of lighting do have a strategy of going after other verticals, so hospitals, so health, so education, possibly infrastructure, and so on and so forth. But as you know, organic moves take a lot of time. You don't decide overnight to become a significant player in data that vertical. So the fastest way to do this rebalancing is definitely acquisitions. If you look at the couple of acquisitions we've done in the US for quite some time, Many of them are data center related. And one was announced today. Some more will come in faster expanding segments in the quarters to come. Well, I don't believe that Circuit Breaker is really space for us. It's already well occupied by big guys. So we are more shooting for segments in which we can become two acquisitions, solid number one and number two. If you take ZPE system, for example, it's a very, very solid number. number one or two in an interesting niche market. So this is more this type of companies we are looking at, number one and number two in niches or less niches but fast expanding segments in electrification, energy efficiency, data centers, connected products, and so on. So we'll continue to look at opportunities in the U.S. and it's highly likely that that those acquisitions will be in those faster expanding segments. As far as stocking is concerned, well, there's a bit of stocking here to date, but I wouldn't qualify it as substantial. Nothing really to be noticed in Q3. And again, all those technical factors are not playing much in Q3. And as far as the level of inventory at our distributors, same feeling as when we shared three months back. We don't believe that our channel is inventory rich in our products. They haven't built much inventory for the past two years. So we're not expecting a strong destocking coming from a distributor. Now, as usual, and as you know, it's not in our hands. So it's a question you should ask to Excel, Sonepa, ADO of the world.

That's great. Thank you.

Thank you, and we'll now take on Last question from Eric Lemaire at CISA. Your line is open. Please go ahead.

Yes, good morning. Thanks for taking my question. I've got two remaining. The first one, could you remind us the expected impact from Scope and Russia on your full year EBITDA margin, please? Would it be similar to the nine-month impact around the 30 basis points? And a certain question on pricing. What is the percentage of your sales impacted by negative pricing effect in Q3, if any? Thank you.

Well, I'll take the question of pricing, and I will let Franck answer in Russia. We don't have this KPI. You know, we have 300,000 SKUs, so it would be a very complex analysis. So, no, I don't have this measure, but I can tell you that... our three zones have seen their price increasing in Q3 2023 and most of our countries have seen price increases in Q3. Again, not coming much from new price increases because the price of robots and components or the added value, transportation, energy, the input cost did not require us to do additional pricing, although we could if we wanted to, but more coming from the carryover from 2022 NH1. So, you know, you shouldn't feel that we are, understand that we are seeing more pressure than usual in pricing. Our markets have always remained, has always been price competitive market by definition. But on this price competitive market, we've always been able to increase prices. 2023 will again, with a close to plus 5% price increase, be the demonstration of that. And as I said earlier, if we need to do more pricing in 2024, we have retained this ability. If you look at the past four years, we have increased selling prices by about 20% accumulated. And the price of formats and components has increased by more than 23%. And actually, interestingly, our level of gross margin, our first nine months of 2023, is only slightly above, 40 bps above, the level of gross margin that we had in 2019. So we haven't done too much price increase. The improvement in profitability between 2019 and 2023 is coming mostly from the leverage on expenses, production expenses and SG&A, and the fact we've been able to hold our costs tight. But it has nothing to do with too much pricing. So again, it means that should we need extra pricing in 2024, we'll do extra pricing. I'm turning to Franck for the question on Russia.

Yes, so to wrap up Russian impacts, talking about the top line, at the end of September, what we call scope is minus 0.7. It should be minus 1 at the end of the year. Talking about adjusted operating income at the end of the nine months, it's a dilution of minus 10 bps, and it will be around the minus 5, minus 10 by the end of the year. Then the last impact that would be mainly recorded on Q4 will be the sale of Russian activity, which would be a loss in the net profit of around 45 million euros, mainly on behalf of the translation reserve, and a cash benefit of around 15 million euros. And this will end the Russian impact for the full year.

And in terms of scope effect on margin in Q4, no reason why to believe it would be different from... This is why I said that over nine months it's minus 10 bps.

There would be no impact on Q4. And accordingly, full year, it would be slightly less than minus 10.

I was talking about the scope effect outside Russia.

Sorry, so the scope effect on a full year basis is expected to be around minus 20 bps, a part of that, let's say less than half of that being Russia, and more than half of that being acquisitions.

Okay, less than 20 bps for the full year, okay.

Together around 20 bps, minus 20 bps.

Okay, thank you.

Thank you. There are no further questions in queue. I will now hand it back to Benoit Coquart for closing remarks. Thank you.

Well, thanks for your time and your interest in following Legrand. As usual, if you have some follow-up questions, Renaud, Antonia, Franck and myself are at your disposal today, so don't hesitate to give us a call and try to answer any additional questions you may have. Thanks a lot.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.