Legrand Sa Unsp/Adr

Good morning, ladies and gentlemen, and welcome to today's Le Grand 2024 First Half Results Conference Call. For your information, this conference is being recorded. All participants are in a listen-only mode. Later, there'll be a question and answer session. At this time, I would like to hand the call over to CEO, Mr. Benoit Kekua, and CFO, Mr. Frank Lemery. Please go ahead, sirs.

Thanks a lot. Good morning, everybody. Franck, Roland, and me are happy to welcome you to the Legrand 2024 first half results conference call and webcast. As you know, this call is recorded. So we have published today our press release, financial statements, and a slideshow to which we will refer. Those documents are, as usual, available on the Legrand website. Few opening remarks, we will comment the results into more details. I begin on page four with the three key takeaways of this release. First, in a building market that remains depressed in many geographies, Legrand reports good resilience in the first half, including safe growth in the second quarter and very firm margins. Second, we are actively holding out of strategy through acquisitions and innovation. Last, we confirm our full year targets. As a reminder, we will host a capital market day in September 2024 in London. So moving now to page 6 and to page 7, I will start with another view of sales. In the first half of 2024, excluding exchange rates in Russia, our sales decreased by minus 0.7%. with an organic trend of minus 2.0% and a positive scope from acquisitions of plus 1.3%. In the second quarter alone, sales were up plus 1.5% organically, driven notably by the data center's momentum. Considering the current building market environment, which remains depressed in many geographies, this limited decline in revenue highlights the relevance of Legrand business models. Looking forward, based on acquisitions made and their likely dates of consolidation, the impact from acquisitions should be of nearly plus 2.5% full year. Regarding the two other elements on sales, the negative scope effect from Russia was of minus 0.9% for the first half and will be minus 0.6% on the full year 2024. The exchange rate effect was a negative minus 0.4% for the first half, and based on average rates of June, it would be close to minus 0.5% for the full year. You will read on page seven the key takeaways per geographies on the like-for-like basis. On the first half of 2024, despite market conditions, the group's revenue recorded a limited decline. European sales fell minus 3.2% in the first half of 2024, in a persistently tough building market in most countries. In the US, sales were up plus 1% over the period. We achieved a solid performance in the second quarter, with a steep plus 7.9% rise driven by market growth in the data center segment, as well as an increase in non-residential applications. Finally, in the rest of the world, we recorded a decline of minus 3.1% in H1, with a mixed picture depending on regions and countries. Sales grew notably in India, the Middle East, and South America, but these failed to offset declines in China and Africa. These were the main comments I wanted to make on sales. I will now hand over to Franck for more color on our financial performance.

Thank you, Benoit, and good morning to all of you. I will start on page 8, commenting the adjusted operating margin. Before acquisitions, we recorded a solid adjusted operating margin of 20.8% in H1. This level of profitability confirmed, once again, the ability of Legrand to hold margin high despite a decrease in sales. the impact of acquisition was minus 10 bps, meaning that H1 adjusted operating margin all-in stood at 20.7%. Going now to page 9 and 11 and highlighting two main points. First, the net profit stood at 578 million euros, representing 13.7% of our sales. And second, the free cash flow came to 468 million euros at 11.1% of sales for the first semester. On page 11, we can see the robustness of our balance sheet with a net debt to EBITDA ratio of 1.8 at the end of the period, which is fully consistent with the group credit rating. And this level reflects both a solid free cash flow generation and the strong pace of acquisitions that Benoit will comment shortly. This concludes the financial key topic. I'm now handing over back to Benoit.

Thank you, Franck. Let me now move to page 13, detailing our recent acquisitions. We are continuing and even accelerating our Bolton acquisition strategy with five acquisitions announced this year, totaling more than 200 million euros acquired sales on an annual basis. I would like to highlight the fact that out of these five acquisitions, three of them are in the buy-in data center segment and represent annual sales of 140 million euros with NetHack in India, Davenham in Ireland, and Vaas in Australia. We intend to pursue this momentum in the coming quarters with a very active pipeline. On both pages 15 and 16, you can see a few examples highlighting the strong innovation base for the group. We launched many new products this year. such as the new iconic Célian range in France, for example. This shows the group's continued robust capacity for innovation, both for core infrastructure products and in faster expanding segments. We can now move to page 18. We stand by the full year targets announced in February with low single-digit growth for sales, meaning organically and through acquisitions, an adjusted operating margin before acquisitions of between 20.0% and 20.8% of sales, at least 100% CSR achievement rate for the third and last year of our 2022-2024 roadmap. Before we move to questions, I would like to remind you of our Capital Market Day, scheduled on September 24 in London. This is it for the key topics of this release. I suggest we switch now to Q&A.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now take your first question. One moment, please. And your first question comes from the line of Daniela Costa, Goldman Sachs. Please go ahead.

Hi. Good morning. Thank you. two questions, if possible, if there's space for it. But the first one, just looking at sort of how you grew in North America, I guess, assuming would be interested in getting your breakdown of data centers, non-resi and resi, I would assume it's not the data centers that has grown very strongly given construction grid across, as we hear, are yet not very

buoyant was there any catch-up or is this the from from prior quarters where you were weak or is this sort of the normal growth that you see going forward for data centers hello daniela well indeed the the situation is very diverse in north america you have to think of it as as three different pieces so you have the data center market which indeed grew double digit in q2 we don't see that as a catch-up we knew as early as last quarter, given the quotes, the orders, incoming and so on, that the quarter would be good. And we believe this is a normal pace of the data center market. And, well, nobody can say what the next quarter is going to be, but we believe that the double-digit growth rate is sustainable for the coming quarters and is in line the growth of the data center market so it's a it's a clearly positive growing and no specific catch-up but the translation of a healthy data center market number two and it's about as you know a big quarter of ourselves then we have the the non-residential market office education and so on which is more than slightly more than 50% of our sales, which is growing single digit. I wouldn't want you to think that the market is growing. I think that we haven't seen any significant change in trend. This non-RESI market remains difficult, but we are growing notably because we have an easier comp. You may remember that in Q2 last year, we indicated that there was some destocking in the non-resi market. So let's say the Q2 basis of comparison for non-resi was somehow a bit easier, if I may say. So no change in trend as far as the market is concerned, but a technical factor which explains why the non-resi market, all non-resi sales are slightly up. The third piece is resi, which is about 20% of our sales. Clearly, the market KPIs are improving for resi. And if you look at the number of indicators such as investment in residential, new single family, reinvestment in residential, and a number of others, the statistics should get better in 2024 compared to 2023. it does not really hitting yet ourselves you know that you have a time lag between the times the statistics get better at the time it hits ourselves so but we believe it will at some point somewhere either later this year or beginning of 25. so data center very positive and it will remain very positive non-residential remain remain difficult but it was helped for q2 by technical factors and the market starts to get better but not yet hitting ourselves.

Very clear, thank you. And maybe a comment on the free cash flow where the margin has been a little bit lower than it used to be in the past. Can you talk through the working capital build-up? Is that something that we're going to see a reversal for in the second half or is it part of the strong growth in areas like data centers and we won't see a reversal? How shall we see it?

I will let Franck maybe take this question. Yes, thank you. Hello, Daniela. Well, you said a lot of true things in your question. Free cash flow at the end of H1 is quite decent, but it's not at the level of the last two, three excellent years. It's at 11.1%, which is, by the way, the average of the last seven, eight years, but lower than the most recent period. And it is about the working capital requirement, which is exactly at the same level as last year, and notably in terms of inventory to sell at 16%, which means that it's a little bit higher than the traditional matrix of Legrand. And you remember that in the past, we said that we... took the decision to carry over some extra inventory to support ourselves during COVID and post-COVID supply chain challenges. And this is also what is currently happening, but more on behalf of supporting the data center. It's not about global supply chain disruption, but it's more about supporting the data center business, which is growing strongly and which is also made of projects with some ups and downs. So to sum up and to talk about H2 and the full year, our target was to achieve free cash flow to sales between 13% to 15%. We achieved the target, but it will probably more in the software range if we were to protect the data center business, which is buoyant. To sum up, no structural changes in our free cash flow metrics. We will respect our full year target, but probably more in the lower end of our target.

Got it. Thank you very much.

Thank you. Your next question comes from the line of Andrew Wilson, JP Morgan. Please go ahead.

Hi, good morning. Thanks for taking my questions. I've got two, please. Can I just ask on pricing development in the Q2 and also expectations for the remainder of the year? And then secondly, and it's really a follow-up to Daniela's question, but I don't know if you could quantify quite how strong the data center growth was in the Q2 and expectations for the second half. I'm just trying to see if we can get above that double-digit rate for the full year as well. Thank you.

Well, as far as pricing is concerned, for H1, the pricing was quite minimal, 0.2%, which implies more or less a flat pricing for Q2. And it has to be seen in the context of purchasing price being slightly down. Purchase prices in H1 were down 0.7%. So quite limited pricing, the reason being that we didn't need to do more pricing, actually. in order to deliver our margin target. As far as H2 is concerned, we will do a little bit more pricing. And we expect to land, as we said last February, we expect to land at maximum 1%. So you shouldn't expect more pricing than plus 1%. It will be somewhere between plus 0.5% and 1%. Of course, all that will depend on the price. environment as far as row mats and components are concerned if the price of format and components was to go up more than expected of course we'll do a bit more pricing so 0.2 percent in each one and for the full year plus one percent maximum as far as the data center gross is concerned well you can assume that in q2 it's something which is close to a plus 10 percent with a different product mix depending on the areas. As far as the U.S. is concerned, it's mostly white space. You know that our data center exposure in the U.S. is mostly white space. As far as Europe is concerned, where our exposure to data centers is, of course, much smaller, the Q2 performance is more about gray space, switch gear, UPS, bus bar, and so on, which is basically coming back to the growth rate we had for the past four or five years. For the past four or five years, we've been growing about 10% organically per year. So I cannot commit to any number for Q3 and Q4, but I see no reason why we wouldn't continue to grow in H2. We still have many incoming orders, many quotes, a very positive signal for the market. uh well now of course it's difficult for us to have to have full dbt but but i don't see any reason why uh we wouldn't continue to grow in h2 uh in data centers again because this is a structural growth it's not uh it's not coming from one specific big project it's not coming from a carryover of invoices from q1 to q2 it's a it's we believe a structural Good growth coming from the fact that, number one, the market is buy-in, and number two, we have solid positions on this market.

Thank you. And if I can just squeeze in one quick further question. On the second half margin, I'm just thinking about 2023. There was a good step up in terms of investment in the second half. Just trying to think about it. your sort of investment plans appreciate at this stage, but your investment plans for kind of second half and whether that can actually be a tailwind in terms of second half margin development given the step up you saw last year. Thank you.

Well, we will, as usual, manage the H2 margin, taking into consideration all factors, ROMAT, the state of the economy, blah, blah, blah, so that at the end we land... where we have committed to lend, i.e. for a full year, a margin between 20 and 20.8%. We don't expect a specific surge in Asian investment. Now, if we believe it will help to do targeted investments, we will. So I cannot commit to a level of investment, but we remain extremely, you know, vigilant and should we see further growth opportunities, we'll decide to dedicate the appropriate resources to support that. Very clear.

Thank you very much.

Thank you. Your next question comes from the line of Andre Cookton from UBS. Please go ahead.

Good morning. Thank you very much for taking my questions. I'll just go one at a time. Can I follow up on data centers first and that 10% growth that you cited? I think right now we're seeing higher growth rates in the market in terms of megawatt additions in the data center's capacity than the 10%, especially in the US. Could you just talk about how your exposure correlates with that, and should we expect it to catch up at any point, or is there a kind of a different multiplier on your growth versus the megawatt additions?

Well, maybe it's a good opportunity for me to advise once again our CMD, which will be held in September 24, because it's typically a sort of conversation that we should rather have at the CMD than when commenting results. Now, be careful because you have to make a difference between investments in megawatts, which are announced, investments or capex into GPUs and stuff like that, order books, book to build, and let's say forward-looking potential sales and actual sales. I don't believe that our market today is growing faster than 10%, which is already good. So, of course, you can have higher investments, higher capex announced. We have incoming orders or order books which are growing faster than 10%. But again, between incoming orders and actual sales, many things can happen. You can have early booking from customers. your customers which are afraid not to have enough goods to be supplied. Those orders can be delivered over the next 12 or 18 months and not the next three months. Some orders can be delayed, can be cancelled. So, as far as Legrand as a supplier of technology is concerned, what matters is how fast our underlying markets are moving and I can confirm that. For Legrand, the data center market, which is held by AI, is growing probably approximately 10%, not 20% or 25%.

got it thank you i was looking at the absorption data which i thought was kind of close to the build rate as opposed to orders but as you said we look forward to the capital markets day to learn more and i just have two quick uh follow-up questions or further questions but one is um you cited the destock effect in the u.s non-residential market in second quarter of 2023 that created an easy comp for this quarter How did that destock progress through the second half of 2023? Was it still there in subsequent quarters of 2023?

No, we don't believe there has been any significant destocking in our market in H2. Of course, in the markets which are a bit difficult, such as France or China, for example, mechanically there's a bit of destocking because The distributors cannot handle the same level of inventory as when the markets are booming. But I wouldn't quote that as significant at group level.

Thank you for this. This is really useful, but I just wanted to check. Last year, in 2023, you said U.S. non-resue was destocking in the second quarter, and that helped this quarter. Did it proceed to destock further in the second half of 2023, or was that just a one-quarter effect?

No, it was a one-quarter effect, nothing significant in H2-23. So it shouldn't have any impact on our H2 performance in non-resi, neither positive nor negative.

That's very clear. And lastly, just on acquisitions contribution for the year 2024 from everything you've done so far, what should we expect for the year?

Well, we should expect 2.5% excluding, of course, Russia So plus 2.5%, Russia minus 0.6%. All that is, of course, linked or based on acquisitions which have been announced so far. Should some more acquisitions come, the effect could be slightly higher than that, of course. But so far, based on what has been announced, plus 2.5% excluding Russia.

Perfect. Thank you very much for your time.

Thank you. Your next question comes from the line of Max Yates from Morgan Stanley. Please go ahead.

Thank you. Good morning. I just want to start on your comments on U.S. non-residential. And obviously kind of one of the big drags for you has been your U.S. kind of commercial and office exposure. I think it's down kind of more than 40 percent versus 2019 levels. I guess what I wanted to understand, the headlines obviously in that market are still quite challenging, but you've obviously had additional effects of destocking as well. So I just wanted to understand in that portion specifically, are you still seeing that being a drag to your overall America's growth? And do you think we can start kind of talking about volumes there having bottomed or do you anticipate kind of a further drag to your North America growth from that sub-segment specifically?

Well, it's difficult to say. The volumes have indeed been down very significantly. And at some point, they can hardly be down a lot more, given the low base from which we start. So we are looking carefully at a number of KPIs, such as, for example, vacancy rates. Some of those KPIs are bottoming out, but it's too early to say that the market will bottom out. So we believe the market at some point would get better. Not sure it will come back to a strong 5% growth per year, but it will indeed start to rebound from a small base. But we remain a bit cautious, again, because the statistics are not yet super positive and are... Rebounding sets in Q2, as we said, is more linked to technical factors. It's difficult for us to have a lot more visibility than that.

No, that makes sense. And just a quick follow-up on your acquisitions that you've done in data center. I guess just maybe a kind of quick comment on the strategy and the pipeline. I mean, do you see when you kind of line up future M&A, are there a lot of these kind of smaller acquisition opportunities in data center like the ones that you just did? And I guess you're clearly finding things in, I think, what are your kind of core data center products, the kind of things like the busways and the PDUs. So, yeah, is this a lot of opportunities there for M&A? Or do you think you'll have to start moving out of those product categories if you want to keep doing M&A in data centers?

Well, we have a lot of interesting opportunities remaining in data centers. And out of the 350 targets we have on our pipeline, I cannot quote a precise number, but we have... a lot of opportunities in data centers. Some of them are, let's say, traditional product families. Some others are new product families. So we are doing, in data centers as elsewhere, the traditional Legrand strategy of both reinforcing our market share on the core and expanding it to adjacencies. So if you look at what we've done for the past couple of years, ZPE, that we announced six months back, wasn't a traditional Legrand product family. It's on Consol, which was a new product category for Legrand. Davenham, on the gray space, is also a new product family. Vaas is a more traditional product family because we've been active for quite some time on Best Bars. So, no, we have many opportunities remaining in data center. both in the traditional core Le Grand Project families and in the new families for Le Grand.

Super, that's great. Thank you very much.

Thank you. Your next question comes from the line of Guy Debray from Deutsche Bank. Please go ahead.

Well, thanks very much. I actually have three questions, please, so maybe I'll take them one at a time. Can I start with the M&A activity, please? I mean, usually you've been pretty prudent on the M&A side with multiples typically lower than the group's own multiples. But in H1, you spent more than 1.2 billion euros. And if I'm not wrong, I think that's equivalent to about 4.2, maybe 4.3 times EV sales. So clearly above your own multiple and what you've been used to pay in the past. I know there was something around software, but Generally speaking, is there any change to the group's M&A approach or cautiousness or potentially any change to the competitive dynamics in the bidding processes? Has the market become perhaps more competitive on the M&A side? Thanks very much.

Well, the numbers you quote are correct, Gaël. Now, the short answer to your question is no, absolutely no change. The fact is that the companies we have bought have profitability, which is a very nice one, sometimes higher than groups' average profitability. So if you look at the multiple of EBIT we paid for those companies, it is significantly lower than Legrand multiples. But since those companies are nicely profitable in terms of multiple of sales, indeed, we are closer to four than to the 2.5 or so, which we did last year and two years back. But I confirm that there's absolutely no change in the competitive dynamics. Most of the deals we've done were one-on-one discussions. We are still using the same valuation metrics, i.e., we want the deals to be EVA-accretive within three to five years of full consolidation. All those deals are very well sketched out and correspond to a very good addition to Group's plan of action. So no, no, we not overpay the deals and we will remain reasonable when it comes to the EV impact of those transactions. It just happens that from time to time you buy a company which has 25, 30% or so more EBIT, in which case, of course, the price of the multiple of sales seems to be higher.

Well, that's great to hear. Thanks very much. And then the second question is on the restructuring cost, which appears to be particularly high in Q2, especially in the U.S. So could you provide perhaps more details around the actions being taken there?

Yes, Gerd, you are once again right. Usually, yearly restructuring expenses for Legrand are about 30 million euros per year. And it is true that in H1 alone, it amounted to 40 million euros, of which 25, I think, in the US. So in the US alone, in one semester, we did almost as much restructuring as we usually do yearly at the group level. Well, the reason being that, as you know, we are always optimizing our cost base. This is a condition for us to continue to deliver solid margins. And we have identified in the US a number of restructuring opportunities. which we are currently conducting. Last year, it was Europe in H1, which had a restructuring quite high. This year, it's the US. So it's part of the Le Grand, let's say, habit of even when the numbers are solid, to continue to look for restructuring opportunities and opportunities to take some costs out of RPNL. So nothing specific. it is a Le Grand Tradition story. But you are right to say that it has a significant impact on the North American margin in H1, because as you know, our EBIT margin is after restructuring.

Okay, thanks very much. And maybe finally, I know you reaffirmed the revenue guidance, but could you perhaps provide a bit more details on what we should expect organically excluding acquisitions. I think the prior indication was for the organic growth to be between slightly negative and slightly positive for the full year. So how is it trending now? Rather positively or rather negatively after Q2 moved back into growth?

Well, I confirm that it should be somewhere between slightly negative and slightly positive. completely unchanged compared to what we told you in February. And, guys, the reason being that, you know, we are exactly where we thought we would be at the end of H1 in terms of top line. So, indeed, from a financial community standpoint, Q1 was probably a bit softer than expected, and Q2 is probably better than expected. But on the Le Grand side, we expect it to be more or less at this level as in a phase one. So since it is in line with our, let's say, roadmap, there's no reason to change our outlook for the full 2024. So organically, somewhere between slightly down and slightly up.

Thanks very much.

Thank you. Your next question comes from the line of James Moore, Redburn Atlantic. Please go ahead.

Yes. Hello, everybody. I wondered if I could just follow up with a couple of technical questions and then a bigger picture one. Could you help us with the wage inflation in the first quarter and the second quarter? And was I right to say that the data centers grew 10% organically globally with 10% organically in the US and 10% organically in Europe? Those are the two technical questions. Maybe I'll come back to the other one.

Yeah. Well, the wage inflation for H1 was plus 6%, and it was more or less the same inflation in Q1 and Q2, no significant change. As far as the full year is concerned, it would maybe closer to plus 5%, something like that. So we are, let's say, in an environment which is pretty high. but not completely stupid and which is, of course, completely manageable within our guidance of margin. As far as the data center is concerned, yes, it's about 10% everywhere, including in the US, minus or plus one or two points, but it's consistent throughout our perimeter, having in mind, of course, that more than 80% of our data center exposure is in the US. And the exposure we have is pretty different. It's more white space in the US, gray space elsewhere. This is it.

Great. And if I could just ask a little about me. I mean, you've got 300,000 products, 100 product families. It's a complicated company. But if you were to look at some of the big categories, I think about wiring devices, cable management, audiovisual lighting. I'm trying to think about sort of stuff that has got a good coefficient to electrification, where you're perhaps less present than some other players in the market. The last time I talked about circuit breaker mix was with Patsy Sudan 20 years ago. Could you update us to how big circuit breakers is? I know you have a strong position in Italy, France and India, but as a proportion of group sales, are we talking mid-single digit percentage of sales? And I'm trying to get my head around, where are we? in the cycle versus 19, some of these bigger categories. Presumably circuit break up materially, wiring devices are down materially. Amongst some of your bigger categories, are there some areas that are much bigger a drag because of mix to office or other things? Just any help on that from a qualitative perspective would be great.

Well, it's not such an easy question to answer because as you rightly said that we would need to dig into the 100 product families or so we have. But to make a long story short, in H1, as we said, the data center was done in Q1 and nicely up in Q2. As far as the other fast-expanding segments are concerned, and as part of those fast-expanding, you have... You don't have second brackets, but you have... green products, you have connected products, and so on. They grew more or less in line with the rest of the group. So you don't have meaningful, in each one, difference in growth, let's say, between what you would quote as being electrification product or digital product and what you would quote as being more traditional product. The reason being that both of them are impacted, except data centers, of course, both of them are impacted by the depressed construction market. When you have a number of new permits or new builds being down, where you have a pace of renovation being quite slow, not only you are not installing a switch, but you are not installing neither panel board with safety breaker or thermostat. So no meaningful difference in H1 except data centers between electrification-related products and the other products. Now, when comparing Legrand with others, but you know that, you have to bear in mind that we are not at all on the same product segments. We are not active at all on the utility segment, industrial construction segment, industrial process segment that you would probably quote as being electrification also. So quite a long and it's not a very precise answer to your question. Maybe we'll try to give you a bit more granularity if it matters to you as the next CMD.

Thanks, Benoit. Thank you very much.

Thank you. Your next question comes from the line of Martin Wilkie from Citi. Please go ahead.

Yeah, thank you. Good morning. It's Martin from Citi. My question was on acquisitions. You talked about paying higher multiples for companies. with higher margins, I see that the acquisition impact to margins is still a small negative in the first half, even if it's slightly less negative than it has been in the past. Just to understand firstly, does that include transaction costs? And that's why we still see that slight drag. And then related to that, my understanding is that for the innovation deal in assisted living, you are buying a software sort of backbone that can then help the rest of your offering in assisted living, and presumably that then gives you some synergies. Just in terms of the timescale that we should expect to see that benefit in terms of that integration of innovation into the rest of your portfolio. Thank you.

So on the first question, the reason is very simple. Most of those companies have not yet been consolidated in our accounts. So you have the price paid in a cash flow statement, but you don't have yet the top line and bottom line impact. The perimeter impact you have in H1 is mostly made of company, of the carryover of companies bought last year and the companies bought at the very beginning of the year, but you don't have yet, for example, Innovation, that is kind of a flash company. But I confirm that with a 2.5 percent parameter impact we're expecting this year, you would usually expect to have, let's say, 25 points of dilution or 30 points of dilution. We usually have, let's say, one point of dilution per one point of parameter growth. You should expect for this year lower dilution because those companies are – most of those companies are nicely profitable companies. As far as your second question is concerned, which reminds you of your second question, sorry?

It was in terms of the benefits of the... Oh, yeah, you know, it's the benefits, sorry. Yeah, exactly.

Well, synergies, as usual, take a lot of time. You don't have synergies within six months, so it's a story of the next... And indeed, we will have synergies between traditional assisted living and the software piece. And we will, for example, use our presence in other markets such as Spain, the UK, France, and so on to deploy internationally the innovation product offering. Well, but we expect to have synergies. Now, will it be material at group level? I don't think so. Don't forget that the Assisted Living piece, it's a 100 million euro business. Innovation, it's between 60 and 70 million euros. So in total, it's, let's say, 170 million euros. I said last time that we expect to take that to 220, 250, 30 million euros midterm. So even if you do a 5% revenue synergy out of that, or even a 10% revenue synergy out of that, the impact on the total account numbers are not so meaningful. So yes, we expect to do synergies. Those synergies will take, as usual, a bit of time to materialize, but they will not be so visible at group level.

Great. Thank you very much.

Thank you. Your next question comes from the line of Alexander Virgo from Bank of America. Please go ahead.

Yeah, thanks very much. Good morning. I wondered if I could just ask you quickly to clarify your comments on guidance for the organic grave, because obviously, since you last talked about plus minus um growth that you've added 100 bits of m a so is that simply that you're suggesting we should be closer to slightly negative or did you have just a bit more wiggle room in the guidance in the first place uh that's that's the primary question thank you let's be very clear our guidance in total remain completely unchanged uh compared to what it was

in February and what was at the end of Q1. So we are shooting for low single-digit growth for sales when adding organic and through acquisitions. Low single-digit. Now, when you split this low single-digit between organic and perimeter, we are not guiding precisely for perimeter. We are just saying that Based on what has been achieved so far, we should have a plus 2.5% growth, perimeter impact, and organically from slightly down to slightly up. But again, this is completely unchanged compared to the guidance we issued in February. Does it clarify or...

I understand that you're saying that nothing has changed. I guess if you add up what you said in Q1 and add up what you're saying now, it feels like things are maybe a little bit weaker. But I understand what you've clarified, so that's super helpful. Thank you.

No, no, no. It's absolutely not weaker. We used exactly the same words in February. Again, our H1 is completely in line with our expectations, both actually organically and for acquisitions. So there's, again, slightly down would imply H2, which in terms of trend would be close to H1. Slightly up would imply a trend where organic cells would go in H2. And we remain, let's say, focused on what we said three months back, we told you we expected a Q2 to be better than Q1, and that's what happened. And we told you that we expected an H2 to be better than an H1, and we are still shooting for that. And then it would lead to slightly down to slightly up, and then to that we would add at least plus 2.5 perimeter impact.

Okay, thank you very much.

Thank you. Your next question comes from the line of Alissa Leslie from Bernstein. Please go ahead.

Yeah, thank you. Good morning. I was wondering if you could talk a little bit more about the Davenham acquisition in Ireland. You know, it's obviously a decent sized acquisition by Legrand standards. So maybe just a few questions. Firstly, I guess, how significant is that in terms of your strategy overall to kind of strengthen the portfolio in Europe? You mentioned it comes in and it gives you a new product offering as well. And you also mentioned, I think, in the initial press release, they sell in the US. I was just wondering if that's something you can leverage And the final thing I sort of noticed it seems to work with some of your competitors as well I was just wondering whether there's some some dis synergies perhaps initially from the acquisition as well. Thank you.

Well, so that an arm it's Basically an Irish company proposing a complete suite here solutions to mostly data center players including hyperscalers So It's very important piece of our strategy. We told you many times that we were big in white space, that we were not big enough in grey space and that we intended to grow in grey space. Part of this growth is coming from organic growth and we have busbar, UPS, transformers, switchgear that we are already selling to a number of data center operators. But in order to accelerate this gray space roadmap, if I may say, we are looking for an interesting acquisition to make that would help us to accelerate. And that's what we did. Davenham is a very good complement to what we currently have. Today, they are selling in Europe and a little bit in the US. And of course, we could leverage Davenham on both continents. They have the know-how. to sell both IEC type of products in Europe and elsewhere and UL type of products in the US. Now it's a matter of timing. The main challenge for a company like Davenham is to build capacity because the demand is really going fast. And of course, geographical priorities will depend on on our ability to build demand at the right pace. Davenam is working with all big switchgear guys and integrates all big brands into their panels and their switchgear, including some of our competitors' brands. Our objective is not to switch to Legrand. Our objective is to fulfill the demand from our customers. So whatever brand of circuit breaker our customers want us to put in the Davenham switchgear, we'll continue to do so. It is more a game of how can we grow capacity, how can we get closer to more customers, how can we satisfy the demand of the existing customers to cope with a very fast growth rather than a story of heavy synergies, if I may say.

Great, thank you. So just to follow up there, I mean, could we view Davenham then as a kind of beachhead type acquisition into the grey space in the U.S.? Is that plausible?

Well, yes, it is. But, well, Davenham still at the end has a small market share out of the grey space. And you have a lot of incumbent players everywhere, actually, not only in the U.S., So, of course, I cannot commit to any specific number. What I can tell you is that we would be extremely disappointed if we were not to experience a very nice growth on Davenham products in 24 and 25.

Great. Thank you, Benoit.

Thank you. Your next question comes from the line of Kulwinder Rajpal from Alpha Value. Please go ahead.

yeah good morning everyone so just wanted to ask a little bit about the faster expanding segments how did they develop in h1 versus your core products and then what are the expectations for the full year and my second question was on the renovation markets across the group how do you see them developing are there any green shoots visible or do you think that renovation is still not where it should be

Hello. So as far as the fast expanding segment, not much better than the rest in H1, but clear different trends between Q1 and Q2. Q1 was down. Q2 is pretty good, but mostly helped and supported by data center. Now, we are not really... you know, giving a precise number quarter by quarter because we think that it's worth looking at on a yearly basis. But let's say you can assume that the data is recovering and the rest remains pretty difficult in line with the rest of the product offering. As far as innovation is concerned, well, it's very different from one one zone to the other. In the US, the numbers are better for renovation, but again, not yet hitting ourselves. In Europe, the renovation is of course not as down as the new. It's a bit less cyclical than new builds, but it's negative, especially the residential side. Again, I believe it should be better at some point because the global inflation is reducing. and it has some impact on the pace of innovation. Interest rates will progressively decrease, so it will increase the ability of households to take on a loan to make a heavy renovation. Hopefully, the mood of the consumer will progressively improve. It should improve at some point, but it remains difficult in Europe. As far as the rest of the world is concerned, nothing specific to say. Renovation is not as big in India or in China or in Brazil as it is in Europe or in the U.S., so no specific comment.

Thank you. Thank you. Your next question comes from the line of William Mackey from Kepler. Please go ahead.

Good morning, everybody. Thanks for the time. A couple of questions. The first one comes back to the European markets, please, Benoit. You've talked in some detail about following the KPIs in relation to a discussion in North America and Central America. But maybe if we could just go into your thinking a little more around how you see the KPIs across the building markets in Europe developing at this stage. And with your experience, how far do you think it might be from reaching the bottom of the into the benefit of starting a recovery? What are the planning assumptions?

It's a good question indeed. The numbers are not yet really improving in the Europe residential market. The new permit should be down in 2024. The construction expenses will be down. And it is, of course, more down, if I may say, new than in Rio. So now I think it's clear that new improvement will come in the market KPIs, if I may say, in the coming months. So now it's more a story of 25 than 24. And it will depend very much on the decrease in interest rate. People were a bit more positive six months back because they thought that the decrease in interest rate would occur in 2024, but it hasn't so far, much. So, in other words, we hope that we should start to see improvement in the market KPIs, let's say somewhere between the very end of 2024 and in Q1 2025. or H1-25, and then hitting our top line somewhere in 25. But so far, no significant improvement. As far as the non-resi is concerned, no change in trend in H1-24 compared to H2-23. So the non-resi remains at the flattish or slightly negative. here again there should be some recovery at some point but difficult to say and the last piece as we said is uh is data center which is uh which is doing well and positive uh thing on the center is that is that uh it's a gray space growing which implies that at some point in europe the white space should also come thank you give you more granularity but it's it's a bit as you know difficult to have full visibility and what what will happen next time

And my next question is more top down or bigger picture related. I mean, you took the leadership in 2018 and then you really didn't have much chance to gather pace until you've had to deal with an incredible amount of turmoil from 2020 to 2023, and dealt with it exceptionally well in terms of the group maintaining profitability and cash conversion. But now as we head into a normalization perhaps across a number of your markets, you've called out data centers with your capital allocation and some of the faster assisted living growth areas. But when you look maybe on a three or four year view, where do you think Legrand has to change pace or change focus from where it's been in the past to keep the momentum in the underlying growth across the business continuing?

Well, why don't you save this question for September 24? Because looking three or four years ahead is typically, you know, the reason why of a CMD. So let's keep this question ahead. If your question is, are you tired? My answer is no, I'm not. If your question is, do you see the levers to do growth and to leverage what will come in the market in the next couple of years, the answer is yes, but we'll give you more detail and granularity in September.

Thank you. I just hope for a news boost. Anyway, super. Thank you very much.

Thank you.

Thank you. We will now take our final question for today. And your final question comes from the line of Jonathan Day from HSBC. Please go ahead.

Hi, good morning. It's Jonathan from HSBC. Thanks for taking my questions. I've got a couple. I was wondering if you could just talk a little bit about the fact that last year in the second half, you were making some or trying to make some internal improvements to drive growth. And I was wondering if you could, first of all, just update a little bit on those and how we should also think about those in terms of comps for H2 this year? That's my first question.

Well, indeed, we did a few SGN investments. Now, let's make it clear, we lent, well, it was a couple of million euros, but not hundreds and hundreds of million euros. And as I said earlier in the call, we don't have a similar program or structured program for H2. But if we see an opportunity and if we believe that by putting a bit more gasoline in the engine, i.e. boosting a bit of product launch, spending a bit more in communication or accelerating our training program, it will help to boost ourselves, we will do so. The conclusion of last year was that In a depressed market, you can spend as much as you can. It doesn't really positively impact your top line. So we will do it wisely, carefully, and only if we feel that it will help our top line.

Okay, thanks. And I was also just wondering then if you could also comment a little bit on China and what you're seeing there. I mean, you described it as a sort of sharp slump. Any signs of green shoots at all? Is it still really in the doldrums?

No sign of improvement for China. We are very much building-exposed and especially residential-exposed. You have seen the numbers as far as the residential market is concerned. They are down 20-25%, I'd say. So far, no sign of improvement. The good thing, if I may say, is that it's only 3% of our sales, so it doesn't have a huge impact on our top line. But no, so far not enough improvement. And we don't believe we will see any sign before, at best, the big of 25. Great, thank you very much.

Thank you. I will now hand the call back to Benoit for closing remarks.

Well, I wish to thank you a lot for your time. I know that this morning is a busy morning. So thanks a lot for... your time and the interest you have in Legrand. And for those of you who are lucky enough to take a summer break, I wish you a happy and relaxing break. And by the way, Ronan, Antonia and the team are at your disposal for further questions. Thanks a lot.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.