Legrand Sa Unsp/Adr

Mr. Roman and I are happy to welcome you to the Legrand 2025 QOM conference call and webcast. As you know, we have published today a press release, financial statements, and a slideshow to which we will refer. After a few opening remarks, we will comment the results into more details. I begin on page 4 of the deck with the three key highlights of this release. First, Legrand reports strong growth in sales, with an acceleration of growth in data centers, together with very solid results in Q1, in line with our expectations. Second, we are actively executing our strategic plan for 2030. And third, we confirm our full-year targets. We will also touch a few words on the key topics on the agenda of our incoming general meeting of shareholders. Moving to pages 6 and 7, I will start with an overview of sales. In the first quarter of 2013-2025, excluding ethics, our sales grew by plus 11.2%, with another growth of plus 7.6%, and a positive scope from acquisitions of plus 3.3%. Pays on acquisitions made so far and the likely dates of consolidation, the overall impact will be more than plus 4% full year, but of course we are targeting to complete more deals in the coming months. Regarding the FX effect, it had a positive plus 1% impact on the quarter, and based on the average rates of April, it would be close to minus 2% for the full year, Of course, again, given the current volatility of currencies, it could be quite different at the end of the year. On page 7, you will find the key takeaways per geographies on a like-for-like basis. In Europe, with a building market that remains sluggish overall in most countries, sales were almost flat organically at minus 0.3% in Q1. In North and Central America, sales grew an impressive plus 18.7% in Q1, boosted by an outstanding performance in data centers. Like the rest of the world, sales were up plus 4.8% in the first quarter. Sales grew in India and the Middle East, which was partially compensated by a retreat in both China and Brazil. 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 with adjusted operating margin. We recorded a solid adjusted operating margin of 20.7% in Q1 2025. Acquisition had no dilutive impact this quarter, meaning that the increase of margin year-on-year comes from operational leverage, partially offset by an increase in restructuring expenses. In the quarter, once again, the high profitability level of the group demonstrates the strengths of our strategic model and our strong ability to deliver. I wanted to give you more color on the U.S. tariff impact on slide 9. The Le Grand exposure to the U.S. tariff is well known, with close to 50% of our U.S. COGS being imported. We are, of course, fully mobilized to respond to the very fluid situation of international customs policies, particularly in the U.S., with the deployment of comprehensive action plans that include targeted sales price increase, saving plans, supply chain adjustment, some industrial footprint adaptation, and more. Going now to page 10, first, the net profit stood at 293 million euros, representing 12.9% of our sales. The nice increase coming from the operating profit is partially offset by the negative impact of financial results and the rise in the corporate income tax. Second, the free cash flow came to 188 million euros, at 8.3% of sales for the quarter. Page 11 illustrates the robustness of our balance sheet with a net debt to EBITDA ratio of 1.5 at the end of the quarter. This concludes the key financial topics I wanted to share with you this morning. I'm now handing over back to Benoit. Thank you, Franck.

We can now move to page 13 of the deck. We confirmed the full year target announced in February. A confidence in our ability to execute and adapt, despite a volatile environment, taking into account the world's current microeconomic outlook and progressively normalizing custom policies, we target sales growth of between plus 6% and plus 10% organically and through acquisitions, an adjusted operating margin before acquisitions holding stable overall compared to last year, at least 100% achievement rate for the first year of our 2025-2027 CSR roadmap. From page 15 to 18, we show that we are fully on track to achieve a strategic plan to 2030 through three Q1 2025 key items. First, page 15 highlights the outstanding performance that we recorded in data centers, testifying to the relevance of the group's offering. with an acceleration in organic growth in the quarter compared to the previous quarters. The vitality of the order book confirms the strong growth expected throughout 2025. Second, page 16, regarding our ongoing execution in terms of acquisitions. We announced two acquisitions this quarter, totaling 50 million euros of acquired 12-month sales in connected healthcare in Europe and data centers in Australia. These acquisitions further strengthen the group's leadership in these buy-in segments and illustrate once again the vitality of our pipeline and the quality of our acquisition process. On pages 17 and 18, a quick reminder of our newly launched CSR Roadmap to 2027, that we presented during a dedicated CMD in March. As you know, CSR has been fully integrated in the group's performance and value creation strategy for two decades, and we consider it as a decisive competitive advantage. Now a few words on the key topics on the agenda of our incoming AGM, which will take place on May 27. On page 20, with the proper termination of Mrs. Stéphane Paré as independent director, whose experience as chair and CEO of listed company FDG United will be highly valuable to the board. Together with the proposed renewal of both Patrick Coller and Florent Ménégault, the board composition will continue to be among the industry's best practices, with 82% of independent members, 55% of women, and seven nationalities represented. Moving to page 21, as announced previously, the proposed dividend for 2024 is of 2.2 euros per share, up plus 5% versus last year. Those were the key topics of the release. I suggest we now switch to Q&A.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1 1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. We'll take a few moments. And now we're going to take our first question. And it comes to the line of Max Yates from Morgan Stanley. Your line is open. Please ask your question.

Thank you very much. Good morning. on the North America business. So it looks like from your chart that you showed on the data center growth, we should maybe think that sort of data centers grew at something like 40%. But that only really explains maybe two-thirds of the North America growth. So I'd be curious, kind of A, is the data center growing at about 40%? Is that right? And then B, if that's the case, look like either the non-residential was a bit better, maybe it was commercial, maybe it was the other bits of non-res, or maybe it was resi. So maybe if you could just walk us through sort of some of the growth rates in the other North America, just to better understand how we build up to that 18.7. Thank you.

No, I have to say that the growth rate of data centers in the U.S. and at group level was higher than plus 40%. And to give you a bit more color, And the comment is valid both for North America and for the totality of the group. Data center is up far more than the plus 30% that we recorded in Q4 last year. And the rest of the business is slightly down. Both for the group as a whole and in North America. So to make a long story short, we see fantastic growth in data centers and we expect growth very strong growth to continue because we have the order book that supports this statement. As far as the rest of the business is concerned, it remains slightly negative, and we haven't seen yet a recovery, neither in the residential in Europe nor in the office market in the U.S., which, by the way, is not a surprise. When we released our last year numbers back in February, We told you that should a recovery in the building market occur, it will be by the end of 2025. So it's not a surprise to see in Q1 that the building market remains pretty slowish.

Okay, so just to make sure I really understand that, all of your growth in North America essentially was from your data center business and none of it was from the other construction partners?

Exactly. The non-data center business was slightly down.

I just wanted to understand, there's a kind of Reuters interview this morning where you talk about, or you've mentioned kind of up to impact from tariffs. So I guess what I want to understand is how much of that are you kind of countering with pricing? So how much are you putting up prices? And maybe also within that, do you expect a sort of temporary dip in margins? So if we think about the second quarter, might you drop below kind of 20% because it takes time to try and align these prices with the actual sort of tariff cost impact? Any clarity, that would be helpful.

Thank you. Maybe let me first clarify where does the $150 to $200 million comes from. So as we wrote in the press release, let's say core central scenario as far as tariffs are concerned is very much in line with the core scenario of the IMF, which implies some sort of normalization. What does normalization mean? It means that most of the tariffs currently in place will remain. the 25% on steel and aluminum, for example, the 25% from Mexico excluding the USMCA agreement. As far as the reciprocal tariffs are concerned, they should be somewhere between 10% and 40%, depending on the countries. And as far as the tariffs with China are concerned, we believe that it will come down from the current 145% down to something like 50% or 60%. This is our core scenario. then the additional costs for Legrand to be financed would be between $150 to $200 million of additional costs. So it would indeed be significant. Now, we made it clear in the press release, and I can repeat again this statement, that we will do what it takes in order to mitigate the impact of those tariffs in our profitability. So, indeed, the main leverage would be pricing. And we have already announced the first wave of pricing fees and the second wave will come. So part of that is already starting in April. And by the way, from what I can see, we are not the only ones. Most of our competitors, which do have the same footprint as us, are also doing price increases, but it's not the only part of the action plan. We have also a number of other action items, such as, for example, moves of our supply in order to relocate some purchasing from China to India, Mexico, and so on, the leverage of facilities outside of China. We are working with the design of the product to make sure that they can qualify as part of the US-NC agreement, which, as you know, as a 0% tariff on products which are part of this agreement. Then we have a number of traditional, let's say, cost-optimization, cost-cutting actions. So we have a comprehensive action plan which we designed last year and which we have already started to implement. Now, to answer a bit... The short answer to your question is that, indeed, in terms of impact, the biggest impact would be pricing. To maybe give you a flavor of the sort of pricing we need, we told you when we released our full year numbers that we expected our pricing to be maximum plus 1% for the total of the group. Well, the tariff story could very much add, let's say, between plus one to plus two points of additional pricing at group level. So the maximum plus one could very much become plus two to plus three at group level. Again, we'll do what it takes in order to compensate for the impact of the tariff. Now, as far as the impact on a given quarter, frankly speaking, we haven't factored that much into the model because what really matters is the margin we're able to achieve on the yearly basis. So quite early margin can depend on many factors. softness or robustness of the top line. It can be phasing in or out of some initiatives, phasing in of pricing, basis for comparison. So we're not guiding on a quarterly margin. We are guiding on a yearly margin, and our guidance, I think, is extremely clear. We will hold our margin stable compared to last year, i.e. a level of 20.5% sales.

Okay, just one very final one, because I think... Just on the 1% to 2% extra price, your organic growth guidance, I guess, is 2% to 4% still. How do we interpret how that price increase has been embedded into your organic guidance? And I assume the answer is we're not assuming lower volumes, so just help us understand that.

Well, if you take the three building pieces of organic growth in 2025, so the Data center, we confirm that the growth is going to be very sustained. And we told you three months back that we expected to grow between 10% to 20% in data centers in 2025. And I think now, given both our performance in QM and the order book, it will be reasonable to shoot for the higher end of this guidance, so from 15% to 20%. Number one. Number two, indeed, we should have a bit more pricing than we expected to have at the beginning of the year, and the plus one could become plus two to plus three. But the key question mark is on the third moving part. What will the impact of tariff be on the underlying economy and the building industry? Well, we have to remain a bit cautious because when you look at the IMF, expectations, they have downgraded a bit growth expectations for 2065, on the back of the trade war. So, higher end of the guidance for data centers, more pricing than expected, but some cautiousness on the volume side, on the building piece, because the world is probably even more uncertain than it used to be three months back. Thank you very much.

Thank you. Dear participants, if you would like to ask a question, please press star 1 1 on your telephone keypad. To ensure everyone has the opportunity to ask a question today, please limit yourself just to one question and one follow-up question. Thank you so much for your understanding. And now we're going to take our next question. and it comes from the land of Ilaria Borricelli from Goldman Sachs. Your line is open, please ask a question.

Hi, morning, thanks for taking my question. On the U.S. cogs being imported, you mentioned industrial footprint adaptation. So I was wondering which proportion of this 50% do you think you could potentially move domestically to the U.S.? ? And then I'll ask my second question.

Okay, so first maybe let me remind you where the 45% to 50% comes from. We have 20% coming from Mexico, 15% to 20% coming from China, and the rest, i.e. 10%, coming from a mix of countries, a bit of Europe, a bit of Vietnam, a bit of India, a bit of Taiwan, and so on and so forth. We don't intend to make massive reshoring into the U.S., We would love to, but the fact is that, number one, there is a 4% unemployment rate in the U.S., so it's not that easy to set up industrial facilities in the U.S. Number two, even with a low-cost countries, we may not have than the U.S. itself. So there could be some... There will be some adaptation of the supply chain and of our industrial footprint, but it will not translate into significant change in the U.S. It's more moving from China to Vietnam to India to Mexico than into the U.S.

market share in data centers, if you can comment on how you see it evolving, both in Europe and U.S., and what do you look at to assess that?

Well, it's a super complicated question on a quarterly basis. Market shares have to be appreciated on a yearly basis. When I look at the public release of some of the public-listed companies active in the data center world, I have the feeling that even though we've been a bit helped by our basis for comparison, because I have to remind you that Q1 last year was quite soft in terms of data center, but even taking that into account, it seems like we are doing better than most of, if not all of the listed companies. Now, frankly speaking, does it imply that we are significantly gaining market share in Q1? It's super complicated to answer because many things come into play. You have the fading of big projects. So, well, I have a feeling that market shares are well in hand, that We have a very good relationship with customers that we are getting fantastic projects as far as assessing precisely the evolution of our market shares. We will have to wait for Fed next year, and we will do it on a yearly basis and not on a quarterly basis. It's more reasonable.

Thank you. Now we're going to take our next question. Thank you very much.

I have two questions, please. The first one is on the margin guidance for the full year. It now takes into account progressively normalizing tariffs. I guess my question is, what happens if that's not the case? I mean, do you have enough flexibility and adaptation measures, enough pricing power in the U.S. relative to the competition to protect margins if the reciprocal tariffs on China remain at 125%?

Well, we will... Should it... should it not normalize or should it even worsen because you could always think that the 145% tariff could become 200 or from the sky is the limit in terms of tariff. Well, of course, we will continue to target a stable margin compared to last year. We have to admit, though, that it would be more challenging than if the tariff were to normalize. Not much because we would have extra tariff to pay and that the 150 to 200 could become more, but because it would have impact on the underlying economy. Today, the IMF, which has, again, a close to ours, has indicated that it will have a negative impact on the growth rate of 2025, but it's not shooting for growth. for GDP drop. Should the tariff or trade war worsen, it could very much lead the world into a recession. So, in other words, we will keep targeting stable margin, but the environment will make it clearly a bit more difficult. Frankly speaking, looking at the discussions going on in the climate in the past couple of weeks, nobody Today, I believe that it is the most credible scenario, and the most credible scenario is probably the one we are shooting for.

Okay. And then on the pricing side, can you provide some indication on the magnitude of the price rises you've passed on to customers in the first wave in April and what you have in mind for the second wave in the U.S. specifically? Yes.

Well, maybe I can start to indicate that the pricing in Q1 was quite soft. So in Q1, we were very much in line with our strategy of doing just a little bit of pricing. To give you the number, I know it matters for you guys. Our selling price was up 0.2% in Q1. So it also means that our volume growth in Q1 was very significant. As far as the full year, as I said earlier, we are now shooting for something like plus 2% to plus 3%. You can do the math yourself to see what it implies in terms of pricing specifically in the U.S. Outside of the U.S., Europe and the rest of the world, we will... keep doing very small pricing because we want to remain as competitive as possible. So most of the pricing will come in 2025 from the U.S. As far as the phasing, it's complicated to summarize because it's a mix of tens and tens of different product families. But again, you can take for granted that we'll do what it takes in terms of pricing and supply chain management and cost adjustment to mitigate impact on our period.

Okay, thanks very much. Can I have actually a final one? Go ahead. I was looking at the rest of the world's gross performance, and it seems that sales decreased by around 15% sequentially, which seems a bit higher than the usual seasonality between Q4 and Q1. So any... Any remarks on that? What's going on, maybe country by country?

Well, we're not really looking at the sequential growth from Q4 to Q1. What I can tell you is that China remains difficult. So we're no longer in the double-digit drop that we experienced in the past couple of years. It's down single digits, but it's still down. Latin America remains quite negative, but it's more a basis for comparison topic than a real performance issue. We had last year a couple of big projects that are creating quite a demanding value for comparison. India is only slightly up. It's up double digits on the data center side, and the data center market in India is growing nicely. But on the building side, it's quite soft. We believe the growth is going to accelerate, but it won't be quite soft. Africa slightly up and Middle East up double digits. So no, we're seeing specific happening. No slowing down of growth in Q1 compared to Q4. But it's, as usual, a mix of 60 or 70 different situations. So it's difficult to have one, let's say, sort of general statement for season. So it's a mixed bag of different situations. But it's perfectly in line with our budget.

Okay. Thank you very much, Panama.

Thank you. Now we're going to take our next question. And it comes to the line of William McKee from Kepler Chevron. Your line is open. Please ask your question.

Very good morning to you, gentlemen. Thanks for the time. My first question perhaps relates to Europe. If you could throw a bit more color on the growth trends you're seeing in some of your main European markets, particularly France, and I think if you could talk to that with respect to trends across the residential markets, which seem to have been a bit softer with some of your competitors than expected.

Maybe I can start with Europe and then zoom on France. As far as Europe is concerned, in terms of market trends, well, we told you three months back that we expected some recovery very late 2025, and we are not changing world to that, except that, of course, the level of uncertainty has increased, but nobody expects a recovery earlier than that. And the numbers do not show any sign of recovery in Q1. Same comment as far as non-review. So, again, for the building industry in Europe, the story is more of a recovery by the end of 2025. Now, when we look We start to see, we have to admit it, we start to see some positive living indicators. If we zoom now in France, you know that the production of credit reached a low level by March 2024, and since then the production of credit is increasing. We start to see some positive numbers on the number of housing permits. But all that is very preliminary. None of our competitors are stating that the building industry in France is recovering. So it's more something that should happen in the quarters to come. It is true that I have heard pretty positive comments from Saint-Gobain. that they felt that the French market has reached its low level and is not recovering. Now, between the time the Saint-Gobain customers come into a house and the time a contractor comes into a house, you have a lag of three, six or nine months. So, you know, all that are, let's say, early signs indicating that the scenario of recovery or better situation in the electrical market in France and Europe could happen by the year 2035, but it's not yet happening.

Thank you. Thank you. That's helpful. The follow-up question relates to some of your sort of trends going through Q1. It looks like your inventory levels were a little higher than I was expecting in the first quarter, and the free cash flow was a little bit lighter than expectation. I mean, were there pre-buy activities ongoing across your North America? businesses to try to get ahead of the tariff changes? And perhaps on top of that question, I don't know if you will, but if you'd give any flavor for how the trading has developed, perhaps in the first five weeks of Q2.

Well, I'll take questions two and three. So, in Q1, we haven't seen any pre-buy from our customers on the back of tariff. So the numbers we are indicating for the Q1 performance in North America doesn't include any exceptional pre-buy. As far as the month of April, of course, no comment. You know, we are not used to comment on monthly number anyway. So we'll comment that at the end of July when we'll release our QQ2 numbers. Franck, I'll let you handle the inventory and free cash for questions. Yes, thank you. Good morning, William.

So you're right on your first statement. Inventory level is a little bit higher than what was once expected at 15.5%. We would consider that there are probably, I don't know, something like 50, 60 bps of additional inventory On behalf of the data center activity that we are protecting a lot, we already made that remark last quarter. And second, on behalf of some, I would say, sanitary stock inventory in order to protect from tariffs. So that's not a meaningful number, but it's fair to say that it has some light impact on inventory. Turning now to free cash flow, I don't think that the free cash flow at 8.3% is soft. It is exactly the traditional seasonality of a Q1 for a free cash flow. If you look, the last three years, it was 8%. The last nine years, it was 7.5%. So Q1 is usually soft, which will not, of course, prevent us to deliver our targeted free cash flow comprised between 13% to 15% of sales.

Thank you, Frank. Thank you, Benoit.

Thank you. Now we're going to take our next question. Just give us a moment. And the question comes live of Ben Aglo from OXCAP. Your line is open. Please ask your question.

Good morning, gentlemen. Thank you for taking the question. I had a couple. Can I ask this? I don't want to challenge too much here, but on this pre-buy issue, I mean, obviously 19% growth in North America is exceptional. And obviously a lot of your sales go through distributors in North America. I guess my question is, why are you so confident that there's not been a pre-buy? How do you know? And what gives you the confidence that all of that growth is true demand? That would be my first one.

Well, mostly because all this growth is coming from data centers, which is a business. going only marginally through distribution. Most of our data center business is direct. It corresponds to precise orders passed by customers on precise projects. The building part of the business is slightly down, and we have discussions with distributors that tend to indicate that they haven't built any extremities. So, yeah, I know that 19% life-for-life growth in the U.S. is... number which you are not used to see. Pretty a surprise for Legrand, because we knew in Q4 the orders we had in hands, and we knew that Q1 would be exceptional. But again, I feel very confident on the fact that there's no pre-buy, looking at the businesses which are growing, but it's still the consequence of our fantastic performance in data centers. That's very clear.

Thank you. I guess my next question is, and it's a difficult one to convey, but when you're in your customer conversations, your customers have been subjected to exceptional price increases now, really since 2020. I mean, they had double-digit price increases recently. in 22, mid-single-digit price increases in 2023. How easy is it to sit down again and just say, this price increase is coming through, these prices are going up? Is there any customer resistance this time? Is it any different from what we saw during the COVID period?

Well, customers have always resented to price increase, which is mechanical. Now, a couple of comments. If you look at the past five years, I think the total price increase over the past five years has been something like 20 plus, 22 percent, I think, over the past five years, which is a lot indeed, but at the end, it's an average 4 percent per year. It's not an average 10% per year. So 4% per year, it's a lot. It's higher than what we've seen in the past 20 years. But it's not something which is unsustainable or not acceptable from a market standpoint. First comment. Second comment, well, we have to admit that the tariff situation has made it a lot easier to have this discussion with our customers because they perfectly understand that we have an extra cost which need to be financed. And by the way, since we have more or less the same footprint as our competitors, we are not the only one. And it's the whole market increasing prices in order to finance the extra tariffs. So it's not mechanical. It's not easy. It's always a world of discussions with our customers. But we anticipate that we should have the ability to do this extra pricing, as we've been doing whenever we did for the past 20 years. That's very helpful. Thank you very much.

Thank you. Now we're going to take our next question. And the question comes in the line of Alasdair Leslie from Bernstein. Your line is open. Please ask a question.

Yeah, thank you. Good morning. So I guess a quick follow-up then on pricing in the U.S. I was just wondering how you assess that price elasticity across your own markets and product categories in the U.S. I know you've got strong pricing power generally, but I imagine there's still some variance there. So kind of any potential areas you'd flag the way you have to kind of push harder on productivity, cost savings, supply chain adjustments. And then a sort of follow-up on tariffs, and I kind of suppose a worst-case scenario, if we can call it that, with regards to China, just assuming things don't change. I was just wondering if you could update us potentially on the total impact relative to the 150 to 200 million you've flagged in a kind of worst-case scenario, and maybe some sensitivity that you gave last time. I think you talked about $20 million for every 10% incremental increase in China tariffs. Is that still the right level to think of? Thank you.

So, on the first question, yes, of course, you always have some products that are a bit more for price elasticity than others. But it's, you know, we know how to manage that. When you have 1,000 and 1,000 SKUs, and I remind you that Logan has 300,000 SKUs worldwide, probably about 30%, 40% of that sold in the U.S., with a lot of, on top of that, customized product, it's... It's almost an art to have the ability to know on which product you can do a 10% price increase, on which product you have to do only 2%, whether you can pay an additional discount to customers, whether it has to go through the additional end-of-year rebate that you would give to distributors, and so on and so forth. So, yes, of course, the situation may differ from one product to another, but again, I I'm very confident on our ability to pass on the right passing phrases and to do it in such a way that it will not hurt our volume. All the more, again, as we are not the only one doing it. We're not at a disadvantage compared to our competitors when it comes to our footprint. So when we manufacture in Mexico and China, most of our competitors also manufacture in Mexico and China. So we are all in the same boat, if I may say, and we all have the same challenge of financing the extra tariff. As far as your second question is concerned, should we stay at the 145% tariff China, plus the reciprocal in most geographies, the bill, instead of being 150 to 200, could be more than 300. So it would indeed be significant. Now, again, I don't believe there's anybody reasonable today in this world that thinks that the worst-case situation will happen. And, again, if it does, that will do... what it takes to limit impact on our margin. We'll keep shooting for the stability of margin compared to last year. And we'll... You know, the good thing with Legrand, for those of you who know where Legrand is, when the environment becomes super complicated in terms of economy, recession, blah, blah, blah, we are probably stronger than many companies and more equipped to navigate through the storm. So, of course, this is not our preferred scenario. This is not the most likely scenario, but if it were to happen, trust us, we will manage. Thank you.

Thank you. Now we're going to take our next question. And the question comes from Martin Wilkie from CT. Your line is open. Please ask your question.

Thank you. Good morning. Yes, it's Martin. Just coming back to the U.S., Mark, obviously very strong growth in the U.S., both on sales and orders. Obviously, during the quarter, we did hear many reports of hyperscalers changing the phasing of their own investment. It doesn't seem to have impacted you, but could you help us just understand if you did see any changes in the investment plans of your customers, or was that growth that you saw really sort of across the board in terms of the customer in the U.S.? ?

Well, the growth has been pretty across the board with many different customers. Well, you have to be a bit cautious when you hear of certain reallocation or stuff like that. You always have orders canceled, orders canceled. added at the very last minute. All those moved from one project to another. This one customer investing a little bit less on AI but investing a little bit more on cloud. Reallocation from this region to that region. So we should be careful not overreacting. What I can tell you is that the big guys have either confirmed or even for some of them increased their CapEx plan for data centers for the next two years. So we have not seen significant cuts. We have seen some reallocation. We haven't seen significant cuts in the CAPEX plan announced, number one. Number two, we have a book to build, which is significantly higher than one. So number three, we have a backlog at the end of March, which is higher and growing compared to the backlog we had at the end of December. So, you know, I understand your concern, but, and lastly, if I may say, when you add all the good reasons why data centers should keep growing significantly, so it's not only about AI, it's about everything moving to the cloud, it's about connected healthcare, it's about connected gaming, it's about everything. short-term and medium-term, I don't see why those wave of investments will all of a sudden slow down or decrease. So short-term, we remain very confident because of our backlog and because of the book to build. So short-term is the next couple of quarters. Mid-term, we remain very confident because of the change of usage and the need for computing capabilities implied by all those new users.

Very helpful. And if I could just have a follow-up just also on the U.S. business. You mentioned that the other buildings markets have yet to see any growth. There do seem to be signs of green shoots within the office market in some of the indicators that we look at. I know you don't have huge amounts of lead times and so forth there, but in your conversations with agents or even if you're getting project proposals, are you also beginning to see some of those green shoots when you talk about the potential recovery in the second half, or how should we think about that market developing?

No, we don't really have yet any clear signals. So we told you three months back that we thought the office market was somewhere a bit plateauing. It's still a bit down. So we stick to the same scenario we had three months back, i.e., hopefully some recovery by the end of the year, but not yet any clear sign of such recovery.

Great, thank you very much.

Thank you. Now we're going to take our next question. And the question comes in the line of Jonathan Day from HSBC. Your line is open. Please ask your question.

Hi, good morning. Thanks for taking my question. I was just wondering, coming back to data centers, if you could talk a bit about, I know you said activity was fairly sort of even across the board, but whether there are any particularly large projects in the orders or in the execution this time, and also just comment a bit around lead times and capacity in that market as well, please. Thank you.

You don't have, well, of course you always have big orders, big projects, but you don't have one very big project that would explain by itself the performance of Q1. It's more a mix of many big projects happening, and actually happening everywhere, because even though the growth is a bit higher in the U.S. than elsewhere, we also have very sustained growth in data centers in Europe and the rest of the world. So it's mostly across the board. As far as lead times and capacity are concerned, well, we told you three months back that we are increasing capacity. We told you that our capacity investments in data centers doubled from 23 to 24, and that we anticipate that we'll double again from 24 to 25. We are currently executing this plan. As you could see, it did not have a huge impact on our capex which remains more or less 3% of sales because those products are not highly capex-intensive. So we believe that we can increase capacity without changing the key capex metrics of the group. As far as lead time is concerned, well, we are in a typical, let's say, 8 weeks, 10 weeks, 12 weeks lead time for most of our products. I know that some products have much longer lead times. like, for example, some gray area products in the U.S., like circuit breakers or transformers or stuff like that. We're not much in those businesses. In the business in which we are, so white space in the U.S. and gray space and white space elsewhere, lead times tend to be closer to 10 weeks.

Great. Thank you very much.

Thank you. Now we're going to take our next question. And the question comes from the line of Eric Lemery from CIC Market Solutions. Your line is open. Please ask your question.

Yes, good morning. My first question is on M&A. Do you think the current geopolitical environment could be an end-win maybe for your M&A business? You know, maybe some sellers could hesitate to move in the current climate?

Well, that's not what we are seeing here today. I have to say that we have quite an impressive number of discussions going on at various stages. It could be at the very last negotiation stage. It could be at the LOI stage. We have a lot of discussions going on. Of course, the challenge is more for us. to embed the consequences of the current trade war into the valuation model and the business plan of the companies we want to acquire. So if, for example, we have We are looking at the company which has a big flow of product between China to the U.S. Of course, we have to factor in the tariff topic. So it's more, let's say, an additional item you have to factor into your business plan rather than something that would all of a sudden prevent sellers from selling. I can confirm that, well... I'm not sure we're going to reach the 6% per annum impact because it all depends on the debt at which we consolidate newly acquired companies, but I can sign the bottom of the page on the fact that we're going to do a few more deals by the end of the year.

Regarding your action plan, what is the cost of this action plan? Not the price increase, of course, but you're mentioning some additional saving plans or this supply chain adjustment. Maybe should we expect some higher restructuring charges this year?

The good thing with the Le Grand Model is that the cost of all that we're going to implement will also be included in our EBIT, because you know that our adjusted EBIT is all-in, so it's after exceptional. So when we tell you that we want to... hold or margin stable compared to last year, i.e. a level of approximately 20.5%. It's after restructuring charges. Now, to be a bit more precise, we had restructuring charges of, the top of my mind, 17 million euros. Sorry, 17, I'm turning to Renaud. 17 million euros in Q1, which is a pretty healthy and significant level of restructuring for a quarter, right? And actually, it's raising a bit of a margin. It's difficult to make a precise assumption because it depends on plants that are not yet finalized, and some of them will get materialized. But for your models, if you were to take four times Q1 IE level of 60 or 65 million euros, you would probably be close to where we're going to be. But again, the good thing is that it's fully included into our... This is for expenses. As far as capex are concerned, well, nothing significant, and the level of capex will be, as usual, 3% more or less of sales. So don't expect to have anything significant or deviation compared to these 3%. Thank you. Thank you very much.

Thank you. Now we're going to take our next question. And the question comes from Alexander Verger from Bank of America. Your line is open. Please ask your question.

Oh, yeah. Thanks very much. Good morning, gentlemen. Appreciate the opportunity. I wondered if I could just follow up on a couple of your statements so far. The first one would just be in terms of the sequential development X data centers. If my math is correct, then actually you have seen a fairly clear weakening both in North America and at the group level. from Q4 to Q1. I think North America X data centers up about 5% in Q4. So what is it that is driving that sort of sequential weakness is the first question. And then the follow-up just on your inventory comment and pre-buy. If I've interpreted what you said correctly, I appreciate your point on building inventory for the data centers, but you've pre-bought inventory. So what gives you so much confidence that your customers and distributors haven't done the same?

Thank you. Well, so first topic, I know you don't like this comment, but we believe that sequential analysis for most of our market has absolutely no meaning. So we don't compare Q1 to Q4. We compare Q4 to Q4 and Q1 to Q1. And what I can tell you is that we haven't seen weakening of our market. We haven't seen weakening of our sales. We see both in the U.S. and in Europe, building market, which was slightly down in Q4 in terms of market, and which is slightly down in Q1. So no weakening, no worsening of the situation, nor any improvement yet. And again, it shouldn't come as a surprise because it is very much in line with what we said a couple of months back when we released our Now, pre-buy, I can only answer the same question. Of course, we can do pre-buy on components, for example. raw materials and a number of items. Does it imply that our customers are doing the same? The answer is no. And again, data centers, there's no pre-buy possible. You are not pre-buying a PDU, a best way, a rear door cooling for a project. that you intend to install in October 2025 because most of the time the land is not yet built and the design of the data center is not yet completed. So on the data center side pre-buying pre-ordering is possible pre-buying is super complicated. As far as the rest of the business is concerned we have regular discussions with our distributors and there are a few big guys in the US and they have confirmed us that they have not pre-bought significantly any products. So, again, I believe that the performance of QL in the U.S., the months of March in the U.S., is pretty sustainable and doesn't include runoff such as extra inventory. Okay. Thank you.

Thank you. Now we're going to take our next question. And it comes to the line of Andrzej Kuchnin from UBS. Your line is open. Please ask your question.

Yes, good morning. Thank you very much for taking the questions. I just have a couple of follow-ups on the tariff impact calculations, the $150 million to $200 million. I think we've got about 1.7, 1.8 billion euros of US COGS, and you just said it's 15% to 20% supplied out of China. So I was just wondering, I'm kind of arriving at a higher end or even slightly above higher end of that number when I put 55%. limit point of 50 to 60 of the tariff scenario that you presented. So I just wanted to double-check that and double-check that this impact calculation does not include any kind of relocation of manufacturing that you're already doing?

Well, the... I think... The answer to your question is probably the fact that the $150 to $200 million in impact we're going to have in 2025, but of course it's not a 12-month impact because the tariffs were not implemented starting January 1st. So it's probably, I mean, I don't have the math in front of me, but it's probably the reason why you have a gap between your computation and the numbers I gave you. I can confirm that the $150 to $200 million is So it's before any mitigation actions, including pricing, reallocation of production, and so on. So the gap might probably come from the 12 months versus eight months or nine months of tariff.

Okay, great. So it's not annualized. Okay, I get it. Thank you. Can I just check, in terms of that flow of cogs out of China, the 15% to 20%, is that kind of similar across the data center products and non-data center products, or I assume it's quite skewed towards non-data center?

No, it's more non-data center products. The data centers products are not much coming out of China. The products coming out of China are mostly, let's say, the lower end. products of the low-ground ranges. It would typically be white plastic, basic, GFCI. It would be basic mounts, basic. I don't like the word basic, and my marketing guys would kill me if they were hearing this call, but let's say access or economic type of presence detectors. Most of the data center products are either coming from the U.S. or sourced from lower-tariff areas.

Great, thank you. And just a final one. On the price action so far, we've done the calculations sort of around 6.5%, 7% implied in the guidance that you gave of 2 to 3 were mainly coming from that. Does this cover the kind of channel tariffs so far as well as steel and aluminum and the general everything kind of pre-reciprocal or...

Yeah, it covers what I said it was to cover. So it covers the 25 steel and aluminum. It covers the 25 of Mexico, which are not eligible to the USMCA. It covers 10% to 40% for the rest of the world, and 50% to 60% from China. Great. Thank you very much. Again, our core assumption.

Thank you, Andrea. Now we're going to take our next question. And the question comes from George Featherstone from Barclays. Your line is open. Please ask your question.

Morning, everyone. A couple of follow-ups, if I can. In Europe, some of your peers have noted some delays there. I just wondered if you could give some color on anything that you're seeing in the market there. And then on tariffs and the current trade environment, I wondered if you're seeing or are concerned at all about any supply chain disruption as a result of the current situation.

Thank you. Well, no, we haven't seen anything significant. In terms of delays, you mean in Europe? Delays in the building of data centers? What did our competitors say? I'm sorry I didn't get the question.

Just some of your peers there were talking about some delays in project activity.

Oh, no, no. You always have delays. Things are pushed because you thought you would get the permit for the land and you haven't got it yet. But I'm not aware of... that would have a significant impact on our activity in Europe.

As far as tariff is concerned, maybe... If I understand properly your question, George, it was do we suffer from some supply chain disruption because of the tariffs, the fact that some containers have been blocked or a shipment has been stopped? Is that your question? The second question? Yes. Yes, yes, along that line. No, not yet. Of course, we have internally postponed or suspended some shipments between China and the U.S. in order to wait for some clarification. But it was on purpose. It was not suffered. So, no, our supply chain is not impacted by the tariffs.

Okay, and you're confident that you're going to be able to get those components from other areas, just because everyone seems to be making a similar comment at the minute that they are.

So, so far, no warnings coming from the countries and no warnings coming from the supply chain department. Okay, thank you.

Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Benoit Coqa, for any closing remarks.

Well, thanks everybody for taking the time to connect to Benoit Coqa. Should you have any...