U.S. Markets close in 19 mins

Edited Transcript of LR.PA earnings conference call or presentation 14-Feb-19 7:00am GMT

Full Year 2018 Legrand SA Earnings Call

Limoges Feb 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Legrand SA earnings conference call or presentation Thursday, February 14, 2019 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Benoît Coquart

Legrand SA - CEO

* Franck Lemery

Legrand SA - Executive VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Andre Kukhnin

Crédit Suisse AG, Research Division - Mechanical Engineering Capital Goods Analyst

* Andreas P. Willi

JP Morgan Chase & Co, Research Division - Head of the European Capital Goods

* Gael de-Bray

Deutsche Bank AG, Research Division - Head of European Capital Goods Research

* Graham Phillips

Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research

* Lucie Anne Lise Carrier

Morgan Stanley, Research Division - Executive Director

* Sébastien Gruter

Redburn (Europe) Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and welcome to today's Legrand 2018 Full Year Results Conference Call. (Operator Instructions) For your information, this conference is being recorded.

At this time, I would like to hand the call over to CEO, Benoît Coquart; and CFO, Franck Lemery. Sir, please go ahead.

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [2]

--------------------------------------------------------------------------------

Thank you. Hello, everybody. Franck Lemery, François Poisson and myself are happy to welcome you to the Legrand 2018 Full Year Results Conference Call and Webcast.

Let me first remind you that we have published today our press release of financial statements and a slideshow to which we will refer. Those documents are available on the Legrand website.

Please note that this conference call is recorded and webcasted on our website.

Let me start first with a few opening remarks, following which Franck and I will comment into more details of 2018 full year results and share with you more midterm considerations.

I'm starting on Page 4 and 5 of the deck with 3 main takeaways of today's release. The first takeaway is that all financial KPIs are recording strong growth in 2018, showing significant value creation. More precisely, sales and adjusted operating profit were up high single-digit. Net income attributable to group grew over 23% and normalized free cash flow was up more than 21%.

So second takeaway is that all our 2018 targets are fully met. Organic growth in sales was up plus 4.9%, above the high-end of our 2018 target. Adjusted operating margin before acquisitions reached 20.2% of sales, within the 20% to 20.5% range set in February last year.

And finally, the achievement rate of our 2014-2018 CSR roadmap reached 122%. This very good integrated performance reflects Legrand's ability to create lasting value for all of its stakeholders, thanks to a clear strategy, a robust business model and the commitment of its teams.

The third takeaway is that in 2018, Legrand undertook many initiatives to strengthen its sustainable and profitable growth profile building on proven fundamentals. Legrand first intends to step up the development of Eliot, thanks to the acquisition of Netatmo, to boost its organic expansion by pursuing growth initiatives to pursue its strategy of bolt-on acquisitions to optimize continuously its performance and to launch its fourth CSR roadmap for the period 2019-2021. As a result, Legrand confirms its medium-term value creating model. I will come back on those key topics in more details during my presentation.

After this brief introduction, let me first start with another view of our sales on Page 7. So we recorded a total rising sales of plus 8.6% that should even be read plus 13%, excluding an unfavorable ForEx impact. So first growth driver which is contributing well, is organic growth, reaching plus 4.9% in 2018, driven by healthy rises like-for-like in both new economies where sales were up plus 6.2% and in major countries where sales were up plus 4.3%.

Acquisition-driven growth, which is the group's second growth driver, contributed plus 7.8% to sales growth in 2018. Based on acquisitions already completed and their likely consolidation dates, acquisition-driven growth should contribute around plus 3% to 2019 sales growth.

Last, ForEx impact, as expected, was unfavorable at minus 3.9% in 2018. Now if we apply to the last 11 months of 2019, the average ForEx rate observed in January, then annual ForEx effect for 2019 would be around plus 1%. This is, of course, as usual, a theoretical calculation, and time will tell what will be the actual ForEx impact on sales for the full year.

Let me now go into more details regarding the like-for-like evolution of sales by reporting segments. And for that, I'm referring to Page 8 and 9 of the slideshow.

In France, organic growth in sales was up plus 1.1% in 2018. Our market has remained lackluster overall, since the beginning of the year. And as you know, the third quarter was impacted by marked destocking by distribution. In this context, Legrand's performance in 2018 was good and resulted from healthy momentum in energy distribution and digital infrastructures. Activity was also sustained in user interfaces thanks notably to the very favorable response to our new ranges, Céliane with Netatmo and dooxie. These favorable trends were partially offset by a decline in sales in bulkhead lights, installation components and cable management.

In Italy, like-for-like sales growth was plus 6.2% in 2018. This very good performance was supported by the success of the launch of the Living Now new user interface range as well as the good showings of connected products. It is worth noting that in this respect, 2018 represents a demanding basis of comparison for 2019, in particular, in H1.

In the Rest of Europe, sales were up plus 9.2% like-for-like compared to 2017. Fueled by commercial initiatives, revenues were up double-digit in Eastern Europe, including Russia, Romania and Hungary as well as in Turkey. Here also, these very healthy performances represent high basis of comparison for 2019. Growth in sales was also strong in a number of major countries, including Spain, Germany, the Netherlands, Portugal and Greece. And finally, in the U.K., sales grew moderately.

Moving now to North and Central America where sales were up plus 4.2% on an organic basis. More specifically, sales in the U.S. were up plus 5.2% in 2018, driven by the success of offerings for wire-mesh and for intelligent PDUs, lighting control solutions as well as for Milestone's audio/video products. Sales rose very slightly in Canada, but were down in Mexico.

Let me now move to the Rest of the World where sales were up plus 4.9% on a like-for-like basis. We reported very healthy performances in India, China and South Korea, but also in several African countries. Sales showed moderate growth in Australia and a decline in Malaysia. Business trends were mixed in Latin America, with sales nearly steady in Brazil and declining in Colombia. Finally, sales were down in both the United Arab Emirates and in Saudi Arabia.

So to make the long story short, overall, our like-for-like growth in sales was healthy in 2018 and fairly consistent among each main geographical zones since Europe, including France and Italy, was up plus 5.5%.; North & Central America was up plus 4.2%; and Rest of the World was up plus 4.9%.

Let me now pass the mic to Franck for an overview of our financial performance.

--------------------------------------------------------------------------------

Franck Lemery, Legrand SA - Executive VP & CFO [3]

--------------------------------------------------------------------------------

Thank you, Benoît. Good morning to all of you.

Let's start with profitability on Page 10, where you see that 2018 adjusted operating profit is up a healthy 9.7%, driven by growth in sales and operating performance.

Moving on Page 11. 2018 adjusted operating margin before acquisition came to 20.2%, showing a rise of 0.2 points on 2017, which reflects good operating performance overall.

You can see on the slide that after acquisition, 2018 adjusted operating margin also stood at 20.2%. The impact of acquisitions was indeed neutral in 2018. For 2019, based on acquisition completed and their likely date of consolidation, the impact of acquisitions on adjusted operating margin should be around minus 0.4 points, with half linked to the consolidation of Netatmo, whose operating profit was at breakeven in 2018, and the other half to the consolidation of other companies acquired in 2018.

Moving now to the adjusted net profit attributable to the group on page 12. It was up plus 23.3%, i.e., EUR 146 million. This strong rise results from many positives, including predominantly the strong growth in operating profit for EUR 113 million, lower financial expenses and favorable change in the ForEx results for EUR 22 million, and last but not least, a 5-point decrease in income tax rate. This drop in tax rate is coming from 3 points for lower corporate taxation in the U.S., as announced last year, and for 2 points from specific one-off elements.

Moving to cash generation on Page 13. As you know, the good reading of free cash flow generation should be done on a normalized basis. You can see on the right-hand side of the slide, that normalized free cash flow was up plus 21.5% compared with 2017 to reach 14.9% of sales.

Some additional information on the left-hand side of the slide. Cash flow from operations increased close to 20% in 2018 and stood at more than 18% of sales. Working capital requirement remained below 10% at 9.2% of sales at the end of 2018.

Now a word on our balance sheet on Page 14. At 2018 year-end, net debt on EBITDA stood at 1.7 and the average maturity of gross debt was 6 years. This corresponds to a solid balance sheet structure, which provides Legrand with the resources and the flexibility it needs for sustainable development.

That's all for the set of our 2018 financial metrics.

I give now the mic back to Benoît

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [4]

--------------------------------------------------------------------------------

Thank you, Franck. Let me now conclude the review for 2018 performance with our CSR achievements on Page 15 and 16.

Here also Legrand performance was good with an achievement rate for 2014-2018 CSR roadmap of 122%, demonstrating the group's commitment to creating sustainable value, while taking all stakeholders into consideration.

Two examples of important initiative that were launched in 2018 as far as CSR is concerned. First, we have adopted a target, validated by Science Based Targets, that calls for a 30% reduction in greenhouse gas emissions by 2030.

Second, we have released our first Human Rights Charter on the occasion of the 70th anniversary of the UN’s Universal Declaration of Human Rights.

Two slides to conclude on 2018. On page 17, the reminder that all 2018 targets were fully met. And then on Page 18, Legrand will propose to the General Meeting of its Shareholders to approve the payment of EUR 1.34 per share dividend, up plus 6.3% versus 2017 dividend, which was at EUR 1.26.

Coming now on Page 20, with our targets for 2019. In 2019, the group will pursue its value-creating strategy of profitable and sustainable growth. Based on macroeconomic forecasts for 2019 that are favorable overall, but that have become more uncertain. Legrand has set a target for organic growth in sales of between 0% and plus 4% in 2019.

Additionally, the group has retained a target for adjusted operating margin before acquisitions at 2018 scope of consolidation of between 19.9% and 20.7% of sales in 2019. Please note that this range embeds an estimated favorable impact of around plus 0.1 point linked to the implementation of the IFRS 16 standard. Legrand will also pursue its acquisition strategy and its CSR approach by launching a new roadmap for 2019-2021.

So this is it for 2018 and for 2019. I will comment now on a number of initiatives that Legrand is taking to strengthen its sustainable and profitable growth profile and that belong to 5 key themes that will be developed. This being said, I understand that we are not the only company releasing its results today. So I will go quickly through those few slides, but, of course, I'll be happy to be more specific on those points during the Q&A session.

So starting on Page 24. So first priority and initiative is to boost our Eliot program is reminded on this Page 24 the fact that we have achieved as early as 2018 the targets we set for 2020, both in terms of growth in sales for connected products with a plus 28% CAGR from 2014 to 2018 and the Eliot sales has now reached EUR 635 million in 2018 all-in, including, of course, acquisitions and ForEx. And also in terms of the number of connected products families, since we have including the Netatmo product families, more than 40 product families that are now connected.

Zooming on Netatmo, you have on Page 25, 26 and 27 show information of the company. Page 25, this is, as you know, a very interesting product offering. Page 26, it reminds you that Netatmo is a very interesting company, fast-growing startup. For example in 2018, sales were up 37%, with an operating profit which was at breakeven. It's a leader in IoT for building with a large R&D capability and large installed base of products. And it has a strong cultural fit with Legrand, I mean we've been a shareholder and a Director of Netatmo since 2015. We have had up to 100 people working together on developing, especially, 3 ranges, Céliane with Netatmo, dooxie with Netatmo and Valena with Netatmo. So we're well positioned to confirm that there is a very good fit between the teams.

And last on Page 27, we see Netatmo as a unique opportunity to accelerate the Eliot program because it will enrich our product offering and because we will be able to leverage their expertise, their skills, their know-how. And for example, the Founder and CEO of Netatmo, Fred Potter, was appointed the Chief Technological Officer of our Eliot program. Other examples of initiatives that are taken to support our Eliot strategy on Page 28. A few examples of new products that were launched and introduced at the last CES Show in Vegas, user interface embedding Alexa capabilities and connected a range of emergency lighting.

And one of the 2019 focus on Page 29 will be to deploy this Eliot program. For example, we launched user interface embedding IoT in 5 countries in 2018; and we have a plan to launch in 30 new countries in 2019 and 30 new countries in 2020. And we will also continue the deployment into what we may call mass-market solutions. And you have a couple of examples in this slide, and we keep working on the user experience. This was for Eliot.

Now moving to the second type of initiatives. We are also fostering organic growth capabilities. On Page 31, you have a reminder of the strong group fundamentals, which I will not elaborate because they're known by most of you. And leveraging those fundamentals, we have launched large number of products. We have actually an exceptional density of product launches in 2018, and those products are shown on Page 32, 33 and 34.

As part of the initiative that we have done there is also the fact that we have implemented a 3-zone front office organization, and this is shown on Page 35 and 36. So to make things clear, of course, our organization remains country-based. And you know that country managers, the contract of a country manager is at the heart of the Legrand performance tracking and optimization model, and this will remain. But in order to be more efficient, we have grouped those countries into 3 zones: Europe; North and Central America; and Rest of the World. All of them will be headed by Legrand veterans, as we may say, having between 16 years of experience within Legrand up to 26 years of experience. And the objective is to improve the coverage of a couple of global customers, even though most of our customers remain local; to accelerate growth in dynamic verticals; to enhance deployment of group international programs; as well as to enhance further the cross-fertilization of sales and marketing best practices among countries. And we will start reporting as per those 3 zones, starting in our Q1 release.

As part of those organic growth initiatives, we have new products, we have new zone organization and we also have on Page 37 a step up in digital initiatives in communication, R&D, customer relation, commercial data and so on and so forth. Also as part of our so-called growth expenses and it's -- those are significant investments, which will support the growth.

Third initiative on Page 39, acquisitions. We intend to keep fueling our acquisition-driven growth. You have on page 39, the list of the 7 acquisitions that were completed in 2018 and as well as the impact they should have on 2019 numbers. So the impact on 2019 sales should come to around 3% on sales. And as Franck said, minus 40 bps on adjusted operating margin. Half of that coming from Netatmo and half of that coming from the other transactions.

On Page 40, you have a reminder of very selective criteria to create values that are -- to do transactions really that are creating values. And as well as on Page 41, a reminder also on the fact that we have a large number of potential opportunities. Our accessible market is worth more than EUR 100 billion. And on this market, you have close to 3,000 small- to mid-sized companies, of which about 300 are part of our day-to-day monitoring list. And as I already said, we competed out of this list, 7 transactions in 2018.

Fourth type of initiatives. We will keep constantly optimizing performance. Again, on Page 43, you have a reminder of the Legrand strong fundamentals and a number of strategic assets driving performance, the fact that our back-office is already competitive and agile. And the fact that we have an organization which is focused on execution with contract-based budget, with an incentivization which is in line between stakeholders and managers and the historic processes for performance monitoring. Those are -- these are Legrand core assets in terms of performance.

And on Page 44, you have a number of initiatives, a number of additional levers, which are implemented to further boost this performance. So we have on the left side of the slide, initiatives to improve operating performance: Legrand Way acceleration, saturation and rationalization, light automation, make or buy and so on. As part of those initiatives, you may have noticed in our account that our restructuring expenses increased slightly in 2018 compared to previous years because we are financing a number -- in 2018 a number of interesting plans.

On the column, on the center of the slide, you see that we are also doing targeted back office digitalization. So we have a number of proof-of-concept that we launched. And some of them are already demonstrated that they're yielding significant payback. And we are already deploying some of them, and we intend to progressively dedicate a larger part of our CapEx to Industry 4.0 investments.

And last, we have a number of other levers. For example, the fact that we have made large number of acquisitions in the previous years that we are [tucking] and that are bringing a number of synergies.

Well, Page 45, just an illustration of a number of Industry 4.0 initiatives. And the fifth and last initiative relates to CSR. We are launching our fourth CSR roadmap, as shown on Page 47 of the deck, which is the 2019-2021 roadmap. And you see how CSR is rooted in the Legrand organization, and we started as early as 2004 our CSR strategy.

You have on Page 48, main focus point of our CSR roadmap. It's around business ecosystem, so improvement of value chain. And it's about people: human rights, diversity, involvement in community. And it's about environment: with decrease in carbon footprint, circular economy and the inclusion of CSR priorities into our industrial processes. Those are for 2019-2021 CSR roadmap.

And on Page 49, we have also added longer-term 2030 objectives in line with United Nations' development goals, which are very important for Legrand, which we're pushing hard. So another one, we want 80% of our revenue, which is sustainable by design or by usage. Number two, in terms of diversity, we are aiming to have parity in the workforce and to have at least 1/3 of our key positions being held by women. And number three, in terms of CO2 emissions, we tend to reduce by 30% the emissions for scope 1 and scope 2.

So based on all those initiatives, we wish to confirm the Legrand medium term value-creating model, which is on Page 51. So confident in the soundness of its model and its ability to fuel lasting profitable growth, Legrand confirms its medium-term model. Assuming a buoyant economic backdrop and excluding exchange-rate effects, the group intends to achieve annual growth in sales and adjusted operating profit of around 10%. Assuming a lackluster or unfavorable economic backdrop, Legrand will focus on protecting its model, profitability and generation of free cash flow. So either one or the other. And over a full academic cycle, and excluding any major economic slowdown, this model would result in average total annual total growth in sales above that of the group's reference markets, adjusted operating margin averaging around 20% of sales, normalized free cash flow ranging on average between 13% and 14% of sales and an attractive dividend.

Legrand also intends to continue rolling out an ambitious approach to CSR, driven by demanding roadmap. That's what we wanted tell you today.

And now, I'm pleased to open the floor to Q&A. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question from Gael de-Bray from Deutsche Bank.

--------------------------------------------------------------------------------

Gael de-Bray, Deutsche Bank AG, Research Division - Head of European Capital Goods Research [2]

--------------------------------------------------------------------------------

I have 2 questions, please. The first one is regarding the change in the reporting structure you're planning for Q1. I mean, given the local market structure of your industry, what's the rationale of creating a front office organization for Europe? So that's question number one. And question number two is about the growth -- the revenue growth acceleration, we saw in Q4 in both France and Italy. And I guess, that was clearly not expected at least not to that extent. So how do you explain these kind of sequential acceleration? And in light of the recent statistics on the residential markets in those countries, what do you see for the Italian and French markets in 2019? I mean, do you expect these 2 geographies to continue to grow this year?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [3]

--------------------------------------------------------------------------------

Gael, so on your first question, actually, obviously, you cannot have 80 countries reporting directly to the CEO. And the Legrand organization is a mix between respecting local organization, local contract, local commitment, local customers, local policies and practices and at the same time, making the most of its size and international footprint. So we were already organized by zones before this reorganization. But for example, we had a big export zone that was putting together countries as different as Spain and China, for example. So this reorganization is a way to make an organization, which is a lot more in line with the market. And for example, to make the most of potential synergies, potential exchange of experiences between countries, such as France, Italy, Spain, Germany and so on, which were in different clusters. So again key message is that we're not changing the Legrand approach, which is and will remain country-based, but we are trying to make the most of that by facilitating synergies and exchanges between countries, especially in Europe, which were in different clusters in the previous organization. As far as your second question is concerned, we clearly do not believe that neither the French nor the Italian markets are growing at the pace, which is the one shown in Q4, i.e. plus 4% for France and plus 7.9% in Italy. What happened in France is that, clearly, Q4 is a good performance, which was clearly helped by a bit of restocking from distributors. You remember that there was a very strong destocking in Q3. There was a bit of restocking in Q4. Our feeling is that the French market has been quite depressed in 2018. And the French market was probably only very moderately up in 2018. So going into 2019, as you know, we have no visibility. But at the same time, we have no triggers that would push significant changing trend upward in France. So we remain extremely cautious on the French market. The Italian situation is a bit different. Italian market is probably a bit more supportive than the French market, has been a bit more supportive than the French market. Now this being said, the Legrand BTicino performance in Italy is a clear over-performance compared to the market. And this is due not only to BTicino, let's say, core assets and deeply-rooted qualities and quality of its team, and of its management, strong relationship with customers and a number of assets that you know well. But on top of that, we have had very successful product launches, the one launched in 2016-2017, I'm thinking of Classe 300 (sic) [Classe 300X] door entry and the Smarther thermostat. But also more recently, the launch of Living Now, which is replacing the standard in high-end range in Italy. So it's a big event, a big range for Italy. So -- and clearly, it helped and supported the 2018 performance.

Here, again, moving into 2019, we are -- as we are for France very cautious because there is, according to what we read, a significant uncertainty in the Italian market. If you look at what the European Commission, the Central Bank is saying, the IMF and so on, everybody is wondering what will the evolution of the Italian market be. So we remain extremely cautious having in mind that our objective remains -- and this is actually true also for France -- to over-perform the market. And it's the reason why we keep launching new products and investing in growth. And last to conclude on that, obviously -- and we put that in the press release the basis for comparison will be challenging for Italy now, because 6.2% growth in 2018 is such a very, very good performance that it creates a challenging basis for comparison for 2019.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Next question from Sébastien Gruter from Redburn.

--------------------------------------------------------------------------------

Sébastien Gruter, Redburn (Europe) Limited, Research Division - Research Analyst [5]

--------------------------------------------------------------------------------

I have 2 questions. One on pricing, you mentioned that pricing was -- your pricing strategy was [full] in Q4 for North America and offsetting the tariff. Can you give us at the group level the pricing versus raw materials and component inflation? And my second question is a bit more longer term, but an update on your strategy following the purchase of Netatmo and the appointment of Fred Potter as CTO. I mean, should we read this move as more ambitious growth strategy in home automation? Do you intend to unify the brands for home automation or keep different brands? Some color would be helpful.

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [6]

--------------------------------------------------------------------------------

Thank you, Sébastien. As far as pricing is concerned, let me maybe give you, if you agree, the big picture on pricing and then I will zoom on the tariff specific topic. So as far as pricing is concerned, for the full of 2018, the pricing was up 1.7%, and inflation of raw materials and components was up about 4.1%, including about 1 point from U.S. tariff impact. So without the tariff impact, inflation of raw materials and components would have been up by slightly more than 3%. Those are the numbers for the full of 2018. Now zooming on the tariff because it was part of your question. First, as we've said, this is not -- of course, an important topic, but it's a developing topic. So things may change even -- from 1 day to another. The best example of that is List 3, which was supposed to move from 10% to 25% tariff in Jan, and this was postponed to March 1. And there's apparently some uncertainty on whether it's going to be implemented or not. So we have to remain extremely cautious when analyzing the numbers. This being said, in November, we explained that in the worst-case scenario, the yearly impact of the U.S. tariff, i.e. comparing the year with tariff fully enacted with a year with no tariff enacted at all would result in a rise of close to 7% of Legrand North and Central America cost of goods sold, which is about USD 90 million. Some of these had already had an impact in Q3 and Q4. To give you the numbers, the gross impact on Q3 was about EUR 4 million and the gross impact on Q4 was about EUR 12 million, which is what we said it would be in Q3. So as a consequence, if we put together the fact that some tariff was implemented already in 2018 and that we would have a full impact in 2019. The U.S. tariff should increase [LNG] COGS by close to 5% in 2019 compared to 2018., i.e. an unfavorable gross impact of about EUR 65 million. So I hope it is clear. It will be EUR 90 million if no tariff was enacted in 2018. Putting together the fact that some tariff was already enacted in 2018, plus we had a 2-month relief on List 3, this EUR 90 million become EUR 65 million additional COGS in 2019. So in front of that, those numbers are for gross. What have we done? In Q3, you remember that tariff were put suddenly. And as we explained in November, haven't been compensated given the short notice. In Q4, we have launched a number of action plans, and U.S. tariff impact has been almost compensated in value. And our objective for 2019 based on those action plans, which are mix of many things, mix of pricing, a mix of changing our logistic flow and changing of our manufacturing locations and so on and so forth, we will, of course, continue to work on all those levers with a target to fully mitigate in value in Legrand North and Central America accounts the impact of U.S. tariff. So this is for the tariff topic. And for the raw materials topic. As far as Netatmo is concerned, well, the deal was closed in December. So we have only 1.5 months of Netatmo without us. So the plans are currently being done. Will it lead to an acceleration of our Eliot program? I hope so. And this is a plan and typically, for example, Fred Potter together with Netatmo and Legrand teams have started to work on our roadmaps, both the Legrand roadmap and the Netatmo roadmap. And on a number of topics which we believe will help accelerating our growth of cloud, API or partnerships, technology options and so on and so forth. Well, will it lead to Legrand to change its brands -- why not? The plans are currently being drafted. By the way, Eliot, you remember that it's not only about residential. Eliot, it's residential and commercial even though Netatmo it's mostly residential companies and the residential products. So the Eliot program is both residential and commercial. To give you an order of magnitude, about 2/3 of our sales in Eliot are commercial and 1/3 or excluding Netatmo, 1/3 is residential. So yes, we intend to accelerate the growth, how will it be done? We will probably give you more color and more flavor in a couple of months or a couple of quarters.

--------------------------------------------------------------------------------

Sébastien Gruter, Redburn (Europe) Limited, Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

If I can come back on the pricing, I mean, I calculate that it's about 2.5% in Q4 -- or the price increase. Do you see further price increase to come in -- I mean, have you done any more in the first 2 months? And do you expect further price increase because if we are at 2.5% run rate, I mean, could we see a higher rate for 2019 than the 2.5% you achieved in Q4?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [8]

--------------------------------------------------------------------------------

Well, it is true that the Q4 pricing is about 2.5%. We will do further pricing, if needed. You know the way pricing is managed at Legrand, we're clearly a country-based approach depending on a number of topics not only actually increase in raw material prices, but increase in other inflation and also competitiveness, position of the market, a number of things. So if needed, we always have the ability even though not immediately, to increase pricing. And the good example is what happened in the U.S. I mean the fact that we almost compensated in value, which by the way, have then a slight negative impact on margin even if we compensate in value is a rather good news. And if we are able to fully compensate in value the tariff increase in 2019 -- so to offset the $65 million of additional COGS coming from the tariff -- it would have slight negative impact on our adjusted operating margin of about 20%, but this would then be good news anyway, 20 bps -- sorry, 20 bps. And so to make the long story short, if we feel that it is needed in a given geography and provided, of course, it does not hurt our competitive position. Yes, we always have the ability to do further pricing.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Next question from Andreas Willi from JPMorgan.

--------------------------------------------------------------------------------

Andreas P. Willi, JP Morgan Chase & Co, Research Division - Head of the European Capital Goods [10]

--------------------------------------------------------------------------------

My first question is a follow-up on the earlier question on France and Italy. Particularly, in France, what's the inventory levels now? Rexel said yesterday, they ended up with a little bit too much inventory in France at the end of December. So -- and what do you think inventory levels are in those 2 markets as we go into 2019? And the second question on Netatmo in terms of the growth strategy, you laid that out. What's the plan there in terms of profitability? Is that a focus for the coming years? Or is that mainly of a growth story, so you'll keep profitability around break even, while reinvesting? Or should we expect that M&A dilution from that yield then to decline as we go into 2020?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [11]

--------------------------------------------------------------------------------

Andreas, well, as far as your first question is concerned, I have absolutely no clue on the level of inventory of our customers. It is true that we felt in Q4 that there was a bit of inventory of, let's say, restocking from our distributors, which is not unusual at the end of the year. We did not really have the same feeling in Italy. But at the end, it's extremely difficult to know. We are able to measure if you want the difference between sell-in and sell-out. And that's why we are able in Q3 to give you quite precise indication to the fact that even though our sales in France were down significantly as far as the sell-in was concerned; the sell-out was still slightly up. But we absolutely have no clue about the level of inventory of our distributors. As far as your second question is concerned, we don't think then Netatmo to come even close to the group's level of margin in the years to come. It wouldn't be reasonable. We really want to keep the dynamics of the company well. This being said, we don't expect either to remain at 0% plus forever. So the objective is to -- is threefold as far as financial metrics are concerned: to keep having a very strong growth in sales, which is top priority. While I'm not able to a shoot a number, would it be a 30%, 40%, 50%? I don't know. It depends on many things, including, of course, the economy but we intend to accelerate growth. Well, and we'll be, of course, happy if the margin could improve a bit, but I think, we would remain in the single-digit territories. And number three, which is, of course, very important topic because I was mentioning Netatmo stand-alone at number three. There are all the synergies we intend to do with Netatmo, which may be captured in Netatmo accounts, but -- which may also be captured in Legrand accounts. It's about technology sharing, it's about purchase of components, it's about helping Netatmo to sell Legrand -- to sell its products in Legrand territories. For example, we're building plans to take Netatmo products outside of Western Europe to Russia, for example, to Latin America. On the other way, it's about Netatmo helping Legrand to penetrate certain customers. It's about bringing Netatmo R&D people expertise into Legrand Eliot products. And to tell you a bit the way we're looking at this transaction, this number 3 objectives, i.e., synergies between the 2 companies and the impact it could have on Eliot, is internally seen as even the more important priority than lifting Netatmo's margin up, also -- even it's at #1 on the 2 priorities. So this is -- those are the plans. And I can tell you that, internally, everybody is very excited by the opportunity because we are strong believers that it could be of a great support to Eliot. Maybe your last point, we do not intend to change our acquisition strategy and to enter into a strategy where we would buy every year 1 or 2 companies with 0% EBIT, obviously not. The Legrand acquisition strategy remains unchanged. So we are targeting mostly market shares, and we are extremely excited by companies if they have -- if they own a market share -- significant market share in a given product family, in a given country. So the Netatmo deal was really an exception, an exception coming from the fact that it's a fantastic company. We have contact with the owner for [years.] We had a partnership in place. We were already a shareholder of the company. So it's not a change in the acquisition strategy, it's a very different animal because we believe it could help accelerating our Eliot sales.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Next question from Daniela Costa from Goldman Sachs.

--------------------------------------------------------------------------------

Unidentified Analyst, [13]

--------------------------------------------------------------------------------

This is actually [Ben] dialing in on behalf of Daniela. I was wondering whether you could give some additional color on what you expect in terms of market environment in other regions outside of Italy and France. And maybe the Rest of Europe or even the U.S. going forward?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [14]

--------------------------------------------------------------------------------

Well, as every year, you will be very frustrated by my answer. Well, I mean, of course, we have -- you know the Legrand model. We had absolutely no visibility on what we have in front of us. So, as you do, we rely on what the economic specialists are saying, what we're hearing from our customers and trade associations and so and so forth. So all those are light signals and not hard signals. So overall, why did we qualify the forecast as being favorable? It's because when we listen to what many opinion leaders are saying, they're still planning for key economies to be in positive territories in 2019. For example, if you look at the IMF, the IMF expect for 2019 plus 3.5% world GDP growth, which is more or less in line with the average GDP growth from 2015 to 2018. This being said and you know that as much as I do, everybody is also underlining the fact that the outlook is extremely uncertain. And that the level of uncertainty has increased a lot with many potential factors affecting the economy. It's the U.S. and China dispute, which will also have some impact both on the U.S. economy and on the Chinese economy. It is the Brexit where nobody really knows what's going to happen. The European elections, which are always creating some uncertainty. The situation in France and Italy, election in India, Turkey, Brazil, so the level of uncertainty has clearly increased a lot compared to what it was a year ago. No, this being said, well, France and Italy, you understand that we're a bit cautious because of this level of uncertainty. Rest of Europe, I think it is going to depend a lot on the U.K. and Germany. And for that, it will be difficult to say. Well, everybody expects India to remain on positive territories. And as a matter of fact, we have always recorded growth in India, and we intend to continue. Well, China, we have a very different positioning from some of our peers or competitors. We are mostly in the real estate market. We are not in industrial or OEM market. So far, the real estate market is a pretty nicely monitored by the Chinese authorities. Now this being said if the Chinese economy was to go down, of course, we would be impacted. U.S. has been still quite positive but reading what people say is -- most people expect that at some point, this positive cycle will end, but nobody is really able to tell us whether it's going to be in 2019 or in 2020. Well -- so unfortunately, I cannot be more specific than that because, again, we have absolutely no visibility. So as usual, as we are always doing, the Legrand model is to be ready whatever happens. So typically, in our budget process, for example, in our plans, in countries where we knew there would be uncertainties, we have as usual prepared scenario-based budget where we have plans, targets ready, whatever the economic environment. And I think the Legrand specificity is more to be able to react should the economy deteriorate rather than precisely forecasting where the market is going to be because unfortunately, we're not able to do so.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Your next question from Lucie Carrier from Morgan Stanley.

--------------------------------------------------------------------------------

Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [16]

--------------------------------------------------------------------------------

Actually, I have a follow-up on the connected products and the connected strategy. I was curious if you could maybe explain to us what the impact of your connected offering has on your existing i.e., standard offering and nondigital, nonconnected in terms of price and in terms of volumes because we see very strong growth rate around Eliot. And it doesn't seems to be kind of fully matching always what we see on the overall top line growth. So I was curious to get your view on kind of the dynamics on pricing and volume here. And then, I have a follow-up question.

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [17]

--------------------------------------------------------------------------------

Well, hello, Lucie, don't forget that 28% CAGR that we are mentioning for the Eliot program is all in, it's not organic. And organic, it's still double-digit, but it's not the same order of magnitude. So it embeds the number of acquisition, which we qualify as Eliot. And of course, it also includes ForEx. Well, the objective with Eliot is clearly to do trading up. So what impact does it have on our traditional offering, but sometimes, it replaces traditional product. So for example, instead of selling the traditional switch, you're selling a connected switch; instead of selling a traditional door entry, you're selling a connected door entry. So it's purely trading up. Yes, you would qualify that as being cannibalization. But at the end, it's selling product at a higher price to the same customer. This is one effect. Sometimes, it can pull the whole range. And if you look, for example, at Living Now in Italy, which is basically -- for you Lucie, who knows Legrand well, it’s a range replacing light living and Axolute in Italy. So it's big, big for us. Well -- and it's doing very well as far as connected part of Living Now is concerned. It's clearly a way to convert some of our customers that were using competitive products to Living Now because they're attracted by the connected piece of our offering. So of course, they buy Living Now connected, which by the way is also based on the Netatmo technology, but on top of that, they're also buying some basic traditional sockets -- power sockets to connect their devices. So it really depends on the products. Sometimes, it cannibalizes, if I may say, but I would call that trading up. And sometimes, it's just pulling the whole range. But again, keep in mind that -- the right, let's say, organic figure to have in mind is more low double-digit growth year-on-year for Eliot.

--------------------------------------------------------------------------------

Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [18]

--------------------------------------------------------------------------------

That's quite helpful. So just following up on that for us to understand maybe a bit more the margin dynamic. I mean, I understand the Eliot range is sold out at a higher price, but how does that compare for the movement in terms of profitability versus your traditional product? And I guess, my concern is a little bit that at some point to allow Eliot to kind of become a bit more -- what I would call a bit more mass-market or accessible to most people you would have to take that level down in terms of pricing. So how should we think about that a bit more long-term?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [19]

--------------------------------------------------------------------------------

Well, this is a good question. And referring to the previous discussion on Netatmo, I wouldn't want you to come back home with a feeling that Eliot products or connected products have a 0% margin. This is really Netatmo profile -- which, by the way, has on some products margins which are a lot higher than that -- and which is a pure startup. So which has so far invested all of its proceeds, all of its reserves, all of its profit into growth. No, as far as Eliot is concerned, there is not only one answer. The level of profitability really depends on the market share we have on the range. So if we have on the full range a very good level of profitability because we have a good level of market share, then we have a good profit on the Eliot piece of the offering. And the other way, if we don't have a good market share of the product family, then it's highly unlikely that we'll have a good profit on the connected piece of it. So we do not believe that the sales in Eliot will change substantially the margin profile of the group. And this is well exemplified, if I may say, by the model we have reiterated. In this model, we are at the same time planning strong and fast growth in Eliot-related products because we believe that our product families will increasingly be impacted by the need -- by customers to get connected. And at the same time, we have also reiterated the fact that we were shooting to maintain the margin level, EBIT level at around 20%. So we do not believe that it's going to change the margin profile of Legrand.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Next question from Andre Kukhnin from Crédit Suisse.

--------------------------------------------------------------------------------

Andre Kukhnin, Crédit Suisse AG, Research Division - Mechanical Engineering Capital Goods Analyst [21]

--------------------------------------------------------------------------------

I'll just go one at a time. Firstly, on Eliot, a quick follow up. You talked about kind of a low-double digit organic growth for that range within that overall nearly 30. Could you give us an idea how that compares to your kind of historic new product launches when you did kind of major introductions of either you're replacing products or rolling out in new countries. How does that compare to that?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [22]

--------------------------------------------------------------------------------

Well, I'm afraid I'm not able to answer this question because it is really, this is no -- this is not a magic number. It really depends on the product. What usually happens when you launch a new product is, of course, that you have an inventory buildup by your customers because they need to serve the market, so they build their inventory. And then so short term, you have inventory buildup. Then couple of months, you have sell out and then inventories rebuild. So this is short-term impact when you're launching a new product. But I'm not able to give you a magic number saying when I launch a product it's growing X or Y percent. It also depends on whether your range is replacing an existing range or not. For example, Living Now, of course, it's a great success. And we have very interesting numbers, but it replacing 3 existing ranges. So you cannot expect the growth rate on Living Now to be as high as when you're launching a new range, which is not replacing existing ones. So unfortunately, I'm not able to give you a synthetic number.

--------------------------------------------------------------------------------

Andre Kukhnin, Crédit Suisse AG, Research Division - Mechanical Engineering Capital Goods Analyst [23]

--------------------------------------------------------------------------------

I understand. What I'm really just trying to get some gauge on whether Eliot is kind of a true accelerator? Or it's just a kind of new version and modern version of the new product launches? So maybe another way to look at it, how is the growth in the earlier products that were launched at the beginning of the program, 3 years ago? Is that something [you have] at the moment?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [24]

--------------------------------------------------------------------------------

Well, it's -- when I was sporting the 10% double-digit -- low double-digit growth in sales for Eliot, it is referring to products that were already in the catalog in 2014 at the time we launched the program. At the time, we already had 20 product families, which were part of the program. And it's also referring to products that were introduced in 2015, 2016, 2017. What you can do maybe is to look at the average growth rate of Legrand, organic growth rate from 2014 to 2018, which was probably something like 3% -- I didn't do the math. And obviously, and taking 10% plus for the [other] program. So those are the orders of magnitude. So everything which is not Eliot. And of course, you can make the math. But to make a long story short, the group has grown by 2%, 3%, 4% depending on the -- organically, in the past 3 or 4 years, including double-digit on Eliot. So clearly, yes, I confirm that Eliot is an accelerator, and it's a very strong piece of our trading up strategy.

--------------------------------------------------------------------------------

Andre Kukhnin, Crédit Suisse AG, Research Division - Mechanical Engineering Capital Goods Analyst [25]

--------------------------------------------------------------------------------

And in terms of new targets now that you've surpassed your 2020 targets already. Am I right to kind of to pick out that point you've made that you'll say something in March -- March-April on that?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [26]

--------------------------------------------------------------------------------

We are currently building the plans with our friends from Netatmo. You can assume that, of course, we'll not -- we'll not drop the pen and we'll continue to work hard to go as fast as possible and to keep increasing the number of products families, which are connected, but I cannot commit too much. But I'm sure that we could have the opportunity in the coming months or quarters to come back to you to tell you the step 2 of the story.

--------------------------------------------------------------------------------

Andre Kukhnin, Crédit Suisse AG, Research Division - Mechanical Engineering Capital Goods Analyst [27]

--------------------------------------------------------------------------------

Great. And the final one. Could you quantify the size of that restock in France in Q4, maybe just relative to how the destock was in Q3? I think, that was 5%, was that restock kind of half of that more or less, roughly?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [28]

--------------------------------------------------------------------------------

So it's always very difficult. You remember that the trend in the first semester of the year in France was about plus 2%. Then, we had minus 4 something in Q3. And we said, look, the difference in trend between this plus 2 and this minus 4, of course, is a clear sign of destocking. So if you wish, you could keep the same sort of approach saying that maybe the difference between the plus 2 or plus 1 trend of the year and the plus 4% in Q4 is somehow to be qualified as restocking. And those are orders of magnitude. Again, we don't have precise view of the inventory level at our distributors, but those would be consistent math, if I may say, between Q3 and Q4.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Next question from Graham Phillips from Jefferies.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [30]

--------------------------------------------------------------------------------

Just a couple of follow ups. Just on the French restocking. Is this your restocking, so does this impact your margins? Or is this what you're saying once the product has left your factories? And I'll follow-up with the other question after that.

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [31]

--------------------------------------------------------------------------------

No, no. When we say potential restocking, this is a fact that -- it's the orders from our distributors. And it is just -- the factual analysis that the French market didn't grow plus 4% in Q4. So since it didn't grow 4-plus, 4% in Q4, probably part of this growth -- is it 1-point, 2-point, 3-point, I don't know, I'm not able to tell you that -- it's coming from the fact that our distributors have built somehow some inventory. So again, this is a very factual analysis looking at our full year performance, looking at the effect of the, I mean, the status of the French market as well as the performance in Q4. So it's not -- we're not talking about any restocking in our factory, but potential bit of restocking on the market.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [32]

--------------------------------------------------------------------------------

Okay. So you yourself did not change your stocking levels between the end of the quarters at your facility.

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [33]

--------------------------------------------------------------------------------

No, not materially. You may refer to the fact that our non-normalized free cash flow is -- or that our net working capital is higher in December 2018 than it used to be in December 2017, but this is really coming from the basis for comparison. As far as our ratio of net working capital to sales is concerned, it's slightly above 9%, which is still below the sort of 10% midterm range we've been giving consistently to the market. But the fact is that this level at the end of 2017 was much lower than that. So we have not done any specific restocking in our factories. It's really -- insisting [on the] words, potential restocking from our distributors.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [34]

--------------------------------------------------------------------------------

Okay. And just -- so following up on Eliot, so what you're saying is that the organic growth for Eliot is around 10%. So that's what you mean by low double digits. And where would we be seeing that? In which geographic regions is Eliot more represented in the group?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [35]

--------------------------------------------------------------------------------

It's really not exactly reflecting precisely the -- what we are doing in sales. But if you take the EUR 635 million of sales we achieved in Eliot in 2018, we have a bit more in North and Central America than (inaudible) sales, a bit less in Europe. So it would typically be something like 40% of our sales are made in Europe, more than 45% in North and Central America and 15% in the Rest of the World. This would more or less be the breakdown of our sales in Eliot. So you see that it's really impacting all markets one way or the other, almost significant markets one way or the other.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [36]

--------------------------------------------------------------------------------

Okay. But it's also represented in the U.S., I guess, that's the point.

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [37]

--------------------------------------------------------------------------------

It's also represented in U.S. now. You may -- we are doing almost 80% of our sales in the U.S. on commercial buildings. So typically, we launched the connected range of [wiring] devices in the U.S. in 2018. Its name is radiant, but it's still very small numbers. And most of Eliot sales in the U.S. are related to commercial products. So it could be, for example, presence detectors and lighting management products. It could be smart PDUs like Raritan, Server Tech PDUs and a number of other products. So Eliot sales would be quite -- in Italy, Eliot sales would be a lot related to residential. It's door entry, it's thermostat, it's wiring devices. In the U.S. on the contrary, you'd rather be commercial. This is also the reason why on Page 29 of the deck, we're insisting on the fact that, in 2019, a big part of our Eliot plan will be to deploy the international programs. So to take each of the programs, I mean, not each, but most of the programs that we have and to deploy them in additional number of geographies.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [38]

--------------------------------------------------------------------------------

Okay. Right. That makes sense. And on your organic growth targets for this year, 0% to 4%, how much of that is pricing?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [39]

--------------------------------------------------------------------------------

Well, you know the rule of the game. We never give a precise guidance on pricing because it depends on, of course, many things, the evolution of raw materials, potential tariff. For example, if for whatever reason there would be another relief in the List 3 tariff, if again for whatever reason, the increase from 10% to 25% was to be pushed by an additional 3 months. Well, obviously we wouldn't get in the U.S. all the tariff we intended to get. So it's such a fast evolving situation that we don't give a precise guidance because it's again what we aim at is to remain extremely flexible on this front as on the other fronts.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [40]

--------------------------------------------------------------------------------

Okay. But, I mean, I guess, if you were to repeat what you had for last year and if you could just remind me of that number because, I think, my line dropped out for a while. What was the figure that you said last year? And would you think that 0% to 4% for this year you would take the same for last year?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [41]

--------------------------------------------------------------------------------

What I said for last year was that the pricing was up 1.7%, that was the number. The number was sort of the pricing -- Legrand pricing in 2018 compared to 2017.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [42]

--------------------------------------------------------------------------------

Okay. And just -- I haven't had a chance to look through the full financial numbers yet with all the other releases and some printouts I've got today. But could you just please take us through R&D and CapEx, how it evolved for the year? And into this year, what you're expecting 2019?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [43]

--------------------------------------------------------------------------------

So the level of R&D to sales is 4.8%. So it's fairly consistent to what it used to be in the past 3 or 4 years. It's close to 5%, which is what we've been doing in order to fuel our growth. And the level of CapEx to sales was 3.1%. So here, again, in the sort of long-term average between 3% to 3.5%. Now of course -- and we've been saying that consistently for at least 12 months on both topics, we could very much go above or below sort of long-term trends and which wouldn't be necessarily a bad news for shareholders. But, in 2018, 4.8% for R&D and 3.1% for CapEx to sale.

--------------------------------------------------------------------------------

Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [44]

--------------------------------------------------------------------------------

Okay. But the trend in 2019, there is nothing more you can give us than just to say you're staying in the range?

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [45]

--------------------------------------------------------------------------------

Well, same as for pricing, we are not guiding precisely on those 2 topics because, again, it depends also on many topics, obviously. For example, if you take CapEx, the CapEx level is different whether you have to build capacity or not or you can decide to postpone for a few months a few projects. So there's no reason why midterm we shouldn't be close to 5% for R&D or could be, let's say, slightly below, slightly above and between 3% to 3.5% in CapEx to sales. And again, sometimes, it could be 2.8% and sometimes, it could be 3.7%. So those are sort of long-term targets, if I may say, that are embedded into our long-term models. So close to 5% as far as R&D to sales is concerned and between 3% to 3.5% on average for CapEx to sales.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

We don't have any more questions for the moment. (Operator Instructions) We don't have any questions. Back to you for the conclusion, sir.

--------------------------------------------------------------------------------

Benoît Coquart, Legrand SA - CEO [47]

--------------------------------------------------------------------------------

Well, thank you very much to all of you for your interest in Legrand and for taking the time to attend this call and good luck for today because I understand that it is going to be a very busy day for all of you. So thank you very much.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

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